replacement value doesn’t mean
what if this happened to you…
A fire causes major destruction to your building. Because more than 50% was damaged, a local by-law requires the building to be torn down and rebuilt to current building codes. You’re a responsible businessperson and take the necessary steps to maintain your property. You have replacement cost value on your policy, so you’d be fully covered…right? Not necessarily.
Property insurance policies generally have an “Ordinance or Law” exclusion, which means that the policy covers the building as it exists, but it does not cover the cost to upgrade the building to current building codes and ordinances after a loss. Therefore, having “replacement cost” coverage for your building does not mean that you have “upgrade cost” coverage, unless you purchase an “Ordinance or Law endorsement” for your property. Even if a property policy offers some built-in Ordinance or Law protection, often the amount of coverage isn’t sufficient in a major loss.
Building codes and zoning laws affect every piece of property no matter how big or small. These laws are continually changing…requiring new or improved features such as better wiring, handicap access, sprinkler systems and more. If a loss situation triggers code upgrades, it could be financially devastating unless you have Ordinance or Law coverage.
While some regard this coverage to be important only for older buildings, laws are always changing, and newer buildings can be affected. This is an area of concern for all building owners.
how ordinance or law protects you:
- Coverage for the undamaged part of your building. Your property insurance policy only protects you against actual damage caused by a covered cause of loss to a building. It doesn’t cover the cost to replace an undamaged portion of your building that is required to be torn down and rebuilt because of a local ordinance. The Ordinance or Law, Part A provides this protection based on the coverage limit you select.
- Demolition costs. While property insurance covers debris removal for a portion of property damaged by a covered peril, it doesn’t cover demolition expenses for an undamaged portion of a building that has to be removed. Part B of Ordinance or Law provides this coverage. Since demolition costs vary based on building size and other factors, be sure that the limit you select reflects your building’s structure.
- Increased cost of new construction. It’s wise to assess exactly what types of upgrades could be required if you had a major loss, i.e. sprinkler systems, elevators, wiring, septic system, etc. The limit you set for Part C requires serious consideration and talking with a contractor may be helpful in determining the appropriate level of protection.
If you aren’t sure that your policy provides protection for Ordinance or Law situations or you know that you don’t have coverage and want more information, our trusted Associates are glad to review your policy and discuss options. Call or email us with any questions.