Arizona Adjuster Practice Exam

How does a homeowners policy respond to costs for updating electrical systems required by city ordinances after a fire?

1. Fully covers the costs

2. Eliminates coverage for the additional costs

3. Covers some costs but not all

4. Requires a separate endorsement

The correct answer is: Eliminates coverage for the additional costs

A homeowners policy typically does not cover the additional costs associated with updating electrical systems to meet city ordinances following a loss such as a fire. This is because standard homeowner policies include a provision known as “ordinance or law” coverage, but it applies to costs necessary to comply with local laws or ordinances only when those costs exceed the limits of the policy for rebuilding or repairing the damaged structure. When a fire occurs, the homeowner's policy may cover repair or replacement, but if local ordinances require upgrades or changes to the electrical system that are not related to the actual repair of the damage, those expenses would generally not be included within the quality of coverage provided by the policy itself. Instead, these costs can lead to additional expenses that are not automatically reimbursed. In many cases, to obtain coverage for these specific updates, policyholders might need to purchase a separate endorsement or rider to their homeowner's policy to ensure those additional costs are covered. Thus, the response to the original question would reflect the situation that the homeowners policy, by default, would eliminate coverage for those additional costs unless specifically included through extra coverage options.