Understanding Ordinance and Law

What is Ordinance and Law?  A frequently misunderstood coverage, ordinance and law is a property coverage issue that can be costly to owners of homes or commercial buildings that suffer an uninsured or under-insured ordinance and law issue.

Let’s first visit the basic purpose of property coverage.  A property policy (be it home or business), provides coverage for the ‘direct physical damage’ to a home by a covered peril such as fire, lightning, hail, wind etc.  Insurance does NOT, however, pay for the undamaged portion of the building to be torn down after a loss if the only reason it must be torn down, is due to a zoning law or ordinance in the community where the building is located.

Insurance also wasn’t designed, and is not priced adequately, to pay for any ordinance or law upgrades that you must make to the home after a partial loss.  We understand that many clients assume that these types of upgrades and repairs are going to be taken care of as part of their claim, however, the contract they have (insurance policy) does not agree to do that.

Let’s give some examples that may assist in making this clearer.

When your building has a covered loss, such as a fire, the ordinance where that building is located could say that if the home suffers more than a 40% loss to the structure, then they require that the entire structure be torn down vs having the insurance company repair the remaining section and building the new section onto it.  The insurance company, however, has estimated that it’s going to be less costly to replace the damaged portion; which again, is what the contractual agreement (insurance policy) is legally obligated to do.

The ‘undamaged portion’ of the home that would need to be torn down ‘and’ rebuilt due to the ordinance; would fall into the category of an uninsured loss, as it is not covered.  In this scenario, the owner of the building would be responsible to pay for the additional cost in tearing down and then replacing the undamaged portion of the building.

Another example looks at upgrades to a residence or commercial building.  Let’s say that a tree falls on one small section of the building, but when the electrician goes in to put in new wiring, he discovers that the home has outdated wiring and is forced by code to rip out wiring in the ‘undamaged’ portion of the building and replace ‘all’ of it.  Here again is an example of an uninsured loss since the wiring in the rest of the building suffered no ‘direct damage’ from the tree.  That expense will be paid by the owner of the building unless the policy covering the structure has some coverage for ordinance and law.

When adding ordinance and law coverage to your property, there are 3 sections that you can purchase, and they are as follows:  Coverage A is a limit for loss to the undamaged portion of the building.  Coverage B is for demolition costs of the undamaged portion and Coverage C is for the increase in cost of construction to comply with building codes or zoning codes and ordinances.

A number of companies are including some limited coverage for this exposure, perhaps 10% of your dwelling or building limit, but some don’t include any additional protection, and therefore it’s important for you to be aware of this exposure so that you can address it with the agent handling your property insurance.  As always, we are here to assist with any of your home, auto, business or life insurance needs.