Insurers Win Upgrade Issue
Insurance companies are not bound to cover extra construction costs mandated by new building codes when paying damages on insured structures, the state Supreme Court has ruled.
The decision could have implications for many San Francisco Bay area residents whose homes were damaged in October’s Loma Prieta earthquake.
At issue was whether the insured or the insurer should pay for upgrading older structures to current code after they are damaged. The upgrades often add substantially to reconstruction costs.
Locke and Sumire McCorkle of Mill Valley filed the failed suit against State Farm Fire and Casualty Co. after the firm refused to pay the full replacement cost for a garage destroyed in a 1986 fire.
Replacement cost was estimated at $29,350. However, a new code forced the McCorkle’s to install a cement floor and foundation in place of the old wooden floor, which raised the cost to $58,448.
State Farm refused to pay the additional cost, saying it was obligated to pay only for “equivalent construction.”
The state Court of Appeal ruled in State Farm’s favor in June, and the McCorkles appealed to the Supreme Court, which ruled this month.
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