Insurers often issue property insurance policies intended cover multiple perils (e.g. water damage and fire). While insurers often include a number of exclusions in their policies, in states with statutory standard form fire policies (such as California), insurers cannot apply exclusions that substantially vary from the terms and conditions in the standard form fire policy regarding the peril of fire.
Examples of exclusions regularly seen in property insurance policies but that are not contained in the standard form fire policy are the wear and tear exclusion and the mechanical breakdown exclusion.
An assertion of these exclusions in a fire claim (where the cause of loss is fire) in states with statutory standard form fire policies would violate state insurance law (such as California Insurance Code §§ 2070 and 2071) because the Standard Form Policy precludes the application of exclusions not specified in the Standard Form Fire Policy. As explained by the California Supreme Court:
In California, fire insurance policies are regulated by the Insurance Code.2 Section 2070 provides: “All fire polices … shall be on the standard form, and, except as provided by this article shall not contain additions thereto. No part of the standard form shall be omitted therefrom except that any policy providing coverage against the peril of fire only, or in combination with coverage against other perils, need not comply with the provisions of the standard form of fire insurance policy …; provided, that coverage with respect to the peril of fire, when viewed in its entirety, is substantially equivalent to or more favorable to the insured than that contained in such standard form fire insurance policy.” (Italics added.) Provisions of the standard form fire policy are set forth in section 2071. Thus, a policy that does not conform to section 2071’s standard provisions must provide total fire coverage that is at least “substantially equivalent” to coverage provided by the standard form. Thus, a policy that does not conform to section 2071’s standard provisions must provide total fire coverage that is at least “substantially equivalent” to coverage provided by the standard form.1
In California, a policy that does not conform to section 2071’s standard provisions must provide total fire coverage at least “substantially equivalent” to coverage provided by the standard form.2
When policy exclusions purport to reduce the coverage otherwise provided by section 2071’s standard provisions, the policy exclusions are unenforceable because they conflict with Insurance Code § 2070; 2071.3
In the context of fire claims in states that follow the statutory standard form fire policy, an insurer’s assertion of exclusions that do not appear in the statutory standard form fire policy (such as wear and tear and mechanical breakdown) would violate state law because the insurer’s policy would then fail to provide coverage that is “substantially equivalent to or more favorable. . .than that contained in such standard form fire insurance policy.”
1 Century-Nat’l Ins. Co. v. Garcia, 51 Cal. 4th 564, 567 (2011).
2 Id.; § 2070.
3 see Julian v. Hartford Underwriters Ins. Co.(2005) 35 Cal.4th 747, 754, 27 Cal.Rptr.3d 648, 110 P.3d 903 [policy exclusions are unenforceable to the extent they conflict with the Insurance Code].
