Certain Underwriters at Lloyds, London v. Law

Thieves stole copper tubing out of seventeen free-standing commercial air-conditioning units permanently installed on the roof of a vacant office building owned by Defendants-Appellees Wan E. Law and Sie L. Tsu (the “Laws”). The Laws’ commercial property insurer, Certain Underwriters at Lloyd’s, London (“Underwriters”), denied coverage based on the insurance policy’s theft exclusion, and this declaratory action by Underwriters ensued. The district court held that coverage was available, apparently (but not completely clearly) basing its holding on either (1) the policy’s coverage of vandalism damage or (2) the policy’s burglary exception to its theft exclusion; and both parties appealed. We reverse the holding of the district court in favor of the Laws and render a take-nothing judgment against them.

I. FACTS AND PROCEEDINGS

The facts of the underlying theft are not in dispute. In April 2005, thieves climbed onto the roof of the Laws’ building in Houston, tore off portions of the exterior panels that formed the housings of each of seventeen air-conditioning units, then broke into the units themselves to steal their copper condenser coils. The salvage value of the stolen copper was less than $2,000, but the total damage to the air-conditioning units caused by the thieves in the course of stealing the copper was closer to $200,000. The Laws reported the theft to Houston police and filed a claim with Underwriters for the costs of repair and replacement.

*576One of the coverage provisions of the Laws’ commercial property policy expressly provides coverage for loss caused by vandalism, but excludes coverage for damage resulting from theft. The theft exclusion contains an exception, however, excepting from the exclusion (and thus restoring coverage for) any damage resulting from burglars breaking into or exiting from the insured building.

Underwriters denied coverage based on the policy’s theft exclusion and sought a declaratory judgment in district court that it had no duty to indemnify the Laws. The Laws counter-sued seeking a declaratory judgment that their claim was covered.

The district court granted the Laws’ motion for summary judgment and awarded them $177,150, the gross cost of repair minus the salvage value of the stolen copper, plus attorneys’ fees. The award was based on the parties’ stipulation of the repair costs incurred by the Laws and the salvage value of the stolen copper tubing. Both parties filed timely notices of appeal.1

II. ANALYSIS

We review a district court’s grant of summary judgment and its interpretation of an insurance policy de novo.2 When, as here, jurisdiction is based on diversity of citizenship, we apply the substantive law of the forum state, in this case, Texas.3

Underwriters makes two claims of error: The district court (1) misinterpreted the insurance policy; and, (2) in any event, the court miscalculated the damages.

A. The Insurance Policy

The vandalism provision at issue, which also contains both the theft exclusion and the exception to that exclusion for damage from breaking and entering, reads, in relevant part:

A. Covered Causes of Loss ...

Covered Causes- of Loss means the following:

8. Vandalism, meaning willful and malicious damage to, or destruction of, the described property.

We will not pay for loss or damage caused by or resulting from theft, except for building damage caused by the breaking in or exiting of burglars.

The instant dispute turns on whether the damage to the Laws’ air conditioners is (1) vandalism (the “vandalism coverage”), (2) damage caused by or resulting from theft (the “theft exclusion”), or (3) building damage caused by the breaking in or exiting of burglars (the “ingress/egress exception”).

Underwriters asserts that the damage done to the roof-mounted air conditioners resulted from theft and is therefore excluded from coverage by the theft exclusion, insisting that the district court misconstrued the policy by finding coverage under the ingress/egress exception to that exclusion. The Laws counter that the district court correctly found coverage under the vandalism provision, but that, alternatively, coverage would also have been *577available under the ingress/egress exception.

The parties thus disagree about the basis of the district court’s ruling, and the reasons for the court’s decision are less than pellucid to us. There can be no question, however, that because the district court found coverage for damage to the air conditioners, its judgment must rest on one of two different findings: The damage resulted either from vandalism or from the actions of burglars breaking into or exiting from the Laws’ building.

1. Texas Law

We look first to background principles of Texas law that govern the interpretation of contracts in general and insurance policies in particular.4 We must interpret the contract in a manner that gives effect to every provision and to the “intention of the parties as expressed in the instrument.”5 Words not defined in a contract are to be understood “according to their plain and ordinary meaning.”6 Texas finds ambiguity in a contract only when its words are susceptible of at least two different but reasonable interpretations.7 Ambiguity will not be found, however, simply because the parties or the lawyers—or even judges—can come up with different interpretations of the words of a contract.8 If—but only if—ambiguity is found, the contractual language will be “liberally” construed in favor of the insured.9 This is so even when the insurer’s interpretation appears to be the more likely reflection of the parties’ intent, provided the insured’s interpretation “is not itself unreasonable.”10

The dissent concludes that the controlling provisions of the policy are ambiguous then relies on the pro-insured penumbra in Texas law to find coverage. But, even recognizing that reasonable minds can disagree, we are compelled to repeat for emphasis that this Texas maxim favoring the insured applies only after the court determines that there is ambiguity in a policy’s wording—and we find none here. Therefore, like the courts of Texas, we conduct our analysis pursuant to ordinary principles of contract interpretation. Indeed, this is where, with the utmost respect, we part company with the dissent: It finds ambiguity then finds coverage by crediting the insured’s interpretation of the putatively ambiguous language over that of the *578insurer; we find no ambiguity in the operable terms of the Laws’ policy then interpret the plain meaning of the words to ascertain the mutual intent of the parties to the contract. And when we do so, we discern no possibility that the parties intended to extend the theft exception’s coverage of damage incidentally caused by burglars while entering or leaving the building to include damage caused by rooftop (exterior) thieves to freestanding air-conditioning units.

Consideration of the pertinent policy provisions at issue in this case appears to be one of first impression in Texas and in this Circuit.11 We therefore begin, as we must, with the text, and we assess each potentially applicable category of coverage and exclusion in turn.

2. Vandalism

Although the district court never expressly labeled the damage as resulting from vandalism per se, the Laws insist that the district court nevertheless based its holding on a determination that the damage was caused by acts of vandalism.12 We acknowledge that, in its broadest conversational meaning, “vandalism” could encompass essentially all willful damage, in-eluding damage caused in the course of a burglary.13 The Laws’ commercial property policy, however, defines “vandalism” more narrowly, as “willful and malicious damage to, or destruction of, the described property” (emphasis added), from which it then carves out and excludes from coverage that subset of damage which is caused in the course of committing a theft.

The Laws nevertheless contend that the purpose for which damage is done is irrelevant to determining whether the cause of the damage is vandalism. But their position ignores the distinction that the policy makes and would render the theft exclusion meaningless, in contravention of the rule that each element of a contract or insurance policy must be given effect. We reject the Laws’ contention. The policy provisions at issue, viz., the vandalism coverage, the theft exclusion, and the ingress/egress exception, indisputedly turn on the purpose for which the damage at issue is done: (1) Damage done for no purpose other than to destroy property for destruction’s sake is “vandalism;”14 (2) incidental damage done in furtherance of thievery falls within the narrower category of damage resulting from theft; (3) damage to the insured building done by bur*579glars entering or leaving the building that they attempt to burglarize falls into the even narrower ingress/egress exception. That said, however, we should not be misunderstood to say that vandalism can never occur during a theft and vice versa. These are not per se mutually exclusive events.15 We hold only that damage done in furtherance of a theft or attempted theft is damage that falls within the theft exclusion of the instant policy.

We also reject the Laws’ contention that any damage which is excessive and unnecessary to accomplish a theft, even if in furtherance of it, is vandalism. That one thief chooses to pick a lock to gain entry while another takes an axe to the door cannot be the basis for different coverage outcomes under the same insurance policy. The Laws would have us deny recovery to the first hypothetical policyholder because the damage was minimal or non-existent and, therefore, entirely necessary to accomplish the theft, but grant recovery to the latter one because the damage was significant or excessive and, therefore, vandalism.16 Courts would have to consider hypothetical alternative methods of breaking and entering to determine whether the damage actually inflicted was or was not greater than necessary. We decline to adopt such a convoluted approach and instead look to the purpose of the damage, not its degree.

Here, the damage was solely in furtherance of stealing the copper. Just enough of the air-conditioning units’ exterior metal paneling was torn away to allow access to the machinery inside. Likewise, the actual cooling mechanisms inside the paneling were damaged by the thieves for the sole purpose of gaining access to the copper. There is no evidence of “malicious” damage in any of this, yet the policy defines vandalism conjunctively as willful and malicious damage to the property. Even though the damage done might have exceeded the minimum required to gain access to the copper tubing, it was done entirely to gain such access. As such, the damage was done solely to further the theft and was not vandalism as that term is used in the policy.

The plain language of the instant insurance policy leaves little room for debate that this was damage “caused by or resulting from” theft and is thus excluded from coverage by virtue of the theft exclusion to the coverage of vandalism. Thieves caused the damage in the course of gaining access to the object of their theft, i.e., the copper tubing components of the air-conditioning units. But for the thieves’ desire to steal the copper tubing, the damage would not have occurred. The damage therefore falls squarely within the theft exclusion—unless, that is, it is covered by virtue of the theft exclusion’s ingress/egress exception.

3. The Ingress/Egress Exception

In the vandalism/theft/burglary inquiry, the most narrow and complex question asks whether the incidental damage to the housings and machinery of the roof-mounted air-conditioning units can be shoe-horned into the ingress/egress exception to the theft exclusion from vandalism coverage. Again, we first turn to the text: “... except for building damage caused by the breaking in or exiting of burglars.” The district court determined that the air conditioners were part of the insured building because they are fixtures, and the *580insurance policy defines “building” to include fixtures.17

The Laws insist that because of that definition, the thieves’ entry into the rooftop fixtures is equivalent to “breaking in or exiting” the building. Following the Laws’ argument, the air conditioners as fixtures are essentially surrogates for the building itself. The dissent agrees, finding the policy ambiguous and the Laws’ contention a reasonable interpretation of it. Relying on the pro-insured treatment of insurance policy ambiguity, the dissent asserts that we must adopt the Laws’ view.

Again, however, we perceive no ambiguity. The policy employs a common phrase in a familiar context: “breaking in,” as in a burglary. Texas courts have stated that the phrase “to break in” in the context of burglary is commonly understood.18 Despite the dissent’s comprehensive disquisition on motor vehicle burglary cases, we remain convinced that “breaking in” to a building unambiguously contemplates nothing more expansive than an attempt to enter bodily into the interior space of the building as bounded by the walls, floors and ceilings. The courts of Texas agree:

The protection is to the interior or enclosed part of the described object, be it a house, a building or a vehicle.... Taking items attached to the outside of the vehicle, house, or building that does not reflect an entry into an interior or enclosed part of the described object in order to steal does not constitute the offense of burglary.19

We certainly do not doubt that the large, self-contained air-conditioning units installed atop the exterior roof of the Laws’ building can be considered fixtures.20 Neither do we ignore the policy provision that describes the insured “building” to include fixtures, inter alia.21 But neither fact convinces us that the phrase “breaking into or exiting” should be given a meaning any broader than its ordinarily understood meaning: entry into the interior space of the building itself. Entry into a fixture is not automatically congruent with entry into the building;22 that air conditioners as fixtures are part of the building cannot so radically alter the common understanding *581of what “breaking in” to a building entails. We interpret the language of the burglary ingress/egress exception to the theft exclusion to mean that the insurer will only pay for collateral damage caused by the burglars’ attempt to gain access to the interior of the building, as commonly understood. We are not alone in this view. The Zelonker court, one of two courts to have considered the instant policy language, noted that “the plain meaning of this provision is that the policy provides coverage where thieves bodily enter or exit the building, as by breaking a door or window.”23

Texas’s definition of “burglar” offers further, support. A “burglar” is one who, without the owner’s consent, “(1) enters a habitation, or a building (or any portion of á building) not then open to the public with intent to commit a felony, theft, or an assault; ... (3) enters a building or habitation and commits or attempts to commit a felony, theft, or an assault.”24 That statute defines “enter” as “to intrude: (1) any part of the body; or (2) any physical object connected with the body.”25 The second half of the insurance policy exception, “or exiting,” provides further illumination. “Exit” is commonly defined as: “1. a way or passage out. 2. a going out or away; departure.”26 The definitions make clear that “breaking in or exiting” requires bodily intrusion into the interior of the building. The thieves in this case sought no bodily passage into or out of the building; they sought only the copper innards of free-standing exterior fixtures. Although the thieves might have damaged a part of the building during the commission of their crime, they did not do so while in the act of breaking into or exiting the building itself. Indeed, the thieves never sought or gained access to the interior of the building itself, i.e., they never became “burglars” vis a vis the building qua building.

As we observed earlier, the dissent’s entire reasoning is founded on its view of the policy’s wording as ambiguous. In contrast, we find no ambiguity in the words of the insurance policy or in the policy as a whole. As we thus follow the dictates of Texas law and rely on the plain meaning of the policy’s language, we never reach the competing interpretations proffered by the parties as we would if we were first to conclude that the governing provisions of the policy were ambiguous.

We are guided in our analysis by the charge under Texas law to construe the contract consistently with the parties’ original intent.27 When we view the policy in *582this manner, we are convinced that the parties could not possibly have intended the ingress/egress exception to apply to acts that fall outside the universally understood meaning of breaking and entering into a building. We see nothing in the words and phrases of the policy that would support an inference of any other intent. This is underscored by the very inclusion of the narrow ingress/egress exception within the much broader theft exclusion. The dissent’s acceptance of the Laws’ proffered interpretation of the ingress/egress exception, however, renders it broader than the exclusion within which it is contained, an illogical result that cannot be reconciled with what the parties must have intended when they fit the one within the other.

As a result, we reject the Laws’ assertion that the thieves’ physical intrusion into the seventeen free-standing, self-contained air conditioners themselves was sufficient to qualify the thieves as “burglars” or their actions as “breaking in or exiting” the building. Such a determination would turn almost entirely on the fact that the air conditioners were outside the building proper. Had the same units been inside the building, they could not be damaged by burglars gaining entry into the building, but rather by burglars already inside.28 We will not strain to adopt an overly expansive interpretation of the ingress/egress exception that turns artificially on the location of the fixtures, either inside or outside the building proper. Furthermore, accepting the Laws’ argument would permit coverage to turn on the discrete burglary methodology employed by the thieves. For example, had the thieves taken a crane and lifted the units intact off the building’s roof, there obviously would have been no “entry,” even under the Laws proffered definition.29 We have already rejected an approach that results in such varied and illogical outcomes, supra. Again, the Laws’ arguments veer too far from the common understanding of what is meant by breaking into and exiting from a building—the unambiguous language of the ingress/egress exception.

We likewise reject the Laws’ contention that, at the very least, the metal housings that contained the air-conditioning units are tantamount to outbuildings that the thieves had to break into and enter to gain access to the air conditioners inside and strip their copper. The housings in question are essentially large, custom-made metal boxes, the size of a small shed or shipping container, that contain the actual cooling machinery. They are integral parts of the air-conditioning units; the air conditioners are defined with the housings as integral components and each is mounted onto the roof as a single contraption. The metal housings are merely the most exterior components of the free-standing air-conditioning units. The fact that they come from their manufacturer with permanent protective housings made specifically for these machines and are integral components of them precludes the transformation of the thieves into burglars or their actions in gaining access to the machinery *583into breaking into a building. The thief who breaks into the casing is breaking into the air conditioner itself, rather than first breaking into a shed or outbuilding to burglarize it of the copper within the air-conditioning units inside the building.

In sum, we decline to credit any of the Laws’ tortured interpretations of the uncomplicated language of the policy’s ingress/egress exception. The phrase “building damage caused by the breaking in or exiting of burglars” is straightforward and unambiguous, ineluctably requiring breaking through (or attempting to break through) a building’s exterior to gain access to its interior for the purpose of committing a theft crime. There is no room in the ordinary understanding of the phrase for extending its ambit to include damage caused to a roof-mounted air conditioner during the course of stealing its copper tubing. We cannot imagine that the parties could have intended this meaning when they entered into this contract of insurance. Simply put, damage caused to an exterior fixture to gain access to its own internal components is not building damage caused in gaining access to the building itself, even if that fixture is determined to be part of the building for some other policy purpose. We hold that the damage done to the casings and machinery of the Laws’ roof-mounted air conditioners resulted from theft, which falls within the theft exclusion to the policy’s coverage of vandalism, and did not result from the breaking into the insured building by burglars. The ingress/egress exception to the theft exclusion is inapplicable to the facts of this case.

III. CONCLUSION

The damage suffered by the Laws resulted from neither vandalism nor the breaking into or exiting of the insured building by burglars. Rather, the damage to the Laws’ air conditioners was caused by or resulted from acts of theft. As such, the policy expressly excludes coverage of the costs of repair or replacement of the Laws’ air-conditioning units. We therefore reverse the judgment of the district court, vacate its award of damages and attorneys’ fees to the Laws, and render judgment that the Laws take nothing. As the Laws thus recover no damages, we need not, and therefore do not, address Underwriters’ claim of error in the district court’s calculation of damages.

REVERSED; VACATED; and RENDERED.