Under HO3 exclusions, ordinance or law affects coverage by which of the following?

• A. Eliminates coverage on Coverage A and B for extra expenses over the cost of replacing damaged property
• B. Adds coverage for building code upgrades
• C. Adds liability coverage
• D. Provides extended coverage for personal property

Answer: (A)

The fundamental idea being tested is how the ordinance or law exclusion affects what the policy pays when rebuilding after a loss. In an HO3, the policy pays to repair or replace damaged dwelling and other structures, but it does not cover the increased costs required to bring the construction up to current building codes. In other words, extra expenses beyond the cost to replace or repair the property are not covered by Coverage A and Coverage B unless you have a separate endorsement for ordinance or law coverage.

So, if rebuilding to code would cost more than simply replacing the damaged property, the policy would not pay that extra amount. This is exactly what the option describes: it eliminates coverage for those extra expenses over the cost of replacing the damaged property.