When Is Homeowners Insurance Illusory?

In a California Court of Appeals decision, entitled Reichert v. State Farm General Insurance Company, the Fourth District court ruled that a homeowners’ insurer (State Farm) had no duty to indemnify where insureds attempted a remodel of their newly purchased house, but the building inspectors discovered, prior to completion, that the project did not conform to local floodplain regulations and ordered the property demolished. Coverage was clearly excluded under a provision in their policy saying there was no coverage for loss caused by the enforcement of any law or ordinance.

The facts:

Eric and Lizbeth Reichert attempted a remodel of their newly-purchased Huntington Beach house.  Before construction was finished, city building inspectors discovered the project did not conform to Huntington Beach floodplain regulations, and ordered the property demolished.  The Reicherts then sued their architect and their contractor, and also made a claim on their homeowners‟ insurance policy on the theory that it should cover for the loss caused by the architect and contractor demolishing some walls that the City did not permit causing a FEMA violation.  Their insurance company denied the claim, asserting the demolition was not an accidental loss, and in any event the loss was excluded by a provision in their policy saying there is no coverage for loss caused by the enforcement of any law or ordinance.

In it's decision, the Court stated bluntly; "The Reicherts sued their insurer, and the case now comes to us after the insurer's successful motion for summary judgment.  We affirm.  This seems, unfortunately for the Reicherts, a rather clear example of the “law or ordinance exclusion.” 

The Court went on to state, in detail, the reasoning for the decision.

A link to the full decision can be found here:

http://www.courts.ca.gov/opinions/documents/G046582.PDF

There is a lesson to be learned here... before purchasing a home, particularly a home that you intend to remodel or expand, do the research to determine if there are any zoning regulations that may affect your plans.  Failure to do so may very well lead to the pathetic consequence that the Reicherts suffered although, I expect, the architect and general contractor undoubtedly paid substantial damages to the Reicherts.