Most standard homeowners insurance policies include a clause that states that the insurer will not cover the costs associated with the enforcement of any ordinance or law which regulates the use, construction, repair and demolition (including removal of debris) of any property after an insured event has occurred.
Ordinance or law coverage therefore applies if you are faced with having to rebuild your home after a covered loss and are required by ordinance to upgrade the rebuild to meet current building codes. Such codes include construction, electrical, plumbing, fire safety etc. An example of changing building codes is evident in the significant transformation of construction practices in earthquake, hurricane, and flood zones.
It’s a scary thought but a real possibility – if your home suffers from a loss event, local ordinances may increase the costs to repair, demolish, or rebuild your home by a staggering 50 percent. This could have a significant impact on your out of pocket expenses. Ordinance or law coverage is designed to assist in protecting you from these increased costs and is valid whether you suffer a partial or total loss to your home or other structures.
Three types of coverage are included in ordinance or law insurance:
Loss to the undamaged portion of the building
Covers the loss of value of the undamaged portion of the building when demolishment is required in order to comply with current building code requirements
Demolition cost
Where the law requires the undamaged portions of the covered building to be demolished, the Demolition Cost coverage will cover the cost to demolish and remove the debris
Increased cost of construction
This coverage will cover the increased cost to repair or rebuild the damaged building as well as to repair or rebuild the undamaged portion of the building (regardless of whether demolition is required or not), as long as the damage was causes by an otherwise covered cause of loss.
When deciding if this coverage is necessary for you, consider the age of your home. The older your home the more susceptible it is to building code upgrades in the event of a covered loss. If you suspect your home was built according to out-of-date building requirements, it is highly recommended that you purchase Ordinance or Law coverage. Depending on which state you live in, you are able to select Ordinance or Law Coverage limits based on certain percentages of your Main Structure insured value.
Don’t be caught out at the time of a claim. If you are unsure as to whether you require Ordinance or Law coverage, it may be worth seeking advice from a builder or home inspector to ensure you adequately protect yourself from significant financial loss should you be faced with such a scenario.
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