Question 36

The Ordinance or Law exclusion/limitation in a Homeowners policy may cause a gap in coverage when rebuilding to meet present building codes.

The situation involving the insured's home being damaged by fire and needing to be rebuilt to comply with current building codes illustrates how the Ordinance or Law exclusion can create a coverage gap. The additional costs incurred due to compliance with these codes, which are not covered by the policy, can lead to significant financial burden for the insured.

A) A community ordinance requires dogs to be on a leash. Insured's dog, running free in a park, bites a child.

This option describes a liability situation related to the insured's dog. While it involves a violation of a community ordinance, it does not pertain to the Ordinance or Law exclusion in a Homeowners policy regarding structural rebuilding costs. Thus, it does not create a gap in coverage relevant to this context.

B) The insured's home is damaged by fire and must be rebuilt to meet present building codes. The additional cost of complying with the codes is 50%.

This option directly illustrates the concept of the Ordinance or Law exclusion, as the additional costs incurred to comply with current building codes are typically not covered by a standard Homeowners policy. This can indeed create a significant gap in coverage for the insured when rebuilding after a loss.

C) A law requires all swimming pools on residential property to be fenced and to have self-closing gates. Insured's gate is not self-closing; neighbor's child enters open gate and is severely injured when she fails in the pool.

While this scenario involves a legal requirement regarding safety measures for a swimming pool, it primarily pertains to liability coverage rather than the Ordinance or Law exclusion regarding structural compliance. Therefore, it does not demonstrate a gap in coverage related to rebuilding costs after a loss.

D) The insured has a business occupancy that is permitted by Homeowners rules and does not affect his coverage. However, local community laws prohibit the occupancy unless certain approvals are received and fees are paid. Insured has not obtained approvals or paid fees prior to windstorm damage to home.

This option discusses compliance with local laws regarding business occupancy, but it does not relate to the Ordinance or Law exclusion concerning rebuilding to meet updated building codes. Therefore, it does not illustrate a gap in coverage in the context of the question.

Conclusion

The correct answer, option B, highlights a situation where the Ordinance or Law exclusion can lead to significant financial implications for the insured, as the costs associated with complying with updated building codes are not covered by the Homeowners policy. Other options fail to address the specific context of rebuilding after a loss in relation to legal compliance, focusing instead on liability or other regulatory issues.