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Ordinance or Law Coverage
As a restoration contractor, AZ Fire & Water has helped many people get ‘back to normal’ after devastating losses. Believe it or not, sometimes what’s most devastating is when property owners discover that they are not fully covered after suffering a major loss. Let’s face it, many consumers are confused and deluded by some of the Insurance cartoon characters constantly claiming price is all that matters. We see all too often how wrong that claim can be and at the worst possible time!
The truth is that Property & Casualty Insurance is complex, complicated, and full of legalese which requires a Professional Advisor to inform, educate and ensure that you, the consumer, gets the complete and proper coverage for issues you couldn’t possibly foresee unless you were a professional Agent. AZ Fire & Water is a Strategic Partner to a very select group of local Agents. As such, we want to lend our perspective to your education regarding important coverages so that you do not have to face the overwhelming financial penalty for not being fully informed about one of the most important risks many property owners are not covered for – Ordinance or Law Coverage.
There are so many things to consider before you purchase insurance. For example; you already know that every community has building ordinances or zoning laws that affect how houses are built or updated. However, did you know that there are also laws and ordinances that govern how or whether a house can be repaired after a loss?
When you have a loss that damages part of your house, the repairs, in many situation, must be made to the specifications of any regulations that are in effect at the time of the loss. It doesn’t really matter if everything met code when your house was built. What matters now is the new building code. Even more important than that, there are regulations that may compel you to tear down the house if the damage is more than 40-50 % of its value.
So what, you’re probably thinking,” that’s what I have insurance for!”
Well…the answer is yes and no at the same time. (Told you this can be complicated stuff!) Insurance pays for the cost to repair or replace the damaged part of the building. Think of it like this: if the value of your home is $200,000 and you have $100,000 in damage, insurance pays for the damage (minus the deductible; people always forget that). But now that your house has sustained damage equal to 50% of its value, the law kicks in and requires you to tear it down – damaged and undamaged parts – and rebuild the whole thing!
Now, since insurance pays for the damaged part of the building, but even the undamaged part has to be torn down, where does the other $100,000 come from? That’s where Ordinance or Law coverage comes in. This is important to remember – there are very few total losses; partial losses are far more likely. But a partial loss could trigger the enforcement of an ordinance that could cause you to pay more than the amount of loss covered by your policy. What this ultimately means is, if you suffer a loss and building codes have changed since the structure was built, the costs to bring that building up to code fall directly on you unless you have an Ordinance or Law endorsement. This coverage is not required in most states, and most policies exclude it.
Another example we have encountered in ‘real life’ is when damage occurs to a portion of a structure, but further professional investigation (always part of a large loss) reveals code violations. Several times in the restoration process of a kitchen fire where only one or two rooms were affected, it was discovered that the electrical system in the entire house, despite not being damaged by the fire, is no longer code compliant. The policyholder had no choice whether or not to bring it ‘up to code’ and since they didn’t have Ordinance or Law coverage, they were responsible for the costs associated with getting the entire electrical system updated. Again, there is no choice and it is VERY expensive.
From the perspective of a Restoration Contractor, the older the building the greater the exposure to losses where Ordinance or Law coverage is necessary. There are no hard and fast rules, but from our experience, any building over 15 years old runs a serious risk of unforeseen circumstances which could easily cause a life altering financial event. Talk to your Agent for advice and counsel. Stop listening to advice from cartoons!
More Education Required
Your Agent may want to discuss the 3 components of Law or Ordinance coverage:
1. Coverage for the Undamaged Part of the Building
2. Demolition Costs
3. Increased Cost of New Construction