What coverage is needed?
When a building suffers a significant property loss, there is the potential that the code officials will require that the building be brought up to current code standards. The exact decision-making process varies by jurisdiction, but it can hinge on what percentage of the building is affected or if the building has suffered structural damage. A detailed evaluation can trigger a score that requires a code upgrade.
If the extent of the upgrade is structural in nature, it may be necessary to demolish the undamaged portion of the building to retrofit foundations and footings to meet new standards. While this is the most extreme case, building owners are routinely faced with the need to improve the means of egress, add sprinkler systems, upgrade accessibility features and a host of other code requirements.
The property insurance policy has standard exclusions that will not pay for any expenses related to Ordinance and Law related costs. This leaves building owners with a significant coverage gap. Many policies will offer some supplemental coverage, but the limits are generally low and would not cover the full cost.
Assessing the exposure
Most property owners are content to know that their building is “grandfathered” in terms of code compliance. Changes to the building code, Life Safety Code, sprinkler standards and special hazard protection standards are generally not retroactive. What was approved at time of construction is permitted to remain. As long as the scope of any damage fits into the building official’s definition of “repair”, you are probably safe. If the scope of work exceeds repair, you may be facing a code required upgrade. What should you evaluate as a starting point?
Would your occupancy/business activities be permitted a building of this size and height in the same construction class?
Can the existing structure handle the structural design loads per the new code? These loads are updated periodically as the code evolves.
Are fire rated separation walls required in new construction?
Are there requirements in the new code for tenant or dwelling unit fire rated separation?
Are there fire separation code requirements for corridors that would need to be met?
Are vertical opening improvements needed for new code compliance?
Does the HVAC system have proper smoke and fire dampers as needed?
Does the occupancy require fire detection?
Does the building have sufficient means of egress per the current code?
Is elevator system control provided?
Are emergency lighting systems and exit lights provided as required by current codes?
Are automatic sprinklers required by the current code?
Is a standpipe system required by the current code?
The above list deals with some of the building code questions. A second area of concern for many building owners is meeting the requirements for American with Disabilities Act (ADA) requirements. These can include accessible entrance, accessible restrooms, elevators, ramps, and changes to elevator controls and building signage.
If you feel you would need funds to address these issues in the event of a large loss at your facility, then you need ordinance and law coverage.
What Values are Needed?
Ordinance and law coverage generally has three distinct limits.
The limit for covering the undamaged part of the building that must be removed to meet code requirements
The increased costs to repair or replace parts of the building that are required to be upgraded to meet the current codes.
The cost to demolish and clear the site if required by code.
The limit for the first coverage is normally included in the overall building Replacement Cost (RC). It is important to use replacement costs in this instance. If you are insuring to Actual Cash Value (ACV), the values will not be adequate to include the code upgrades. If you need help with these valuation terms, see our post Valuation Clauses- What will it pay?
The coverage amounts for increased cost of construction and the demolition are generally set numbers and may be built into the policy via supplement coverage or a broadening endorsement. Evaluate these limits and if you have significant exposure to upgrades, assess the value of the needed upgrades.
The Driehaus Difference
Our area has a rich supply of older and historic buildings. These buildings offer an architectural diversity that makes our neighborhoods special. With these buildings there is an inherent exposure to loss and the potential need to upgrade to meet current codes. The insurance professionals at Driehaus Insurance Group recognize this exposure and can help you understand the need for coverage and what limits to carry. Reach out to us on the internet at www.dreihausins.com or call us at 513-977-6860