What Are Your Limits?

No not those limits. Not the “What is holding you back?” self-help type.

I’m talking about something much less exciting. What are your insurance policy limits?

In Texas it may be higher than you thought.

That’s because the Texas Supreme Court used uncommon, common sense in RSUI Indem. Co. v Lynd Co., a case that was decided in 2015.

This case involved an insured with multiple properties spread across several states. RSUI had a layer of excess coverage for the properties. Their policy had blanket coverage for losses over $20 million and up to $480 million. Before coverage was deemed effective, Lynd had to provide a list of covered properties. This list, a “Statement of Values” was referenced in the policy’s “Scheduled Limit of Liability” endorsement. The “Statement of Values” was completed by the insured.

The “Statement of Values” included values that the insured assigned to three separate categories: 1) the building replacement value; 2) the value of the building’s contents; 3) the value of one year’s rental income.

In 2005, many of the properties were struck by Hurricane Rita. The primary carrier tendered the $20 million policy limits. The insured then turned to RSUI for an additional $4.5 million in losses. RSUI, relying on the amounts listed in the scheduled “Statement of Values,” calculated the loss at 115% of the values stated.

The insurance company argued that the scheduled limit of liability provided only coverage that is set forth on an item by item basis.

The policyholder constructed an innovative approach. The Policyholder argued that the Policy had conflicting provisions. The Policyholder conceded that the scheduled policy provided scheduled coverage as listed and valued by the insured. However, the Policyholder argued that other provisions in the Policy appeared to conflict with that language. For example the policy defined “loss” to mean either “a loss or a series of losses.” In applying this definition to the calculation scenarios the Court noted that the Policy allowed the insurance company to “the actual adjusted amount of the loss less applicable deductibles and primary and underlying excess limits.” This seemingly expanded view of the limits made it appear as though the policy had two reasonable, alternative yet conflicting interpretations. As such, the Texas Supreme Court ruled, the Policy was ambiguous.

Following Texas law the Texas Supreme Court found that where a contract is ambiguous, any ambiguity is interpreted against the party to the contract that drafted the contract. Since the insurance company, RSUI, drafted the Policy, the interpretation of the policy/contract was interpreted in favor of the Policy holder.

This is a fascinating case because it signals a shift of this Court away from its recent history of ruling in favor of insurance companies and against insureds. I am sure the insurance companies will re-draft their policies to address this ambiguity but for the time being this can be quite helpful to policyholders.

I am always amazed at the number of businesses and property owners who do not understand what is covered under their Policy. I am even more amazed at the number of Policyholders who take what an insurance company tells them at face value without so much as looking at the Policy or questioning the result.

If you have a question about coverage under your property insurance policy, call me.