A commonly overlooked insurance coverage, building ordinance coverage is an important consideration for small business owners who own a structure for their business.
It important to understand the difference between standard property insurance and building ordinance coverage. Standard property insurance provides coverage for the actual physical structure of the building, including returning it to its state before a covered loss occurred.
However, what isn’t covered under standard property insurance is any increased cost of repair, rebuilding or remodeling the building that results from new local, state, or federal building codes. Further, standard commercial property insurance doesn’t cover the loss related to an undamaged section of a building, the demolishing cost of the undamaged section of the building, or any increase in cost to build the entire structure to be in compliance with current building codes. In addition, property business income coverage specifically excludes coverage for building ordinance or loss of income due to a construction delay resulting from a building ordinance application.
A bit of history may help: When a building or structure is originally built, it must meet certain building code ordinances. However, a building that was built to code upon initial construction might not meet building code at a later point in time. Because of the varying nature and frequency of changes in building ordinance laws, being out of compliance with code can be from months to years.
For example, many local communities have one or more building ordinances that necessitate a building be demolished and rebuilt to building code — rather than simply being repaired — if a certain percentage of the building is damaged. The typical stipulation is if 50 percent of the building was damaged then it must be rebuilt versus repaired.
Building Ordinance Coverage can be dissected into three separate areas:
- Demolition Coverage.If the undamaged portion of the building needs to be demolished in order for the rebuilding of the structure to be in compliance with current building code, then demolition coverage will cover the cost of demolition.
- Value Loss.This portion of Building Ordinance Coverage pickup any loss of value relating to the undamaged section of the building.
- Cost of Construction Increases.Incurred increases in expenses to replace or repair the building to conform to current laws and ordinances will be covered under this coverage.
If you have an older building, you have all the more reason to add Building Ordinance Coverage to your commercial property insurance. However, even newer buildings might not be up to code, so Building Ordinance Coverage is important to consider in protecting you against increased repair costs required by updated building codes and ordinances.