United States Court of Appeals
Fifth Circuit
F I L E D
UNITED STATES COURT OF APPEALS
May 11, 2007
FOR THE FIFTH CIRCUIT
Charles R. Fulbruge III
Clerk
No. 06-10681
TEXAS INDUSTRIES, INC.,
Plaintiff-Appellee,
v.
FACTORY MUTUAL INSURANCE CO.,
Defendant-Appellant.
Appeal from the United States District Court for the
Northern District of Texas
Before JONES, Chief Judge, and BENAVIDES and STEWART, Circuit
Judges.
BENAVIDES, Circuit Judge:
Before the court is an appeal of the district court’s grant of
summary judgment in favor of Texas Industries, Inc. (“TXI”), denial
of summary judgment in favor of Factory Mutual Insurance Co.
(“Factory Mutual”), and denial of Factory Mutual’s motion to
reconsider. There is only one disputed issue: the proper
calculation of the insurance deductible. We affirm.
I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY
The facts are not in dispute. The plaintiff, TXI, has a
cement manufacturing plant with five kilns. TXI obtained property
damage and business interruption insurance from the defendant,
Factory Mutual. TXI started a previously-planned maintenance
outage on Kiln No. 5 on January 5, 2003, which was to last until
January 16, 2003. On January 7, 2003, a fire damaged Kiln No. 5,
but had no effect on the other kilns. As a result of this fire,
production was interrupted until January 30, 2003, and full
production did not resume until February 3, 2003. There was a 23-
day period in which Kiln No. 5 did not operate at all and a 4-day
period in which partial operation occurred. Ten of the days
without any operation were part of the previously-planned outage.
TXI submitted a business interruption insurance claim for its
loss. The parties have stipulated that the total business
interruption loss actually suffered by TXI was $3,916,905. The
deductible is subtracted from the amount of loss suffered in order
to determine the amount of insurance proceeds to which TXI is
entitled. The proper calculation of this deductible is the sole
issue before the court.
The policy at issue has a deductible for business interruption
claims in the amount of “15 Day’s Value Time Element of the Objects
Experiencing the Loss or Damage.” Factory Mutual’s calculation of
this deductible yields a deductible of $4,084,323, which is greater
than the actual loss suffered by TXI. Factory Mutual accordingly
refused to pay for TXI’s business interruption claim. TXI
calculated a deductible of $2,571,444, which is significantly less
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than the actual loss suffered. TXI therefore filed suit seeking
the difference between its deductible figure and the actual loss,
namely $1,345,461, as well as costs and interest.
Both TXI and Factory Mutual filed motions for summary
judgment. The district court granted TXI’s motion for summary
judgment, and awarded TXI damages in the amount of $1,345,461 plus
costs and interest. Factory Mutual filed a motion to reconsider
that the district court denied. Factory Mutual timely appealed.
II. STANDARD OF REVIEW
We review the district court’s grant of summary judgment de
novo. Shell Offshore Inc. v. Babbitt, 238, F.3d 622, 627 (5th Cir.
2001). “Summary judgment is appropriate if the record shows ‘that
there is no genuine issue as to any material fact and the moving
party is entitled to judgment as a matter of law.’” Id. (quoting
FED. R. CIV. P. 56(c)).
In diversity cases, such as this one, federal courts look to
the substantive law of the forum state. See Erie R.R. Co. v.
Tomkins, 304 U.S. 64, 78 (1938); see also Farrell Constr. Co. v.
Jefferson Parish, 896 F.2d 136, 140 (5th Cir. 1990). Texas
contract interpretation law indicates that “[i]f policy language is
worded so that it can be given a definite or certain legal meaning,
it is not ambiguous and we construe it as a matter of law.” Am.
Mfrs. Mut. Ins. Co. v. Schaefer, 124 S.W.3d 154, 157 (Tex. 2003).
“Whether a contract is ambiguous is itself a question of law.” Id.
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The fact that the parties offer different contract interpretations
does not create an ambiguity. See id. “An ambiguity exists only
if the contract language is susceptible to two or more reasonable
interpretations.
When construing the policy’s language, we must give effect to
all contractual provisions so that none will be rendered
meaningless.” Id. (internal citation omitted). Finally, when an
insurance policy can be given multiple reasonable interpretations,
“[i]t is a settled rule that policies of insurance will be
interpreted and construed liberally in favor of the insured and
strictly against the insurer.” Kelly Assocs., Ltd. v. Aetna Cas.
& Sur. Co., 681 S.W.2d 593, 596 (Tex. 1984) (noting that this rule
is “especially so when dealing with exceptions and words of
limitation”); see also Am. States Ins. Co. v. Bailey, 133 F.3d 363,
139 (5th Cir. 1998) (“Exceptions and limitations in an insurance
policy are strictly construed against the insurer.”).
III. DISCUSSION
The deductible for the business interruption at issue is
equivalent to “15 Day’s Value Time Element of the Objects
Experiencing the Loss or Damage.” The term in dispute is the
“Day’s Value Time Element of the Objects Experiencing the Loss or
Damage.” The policy defines this term as:
The amount equivalent to the number of days shown times
the 100% daily Time Element value of the objects
experiencing the direct physical loss or damage including
the 100% daily Time Element value of all other objects or
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operations at the location where the loss or damage
occurs which are dependent on the objects experiencing
the loss or damage. The 100% daily Time Element value of
the objects, including the other dependent daily value
will be the full percentage contribution which would have
resulted had the loss or damage not occurred to the 100%
daily Time Element value of the entire premises at the
location. In determining the 100% daily Time Element
value, due consideration will be given to the experience
of the business before the loss and the probable
experience thereafter.
The parties do not dispute that Kiln No. 5 was the only object
experiencing a loss; there were no objects dependent on Kiln No. 5.
The parties present different methodologies, however, for
calculating the deductible.
TXI starts with the total dollar amount of cement that would
have been produced at the entire premises during the 27 day period
at issue had the fire not occurred: $6,900,388.1 TXI then divides
this total amount by 27, representing the number of days in the
period. The result is the “daily time element value” of the entire
premises: $255,570. The parties stipulated that Kiln No. 5
produced 67.08% of the plant’s total output during the relevant 27-
1
The district court adopted TXI’s math in reaching this sum.
This figure is arrived at by adding together the stipulated amount
of clinker produced by Kiln No. 5 during the four days of partial
production and the stipulated total lost clinker production
resulting from the fire, for a total expected clinker production
from Kiln No. 5 of 95,788 tons. Both TXI and the district court
next divide that sum by .6708 because Kiln No. 5 made up
approximately 67.08% of the plant’s total clinker production. The
total expected clinker production of the plant(142,802 tons) would
have yielded cement at a rate of 99.12%, resulting in an expected
cement production of 141,541 tons. The price of cement was
stipulated to be $48.75 per ton, and thus producing the expected
production of $6,900,388.
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day period, the “full percentage contribution.” Accordingly, TXI
multiplies the daily time element value of the entire premises by
67.08% to equal the “daily time element value” of Kiln No. 5:
$171,430.2 By multiplying this value by 15, TXI arrives at a
deductible of $2,571,444. The difference between the deductible
and the stipulated actual damages would thus be $1,345,461 under
TXI’s calculation.
Factory Mutual disagrees with this calculation method. First,
Factory Mutual argues that the deductible should be reached by
multiplying the stipulated average tons of clinker produced daily
by Kiln No. 5 during the previous six months (5,635) by the number
of deductible days (15), then multiplying that sum by the
conversion rate of clinker to cement (.9912), and the value of
cement per ton ($48.75). This results in a 15-day deductible of
$4,084,323. Adopting the district court’s equation in the
alternative, Factory Mutual argues that total expected production
2
Presumably in an effort to give meaning to the policy’s
language concerning “the full percentage contribution which would
have resulted had the loss or damage not occurred to the 100% daily
Time Element value of the entire premises at the location,” both
TXI and the district court considered the contribution to the total
premises, first by dividing the total expected clinker production
by .6708, then later multiplying the expected daily value of the
entire premises by the same 67.08%. These steps are unnecessary in
this particular case, given that no other objects or processes were
affected by the damage to Kiln No. 5, and obscure the actual
simplicity of the equation. The exact same value is reached by
simply dividing the total expected value of cement produced from
Kiln No. 5 during the interruption (the clinker production for the
period, multiplied by the cement yield rate of 99.12%, multiplied
by the going rate of $48.75 per ton) by the period of the
interruption (TXI argues 27, Factory Mutual argues 17).
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value during the interruption period should be divided by 17 — not
27 — given that Kiln No. 5 would not have been used during the
first ten days because of the planned maintenance outage. Factory
Mutual argues that to not include any expected contribution by Kiln
No. 5 during those ten days while including those days in the
denominator produces an atypically low daily production value, and
fails to heed the policy’s instruction to consider “the experience
of the business before the loss.” Substituting 17 for 27, the
district court’s formula results in a deductible nearly identical
to that produced by Factory Mutual’s suggested formula: $4,084,217.
Either sum exceeds the stipulated business interruption loss.
The district court determined that TXI’s interpretation was
the only reasonable one and adopted its deductible figure. The
court rejected Factory Mutual’s methodology, finding that it
rendered superfluous the second sentence of the contractual
definition at issue: “The 100% daily Time Element value of the
objects will be the full percentage contribution, which would have
resulted had the loss or damage not occurred, to the 100% daily
Time Element value of the entire premises at the location.” In
short, the district court found it necessary to consider the loss
in the context of the total premises, and accomplished this by
first dividing, then multiplying, the sums at issue by .6708. In
this particular case, however, the multiplication and division
simply cancelled each other out and had no effect on the deductible
amount. Rather, the disputed issue — whether to divide the
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expected production for the period by 17 days or 27 days — is
wholly independent of the second sentence.
Unfortunately, the contract language is ambiguous as to the
proper calculation of the “100% daily Time Element value” of the
kiln. On one hand, it does stand to reason that dividing the
expected production for a 17-day period by 27 days results in an
unrealistically low daily value for Kiln No. 5 and, as Factory
Mutual argues, fails to give due consideration to the experience of
the business before the loss. The contract does not clarify in
what way “due consideration” should “be given to the experience of
the business,” however, and as TXI urges, it is reasonable to
interpret that language as recognizing that planned outages are a
regular part of the cement business and should be duly acknowledged
in the deductible calculation by using 27 as the denominator,
rather than 17. Under TXI’s reasoning, the total losses incurred
during a planned outage are less, and so it makes sense for the
deductible to vary accordingly. Because the contract is subject to
opposing yet reasonable interpretations, it is ambiguous.
Faced with multiple reasonable interpretations of an insurance
contract, we do not choose which interpretation is more reasonable.
“[I]f a contract of insurance is susceptible of more than one
reasonable interpretation, we must resolve the uncertainty by
adopting the construction that most favors the insured.” Nat’l
Union Fire Ins. Co. v. Hudson Energy Co., 811 S.W.2d 552, 555 (Tex.
1991); cf. id., 811 S.W.2d at 555 (“The court must adopt the
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construction of an exclusionary clause urged by the insured as long
as that construction is not unreasonable, even if the construction
urged by the insurer appears to be more reasonable or a more
accurate reflection of the parties’ intent.”). As such, we read
the contract in accordance with TXI’s interpretation of the
deductible calculation language. As all other issues were either
resolved by stipulation or waived, the district court properly
entered summary judgment in favor of TXI, and properly denied
Factory Mutual’s motion for summary judgment and motion to
reconsider.
IV. CONCLUSION
For the foregoing reasons, we AFFIRM the district court.
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