http://www.ca5.uscourts.gov/opinions/pub/08/08-50652-CV0.wpd.pdf
The Court found it "irrelevant that a reasonable insured might not expect this result, or that, given sufficient imagination, we can think of ways - not presented here - in which enforcement of this exclusion would lead to absurd results." See Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132, 134 (Tex. 1994) (on rehearing vacating its prior opinion) ("[N]either conflicting expectations or disputation is sufficient to create an ambiguity.").
[above paragrpah quoted from 5th Circuit Online Reporter]
In this case, the insurance contract on pollution exclusion was held to eliminate coverage for carbon monoxide related injury cliams in an apartment. Of course this came as a suprise to the apartment owner, since protection from such claims is necessary (since forseeable). To exclude claims for CERCLA or other hazerdous materials would be understandable to the insured, but it is not likely that the insured would have understood that the insurance company was back dooring an exclusion to CO related claims (of course, the insurance company probably didn't think about it either at the time).
The irony is that the 5th Circuit admits that the "plain meaning" of the text might lead to absurd results. But, absurdity at the plain meaning level just means that the insurance company wins. However, if the plain meaning is unclear, then the court's may not adopt an absurd result. General rule from 14 Tex. Jur. 3d Contracts § 226:
Similarly, if the language used in a contract is susceptible of two constructions, that interpretation will be adopted which renders the contract fair and reasonable, rather than a construction that is unreasonable, inequitable, oppressive,[FN9] or which would yield an absurd result.[FN10]
Observation: An unreasonable construction of a contract, which courts should avoid, refers to one that subverts the objective intent of the parties as manifested in the language of their contract documents and not one that merely dashes the idiosyncratic, entrepreneurial expectations of a losing litigant.[FN11]
[FN9] Frost Nat. Bank v. L & F Distributors, Ltd., 165 S.W.3d 310 (Tex. 2005); Pavecon, Inc. v. R-Com, Inc., 159 S.W.3d 219 (Tex. App. Fort Worth 2005); Bituminous Cas. Corp. v. Maxey, 110 S.W.3d 203 (Tex. App. Houston 1st Dist. 2003).
[FN10] Pavecon, Inc. v. R-Com, Inc., 159 S.W.3d 219 (Tex. App. Fort Worth 2005).
[FN11] Frost Nat. Bank v. L & F Distributors, Ltd., 122 S.W.3d 922 (Tex. App. Corpus Christi 2003), review granted, judgment rev'd on other grounds, 165 S.W.3d 310 (Tex. 2005).
The black letter law leads to the result that if a court declares a contract unambiguous, the "plain meaning" can lead to absurd results, but that if the contract is ambiguous, the courts cannot reach an absurd result by construction. In the real (commercial) world, it would at least seem arguable that a contract is patently ambiguous if its so-called plain meaning leads to an absurd result. The battle for absurdity must be won at the issue of ambiguity.
Hats off to Sartre.