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Ordinance and Law Coverage: Recognize the Risk and Jump at the Opportunity

During a recent E&O Risk Management class, we discussed how ordinances and laws can affect coverage for both personal and commercial lines customers. These ordinances create a significant E&O risk for agents, but also present an opportunity to educate insureds on individual exposures.


One of the top reasons for E&O claims is improper coverage and/or limits. We can agree that there is a significant amount of properties across the United States that are underinsured. This can be attributed to consumers shopping based only on price, confusion between assessed value and cost to rebuild, or just failing to review their exposures on a regular basis. In order-taker state, agents do not have an obligation to uncover exposures for a client. However, to differentiate themselves from their competition, agents will increase their standard of care by saying things like “we ensure you have the right insurance to protect your family or your business”. Sound familiar? If yes, then its time to make sure you have the proper procedures and workflows to back up that claim.


As building codes continue to change, the need for an Ordinance and Law Coverage Endorsement (CP 04 05) increases as well. There are several green initiatives and revitalization efforts that attribute to these changes in addition to zoning and code requirements.


For example, in Johnson Creek, WI, “whenever the Village Board determines that the cost of repairs of a building would exceed 50% of the assessed value of such building…repairs shall be presumed unreasonable and it shall be presumed that such building is a public nuisance and must be razed.”


Does an agent need to know building and code requirements for every village, city and township they write business in? That is not a feasible request or recommendation. Here are some quick tips for preventing problems resulting from the effect of building ordinances or laws:


1. An agent should be aware of ordinances and laws the might increase the insured costs of rebuilding a damaged structure and should note those properties who might be more susceptible. For example, older structures can have issues if they don’t comply with current building codes


2. Recognize the building and personal property policy’s limitations on coverage for additional reconstruction expenses resulting from ordinances or laws


3. Be sure to offer the coverage endorsement with adequate limits where an exposure might exist. If the insured declines the coverage, be sure to properly document the file

As is the case with various exposures, the ability of an agent to educate a prospect or current customer about an unknown exposure helps to strengthen and show value in the business relationship. If the insured accepts the added coverage, the additional premium generates revenue for the agency.


Remember to review the agency promises and make sure they align with consistent procedures. If you are unsure or feel you may have an exposure, contact Virtual Agency Solutions!

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