Understanding and securing Ordinance or Law coverage is essential for real estate owners and investors to protect property owners from unexpected expenses when a property is damaged and must be rebuilt or repaired according to current building codes. The devastation caused by recent hurricanes underscores the critical need for proper coverage to rebuild after a loss.
What Is Ordinance or Law Insurance?
Ordinance or Law insurance covers the increased costs associated with repairing, rebuilding, or demolishing a structure that must meet current building codes following damage from a covered peril. Building codes and ordinances are regularly updated, as is the case in Florida, which has strict requirements for reinforced roofs, impact-resistant windows and doors, secure roof-to-wall connections, hurricane straps, and specific design considerations. Without Ordinance or Law coverage, property owners could be left paying out of pocket for these code-required upgrades, often adding significant costs to a repair or rebuilding. These requirements vary widely depending on the property’s location, age, and type, making this coverage essential for protecting property value and ensuring compliance.
How Ordinance or Law Coverage Applies in a Property Insurance Policy
A standard Property insurance policy is typically limited to repairing or replacing damaged parts of a building with materials similar to those used before the damage. If building codes have since changed, a standard policy typically doesn’t cover the added costs of bringing the property up to current standards. This coverage gap is where Ordinance or Law insurance comes in.
Ordinance or Law coverage often includes three sections:
- Coverage A: Loss to the Undamaged Portion of the Building: This coverage protects the undamaged part of a building that must be demolished to comply with local ordinances. For example, if a fire partially damages a property but local codes require that the entire structure be rebuilt to meet current standards, Coverage A would compensate for the undamaged portion that needs to be demolished.
- Coverage B: Demolition Cost: This covers the expenses associated with demolishing the undamaged portion of the building. In some cases, even if only part of a building is damaged, the law may require the entire structure to be demolished for compliance, which can be costly.
- Coverage C: Increased Cost of Construction: This helps cover the cost of rebuilding the property to comply with current building codes. It includes expenses related to updated structural elements, safety requirements, or energy-efficiency upgrades that were not required during the original construction.
Each component helps property owners avoid unexpected costs when codes mandate upgrades.
Benefits of Ordinance or Law Coverage
- Mitigates Financial Risk: One of the main reasons to include Ordinance or Law insurance in a policy is to mitigate the financial risk associated with code-required upgrades. These upgrades typically use more expensive materials or techniques for fire safety, structural soundness, or environmental efficiency.
- Ensures Compliance with Local Building Codes: Ordinance or Law insurance ensures that property owners can bring their buildings up to current codes after a loss without facing severe financial strain. In many municipalities, failure to comply with codes can result in fines, delays, or, in severe cases, an inability to continue operating the building as intended. Coverage protects against these disruptions by enabling the insured to address code requirements promptly.
- Protects Property Value and Marketability: Maintaining property value is crucial for real estate investors. In the event of damage, restoring or rebuilding a property to code without cutting corners safeguards the building’s integrity and marketability. Buyers and tenants value properties that meet modern safety and efficiency standards, so having Ordinance or Law insurance indirectly preserves property appeal and resale value.
- Prepares for Unexpected Renovation Requirements: Many properties, particularly older ones, are grandfathered into previous building codes until significant renovations or repairs are needed. Ordinance or Law insurance prepares owners for these unexpected renovation costs by covering expenses tied to updating the property to current standards. This is especially relevant for historic or aging properties that require extensive updates to meet today’s codes.
- Caters to Different Property Types: Whether it’s a single commercial property, a multi-family residential building, or a mixed-use building, Ordinance or Law insurance is applicable across various property types. Different types of properties face unique code requirements—fire sprinkler systems for high-rise buildings, ADA compliance for commercial spaces, or earthquake retrofitting for properties in high-risk areas—all of which could be required during a rebuild. Ordinance or Law insurance can cater to these needs and ensure comprehensive coverage.
Key Considerations When Selecting Ordinance or Law Coverage
- Building Age and Condition: Older buildings that haven’t been updated recently are more likely to face extensive code-related upgrades if damaged, making Ordinance or Law insurance especially important.
- Local Building Codes: Property owners should be familiar with their local codes to understand the upgrades they might need to implement after a loss.
- Coverage Limits: To ensure adequate protection, it’s essential to carefully review the policy’s coverage limits for each part (A, B, and C). High-value properties or those in stringent regulatory environments may require higher limits.
- Potential Exposure and Property Type: It is crucial to assess exposure for each specific property type (such as habitational properties or commercial complexes), as different properties will face unique ordinance-related risks.
About Seneca Insurance Companies
Ordinance or Law insurance is a critical component of a well-rounded Property insurance policy, especially for real estate investors and commercial property owners. Seneca Insurance Companies offers a commercial package that combines Property and General Liability insurance. We can tailor our Property coverage with an Ordinance or Law endorsement tailored to a client’s needs.
