June 12, 2015

Ordinance Law and You

What is meant by Ordinance and Law Coverage?  

How much Ordinance and Law Coverage Should you have in California?

Ordinance & Law Coverage:

In personal homeowners insurance – Ordinance and/ or Law Coverage is coverage that protects your home from the added cost of repairing or replacing your home from a covered loss due to new Laws and Ordinances that are now in place.  (This all important endorsement can also go by other names on some policies such as Building Ordinance and Law or just Ordinance and Law.)

Building Ordinance and Law Coverage is one of the most important endorsements on most HO3 and HO5 policies.

Building Ordinance and Law coverage is typically standard on most California HO3 and HO5 personal home insurance policies.

A Definition of Building Ordinance and Law / Ordinance and Law:

Ordinance and Law coverage is best defined by Nationwide: It “covers the cost to rebuild a home that has been destroyed, as well as the cost to upgrade a home so that it meets the most up-to-date building codes after a covered loss.” The definition will/can change depending on the exact insurer policy.

It is important to understand that it revolves around a previously “Covered Loss.”  In other words the cause of the Loss can not solely be the building code.   It is a covered loss that brings this endorsement into play.

“imagine a scenario where your home is minimally damaged…but…”

Imagine a scenario where your home is minimally damaged, but you can’t get a permit to just replace broken pieces with the same materials because those building materials and methods are no longer allowed by your communities rules and regulations.  Your county or city (depending on your jurisdiction) may require you to upgrade systems while you are repairing your home.  (Systems that were not really damaged.)  These additional costs that are required, by an inspector, could possibly be covered by this important endorsement.  Think new electrical, heating, plumbing, and air conditioning codes in your community.   All of these, especially electrical (as far as I am aware) has changed dramatically in the past forty years.

A great AM Best A rated Homeowners Insurance policy will automatically carry a small amount of Ordinance and Law Coverage (in California) via an endorsement.  This coverage amount is often 10% of your coverage A.  However, clients may have the ability to add more, sometimes in amounts of 25% and up to 50%.  Of course this does depend on the state in which you live in.  California, has its own rules and regulations.  Your state may have its own rules.

Lets review an example of the Use of Building Ordinance and Law.

You have a minor kitchen fire at your primary residency.  The estimated cost to repair your kitchen is $50,000.  Your home Coverage A is at $550,000.  Your some-what standard ordinance and law coverage is 10% or $55,000,  The building inspector comes to check on the repair work and notes that your electrical system is “dangerous” and not nearly up to current code.  He orders new electrical lines through the entire house and a new circuit breaker box.  If this is not done he will not sign off on your certificate. You are shocked to hear multiple electricians quote out the comprehensive work at $110,000 plus some minor labor to repair damaged walls that will need to be repaired from the electrical work.

All of this electrical work, might be covered under your Building Ordinance and Law coverage, but you only have $55,000 of this coverage.  Now What?

How much Ordinance and Law Coverage do you Need for a California Home?

The simple answer to this one is that you should ideally consult with a contractor in your area and become familiar with both the typical cost per square foot for remodels and new builds in your area and get a feel for how ‘up to code’ your home is.  If, for example, your home is 8 years old and the codes and rules in your community are fairly similar, you may not need any additional coverage.  However, if your home is 50 years old and has not ever had a major renovation and you live in a community with aggressive rules, I would really consider adding more coverage.  Also speak with a licensed insurance broker or insurance agent in your state for more guidance.

As an example – homeowners insurance in Marin County, should contain a higher BOL or Building Ordinance and Law than other communities because many of the structures around here are from the 1950s/1960s AND because we have very stringent building codes.

If you do not believe that we have stringent building codes consider two examples:  Some towns in Marin County have “building inspectors” that drive around town looking for non permitted work.  Other towns require a permit to replace an existing window!

Options with this  Endorsement:

Many homeowners insurance policies typically will have a 10% coverage amount.  This is derived by multiplying this percentage times your Coverage A (dwelling coverage.)  Some policies will list it as a percentage and others a specific dollar figure.

Many insurers will offer you an upgrade to 25%.  My advice is that if you can afford it, get at least this amount.

The best insurance options offer: sometimes 50%, occasionally 75%, and sometimes 100% of the coverage A.

It is important to note that if you have a landlord policy or a commercial policy or even a non admitted policy, you might not have any of this coverage.

• 10% – Somewhat Standard
• 25% – Upgrade Amount
• 50% – A Great Option where available
• 75% – A Terrific Option, rarely available
• 100% – The highest Building and Ordinance Law Amount I know of

Loosely defined a 100% Building Ordinance coverage would theoretically provide 100% of the Coverage A in the event of a covered loss.

The Hidden Reason that Building Ordinance and Law May Really Help You:

In some communities if a certain percentage of your house is destroyed you cannot just repair the other half.  You must rip the entire thing down and start from scratch.  This possible use of Ordinance and Law can get quite complicated – therefore I do not wish to make it seem simple.  However in this scenario, having the highest and best Building Ordinance and Law coverage might be beneficial.

Homeowners Insurance Ordinance and Law Summary:

• Most home need this important endorsement.
• If you live in an older home, or a community with more building codes, get the most you can.
• Many home policies (HO3/5) have this at 10% standard (but not all.)
• The best insurers offer this at 50%, 75%, and even 100% of the coverage A.

It is important to note that a Covered Peril must occur for the Ordinance and Law Endorsement to kick in.  A new ordinance that goes into force does NOT trigger this endorsement alone.

Scott W Johnson – 0H11625

Marindependent Insurance Services LLC – 0K10734 – 415-294-5454

Independent Insurance in and around Marin County California USA.  Please Read our Disclosure.  Always seek licenses advice from a broker or agent in your jurisdiction whenever considering insurance.