Insuring Against the Cost of Compliance: Ordinance and Law Coverage in Florida

Florida is the most expensive state in the country for home insurance, with annual premiums well over twice the national average. Although little can be done to change the high cost of insurance, you can take steps to ensure your premium dollars are well spent. Among other things, your insurance should include coverage for any increase in repair or construction costs as necessary to comply with the Florida Building Code.

The fact that your home may be relatively new or newly renovated does not eliminate the need for such coverage. The Florida Building Code, which governs the design, construction, and repair of buildings throughout the state, is updated every three years. The 7th Edition of the Florida Building Code will go into effect in just over a year, on or about December 31, 2020. As a result, previously completed construction may no longer be in compliance with the building code.

In the course of day to day life this lack of compliance poses no problem; the building code applies only to new construction, not existing buildings. If, however, an existing building is damaged, by fire, flood or some other catastrophic event, repairs are typically required to comply with the current building code. Moreover, if the damage is substantial, i.e., the cost of the repairs exceeds 50 percent of the building’s value, the entire building must be brought into compliance with the current building code.

The cost of compliance can be significant, especially for an older home. According to a recent Wall Street Journal article, builders estimate that compliance with the building code can add as much as 45 percent to the price of a home in some parts of Florida.

Traditionally insurance policies contained an Ordinance or Law Exclusion, pursuant to which the insurer is not responsible for additional costs incurred to comply with current building code laws and regulations. But in 1992, Hurricane Andrew provided a devastating illustration of the burden such exclusions can impose as many South Florida homeowners discovered the cost of rebuilding in compliance with the building code exceeded the coverage available under their insurance policies.

The Florida Legislature responded by enacting legislation intended to provide protection against the increased costs of code compliance. Signed into law in 1993, Section 627.7011 of the Florida Statutes requires insurers to offer law and ordinance coverage in the amount of 25 percent of dwelling coverage. In 2005, Section 627.7011 was amended to require insurers to offer law and ordinance coverage in the amount of 25 percent or 50 percent of dwelling coverage and include a description of law and ordinance coverage and flood insurance in 18-point bold type. According to the legislature, the required language is intended to encourage policyholders to purchase sufficient insurance coverage and discuss options such as law and ordinance and flood coverage with their agents.

As of 2019, many Florida insurers automatically include 25 percent law and ordinance coverage in their homeowner insurance policies while offering the policyholders the option of purchasing 50 percent law and ordinance coverage. Other insurers, however, do not build law and ordinance coverage into their policies, choosing instead to offer policyholders the option of purchasing such coverage. Another approach, seen most often in policies intended to cover high-value properties, includes law and ordinance coverage in the amount of 50 percent while offering a reduction in premium for policyholders selecting a lesser amount.

In an environment that frequently seems to favor the insurer over the insured, the availability of law and ordinance coverage is a rare boon to Florida property owners. Make sure you take advantage and verify that your property insurance includes such coverage in the appropriate amounts.