What is Law & Ordinance Coverage? ~
One of the most important or potentially important types of property or homeowner’s insurance coverage available in some policies & also one of the most commonly overlooked is a coverage called Law & Ordinance. County and city building ordinance codes often change to reflect new standards for building or home construction. This can present a problem if your property suffers a substantial loss because getting that property back to pre-loss condition may require a higher construction standard to reflect these new building & construction codes.
Bringing you homestead up to Code ~
Let’s say, for example, your home was built in 1992 and new building codes were put in place that required updated plumbing or electrical systems, or a change in design and building materials for all new homes, major renovations, or reconstructions from 2001 on. The standard unendorsed homeowner policy may not provide or might exclude coverage for these upgrades. The policy language may state that repairs or reconstructions are done on a replacement cost basis with like kind & quality of materials. The key language is “like kind & quality”, not “new updated” materials. This of course means that the homeowner bears the full monetary burden for complying with the new code. These additional costs for labor and materials could be substantial. Hence, the cost of replacing your dwelling due to a partial or complete loss can be greatly increased. If these new building codes are not met during re-construction the code inspector may have the power to stop construction and declare the dwelling as uninhabitable until such time as these building standards are properly met. If your insurance policy doesn’t provide any or inadequate Law & Ordinance coverage to allow for these new government standards, then you risk being in the untenable position of funding these upgrades yourself before completing the repairs and resuming construction.
One Conclusion ~
Single family homes built more than ten years ago are potentially deficient in some aspect of the applicable building code. Ordinance or Law Coverage (CP 04 05) and Ordinance or Law – Increased Period of Restoration (CP 15 31) are very broad forms designed to close this coverage gap for commercial property policies. Purchased together, these endorsements pay the additional costs and loss of income resulting from the application of any ordinance or law affecting the reconstruction of the covered structure.
For the non-commercial property such as an owner occupied dwelling otherwise known as “single family dwelling endorsements can be added by manuscript , built into the policy contract language itself, or added by endorsement.
Not Having Law & Ordinance Can Make a Small Loss Even Bigger ~
Another serious issue is the requirement in some jurisdictions that call for the complete destruction & rebuilding of an entire structure if a certain percentage of the structure is destroyed in a partial loss situation. The insurance company may deny the claim out right or pay just that amount of Law & Ordinance coverage you have in force unless the policy provides this coverage either through endorsement or the policy contract corpus itself.
It is also worth noting that people with older homes are not the only ones with a risk exposure related to the Law & Ordinance issue. Government entities, be they city, county, state or federal often times have the power to decree changes of these sorts at will, age of home will not matter at that point.
Law & ordinance issues, although rare can be quite problematic for the uninformed insured because of the opaque nature of the particulars surrounding the coverage. Many insured’s, understandably believe they have coverage because of the replacement cost promise clause in most modern homeowner policies. So in essence, they go about their merry way not knowing that there is an uninsured risk exposure just waiting to happen. Insured’s should have a long talk with their agent or broker about law & ordinance coverage before it’s too late.
The Main Issues Surrounding Law & Ordinance ~
At the end of the day here’s a brief of the main issues surrounding law & ordinance insurance coverage
- Replacement Cost Loss Settlement. Most unendorsed homeowner policies do not adequately provide coverage replacing damaged property that represents a higher dollar value because of a city or county ordinance.
- Partial Damage. Even if you have no damage whatsoever to part of your property in the event of a loss but do because of adjoining or nearby property. You may still be forced to replace the “still good undamaged property” because that’s what is required to properly replace the actual damage or to not replace would violate safety regulations.
- Cleanup, Debris Removal & Demolition. All these items are usually covered courtesy of Law & ordinance coverage. Bur probably not if the policy is not endorsed. Another important point to consider from a risk exposure stand point.
- Age of Property Considerations. Be advised, if the property you are insuring is over 30 years old. Law & ordinance coverage can be a life saver if there is ever a loss. At this point the cost vs benefit value ratio becomes overwhelmingly favorable for the insurance buy.
Final Thoughts ~
Law & ordinance coverage, although not inexpensive is a wise investment & an excellent way to transfer the risk of finding yourself out of compliance with a county or city building code. I made the decision to purchase the coverage on my own homeowner policy & I’m glad I did. The peace of mind I have knowing that risk is mitigated goes a long way. We can help you think through the pros & cons of law & ordinance coverage. Call us at your convenience if you care to find out more or have questions.
The Deerfield Team