26 Mar What is Law and Ordinance Coverage?
By: Matthew M. Johnson, MBA
Building Owners are often confused when they are required to pay for unknown expenses after a covered insurance claim. Most policies will generally pay for the cost to reconstruct the building to the original building specifications as long as the damage results from a covered cause of loss. However, policies will often exclude the cost to bring the damaged building up to current building codes. Law or Ordinance requirements can be anything mandated by a city or county, all the way up to state & federal levels. For example, an apartment built in the past five years will be required to be built to specifications that were not required on an older building. The cost to install a sprinkler system that is mandatory now that wasn’t included in the original building code can be tens of thousands of dollars or more. This expense will be out of pocket if the policy is missing Law & Ordinance coverage. In addition, “older structures that are damaged may need upgraded electrical, heating, ventilating, and air-conditioning (HVAC); and plumbing based on city codes.” *
There are 3 parts available for Law & Ordinance coverage on a commercial property insurance policy:
Coverage A: Coverage for the undamaged portion of the building. Although a portion of the building may not be damaged, local law may render the entire building unusable and require the building to be completely rebuilt.
Coverage B: Demolition Cost: Tearing down the undamaged portion of a building and removing the debris can be very expensive. This coverage will pay for these unexpected costs associated with the demolition and debris removal.
Coverage C: Increased cost of Construction (ICC)- (Building code upgrade) Some examples of increased costs include installing an ADA compliant wheelchair access ramp on a building that was built without a ramp, replacing knob and tube wiring with modern electrical wiring, and upgrading other major building systems to code.
While coverage A is often included in the building replacement cost coverage, coverages B & C are often paired into a Combined Single Sub-Limit (CSL). This allows for more flexibility during rebuilding after a covered loss.
If you are concerned that your building may be lacking adequate Law & Ordinance coverage, give us a call at Stone Creek Insurance Agency and we will be glad to assist you.
*Credit: International Risk Management Institute, Inc. (IRMI).