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Ordinance or Law coverage is an essential protection to ensure that partial or total damage to a dwelling is properly covered. There are a wide variety of habitational insurance coverage options for anything from single-family homes to multi-family units, hotels, motels, extended-stay residences and even habitational coverage for student housing and senior living facilities. It is important for insurance agents to familiarize themselves with the different options for so that they can apply the proper protections to the right clients.
Ordinance or Law coverage is one often overlooked type of habitational insurance coverage that is designed to specifically cover losses caused by the enforcement of laws or ordinances which regulate the construction and repair of damaged buildings. While standard property insurance policies can provide coverage for returning the actual physical structure of a building to the condition it was prior to the loss from a covered peril, they typically exclude the increased costs of rebuilding, repairing or remodeling that are needed when a building’s plans need to be updated to meet current local, state and federal building codes.
Why is Ordinance or Law Coverage Necessary?
Older buildings may be cheaper to insure because a lack up upgrades keep their value lower than the more current buildings in the area. The building owner may be happy to keep their building as-is, and may even be opposed to remodeling or upgrading many of the features of the building in favor of historical value or a vintage feel.
Damage to older buildings, whether from natural disaster or other perils, may end up requiring additional upgrades to bring the building up to current-day building codes. Under some ordinances, after a building has been damaged to or over a certain degree – usually 50% or more – it may be required to be completely demolished and rebuilt up to current building codes, rather than just the damaged portion being repaired. Standard property insurance policies do not offer coverage for bringing any portion of a building up to code, and only pay for the repair or replacement of the building to its condition at the time of loss. This can leave the building owner with a significant gap in coverage to pay for out of their own pocket.
Where a standard property insurance policy limit ends, Ordinance or Law coverage steps in to cover the added cost of bringing a structure up to code while repairing or rebuilding it. There are four types of coverage that an Ordinance or Law policy endorsement is designed to address:
- Coverage A – Loss to the Undamaged Portion of the Building: Applies when the undamaged portion of the building has not suffered direct physical damage, but it loses all value because officials will not allow the building to be repaired back to its state prior to the loss.
- Coverage B – Demolition Cost Coverage: Applies to the cost of demolishing the undamaged portion of a structure so that the rebuilding process may begin.
- Coverage C – Increased Cost of Construction Coverage: Provides funds to upgrade certain key systems in the building as required by local ordinances.
- Post-Loss Ordinance or Law Option: Allows for compliance with changes in laws or ordinances occurring between the time of loss and the beginning of construction.
All of these coverage types are specifically excluded from a policy if the law and ordinance endorsement is not added. While adding Ordinance or Law endorsement to a client’s property policy takes a bit of work, specifically in calculating limits for each coverage type, it’s well worth the time and effort as it offers valuable coverage for the client and can be a profitable product for insurance agents.
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, please contact us today at (855) 248-1480.