1. Forms
2. FP
3. FP-04-04

What the form is

The FP 04 04, Dwelling and Farm Building Replacement Cost Protection (Including Ordinance or Law Coverage) endorsement is designed to enhance the coverage provided under farm property policies. Its primary functions are twofold: First, it provides for the settlement of covered losses to dwellings and farm buildings on a replacement cost basis, meaning the insurer will pay the cost to repair or replace the damaged property with new materials of like kind and quality, without deducting for depreciation. Second, it incorporates Ordinance or Law coverage. This crucial component addresses the increased costs an insured might face due to the enforcement of local building codes or ordinances after a covered loss. These costs can include the expense of demolishing undamaged portions of a building, removing debris of undamaged portions, or rebuilding to meet current, stricter building standards.

Classes of business it applies to

This endorsement is specifically used for agricultural or farming operations that have insurable interests in dwellings and/or other farm structures. It is typically attached to Farm Property Coverage Forms such as:

• FP 00 12 - Farm Property–Farm Dwellings, Appurtenant Structures and Household Personal Property Coverage Form
• FP 00 14 - Farm Property–Barns, Outbuildings and Other Farm Structures Coverage Form

Real-world example: A farmer owns a farmhouse built 50 years ago and a large barn constructed 30 years ago. Both are insured under a farm policy. If a severe storm causes significant damage to the barn, the FP 04 04 endorsement would allow the farmer to rebuild the barn with new materials at current construction prices. Furthermore, if current building codes require a different (and more expensive) type of foundation or roofing material than what was originally used, the Ordinance or Law portion of the endorsement would help cover these additional mandated costs.

Special considerations

• Insurance-to-Value Requirement: To benefit fully from this endorsement, particularly the replacement cost provision, the property usually must be insured for at least a certain percentage of its full replacement cost at the time of loss, often 100%. Failure to meet this requirement could result in a reduced payout.
• Exclusivity: This endorsement (FP 04 04) generally cannot be active on a policy concurrently with endorsement FP 05 26 (Expenses Consequential To Enforcement Of Ordinance Or Laws Affecting Building, Zoning Or Land Use Endorsement), as they may provide overlapping or conflicting coverages.
• Older Buildings: The Ordinance or Law coverage is particularly vital for older structures that may not comply with current building, zoning, or land use laws. A significant loss could trigger requirements for costly upgrades.
• Coverage Limits: There might be specific sub-limits or a minimum amount of coverage required for the Ordinance or Law portion of the endorsement. For example, a minimum of $10,000 might apply to certain sections of this coverage.

Key information for agents and underwriters

• Risk Assessment: Underwriters should carefully evaluate the age, condition, and construction type of the dwellings and farm buildings. Properties in areas with stringent and frequently updated building codes pose a higher risk for Ordinance or Law claims. The proximity to urban areas or regions prone to specific perils (e.g., high winds, snow) might also influence underwriting considerations.
• Pricing: The premium for this endorsement will be higher than for basic Actual Cash Value coverage due to the broader protection offered. The potential for increased costs from Ordinance or Law provisions should be factored into the pricing.
• Educating the Insured: Agents should clearly explain the benefits of replacement cost and Ordinance or Law coverage, especially the insurance-to-value requirements. Many insureds may underestimate the cost to rebuild or the impact of new building codes.
• Documentation: Ensure that the policy declarations or a schedule clearly identifies each building covered by this endorsement, its specific location, and the applicable limits of insurance, including any sub-limits for the Ordinance or Law coverage components.
• Potential for Increased Severity: Claims involving Ordinance or Law coverage can be significantly more expensive than those based solely on repairing or replacing the damaged portion of a structure. Underwriters must consider this increased severity potential.