Rex and Brenda loved their 1940s house. They insured it to value and even purchased a 10% ordinance or law endorsement. They expected to be fully covered when the house sustained extensive damage.

The cost to repair the damage to the house was over $50,000 but the city refused to issue permits for the repairs. It insisted that the house be razed and rebuilt. The cost to rebuild it would be almost $97,000.

State Farm agreed to pay almost $60,000 but Rex and Brenda argued that it owed them $97,000.

Click here to see what the courts decided.

The Insurance Services Office (ISO) HO-3 gives coverage, then takes it away, and then gives it again.

The valuation clause states that replacement cost applies to the building when it is insured to 80% of its value.

The bad news is in the Exclusions section. It states that if there is an ordinance or law that adds to the cost to rebuild, there is no coverage for that additional cost.

The good news is in the Additional Coverages section. It provides an additional amount of insurance to cover costs due to enforcing ordinances or laws. The additional amount caps at 10% of the building limit of insurance.

Click here to review the PF&M analysis of these sections of the HO-3.

How much ordinance or law coverage is enough? The home’s age and the ordinances must be examined and evaluated. If it is new, it already complies with current ordinances or it could not have been built. The older the house, the higher the cost to comply with all of the regulations and ordinances enacted since the house was built.

An endorsement is available if a higher limit is needed.

Click here for a list of endorsements that includes a brief explanation of each endorsement and its possible uses.

Some of your insureds may have upgraded their homes to meet current regulations and do not have a significant coverage gap. Others do. One way to start a conversation on this subject might be a timely article on your website or your newsletter.

Click here for an emarketing article on this important topic.