Constructive Total Loss | Property Insurance Coverage Law Blog

This post is the third in a series and follows “Lessons from Constructive Total Loss in Property Insurance” and “Is It A Total Constructive Loss If Demolition Is Mandated?” I am writing about an unpublished decision that does not follow the traditional rule regarding constructive total loss to draw attention to the successful argument made by the insurance company. I previously noted this decision in a post, Insurance Coverage After a Raze Order: Strategies for Overcoming Ordinance or Law Exclusions. I think a greater analysis of the case, and especially the briefs of the parties, is in order because it may signal a change in the manner in which insurance companies start to argue this issue in the future.

The Insurance Company’s Argument

In Distinguished Multiplying Buildings (DMB), LLC v. Germantown Mutual Insurance Company, ¹ the insurer put forward a straightforward and forceful argument grounded in the language of the policy. Germantown Mutual relied on the ordinance or law exclusion and its anti-concurrent causation clause. It contended that no matter how much fire damage existed, the true cause of the total loss was the City of Eau Claire’s raze order. The exclusion barred coverage for any loss caused directly or indirectly by enforcement of a law or ordinance requiring demolition, regardless of whether another peril contributed to the loss.

From the insurer’s perspective, the building was not beyond repair after the fire; it only became a total loss because of the government’s order. The company also emphasized that Wisconsin’s constructive total loss statute is a municipal safety measure, not an insurance statute like the valued policy law, and thus should not be interpreted as rewriting private insurance contracts.

The Policyholder’s Argument

The policyholder, DMB, argued from the long-standing doctrine of constructive total loss, which has been recognized for over a century in Wisconsin and other jurisdictions. Its brief framed the case as one where the city’s order to demolish was not an independent cause of loss but simply a legal recognition that the fire damage had left the structure beyond repair.

Drawing on cases like Gambrell v. Campbellsport Mutual Insurance Company, ² DMB urged the court to apply the traditional rule that when a building is condemned because of damage from a covered peril, the loss is deemed total and the insured is entitled to full benefits. DMB further argued that applying the ordinance or law exclusion in this scenario rendered coverage illusory. Policyholders buy insurance precisely for the risk of fire and its consequences, and one of the most common consequences of serious fire damage is a municipal determination that the structure is unsafe. If insurers can exclude coverage whenever a raze order issues, then the promise of fire coverage becomes hollow.

The Court’s Decision

The Wisconsin Court of Appeals sided with Germantown Mutual. The court concluded that the ordinance or law exclusion controlled and that the raze order, not the fire itself, transformed the loss into a total one. Unlike prior precedent, it reasoned that the constructive total loss statute governs the relationship between property owners and municipalities, not the scope of insurance coverage. The exclusion was enforceable as written, and there was no statutory basis, unlike in the valued policy law, to override it. In essence, the court accepted the insurer’s framing that the building could have been repaired after the fire, and that the order requiring demolition was an avoidable outcome that only became mandatory because of the city’s enforcement of its ordinances.

Lessons From the Case

What makes this case striking is that the policyholder presented the traditional constructive total loss argument correctly but did not persuade the court that the ordinance was truly unavoidable. The insurer successfully argued that the building might have been repaired with the funds available and that a building permit would have been issued. Therefore, the ordinance should not automatically dictate a constructive total loss finding.

The ruling highlights a shift from older Wisconsin decisions like Gambrell, which gave weight to condemnation orders as conclusive proof of total loss. In this more recent decision, the court chose to strictly enforce the policy’s exclusion and distinguish the constructive total loss doctrine as separate from insurance coverage obligations.

This case highlights the importance for policyholders and their advocates to not only argue that a constructive total loss in principle occurred, but also prove that a raze order was legally mandatory and could not be circumvented by immediate repair. Without that evidentiary showing, insurers will continue to invoke ordinance or law exclusions to limit coverage, and courts may be inclined to enforce those exclusions strictly. The result is a narrowing of the constructive total loss doctrine in modern insurance disputes and a warning that traditional arguments must be reinforced with clear proof of the ordinance’s mandatory demolition and inability to repair the structure.

Thought For The Day 

“It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change.”
—Charles Darwin

¹ Distinguished Multiplying Buildings v. Gemantown Mut. Ins. Co., No. 2023AP1717 [Unpublished Disposition] (Wis. App. Apr. 22, 2025).

² Gambrell v. Campbell Sport Mutual Ins. Co., 47 Wis.2d 483, 117 N.W.2d 313 (Wis. 1970).