MOST DIFFICULT TO UNDERSTAND INSURANCE DECISION EVER WRITTEN, MAYBE, THOUGH WORTH THE READ, PERHAPS:

FIRST-PARTY PROPERTY EXCESS POLICY:
RSUI INDEMNITY CO. v. THE LYND COMPANY 
(Texas Supreme Court 13-0080 2015)

 

PART I


Michael Sean Quinn, PhD., J.D. Etc.

 

The contract of insurance at issue, in this case, was a first-party excess property policy covering 100 apartment buildings. The policy was over Westchester First Insurance Company’s primary policy which had coverage for the first $20M per occurrence. RSUI covered the same buildings with $450M for each occurrence.

 

The insured’s loss arose out of Hurricane Rita which hit the Gulf Coast in September 2005. The Lynd Company managed many properties and of them, 13 reportedly sustained damage in or from this storm.

 

The main issues in the case surrounded how much RSUI owed under its policy given the nature of the policies and the contract prescription for how to compute amounts owed.


Before proceeding to these matters, however, let’s take a look at two crucial elements of the policy and then look at its applications. The reader might wish to remember that the principal principles of insurance contract interpretation were set forth and discussed in a previous posted. See Quinn, “Interpreting Insurance Policies: Texas Law of Contract Semantics” (December 4, 2020).


“Occurrence“


One of the most important things about this insurance policy is the way the term “occurrence” was defined. Instead of being defined in terms of the causal or result producing event(s), it was defined as “any one loss, disaster or series of losses from any one loss, disasters, causality, arising from one event.”  A variety of perils to which the term “occurrence” applies; they include “tornado cyclone, hurricane, windstorm, hail, flood, earthquake, volcanic eruption, riot, riot attending a strike, civil commotion and vandalism and malicious mischief, [where] one event shall be construed to be all losses arising during a continuous period of 72 hours.”


“When filing a proof of loss[,] the insured may elect the moment at which the 72 hour period shall be deemed to have commenced, which shall not be earlier than the first loss to occur at any covered location. “

 

[Quinn Comment: As the reader will notice, the context, vocabulary and definitions are to some degree unusual from the standpoint of historically standard verbal usage, and this “deviation from nomenclature norm” is part of the problem with understanding the policy, the case, and this opinion. most significantly, the term “occurrence” in ordinary, standard American “insurance English” usually–almost always–refers to the cause of the loss, sort of, or part thereof. (Better put, “occurrence” is the word naming a category for the sort of event out of which a loss might arise or from which it might result. Sometimes the term “accident”–or some word like it–has been part of the definition of “occurrence.” Sometimes the word “unexpected” has played a role. In this RSUI policy the term “occurrence” refers to a loss and the term “loss,” also includes a series of connected losses. In some sense, this usage is not only unusual, from the standpoint of what has been quite usual, but it is also the opposite of how many see the term as normally used. Another way to put the same point might be to say that “occurrence” has usually been–during relatively recent coverage history–a synonym for a “peril” that happened (ie., ‘occurred’), while the term “loss” stood on its own (some injury to a building, e.g., windows), even if it included more than simple individual losses (roof, windows, carpets, foundation, etc.) but also included complex, multi-dimensional losses (e.g., building destruction and lost revenue) and even included series of individual but related losses (two buildings and some of the contents of each).


What has happened here is that the policy groups together too many different concepts. One way to put this point is to observe that the policy uses the word “disaster” to cover both the loss and that which lead to–or caused–the loss. Of course, in ordinary English, it makes perfect sense to refer to the whole event or series of events as a disaster, and even as a single event. That is a bad idea for an insurance contract, however, where what was cause and what was effect are conceptually different].


Policy Typology


Insurance policies of a given category fall into many different subtypes. In fact, the idea of subtypes is itself complex. Here we have a property policy, which is an excess policy, and then we have an excess policy that insures more than one building. Within that sub-category, there are more. Some policies are “blanket” policies, and some are not. Often non-blanket policies are called “specific” or “scheduled” policies.

 

This typology pertains to how limits and sub-limits on the insurer’s liability for losses are to be conceived. Blanket policies have one aggregate limit, while scheduled policies have a series or concatenation of individual limits. More or less, “blanket” policies add up the covered values on all the buildings covered and think of that as policy limits. In a “scheduled” policy, one might say that each building has separate coverage, and policy limits are specified item by item, that is, building by building.

 

In this case the insurer and the insured disputed which subtype this one was. The insurer side “scheduled,” while the insured said “blanket.” Interestingly, in the end, the courts took itself to be governed by contract language and not the widely used insurance industry (or, world-of-insurance-markets) frameworks. At the same time, remember that there was a dissent.