Q: Our neighbor had a terrible house fire recently. His home, like ours, is worth approximately $300,000. He told use that it will cost $160,000 to repair his house. He has insurance to cover the cost of bringing his property back to its original condition.
The problem is that building codes regulating the reconstruction of a building that has been damaged more than 50% of its value require that the repairs be done in a manner that will comply with new codes. His insurance policy will not cover the additional $20,000 that meeting new codes will cost. He'll have to pay that himself. Is there anything we can do to avoid this happening to us? I don't expect that we will have a fire but hurricane damage is always on my mind.
A: The risk that concerns you is known as Ordinance and Law Exposure. This is the risk of higher rebuilding costs associated with meeting building code requirements that are mandated by ordinances and laws. Many of these have to do with making newer buildings safer during a storm.
Let's say your house was built with a roof that contains 1/2-inch plywood, roof shingles that were stapled in place and constructed without hurricane tie-down straps. If the roof were destroyed in a hurricane or fire, your insurance company would probably be willing to write a check for the estimate to replace the roof to previous specifications. This coverage would be clearly written into your insurance policy.
If a storm occurred and more than 50% of the home were destroyed, you would be subject to the new building codes. The problem is that newer codes require 3/4-inch plywood, roof shingles that are nailed down every eight inces, and hurricane tie down straps. The cost of meeting these requirements would be substantially more than rebuilding to the older codes and may not be covered by your insurance policy.
Florida is one of the few, perhaps only, state whose standard property policies don't cover ordinance and law claims. Florida statute 627.7011(a) says "A policy or endorsement providing that any loss which is repaired or replaced will be adjusted on the basis of replacement costs not exceeding policy limits as to the dwelling, rather than actual cash value, but not including costs necessary to meet applicable laws and ordinance regulating the construction, use, or repair of any property or requiring the tearing down of any property, including the costs of removing debris."
On the other hand, some situations are mandated by Florida statute to include ordinance and law coverage in specific insurance policies unless the client rejects the coverage in writing. Whether mandated or not, it is worth understanding how much your policy would cover in the event of such a disaster.
If in doubt, ask your insurance agent to review your policy with you. If you do end up in a troublesome situation, seek the advice of an attorney who is well versed in construction law and knowledgeable about Ordinance and Law Exposure.
Attorney Sylvia Heldreth is a Certified Specialist in Real Estate Law. Her office is located at 1215 Miramar Street in Cape Coral.
This article is not intended as specific legal advice to anyone and is based upon facts that change from time to time. Individuals should seek counsel before acting upon any matter involving the law.