You have a building that suffered windstorm damage to one wall. Engineers come to inspect the property and insist that the remaining 3 walls of the building were weakened by the windstorm as well and that building is therefore deemed to be unsafe. You evacuate and are required by the State Property Maintenance Code to knock down the whole building and rebuild due the city’s code.
Now, your damaged wall is covered by your insurance policy because you are covered for windstorm damage. But what about the cost of knocking down the whole building to comply with city code?
Enter: Ordinance or Law insurance coverage.
O&L is an additional feature of a property policy that helps to cover the costs of repairing a damaged building in order for it to comply with updated building codes. Many times, fixing extensive property damage while also ensuring the construction is up to code standards can be a costly venture. But by purchasing ordinance coverage, you can have financial assistance in paying these costs.
Building codes change frequently and are usually only directed towards new construction. When you must rebuild or renovate you usually discover that the codes to which your property was last built have become outdated. When your property is damaged to the point that it requires construction your local government will require that all additions and reconstructions comply with current building codes. In many cases, this new reconstruction will cost more than your standard policy will cover as the policy will not cover the cost of bringing a property up to the current code.
Ordinance coverage works by helping you pay for demolition costs, loss of value costs, and/or increased construction costs.
For example, if 70% of your property is damaged by a fire. Local building codes state that when more than half of the property is destroyed, the entire structure must be demolished and rebuilt. Your Property policy will only cover the 70% that was damaged. Ordinance policy will cover the costs of tearing down the remaining 30% and rebuilding the entire property up to the current code.
Most standard policies have ordinance and law exclusions so it is important that you fully understand if you are covered and how to add this coverage to your policy.
There are three types of O&L Coverage. Each part is added negotiated separately:
Coverage A – Undamaged Portion of the Building. When an Ordinance or Law requires an Insured to tear down the undamaged portion of a building, this coverage provides protection for the value of the undamaged portion of the building.
Coverage B – Demolition. When an Ordinance or Law requires an Insured to tear down the undamaged portion of a building, this coverage pays for the cost to demolish and haul away debris from the undamaged portion of the building.
Coverage C – Increased Costs of Construction. When an Ordinance or Law requires modifications in how a building must be repaired or reconstructed, this coverage provides protection for the increased costs of construction associated with repairing or rebuilding the structure to the code existing at the time of the loss. Coverage usually applies to both the damaged and undamaged portions of the building.
Every O&L endorsement differs based on different insurers and the risks of each property. Coverage wording is not standardized between insurers.
Contact Fidella Insurance Agency to make sure that you are properly covered.
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