Even if your building is insured for the recommended
replacement cost you probably aren’t covered for the full replacement you
need!
You may have heard of the term ordinance and law coverage in
relation to commercial property insurance, but many people are unaware that this
type of coverage can also be a part of your homeowner’s insurance policy.
This coverage provides payment for loss caused by
enforcement of ordinances or laws regulating the construction and repair of damaged
buildings. Older structures that are damaged may need upgraded electrical; heating,
ventilating, and air-conditioning (HVAC); and plumbing units based on city or state
codes (some even require green initiatives such as installing solar panels). Many
communities have a building ordinance(s) requiring that a building that has been
damaged to a specified extent (typically 40-50 percent) must be demolished and
rebuilt in accordance with current building codes rather than simply
repaired.
Unendorsed, standard property insurance forms do not cover
the loss of the undamaged portion of the building, the cost of demolishing that
undamaged portion of the building, or the increased cost of rebuilding the entire
structure in accordance with current building codes. However, coverage for these
loss exposures is widely available by endorsement. Standard homeowner’s policies
include a provision granting a limited amount of building ordinance coverage; this
amount can be increased by endorsement. Also referred to as building ordinance
coverage.
Coverage A – Coverage for Loss to the Undamaged Portion of the
Building
When there has been a covered loss to a building, the remaining part of the building
may still suffer a loss. Depending on local building codes and regulations, if there
has been significant damage to the building, what’s left has suffered a loss of
value. The local building code may require that the undamaged portion of the
building be demolished before starting construction.
Remember what the covered loss was. It was direct physical damage to covered
property. The undamaged portion of the building has not suffered direct physical
damage. It’s just lost value. It’s essentially worthless because local officials
will not allow the building to be repaired back to its state prior to the loss. They
want the rest of the building removed and the whole thing rebuilt. Selecting
Coverage A on this form provides coverage for this loss. By checking the box on the
form, you have the full building limit available to rebuild this building.
Coverage B – Demolition Cost Coverage
We have another problem though. It’s going to cost money to demolish the rest of
that building and remove the debris so that reconstruction can begin. That’s where
coverage B comes in. It provides coverage for those costs.
Coverage C – Increased Cost of Construction Coverage
This coverage provides funds to upgrade certain key systems in the building as
required by local ordinance. Many policies already provide $10,000 or 5% of the
building limit, but that may not actually cover the required upgrades. That’s what
this does.
One way to think about O&L is that it pays for improvements to your building that
the insurance company wouldn’t otherwise cover, but you are now required to incur by
building Ordinance or Law (Building Code). The standard building/property coverage
without the O&L endorsement pays to reconstruct the building exactly as it was before the loss.
In order to determine if you need ordinance or law coverage, consider the age of
your home. If you live in an older home and experience a loss, you may be more
likely to have to upgrade to current building codes compared to living in a newer
home that already meets up-to-date requirements
We would love to answer any questions that you might have. Contact Kovalev Insurance
today and request a complimentary consultation to ensure your property is properly
protected.
