Below is an informative piece about Ordinance Law Coverage. Keep reading to learn more about this special coverage and how it applies to commercial real estate.
What is ordinance or law coverage?
This is one of the more important pieces of property insurance coverage that gets ignored, or at best, is not truly understood by property insurance buyers and many times by insurance agents.
Not all property insurance includes these coverage. This type of coverage is usually offered as an add-on or optional endorsement on a standard policy.
Coverage Ordinance coverage usually comes into play when a property in in a non-conforming zoning issue. Most municipalities require a building to be demolished if a property is damaged beyond 51%. This of course can vary city to city. Without Coverage A, the insurance company will only owe for the portion of the property that has been damages. Coverage A will pay for the section of the building that has not been damaged. Listed below is the actual definition.
- Coverage A : Coverage for Loss to the Undamaged Portion of the Building
With respect to the building that has sustained covered direct physical damage, we will pay under Coverage A for the loss in value of the undamaged portion of the building as a consequence of enforcement of an ordinance or law that requires the demolition of undamaged parts of the same building.
Coverage B: After a building is determined that demolition is necessary. Coverage B will pay for the demolition; listed below is the actual definition
- Coverage B: Demolition Cost Coverage
With respect to the building that has sustained covered direct physical damage, we will pay the cost to demolish and clear the site of undamaged parts of the same building, as a consequence of enforcement of an ordinance or law that requires the demolition of such undamaged property.
Coverage B is the type of ordinance coverage that most property owners will see more often. New building ordinances require additional or changes to properties as they are being rebuilt. An example of these are ADA requirements, or copper being installed to replace aluminum. The definition is listed below.
- Coverage C : Increased Cost of Construction Coverage
With respect to the building that has sustained covered direct physical damage, we will pay the increased cost to:
- Repair or reconstruct damaged portions of that building; and/or
- Reconstruct or remodel undamaged portions of that building, whether or not demolition is
When the increased cost is a consequence of enforcement of the minimum requirements of the ordinance or law.
- This coverage applies only if the restored or remodeled property is intended for similar
Occupancy as the current property, unless such occupancy is not permitted by zoning or land
Use ordinance or law;
- We will not pay for the increased cost of construction if the building is not repaired,
Reconstructed or remodeled.