Don’t be surprised by your insurance claims adjuster after a loss, telling you that you are up to 50% or more underinsured, even though you have” replacement cost” coverage on your policy.

Insurance policies are written to “indemnify” the policyholder after a covered loss, with the insurance company’s basic responsibility being only to return the damaged home to the condition it was prior to the loss. Even with “replacement cost” being included in your homeowner’s policy, homeowner’s insurance policies exclude or limit the coverage for the cost required to comply with current building codes or ordinances.

Prior to Hurricane Andrew in 1992, most homeowners were not aware of law or ordinance coverage, or the implications of the exclusion in their homeowner’s policy for expenses associated with the compliance of ordinances or building code laws. Policyholders with older homes learned quickly after Hurricane Andrew damaged or destroyed their homes. They found out that the cost of repairing or rebuilding their homes exceeded their homeowners policy limits because they had to assume all expenses associated with the costs to comply with the current building code, rather than just the building code prior when the home was originally constructed.

Building codes have been around for over 4000 years, with early regulations stating that if an architect built a home negligently or improperly and the house fell down and killed the owner’s child, then the architect’s son was put to death. Now the penalties are just financial!

Florida’s first statewide building code was mandated by the legislature in the early 1970’s, with each local entity required to adopt one of four state models. In the late 1990’s, the State of Florida established the Florida Building Commission which developed a single statewide building code. Then in 2002, came the development of the new Florida Building Code to strengthen the requirements for wind-related exposures, geared towards homes closer to the coast.

Some facts to consider:

(data from Florida Office of Insurance Regulation 1/06)

1)      “More than three-quarters of Florida’s residential property exposure is located in coastal communities, such as Siesta Key or Bird Key, where it is highly exposed to catastrophic hurricane losses.”

2)      “The average age of a single family residence in Florida is 24 years, which indicates a high likelihood of building code compliance issues if, or when, these residences suffer significant damage from windstorm or non-windstorm perils.”

3)      “Based on 2002 data, many Florida counties would have only 10 percent of their single family residences built under the new Florida Building Code.”

4)      “….law and ordinance coverage is likely to be a significant element of homeowner’s insurance coverage from the perspective of both the individual buyer and the State of Florida.”

5)      “While the Florida Building Code….may evolve in the years ahead to promote the residential construction with even greater protection from hurricane force winds, (it) will continue to make law and ordinance coverage a subject of special interest.”

6)      “In this regard, the action of the Florida Legislature in 2005 to expand the offering of law and ordinance coverage in homeowner’s insurance policies was an important consumer protection initiative.”

These stronger requirements detailed in the Florida Building Code afford greater protection for newer homes but also created an insurance exposure for all homes not already built or not retrofitted with the new building code requirements.  The current building code makes older homes more susceptible to being underinsured, especially those in coastal communities.

Some issues to consider:

i.            Florida Building Code applies to new construction and is not applied retroactively to existing dwellings. Therefore, homes damaged by a covered loss that require repair or reconstruction might need to be brought up to current Florida Building Code requirements, at owners expense IF not properly insured.

ii.            Florida Building Code states that when repairs or alterations are made that amount to more than 50% of the value of a structure, the entire structure must be made to conform with the requirements of a new structure or be entirely demolished. The cost to conform to the requirements after a covered loss, as well as the possible expense to demolish and rebuild the remaining structure could fall solely on the homeowner IF not properly insured.

iii.            Florida Legislature mandates that Law and Ordinance coverage be offered to all homeowners in the state of Florida.  Written declination of the coverage is also required for those who wish to forego coverage because they: 1) living in newer homes, 2) adequately retrofitted their homes to meet most or all of the requirements, limiting their exposure, 3) wish to self-insure for this exposure.

iv.            Many, but not all, insurers have built in law and ordinance coverage into their homeowners polices at the 25% level. This may or may not be enough!

Ordinance or Law coverage is available, with optional limits based on a percentage of your dwelling limit. While specific policy language differs between insurers, typical coverage after a covered loss would include:

Ø      Payment for the increased cost of construction to repair or replace the damaged portion of a structure, necessitated by the enforcement of current building ordinance or law.

Ø      Payment for the cost of demolition of the undamaged portion of a structure, necessitated by the enforcement of current building ordinance or law.

Ø      Payment for any increased cost of construction to remodel, remove or replace the undamaged portion of a structure, necessitated by the enforcement of current building ordinance or law.

Don’t expose one of your largest personal assets to this risk of loss without careful consideration.  Make sure you are not surprised after a serious property loss by the regulations imposed by the Florida Building Code or other municipal ordinances and laws.  Take appropriate action now, to prevent a financial dilemma at the time of a loss.

Due to the very serious financial consequences associated with being underinsured for a potential Law or Ordinance claim and the very high exposure of older, coastal homes in Florida, we highly recommend that you seek additional advice from your agent, public adjuster, claims specialist and attorney to determine your specific exposures and needs.

• Pre-storm Preparedness Plan (“The List”)
• Do you know your Evacuation Route and where you will stay?
• Do you know how to install shutter system and how long it will take you to install properly?
• Has your generator been tested recently so it will perform when needed most?
• Do you have any fine arts that need special protection?
• Have you taken special precautions to protect any owned watercraft?

But an equally important question is: What is your Florida homeowners insurance company doing to prepare for hurricane season so they can respond efficiently and effectively to your needs in the event of a hurricane causing damage to your Florida home and/or valuable property?

While many insurance companies have disaster response plans and will respond to storms as best they can, it may behoove you to insure a “high-valued”, Florida home with one of only a few companies that have a designated Hurricane Protection Unit.

While experience has shown us that preparation in advance of a hurricane can be the difference between minor damage and catastrophic loss, we also have seen how difficult it can be to find repair resources immediately following a storm. Some value-added tools that are offered to our high valued homeowners clients by a designated Hurricane Protection Unit, both pre-storm as well as post-storm, include:

• Complimentary, in-depth, on-site evaluation of unique vulnerabilities presented by clients with high value homes in coastal Florida.
• Analyze findings and customize action steps and timelines to execute well in advance of hurricane season, as well as post-storm.
• Work one-on-one with homeowner clients to enhance or develop evacuation and communication plans.
• Track progress and projected landfall of approaching storms, identifying homes that are likely to be most vulnerable. This allows the homeowners insurance company to dispatch response teams and resources to insured residences in affected areas and assess damage of insured homes, sometimes even before a formal claim has been submitted.
• Teams are equipped with satellite phones, allowing them to stay in contact with one another and client, if possible.

All of Florida’s coastal counties, including Sarasota County and Manatee County, have Hurricane Protection Units available to eligible high value homeowners through select insurance companies. See what your insurance company is doing to prepare you and themselves for hurricanes in your area!