Rebuild me to the new building code!

Insurance:  Ordinance and Law Coverage – What you need to know!

An important coverage available to building owners is “Building Ordinance and Law Coverage.” This coverage is sometimes included in property insurance policies and can be added by endorsement for an additional premium. In some situations (as mandated by Florida statutes) certain policies must include ordinance and law (O&L) coverage unless the client rejects the coverage in writing. Whether the coverage is statutorily required or not, it’s a very valuable option and all building owners (residential or otherwise) should be encouraged to obtain the coverage in order to provide the best possible protection.

Ordinance and Law Coverage Explained

Property insurance policies are designed to pay for repairs to a building that will put it back in the same condition that it was prior to a loss. The policy is not designed to pay for items that were not present prior to the loss. An example will illustrate the point.

law and ordinance coverage property guidingBill owns a house that is severely damaged in a fire. The insurance company prepares an estimate to replace the roof with 1/2-inch plywood, roof shingles stapled down, and no hurricane tie-down straps. Such repair will return Bill’s home to the condition it was prior to the fire. However, when the contractor goes to pull the building permit he is told that the local building codes have changed since the home was built. The new code requires 3/4-inch plywood, roof shingles that are nailed down every eight inches, hurricane tie-down straps, and shutters on all exterior windows. The local officials tell the contractor that these new building code changes result from state and local laws regulating the reconstruction of a building that has been damaged more than 50% of its value. Unless the contractor agrees to complete the repairs in a manner that will comply with this new code, no permit will be issued.

The problem Bill faces is he must rebuild his house to the new code, but his policy won’t pay for those increased costs unless his policy has O&L coverage. His $100,000 house sustained $60,000 of damage in this fire. That $60,000 would put the house back just like it was, but Bill can’t rebuild like that because of the new building code. The contractor tells Bill that it will cost an additional $15,000 to rebuild his house and comply with the current building codes. An insurance policy that does not contain O&L coverage would pay only the $60,000 of Bill’s fire loss; it would not cover the additional $15,000 needed to bring Bill up to code. (That comes from Bill’s pocket!) Had Bill’s policy included “Building Ordinance and Law Coverage” the additional $15,000 would have been covered.

If you’re buying an older home that may not be up to today’s code, make sure your homeowner’s insurance includes O&L coverage!

Realtor® | SWFL Region
The PELL Team Leader
239.292.9404 (c)
“Buy or Sell…Think Pell!” ™

Posted on January 3, 2013, in Real Estate and tagged , , , , , , , , , , , , , . Bookmark the permalink. 4 Comments.

  1. Thanks for sharing this information. I hope that inspectors are doing a better job now than ever before.

  2. Thanks so much for all this information. I am so grateful you chose to put this on your blog! It’s been a great help for me! I have needed this for a long time! So thank you for the info!

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