The ABC’s of Building Ordinance or Law Coverage

A standard property insurance policy is a valuable tool and financial safety net that protects your association against unexpected damage and loss to your property. Policies are written in a way that the insurance carrier is responsible for returning the covered property to its original condition before the damage occurred. While this sounds great, what happens when the building cannot be returned to the same condition due to new laws and building ordinances?

Over time, new laws and building ordinances get put into place by local governments as new technology and safety measures are developed. This could be something minor like requiring hardwired smoke detectors, or something major like new seismic resistance structural requirements, which could drastically increase the cost to rebuild.

Since a standard policy is obligated to return the building to its original state, these additional costs for new requirements would not be covered. Luckily, there is an optional coverage offered by carriers called Building Ordinance or Law Coverage which accounts for this situation. This coverage is composed of three main parts that are detailed below:

• Coverage A – Undamaged Portion of Building: This covers the cost to demolish any undamaged portion of a building that must be torn down to properly repair or replace a damaged building. Many municipalities require an entire building to be rebuilt if a certain percentage of the building is damaged.
• Coverage B – Demolition Coverage: This provides coverage for the cost to rebuild the undamaged portion of a building that was demolished. Since the undamaged portion didn’t experience a “loss” or “damage,” a standard property policy would typically not provide any coverage for it.
• Coverage C – Increased Cost of Construction: This covers the extra costs associated with rebuilding the structure according to any new ordinances or laws that need to be met.

If you have a building that is over 10 years old or was converted from an apartment project, the building code changes could be substantial. It is best to be prepared with Building Ordinance or Law coverage.

For more information on this coverage, please contact us at 503.292.1580.