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Texas Supreme Court Adopts Insureds’ Reasonable Interpretation of Homeowners Policy and Holds Fencing Claim Covered as a Matter of Law

By: Michelle Robberson

In Nasser v. Liberty Mutual Ins. Co., No. 15-0978 (Tex., Jan. 27, 2017) (per curiam), the Texas Supreme Court held the insureds’ interpretation of their homeowners policy was reasonable and the insurer’s was not, and it adopted the insureds’ construction in favor of coverage.  The issue was whether the Nassers’ homeowners policy provided coverage under the “dwelling” or the “other structures” provisions for fencing attached to the home, which suffered extensive damage during Hurricane Ike.

The Nassers owned six acres in Richmond, Texas, and they had 4,000 linear feet of fencing that suffered damage from the hurricane.  Their claim for damages to the fencing exceeded $58,000.  The “dwelling” coverage had a $247,200 policy limit and the “other structures” coverage had a $24,270 policy limit. 

The Nassers asserted the fencing was covered under the “dwelling” provision of their Texas Standard Homeowners Policy-Form A, while Liberty Mutual determined the fencing was covered under the “other structures” provision.  The two policy provisions state:

We cover:

1.  the dwelling on the residence premises shown on the declarations page including structures attached to the dwelling.

2.  other structures on the residence premises set apart from the dwelling by clear space. This includes structures connected to the dwelling by only a fence, utility line or similar connection. The total limit of liability for other structures is the limit of liability shown on the declaration page or 10% of Coverage A (Dwelling) limit of liability, whichever is greater. This is additional insurance and does not reduce the Coverage A (Dwelling) limit of liability.

The policy defined “residence premises” to include “the one or two family dwelling, including other structures, and grounds where an insured resides or intends to reside within 60 days after the effective date of this policy.”  The policy did not define “structure.”

The Nassers argued that, under the plain language of these provisions, their fencing (which was attached to the dwelling at four separate places) was a “structure attached to the dwelling.”  Liberty Mutual argued that “simply connecting 4,000 feet of fencing to the dwelling by four bolts does not attach the fencing to the dwelling.”  Liberty Mutual contended that a fence cannot operate to connect a dwelling to other structures and, thus, the fencing must be an “other structure” that falls within section 2.

The trial court granted summary judgment to Liberty Mutual and a divided court of appeals (Houston Fourteenth) affirmed.  The Texas Supreme Court concluded that the court of appeals improperly applied settled rules of contract interpretation when adopting Liberty Mutual’s interpretation of subsections (1) and (2) of the policy, and it reversed the summary judgment.

The Court applied a common and ordinary meaning of “structure” from Black’s Law Dictionary:  “[a]ny construction, production, or piece of work artificially built up or composed of parts purposefully joined together.”  The Court explained that the Nassers’ fencing was artificially constructed and “composed of parts purposefully joined together,” and that the fencing was fastened to the dwelling either by being cemented to the brick and slab of the house (as the Nassars contended) or by “four bolts” (as Liberty Mutual contended).  Thus, the Court held:

Putting everything together, and giving words their ordinary meaning in light of their common usage, the Nassars’ fencing is composed of parts purposefully joined together and fastened to the dwelling by bolts or cement.  Following this Court’s well-settled rules, we conclude that the Nassars’ policy interpretation is reasonable and the applicable policy language is unambiguous.

As to Liberty Mutual’s interpretation, the Court noted that, after clearly identifying “other structures” as those structures on the residence premises that are “set apart by clear space,” the policy continues: “This includes structures connected to the dwelling by only a fence, utility line or similar connection.”  Liberty Mutual argued that this sentence identifies a fence as a “connection” and not a “structure,” and as a “connection,” a fence is unable to attach “other structures” to the dwelling.  Thus, according to Liberty Mutual, this interpretation prevents a fence from being part of the dwelling.

The Texas Supreme Court disagreed.  The Court said, for Liberty Mutual’s interpretation to make sense, “we must believe that the terms ‘connection’ and ‘structure’ are mutually exclusive.  Our task, however, is not to find new meaning in relatively common words or to make difficult what is actually quite simple; instead, we must apply the plain language from subsection (1) of the insurance policy to subsection (2).”

When it did so, the Court reached the following conclusion:

The challenged insurance provision does not require the Nassars’ fencing, a structure clearly attached to their dwelling and therefore covered under subsection (1), to morph into an “other structure” covered under subsection (2) simply because that same fencing cannot operate to connect other structures to the dwelling.  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 such a leap unnecessary.

In closing, the Court noted that courts may have to treat fencing as both part of the “dwelling” and “other structures,” depending on the circumstances.  “That is what the policy’s plain language requires.”


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