Louisiana Subscriber

Your client, by virtue of the governmental order, has suffered a constructive total loss. According to Black's Law Dictionary, Fifth Edition, a constructive loss is "one resulting from such injuries to the property, without its destruction, as render it valueless to the assured or prevent its restoration to the original condition except at a cost exceeding its value." It follows that a constructive total loss "in insurance, exists whenever insured item of property has lost its total usefulness and insured is deprived of its benefit totally."

The particular exclusion cited says: "We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss…The enforcement of any ordinance or law…requiring the tearing down of any property, including the cost of removing its debris." And it is enforcement of the law that has led to the property's being a constructive total loss.

This does not necessarily mean that the insured is not entitled to the actual cash value of the destroyed building. The policy language says the insurer will not pay for loss caused by the insured's being required to demolish the remainder of the building, but the loss settlement provisions of the CP 00 10 allow the insurer to "pay the value of lost or damaged property." If repair or replacements are options, then these are subject to this provision:  "the cost to repair, rebuild or replace does not include the increase cost attributable to enforcement of any ordinance or law…"

It is the ambiguity of language that was addressed in the case of Denise Danzeisen v. Selective Insurance Company of America, 689 A.2d 798 (1997). Regarding whether by application of a municipal code governing razing a building, the insured was entitled to have the property declared a constructive total loss, the appellate court referred to the case of Feinbloom v. Camden Fire Insurance Association, 149 A.2d 616 (1959). In that case—which had cited both 7 Couch Encyclopedia of Insurance Law, 1772, p. 6029, and 6 Appleman, Insurance Law and Practice, 3822, p. 166, that if public regulation prohibits rebuilding, a loss is total even though some portion of the building remains — the decision was made that no language of the insurance policy excluded liability for the constructive total loss; that precedent was followed in the Danzeisen case. And, with regard to the ordinance and law provision, the court held "If, in the face of the general rule [Appleman and Couch] defendant had sought to exclude responsibility for enhanced losses occasioned by a governmental requirement to raze the balance of property substantially destroyed by a catastrophic occurrence, it could have stated the exclusion with far greater clarity."

It would therefore appear that the actual cash value of the building is something apart from the cost to demolish, which should be borne by the insured. Your client may wish to investigate how his situation has been interpreted in your jurisdiction.

However, the total loss of the property would not mean the insured is entitled to replacement cost. That provision applies only when the property is actually repaired or replaced, and is subject to the least of the amount actually spent to repair or replace, the cost to replace the property on the same premises, or the policy limit. Since the insured has not repaired or replaced the property, at present he is entitled to actual cash value (which may equate to the $350,000).