One of my favorite aspects of being a first-party property insurance attorney is being able to pick apart an insurance policy and take a position on the way a certain provision should be interpreted.
An ordinance or law provision provides coverage for loss caused by enforcement of ordinances or laws regulating construction and repair of damaged buildings.1 Property insurance policies differ in the way they provide this type of coverage. Most standard policies state something along the lines of covering “the increased costs you incur due to the enforcement of any ordinance or law which requires or regulates.”
A typical ordinance or law provision looks like this:
We will pay you any increased repair cost, or increased rebuilding cost or increased construction cost that you may incur because of an enforcement of these laws, providing such repair, rebuilding or construction takes place on the same premises as the demolished building(s) and that the replacement construction is of like height, floor area, style, and for like occupancy of the demolished building(s) covered under this policy.
In the above-mentioned example, the provision provides coverage for the preceding damages that are incurred. Other insurance policies might limit the ability to interpret “incur” by adding “incur and pay” or “incur, pay and complete” This means that the insurance carrier will not pay out on the coverage until the property is actually repaired or replaced. But when an insurance policy only requires the policyholder to “incur” increased costs or repairs, what does it mean to “incur,” and when does this happen?
Outside of caselaw avenues to explore, there are many other ways to interpret policy provisions. In a secondary source titled “Additional Insurance Coverages Funding Code Upgrades, Debris Removal, and Claims Preparation Expense,” Jonathan C. Lerner analyzed these exact types of provisions, and what it means to “incur” such losses.
Lerner attempted to pick apart the language of the exact policy provision I quoted earlier, in order to figure out what it means to “incur” and when this happens. He states:
[I]t must be noted that the language contains the condition that the expense actually be incurred before the carrier becomes obligated to make payment. This creates an interesting issue of what precisely does “incur” mean when such language is implicated. Does “incur” mean that the insured has had the demolition company raze the house, remove the debris, and submit a bill? Or does “incur” mean that the insured has actually made payment for such bill?
In this regard, it is a fundamental tenet of contract interpretation that when words of an insurance contract are clear and unambiguous, they must be accorded their plain and ordinary meaning. Since the word “incur” is not ambiguous, we must look to its plain and ordinary meaning. “Incur” is defined in the dictionary as follows: to become liable or subject to as a result of one’s actions; sustain; bring upon oneself.2 No dictionary definition that I found defined the word “incur” to mean “paid.” Rather, as set forth above, the word “incur” means to become liable or subject to. As such, the moment an insured becomes liable for an expense, such expense is “incurred.”3
By supplementing his analysis of the word “incur” using the dictionary definition to discern its “plain and ordinary meaning,” the author determined that the insured incurs a loss the moment it becomes liable for an expense.
His analysis, using the plain and ordinary meaning of the word “incur” is consistent with the Florida caselaw. The Florida Supreme Court has agreed with other Florida cases and has held that ‘to incur’ means to become liable for the expense, but not necessarily to have actually expended it.4 My colleagues, Beaujeaux de Lapouyade and Corey Harris, have briefly discussed the Ceballo and Jossfolk cases in other blogposts:
Instead of looking mostly at caselaw for interpreting the policy, Lerner’s analysis dealt heavily with basic-level contract interpretation, using dictionary definitions to get to the plain and ordinary meaning of the word itself. This is just one of the many other ways policy language can be interpreted outside of caselaw research and analysis.
Thus, if caselaw is limited or unavailable, there are still other methods of interpreting the policy language of your insurance contract, including one of my personal favorites: ejusdem generis (“the expression of one thing is the exclusion of another”).5
2 The American Heritage Dictionary of the English Language (4th ed. 2006).
3 Johnathan C. Lerner, Additional Insurance Coverages Funding Code Upgrades, Debris Removal, and Claims Preparation Expense, 37 Brief 48, 53 (Summer 2008).
4 Ceballo v. Citizens Prop. Ins. Corp., 967 So.2d 811, 815 (Fla.2007).
5 For an in-depth recent discussion on ejusdem generis, check out another blog post by my colleague Jamie Glass: https://www.propertyinsurancecoveragelaw.com/2020/11/articles/insurance/the-fruit-salad-using-ejusdem-generis-in-tennessee-insurance-policy-interpretation/