Pursuant to this information, Meadows West replaced the flex duct work and then sought coverage under its policy with Houston Specialty Insurance Company (HSIC). The insurer aid the claim for the building that sustained fire damage but refused to cover the flex duct work in the seventeen undamaged buildings. HSIC then sought a declaratory judgment that the policy did not cover the losses in reconfiguring the flex duct work.

 The district court denied the motion for summary judgment by HSIC, finding that the ordinance or law provision in the policy covered the losses and that HSIC failed to prove that the exclusion applied. HSIC appealed.

 The United States Court of Appeals, Fifth Circuit, reviewed the ordinance or law provision and found that it required HSIC to pay for the loss to the undamaged portion of a covered building caused by the enforcement of any ordinance or law that requires the demolition of parts of the same property not damaged by a covered cause of loss, and that regulates the construction or repair of buildings. Under Louisiana law, the court said that the burden is on Meadows West to prove coverage and the court found that the burden was met.

 The insurer argued that the phrase “undamaged portion” means that the ordinance or law provision applies only to buildings that were damaged in the fire. The court said that this argument conflicts with the policy language. The court found that the term “building” refers to all of the buildings at the property. So, even if only one building is damaged by a covered cause of loss, the ordinance or law provision covers all of the buildings at the covered property; damage to just one building is sufficient to trigger coverage as to all buildings.

 HSIC also argued that the ordinance or law provision does not apply because the ordinance provided no minimum repair requirements and did not require demolition or regulate repair. The court concluded that the ordinance need not contain minimum repair requirements to trigger the application of the ordinance or law provision. Moreover, the court said that the language of the provision mandates the removal or repair of unsafe structures, and the insured was required by fire officials to reconfigure the flex duct work.

 Accordingly, the court found that Meadows West met its burden of proving that the ordinance or law provision applied to the loss.

 However, the court then examined the exclusion that said the company will not pay for loss or damage caused by or resulting from any faulty, inadequate, or defective design, workmanship, repair, or maintenance of part or all of any property on an insured premises. The facts established that some type of problem in the flex duct work caused the fire, so the court concluded that a reasonable fact-finder could conclude that a defect in either maintenance, construction, or design existed. The exclusion would then apply. Therefore, since HSIC raised a genuine issue of material fact regarding the application of the exclusion, the appeals court ruled that the district court erred in granting summary judgment in favor of the insured.

 In sum, the Circuit Court agreed with the district court that Meadows West established that its losses were covered under the ordinance or law provision, but it also ruled that genuine issues of material fact precluded summary judgment on the applicability of the exclusion. The judgment of the district court was affirmed in part and reversed and remanded in part.

 Editor's Note: The U.S. Court of Appeals, Fifth Circuit, reviews the ordinance or law provision and rules that the provision covers all of the buildings at the covered property so that damage to just one building is sufficient to trigger coverage as to all buildings. However, even though the insured established that the ordinance applied to the loss, a genuine issue of material fact pertaining to the applicability of the exclusion in the ordinance prevented summary judgment in favor of the insured.