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Bering Strait School District v. RLI Ins. Co. and Lexington Ins. Co. (5/20/94), 873 P 2d 1292
<![CDATA[
Notice: This opinion is subject to correction before
publication in the Pacific Reporter. Readers are
requested to bring errors to the attention of the Clerk
of the Appellate Courts, 303 K Street, Anchorage,
Alaska 99501.
THE SUPREME COURT OF THE STATE OF ALASKA
BERING STRAIT SCHOOL DISTRICT, )
) Supreme Court No. S-5300
Appellant, )
) Superior Court No.
v. ) 2NO-91-355 CI
)
RLI INSURANCE COMPANY AND ) O P I N I O N
LEXINGTON INSURANCE COMPANY, )
)
Appellees. ) [No. 4084 - May 20, 1994]
___________________________________)
Appeal from the Superior Court of the
State of Alaska, Second Judicial District,
Nome,
Charles R. Tunley,
Judge.
Appearances: Sara E. Heideman, Hedland,
Fleischer, Friedman, Brennan & Cooke,
Anchorage, for Appellant. I. Franklin
Hunsaker, John W. Buehler, Randy L. Arthur,
Bullivant, Houser, Bailey, Pendergrass &
Hoffman, Portland, Oregon, and Peter Maassen,
Burr, Pease & Kurtz, Anchorage, for
Appellees.
Before: Moore, Chief Justice,
Rabinowitz, Matthews and Compton, Justices.
[Burke, Justice, not participating.]
MATTHEWS, Justice.
COMPTON, Justice, dissenting.
On October 17, 1989, the high school building in the
village of Stebbins was destroyed by fire. The appellant, Bering
Strait School District, owned the building and had secured fire
insurance for it under two all risk policies, one issued by RLI
Insurance Company, and the other issued by Lexington Insurance
Company, the appellees in this case. The Stebbins high school
building was originally constructed in 1979. By the time of the
fire, building code requirements had changed to some extent. In
order to rebuild the high school building in accordance with
current building codes, an additional $206,466 had to be
expended. The insurance companies refused to pay this sum,
although they otherwise paid the replacement cost of the
building, a sum of approximately $3,500,000. The issue presented
in this case is whether payment of the code upgrade cost is also
required.1
The school district sued the insurance companies for
code upgrade costs. The insurance companies answered and moved
for judgment on the pleadings. The school district countered
with a motion for summary judgment. After argument, the superior
court granted the insurance companies' motion for judgment on the
pleadings based solely on the civil authority exclusion of the
policies. From this order the school district has appealed.
We now set forth the relevant provisions of the
insurance contracts.
The insuring agreement in the RLI contract states that
this Company . . . does insure the
insured named above and legal
representatives, to the extent of the
[replacement cost] of the property at the
time of loss, but not exceeding the amount
which it would cost to repair or replace the
property with material of like kind and
quality within a reasonable time after such
loss, without allowance for any increased
cost of repair or reconstruction by reason of
any ordinance or law regulating construction
or repair . . . against all [risks of
physical loss or damage] . . . .
(Emphasis added.)2
The civil authority clause, which is clause 7 of the
all risk endorsement to both contracts, states as follows:
The policy does not insure against loss
or increased cost occasioned by any Civil
Authority's enforcement of any ordinance or
law regulating the reconstruction, repair, or
demolition of any property insured hereunder.
Notwithstanding the above and subject to
the sum insured, . . . property which is
insured under this Policy is also covered
against the risk of damage or destruction by
civil authority during a conflagration and
for the purpose of retarding the same
provided that neither conflagration nor such
damage or destruction is caused by or
contributed to by war, invasion, revolution,
rebellion, insurrection, or other hostilities
or warlike operations.
(Emphasis added.)
The replacement cost endorsement of both insurance
contracts state in relevant part:
3. This Company shall not be liable
under this endorsement for any loss --
A. occasioned directly
or indirectly by enforcement of any
ordinance or law regulating the
use, construction, repair or
demolition of property unless such
liability has been specifically
assumed under this policy;
. . . .
6. This Company's liability for loss
on a replacement cost basis shall not exceed
the smallest of the following amounts:
. . . .
B. the replacement cost
of the property or any part thereof
identical with such property on the
same premises and intended for the
same occupancy and use[.]
(Emphasis added.)
DISCUSSION
The obligations of insurers are generally determined by
the terms of their policies. "The intention of the parties as to
the coverage of a policy is determined by the words which they
have used." State v. Underwriters at Lloyds, London, 755 P.2d
396, 400 (Alaska 1988) (quoting 6B J. Appelman, Insurance Law and
Practice 4254, at 24-25 (Buckley ed. 1979)). However, there
are a number of special rules of construction which also apply.
Insurance contracts are contracts of adhesion, and as
such "will be construed according to the 'principle of reasonable
expectations.'" Id. (quoting Appelman, 4254 at 25). The
reasonable expectations doctrine has been stated as follows:
The objectively reasonable expectations
of applicants and intended beneficiaries
regarding the terms of insurance contracts
will be honored even though painstaking study
of the policy provisions would have negated
those expectations.
Id. (quoting Robert Keeton, Basic Text on Insurance Law 6.3(a),
at 351 (1971)). In order to determine the reasonable
expectations of the parties,
we look to the language of the disputed
policy provisions, the language of other
provisions of the insurance policy, and to
relevant extrinsic evidence. In addition, we
refer to case law interpreting similar
provisions.
Stordahl v. Government Employees Ins. Co., 564 P.2d 63, 66
(Alaska 1977) (footnote omitted).
Construction of an insurance policy under the principle
of reasonable expectations does not depend on a prior
determination of policy ambiguity. Id. However, where a clause
in an insurance policy is ambiguous in the sense that it is
reasonably susceptible to more than one interpretation, the court
accepts that interpretation which most favors the insured.
Starry v. Horace Mann Ins. Co., 649 P.2d 937, 939 (Alaska 1982).
Grants of coverage should be construed broadly "while exclusions
are interpreted narrowly against the insured." Hahn v. Alaska
Title Guaranty Co., 557 P.2d 143, 145 (Alaska 1976); Starry at
939.
The school district's general argument is that the
insurance policies are replacement cost policies which were
intended to cover the cost to reconstruct a building so that the
new building would be able to replace in function the building
which was destroyed. It argues, in other words, that it reason
ably expected that if one of its school buildings were destroyed,
its insurance would cover the cost to build a replacement
building which would be capable of functioning as a school. The
school district also argues that none of the exclusionary clauses
relied on by the insurance companies when properly construed in
accordance with the rules of construction governing insurance
policies applies to code upgrades.
The insurance companies rely on two types of provisions
in the policies which they contend preclude coverage for the code
upgrades: (1) the civil authority exclusion contained in clause
7 in the all risk endorsement and the similar exclusions
contained in paragraph 3(A) of the replacement cost endorsement
and in the insuring agreement; and (2) the "like kind and
quality" provision contained in the insuring agreement and the
similar "identical property"clause contained in paragraph 6(B)
of the replacement cost endorsement. The superior court relied
only on the civil authority exclusion in granting the insurance
companies' motion. We address the like kind and quality clauses
as well because this court "may uphold the lower court's ruling
if there is any other ground apparent, from the record, which, as
a matter of law would support the result reached by the trial
court." Municipality of Anchorage v. Higgins, 754 P.2d 745, 748
(Alaska 1988) (citations omitted).
Having examined the policy as a whole and the relevant
case law, it is our view that the school district's reasonable
expectation claim is a strong one. Building owners buy
replacement cost insurance so that if their buildings are
destroyed they can be replaced and their uses restored without
cost.3 Our examination of the exclusions relied on by the
insurance companies has persuaded us that they are ambiguous,
that they can be reasonably construed not to preclude coverage,
and that they fall well short of negating an insured's
expectation of coverage.
The civil authority clause quoted above requires that
increased cost in order to be excluded must be "occasioned" by
civil authority enforcement of an ordinance. Similarly, the
civil authority exclusion in paragraph 3(A) of the replacement
cost endorsement requires that loss be "occasioned directly or
indirectly by enforcement of any ordinance . . . unless such
liability has been specifically assumed under the policy." And
the insuring agreement clause disallows increased costs "by
reason of any ordinance . . . ." The school district argues that
these clauses may reasonably be construed to be inapplicable to
this case as the building codes did not "occasion"or cause the
increased costs, the fire did. In other words, the school
district reads this group of exclusions to apply only when the
loss is solely caused by enforcement of an ordinance, and not
where a covered event such as a fire triggers enforcement.4
There are a number of cases decided in other
jurisdictions which have accepted this rationale.5 A recent
example of such a case is Garnett v. Transamerica Insurance
Services, 800 P.2d 656, 666 (Idaho 1990). Construing a provision
which excluded coverage for "loss occasioned directly or
indirectly by enforcement of any ordinance or law regulating the
use, construction, repair, or demolition of buildings or
structures,"the court stated:
As we read this provision, it does not
limit [the insurance companies'] obligation
for the cost of repair or replacement of the
building when a loss has occurred that is
covered by the policy, but merely states that
if the loss itself is caused by an ordinance
or law, there is no coverage. For instance,
if some safety improvement of a building to
which no other loss had occurred were
required by an ordinance or law, [the
insurance company] would not be liable.
However, when the cost of repairing or
replacing a building that had been damaged by
fire is increased by the requirements of an
ordinance or a law, [the insurance company]
is not relieved of that cost.
Id.
Similarly, in Farmers Union Mutual Insurance Co. v.
Oakland, 825 P.2d 554 (Mont. 1992), the Supreme Court of Montana
construed a civil authority exclusion like that found in
paragraph 3(A) of the replacement cost endorsement in this case.
The endorsement stated that coverage did not apply "to loss or
damage caused by or resulting from: (1) [e]nforcement of any
ordinance or law, either directly or indirectly, regulating the
construction, repair or demolition of buildings or structures."
Id. at 555. The building owner in that case had been required to
remove and dispose of asbestos from the owner's fire damaged
building. The court held that the above exclusion was "clearly
inapplicable"under its own terms. The court stated:
The asbestos regulations, which are of
course a valid exercise of the government's
police power, did not "cause"or "result in"
"loss or damage"to the insured property. It
was the fire that caused the "loss or damage"
to the insured property.
Id. at 556.
In Starczewski v. Unigard Insurance Group, 810 P.2d 58
(Wash. App. 1991), the clause construed excluded coverage for
losses "resulting directly or indirectly from . . . any ordinance
or law regulating the use, construction, repair, or demolition of
property." Id. at 62. The court suggested that this exclusion
was inconsistent with the insurance company's promise to "repair
or replace the damaged property"and further observed that it
"would also be rendered ineffective by the 'efficient proximate
cause' rule, since any additional repair costs due to code
requirements resulted predominately from the fire, not from the
enforcement of any ordinance or law." Id.
In Daniels v. Aetna Life & Casualty Co., No. IP 81-1413-
C, 1983 WL 13684, at *2 (S.D. Ind., June 29, 1983), the court
construed a clause excluding "loss caused by: 1. enforcement of
any ordinance or law regulating the use, construction, repair, or
demolition of property, including debris removal expense." The
claim involved was for extra costs caused by the ordinance-
mandated disposal of PCB following a fire. The court concluded
that the exclusion did not apply because the removal was not
exclusively caused by enforcement of the law, but was caused by a
concurrence of the fire and law enforcement:
[T]his Court concludes that the extra
costs associated with PCB disposal were not
brought about only through the action of
state officials and statutes. The fire, a
peril insured against, brought about the need
for debris removal, including the need for
PCB disposal. Accordingly, the Court
concludes that the exclusion quoted above
does not apply and that the defendant must
bear the cost of disposal of PCB-contaminated
debris.
Id. at *3.
We are in general agreement with the foregoing
authorities and thus conclude that the civil authority group of
exclusions contained in the policies may reasonably be construed
not to apply in the present case.6
Concerning the like kind and quality clause of the
insuring agreement, the school district contends that this clause
does not come into play until "a fundamental and quantum
difference in the nature of the building is sought to be made or
when a totally new component is sought to be added to the
building which was not present in its predecessor." It argues
that the code upgrades required in the present case did not
result in a building of such a fundamentally different kind and
quality that it falls beyond the like kind and quality
limitation.
In our opinion, this argument has merit, especially
when it is formulated in terms of the reasonable expectations of
the insured. A reasonable insured would not expect to be denied
coverage because a replacement building is not a clone of the
building which was destroyed. In an important sense, replacement
cost policies almost always provide the insured with a building
different from that which was destroyed. The insured receives a
new building, which should invariably be of better quality and
worth more than the building which is replaced.
Further, it is our opinion that paragraph 6(B) reason
ably suggests that code changes necessary to render the new
building capable of the same occupancy and use as the old one are
covered. Under that clause, loss is not to exceed the replace
ment cost of a building which is both "identical" with the
destroyed building and "intended for the same occupancy and use."
These conclusions are supported by Tenley Enterprises
v. Harbor Insurance Co., Civ. A. No. 86-1035, 1986 WL 11471 (E.D.
Pa., Oct. 15, 1986). In that case, the district court construed
an "identical property"clause similar to that in paragraph 6(B)
of the replacement cost endorsement in this case in a way which
is germane not only to that clause but to the like kind and
quality clause as well. Discussing how the jury had been
instructed, the court expressed the view that substantial
similarity between the new and the old structures was enough to
satisfy the clause:
I instructed the jury that the policy
endorsement covered not just an "identical"
structure, but an identical structure
"intended for the same occupancy and use,"
and that this entitled plaintiff to
reimbursement for whatever changes from the
original design were necessitated by interim
changes in governmental regulations, even if
that cost more than following the original
design would have cost. Apart from the
question of legally mandated enhancements, I
instructed the jury that substantial
equivalents, rather than literal identity,
would suffice: that is, differences in
design or materials which did not
substantially increase the cost over what it
would have cost to duplicate the original
design should be disregarded.
Id. at *2. We agree that this reflects a sensible construction
of the like kind and quality type of clauses in question in this
case.
Accordingly, we conclude that the increased replacement
costs caused by changed code requirements are covered by the
appellees' policies. REVERSED and REMANDED for further
proceedings.
COMPTON, Justice, dissenting.
As the result of a fire, the Stebbins High School
building was destroyed. It was reconstructed. Bering Strait
School District incurred increased construction costs which
resulted from enforcement of current building codes regulating
construction of the building. The increased construction costs
are at issue.
Several clauses of the RLI/Lexington Insurance
contracts bear on the parties' arguments and the court's
analysis. The insuring clause of the RLI contract excludes from
the cost to repair or replace property "allowance for any
increased cost of repair or reconstruction by reason of any
ordinance or law regulating construction or repair . . . . " The
Pollution, Contamination, Debris Removal Exclusion Endorsement,
Asbestos Exclusion, excludes from coverage "Demolition or
increased cost of reconstruction, repair, debris removal or loss
of use necessitated by the enforcement of any law or ordinance
regulating [asbestos, dioxin, or polychlorinated biphenols]."
(Emphasis added). The Debris Removal Exclusion excludes from
coverage "loss or damage or expenses . . . resulting from removal
of debris of damaged property insured hereunder . . . . " The
All Risks of Physical Loss or Damage, Conditions, Civil Authority
clause provides in part:
The policy does not insure against loss
or increased cost occasioned by any civil
authority's enforcement of any ordinance or
law regulating the reconstruction, repair, or
demolition of any property insured hereunder.
(Emphasis added). The Replacement Cost Endorsement excludes from
coverage "any loss (A) occasioned directly or indirectly by
enforcement of any ordinance or law regulating the use,
construction, repair or demolition of property . . . ." The
Lexington Insurance contract contains similar exclusions.
In the court's view "loss"subsumes "increased cost."
Op. at 7-8 & n.4.7 I dissent because this result ignores the
term "increased cost"and imposes liability on the insurers,
notwithstanding the express language of the contracts.
Several of the cases relied on by the court do not
address insurance contracts which exclude coverage for "increased
costs" related to enforcement of an ordinance regulating
construction. See Garnett v. Transamerica Ins. Servs., 800 P.2d
656, 662 (Idaho 1990); Daniels v. Aetna Life & Casualty Co., 1983
WL 13684, at *4 (S.D. Ind. June 29, 1983); Starczewski v. Unigard
Ins. Group, 810 P.2d 58, 62 (Wash. App. 1991). In those cases
the contracts limit liability only to an undefined "loss." Thus
it is left to the courts to construe what constitutes a "loss."
Courts are free to construe the term as broadly as they choose,
applying traditional rules of construction of ambiguous insurance
contract terms. This is appropriate, because construction of the
term "loss"is subject to the adhesion rationale advanced by this
court. However, the rationale is misapplied in this case. The
adhesion rationale does not justify reading a provision out of a
contract.
The adhesion rationale is also appropriate where
contract terms lead to reasonable expectations on the part of the
insured. See Op. at 5, 6 & 7. It is well established that when
a court construes an insurance contract, it must consider the
contract in its entirety. U.S. Fire Ins. Co. v. Colver, 600 P.2d
1, 3 (Alaska 1979); Rig Tenders, Inc. v. Santa Fe Drilling Co.,
585 P.2d 505, 509 (Alaska 1978); Ness v. National Indem. Co., 247
F. Supp. 944, 948 (D. Alaska 1965). So must it be in determining
objectively reasonable expectations. I suggest that in this case
a person reading the civil authority clause, in conjunction with
other provisions of the insurance contracts, could not reasonably
expect coverage for increased costs mandated by enforcement of
current building codes, regardless of why enforcement was
mandated. An insured loss followed by replacement of the
property "without allowance for any increased cost of repair or
reconstruction by reason of any ordinance or law regulating
construction or repair,"read in conjunction with exclusion of
insurance "against loss or increased cost occasioned by any Civil
Authority's enforcement of any ordinance or law regulating the
reconstruction, repair, or demolition of any property insured"
and related provisions, brook of no objectively reasonable
expectation of coverage. Some courts have
imposed liability for increased costs necessitated by enforcement
of ordinance or law notwithstanding the existence of increased
cost clauses identical to those in this case. See Unified School
District v. St. Paul Fire & Marine, 627 P.2d 1147 (Kan. App.
1981); Farmers Union Mutual Insurance Co. v. Oakland, 825 P.2d
554 (Mont. 1992). However, these cases are distinguishable,
because the increased cost clause was not outcome-determinative
in either case.8
Unified School District is distinguishable for several
reasons. The actual cash value provision and the replacement
cost endorsement are virtually identical to the RLI/Lexington
Insurance provisions, including a replacement cost endorsement
clause which excludes a loss unless "specifically assumed under
this policy." The trial court held that since the insurer had
insured a school building, it had insured the school building's
functional use. The school building was subject to the state
building code. Having insured the functional use of a building
subject to the state building code, the insurer had contractually
specifically assumed building code costs. Additionally, the
trial court held that the suggested limitation was void as
against public policy, as it was in conflict with state statutory
requirements. Unified Sch. Dist., 627 P.2d at 1153. Lastly, on
appeal counsel for the insurer "tacitly conceded" at oral
argument that (a) "defendants insured the functional use of the
buildings in question as school facilities, which are, by
definition, subject to Building Code cost liability, and thus,
contractually assumed Building Code cost liability," and (b)
limitations on code cost liability "are void and unenforceable as
against public policy [i.e., statutory requirements]." Id. at
1153. In the case before us the trial court did not base its
decision on any claimed ambiguity or lack of ambiguity between
the actual cash value provision and the replacement cost
endorsement. It cited no statute with which the increased cost
exclusion is arguably in conflict. There have been no such
concessions on appeal.
Farmers Union is also distinguishable. The court
considered a civil authority clause and an increased cost clause,
both of which were identical to those in this case. However, the
case concerned code-necessitated asbestos removal. The court
imposed liability notwithstanding the exclusion for increased
costs because "[t]he clause as a whole refers to types of new
materials with which the damaged materials must be repaired or
replaced. It is utterly silent on the question of debris
removal." Farmers Union, 825 P.2d at 556. Indeed, Farmers Union
supports a dichotomy between "loss" on the one hand and
"increased cost"on the other.9
I am unpersuaded by the court's analysis. If the
insurance contracts referred only to "loss,"the court might be
justified in construing "loss"broadly to include the increased
costs resulting from enforcement of building codes in existence
at the time of reconstruction.10 However, the contracts exclude
both "loss"or "increased cost." These are distinct exclusions.
They are not redundant on their face. They apply to
"reconstruction, repair, or demolition of any property insured
hereunder"following loss from an insured event.
The court also addresses the insurers' alternative
ground for affirmance under the "like kind and quality" clause.
See Op. at 6, 12-13. I do not believe it necessary to address
this ground for affirmance, since I conclude that the "increased
cost" exclusion is determinative. I would observe that
RLI/Lexington do not argue that the replacement building must be
a clone of the building which was destroyed. Further, the
statement that the "insured receives a new building, which should
invariably be of better quality and worth more than the building
which it replaced" is not supported by any evidence in the
record, and is, in my view, open to dispute.
I would affirm the judgment of the superior court.
_______________________________
1 The code upgrades were of four types, architectural,
structural, mechanical and electrical. The most expensive were
the structural upgrades. The largest structural item required an
increase in the number and size of certain beams and joists.
This added a cost of approximately $29,000. Next largest was an
increase in nailing patterns and connectors in order to take into
account new wind load standards. This cost approximately
$27,000. The most expensive architectural item was a guardrail
costing approximately $4,000. The most expensive electrical
upgrade was $5,500 for emergency lights. Mechanical additions
were minor, totalling under $3,000.
2 The Lexington contract contains a similar like kind and
quality clause:
Unless otherwise provided in form
attached, this Company shall not be liable
beyond the [replacement value] of the
property at the time any loss or damage
occurs and the loss or damage shall be
ascertained or estimated according to such
[replacement value], however caused, and
shall in no event exceed what it would then
cost to repair or replace the same with
material of like kind and quality.
3 The Court of Appeals of Washington has recently
expressed a similar conclusion:
We hold, as a matter of law, that
the average person would believe that "the
amount necessary to repair or replace the
damaged property" includes the amount
necessary to comply with mandatory building
codes enacted after the policy was issued.
See Odessa School Dist. 105 v. Insurance Co.
of America, 791 P.2d 237[-239 (Wash. App.
1990)] ("A policy is to be given a fair,
reasonable, and sensible construction that
comports with how it would be viewed by an
average purchaser of insurance.").
Starczewski v. Unigard Ins. Group, 810 P.2d 58, 62 (Wash. App.
1991).
4 The insurance companies argue that this interpretation
renders the exclusion meaningless, as exclusions are not
necessary unless a covered loss occurs. However, as pointed out
by Bering, the policies are all risk policies, and thus cover any
event causing damage or loss unless specifically excluded. Thus,
but for an exclusion, the policy would apply in situations where
loss or damage is caused by enforcement of an ordinance. For
example, a government order to demolish a dilapidated building,
to remove asbestos from a building, or to clean up toxic waste
could all conceivably cause loss or damage to the property, thus
be covered by an all risk policy. These events, however, would
be excluded under a civil authority exclusion.
5 There is also contrary authority. See Bischel v. Fire
Ins. Exch., 2 Cal. Rptr. 2d 575, 581 (Cal. App. 1991) (rejecting
insured's argument that the need to replace the property was a
result of the damage, not the building code, where the insured
alleged that "because of standards for . . . construction imposed
by the City, the portion . . . which was damaged . . . cannot be
repaired without also bringing the entire [property] up to
code"); Cohen Furniture Co. v. St. Paul Ins. Co., 573 N.E.2d 851,
853-54 (Ill. App. 1991) (holding that civil authority clause
excluded cost of fire suppression system required by ordinance;
causation argument was not addressed and clause excluded losses
caused by enforcement of an ordinance "regardless of any other
cause or event that contributes concurrently or in any sequence
to the loss"); see also Regency Baptist Temple v. Insurance Co.
of North America, 352 So.2d 1242, 1243-44 (Fla. App. 1977)
(excluding liability for additional expenses incurred in bringing
non-damaged portion of roof up to code); Bradford v. Home Ins.
Co., 384 A.2d 52, 54 (Me. 1978) (holding that insurer was not
liable for increased cost of rebuilding in compliance with code).
6 Another case involving similar coverage and exclusion
clauses found ambiguity based on the inconsistency between the
coverage clause duty to repair and replace on the one hand, and
the exclusions for increased cost and loss occasioned by building
codes, on the other. The court resolved this ambiguity in favor
of the insured, stating:
[I]f it be assumed that the replacement
cost endorsement is inconsistent with the
insuring clause of the policies in question,
thus creating an ambiguity, that ambiguity
must be construed against those who prepared
the documents, the defendants. The obvious
result of any such construction is the
inescapable conclusion that defendants,
having contractually undertaken to insure
plaintiff's structures as school facilities,
facilities known to be subject to the
Building Code, have also assumed liability
for the costs of complying with that Code
upon loss. Thus, defendants are liable, up
to the limits of coverage, for the cost of
plaintiff's necessary repairs, including any
added costs in making those repairs
occasioned by Code requirements.
Unified School Dist. No. 285 v. St. Paul Fire & Marine Ins. Co.,
627 P.2d 1147, 1153-54 (Kan. App. 1981).
7 Note 4 presents several examples of hypothetical
applications of the "civil authority"clause Bering Strait claims
give it meaning. The asbestos and toxic waste examples are
inapposite, as both are addressed in the Pollution,
Contamination, Debris Removal Exclusion Endorsement. The
demolition example does not withstand scrutiny. If demolition of
a dilapidated building through enforcement of a building code is
not an insured loss, what conceivably could be an insured
"increased cost" of reconstruction of the uninsured loss?
"Increased cost"necessarily means that the initial cost is the
result of an insured event, and only the increased cost of
compliance with current regulatory requirements relating to
"reconstruction, repair, or demolition"is excluded.
8 Other authorities have reached different results. One
commentator has noted that courts addressing situations like the
present case have held that "under the policy the insurance
company undertook to cover the loss resulting from the fire
combined with the building regulations." Nonetheless, "[e]xpress
policy language excluding liability for the increased cost of
construction or repair as a result of building regulation
requirements has been given effect." George J. Couch, Couch
Cyclopedia of Insurance Law 54:166, at 551-53 (2d rev. ed.
1983). Several jurisdictions have adopted this reasoning. See,
e.g., Breshears v. Indiana Lumbermens Mut. Ins. Co., 63 Cal.
Rptr. 879, 884-85 (App. 1967); Regency Baptist Temple v. Ins. Co.
of N. Am., 352 So.2d 1242, 1243-44 (Fla. Dist. Ct. App. 1977);
Cohen Furniture Co. v. St. Paul Ins. Co., 573 N.E.2d 851, 854
(Ill. App. 1991); Hewins v. London Assurance Corp., 68 N.E. 62,
64 (Mass. 1903).
For example, in Hewins the Supreme Judicial Court of
Massachusetts considered a provision under which "the insurer
shall not be liable 'beyond the actual value destroyed by fire
for loss occasioned by ordinance or law regulating construction
or repair of buildings.'" Hewins, 68 N.E. at 64. Accordingly,
the court concluded that
such portion of the damage caused by the
change in the condition of the building laws,
whether regarded as a condition or a cause,
is not to be considered as a loss or damage
by fire, but is to be excluded from considera-
tion, and the loss is to be estimated as if
there were no building laws affecting the
situation.
Id. (emphasis added).
9 If the Farmers Union court was presented with this
case, arguably it would have excluded coverage because the code
cost increases did not refer to debris removal, but related to
the costs of replacement and repair of the burned school
building, costs which were excluded from coverage.
10 The court flirts with Bering Strait's argument that the
fire, not the building codes, "occasioned"the increased cost of
reconstruction of the school building. Op. at 7-8. This
interpretation, Bering Strait argues, renders the provision
ambiguous. This argument is of the "For lack of a nail"variety.
"Occasion"is defined as "[s]omething that brings on an action or
event." Webster's II New Riverside University Dictionary 812
(1988); "1. to give occasion to: bring about: give rise to: cause
2. to cause to do something." Webster's Third New international
Dictionary 1560 (1969). An accurate statement of the situation
in the case before us is that although the fire occasioned the
loss of the school building, government regulation of
reconstruction of buildings through the building codes occasioned
the increased costs which are at issue. See supra note 2.
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