Many residential insurance policies in Florida have additional coverage for “Ordinance or Law” or code upgrade coverage. I wanted to write about this additional coverage in the context of the Hurricane Law series because it is important to understand how this additional coverage kicks in during a typical residential hurricane claim. In South Florida, many property insurance claim issues remain from the 2005 and 2005 hurricanes. Many of the open disputes concern hurricane damage to residential roofs and whether they can be repaired or necessitate replacement. Of course there are many other issues still being litigated from the hurricanes of 2004-2005 in Florida, but this post will focus on the Ordinance or Law additional coverage in the context of a residential roof.
Insurance carriers may dispute the extent of damages to a roof and issue payment to the policyholder to repair areas of the roof that the insurance carrier agrees were damaged by a hurricane. If the policyholder takes that insurance claim payment, hires a roofer and signs a contract for roof repairs, they will likely file a repair permit application with the local building code department. The Ordinance or Law additional coverage can be triggered if the building code department rejects the permit application because the building code requires certain upgrades, so that complete replacement of the policyholder’s roof is necessary. Building code departments have many different reasons for rejecting repair permits, but the most common reason is when the percentage of repairs exceeds 25% of the total roof area. It may also be that the building code requires the roof to be replaced because of certain required code upgrades (such as tie downs, etc.) that cannot be accomplished without the replacement.
Residential insurance policies that contain the additional coverage for Ordinance or Law may contain a provision worded similarly to this example:
Ordinance or Law
You may use up to 25% of the limit of liability that applies to Coverage A for the increased costs you incur due to the enforcement of any ordinance or law which requires or regulates:
The construction, demolition, remodeling, renovation or repair of that part of a covered building or other structure damaged by a Peril Insured Against;
The remodeling, removal or replacement of the portion of the undamaged part of a covered building or other structure necessary to complete the remodeling, repair or replacement of that part of the covered building or other structure damaged by a Peril Insured Against.
The typical Ordinance or Law provision states that a policyholder may use the additional coverage for increased costs incurred when building codes require the removal of the undamaged part of the building to complete repair to the area of the building that was damaged by the loss claimed. In the roof example, replacement of the entire roof would be covered, if it were required by building codes.
In Florida, one way for policyholders to claim this additional coverage is to demonstrate that they have “incurred” the expense that the code upgrade requires. In the roof example, that may include providing the insurance carrier with the signed contract for replacement of the roof, along with the permit application, rejection and documentation from the building department.