Code ready with Building Ordinance & Law coverage
What is Building Ordinance or Law coverage – and do I need it? A Connecticut transplant asked that question last week as he was about to close on a newly-built home in Florida. He was looking over his homeowners insurance policy and wanted to understand the terminology. After complimenting him on taking the time to actually read through the policy (which everyone should do), we talked about this coverage which pays for the increased repair costs to meet building codes in force at the time of construction.
If you don’t have Building Ordinance or Law coverage, your homeowners insurance policy will pay only to rebuild what existed prior to the loss – which may not be good enough to comply with current building codes. Building codes change often – and change is good since improvements to the code make a structure safer and stronger. In Florida, building codes are updated every three years and may be amended annually if something in the code needs clarification. Because damaged structures must be rebuilt to the ever-improving building codes, that perfectly constructed 1988 home may not meet today’s construction standards. Even newer structures may not meet current building codes since they change often. Building Ordinance or Law is extra protection for an additional premium payment to cover the costs of compliance.
Most homeowners policies limit coverage for code upgrades; some policies may exclude it. In addition to providing protection to cover the increased costs of code compliance, Building Ordinance or Law coverage pays if laws or ordinances require partially damaged buildings to be demolished prior to rebuilding.
Unified building codes went into effect in 2002, so if your home was constructed before that, it is wise to talk with your insurance company or agent about the protection you get with Building Ordinance or Law coverage. Florida first mandated statewide building codes in the 1970s, and those codes were strengthened after Hurricane Andrew proved that building code adoption and enforcement were somewhat lax. Now, the Florida Building Commission develops and maintains codes that supersede all local building codes.
Legislation passed in 2005 (SB 1486) requires insurers to give you an opportunity to add, increase or reject building ordinance or law coverage. You can choose Building Ordinance or Law coverage at 25 percent or 50 percent of the amount of coverage you have on the property. For example, if your home is insured for $200,000, this gives you an additional $50,000 or $100,000 more to bring your home up to code, depending on which level of coverage you choose. Ask your insurer about the cost difference between the 25 percent and 50 percent coverage to help you price the extra peace of mind.
The Insurance Institute for Business & Home Safety also has public policy resources on building codes, if you’d like more information.