Property Insurance

Ordinance or Law

BUILDING ORDINANCE COVERAGE AND THE IMPACT ON HISTORIC BUILDINGS

After the wildfires swept through Gatlinburg,TN in 2016, many businesses faced a loss of revenue when local authorities forced them to remain closed during the extensive clean-up.  Those with ordinance or law coverage and loss of business due to an ordinance or law were covered for the loss of income during that period.

Building ordinance coverage, also known as ordinance or law coverage, is an important consideration when evaluating property insurance.  This is particularly true when insuring a historic or older building.  When damaged by a covered loss, commercial property policies will pay to rebuild the actual physical structure to the condition at the time of loss.  However, an unendorsed property policy will exclude the increased cost of construction that is associated with local, state, or federal building codes.  For example, the Americans with Disability Act (ADA) became law in 1990.  Buildings constructed prior to 1990 are likely not compliant with this law. 

It is also important to know the building ordinances in the area where the building is insured.  Many communities require a building damaged 50% or more to be demolished.  Some communities will require plumbing, electrical, and HVAC systems be upgraded when the building is reconstructed.

This potential gap in coverage can result in an unexpected, large out-of-pocket expense.  A properly endorsed property policy can eliminate or reduce this kind of loss. 

Building ordinance coverage has three parts:

·         Coverage A - Coverage for Loss to the Undamaged Portion of a Building: This comes into play when the loss has not affected the entire building.  The commercial property policy covers “direct physical damage to covered property”.  The undamaged part of the building would not fit that description because it did not suffer a physical loss, but the value of the property has been diminished.  Local ordinances may not allow this portion of the building to be repaired.  Coverage A will provide money to tear down the undamaged portion so the entire building can be reconstructed.

 

·         Coverage B - Coverage for the Cost of Demolition: This provides money for the demolition and removal of debris.  In Northeast Tennessee, the average cost to demolish a building is roughly $4-$8 per square foot.  There are many considerations that are factored into that estimate such as accessibility to the property, the type and weight of the building materials, the distance to the waste disposal site, and whether hazardous materials, such as asbestos or lead is involved.  The cost rises to roughly $9-$11 per square foot for an older building.  Keep in mind that is cost is per square foot.

 

·         Coverage C - Coverage for the Increased Costs of Construction: This provides for the increased cost of construction to comply with local, state, and federal ordinances. 

Though it can be difficult to balance cost with adequate coverage limits, properly endorsed building ordinance coverage will limit the cost of lost revenue or unplanned out of pocket expenses resulting from demolition and increased reconstruction costs due to local, state and federal ordinances. It is also important to reevaluate coverage annually to make sure policies are up-to-date with changes in the law.

Understanding your insurance policy

Congratulations! You’ve worked with your local independent insurance agent and now have your insurance policy. Or maybe you’ve had your policy for a while but haven’t taken the time to become familiar with it.

We get it — reading your insurance policy is probably not high on your to-do list… or your want-to-do list. However, getting a basic understanding can help you make sense of your coverage, what’s included and how your insurance works – which is especially important to know when the time comes to make a claim.

Here’s a quick guide to help you start to understand your insurance policy. Then, if you have any questions about your specific policy, you can contact your independent agent who will go over all the details.

Declaration Page
The Declaration Page is the first page or pages of your insurance policy and summarizes important information about your policy, including:

  • Your personal information

  • Who is insured

  • A description of what’s insured

  • Coverages included

  • Details of your coverage

It’s also important to take note of the policy’s effective date and when your policy expires. Policies are typically 12 months in length but can also vary.

When you make changes to your policy, you’ll receive an updated Declarations Page so you’re always current on your coverage details. You’ll also be sent a new Declarations Page every time you renew your policy.

Coverages
This is a more detailed view of what’s included in your policy and eligible for a claim. This section will detail when and how your coverage applies and the deductibles and limits of your policy. A deductible is how much you’re required to pay out-of-pocket during a claim. Limits are the terms or limitations, if any, that apply to your insurance coverage.

In a named perils policy, each specific peril you are protected against is outlined, for example, Theft and Fire. While an all-risks policy covers risks except those that are specifically excluded. You can see what kind of loss is not covered in an all-risks policy in the Exclusions section.

Exclusions
This section helps a policyholder understand what is not covered under their policy. This includes any loss not included in an all-risks policy. Your type of coverage, state you live in and insurance carrier will all affect the exclusions in your policy.

What kind of exclusions are in a policy? Common exclusions listed on a homeowners policy, for example, include losses from war, acts of terrorism and neglect.

Conditions
This section outlines the conditions the policyholder must meet for a claim to be paid. You can think of it as the responsibilities you have to uphold the agreement. This includes timely reporting of claims, payment plans, taking practical steps to ensure no additional damage after a loss and the insurance company’s cancellation policy.

Endorsements
Your insurance should fit the needs of your lifestyle. Endorsements, or riders as they’re also called, can be added to customize your insurance policy. They can also be used to tailor your coverage in response to life changes between policy renewals. Notify your independent agent of any changes that could create a need for an endorsement. For example, the sale of your car, purchase of a new vehicle, an engagement ring or a basement renovation.

Not sure if you need to update your insurance? View our helpful guide here to see if you have outdated insurance.

Definitions
You may notice some bolded words or terms when reading your insurance policy. The specific meaning of these key terms is defined in the Definitions section of your policy. Use this section if you have questions about the meaning of one of the highlighted terms or how it’s defined by your coverage.

Let your agent be your guide
Lastly, like any legal document, some terms and words may be unfamiliar to you or confusing at first glance. But fear not! Your local independent agent can help you understand the coverage in your policy. That’s one of the many perks of having a local expert on your side.

This article is for informational and suggestion purposes only. If insurance policy coverage descriptions in this article conflict with the language in the policy, the language in the policy applies. Talk with your independent Grange agent if you have questions regarding the details of your insurance policy or if you need to update your insurance.

References:
-Insurance Journal
-Insure.com
-Nonprofit Risk Management Center