Ordinance or Law Coverage
Ordinance or Law Coverage is one of the most important coverage’s for a building owner to consider when purchasing property insurance. This coverage is typically excluded from most commercial insurance policies, and is important component after a loss to a property.
Some insurance companies have began integrating small amounts of coverage into their package policies or Business Owners Policies (BOP’s), but those limits may not be enough in the event of a claim. An experienced agent may be able to review this with you and recommend appropriate limits for your situation.
The reason this coverage is so important is because building codes change often. Imagine how an apartment building built in 1920 would compare to today’s strict codes! The coverage is not just for older buildings, however. Building codes change yearly, and within a very short amount of time a newer building can easily become outdated and non-conforming to current codes.
Without this coverage, the policyholder might be held financially responsible for certain items during the reconstruction phase after a covered loss, or even prior to reconstruction. Most policies will pay to replace what you had in the building at time of the loss, but nothing additional.
The coverage has three separate components. Each component can have its own individual limit. For coverage 1 (Undamaged Portion) we always recommend having the limit be the full value of the building. For Coverage 2 & 3 we always choose separate limits depending on the use of the building, size, current components, and age.
- Loss to the undamaged portion of the building – This will pay you for undamaged portion of a building that must be torn down due to a code or municipal ordinance etc. This is one of the more unlikely scenarios, but if it occurs, it could be where you lose the most if you don’t have the coverage.
- Demolition Cost – This additional coverage pays for the demolition of the undamaged portion of the building in order to comply with the ordinance.
- Increased Cost of Construction – This is commonly referred to as “code upgrade coverage.”
This will pay for any new system, upgrade, or expenses incurred to replace the building with one that conforms to current building laws or codes. Examples of upgrades: Fire Sprinkler systems, elevators, fire control panels, firewall divisions, ADA compliance upgrades, emergency lighting, etc.
Mark Rosa is the Marketing Director and an Account Executive at Borawski Insurance Agency in Northamption, MA. He has been in the insurance business since 2008 and is a licensed insurance producer that specializes in Habitational Insurance.
"The Apartment Insurance program our agency has in place continues to grow quickly and it currently accounts for over 90% of my book of business. Because I work with apartment building owners so often, I feel our agency is one of the experts at writings insurance for these types of exposures," explained Mark.
Mark works with property owners from Pittsfield to Worcester.