On September 18, 2023, Wheeler, DiUlio & Barnabei hosted a lunch & learn webinar titled, Code Upgrade Ordinance or Law: When and How It Is Actually Applied. In this webinar, Partner Anthony DiUlio described code upgrades and ordinance or law coverage through policy examples.
He discussed general information regarding code coverages. For exact details on your specific code coverages, be sure to read your insurance policy as coverage language varies depending on the carrier.
What is a “Code Upgrade”?
Most policies feature information about ‘Code Ordinance’ or Compliance, instead of ‘Code Upgrade’. Ordiance and Compliance refer to the coverage of any additional costs that are necessary to repair along with the damaged structure.
While these terms may be used interchangeably in the industry, upgrades should not be confused with Ordinance or Law coverage. Be sure to read your policy in detail to gain a full understanding of the distinctions set by your carrier.
Furthermore, it is important to note that not all states allow for code upgrade exclusions. Many courts in these states have said exclusions only apply when a repair was caused solely by “enforcement” and not an underlying loss.
Specifically, the insured cannot request coverage simply because the structure is no longer up to code. Be sure to read your policy and consult an attorney regarding these provisions within your state.
Ordinance or Law Policy Language
As mentioned, policy language is different for every carrier. However, Ordinance or Law provisions typically first appear within the exclusions of the policy. These stipulations may also be found in the additional coverages sections for some policies.
Take State Farm’s policy language as an example. Their policy states,
“We will not pay for, under any part of this policy, any loss that would not have occured in the absence of one or more of the following excluded events…(d) whether the event occurs abruptly or gradually, involves isolated or widespread damage, occurs on or off the residence premises, arises from natural or external forces, or occurs as a results of any combination of these:
A. Ordinance or Law, meaning enforcement of any ordinance or law regulating the construction, repair, or demolition of a building structure or other structure.”
The subject matter of this statement is Ordinance or Law coverage. This provision means that if repairs are not being done purely because of the enforcement of Ordinance or Law, it does not fall under the Ordinance or Law exclusion. Thus, the carrier will not pay any portion of the claim.
Further, the additional coverages section in the same policy reads the following:
“Loss payment language –
4.) we will not pay for increased costs resulting from enforcement of any ordinance or law regulating the construction, repair, or demolition of a building structure or other structure, except as provided under OPTIONAL POLICY PROVISIONS, Option OL – Building Ordinance or Law.”
This policy language is nearly identical to that of the previous exclusions provision. However, this exclusion says the carrier will not pay unless it falls under Ordinance or Law within the optional coverage. Therefore, the exclusion provision is not absolute because of this optional coverage statement.
These are just two examples of ambiguous language on the same topic within one carrier’s policy. For more policy language examples, view our September webinar, Deposition Training – Being the Best Expert You Can Be. In addition, review your policy to learn where the Ordinance and Law exclusions are and where those “add backs” may exist.
Questions to Ask With Every Claim
When questioned about Ordinance or Law Compliance, be sure to ask the following in every claim:
- Regardless of any codes, what will be necessary to repair the covered damage?
- Am I doing this repair because of a Law or Ordinance, or am I doing this repair because of some other reason?
- Is the work only necessary because of a law or ordinance?
If you get consistent answers across all three questions, coverage is likely.
Disputes are very possible when filing a claim, particularly due to ambiguous policy language. Here are a few action items to support your claim when a dispute occurs:
- Get an engineering or construction expert to explain the scope of the loss saying that a repair would be impossible to do otherwise regardless of the code.
- Have multiple contractors submit written proof that the repair is impossible to do as the carrier suggested.
- Make the carrier find you a contractor that can do repairs the way the carrier claims they can be done, if your state allows.
- Obtain written confirmation from your city when showing code compliance is required.
Have more questions about Ordinance or Law coverage? Contact Wheeler, DiUlio, & Barnabei Legal today for additional information.