If your business suffers a severe property loss, don’t be surprised if rebuilding the damaged or destroyed structure(s) to meet the latest building codes adds 50% or more to recovery costs. With cities, states, and the federal government continually adding environmental and pollution regulations and tougher construction standards in earthquake, flood, and windstorm zones, this situation is not uncommon.
Even worse, the “Ordinance or Law” clause in your Property insurance policy will exclude payment for the repair, replacement, reconstruction, or demolition of the damaged property required by federal, state, and local regulation – even though you carry replacement coverage with no coinsurance or other limitations.
Some regulations also require a building that suffers damage beyond a specified percentage of its value (usually 50, 60 or 75%), to be demolished totally before rebuilding.
The bottom line: In a worst-case scenario, you might easily lose the total value of a damaged structure, pay for demolishing or repairing the undamaged portion, and pick up the increased cost of rebuilding the structure to code.
The solution: Building Ordinance coverage (sometimes known as Law and Ordinance insurance). A Building Ordinance policy will reimburse your business for:
- loss of the undamaged portion of a damaged building ( Coverage A)
- demolition of the structure and debris removal (Coverage B)
- Reconstruction of the structure to meet updated building codes (Coverage C)
Bear in mind that rebuilding to meet regulatory requirements might easily extend beyond the “period of restoration” during which insurance would pick up losses under your Business Interruption and Extra Expense policies. An Increased Period of Restoration endorsement will extend these coverages until repairs are completed.
For more information, feel free to get in touch with us at any time.
