For buildings of a certain age “grandfathering” is the way to avoid making costly changes to meet certain ordinances or laws such as the Americans with Disabilities Act (ADA). Older buildings are exempt from following these laws since they were constructed prior to the law.
However, if the building sustains enough damage during a loss to require repair or rebuilding of a certain amount, then grandfathering no longer applies. The building must then be brought up to current code, resulting in large out-of-pocket expenses.
What Can You Do About It?
Lenders may require something called Ordinance or Law Coverage, or it may be a coverage recommended by your insurance broker. Because the premium for this coverage isn’t necessarily cheap, you may have passed on it. But what is it?
Ordinance or law coverage is a great way to include additional funds for buildings that need to be brought up to code after a property loss.
What Does It Cover?
This coverage has three separate limits:
Coverage A – Coverage For Loss to the Undamaged Portion of the Building. This provides for coverage to the undamaged part of the building that the law may require the owner to demolish in the event of a loss.
Coverage B – Demolition Cost Coverage. This provides additional coverage to reimburse for the costs of demolition for the undamaged portion of the building.
Coverage C – Increased Cost of Construction. This provides additional coverage to reimburse for increased costs to repair or replace the existing structure and bring all systems up to code including wiring, plumbing, ADA, etc.
Coverage A should typically be for the total building amount, while Coverages B & C are a sublimit, usually $50,000 or more.
Should You Purchase Ordinance or Law Coverage?
It usually depends on the age of your building. Older buildings have more exposure due to changes in the law over time.
Newer buildings, however, aren’t exempt from the need for coverage. Local, state and federal agencies are constantly scrambling to make changes to ordinances or laws in order to keep up with new types of crime, natural disasters, and political actions. A brand new building may not be up to code within a year or two of being built.
Many policies may offer a sublimit for ordinance or law coverage through a property extension endorsement. However, that may not be enough to repair or replace the existing structure in the event of a claim. To make matters worse, the ordinance or law sublimit may be part of your building limit, not in addition to it.
Talk to your broker about the availability and limits of this coverage. Hayes Brokers offers a free, no obligation risk management analysis to help you determine any gaps in coverage, including Ordinance or Law. Call for an appointment today.