Arizona Adjuster Practice Exam

In a property insurance policy, the building ordinance or law exclusion serves what purpose?

1. To eliminate coverage for non-structural damage

2. To exclude personal liability claims

3. To eliminate coverage for costs to comply with local ordinances

4. To prohibit coverage for theft of property

The correct answer is: To eliminate coverage for costs to comply with local ordinances

The building ordinance or law exclusion is specifically designed to eliminate coverage for costs associated with complying with local ordinances or laws when a property is damaged. This provision is important because rebuilding or repairing a damaged structure often entails meeting updated building codes that may not have been in effect when the original construction took place. For instance, if a building is destroyed and local laws require certain upgrades or changes to be made during the rebuilding process, the costs incurred to meet these regulations would not be covered under the standard property insurance policy because of this exclusion. This exclusion helps insurers manage their risk by not having to cover potentially significant expenses related to modernizing structures to comply with current standards that were not applicable at the time the buildings were originally built. Such costs can be substantial and could affect the overall cost of claims if included in coverage, which is why insurers typically include this exclusion as part of their policy terms.