What is Law and Ordinance Coverage?

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By Mario E. Lopez, Esq.

Even if your home is insured for replacement cost value, if you do not have Law and Ordinance Coverage, you probably do not have the protection you think you have. A standard replacement cost policy will pay to replace “new for old,” but only if the building codes (ordinances or laws) do not require a better “new” than you had before. For example, after Hurricane Andrew and the hurricanes of 2004, many Florida policyholders discovered that the cost of reconstructing their homes exceeded their coverage limits in their homeowner’s policies because they had to repair and rebuild their homes to comply with the current building code, rather than the building code in effect when their homes were originally built.

The Florida Legislature has worked to prevent this scenario from re-occurring. In Florida, homeowner’s insurance carriers are required to offer Ordinance and Law coverage to purchasers under current law. Fla. Stat. § 627.7011 requires insurers to offer policyholders the option of purchasing Ordinance and Law coverage for either 25% or 50% of the dwelling limit. The purpose of such coverage is to take into account the added cost of compliance with building ordinances. To illustrate, if a policy holder has an asphalt roof, and the new code requires the use of cement tile (presumably more expensive), the policy will provide additional monies for reimbursement—an amount up to 25% of the dwelling coverage limit. The law also requires that the insurance company reasonably notify you of your right to purchase coverage for the increased cost of compliance with construction codes and must have you sign a rejection form approved by the Office of the Insurance Commissioner. If not properly rejected, the law requires the 25% minimum additional coverage to be automatically part of the policy at issue.

Mario E. Lopez, Esq., Partner at Farrell, Patel, Jomarron & Lopez, writes:

“In our practice we are often called upon to represent clients where their claim for ordinance and law coverage has been denied. This is because ordinance and law coverage is one of the most misunderstood policy provisions there is. Ordinance and law coverage is insurance coverage for loss caused by the enforcement of ordinances or laws regulating construction and repair of damaged buildings. Under the Florida Building Code and local ordinances, older buildings that are damaged may need to integrate upgraded systems, like electrical, plumbing, window, door, roof or HVAC, into the repair plan before the local building department will approve a permit for reconstruction or repair. Those upgraded systems can add many thousands of dollars to the cost of repairs or reconstruction. For example, If your home does not have hurricane shutters or hurricane windows, and the new code requires them, your replacement cost policy will pay the cost of replacing your original windows but will not pay the increased cost for new hurricane windows or hurricane shutters.”

Law and Ordinance Coverage can be extremely complicated for those involved in any aspect of property insurance. First-party policies can have various exclusions and endorsements that both restrict and provide coverage. It’s important that you understand the terms of your homeowner’s insurance policy so that you know your rights and obligations under Florida law. It is best practice to familiarize yourself with the policy. Contact one of the attorneys at Farrell, Patel, Jomarron & Lopez! We provide representation to clients facing a wide range of insurance claim issues.