Do Your Habitational Clients Carry Enough Law and Ordinance Coverage?

With so many hurricanes and major storms battering the east coast and gulf coast this year, it would be smart for clients in the habitational space to ensure they have the proper coverage to protect against significant losses. Law and ordinance coverage is a Habitational Insurance addition. It provides coverage to rebuild a home or habitational building and the associated costs to upgrade the building to meet current codes after a covered loss.

Paying out of pocket for restorations to obey state codes can be costly. Your clients are protected with law and ordinance coverage when upgrading their properties to meet any state-mandated standards. Or, if their structures were to become damaged, this coverage also extends to repairs. With hurricanes causing $34 billion in damage to habitational properties annually, clients must have the right amount of law and ordinance insurance.

Let’s take a closer look at this coverage and its different forms to determine the right package clients need.

Choosing the Right Level of Law and Ordinance Insurance

Law and ordinance insurance provides limited protection for costs related to repairing, rebuilding, or constructing a structure when physical damage to the building by a covered loss prompts a law or ordinance review, such as a building code mandated by the local or state government.

For example, if a building does not have hurricane shutters or windows, and the new state code requires them to have them, a replacement cost policy pays the cost of replacing the original windows. Still, it will not pay for the increased cost for new hurricane shutters.

And while most building owners think they have enough habitational insurance coverage, if they do not have additional law and ordinance insurance, your clients might be on the hook for paying for the costs to meet state codes out of pocket.

A standard replacement cost policy pays to replace items, as mentioned above. However, this is only if the building codes do not require a better version of materials than clients had before the damage took place. The standard commercial replacement cost policy will not cover the value of a building’s undamaged portion when the code requires it to be torn down instead of rebuilt.

For instance, a $10 million building undertakes damage to half of its property, and the local code requires that building owners demolish the building’s undamaged portion. The standard insurance coverage policy won’t step in and pay for the building’s undamaged part that has to come down and be rebuilt.

To be insured for this requirement, the building owner needs to have purchased Law and Ordinance Coverage A, which covers the value of the client’s building’s undamaged portion. When the client buys a building, they need to review their insurance policies to ensure their entire structure is protected.

When a client needs to demolish the building and clear the site, the standard replacement cost policy pays to remove debris from the original location. However, it won’t pay to demolish the undamaged portion of a building and clear the site. To be insured for this, the building owner needs to have Law and Ordinance Coverage B and specify what amount of coverage B he or she wants to purchase.

Coverage B pays for the cost to take down the remaining portion of the building after the original loss. Without law and ordinance coverage, the client will likely have to self-insure, depleting their resources.

Clients can also opt for Coverage C of of law and ordinance coverage. With this option, they choose to buy the coverage that pays for these mandatory building enhancements, such as bringing a building up to code. Common examples that might apply include fire sprinkler systems, ADA-compliant hardware, or elevator additions.

Knowing what costs are covered when structures and code requirements need to be replaced or added helps clients understand the right level of coverage they need.

About Mavon Insurance


At Mavon Insurance, we pride ourselves on our unique approach to insurance. We focus on integrity, communication, professionalism, respect and gratitude to help our clients succeed, and place business in specialized markets. For more information about our products, or to become an agent, contact us today at (855) 248-1480.