Did you know that most base business insurance property policy forms exclude coverage for expenses related to “ordinance or law” compliance? This is important to know because not having coverage can mean the loss of thousands of dollars if property is damaged or destroyed.
What Is Ordinance or Law Coverage?
Municipalities and counties place regulations and restrictions on building construction and repair primarily to ensure the safety of people who visit, work or live in and around buildings. For example, a code might state that a certain type of foundation system or wiring must be used. A business owner might be required to place a sidewalk in front of a building and to locate the building a specified, safe distance from the street.
When a commercial building is damaged or destroyed and restoration begins, the owner may not be allowed to rebuild the structure as it was originally designed or constructed. The owner will need to adhere to the laws and codes in place at the time of an insured loss or that go into effect after the loss but before reconstruction begins. Compliance can add cost to the overall project. It also can extend the duration of restoration.
Owners of older buildings aren’t the only ones at risk of coverage gaps. Owners of newer business buildings need to consider ordinance or law coverage because new or updated regulations can be introduced anytime.
Denver, for example, recently adopted the “green roof” ordinance in an effort to build a more eco-friendly, sustainable community. Cities like Houston have revised floodplain regulations in response to hurricanes. Governing bodies often update building codes after earthquakes or wildfires.
Triggers and Limitations of Ordinance or Law Coverage
So, how does one obtain ordinance or law coverage if it is specifically excluded from the base insurance form? It can be added to a property policy as part of additional coverages or as extensions on separate forms.
Coverage typically will apply under the following conditions:
- There is a covered cause of loss
- to a covered building at an insured premises,
- resulting in enforcement of an ordinance or law.
“Enforcement” is an important consideration. If an ordinance or law exists and the building owner is required, for example, to obtain a building permit or certificate of occupancy, coverage applies. If, on the other hand, an ordinance or law exists but it is not being enforced, coverage does not apply.
Ordinance or law coverage focuses on three types of loss:
- Value of undamaged portions of the buildings that are required to be demolished due to enforcement of a code
- Demolition of undamaged portions of covered buildings required by code
- Increased cost of construction caused by enforcement of a code
Be aware, however, that this coverage often includes limitations. For example, it typically will cover only the expense needed to meet the minimum requirements. Also, it likely will include exclusions, such as costs associated in any way with the effects of pollutants, contaminants, fungi, wet or dry rot, bacterium or viruses.
Consult an Experienced Professional
This is a complex coverage. In addition to carefully reading the insurance policy completely, property owners should discuss the ramifications of ordinance or law coverage with an experienced insurance broker or adviser. Contact your local Hylant office if you would like to discuss this coverage.
The above information does not constitute advice. Always contact your insurance broker or trusted adviser for insurance-related questions.