Building Ordinance or Law Coverage: Code for Recovery!
After a severe property loss, the first shock comes in learning that rebuilding a damaged or destroyed structure, so that it conforms to the latest building codes, can add 50 percent or more to recovery costs.
Then comes the unpleasant surprise of discovering that the "Ordinance or Law" coverage exclusion in the property insurance policy will prevent a full recovery – even though replacement cost coverage is provided, limits are sufficient to fully cover the replacement, and no coinsurance or similar limitations are applicable. With building codes continually changing – requiring features like new or improved sprinkler systems, better wiring and handicap accessibility – this dilemma is not uncommon.
The Ordinance or Law Exclusion in the standard insurance policy is intended to limit insurance coverage for the additional costs resulting from the application of building codes of various kinds – construction, electrical, plumbing, fire safety, etc. – that may require more expensive reconstruction materials, installations, design or methods following a property loss than those that existed in the building at the time of the loss.
Some local laws, even when allowing for reconstruction with the same materials or design, also require that if the building is damaged beyond a specified percentage of its value (50, 60 or 75 percent is typical), the remaining portion of the building must be demolished before reconstruction can begin.
That’s why, more than ever, it is important to understand the Ordinance or Law Exclusion – and be aware of the availability of the insurance coverage that addresses its limitations. It is known as Building Ordinance or Law Coverage.
This issue of Adjusting Today covers the history and development of Building Ordinance or Law Coverage and it is intended to help the reader understand its application following a property loss.
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Adjusting Today is provided free of charge as a public service by Adjusters International, Inc., disaster recovery consultants. It is provided for general information and is not intended to replace professional insurance, legal and/or financial advice for specific cases.
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