Understanding ordinance or law coverage and anti-concurrent causation
There are seven exclusions where anti-concurrent causation language applies. One such area is ordinance or law coverage.
Whether you are a new insurance producer or need an overview of policy terms, the following offers a refresher on essential coverage worth having on your radar.
Anti-concurrent causation exclusion
What is an anti-concurrent causation exclusion? It’s one of the complicated items an insurance carrier specifically, in a not so overt way, excludes on a Special Form (all-risk) commercial property policy. We’ll start by explaining exclusion and concurrent causation first.
Here’s the definition of exclusion on an ISO Special Form (CP 10 30 09 17). It’s smart to understand how it’s defined: “We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss.”
Remember, when the word “special” is shown on the declarations page, coverage is provided on an ‘open peril’ basis. That means it’s covered unless the policy states that it isn’t. So be sure to read the exclusions carefully.
Let’s define ‘concurrent causation’ to see the big picture. Essentially, it’s a legal term that is built within a property policy that kicks in when a loss or damage occurs as a result of two or more causes. If one loss is a covered peril, but the other is not, the loss is generally still covered.
Since insurance carriers are in the business of limiting risk exposure, they also do a pretty good job of protecting themselves, too. And here comes anti-concurrent causation! Since an all-risk policy has exclusions divided into two groups, the first group is subject to anti-concurrent causation wording. (Why? Because that’s just how insurance companies operate.) Anti-causation wording makes clear that losses caused by any of the listed excluded perils, even if a second peril contributed to the loss, and the second loss is a covered peril, there is no coverage. The exclusion applies if the two perils happened at the same time, or one occurred before the other.
There are seven exclusions where anti-concurrent causation language is applied: Ordinance or law, earth movement, government action, nuclear hazard, utility services, war and military action, and water.
Ordinance or law coverage
We’re going to focus on ordinance or law. This is a critical buy-back coverage endorsement that contains three excluded exposures:
- Coverage A: Coverage for the loss to the undamaged portion of the building: Coverage is included within the limit of insurance of a covered property
- Coverage B: Demolition cost coverage: Pays for demolition and debris removal of the undamaged portion of the building. The limit must be indicated on the endorsement.
- Coverage C: Increased cost of construction coverage: Pays for increased cost of construction to repair or replace the building to comply with current building, zoning and land use laws or ordinances. When coverage C applies, the following “property not covered” are provided coverage: cost of excavations, grading, backfilling and filling; the foundation of the building; pilings; and underground pipes, flues and drains.
Remember to check the “Post-Loss Ordinance or Law” option on the endorsement so coverage will apply to codes that were revised after the loss but before the start of reconstruction or repair. This is an important add-on, especially for your clients in New England, because projects often will need to be put off until after winter.
A word of caution: Many carriers will offer low automatic ordinance or law coverage as part of basic enhancements on a policy. Be sure to raise the limits on properties when needed. The time to have that conversation with a client or prospect is when you sell the policy, not after a loss. Failing to discuss ordinance or law could result in an E&O claim.
Mark Rosalbo is a senior advisor at NFP in Montpelier, Vt. He has over 25 years of experience in financial services and insurance. He can be reached at Mark.Rosalbo@NFP.com or 802-489-7212.
This piece was first published on LinkedIn and is republished here with consent. The opinions expressed are the author’s own.
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