Nassar v. Liberty Mutual Fire Insurance Company
Supreme Court of Texas (January 27, 2017)
Per Curiam (Opinion linked here)
When is a fence a dwelling? When the insurance policy defines “dwelling” to include “structures attached to the dwelling.” Exercising its error-correction discretion, the Supreme Court of Texas issued a per curiam opinion to remind lower courts of a basic principle for interpreting insurance policies in Texas: If the insured proffers a reasonable interpretation of disputed policy language, that interpretation is adopted, even if the insurer’s interpretation might seem more reasonable.
The Nassars’ residential property was damaged by Hurricane Ike, and they sought coverage under Liberty’s property policy. The policy covered damage to the “dwelling” at the full policy limit ($247,200), and “other structures . . . set apart from the dwelling by clear space” at 10% of the limit ($24,720). The greatest damage caused by the storm was the compete destruction of over 4000 feet of fence, consisting of several connected types of fencing, including a white picket fence, an ornamental iron fence, and a perimeter fence of wooden posts and lumber. The cost of repairing the fence was over $58,000, while the house incurred damage valued at around $20,000. Deeming the fence one of the “other structures” rather than part of the dwelling, Liberty paid the sublimit for that coverage—$24,720—plus the $20,000 for the house. The Nassars argued the fence was covered as part of the dwelling, and sued to recover the full cost of repair. The trial court granted summary judgment for Liberty, and the court of appeals affirmed in a split decision.
The Supreme Court reversed, holding the lower court’s construction of the policy improperly applied settled rules of contract interpretation governing insurance policies. The Nassars’ construction of the policy, which the Supreme Court found reasonable, focused on the straightforward application of the dwelling coverage (subsection (1))—the fence was a structure attached to the dwelling and thus subject to full coverage. Liberty, on the other hand, focused on the interplay between the two coverages and particularly a sentence in subsection (2), covering “other structures . . . set apart . . . by clear space”: “This includes structures connected to the dwelling by only a fence, utility line or similar connection.” Liberty’s position, which was accepted by the court of appeals, was that this sentence identifies the fence as a “connection” and not a “structure,” so that it cannot be considered part of the dwelling. The Supreme Court rejected this argument, holding the policy language did not make the terms “connection” and “structure” mutually exclusive. “The inferential leap required to cause the Nassars’ fencing to transform from a ‘structure’ to an ‘other structure’ because it is a ‘connection’ renders Liberty Mutual’s interpretation unreasonable because the plain language of subsections (1) and (2) make[s] such a leap unnecessary.”
This holding, however, does not necessarily mean the full cost of repairing the fence is covered. The Court remanded to the trial court for a factual determination whether “some of the 4,000 feet of fencing constructed of different materials and spanning six acres in a ‘network’ across the Nassars’ property is not part of the ‘structure attached to the dwelling.’” The fight over $23,280 continues.