Court Opinion

ID: 9563190
Source: CourtListenerOpinion
Date Created: 2023-08-21 18:37:38.282553+00
Date Added: 2024-06-11T09:17:46.057193
License: Public Domain

COMPTON, Justice,
dissenting.
As the result of a fire, the Stebbins High School building was destroyed. It was reconstructed. Bering Strait School District incurred increased construction costs which resulted from enforcement of current building codes regulating construction of the building. The increased construction costs are at issue.
Several clauses of the RLI/Lexington Insurance contracts bear on the parties’ arguments and the court’s analysis. The insuring clause of the RLI contract excludes from the cost to repair or replace property “allowance for any increased cost of repair or reconstruction by reason of any ordinance or law regulating construction or repair....” The Pollution, Contamination, Debris Removal Exclusion Endorsement, Asbestos Exclusion, excludes from coverage “Demolition or increased cost of reconstruction, repair, debris removal or loss of use necessitated by the enforcement of any law or ordinance regulating [asbestos, dioxin, or polychlorinated bi-phenols].” (Emphasis added). The Debris Removal Exclusion excludes from coverage “loss or damage or expenses ... resulting from removal of debris of damaged property insured hereunder....” The All Risks of Physical Loss or Damage, Conditions, Civil Authority clause provides in part:
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.
(Emphasis added). The Replacement Cost Endorsement excludes from coverage “any loss (A) occasioned directly or indirectly by enforcement of any ordinance or law regulating the use, construction, repair or demolition of property_” The Lexington Insurance contract contains similar exclusions.
*1299In the court’s view “loss” subsumes “increased cost.” Op. at 1295-1296 & n. 4.1 I dissent because this result ignores the term “increased cost” and imposes liability on the insurers, notwithstanding the express language of the contracts.
Several of the cases relied on by the court do not address insurance contracts which exclude coverage for “increased costs” related to enforcement of an ordinance regulating construction. See Garnett v. Transamerica Ins. Servs., 118 Idaho 769, 800 P.2d 656, 662 (1990); Daniels v. Aetna Life & Casualty Co., 1983 WL 13684, at *4 (S.D.Ind. June 29, 1983); Starczewski v. Unigard Ins. Group, 61 Wash.App. 267, 810 P.2d 58, 62 (1991). In those eases the contracts limit liability only to an undefined “loss.” Thus it is left to the courts to construe what constitutes a “loss.” Courts are free to construe the term as broadly as they choose, applying traditional rules of construction of ambiguous insurance contract terms. This is appropriate, because construction of the term “loss” is subject to the adhesion rationale advanced by this court. However, the rationale is misapplied in this case. The adhesion rationale does not justify reading a provision out of a contract.
The adhesion rationale is also appropriate where contract terms lead to reasonable expectations on the part of the insured. See Op. at 1294, 1295 & 1296. It is well established that when a court construes an insurance contract, it must consider the contract in its entirety. U.S. Fire Ins. Co. v. Colver, 600 P.2d 1, 3 (Alaska 1979); Rig Tenders, Inc. v. Santa Fe Drilling Co., 585 P.2d 505, 509 (Alaska 1978); Ness v. National Indem. Co., 247 F.Supp. 944, 948 (D.Alaska 1965). So must it be in determining objectively reasonable expectations. I suggest that in this case a person reading the civil authority clause, in conjunction with other provisions of the insurance contracts, could not reasonably expect coverage for increased costs mandated by enforcement of current building codes, regardless of why enforcement was mandated. An insured loss followed by replacement of the property “without allowance for any increased cost of repair or reconstruction by reason of any ordinance or law regulating construction or repair,” read in conjunction with exclusion of insurance “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” and related provisions, brook of no objectively reasonable expectation of coverage.
Some courts have imposed liability for increased costs necessitated by enforcement of ordinance or law notwithstanding the existence of increased cost clauses identical to those in this case. See Unified School District v. St. Paul Fire & Marine, 6 Kan. App.2d 244, 627 P.2d 1147 (1981); Farmers Union Mutual Insurance Co. v. Oakland, 251 Mont. 352, 825 P.2d 554 (1992). However, these cases are distinguishable, because the increased cost clause was not outcome-determinative in either case.2
*1300Unified School District is distinguishable for several reasons. The actual cash value provision and the replacement cost endorsement are virtually identical to the RLI/Lexington Insurance provisions, including a replacement cost endorsement clause which excludes a loss unless “specifically assumed under this policy.” The trial court held that since the insurer had insured a school budding, it had insured the school budding’s functional use. The school budding was subject to the state budding code. Having insured the functional use of a budding subject to the state building code, the insurer had contractually specifically assumed budding code costs. Additionally, the trial court held that the suggested limitation was void as against public policy, as it was in conflict with state statutory requirements. Unified Sch. Dist., 627 P.2d at 1153. Lastly, on appeal counsel for the insurer “tacitly conceded” at oral argument that (a) “defendants insured the junctional use of the buddings in question as school facdities, which are, by definition, subject to Budding Code cost liability, and thus, contractually assumed Budding Code cost liability,” and (b) limitations on code cost liability “are void and unenforceable as against public policy [i.e., statutory requirements].” Id. at 1153. In the case before us the trial court did not base its decision on any claimed ambiguity or lack of ambiguity between the actual cash value provision and the replacement cost endorsement. It cited no statute with which the increased cost exclusion is arguably in conflict. There have been no such concessions on appeal.
Farmers Union is also distinguishable. The court considered a civil authority clause and an increased cost clause, both of which were identical to those in this case. However, the case concerned code-necessitated asbestos removal. The court imposed liability notwithstanding the exclusion for increased costs because “[t]he clause as a whole refers to types of new materials with which the damaged materials must be repaired or replaced. It is utterly silent on the question of debris removal.” Farmers Union, 825 P.2d at 556. Indeed, Farmers Union supports a dichotomy between “loss” on the one hand and “increased cost” on the other.3
I am unpersuaded by the court’s analysis. .If the insurance contracts referred only to “loss,” the court might be justified in construing “loss” broadly to include the increased costs resulting from enforcement of building codes in existence at the time of reconstruction.4 However, the contracts exclude both “loss” or “increased cost.” These are distinct exclusions. They are not redundant on their face. They apply to “reconstruction, repair, or demolition of any property insured hereunder” following loss from an insured event.
The court also addresses the insurers’ alternative ground for affirmance under the “like kind and quality” clause. See Op. at 1295, 1297-1298. I do not believe it necessary to address this ground for affirmance, *1301since I conclude that the “increased cost” exclusion is determinative. I would observe that RLI/Lexington do not argue that the replacement building must be a clone of the building which was destroyed. Further, the statement that the “insured receives a new building, which should invariably be of better quality and worth more than the building which it replaced” is not supported by any evidence in the record, and is, in my view, open to dispute.
I would affirm the judgment of the superi- or court.

. Note 4 presents several examples of hypothetical applications of the “civil authority” clause Bering Strait claims give it meaning. The asbestos and toxic waste examples are inapposite, as both are addressed in the Pollution, Contamination, Debris Removal Exclusion Endorsement. The demolition example does not withstand scrutiny. If demolition of a dilapidated building through enforcement of a building code is not an insured loss, what conceivably could be an insured “increased cost" of reconstruction- of the uninsured loss? "Increased cost” necessarily means that the initial cost is the result of an insured event, and only the increased cost of compliance with current regulatory requirements relating to "reconstruction, repair, or demolition” is excluded.

. Other authorities have reached different results. One commentator has noted that courts addressing situations like the present case have held that "under the policy the insurance company undertook to cover the loss resulting from the fire combined with the building regulations.” Nonetheless, "[e]xpress policy language excluding liability for the increased cost of construction or repair as a result of building regulation requirements has been given effect.” George J. Couch, Couch Cyclopedia of Insurance Law § 54:166, at 551-53 (2d rev. ed. 1983). Several jurisdictions have adopted this reasoning. See, e.g., Breshears v. Indiana Lumbermens Mut. Ins. Co., 256 Cal.App.2d 245, 63 Cal.Rptr. 879, 884-85 (1967); Regency Baptist Temple v. Ins. Co. of N. Am., 352 So.2d 1242, 1243^-4 (Fla.Dist.Ct. App.1977); Cohen Furniture Co. v. St. Paul Ins. Co., 214 Ill.App.3d 408, 158 IU.Dec. 38, 573 N.E.2d 851, 854 (1991); Hewins v. London Assurance Corp., 184 Mass. 177, 68 N.E. 62, 64 (1903).
For example, in Hewins the Supreme Judicial Court of Massachusetts considered a provision *1300under which "the insurer shall not be liable 'beyond the actual value destroyed by fire for loss occasioned by ordinance or law regulating construction or repair of buildings.' " Hewins, 68 N.E. at 64. Accordingly, the court concluded that
such portion of the damage caused by the change in the condition of the building laws, whether regarded as a condition or a cause, is not to be considered as a loss or damage by fire, but is to be excluded from consideration, and the loss is to be estimated as if there were no building laws affecting the situation.
Id. (emphasis added).

. If the Farmers Union court was presented with this case, arguably it would have excluded coverage because the code cost increases did not refer to debris removal, but related to the costs of replacement and repair of the burned school building, costs which were excluded from coverage.

. The court flirts with Bering Strait’s argument that the fire, not the building codes, "occasioned” the increased cost of reconstruction of the school building. Op. at 1295-1296. This interpretation, Bering Strait argues, renders the provision ambiguous. This argument is of the "For lack of a nail” variety. "Occasion” is defined as "[s]omething that brings on an action or event.” Webster's II New Riverside University ■ Dictionary 812 (1988); “1. to give occasion to: bring about: give rise to: cause 2. to cause to do something.” Webster’s Third New international Dictionary 1560 (1969). An accurate statement of the situation in the case before us is that although the fire occasioned the loss of the school building, government regulation of reconstruction of buildings through the building codes occasioned the increased costs which are at issue. See supra note 2.