Have you even heard of such a thing? Probably not, but you should be aware of its definition. This is coverage for a loss caused by the enforcement of ordinances or laws which regulate construction and repair of damaged buildings. If you own an older structure and it is damaged, it may need upgraded heating, electrical, ventilating, HVAC and plumbing to meet current codes.
So do you need this kind of coverage? Well, as you know, when a structure is built, it must meet all current building codes. Logically, a building that was built to code in the past may or may not be in compliance at a later date. The time from being compliant to being out of compliance may vary depending on the frequency and type of changes in ordinances or laws. To determine if you need ordinance or law coverage, just consider the age of your building. If it is an older building and you experience a loss, you may be required to upgrade to current building codes. Compare this to owning a newer building that already meets up-to-date requirements.
If you have Ordinance or Law coverage, these definitions may help you understand it better:
• Coverage A: Loss of Undamaged Portion coverage applies when only one portion of a building has been damaged, but the code requires demolition of the entire structure. It covers the loss in value of the undamaged portion of the building.
• Coverage B: Demolition Costs covers the cost to demolish and clear the site of the undamaged parts of the building.
• Coverage C: Increased Cost of Construction covers the cost to repair or reconstruct damaged portions of the building. It also covers the costs to reconstruct or remodel undamaged portions of that building, whether or not demolition is required.
Keep in mind that many standard property policies have an exclusion for this coverage built in, which means that the policy covers the building as it exists, but it does not cover the cost to upgrade the building to current building codes and ordinances after a loss. So, many times an endorsement is required to add this coverage to your policy. This should be an area of concern for all building owners, so have a conversation with your insurance agent about this coverage to make sure YOU are covered in the event it is needed.
