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Jefferson County Schools v. Tennessee Risk Management Trust

Court of Appeals of Tennessee, Knoxville

March 15, 2018

JEFFERSON COUNTY SCHOOLS
v.
TENNESSEE RISK MANAGEMENT TRUST, ET AL.

          Session January 16, 2018

         Appeal from the Chancery Court for Jefferson County No. 14-CV-120 Ben W. Hooper, II, Judge No. E2017-01346-COA-R3-CV

         In this appeal concerning insurance coverage, Jefferson County Schools ("Plaintiff") sued its insurers, Tennessee Risk Management Trust and Travelers Indemnity Company ("Defendants"), in the Chancery Court for Jefferson County ("the Trial Court"). Building 8 at Jefferson County High School collapsed during a rainstorm. The Tennessee State Fire Marshal's Office ordered Plaintiff to implement repairs to prevent a future collapse of both the damaged and undamaged portions. Plaintiff asserted that, pursuant to an "ordinance or law" provision in its insurance policy, Defendants were responsible for coverage for additional work in undamaged portions of Building 8 in order to comply with the Fire Marshal's directive. Defendants argue in response that the additional work was discretionary and went beyond what the insurance policy covered. After a hearing, the Trial Court entered judgment in favor of Defendants. Plaintiff appeals. We hold that the Fire Marshal's directive, issued under that office's authority, qualified as an "ordinance or law." Defendants were, therefore, required to cover the additional work.[1]We reverse the judgment of the Trial Court and remand for determination and entry of a monetary judgment in favor of Plaintiff.

         Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Reversed; Case Remanded

          Albert J. Harb and Bart C. Williams, Knoxville, Tennessee, for the appellant, Jefferson County Schools.

          Russell E. Reviere and Jonathan D. Stewart, Jackson, Tennessee, for the appellees, Tennessee Risk Management Trust and the Travelers Indemnity Company.

          D. Michael Swiney, C.J., delivered the opinion of the court, in which Charles D. Susano, Jr. and Thomas R. Frierson, II, JJ., joined.

          OPINION

          D. MICHAEL SWINEY, CHIEF JUDGE

         Background

         On July 7, 2013, a major rainstorm occurred in Jefferson County. A portion of Building 8, an aging vocational building at Jefferson County High School, collapsed. No one was present at the time. Building 8 was covered through Tennessee Risk

         Management up to $100, 000 less a $500 deductible. Excess claims were covered by Travelers Indemnity Company. The insurance policy contained an "ordinance or law" provision providing for coverage of expenses "caused by the enforcement of any ordinance or law." The policy provided as relevant:

f. Ordinance or Law

If a Covered Cause of Loss occurs to Covered Property, the Company will pay for:
(1) The loss to the undamaged portion of a covered building caused by the enforcement of any ordinance or law that:
(a) Requires the demolition of parts of the same property not damaged by a Covered Cause of Loss;
(b) Regulates the construction or repair of buildings, or establishes zoning or land use requirements at the Insured's premises; and
(c) Is in force at the time of loss.
The most the Company will pay for loss or damage under this portion of Ordinance or Law is the Limit of Insurance specified for Ordinance or Law - Undamaged Portion shown in the Supplemental Coverage Declarations.
***
(3) The increased cost to repair, rebuild or construct the Covered Property caused by enforcement of building, zoning, land use or any other ordinance or law when the Covered Property is insured for replacement cost. If the covered building is repaired or rebuilt, it must be intended for similar occupancy as the current building, unless otherwise required by zoning or land use ordinance or law.
The Company will not pay for increased construction costs until the Covered Property is actually repaired or replaced, at the same location or elsewhere; and unless the repairs or replacement are made as soon as reasonably possible after the loss or damage but not to exceed 2 years. The Company may extend this period in writing during the 2 years.
The most the Company will pay for loss or damage under this portion of Ordinance or Law is the increased cost of construction repair or replacement:
(a) Of a building of the same size and at the same premises, or another premises if required by the ordinance or law, and
(b) Limited to the minimum requirements of such ordinance or law regulating the repair or reconstruction of the damaged property on the same site. not to exceed the Limit of Insurance specified for Ordinance or Law- Increased Cost of Construction shown in the Supplemental Coverage Declarations.
***
D. EXCLUSIONS
1. The company will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss.
***
h. ORDINANCE OR LAW
The enforcement of any ordinance or law:
(1) Regulating the construction, use or repair of any property; or
(2) Requiring the tearing down of any property, including the cost of removing its debris; except as provided in the Covered Costs and Expenses, item B.2.f.
Ordinance or Law
The Ordinance or Law exclusion applies whether the loss results from an ordinance or law that is enforced even if the property has not been damaged; or from the increased costs incurred to comply with an ordinance or law in the course of construction, remodeling or demolition of property, or removal of its debris, following a physical loss to that property.

         On July 8, 2013, David Pittman with the Tennessee State Fire Marshal's Office issued a directive to school officials stating in part that "[a] structural engineer will need to evaluate the remaining structure of the vocational building to ensure that the structural integrity of the remaining building is in adequate condition and future collapses will not occur." Plaintiff did that. Expensive work ensued. Travelers paid for reconstruction of the collapsed portion of Building 8, as well as certain additional work in the rest of the building. In all, Travelers paid out over $900, 000 on the claim. However, disagreements arose as to coverage beyond this point. The engineer of record, Carl Taylor, retained by Plaintiff as directed by the Fire Marshal determined that compliance with the Fire Marshal's directive required vertical reinforcement of the remainder of Building 8. Mark Buchanan, Defendants' engineer, opined that additional reinforcement on the remainder of Building 8 went beyond what was necessary. Travelers declined to pay for this additional work.

         In October 2014, Plaintiff sued Defendants in the Trial Court. Plaintiff argues that, pursuant to the "ordinance or law" provision of the insurance policy, Defendants are responsible for the additional work undertaken in order to comply with the Fire Marshal's directive. For their part, Defendants contend that they already have fulfilled their responsibilities under the insurance policy, and that their paying for the additional work would result in an undue windfall for Plaintiff.

         This case was tried without a jury in June 2017. The most pertinent testimony came from the sides' respective engineers, Carl Taylor and Mark Buchanan.

Carl Taylor, Plaintiff's engineer, testified in part as follows:
Q. Alright. Now, when you were looking around Building-8 in its collapsed state in terms of your trying to comply with that directive, and we've already marked it, I don't need to keep plowing new ground so to speak, but what was it about that Building-8 that was of concern to you in terms of a structural evaluation? Let's talk about the walls, ...

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