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Dunning v. Federal Insurance Company

A-3556-04T1 (N.J. Super. App. Div. 2006) (Unpublished)

INSURANCE; DESTRUCTION—A fire insurance policy cannot sensibly be interpreted to provide coverage for losses that were not caused by or aggravated by a fire, but, rather, merely coincided with it.

A fire that began in a neighboring home caused considerable damage to an insured homeowner’s house. The insurance company paid a considerable amount for rebuilding and repair of the damaged parts of the house. The insured homeowner accepted the money without prejudice to its ability to argue that the insurance company should have paid for demolition and construction of the house rather than just for the cost of rebuilding and repairing the damaged elements.

The house was about 100 years old and had a 30 year old two-story addition. Both the house and the addition had been “constructed on a six-foot layer of peat without pilings. Over the years, the foundation had settled and floors in the home came to slope to a degree in excess of that permitted by the Uniform Construction Code.” It was undisputed “that the fire had no effect on the structural condition of the foundation, the settlement of the building, or the slope of the floors.” The homeowner’s structural engineer “recommended demolition and rebuilding on ‘a new pile foundation.” Although, initially, the local construction official had only “strongly recommend[ed] that the structure be torn down and rebuilt to today’s codes and standards,” he testified before the lower court that had he been aware of the structural engineer’s report, he would have required the homeowner to “tear down [the] home, rather than [only] strongly recommending it.”

The insurance policy contained the following text about rebuilding to code: “After a covered loss we cover the cost of conforming to any law or ordinance that regulates the repair, replacement, rebuilding or demolition of your house or other permanent structure made necessary by the covered loss.”

The lower court held that the footings had nothing to do with the loss and that the “sway in the floor ... was attributable to a hundred year old home and a thirty year old addition being placed on peat, six-foot peat sub-base with no pilings and with no digging to bedrock.” As a result, it concluded that the loss had nothing to do with the fire. Further, it held that the homeowner was “not entitled to get the whole house rebuilt at the expense of the insurance company.” The Appellate Division agreed with the lower court, finding that “[t]o the extent reconstruction of the entire home was a practical necessity, the fire simply provided the occasion that gave rise to the need. The fire could not be seen having caused or contributed to the structural conditions requiring correction. A fair and reasonable application of the ‘Rebuilding to Code’ clause of the policy does not result in a different view.” Essentially, the Appellate Division believed that the policy could not “sensibly be interpreted to provide coverage for losses that were not caused by or aggravated by the fire but, rather, merely coincided with it.”

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