Bering Strait School Dist. v. RLI Ins. Co.
| Decision Date | 20 May 1994 |
| Docket Number | No. S-5300,S-5300 |
| Citation | 873 P.2d 1292 |
| Parties | 91 Ed. Law Rep. 374 BERING STRAIT SCHOOL DISTRICT, Appellant, v. RLI INSURANCE COMPANY and Lexington Insurance Company, Appellees. |
| Court | Alaska Supreme Court |
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, OR, and Peter Maassen, Burr, Pease & Kurtz, Anchorage, for appellees.
Before MOORE, C.J., and RABINOWITZ, MATTHEWS and COMPTON, JJ.
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--
....
6. This Company's liability for loss on a replacement cost basis shall not exceed the smallest of the following amounts:
....
(Emphasis added.)
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 reasonably 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, 118 Idaho 769, 800 P.2d 656, 666 (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...
To continue reading
Request your trial
-
Max True Plastering Co. v. U.S. Fidelity and Guar. Co.
...Sales, Inc. v. Universal Underwriters Insurance Co., see note 5 at 402, 682 P.2d at 397, supra.17 Id.18 Bering Strait School Dist. v. RLI Ins., 873 P.2d 1292, 1295 (Alaska 1994); Stordahl v. Government Employees Ins. Co., 564 P.2d 63, 65 (Alaska 1977).19 Davis v. M.L.G. Corp., see note 5 at......
-
United Nuclear Corp. v. Allstate Ins. Co.
...as if the exclusion did not exist. See Allstate Ins. Co., 90 Cal.Rptr.3d 1, 201 P.3d at 1154;see also Bering Strait Sch. Dist. v. RLI Ins. Co., 873 P.2d 1292, 1295 (Alaska 1994) (“Grants of coverage should be construed broadly while exclusions are interpreted narrowly.” (citation and intern......
-
Fire Ins. Exchange v. Superior Court
...other jurisdictions. (See e.g., Dupre v. Allstate Ins. Co. (Colo.App.2002) 62 P.3d 1024, 1029-1030 (Dupre); Bering Strait School Dist. v. RLI Ins. (Alaska 1994) 873 P.2d 1292, 1296; Farmers Union Mutual Ins. Co. v. Oakland (1992) 251 Mont. 352, 355-356, 825 P.2d 554; Garnett v. Transamerica......
-
Danzeisen v. Selective Ins. Co. of America
...Algernon Blair Group, Inc. v. United States Fidelity and Guar. Co., 821 F.2d 597, 602-03 (11th Cir.1987); Bering Strait Sch. Dist. v. RLI Ins. Co., 873 P.2d 1292, 1295 (Alaska 1994); Starczewski v. Unigard Ins. Group, 61 Wash.App. 267, 810 P.2d 58, 62, review denied, 117 Wash.2d 1017, 818 P......
-
Investigating coverage
...costs; the fire did. The court cited decisions from western states with similar holdings. Bering Strait School Dist. v. RLI Ins. Co. , 873 P.2d 1292 (Ala. 1994) Note: The intent of code improvement exclusions is to bar coverage for losses caused solely by the building code. If a homeowner i......