Property & Casualty Insurance Exam (National Portion)Property InsuranceMedium
A commercial property policy has an Ordinance or Law endorsement. After a fire causes $500,000 in damage to an older building, local building codes require that the entire building be demolished and rebuilt to current standards, costing an additional $300,000 beyond the repair cost. Without the endorsement, the policy would only pay for direct physical damage. How much additional coverage does this endorsement provide in this scenario?
- A$800,000
- B$500,000
- C$300,000
- D$0
Show answer & explanationAnswer & explanation
Correct answer: C. $300,000
The Ordinance or Law endorsement covers losses due to the enforcement of building ordinances or laws that increase the cost of repair or demolition after a covered loss. Without this endorsement, standard policies exclude such costs. In this case, the $300,000 required for demolition and rebuilding to current codes, beyond the direct fire damage, is covered by this endorsement.
Why the other options are wrong
- A. This is incorrect; $800,000 is the total combined cost, not the specific additional coverage provided by the endorsement.
- B. This is incorrect; $500,000 is the direct physical damage, which is covered by the basic policy, not the endorsement.
- D. This is incorrect; the endorsement is specifically designed to provide coverage for these types of costs.
Ordinance or Law Endorsement
An endorsement that adds coverage to a property insurance policy for increased costs of repair or reconstruction due to the enforcement of building ordinances or laws after a covered loss.
- Standard policies exclude losses due to ordinance or law.
- Covers costs for demolition, increased cost of construction, and undamaged portions.
- Crucial for older buildings that may not meet current codes.
Memory trick: Old laws, new rules: This endorsement rebuilds your wallet, not just your walls!