JUSTICE BOYD delivered the opinion of the Court.
Jaw the Pointe (JAW) owned an apartment complex (The Pointe) in Galveston, Texas and insured the property with Nations Asset Management. Nation Asset Management purchased several policies that provided coverage layers for the 300 apartment complexes that they insured. Lexington Insurance Company provided the primary coverage layer.
Shortly after Hurricane Ike struck Galveston Island, Emery Jacob, a partner for JAW, attended a meeting at which a City of Galveston official explained that all apartment complexes that suffered damage equal to or greater than half of their market value would be forced to raise the structures in order to comply with city ordinances. Months later, the city of Galveston sent a letter to JAW informing them that the damage to The Point exceeded half of the market value and that JAW would be forced to elevate the complex three additional feet. As a result, JAW submitted a claim to Lexington, requesting coverage for “all demolition costs, construction costs, architectural and permitting fees, and other expenses that JAW had incurred and would incur to demolish and rebuild the apartments.” A consultant for Lexington reported that The Pointe had suffered wind damage of $1,278,000 and flood damages of approximately $3.5 million. Lexington then paid JAW for the wind damage, minus the deductible, but told JAW the insurance policy did not cover damages caused by flood or for the expenses to be incurred in order to comply with the city ordinances.
The insurance policy contained several relevant provisions. First, the parties agreed that the “Covered Causes of Loss” provision provided that Lexington would be obligated to cover all losses that were not specifically excluded later in the policy. The “Exclusions” provision then stated that Lexington would not pay for any damage caused by the exclusions subsequently listed. This provision then specifically listed “Flood” and “[t]he enforcement of an ordinance” as exclusions to the “Covered Causes of Loss” provision. Additionally, the provision contained an “anticoncurrent-causation clause” which provided that Lexington would not cover damages caused “directly or indirectly” by an excluded event “regardless of any other cause or event that contribute[d] concurrently or in any sequence to the loss.” However, the insurance contract later provided that, if a covered cause of loss occurred, Lexington would pay for losses incurred due to the enforcement of an ordinance requiring the nondamaged portions of the complex to be replaced as a consequence of damages resulting from a covered cause.
In July 2009, JAW sued Lexington and others for breach of contract and violations of both the Texas Insurance Code and the Texas Deceptive Trade Practices Act. After multiple claims were dismissed, the jury rendered a verdict in favor of JAW. The casewas then reversed by the court of appeals because the damages were caused, at least in part, by flood.
ISSUE: Does the anti-concurrent-causation clause in the insurance agreement prevent Lexington from being obligated to pay for the expenses JAW incurred as a result of being required to demolish and rebuild The Pointe in compliance with the city ordinance because the damage was caused by both wind (a covered loss under the agreement) and flood (an uncovered loss under the security agreement).
JAW argued that the wind damage was “separate and independent” of the flood damage and itself constituted enough damage for the complex to fall under the city ordinance, thus Lexington should have compensated them for the costs of rebuilding the complex in compliance with the city ordinance. On the other hand, Lexington contended that the agreement only required them to compensate for compliance with an ordinance when “the policy cover[ed] the damage that triggers the ordinances’ requirements.” Additionally, the anti-concurrent-cause provision provided that if an excluded cause contributed to the damage concurrently alongside a covered cause, then Lexington would not be forced to pay. Since the city accounted for both wind and flood damages when determining that the complex fell under the ordinance, Lexington claimed it should not be required to compensate JAW because the damages were at lease partially caused by flooding, which was excluded from their obligations.
Despite JAW’s attempt to show that the wind damage was sufficient, in and of itself, to force The Pointe to fall under the city’s ordinance, the Court found that “the city based its decision to enforce the ordinance on the combined total” of the wind and flood damage. Because the city’s report did not differentiate between the different causes of the damage, it was impossible for the Court to determine whether the wind damage alone would have been enough for the city to enforce the ordinance. Since the measure of damage aggregated the two causes, the anticoncurrent-causation clause prevented Lexington from being forced to cover the damages.
JAW argued that the common law concurrent-causation doctrine should have applied instead. When parties offer competing interpretations of a contract, the Court must look to “the language of the policy because we presume parties intend what the words of their contract say.” Applying the language of the agreement, the Court found that both the wind damage and flood damage contributed to the enforcement of the city ordinance.