The risk of damage to your property, due to fire or another covered cause of loss, is always a major concern. In many cases, you may want to resume use of your damaged property for any number of reasons; proximity to customers is one key reason to restore a damaged building. Accordingly, the damaged property will have to be rebuilt or restored. However, state and local governments may impose various ordinances and laws that govern the restoration and reconstruction of damaged property which can lead to increased costs. To address, business owners should consider Ordinance or Law Coverage. This article will discuss why you may need this coverage and how this coverage works.
In the aftermath of a fire, a hail storm, or some other covered threat, your building may require a range of repairs including tearing down of the property, removing debris, renovation, remodeling, demolition of property, etc. State and local governments have laws that regulate the restoration of property and land use requirements. For example, the damaged property may be required by law to upgrade electrical, heating, and plumbing units. Moreover, property forms and cause of loss forms may either exclude or provide limited amounts of coverage for this exposure. This is where the Ordinance or Law Coverage endorsement can help. The International Risk Management Institute defines Ordinance or Law Coverage as “Coverage for loss caused by enforcement of ordinances or laws regulating construction and repair of damaged buildings.”[i] In short, this is a very useful coverage business owners should consider including, especially if they have older property that may need required code upgrades if their property is damaged by a covered cause of loss.
The Ordinance or Law Coverage endorsement offers three coverages. Coverage A covers “the reduction in value of the undamaged portion of the building that must be demolished to comply with an ordinance or a law.”[ii] Coverage B “covers the cost to demolish the undamaged portion of the structure and remove its debris.”[iii] Lastly, coverage C “covers the increased cost to repair or reconstruct the damaged property, or to reconstruct or remodel undamaged portions of the property, in conformity with the minimum requirements of an ordinance or a law.”[iv] In summary, this form provides some great coverages to address the cost of complying with state or local ordinances or laws in connection with the reconstruction of damaged property.
In closing, repairing damaged buildings can involve a variety of tasks. Examples include debris removal, renovation, demolition, and remodeling. Additionally, local and state governments have various codes and ordinances that must be complied with in performing these repairs. Standard property forms may either exclude or provide very limited amounts of coverage for this. This is where the Ordinance or Law Coverage form can help. It can cover the value of the undamaged portion of a building that must be demolished; the cost to demolish a building’s undamaged portion and remove debris; it can also cover the increased cost to rebuild property. Those with significant property exposures, especially older property, should definitely consider purchasing this coverage form or property endorsements that provide these coverages. For more information on this important coverage, contact your independent agent.
*Please read all policies and endorsements in their entirety to determine all policy provisions and that the information contained here is general in nature and may not apply to your policy.
[i] Ordinance or Law Coverage IRMI https://www.irmi.com/term/insurance-definitions/ordinance-or-law-coverage
[ii] Cook, Mary Ann “Commercial Property Risk Management and Insurance” The Institutes 1st Edition Page 4.23
[iii] Cook, Mary Ann “Commercial Property Risk Management and Insurance” The Institutes 1st Edition Page 4.23
[iv] Cook, Mary Ann “Commercial Property Risk Management and Insurance” The Institutes 1st Edition Page 4.23
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