Some properties that experienced Hurricane Sally losses will experience Law & Ordinance issues as they attempt to rebuild. Law & Ordinance kicks in when both Florida and local building code requirements impact what will be required to obtain a CO (Certificate of Occupancy) in order to reoccupy the damaged structure. It is a separate coverage in your policy that you must elect and covers some of the cost of required code upgrades. If your property (be it commercial or residential) suffers a loss where the cost of repairs is greater than 50% of the pre-loss value of the real property, your repairs must incorporate current building code upgrades. This is especially true for older properties that may no longer meet newer building codes. Meeting those codes can become quite expensive.

Coverage for the law & ordinance exposure is extremely valuable for property owners who hope to rebuild at their current location. Without it, any difference in cost will have to be paid out-of-pocket by the property owner. So, homeowners need to have a conversation with their agents regarding this very important additional insurance coverage.

Most standard admitted carrier homeowners' policies in Florida will have an additional 25% limit of Coverage A (Building) in the policy for L&O coverage unless the policyholder rejected this. Some may even have up to 50%. Additional L&O coverage can be purchased. Understanding the L&O Coverage you currently have in your policy is important! For commercial properties this coverage is expensive and if older buildings are in a flood prone hazard zone it may not be available. Commercial loss L&O is likely to be either limited or not covered.

For properties in flood zones, FEMA sets the standards here and the code upgrades will include elevating the property to current FEMA height requirements as well as many other building code requirements. To accomplish this code requirement, the building has to be raised up on pilings or torn down and rebuilt to current height requirements. While the peril(s) that caused this code requirement i.e. wind, fire, or water may be covered by a property insurance policy, the cost to elevate the property will not be covered, nor will the cost to rebuild to current code unless you have sufficient L&O coverage. There is very limited Law & Ordinance coverage in a standard flood policy. Super Storm Sandy victims got a very unpleasant surprise when they got their “settlement checks” from insurance companies which proved to be woefully inadequate when faced with code compliance issues. The bad news came from the local building officials when property owners took their estimates from the adjusters to apply for building permits. These regulations are adopted by each community to comply with FEMA regulations and want their citizens to be able to buy flood insurance. By raising properties to a higher evaluation, the Federal government hopes to reduce or eliminate future flood claims.  The NFIP Federal Flood Insurance Program has its own set of rules and regulations and do not necessarily follow Florida State insurance laws. So, you need to be aware of any regulations such as time sensitive issues for proof of loss filing requirements and required documentation.

It is imperative that you identify L&O issues during the claims process so they can be detailed in your scope and claim. For example: If the roof is damaged by over 25%, then a new roof will be required if there is L&O coverage.

But remember, L&O is an incurred coverage requirement. This means the insured must incur the expense before it is paid. There has been some debate over the years about what the term “incurred” means. We have argued in the past that it means that you have a legal obligation to comply, thus it has been incurred or will have to be before the property is fixed and a CO is issued by the building department. There is also a position that if a house is a total loss and cannot be rebuilt, a replacement house of similar size and quality may satisfy an incurred requirement. 

It is our position that a settlement release should not be signed when there is a pending Law & Ordinance claim. Any time a release is offered to a policyholder for a global settlement, we would advise the policyholder to consult with an attorney before signing the release, whether it involves L&O or any other issue. We also see representatives of the policyholder in this situation set aside the Law & Ordinance scope and price and provide this information to the carrier with a letter that the insured is reserving all rights and waiving nothing regarding their right to file a supplemental claim for L&O. The collection of a claim for L&O may be time sensitive so read the policy!

And remember, if a Florida carrier demands you file a proof of loss, you had better do it and have the claim prepared and reviewed professionally to support your proof of loss. In the past, we’ve seen Citizens Insurance demand proof of loss on some commercial claims and to my knowledge they have not retracted this position.

Finally, there has been an issue raised about a total loss and the ability to file under Florida’s Valued Policy Law (VPL). NFIP does not follow Florida law regarding the VPL. Florida does have a VPL that allows for a total loss from wind. The VPL was changed following Hurricane Wilma and as I understand it, the policyholder has the burden of proving how much loss occurred from the wind and how much was flood related that may have caused a total loss. If you own a home that may be a total loss from wind, remember a total loss in Florida can be defined based on several things, such as an economical total loss (cost more to fix it than it's worth), a construction total loss (which likely means the government will not allow it to be fixed as is) and an actual total loss (house is gone). But remember, if you are insured by a surplus lines carrier, they are exempt from the VPL!

Confused! Welcome to our world of insurance adjusting.  

Tutwiler & Associates has been working hurricane claims since 1984. For your own peace of mind, call our Pensacola insurance adjusters now at 850-783-3319 for a free, no-cost claim evaluation, visit our Hurricane Sally Insurance Claim Public Adjuster page for additional information or contact a public adjuster to submit a question to one of our insurance claim experts.