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Why Your Insurance Denied Building Code Expense

Friday, April 22, 2022
Why Your Insurance Carrier Denied the Extra Rebuild Expense Due to a Building Code?

When your home sustains significant damages due to a fire or even a weather event, some city/town ordinances or zoning laws may require you to fix more than your insurance policy is willing to cover – often to the frustration of any homeowner who is dealing with a claim and more than likely displaced from their home!

Let’s first address the denied claim and why it happened

Consider the following scenario: your home experiences significant damage due to a fire. Half of your home is a complete loss, while the remainder only sustained minor smoke damage. The insurance adjuster will assess the cost to repair/replace the damaged portion of the home and remediate the smoke damage. 

This seems fair until the local building inspector cites a city ordinance that requires a complete rebuild or when a home is damaged at 50%. In some cases, the building code will require a complete demolition. The demolition or rebuild of the “good part” of your home is not covered under your insurance policy because there is no “cause of loss.”

The fact is, there are very few total losses. Partial losses are the norm, so sadly, these scenarios happen quite often.

Another instance is when an older home was grandfathered under certain building codes. Now that there is a partial or total loss, a city may require the entire home to be brought up to code. You could be required to update electricity and sewage, adjust how much road frontage you have, or change the types of building materials you use.

How do you protect yourself from unforeseen expenses?

An undervalued endorsement of your homeowners’ policy is the not-so-secret solution.  “Ordinance & Law” or “Building Code” coverage protects homeowners when the above scenarios occur. The typical coverage is 10% of your Coverage A – that’s how much the insurance carrier is willing to give you for a complete rebuild of your home. If your rebuild cost (Coverage A) is $250,000 – your Ordinance & Law coverage will give you $25,000 to cover any additional expenses required by building code requirements in your city or town.

As you can imagine, in our story above, with the fire, $25K would not go far. We always encourage our clients to increase the Ordinance & Law Coverage to at least 50% of your replacement cost. In our case, that would be $125K and would cover the rebuild of the “good” part of the home required by the building code.

Are there things the Ordinance & Law Endorsement will NOT cover?

As with any contract, there are exclusions, and the Ordinance & Law endorsement on your homeowners’ policy is no different. For instance, Ordinance and Law coverage will not help you get your building up to code after a renovation or routine maintenance. Because every insurance policy contract varies by carrier, it’s always wise to spend time understanding exactly what you have, what is covered and what is not.

Talk to your Insurance Broker

Your insurance broker is the right person to talk to about the value of your home. They can help determine what coverages and endorsements you need on your homeowner’s insurance policy to ensure that you and your bank account are protected in case of a loss. If you have any questions about your homeowner’s policy, please reach out to the personal insurance team at The Horton Group by calling 800-383-8383 or stop by one of our convenient locations today.

Material posted on this website is for informational purposes only and does not constitute a legal opinion or medical advice. Contact your legal representative or medical professional for information specific to your legal or medical needs.