The liability of an insurance carrier to bring premises “up to code� after a fire, was recently decided by the United States District Court in the State of Tennessee.

After a fire destroyed property on one floor of a building, various inspectors from the City inspected the building and found the building to be in violation of certain building codes. The owners of the building were ordered to immediately correct the violations. The orders involved electrical wiring and fixtures, inoperable and non-code fire alarm system, non-code elevator emergency system, damaged and non-code stairway lighting and emergency signage, defective standpipe valves and other non-code matters, which were not necessarily affected by the fire.

The plaintiff building owner, in their motion for summary judgment, contended that whether the fire actually damaged the areas where the code violations were discovered is immaterial to the question of liability because, but for the fires, the violations would not have been discovered. The insurance company claimed that under the language of the insurance contract, it is not liable for the cost of upgrading code violations which were discovered in areas not affected by the fires, further contending that the discovery of code violations in non-fire affected areas, even when the inspection would not have taken place in the absence of the fires, fails to create liability under the terms of the insurance contract.

The court, in agreeing with the insurance company, indicated that the plaintiff would have the court read the contract as providing insurance against the discovery of code violations where the violations did not result from the fire. The court indicated that it did not read the contract as intending such coverage, nor did it believe that it would be consistent with the public policy concern for public safety to permit a building owner to insure against discovery of existing code violations.

In looking through the contract entitled, “Perils insured against,� in order to determine whether liability under the contract extends to code upgrades required in areas not damaged by the fire, the court pointed out that the clause which described generally the risks insured against clearly limits the insurer’s liability to “all risks of direct physical loss of or damage to property.�

The court therefore concluded that this language acts to limit the liability of the insurer to only those cases where the loss or damage results from the peril.

The court further addressed the contention of plaintiff that because the inspection was triggered by the fire and resulted in the enforcement of the building code, the fire was the cause of the enforcement of the code. The court pointed out that although violations might have remained undiscovered if not for the fire, the violations in question existed independent of the fire and the fire cannot be said to have “caused� the enforcement of a building code, which was at all times subject to enforcement.