What the form is
The FP 04 05 Ordinance or Law Coverage endorsement is designed to be added to a farm property policy. Its primary purpose is to cover additional expenses incurred by the insured to comply with current building codes, ordinances, or laws when repairing or rebuilding a damaged farm structure (excluding farm dwellings, which may have this coverage included elsewhere) after a covered loss. These ordinances or laws can significantly increase the cost of repair or reconstruction beyond what would be normally covered for like kind and quality.
Classes of business it applies to
This endorsement is specifically for farm properties and applies to farm buildings other than farm dwellings. Examples include:
- Barns
- Sheds
- Silos
- Other outbuildings used for farming operations
For instance, if an older barn is partially damaged by a covered peril like a fire, a local ordinance might require that the entire structure be brought up to current building codes during repair, or even that the undamaged portion be demolished. This endorsement would help cover those extra costs.
Special considerations
The FP 04 05 typically offers three distinct coverages that the insured can select.
- Coverage A - Loss to the Undamaged Portion of the Building: Covers the loss of value of the undamaged portion of the building if it must be demolished due to an ordinance or law.
- Coverage B - Demolition Cost: Covers the cost to demolish the undamaged portion of the building if required by an ordinance or law.
- Coverage C - Increased Cost of Construction: Covers the increased expenses to repair or reconstruct the damaged building to meet current building codes or ordinances.
It's important to note that Coverage A is often included within the building's limit of insurance, while separate limits usually need to be specified for Coverages B and C on the endorsement's schedule. The insured may select separate limits for Coverages B and C, or a combined blanket limit.
Key information for agents and underwriters
Agents should discuss the potential need for this coverage with farm owners, especially those with older buildings that may not conform to current building codes. The additional costs to comply with modern ordinances can be substantial and are generally excluded from standard property policies without this endorsement.
Underwriters need to assess the age and condition of the farm buildings being insured. Older structures in areas with strict building codes present a higher risk for ordinance or law claims. The limits selected for Coverages B and C should be carefully reviewed to ensure they are adequate for the potential exposure. Pricing for this endorsement will reflect the increased risk associated with older buildings and the stringency of local building ordinances.