Building Ordinance or Law Coverage is one of those very important coverages that is rarely discussed. Whether you own an apartment building or commercial building, odds have it you need this coverage but probably have not had the discussion with your insurance agent.
Consider this scenario. You own an apartment building and in the middle of the night you receive a phone call to tell you your apartment has burned halfway to the ground. Although concerned, you feel pretty confident that your apartment insurance policy will repair the damage because you and your agent recently discussed your building limit to be sure you are insured for the full replacement cost. But there were a couple of things that were not discussed. What will the additional cost be to demolish and rebuild the remaining portion of the building, remove the debris and pay for the extra cost to bring the building up to current code? Adjusters International reports that this can add 50% or more to your reconstruction costs.
ABCs of Building Ordinance Coverage
Coverage A: Coverage for Loss to the Undamaged Portion of a Building - If the building was damaged by fire, local jurisdiction can require that the remaining portion of the building be torn down. This coverage pays to rebuild the undamaged portion of the building when it must be demolished to comply with code requirements.
Coverage B: Coverage for the Cost of Demolition - This will pay for the cost to demolish and clear the site of the undamaged portions of the covered building, where the law requires its demolition.
Coverage C: Coverage for the Increased Costs of Construction - Insurance policies provide coverage to rebuild with like, kind and quality construction. They do not include the added cost of bringing buildings up to code. Examples would be a new requirement that the building be sprinklered, new earthquake codes, better wiring or having an entrance that is suitable for handicapped customers under the American With Disabilities Act. This coverage includes the recovery of costs related to making the building compliant with current building codes.
How Do You Determine How Much You Need?
For starters, understand that it is practically impossible to purchase or estimate exact to-the-dollar figures. The goal is to get as close as possible. The best idea, especially if you own an older building, is to hire certified building engineers who understand construction costs as well as city ordinances.
While the increased costs associated with rebuilding to current codes might bring a rude awakening, they need not result in an unpleasant surprise. Properly planned and placed Ordinance or Law Coverage will help make sure that full financial recovery takes place.