The Fourth Circuit Court of Appeals, interpreting Virginia Law, has held that an Ordinance or Law Provision Sublimit in a first property insurance contract did not provide an amount of insurance in addition to the scheduled per location limit. Centrum Corp. v. Landmark Ins. Co., No. 06-1854 2007 WL 1800592 (2nd Cir. June 20, 2007) (Va.).
The policyholder had purchased primary and excess property insurance contracts from Limit Insurance Company and Landmark American Insurance Company respectively. The contracts provided scheduled limits of $3.4 million for the relevant property, with the primary contract providing $2.5 million of that amount. The primary contract also included “Ordinance or Law” coverage and specified a sublimit of $2.5 million that was “included in the overall limit of liability and is not an additional amount of insurance.” The building burned, and the primary and excess insurers tendered the scheduled limits. The policyholder sought additional funds, claiming that the sublimit applied in addition to the scheduled limits for the property. The insurers declined to provide additional funds, and the policyholder sued. The district court granted summary judgment to the insurers, and the policyholder appealed.
The Appellate Court’s Decision
On appeal, the policyholder argued that the policy was ambiguous and that the sublimit applied to the total insured limits of all locations scheduled rather than to the per location limit of the property which was damaged. As such, the policyholder argued, the insurers were obligated to pay both the per-location limits and the sublimit.
The 4th Circuit Court of Appeals rejected this argument on two grounds. First, the court noted that the policy specifically stated that the Ordinance or Law coverage was a “sublimit” and “not an additional amount of insurance.” A sublimit, the court explained, traditionally does not increase the amount of insurance available and as such could not be read, without more, to do so. Second, the court noted that the logical consequence of the policyholder’s arguments would be to undermine the nature of the per location policy and instead transform it into one that provided blanket coverage. This would be improper, the court explained, because the policy clearly stated that limits were per location and that it did not afford blanket coverage.
This decision is a good one for insurers that issue property insurance in Virginia, because it confirms that a sublimit in a policy with per location limits that will not expand the total limits of coverage available should a loss occur. The decision is also an important one because it continues to enforce the differences between per location and blanket contracts.