When it comes to protecting your home, business, or investment property, there’s one essential coverage that many property owners overlook regarding Ordinance or Law (O&L) coverage. Insurance agent expert and educator David Thompson, in a comment to a discussion on Property Insurance Coverage Law, highlights a common and critical misconception and highlights that newly constructed buildings need coverage for building laws and ordinances:
As I teach classes on Ordinance or Law, I find a common misconception that newer structures don’t need this coverage. That, of course, is incorrect.
The Danger of Underestimating Ordinance or Law Coverage
Many property owners assume that if their building is newer, updated, or even code-compliant at the time of construction, Ordinance or Law coverage isn’t necessary. However, Thompson stresses that this view is dangerously incorrect. Building codes change regularly, and what was compliant even a few years ago might not meet today’s stricter standards. After a partial loss, new codes could force you to demolish undamaged portions of your property—or rebuild entirely—in compliance with the latest regulations.
Thompson explained:
One of the most valuable coverages under O&L is for the undamaged portion of the building. You could have a $300,000 house with $160,000 in damage and the code might require demolition of the whole structure.
Imagine suffering partial damage to your property, only to be told you must demolish the entire building, even the undamaged parts, without adequate coverage to pay for it. It’s a financial disaster waiting to happen. That is what happened to the policyholder in yesterday’s post, Insurance Coverage After a Raze Order: Strategies for Overcoming Ordinance or Law Exclusions.
Relying on Legal Doctrines Is Risky
While some might think they can lean on Florida’s “total loss” legal concepts to force full payment from insurers, as I noted in Law & Ordinance Exclusions and Coverage and Constructive Total Loss—A Florida Perspective, Thompson issues a caution:
You might try to rely on the ‘total loss’ concept pointed out in the blog, but I’d submit there is a good chance that involves a long court battle. The ‘easy button’ is to have maximum O&L coverage.
Litigation is time-consuming, stressful, and costly. Having robust coverage ensures you’re protected without going through drawn-out legal fights that could delay rebuilding your home or business.
The Real-World Consequences: E&O Claims
Thompson shares a telling insight from his experience with Florida’s insurance industry:
Late each year, I receive a list of the errors & omissions claims the agency members of the Florida Association of Insurance member agencies. Since Hurricane Irma hit a few years back I’d estimate there have been over a dozen such E&O claims.
An “E&O” (Errors and Omissions) claim typically arises when an agent fails to properly advise a client about necessary coverages. If there have been over a dozen claims, that implies countless more consumers suffered financially but didn’t pursue claims due to a lack of documentation or simply because they didn’t realize they could.
Maximize Your Ordinance or Law Coverage Because It Is Affordable
Finally, Thompson provides a practical recommendation:
Anyone buying any type structure should purchase the maximum O&L available. For most homeowners, that probably costs less than the cost of one Starbucks per week.
He claims that for less than the price of a cup of coffee, you could have peace of mind that your largest investment, your home, business, or investment property, is fully protected against the unforeseen costs of rebuilding to new codes.
The bottom line is that whether your property is new, old, residential, or commercial, maximize your Ordinance or Law coverage. It’s an inexpensive safeguard against one of the most financially devastating gaps in insurance. It is hard to anticipate how losses may occur, and it is smart to protect yourself from future headaches, which are relatively inexpensive.
For Insurance Coverage Nerds and anybody selling or advising what type of property insurance coverage should be purchased, I suggest you study The Importance of Revising Building Laws and Ordinances, Which Explains Why Law and Ordinance Coverage Law is So Important To Purchase, Law and Ordinance Coverage C Limits of Coverage—How Much to Obtain, and What Does Demolition and Value Mean Under Coverage A of the Ordinance and Law Coverage?
Thought For The Day
“I miss the utopian spirit. Now, it’s just: get the building done before the lawsuits start.”
—Rem Koolhaas
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