Sierra Pacific Power Co. v. Hartford Steam Boiler Inspection & Insurance, 665 F.3d 1166

Sierra Pacific Power Co. insured the Farad Dam and related facilities under two identical policies issued by Hartford and Zurich with $200 million total coverage; the January 1, 1997 flood destroyed the Farad Dam in California.
The policy provides replacement-cost coverage for repair or replacement of covered property, with actual cash value (ACV) only if not repaired or replaced; a Building Ordinance Exclusion bars loss increases caused by ordinances or laws unless endorsed.
A key dispute is whether the Building Ordinance Exclusion excludes increased replacement costs caused by building-code changes after a covered loss, and whether permit fees and environmental impact studies are excluded costs or part of replacement-cost calculations.
The district court found that increased costs due to intervening changes in law are covered, that permits and regulatory costs were recoverable within replacement-cost coverage, and that ACV should be replacement-cost less depreciation.
Both Sierra and the Insurers appealed, and the Ninth Circuit certified questions to the California Supreme Court due to unresolved California law on these issues.
The Ninth Circuit stayed further proceedings pending California Supreme Court resolution of the certified questions.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Does the Building Ordinance Exclusion exclude increased replacement costs from ordinances after a covered loss?	Sierra argues exclusion should limit recovery for such increased costs.	Insurers contend exclusion applies to loss increases, potentially limiting replacement costs.	The court did not decide; certified questions to California Supreme Court for guidance.
Are permit fees and environmental impact studies costs excluded by the Building Ordinance Exclusion or part of replacement cost?	Sierra contends these pre-construction costs may be included in replacement cost.	Insurers argue such costs are not increased construction costs excluded by the clause.	The court did not decide; certified questions to California Supreme Court for guidance.
Is the Demolition and Increased Cost of Construction (DICC) extension a separate coverage that cannot limit other policy liabilities?	Sierra seeks broad coverage for increased costs; DICC provides additional coverage.	Insurers argue DICC is an optional extension, not a limiter of other coverage.	DICC extends coverage for demolition and reconstruction to meet law/ordinance requirements and is not a limiting cap on other coverage.

Fire Insurance Exchange v. Superior Court, 116 Cal. App. 4th 446 (Cal. Ct. App. 2004) (building-ordinance exclusion not controlling where loss from covered peril; replacement-cost policy context)
Bischel v. Fire Insurance Exchange, 1 Cal. App. 4th 1168 (Cal. Ct. App. 1991) (exclusion precluded coverage under older policies; later decisions questioned applicability to replacement-cost policies)
Breshears v. Ind. Lumbermens Mut. Ins. Co., 256 Cal. App. 2d 245 (Cal. Ct. App. 1967) (precedent on building-code exclusions under standard forms)
McCorkle v. State Farm Ins. Co., 221 Cal. App. 3d 610 (Cal. Ct. App. 1990) (precedent on exclusions for ordinance or law)
Cheeks v. Cal. Fair Plan Ass'n, 61 Cal. App. 4th 423 (Cal. Ct. App. 1998) (replacement-cost context for ACV calculations)
MRI Healthcare Ctr. of Glendale, Inc. v. State Farm Gen. Ins. Co., 187 Cal. App. 4th 766 (Cal. Ct. App. 2010) (defines loss versus cost concepts in property insurance)