It is common for state, city, and local municipality building codes and requirements to change over time. As you may know, existing buildings that do not meet new codes are typically “grandfathered” from needing to make updates immediately. However, if a loss occurred at one of those grandfathered buildings, the location would need to be brought up to current code during the repair process before it could pass inspections.
In extreme cases, local or state codes could require that a building be demolished and completely rebuilt. If your investor clients’ property insurance policies do not include Ordinance or Law, they likely only have coverage for repairs needed to bring the home back to its previous state. Therefore, any additional costs needed to bring the building up to code would not be covered by insurance.
What is Ordinance or Law?
Ordinance or Law is often referred to as “bring up to code coverage”. It offers additional reimbursement for buildings that –
- Suffered a covered loss
- Do not meet current building ordinances or laws
- Require upgrades (outside of repairing the home to its previous state) to meet current building codes
It is important to note that Ordinance or Law is triggered by a covered loss. If the peril is excluded from the investor client’s property policy, Ordinance or Law coverage is not available.
What does Ordinance or Law cover?
Coverage for the undamaged portion of the building: If parts of the building were not damaged but still need repairs to meet code. If the building needs to be demolished, the coverage limit is extended to the full value of the building.
Demolition costs: If the entire building needs to be demolished in alignment with local ordinances.
Increased cost of construction: Additional expenses for materials that go above the limit of property insurance.
Commonly Required Updates
Weatherproofing
- In hurricane-prone areas, new local ordinances may require dwellings to have storm shutters or utilize certain roofing materials to withstand high winds.
- In flood-prone areas, ordinances may require certain elevations or tilting.
Fire Safety:
- There may be new requirements for hard-wired smoke detectors or the presence of additional smoke detectors in certain rooms.
- Some areas may have requirements for the placement or frequency of fire extinguishers, fire escapes, or sprinkler systems.
Handicapped Accessibility:
- Some cities may require ramps or other ADA-compliant features on the property.
Plumbing or Wiring:
- New local ordinances may not accept older wiring types like knob-and-tube or aluminum.
- Local ordinances may require updates to water/plumbing systems.
Example of Ordinance or Law Covered Loss
Let’s say your investor client has a fourplex and two units suffer a partial loss. A county inspection determines the building does not have hard-wired smoke detectors and therefore, does not meet the current code. The investor client is now required to update the smoke detectors in all four units. Ordinance or Law can cover updates to the undamaged portion of the building, expenses if the entire building needs to be demolished, and/or increased cost of construction if the property limit is not sufficient due to required updates.
Contact your Sales Manager for more information or to see if your investor client’s location qualifies for Ordinance or Law coverage.
