Turner Construction Company v. Ace Property & Casualty Insurance Co., Docket No. 04-6641-Cv

Judge STRAUB dissents in a separate opinion.

JOHN M. WALKER, JR., Chief Judge.

This dispute requires us to construe an insurance policy issued by Defendant-Ap-pellee ACE Property & Casualty Insurance Co. (ACE) to Plaintiff-Appellant Turner Construction Co. (Turner) to insure against property damage to a Texas construction project. ACE argues that the policy’s high “wind deductible” applies to damages caused by rain where rain entered the insured premises by way of wind-caused openings; Turner argues that the policy’s much lower general deductible applies.

In February 2004, Turner sued ACE in the United States District Court for the Southern District of New York (P. Kevin Castel, Judge) based on ACE’s failure to pay Turner’s claim for damages to the insured premises. In December 2004, the district court granted summary judgment to ACE, holding that the policy’s wind deductible applied to Turner’s claim and that, because the amount of the deductible exceeded the amount of the claim, ACE owed nothing to Turner. Following this appeal by Turner, we hold that the lower general deductible applies and reverse the district court’s judgment in favor of ACE.

I. BACKGROUND

The relevant facts are undisputed. Turner, a New York corporation, was the general contractor on a hotel construction project at the Houston Convention Center in Houston, Texas. Turner purchased a “Builder’s Risk” policy from ACE, a Pennsylvania corporation, to insure against damages to the project. During the policy period, the project was damaged by rain that entered through openings caused by wind. Turner submitted a claim to ACE for the damage; ACE did not pay, and Turner brought this federal suit seeking damages for ACE’s nonpayment. The district court had diversity jurisdiction under 28 U.S.C. § 1332(a)(1), and we have jurisdiction under 28 U.S.C. § 1291.

ACE moved for summary judgment in June 2004 based on stipulated facts and the relevant provisions of the policy. The relevant coverage provisions are as follows:

A.3. COVERED CAUSES OF LOSS. *54Covered Causes of Loss means risks of direct physical loss to Covered Property, except those causes of loss listed in the Exclusions.

B. EXCLUSIONS

2. We will not pay for loss caused by or resulting from any of the following
n. Rain ... whether driven by wind or not, to Covered Property, unless located within a fully enclosed structure and then only for such loss that is caused by or results from rain ... entering through an opening caused by a Covered Cause of Loss not otherwise excluded.

The other key provisions are those specifying deductible amounts. The policy declarations provide for a $25,000 deductible for losses caused by earth movement or flood and a general $10,000 deductible for “all other covered causes of loss.” An endorsement, however, provides that “[a] wind deductible of 1% of the value in place at the covered property location at the time of loss applies subject to a $100,000. minimum.”

Turner filed a claim with ACE for approximately $1.3 million in damages. The parties agree that if the “wind deductible” applies to Turner’s claim, ACE will owe nothing to Turner, because 1% of the covered property’s value (the wind-deductible amount) exceeds $1.3 million (the amount of damages). The district court agreed with ACE that the wind deductible applies and therefore granted summary judgment to ACE. Turner appeals.

II. DISCUSSION

We review de novo the district court’s grant of summary judgment. See Mario v. P & C Food Mkts., Inc., 313 F.3d 758, 763 (2d Cir.2002). This case presents only issues of contract interpretation, which we likewise review de novo. See Oscar Gruss & Son, Inc. v. Hollander, 337 F.3d 186, 198 (2d Cir.2003). We apply Texas law, which the district court applied and which the parties agree governs.

The district court held that the wind deductible applies because the rain that damaged the property entered through an opening caused by wind. Turner Constr. Co. v. ACE Property & Cas. Ins. Co., No. 04 Civ. 1421, slip op. at 6 (Dec. 1, 2004). We disagree.

The term “wind deductible” is not defined by the policy. Doubtless it applies to damage directly caused by wind; if a tornado leveled Turner’s project, the wind deductible would apply. The damage in this case, however, was directly caused by rain, and only indirectly caused by wind. In other words, although wind created the opening through which the rain entered, it was the rain alone that caused the damage at issue.

Nothing in the policy suggests that the wind deductible applies to damages only indirectly caused by wind. As the district court correctly noted, Texas law requires us to construe ambiguities in an insurance policy against the insurer. See Progressive County Mut. Ins. Co. v. Sink, 107 S.W.3d 547, 551 (Tex.2003); State Farm Fire & Cas. Ins. Co. v. Vaughan, 968 S.W.2d 931, 933 (Tex.1998); Ramsay v. Md. Amer. Gen. Ins. Co., 533 S.W.2d 344, 349 (Tex.1976). Because the policy’s “wind deductible” provision is ambiguous, in that it does not unambiguously apply to damages caused only indirectly by wind, we construe it to reach only those damages caused directly by wind.

The district court placed great weight on the fact that rain, including rain “driven by wind,” is an excluded cause of loss unless *55the rain enters an enclosed building through an opening caused by a “Covered Cause of Loss not otherwise excluded.” Because wind was the “Covered Cause of Loss” that created the opening through which rain entered Turner’s building, the district court reasoned that “the wind deductible is necessarily implicated.” ACE urges us to follow this reasoning, arguing more generally that where rain damage is at issue, the relevant deductible is the deductible for the “Covered Cause of Loss” that creates the opening through which rain enters a property.

ACE’s argument is plausible but not compelling. In light of Texas law’s requirement that an ambiguous insurance policy be construed against its drafter, we agree with Turner that “Rain ... entering through an opening caused by a Covered Cause of Loss,” policy ¶8.2.^, is a covered cause of loss in its own right. Indeed, we believe that this is the most natural reading of the policy language.

The dissent, in contrast, argues that it is unnatural “to view rain as an independent Covered Cause of Loss when rain can never independently cause a covered loss.” According to the dissent’s interpretation, “there is no such thing as ‘rain damage’ as a separately covered loss.” We respectfully disagree.

As a factual matter, rain damage will sometimes, as in this case, be easily distinguishable from damage caused by other forces. If, for example, wind blew off a building’s roof and rain entered, destroying a valuable manuscript by thoroughly soaking it, the wind and rain damage would be distinct and easily identifiable. And as a matter of elementary logic, the proposition “not A, unless B” is exactly equivalent to “if B, then A.” See Graeme Forbes, Modem Logic: A Text in Elementary Symbolic Logic 23 (Oxford U. Press 1994). The policy language says, in effect, “Rain is not a covered cause of loss, unless it enters a building as the result of a different covered cause of loss.” This is logically equivalent to saying, “If rain enters a building as the result of a different covered cause of loss, rain is a covered cause of loss.” The dissent’s argument as to the nonexistence of rain damage as a covered cause of loss thus flies in the face of both reality (rain really does cause damages that are different from those caused by wind, fire, and earthquakes) and formal principles of logic.

Nothing in the dissent’s citations to treatises and cases relating to windstorm insurance alters our analysis. The policy in this case is not a windstorm policy, and the deductible at issue is a “wind” deductible, not a “windstorm” deductible. Why should a wind deductible apply to damages not directly caused by wind? The dissent’s point would be stronger if the policy included a “windstorm” deductible, which might apply both to wind damage and to damage relating to storms — for instance, rain damage. But ACE wrote “wind,” not “windstorm,” and our construction of the policy language protects ACE to exactly the extent it could expect in light of the background legal rule that under Texas law, ambiguous insurance policies are construed against the insurer. See, e.g., Sink, 107 S.W.3d at 551.

Finally, we find authority about windstorm policies unhelpful because the policy in this case covers rain damage that follows events other than windstorms. Multiple covered causes of loss, not just wind, could create openings through which rain might enter an insured property and damage its interior. Were we to follow ACE’s (and the ■ dissent’s) interpretation, rain damage could be subject to three different deductibles, depending on which covered cause of loss permitted the rain to enter an insured building. If rain entered through *56a crack in the building caused by an earthquake, the rain damage would be subject to a $25,000 deductible for damage from earth movement; if rain entered after a fire burned through the building’s roof, that rain damage would be subject to the general $10,000 deductible; and if rain entered through wind-caused openings, the ensuing rain damage would be subject to the wind deductible of the greater of $100,000 or 1% of the building’s value.

Nothing in the policy language leads us to believe that damage attributable to the action of rain should be subject to different deductibles depending on how the rain entered an insured property. We therefore conclude that the relevant deductible in this case is not the “wind deductible,” but the policy’s $10,000 deductible for “all other covered causes of loss.”

III. CONCLUSION

The judgment of the district court is REVERSED.