Ordinance Coverage for Older Buildings

If you own an older commercial building or home, a normal Basic Form, Broad Form or Special Form policy designed to replace your property should it be destroyed will probably not be good enough. Legal requirements adopted since the building was first constructed will require that stronger and safer and more accessible features, materials and designs be used. This may cost more and take longer than covered by the typical policy.

Property insurance policies often exclude costs incurred due to the enforcement of building codes or ordinances. This gap in insurance coverage should be closed by adding “ordinance or law” coverage. You may add ordinance or law coverage to your policy by including two endorsements for commercial buildings: 1) coverage to upgrade the building as required by ordinance or laws and 2) coverage for loss of income during the increased time it takes to bring the building into compliance with applicable ordinances or laws.

For business owners, I highly recommend you add both of these endorsements to your insurance policies. It might not be necessary for homeowners to do the same because your insurance policy may already contain such coverage. In California, some homeowner policies do not include building code upgrade (ordinance or law). Therefore, some California homeowners need the additional endorsements.

A variety of laws could come into play when a damaged building is repaired or rebuilt. This may include local, county, state, and even federal regulations. Additionally, there may be restrictions imposed by homeowners Associations, historical societies and etc. And, in some places, there are requirements that a building with major damage, say 50% or more,  must be demolished rather than repaired. It is important for you to know this upfront so you can get the coverage you may need – very specific to your locale.

The insurers often do not offer ordinance or law coverage unless you specifically request it. Their position is that the building should have been upgraded continuously during the years. However, we all know this is often not the case. The insurance industry has created insurance policy ordinance or law endorsements that you can purchase to provide coverage for this exposure. Your Public Adjuster will provide an audit of your coverage to help you understand if you need them.