Little Known Homeowners Insurance Risks: Law & Ordinance Coverage


You’re a smart homeowner. You’ve always carried enough homeowners insurance. You’ve reviewed your policy regularly and added coverage when you made improvements. You even have supplement flood and earthquake policies, just in case. So imagine your shock when a fire destroys half your home and you learn that changes to your local or state building codes are going to add 50% to the cost of rebuilding…and your insurance isn’t going to pay it because of Ordinance or Law exclusions.

Regarding Ordinance and Law coverage, the Insurance Services Office, a leading information source for the property and casualty insurance industry, states in its Commercial Property Causes  of Loss forms that insurers will not pay for loss or damage caused directly or indirectly by “the enforcement of any ordinance or law: 1) regulating the construction, use or repair of any property; or 2) Requiring the tearing down of any property, including the cost of removing its debris.” A similar exclusion is included in most other property
insurance forms, including homeowners.

The exclusion is the insurance industry’s reaction to ever-changing codes that specify more expensive materials or construction and installation methods to rebuild a damaged property, shifts in zoning laws that
calls for expensive building, lot size or frontage requirements and restrictions, and stringent environmental and pollution control laws governing demolition or reconstruction. Some laws even designate that when a certain percentage of a building has been damaged, then the rest of it must be destroyed before you can begin to rebuild. And if you live in an area that is prone to earthquakes, floods, or hurricanes, you’ll certainly face prohibitions about where, how or whether you can rebuild.

Essentially, your risk as a homeowner falls into three areas:

  • The loss of value to the undamaged part of your home that has to be demolished or modified to meet current codes, or when the building damage is greater than the percentage allowed by code, or when rebuilding is not allowed under current code.
  • The cost to demolish and remove debris from the undamaged part of your home that has to torn down (your insurance will cover removing debris from the part of your home that was destroyed).
  • The increased cost to repair or rebuild to meet current code.

So, what can you do to avoid unpleasant surprises and protect your property? Talk to your insurance agent and discuss your risk exposure. Some insurance companies now offer Ordinance and Law coverage that
will take care of the cost to tear down the undamaged part  of your home and the cost to rebuild it to current code. Your agent can help you determine how much coverage you need.

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