Property insurance policies often contain ordinance or law sublimits that cap what an insurer will pay for the increased cost of construction necessary to comply with current building codes. A recent Sixth Circuit decision underscores the enforceability of those provisions and rejects attempts to expand them through generalized statements about “full coverage.”
In Piatt Lake Bible Conference Ass’n v. Church Mutual Insurance Co., the insured held blanket replacement cost coverage for multiple buildings, subject to a $100,000 sublimit for code-upgrade costs. After one building collapsed, reconstruction triggered more than $1.3 million in code-compliance expenses, far beyond the sublimit. The insured sought to recover the difference by alleging that insurer representatives had previously said the building was “fully covered.”
The court rejected that theory, explaining that replacement cost coverage is fundamentally different from ordinance or law coverage. Replacement cost concerns rebuilding with materials of like kind and quality. Code-compliance costs arise from bringing an older structure up to current standards. Those costs are separately insured—if at all—and subject to their own limits. Here, the policy expressly capped ordinance or law coverage at $100,000, and the court enforced the limitation as written.
The insured also asserted tort theories such as misrepresentation and promissory estoppel in an effort to avoid the sublimit. The court rejected those claims as well, finding no actionable statements that contradicted the policy’s terms and noting that generalized assurances about being “fully covered” do not create broader coverage obligations. The court emphasized that insureds are presumed to read their policies, and reliance on informal statements that conflict with clear policy language is not reasonable.
This decision reinforces a core coverage principle: unambiguous sublimits on code-compliance costs will be enforced, even where policyholders assumed broader protection based on conversations with agents or marketing materials. General sales language about “full replacement” does not transform replacement cost coverage into ordinance or law coverage or remove clear dollar caps contained in the policy.
For insurers, the case confirms that clear sublimits remain a powerful tool for managing ordinance or law exposure. For policyholders and brokers, it highlights the need to carefully evaluate code-upgrade risk on older buildings and to purchase adequate ordinance or law coverage where needed. And for coverage counsel, it provides persuasive support for resisting efforts to use extra-contractual theories to rewrite the scope of first-party property coverage.