"Law or Ordinance" Exclusion in Homeowners Policy Barred Coverage, Court Decides

Publish Date:Feb 01, 2013
Summary:
In an opinion published on January 24, 2013, the California Court of Appeal (Fourth Appellate District) ruled in Reichert v. State Farm that the “law or ordinance” exclusion in a homeowners insurance policy applied when the insured’s house was demolished by order of a city.
In an opinion published on January 24, 2013, the California Court of Appeal (Fourth Appellate District) ruled in Reichert v. State Farm that the “law or ordinance” exclusion in a homeowners insurance policy applied when the insured’s house was demolished by order of a city.

Eric and Lizbeth Reichert purchased a house in Huntington Beach. They obtained a State Farm homeowners insurance policy. The policy contained a provision which excluded from coverage any loss caused by the enforcement of a law or ordinance regulating the construction or repair of a building. 

The Reicherts remodeled the house. The City of Huntington Beach inspected the remodel project and determined that the remodel work put the house out of compliance with federal floodplain requirements. The property was demolished by order of the city.

The Reicherts claimed benefits under their State Farm policy. State Farm denied coverage based on the policy’s law or ordinance exclusion. The Reicherts sued State Farm. The trial court granted State Farm’s motion for summary judgment.

The Court of Appeal affirmed the trial court’s ruling. The court explained that previous court decisions note “that the clear intent of the law or ordinance exclusion is to exclude loss when it is the law or ordinance itself – as distinct from, say a fire – that is the cause of the loss.” The exclusion applied in this case because the undisputed facts showed that the Reicherts’ home was demolished pursuant to the proper enforcement by the city of federal floodplain regulations.

The Reicherts argued against application of the exclusion by pointing to provisions in their policy which covered repair costs related to putting the home in compliance with code upgrades. In rejecting the argument, the court explained that the code upgrade coverage did not eliminate the effect of the law or ordinance exclusion. The policy’s promise to pay for the cost required by code upgrades related to cases where there was already a loss resulting from a covered peril. The Reicherts’ loss did not result from a covered peril because the law or ordinance exclusion in their policy meant that there was no coverage when enforcement of the law or ordinance is the peril.

The Court of Appeal’s opinion is available at www.courts.ca.gov
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