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Ordinance and Law Change Exclusions in Insurance Policies


We have written in the past about the difficulty that some businesses may face if they make business interruption or property damage insurance claims because of COVID related closures. Although the law is certainly relatively new, language in most policies seems to exclude damage done by viruses. Of course, many states and cities have clarified that they do see the virus as a business interruption, so it is uncertain how courts will go when it comes to these claims.

However, there is another common exclusion in insurance policies that could cause problems for businesses seeking to make business interruption insurance claims based on COVID related closures: The ordinance exclusion.

The Ordinance Exclusion

The ordinance exclusion says that the insurance company does not accept responsibility for any loss or damage caused by the passage of, or compliance with, any legal ordinance or laws that may be passed. Of course, many COVID-related claims will certainly be related to government ordered closures (past, present or future).

Many policies even have a “concurrent cause” exclusion. This clause says that losses because of ordinance or laws being passed is excluded, even if there is some other cause (like a virus) that acts at the same time to cause loss.

These concurrent clause exclusions were used after Hurricane Katrina (obviously not in relation to any virus). Homeowners, many with no flood coverage, argued damage to their property was not caused by the flood, but rather by the government’s failure to bolster the levees that broke and caused the flooding. Courts rejected that argument given that both causes were concurrent, and the floods, for those without flood coverage, were an excluded cause.

Ordinance Exclusion Gives Insurance Companies a Defense

That practically means that even if a policyholder convinces a court that damage or closure due to a virus is covered, the insurance company will likely counter by saying that the damage to the business is not caused by the virus, but by the excluded ordinance compliance provision. The ordinance exclusion also gives insurance companies something to defend, even if there is no virus exclusion in the policy.

Other Problems Caused by Ordinance Exclusions

As you can see from the Katrina example, ordinance or law exclusions don’t just apply to floods. They also will refuse to cover any kind of upgrade, alteration, maintenance or repair to the property, that must be made by, for example, a change in a building code, or a change in disability accommodation requirements.

Ordinance exclusions can even cause problems if the cause of the damage to your property is covered. If the cause of the damage is covered, but the law now requires that your house be rebuilt according to new, more expensive codes or laws, the insurance company may refuse to pay for those additional upgrades that are required by the new laws or codes.

Questions about whether damage to your home or to your property should be covered by your insurance policy? Contact the Miami property damage insurance attorneys at Velasquez & Associates P.A. today for help.


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