In December 2021, Colorado experienced the Marshall Fire, which was the worst fire in Colorado's history. It destroyed more than 1,000 residential and commercial structures, and in the aftermath, the towns of Louisville and Superior allowed insureds who had suffered damage to opt-out of certain sections of the local building codes. In light of that, the department has issued a new regulation concerning ordinance and law coverage, to be effective December 15, 2022.
The regulation applies to all insurers issuing homeowner policies that have damage claims and law and ordinance coverage is on the policy. There are six rules that now apply to these insurers.
Insurers will pay benefits to policyholders based on the policy terms and amounts insured by policyholders to rebuild their homes. Payments are to include all coverages owed under the primary structure limit and optional coverages, including ordinance and law.
Insurers are to pay benefits based on applicable building codes in effect on the date of the loss. If the policy does not specify that ordinance or law coverage is for codes in place at the time of the loss, the company shall consider paying for codes in place at the time of the rebuild, subject to coverage limits.
If a policyholder chooses to use prior building codes as allowed by their local government, insurers shall provide coverage and make payments for rebuilding in accordance with those particular building codes subject to coverage limits.
A policyholder may required that the Dwelling Unit Fire Sprinkler Systems be included in the rebuild; if such a system is required under the building code in effect on the date of the loss, the insurer will cover the cost of the sprinklers subject to coverage limits and ordinance and law coverage in the policy.
Insurers are not to interfere with a policyholder's decision to rebuild in whole or in part to a particular building code, including but not limited to the use of coverage determinations or limitations to influence the policyholder.
A violation of this new regulation may be considered an unfair claims settlement practice under sections 10-3-1103 and 10-3-1104(1)(h), C.R.S of the code.
Noncompliance with the regulation may result in the imposition of any sanctions available in statutes regarding the business of insurance or other laws which include imposition of civil penalties, issuance of cease and desist orders, and/or suspension or revocation of licenses, subject to due process requirements.
Christine G. Barlow, CPCU
Christine G. Barlow, CPCU, is Executive Editor of FC&S Expert Coverage Interpretation, a division of National Underwriter Company and ALM. Christine has over thirty years’ experience in the insurance industry, beginning as a claims adjuster then working as an underwriter and underwriting supervisor handling personal lines. Christine regularly presents and moderates webinars on a variety of topics and is an experienced presenter.