1. Forms
2. HO
3. HO-23-36

Form HO 23 36: Ordinance Or Law Increased Amount Of Coverage

1. What the form is

The HO 23 36, "Ordinance Or Law Increased Amount Of Coverage" endorsement is designed for homeowners insurance policies. Its primary purpose is to increase the amount of coverage available to the insured for losses resulting from the enforcement of local ordinances or laws that regulate the construction, repair, or demolition of a damaged building after a covered loss. Standard homeowners policies (like the HO 00 03 or HO 00 05) often include a basic limit for this coverage, typically 10% of the dwelling coverage (Coverage A). This endorsement allows the policyholder to purchase a higher percentage, such as 25% or 50%, or a specific dollar amount, to better address the potential increased costs of rebuilding to current codes.

2. Classes of business it applies to

This endorsement applies to personal residential properties insured under a homeowners policy. It is particularly relevant for:

• Older Homes: Homes built before current, stricter building codes were enacted are prime candidates. If a significant portion of an older home is damaged, repairs or reconstruction will likely need to meet modern codes for aspects like electrical wiring, plumbing, HVAC systems, roofing materials, or structural integrity. For example, if a 70-year-old home sustains a fire, the local building code might require upgraded electrical systems throughout the repaired section, even if the original wiring in that section was not directly damaged by the fire.
• Homes in Areas with Strict or Frequently Updated Building Codes: Municipalities that frequently update their building ordinances or have particularly stringent requirements (e.g., coastal areas with hurricane-resistant building codes, earthquake-prone regions) can create a greater need for this increased coverage. For instance, if a local ordinance requires that any home damaged beyond 50% must be entirely demolished and rebuilt to current standards, the standard 10% ordinance or law coverage might be insufficient.
• Properties with Previous Code Non-Compliance: While the endorsement doesn't cover pre-existing code violations, it becomes crucial if a covered peril damages the structure, and the repair process triggers mandatory upgrades for previously non-compliant elements that were part of the damaged portion.

3. Special considerations

• Triggering Coverage: It's important to remember that ordinance or law coverage, including any increased amounts provided by the HO 23 36, only applies when the initial damage to the property is caused by a peril insured against under the main policy (e.g., fire, windstorm). It does not cover the costs of bringing a home up to code during voluntary renovations or routine maintenance.
• Coverage Components: Ordinance or Law coverage typically addresses three main areas:
  1. The cost to demolish and clear the site of the undamaged portion of the building if laws require it to be torn down.
  2. The increased cost to repair or reconstruct the damaged portion of the building to meet current building codes.
  3. In some cases, the cost to upgrade undamaged portions of the building if required by an ordinance or law triggered by the covered loss. For example, if a pipe bursts and damages one room, and the repair requires upgrading the plumbing in that room, an ordinance might then require the plumbing in the rest of the house to be brought up to code as well.
• Limitations: The coverage is for the increased cost due to the enforcement of ordinances or laws. It typically does not cover costs associated with cleaning up pollutants like asbestos unless directly tied to the ordinance or law requirements following a covered loss. It also won't cover bringing undamaged parts of the home up to code if not mandated by an ordinance triggered by the covered loss.
• State-Specific Requirements: While the HO 23 36 is generally applicable in all states, some states, like Florida, may have specific statutes regarding the offering of ordinance or law coverage, including minimum percentages that must be offered or default percentages if the insured doesn't make a selection.
• Relation to HO 00 03 and HO 00 05: The HO 23 36 modifies the "Additional Coverages" section of base policies like the HO 00 03 (Special Form) and HO 00 05 (Comprehensive Form), which are common homeowners insurance forms. These base forms provide the foundational property and liability coverages.

4. Key information for agents and underwriters

• Pricing: The premium for this endorsement will depend on the increased limit selected by the insured. Insurers will have rating factors based on the percentage increase chosen (e.g., from the standard 10% to 25% or 50% of Coverage A).
• Risk Assessment:
  • Age of Home: This is a primary underwriting consideration. Older homes generally present a higher risk for significant ordinance or law claims.
  • Construction Type & Location: Homes in areas with known hazards (e.g., hurricane, earthquake zones) or those subject to stringent, frequently updated local building codes should be carefully evaluated.
  • Prior Losses: A history of significant structural losses might indicate a higher likelihood of future ordinance or law issues, though the focus is on the future rebuilding costs to new codes.
  • Replacement Cost vs. Market Value: Ensure the underlying Coverage A limit accurately reflects the current cost to rebuild. The percentage increase for Ordinance or Law coverage is applied to this Coverage A limit.
• Coverage Gaps: Without this endorsement, or with insufficient limits, policyholders could face substantial out-of-pocket expenses if they are required to upgrade their homes to meet current building codes after a loss. For example, if a home insured for $300,000 has the standard 10% ($30,000) ordinance or law coverage, but the actual cost to comply with new codes after a major fire is $75,000, the insured would have a $45,000 gap without an increased limit.
• Underwriting Guidelines:
  • Insurers may have maximum limits they are willing to offer for this endorsement based on their risk appetite and the characteristics of the insured property.
  • For very old homes or those in high-risk areas, underwriters might require inspections to assess the potential for code-related upgrade costs.
  • It's crucial for agents to explain the value of this coverage, especially for older homes, to avoid underinsurance and ensure client satisfaction at the time of a claim.