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Courts clarify O&L coverage in natural disasters

On Behalf of | Oct 14, 2022 | Insurance Disputes

Many property owners have suffered losses in hurricanes, forest fires, freezing weather and tornados over the past five years. When a natural disaster strikes, property owners will look to their “ordinance or law” (O&L) coverage to determine what they can be compensated for.
Recent case law clarifies O&L coverage in natural disasters

What is O&L coverage?

A primary part of property insurance is O&L coverage. O&L coverage permits policyholders to be refunded amounts beyond the repair or replacement of the property when state code mandates improvements to the property.

Recent case law clarifies O&L coverage in natural disasters

In one recent case from Ohio, a tornado went through the area damaging the roof of a shopping center. The issue regarded whether a wet roof damaged in a tornado could be partially replaced. Upon appeal, the 8th Circuit Court ruled that “but-for” the tornado, a county ordinance demanding full replacement of wet roofs can be enforced.

In a second case, a condominium was damaged in a hurricane. The condominium association’s O&L clause did not include code upgrades unless they were made within two years of the loss. The U.S. District Court for the Southern District of Texas ruled that there was a question of fact as to whether the condominium association could make the needed repairs that would allow them to recoup O&L benefits.

In a third case, the U.S. District Court for the Central District of California ruled that mandatory rebuilds for replacement cost value (RCV) coverage applied even if area building codes did not allow for the rebuild of the lost property.

In a fourth case, the Minnesota state Court of Appeals determined that O&L coverage applies when there are laws “requiring demolition” of parts of a building that are not damaged as part of the remodel. The court also found that exclusions for “preexisting violations” were not applicable if it was a preexisting violation but there was no mandate to remedy the condition prior to the loss.

Many property insurance holders in California have O&L coverage. It is important that this coverage is provided to property owners who suffer losses in natural disasters when applicable.