Ambiguity in Texas Insurance Policies

Generally, insurance policies in Texas are construed according to the same rules that govern the construction of contracts.¹ Insurance policies must be interpreted by reading all sections of the document together.² This stems from the primary concern of the courts—to enforce the parties’ expressed intent.³ “No one phrase, sentence, or section [of the policy] should be isolated from its setting and considered apart from the other provisions.”⁴ If part of a policy was read separately from the rest of the document, it would defeat the parties’ intent by excluding the other provisions.

The terms of the contract are given their ordinary meaning unless the policy provides that the terms are meant in a technical or different sense.⁵ Under Texas law, ambiguity in an insurance policy exists only if the language is susceptible to two or more reasonable interpretations.⁶ This means that a policy is not deemed ambiguous simply because it can be interpreted more than one way.⁷

Ambiguity in a policy hinges upon whether the language is susceptible to two or more reasonable interpretations. Therefore, once it is determined that more than one interpretation exists, the rules of contract construction must be applied to ascertain whether both interpretations are reasonable. Unless the policy shows the meaning of the terms in the document, the terms are given their ordinary and generally accepted meaning.⁸ If the contract is worded in a manner that it can be given a certain or definite legal meaning, it is not ambiguous and must be construed as a matter of law.⁹

Conversely, “a contract is ambiguous only when the application of pertinent rules of construction of interpretation to the face of the instrument leaves it genuinely uncertain which one of two or more meanings is the proper meaning.”¹⁰ Mere disagreement about the meaning does not create an ambiguity.¹¹ If two interpretations remain, the court may use extrinsic evidence to resolve the ambiguity.¹² Under Texas law, the use of extrinsic evidence cannot be used to prove the existence of, or create an ambiguity.¹³ In other words, facts or information not included in a written agreement are not admissible for the purpose of creating an ambiguity. Instead, this evidence is only admissible after the court has determined an ambiguity exists within the document itself.

The courts have not limited the type of extrinsic evidence which may be admissible. This reason for this is to further the primary goal of the court—as mentioned above—to determine the parties’ intent.¹⁴ In the event the admission of extrinsic evidence does not resolve the ambiguity, the rule of contra proferentem applies. This rule means that any ambiguity in the document is construed against the drafter. In State Farm Life Insurance Company v. Beaston, the Texas Supreme Court adopted this rule for interpretation of insurance contracts.¹⁵ “Only if an insurance policy remains ambiguous despite these canons of interpretation should courts construe its language against the insurer in a manner that favors coverage.”¹⁶ In other words, when it comes down to ambiguity in your insurance policy and the rules governing the construction of contracts do not resolve the ambiguity, courts are to adopt the interpretation that reads against the carrier and in favor of the policyholder.
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¹ Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. v. Crocker, 246 S.W.3d 603, 606 (Tex. 2008); State Farm Life Ins. Co. Beaston, 907 S.W.2d 430, 433 (Tex. 1995).
² Am. Manufacturers Mut. Ins. Co. v. Schaefer, 124 S.W.3d 154, 157 (Tex. 2003).
³ Forbau v. Aetna Life Ins. Co., 876 S.W2d 132, 133 (Tex. 1994).
⁴ Id. at 134
⁵ Gonzalez v. Mission Am. Ins. Co., 795 S.W.2d 734, 736 (Tex. 1990).
⁶ Texas Farm Bureau Mut. Ins. Co. v. Sturrock, 146 S.W.3d 123, 126 (Tex. 2004).
⁷ Id.
⁸ Don’s Bldg. Supply, Inc. v. OneBeacon Ins. Co., 267 S.W.3d 20, 23 (Tex. 2008).
⁹ Universal C.I.T. Credit Corp. v. Daniel, 243 S.W.2d 154, 157 (Tex. 1951).
¹⁰ Id.
¹¹ Kelly-Coppedge, Inc. v. Highlands Ins. Co., 980 S.W.2d 462, 464 (Tex. 1998).
¹² United Founders Life Ins. Co. v. Carey, 363 S.W.2d 236, 241-43 (Tex. 1962).
¹³ Kelly-Coppedge, Inc., 980 S.W.2d at 464 (Tex. 1998).
¹⁴ Nat’l Union Fire Ins. Co. of Pittsburg, Pa. v. C.B.I. Industries, Inc., 907 S.W.2d 517, 520 (Tex. 1995).
¹⁵ State Farm Life Ins. Co. v. Beaston, 907 S.W.2d 430 (Tex. 1995).
¹⁶ Id.