Law and ordinance and replacement cost

Two rules live in the same statute and candidates blend them. One says what the policy is deemed to contain when nobody signed anything: 25 percent law and ordinance coverage, not the 10 percent the unendorsed ISO form gives and not the 50 percent the insured could have selected. The other says in what order the insurer must pay a replacement cost dwelling claim, and it treats partial and total losses in opposite ways.

Questions and answers, explained

All 12 questions above, with the correct answer and why it is correct. Everything here is on law and ordinance and replacement cost.

1. An insurer issues a Florida homeowners policy insuring the dwelling on a replacement cost basis. The applicant signs no form rejecting or selecting any optional coverage. Under s. 627.7011, F.S., what law and ordinance coverage does the policy carry?

   • A25 percent of the dwelling limit, the default that was never rejectedCorrect
   • B50 percent of the dwelling limit, the largest amount the statute allows
   • CNone, since law and ordinance coverage must be added by a separate endorsement
   • D10 percent of the dwelling limit, the standard amount fixed by Florida law

   Why: Section 627.7011(1), F.S., requires the insurer to offer the applicant two dwelling options: replacement cost without law and ordinance coverage, or replacement cost including the costs necessary to meet applicable laws and ordinances, limited to 25 percent or 50 percent of the dwelling limit as the policyholder selects. The default that decides this question comes from the next subsection. Under s. 627.7011(2), F.S., unless the insurer obtains the policyholder's written refusal of the policies or endorsements specified in subsection (1), any policy covering the dwelling is deemed to include the law and ordinance coverage limited to 25 percent of the dwelling limit. There is no signed refusal here, so the 25 percent rides on the policy. Option C is the tempting answer for candidates thinking of the countrywide ISO approach, where Ordinance or Law is bought up by endorsement; Florida instead builds the 25 percent in and makes the insured opt out. Note also the proviso at the end of subsection (1): an insurer whose homeowner's policy already contains law and ordinance coverage limited to 25 percent of the dwelling limit need only offer the 50 percent option.

   Reference s. 627.7011(1) and (2), F.S.

2. An underwriter wants to non-renew a homeowners policy on a Bradenton house solely because the tile roof is 17 years old. The homeowner obtains an inspection from an authorized inspector concluding the roof has 7 years of useful life remaining. What does Florida law require of the insurer?

   • AThe insurer may non-renew; in Florida roof age is an unrestricted underwriting factor at any age.
   • BThe insurer may not refuse to renew solely for roof age, because the inspection shows 5 or more years of useful life.Correct
   • CThe insurer must renew the policy, but it may then impose a mandatory roof deductible of 10 percent of the Coverage A limit.
   • DThe insurer may non-renew unless the roof is less than 20 years of age at the time of renewal.

   Why: Section 627.7011, F.S. restricts roof-age underwriting in two steps. First, an insurer may not refuse to issue or refuse to renew a homeowner's insurance policy insuring a residential structure with a roof that is less than 15 years of age solely because of the age of the roof. Second, for a residential structure with a roof that is at least 15 years of age, the insurer must allow the homeowner to have a roof inspection performed by an authorized inspector before requiring replacement of the roof as a condition of issuing or renewing the policy, and may not refuse to issue or refuse to renew solely because of roof age if the inspection indicates the roof has 5 years or more of useful life remaining. This 17-year roof with a 7-year remaining useful life falls squarely in the second step, so a non-renewal grounded solely on roof age is not permitted. Option C is wrong on two counts: a roof deductible under s. 627.701(10), F.S. is capped at the lesser of 2 percent of Coverage A or 50 percent of the cost to replace the roof, and it is an offered option with a premium credit, not something imposed unilaterally.

   Reference s. 627.7011, F.S.; s. 627.701(10), F.S.

3. A Florida homeowners policy insures the dwelling on a replacement cost basis. A kitchen fire causes a partial loss: replacement cost of the repairs is $60,000, actual cash value is $44,000, and the deductible is $2,500. The insured has not yet begun repairs. Under s. 627.7011(3), F.S., what must the insurer do?

   • AWithhold all payment until the repairs are finished and the insured submits paid receipts for the full amount of the work.
   • BPay the full $60,000 replacement cost less the deductible immediately, because Florida prohibits an insurer from holding back any depreciation on a dwelling loss, whether partial or total.
   • CPay at least actual cash value less the deductible — $41,500 — now, and the rest as repairs are done.Correct
   • DPay $44,000 and close the file, because recoverable depreciation is released only when the dwelling is a total loss.

   Why: Section 627.7011(3), F.S., sets the sequence for a dwelling loss under replacement cost coverage: the insurer must initially pay at least the actual cash value of the insured loss less any applicable deductible, then pay the remaining amounts necessary to perform the repairs as work is performed and expenses are incurred. Here that is $44,000 - $2,500 = $41,500 up front, with the $16,000 of recoverable depreciation released as the job progresses. Option A describes a receipts-first approach the statute does not permit for dwellings. Option D confuses the partial-loss rule with the separate total-loss rule: on a total loss of a dwelling the insurer must pay the replacement cost coverage without reservation or holdback of any depreciation in value.

   Reference s. 627.7011(3)(a), F.S.

4. Before issuing a homeowners policy in Florida, the insurer must offer the applicant a replacement cost policy that also pays the cost of complying with building laws and ordinances. Florida sets that ordinance amount at:

   • AA flat 25 percent of the dwelling limit, with no larger option offered
   • B25 percent or 50 percent of the dwelling limit, as the policyholder picksCorrect
   • C10 percent of the dwelling limit, matching the standard homeowners form
   • DWhatever the insurer files, so long as it is at least $50,000 per dwelling

   Why: Section 627.7011(1), F.S., requires the insurer to offer two options: replacement cost coverage that excludes law-and-ordinance costs, or replacement cost coverage that includes them, with those ordinance costs limited to 25 percent or 50 percent of the dwelling limit as selected by the policyholder. If the policyholder does not refuse in writing on a form approved by the Office of Insurance Regulation, subsection (2) deems the policy to include law-and-ordinance coverage limited to 25 percent of the dwelling limit, and the insurer must give notice that the coverage is available at least once every 3 years. C is the trap because 10 percent is a real figure attached to the wrong document — it is the built-in Ordinance Or Law additional coverage at E.11. of the ISO HO-3, not the Florida required offer. Under the statute the ordinance coverage applies only to repair of the damaged portion unless total damage exceeds 50 percent of the structure's replacement cost.

   Reference s. 627.7011(1)(b) and (2), F.S.; ISO HO 00 03 05 11 Section I – Property Coverages E.11. (Ordinance Or Law)

5. A dwelling insured on a replacement cost basis suffers a covered $60,000 loss, of which $18,000 is depreciation. The insured has not yet begun repairs. Under s. 627.7011, F.S., how must the insurer handle payment for the dwelling?

   • AWithhold all payment until the insured completes the repairs and submits receipts
   • BPay at least actual cash value now, and the rest as the repair work is performedCorrect
   • CPay the full replacement cost immediately, since holdbacks are barred by statute
   • DPay actual cash value only, unless the insured buys a separate endorsement

   Why: Section 627.7011(3)(a), F.S., requires the insurer to initially pay at least the actual cash value of the insured loss, less any applicable deductible, and then to pay any remaining amounts necessary to perform the repairs as the work is performed and the expenses are incurred. Here the actual cash value is $42,000, so at least that sum less any applicable deductible must go out up front, with the $18,000 of withheld depreciation released as repairs progress. Option A is the near-miss: an insurer may condition the recoverable depreciation on work being performed, but it may not sit on the undisputed actual cash value while waiting. Two carve-outs sit in the same paragraph. The insurer may limit payment for the roof to actual cash value until it receives reasonable proof that the policyholder paid any roof deductible applied under s. 627.701(10), F.S., and if the dwelling is a total loss it must pay the full replacement cost with no holdback at all. Note too the different rule for personal property in s. 627.7011(3)(b), F.S., where the insurer must offer coverage that pays replacement cost without reservation or holdback for depreciation.

   Reference s. 627.7011(3), F.S.

6. A Tampa applicant buys a homeowners policy with $500,000 of dwelling coverage. She signs no form of any kind about ordinance or law coverage. A covered fire then causes total damage exceeding 50 percent of the structure's replacement cost, and the current building code forces expensive upgrades before the house may be rebuilt. Under Florida law, what ordinance or law coverage does that policy carry?

   • A10 percent of the dwelling limit, or $50,000, because that is all the ISO homeowners form provides for increased costs as an Additional Coverage.
   • BNone, because ordinance or law coverage is available in Florida only by a separately rated endorsement the applicant must request.
   • C50 percent of the dwelling limit, or $250,000, which is the amount Florida deems included whenever the insured signs no rejection form.
   • D25 percent of the dwelling limit, or $125,000, because Florida deems that coverage included unless the policyholder refuses it in writing.Correct

   Why: Section 627.7011, F.S., captioned Homeowners' policies, requires the insurer, prior to issuing a homeowner's insurance policy, to offer both replacement cost on the dwelling that excludes the costs necessary to meet applicable laws and ordinances, and replacement cost that includes those costs, with the additional amount capped at 25 percent or 50 percent of the dwelling limit as selected by the policyholder. Subsection (2) then supplies the default: unless the insurer obtains the policyholder's written refusal of the coverage on a form approved by the Office, any policy covering the dwelling is deemed to include law and ordinance coverage limited to 25 percent of the dwelling limit. Because this applicant signed nothing, the deemed 25 percent applies. Paragraph (1)(b) then adds the limitation candidates most often miss: the coverage applies only to repairs of the damaged portion of the structure unless total damage to the structure exceeds 50 percent of its replacement cost. That threshold is why the stem specifies a fire past the halfway mark — below it, code upgrades forced on the undamaged portion would go unfunded even though the policy carries the deemed 25 percent. Note the reach of the statute as well: it governs homeowners policies, so do not carry the deemed 25 percent over to an ISO dwelling (DP) form. Option A is the sharpest distractor and it is a true statement about the form itself — the unendorsed ISO homeowners Ordinance Or Law Additional Coverage really is 10 percent of Coverage A — but the Florida statute overrides that default for a policy covering a Florida dwelling. Option C names the other statutory tier, which applies only if the policyholder affirmatively selects it. The insurer must also notify policyholders of the availability of this coverage at least once every three years.

   Reference s. 627.7011(1)(b) and (2), F.S.; ISO HO 00 03 05 11 Section I Additional Coverage E.11.

7. A Florida homeowners policy is issued on a dwelling with a $500,000 Coverage A limit. The insurer's file contains no written refusal of law and ordinance coverage and no selection form of any kind. A covered fire triggers a required electrical code upgrade. How much law and ordinance coverage does the policy carry?

   • ANone — law and ordinance coverage exists only when the policyholder buys it by separate written endorsement.
   • B$125,000 — the policy is deemed to include law and ordinance coverage at 25 percent of the dwelling limit.Correct
   • C$250,000 — the statutory default is 50 percent of the dwelling limit unless the policyholder selects a lower tier.
   • D$500,000 — code upgrade costs are payable up to the full Coverage A limit as part of replacement cost.

   Why: Section 627.7011(1)(b), F.S., requires the insurer to offer law and ordinance coverage at either 25 percent or 50 percent of the dwelling limit. Under s. 627.7011(2), F.S., unless the insurer obtains the policyholder's written refusal, the policy is deemed to include law and ordinance coverage limited to 25 percent of the dwelling limit — here $125,000. C is the tempting answer because 50 percent is the other statutory tier, but that level applies only when the policyholder affirmatively selects it. Note the coverage applies only to repairs of the damaged portion of the structure unless total damage exceeds 50 percent of the structure's replacement cost, and the insurer must notify the policyholder of availability at least once every 3 years.

   Reference s. 627.7011(1)(b) and (2), F.S.

8. A Lakeland distributor insures three warehouses on one commercial property policy written blanket on a replacement cost basis, with a single $2,000,000 limit over all of them. The statement of values shows Building 1 at $600,000, Building 2 at $900,000 and Building 3 at $500,000. Fire levels Building 2, and rebuilding it costs $1,050,000. How does the blanket limit respond?

   • AEach building may draw only the share of the blanket limit that its own reported value represents.
   • BBlanket and specific insurance behave identically at a total loss; the difference matters only in rating.
   • CThe whole $2,000,000 limit is available to Building 2, since one limit covers all the property.Correct
   • DPayment is capped at the $900,000 value shown for Building 2 on the signed statement of values.

   Why: Blanket insurance places two or more items, or two or more locations, under a single limit, so the entire limit is available to whichever property suffers the loss — the $1,050,000 replacement cost of Building 2 sits well below the $2,000,000 blanket limit, so the limit is not what caps this recovery. Specific insurance does the opposite: each item carries its own limit, and unused limit on one building cannot be borrowed to pay a shortfall on another. Option D is the near-miss most candidates take, because blanket writing does require a signed statement of values; those values are used to set the premium and to test coinsurance, not to cap the recovery on any one building. Two cautions travel with the answer. Blanket coverage is normally written with a high coinsurance percentage, commonly 90 percent, precisely because the values reported drive the rate. And the stem specifies replacement cost for a reason: unless Replacement Cost is shown as applicable in the declarations, the commercial property form's Valuation condition settles covered property at actual cash value, and the deductible still comes off whatever that valuation produces.

   Reference General P&C concept — blanket versus specific insurance; ISO CP 00 10 10 12 Loss Condition E.7 (Valuation) and Optional Coverage G.3 (Replacement Cost)

9. An insurer notifies a homeowner that it will not renew her policy solely because the roof is 17 years old. The homeowner pays for an inspection by an authorized inspector, and the report states the roof has 6 years of useful life remaining. Under s. 627.7011, F.S., what may the insurer do?

   • ANonrenew anyway, because the roof is past the 15-year threshold in the statute
   • BNonrenew only after offering the insured a separate roof surcharge at renewal
   • CIt may not refuse to renew solely because of the age of that inspected roofCorrect
   • DNonrenew, but only after paying for a second inspection by its own inspector

   Why: Section 627.7011(5), F.S., protects roofs in two tiers. An insurer may not refuse to issue or refuse to renew a homeowner's policy on a structure whose roof is less than 15 years old solely because of the age of the roof. For a roof 15 years old or older, the homeowner may have the roof inspected by an authorized inspector before the insurer refuses coverage, and the insurer may not refuse to issue or renew solely because of roof age if the inspection indicates the roof has 5 or more years of useful life remaining. Option A is the tempting answer for candidates who learn only the 15-year figure and stop there — the inspection route is exactly what rescues an older roof. Note the protection is against refusal SOLELY for roof age; genuine condition problems or other underwriting reasons remain available to the insurer.

   Reference s. 627.7011(5), F.S.

10. A repetitive-loss house in a Special Flood Hazard Area in Punta Gorda floods again. The local building official declares it substantially damaged, and the community's floodplain ordinance now requires the house to be elevated before it may be reoccupied. The owner has an NFIP Dwelling Form that includes building coverage. What helps pay for the elevation?

    • ANothing in the flood policy, because complying with a floodplain ordinance is an uninsured cost the owner has to fund privately.
    • BCoverage D, Increased Cost of Compliance, which pays up to $30,000 toward elevating, relocating, demolishing or floodproofing the building.Correct
    • CCoverage A, which is increased automatically by 10 percent of the building limit whenever a community orders a mitigation measure.
    • DCoverage B, which pays the elevation cost in full as long as the total stays under the $250,000 residential building limit.

    Why: The Standard Flood Insurance Policy provides Increased Cost of Compliance as Coverage D, which pays up to $30,000 toward the cost of complying with a state or local floodplain management ordinance after the community declares the insured building substantially damaged or repetitively damaged by flood. The eligible mitigation measures are elevation, relocation, demolition and floodproofing, with floodproofing available for non-residential buildings and certain residential basements. ICC applies only to policies that include building coverage, and the combined payment for the direct building loss and the ICC claim cannot exceed the maximum amount of building insurance available for that occupancy — $250,000 for a residential building. Option C is the most tempting because it borrows the shape of the Ordinance Or Law Additional Coverage in an ISO homeowners form, which genuinely is 10 percent of Coverage A. The NFIP does not work that way: ICC is a fixed separate limit, not a percentage added to the building limit, and it is triggered by the community's substantial-damage or repetitive-loss determination rather than by the amount of the loss alone.

    Reference NFIP Standard Flood Insurance Policy, Dwelling Form (FEMA F-122), Coverage D — Increased Cost of Compliance

11. A Florida homeowner's policy is issued and the insurer never obtains any written refusal or alternative selection from the applicant for the coverages s. 627.7011, F.S., requires it to offer. A covered fire later forces the damaged portion of the dwelling to be rebuilt to the current building code. What law and ordinance coverage does the policy provide?

    • ACoverage limited to 25 percent of the dwelling limit is deemed included in the policy.Correct
    • BCoverage limited to 50 percent of the dwelling limit, the larger of the two amounts the insurer must offer.
    • CTen percent of the Coverage A limit, the amount the unendorsed ISO homeowners form provides.
    • DNone, because Florida requires a separate signed request before this coverage attaches to a policy.

    Why: Section 627.7011(1) requires the insurer to offer both replacement cost coverage that excludes law and ordinance costs and replacement cost coverage that includes them, with the law and ordinance portion limited to 25 percent or 50 percent of the dwelling limit as the policyholder selects. Section 627.7011(2) then supplies the default: unless the insurer obtains the policyholder's written refusal, any policy covering the dwelling is deemed to include law and ordinance coverage limited to 25 percent of the dwelling limit. Option B inverts the rule — 50 percent is the upgrade the insured must affirmatively select, not the default. The rejection or alternative selection must be made on a form approved by the office, and that form must fully advise the applicant of the nature of the coverage being rejected; the insurer must also give notice of the coverage's availability at least once every 3 years. The 10 percent figure in option C is the ordinance or law additional coverage of the unendorsed ISO HO-3, which the Florida statutory default displaces.

    Reference s. 627.7011(1)(b) and (2), F.S.; ISO HO-3 (HO 00 03) Additional Coverage 11, Ordinance Or Law

12. Before issuing a homeowner's policy, an insurer makes the replacement cost offers Florida law requires. The applicant signs no written refusal and simply buys the policy. What law and ordinance coverage does that policy carry?

    • ANone, because law and ordinance coverage must be selected and paid for separately
    • BCoverage of 50 percent of the dwelling limit, the higher of the two offered options
    • CCoverage of 25 percent of the dwelling limit, which the statute deems to be includedCorrect
    • DCoverage equal to the full Coverage A dwelling limit shown on the declarations

    Why: Section 627.7011(1), F.S., requires the insurer, before issuing a homeowner's policy, to offer both a replacement cost policy or endorsement that excludes law and ordinance costs and one that includes them, with the law and ordinance portion limited to 25 percent or 50 percent of the dwelling limit as the policyholder selects. Subsection (2) then supplies the default: unless the insurer obtains the policyholder's written refusal of those offers, any policy covering the dwelling is deemed to include law and ordinance coverage limited to 25 percent of the dwelling limit. Option A is the tempting answer because most optional coverages do have to be bought, but here the statute flips the burden onto the insurer to document a refusal. B is wrong because 50 percent is available only if the policyholder chooses it, not by default.

    Reference s. 627.7011(1) and (2), F.S.

Drill the whole domain

• Florida Statutes, Rules and Regulations Pertinent to Property and Casualty (15%)
• Types of Property Policies (14%)
• Property Insurance Terms and Related Concepts (9.5%)

Other topics

• Florida's hurricane deductible
• Florida's separate roof deductible
• Catastrophic ground cover collapse vs sinkhole coverage
• Florida's Valued Policy Law
• Florida property claim deadlines
• Occurrence vs claims-made liability forms
• HO forms compared: HO-2 through HO-8
• Florida comparative negligence after HB 837
• Florida PIP: the 14-day rule and 80/60 split
• Citizens eligibility and the 20 percent rule
• Bad faith and the civil remedy notice

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