Insurance. Are you properly covered?

May, 2008

Here is a good question to ask your insurance professional: do I have Ordinance or Law coverage? When you purchase a homeowners or commercial property policy, most people expect to have their property fully replaced in the event of a fire loss. However, unless your policy is endorsed or written to include "Ordinance or Law" coverage, the consumer may have a generous gap in coverage they were not expecting. The typical property policy allows recovery of damages up to "like, kind and quality" and nothing more. It may appear the insurance policy should pay up to full replacement cost, but unless you have Ordinance or Law in the contract, there may be gaps in coverage. Ordinance or Law typically includes three types of coverage: Increased Cost of Construction, Demolition and Replacement of Undamaged Property. For example, let's say you own a building or home constructed in 1960 and it is without extensive remodeling and then destroyed due to fire. To replace the structure to "like, kind and quality" does not include earthquake retrofitting, single pane to double pane windows, etc. These building code or "Ordinance or Law" upgrades are not included in the basic property policy and the consumer would be out of pocket for the increased cost. An example, would be a structure that costs $200,000 to replace, including the increased cost to bring the structure up to todays building codes, but the insurance settlement to replace with "like, kind and quality" may only be $175,000 which leaves a $25,000 out of pocket expense, due to the lack of proper coverage. Another feature of Ordinance or Law coverage is Demolition and Reconstruction of any undamaged portions of the structure. In other words, let's say 80% of the building is damaged due to fire and the remaining 20 percent undamaged portion must be demolished due to building code or ordinance. In a typical, unendorsed insurance policy, the "undamaged" portion of the structure has not suffered any "loss" so there is no coverage to pay for demolition, let alone the cost to re-build this undamaged portion of the structure. You can see where this would create a significant out of pocket exposure. There are several more details of the Ordinance or Law coverage, so I recommend you call and talk to your trusted and respected insurance agent and review your portfolio to make certain you have Ordinance or Law coverage.

Annette Brieske, CPCU

Midland Empire Insurance Agency