Coinsurance Provision Not Ambiguous

Commercial Inland Marine	Coinsurance Penalty
Goods In Transit	Application of Deductible

Essex Insurance Company (Essex) insured CTC Transportation, Inc. (CTC) under a motor truck cargo liability policy with a $500,000 limit, a 1% deductible, and a coinsurance provision that generally provided that Essex was not liable for a greater percentage of CTC's liability for a loss than the limit bore to the total value of the cargo at the time of loss. CTC specialized in transporting heavy-duty equipment. A CTC tractor was transporting a large crane valued at $700,000 on November 10, 2005, when part of the crane struck the underside of a bridge as the tractor passed beneath it. CTC submitted the $61,604.91 repair cost to Essex.

The value of the crane compared to the limit resulted in a coinsurance penalty of almost 29% and reduced the amount payable to $43,739.49, a difference of $17,865.42. This amount was further reduced by $7,000, representing the 1% deductible applied to the value of the crane. The final settlement offer was $36,739.49. CTC rejected the offer. It indicated that the coinsurance penalty amount was unacceptable and would only accept the $7,000 reduction based on the application of the deductible. Since the parties could not agree, CTC sued Essex based on breach of the terms and conditions of the insuring agreement.

The trial court determined the 100% coinsurance provision was unintelligible as written, vague, confusing and ambiguous. Also, Essex failed to provide CTC with the coverage it had purchased. It ruled that Essex must pay $54,604.91, representing the amount of loss less the deductible, and CTC's reasonable and necessary attorneys' fees of $40,000. Its reason and interpretation were that the insurance provided covered the first $500,000 of any damage, less the deductible amount.

Essex appealed. It argued that the trial court erred by finding the coinsurance provision ambiguous as a matter of law. Essex challenged the legal and factual sufficiency of several findings of fact and conclusions of law on the other issues. It stated that the trial court disregarded and wrote the coinsurance language out of the policy in light of the policy's limit of loss section. The appellate court determined the first issue to be dispositive and encompassing of the other issues and addressed it first. It relied on previous case law that found contracts ambiguous only if they are susceptible to more than one reasonable meaning after applying established rules of construction.

In its review, the appellate court gave the terms of the coinsurance provision their plain meanings and construed it to harmonize with the policy, thereby giving effect to each clause in it. This approach concluded that the coinsurance provision was subject to only one reasonable interpretation, that being the one Essex advocated, and it was not ambiguous as a matter of law. Having sustained Essex's first issue led the court to sustain the third and fourth issues and render the second issue moot because it related to the ambiguity issue that no longer had any legal significance due to the primary finding. It sustained Essex's issues necessary to dispose of the appeal, reversed the trial court's judgment, and ruled that CTC recover only $36,739.49 from Essex for the damage to the crane and nothing for attorneys' fees.

Court of Appeals of Texas, Fort Worth. RSI International, Inc. and Essex Insurance Company, Appellants, v. CTC Transportation, Inc., Appellee. No. 2-08-383-CV. 291 S.W.3d 104