Ordinance or Law Coverage: What it Means for You
Do you own the building(s) that houses your commercial manufacturing, warehousing or distribution operations? Or, do you lease your building while being required to carry the building insurance? If so, you should be paying close attention to the Ordinance or Law coverage limits provided by your property policy.
Unless your building is brand new, there’s a good chance that laws and ordinances have been passed in your area after your building was built, to which your building does not currently comply. This is often referred to as “a property that is legally non-conforming or grandfathered.”
Examples of such ordinances might be handicap accessibility, automatic sprinkler system requirements, zoning, land use or construction requirements, site layout and roof design, just to name a few. If your building has been partially destroyed by a covered cause of loss, such as fire or tornado, you’ll now have to rebuild in compliance with these ordinances or laws, and your insurance policy may or may not have sufficient limits.
Most standard property policies exclude Ordinance or Law coverage. However, it’s typically readily available by endorsement for negligible premium. Note, that you’ll want this coverage to apply to both a physical damage (direct damage) loss to your property and to a business income/extra expense loss (indirect damage) to your business. Coverage is broken-down into three separate and distinct coverage aspects where limits may be separate for each or combined in various manners.
Here is a brief description of each:
- Coverage A - Undamaged Portion of the Building
Provides coverage to replace or repair the undamaged portion of the building. The limit to consider would be “Included in Building Limit.”
- Coverage B - Demolition
If the damaged portion of a building exceeds 50% (typically) of the total building, it’s common for ordinances to require the demolition of the undamaged portion of the building. Coverage for the costs to demolish and clear the site of the undamaged portion of the building is provided by this portion of the endorsment. Limits to consider can range from $100,000 up to $1,000,000 (or greater).
- Coverage C - Increased Cost of Construction
Provides coverage for the increased cost to repair or replace the building to the same general size at the same site to the minimum standards of the current ordinances or laws. Limits to consider can range from $100,000 up to $1,000,000 (or greater).
It’s highly recommended that you’re proactive in knowing which areas your building(s) might be deficient in meeting local, state and/or federal ordinances or laws. You may want to consult an architect or engineer to review your potential compliance issues, and then discuss these items with your insurance agent to ensure that Ordinance or Law coverage limits on your property policy are adequate.
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