Ordinance and Law Coverage  

There was a time when buyers of property insurance were thought to have achieved a meaningful improvement in their insurance program when coverage was written on a replacement cost basis rather than actual cash value. Insurance buyers desiring to rebuild or replace damaged property with new materials certainly need to purchase replacement cost property coverage. However, even that basis of recovery can leave policyholders with a sizable uninsured loss.

If you own an older home or commercial building and suffer a substantial property loss, you may find that various new building codes have been enacted since your property was constructed.  Based upon the extent of damage that has occurred, you may be required to bring various aspects of your building up to the current building codes.  Some examples of this include complying with the Americans with Disabilities Act (ADA), using a different type of electrical wiring or roofing materials, elevating your building, or installing a sprinkler system.  Complying with these codes may require a change in design and building materials.

These ordinance or law-related expenses can account for hundreds of thousands, if not millions of dollars, of uninsured property claims as many property insurance policies exclude or limit claims resulting from such ordinances or laws. While the automatic coverage built into some forms may be sufficient for some insureds, those with a more substantial loss exposure in this area may need to look further and consider the purchase of specific coverage, usually available by endorsement.

Ordinance or Law coverage protects against the loss of value and the cost of demolishing the undamaged portion of an existing building which must be removed due to the enforcement of building, zoning, and land use ordinances or laws.  It also covers any increased expenses incurred to replace the building with one conforming to building laws or ordinances or to repair the damaged building so that it meets the specifications of current building laws or ordinances.

This, however, brings up a very difficult issue: how do you measure your ordinance or law exposure and how much coverage should you buy?  Determining your loss exposure in this area will probably require the services of an architect familiar with local, state and federal codes, ordinances or laws and someone who can assist in establishing the costs of improvements that may need to be made to comply with current codes in the event that your building is damaged or destroyed. There are also some appraisal firms that specialize in this area. Keep in mind that the shelf life of such an evaluation is only good until the next ordinance or law is passed affecting the repair or reconstruction costs for your building. In other words, this is an area that requires constant monitoring to keep up with the changing codes.

For more information, or to receive a competitive quote for this valuable coverage, please contact your agent.