Insurance news and information

Flickr photo credit: MBK (Marjie)

Standard Property insurance forms, unless properly endorsed, specifically exclude monetary losses that arise from the enforcement of building ordinances, building codes, or similar laws.
 
You may have carefully set a 100% Replacement Cost limit on your policy that is adequate to cover inflationary increases, but that “replacement” is to replace your building with “like kind and quality” of design and materials. Upon applying for a building permit to start repairs after a loss, you may be advised you’ll have to:

A. Tear down the undamaged portion of your building; and/or
B. Pay for the cost of that demolition to the undamaged portion; and/or
C. Replace the damaged portion (and the torn-down undamaged portion, if applicable) with construction that meets current codes, including (perhaps) such things as sprinkler and alarm systems, ADA-compliant entryways and facilities, earthquake- or windstorm-resistant construction features, etc.

None of the additional costs of such items are covered by standard, non-endorsed Property insurance forms – regardless of the Replacement Cost limit of insurance you purchased.

Insurance coverage for these items is available (for example, the Insurance Services Office, or “ISO” form that provides coverage is CP 04 05 “Ordinance or Law Coverage”). That form covers the above listed items, and a limit can be selected for each one, Coverage A, Coverage B, and Coverage C (sometimes coverages B and C share the same limit).

Some Property forms automatically include as an “Extension of Coverage”, a modest amount of “Ordinance and Laws” coverage – and often the limits on that coverage can be increased at modest cost.

It is unlikely that your insurance agent or broker has access to the knowledge required to assess your exposure to such losses. Rather, periodic consultation by you with an architect and/or an experienced local builder (or construction industry attorney) may be required. They have the knowledge to advise you, based upon how old your building is and what features it has, as to how much extra you’d have to pay to “build it to code” today or tomorrow; with that information you can talk with your agent or broker about getting proper insurance against this potentially significant exposure.