The policyholder owned a historic three-story brick building in the City of Elmira, known as the Armory Building. On March 10, 2006, a windstorm caused a portion of the Armory’s southern wall to collapse. The policyholder hired an engineering firm to assess the Armory’s condition. The engineer concluded that the collapse of the southern wall was caused by hidden deterioration of mortar which weakened the wall and left it unable to withstand gusting winds. The engineer also reported that similar conditions existed in other areas of the Armory, which rendered the building hazardous to its occupants and the public. He recommended that the building be vacated until the exterior walls were rebuilt. The report was provided to the Fire Marshall who, in his capacity as the city Code Enforcement Officer, found the Armory to be in violation of several sections of the New York State Property Maintenance Code and determined that it must be vacated until the repairs recommended by the engineer were performed. He also concluded that if the repairs were not performed, the Armory should be demolished immediately.
The policyholder elected to have the Armory demolished and accepted a bid from a firm for $1,022,000. The Armory purchased a building on another site for approximately $227,000 to relocate the Armory. The policyholder then filed a claim with its all-risk insurance policy. Acknowledging that the collapse of the Armory’s south wall was covered under the policy, the insurer paid $440,000 for the damage sustained in March 2006, but refused to cover the cost of demolishing the undamaged portions of the Armory and the replacement building at a different location.
The policyholder sued the insurer for breach of contract, claiming that it was entitled to coverage under the “Ordinance or Law” endorsement to the policy which extended coverage to include certain losses resulting from enforcement of “any ordinance or law.” The Ordinance or Law provision of the policy provided:
(1) If a Covered Cause of Loss occurs to covered Building property, we will pay:
(a) For Loss or damage caused by enforcement of any ordinance or law that:
(i) Requires the demolition of parts of the same property not damaged by a Covered Cause of Loss;
(c) The cost to demolish and clear the site of undamaged parts of the property caused by enforcement of the building, zoning or land use ordinance or law.
The appellate court noted that the only requirement necessary to trigger the Ordinance or Law provision was the occurrence of a “Covered Cause of Loss.” The parties agreed that the damage to the Armory’s south wall in March 2006 was a “Covered Cause of Loss” under the policy. Accordingly, the court held that the policyholder was entitled to coverage so long as the costs to demolish the Armory and clear the site of undamaged parts were caused by enforcement of the building, zoning or land use ordinance or law. The Fire Marshall found that the Armory was in violation of several provisions of the Property Maintenance Code, and exercised his authority to enforce those code provisions by requiring that the portions of the Armory undamaged by the windstorm to be either repaired or demolished.
The insurer argued that the Ordinance or Law provision cannot be invoked because the covered cause of loss—i.e., the windstorm—did not cause the enforcement of the Property Maintenance Code. The appellate court noted that the Ordinance or Law provision contains no such requirement. Rather, the clear language of the Ordinance or Law provision required only that a covered cause of loss occur, and that the policyholder incur costs to demolish and clear the site of undamaged parts of the property as a result of the enforcement of an ordinance or law. The only causal link required under that provision is that the costs to demolish the undamaged portions of the building are caused by enforcement of an ordinance or law, and the appellate court remanded the case to the trial court for determination of the precise amount of demolition costs.1
Ordinance or law coverage is important and valuable, and can be critical to a full recovery, especially for older structures. It is important to consult with your insurance professionals periodically to verify coverage, and I urge you to ask about ordinance or law coverage in those discussions.