When rebuilding in the aftermath of Hurricane Sandy, many property owners are getting hit by a second wave of stress when they find their property cannot be repaired as it was before because building codes have changed. It can be very expensive to bring a building up to code after it suffers storm damage. This can be especially troubling when your local code enforcement officer finds and cites code violations in areas of the property not affected by the storm. Luckily, however, New Jersey’s courts have found in favor of property owners in these situations.
Many property insurance policies contain coverage for the enforcement of law and ordinances. This means that if a governing body requires something to be done with the property, the insurance carrier will bear that cost up to the policy limits for that coverage. The problem is, carriers do not like to pay these sorts of claims, and this is even more so when the ordinance or law is directed at portions of the property that were not damaged by the cause of loss. This issue was addressed by New Jersey’s courts in DEB Associates v. Greater New York Mutual Insurance Company.1
In DEB Associates the plaintiff owned an eight story office building that suffered wind damage to the seventh floor of the building resulting in a collapse of the exterior wall on that floor. When inspecting the damage, the local code enforcement officer found that code violations led to the collapsed wall. He also found the same violations throughout the building and declared the building unsafe. In order to re-inhabit the building, the plaintiff was required to bring all floors up to code. The plaintiff submitted a claim under the law and ordinance portion of the policy which was denied as to the undamaged floors of the building. The court stated:
[A]pplying persuasive precedent to the facts of this case, we agree with plaintiff that there is a clear causal connection between the collapse of the seventh floor wall and the code official’s mandate that plaintiff bring the remaining floors into compliance to prevent them from collapsing.
The court ruled in favor of the plaintiff and found coverage under the ordinance and law provision for the undamaged floors.
While this is good news for policyholders, it is important to note the court stopped short of making a blanket ruling that once there is a covered cause of loss, coverage is automatic regardless of whether the ordinance or law issue is triggered by the covered cause of loss. The court made clear there must exist some nexus and causal relationship between the covered damage and the ordinance or law claim. This was a case of first impression in New Jersey and I expect this body of law will be more fully developed in the wake of Hurricane Sandy.