If An Insurance Contract Is So Worded That It Can Be Given A Definite Or Certain Legal Meaning, It Is Not Ambiguous

Bexar County Hosp. Dist. v. Factory Mut. Ins. Co., 475 F.3d 274 (5th Cir. 2007)

Facts: Plaintiff-Appellant Bexar County Hospital District ("UHS") discovered that its water system was leaking. UHS rented temporary cooling towers for its air conditioning system to allow the hospital to continue functioning while it located the source of the leak. Over a period of some 90 days, UHS spent $557,134 to repair the leak and $1,001,093 to rent the temporary water chillers. At the time the damage occurred, UHS had in place Factory Mutual's Global Advantage Policy ("policy"), an "all risk" property insurance policy covering both physical damage and "time element" loss. Time element loss referred to business interruption loss. Factory Mutual paid all of UHS's property damages less a $25,000 deductible and all of the UHS's time element losses minus a deductible equal to the value of one day's worth of UHS's total projected operating revenue. UHS complained that the appropriate deductible would have been the value of UHS's actual time element loss. UHS further claimed that there was no actual time element loss because the water chillers prevented the occurrence of any business interruption. Factory Mutual disagreed.

UHS filed suit in Texas state court for declaratory judgment and breach of contract. Factory Mutual removed to federal court, and both parties filed summary judgment motions. Each party argued for its own method of calculating the Time Element loss deductible. The district court granted Factory Mutual's motion, denied UHS's motion, and dismissed the case.

Holding: Affirmed

Reasoning: The court explained that if the language of a policy or contract is subject to two or more reasonable interpretations, it is ambiguous. If, however, a written contract is so worded that it can be given a definite or certain legal meaning, then it is not ambiguous. In its determination of whether ambiguity existed within the deducibility provisions of the policy, the court observed that the policy only made reference to the tem "time element", in two sections. In the reporting provisions, Factory Mutual required UHS to provide it with values anticipated for the term of the policy as well as the actual time element values for the previous twelve-month period. Because of the way the term time element was situated within these two sections of the policy, the court concluded that Factory Mutual's interpretation of the proper calculation of the policy deductible was the only reasonable interpretation. Specifically, the court concluded that Factory Mutual's reading of the policy's deductible provisions (1)comports directly with the plain meaning and common usage of policy terms, (2) preserves the internal consistency of the policy and (3) gives meaning to all policy provisions. In contrast, UHS's proffered interpretation required a "strained reading" of the policy's plain language and would render meaningless the time element portion of the policy's value reporting provisions.

Journal of Consumer & Commercial Law
Volume 10, Number 3, Summer 2007