Mistake In A commercial Insurance Policy

Business people in Bedford, Colleyville, Grand Prairie, Arlington, Hurst, Euless, Fort Worth, or anywhere else in Texas will sometimes have mistakes in their commercial insurance policy. How do courts look at these situations?
The United States District Court, Northern District of Texas, Dallas Division, issued an opinion on a case May 26, 2010, where this was the issue. The opinion was issued by Judge Ed Kinkeade. The style of the case is Park Place Motorcars Mid Cities Ltd., and Park Place Motorcars of Texas, Inc. v. Affiliated FM Insurance Company.
The facts in this case are this: Park Place Motorcars Mid Cities Ltd. and Park Place Motorcars of Texas, Inc. (Park Place) operate a Mercedes dealership in Bedford, Texas, selling new and used vehicles. Park Place insured its motor vehicle inventory through two policies — a “dealer open lot” policy and a “floored” policy, both of which were provided by other insurance companies. Affiliated FM Insurance Company (FM) provided coverage to Park Place for physical loss or damage to insured property and for business interruption loss for such insured property, subject to all policy terms, conditions, limitations and exclusions (the “Policy”).
Park Place’s property was damaged by a hail storm on April 13, 2007. Hail damaged some of Park Place’s real property insured under the Policy, including a small portion of the roof and exterior siding, awnings, and sunshade tents. Hail also damaged approximately 244 of Park Place’s motor vehicles. The damage to Park Place’s motor vehicles was paid by its motor vehicle insurance companies. FM paid Park Place for the damage to Park Place’s real property.
Park Place also submitted a claim to FM to recover under the Policy for lost business income directly resulting from hail damage to the motor vehicles. Park Place supported its claim with language from the Policy appearing to extend coverage to motor vehicles. Specifically, Section D of the Policy is titled “Extensions of Coverage” and according to the Policy’s Declarations the following was added to Section D:
3. Motor Vehicles Exclusion Section D., Property Excluded, Item 6., is amended to:
6. Motor vehicles licensed or unlicensed for highway use or owned by officers a and employees of the Insured; satelites [sic], aircraft and watercraft except
while on land and in the process of being manufactured including storage of
aircraft or watercraft prior to being sold.
Park Place determined that because this Declaration involving motor vehicles falls under Section D– “Exclusions of Coverage” –that motor vehicles are covered under the Policy.
But, FM denied Park Place’s claim for lost business income because the Policy only provides business interruption coverage for losses “directly resulting from direct physical loss or damage insured by this policy to property not excluded.” FM denied coverage on the basis that motor vehicles are excluded under the Policy and that Park Place’s claim resulted from the hail damaged motor vehicles. FM reached the conclusion that motor vehicles are excluded under the Policy because of a typographical error in the Policy. The “Motor Vehicles Exclusion” in the Policy’s Declarations amends Section D; however, the amendment should have been to Section E –“Property Excluded.” FM also relied on the language “Motor Vehicle Exclusion” and “Property Exclusion” found in the Declarations to determine that motor vehicles are excluded under the Policy.
Park Place sued FM, seeking a declaration by the court that the Policy provides coverage for the business loss of the motor vehicles. They also alleged breach of contract, violations of the Texas Insurance Code, and bad faith.
In analysing the case, the court pointed out that under Texas law, the court’s primary concern when interpreting a contract is to ascertain the parties true intentions as expressed in the instrument. To achieve this objective, the court should examine and consider the entire writing in an effort to harmonize and give effect to all the provisions of the contract so that none will be rendered meaningless. No single provision taken alone will be given controlling effect; rather, all the provisions must be considered with reference to the whole instrument. Moreover, a typographical mistake must yield to the well established doctrine that written contracts will be construed according to the intention of the parties, notwithstanding errors and omissions, by perusing the entire document and to this end, words, names, and phrases obviously intended may be supplied.
Park Place argued that because “Section D” of the Policy is the “Extensions of Coverage” Section and contains the “Motor Vehicles Exclusion” Declaration that the Parties intended for the motor vehicles to be covered, or at the very least, that there is an ambiguity in the Policy that must be construed in favor of the insured, which means motor vehicles would be covered under the Policy. But, Park Place’s interpretation of the Policy is not reasonable.
The court said the only reasonable interpretation is that the Parties’ true intent was to exclude motor vehicles. In the “Motor Vehicles Exclusion” Declaration, the “D” in “Section D” is a typographical error. Instead, the “D” should be an “E” which would place the Section in the “Property Excluded” Section, not the “Extensions of Coverage” Section. This is clear because the title of the Declaration is “Motor Vehicles Exclusion,” which on its face can only be reasonably interpreted as excluding motor vehicles from the Policy. Moreover, the title of the proper Section –“Property Excluded” –for the “Motor Vehicles Exclusion” follows the Section letter “D” which shows that the Parties intended to clarify the Section to which the Declaration pertained. The letter “D” is a typographical error and the words “Exclusion” and “Excluded” are the Parties’ unambiguous expression of intent to exclude motor vehicles from coverage.
Moreover even if the Court determined that an ambiguity exists as Park Place alleges, FM’s evidence establishes that the Parties’ intended to exclude motor vehicles from coverage under the Policy. McQueary Henry Bowles Troy LLP (MHBT) was Park Place’s insurance broker and negotiated the Policy with FM on behalf of Park Place. MHBT arranges Park Place’s commercial property insurance, as well as most of its other insurance needs. Park Place’s broker, Linda Stewart at MHBT, sent applications that included a property application, a statement of values, and loss runs that only referred to Park Place’s building, business personal property, and business interruption. Nothing was requested by Stewart from Park Place regarding obtaining insurance for the actual vehicles for sale. Stewart testified that she never sought coverage for motor vehicles from FM or intended to place coverage for business interruption losses with FM for damage to Park Place’s vehicles.
Thus, the Court concluded the Parties intended to exclude motor vehicles under the Policy and the Court ruled in favor of FM.