By Ryan J. Wellman, AAI – Brown & Brown of Detroit
We construct buildings with a useful life in mind but what happens when a fire burns it down to the ground? We rebuild, right? What many don’t consider is that there may be new building codes that weren’t in effect when the building was originally constructed. Unfortunately, many property insurance policies aren’t equipped to respond to this change. Below are the top three things to keep in mind when securing coverage for your building:
- Ordinance and law coverage is broken down into three parts, each is subject to their own limit:
- Undamaged Portion- This may have to be demolished along with the damaged part of the building and it typically isn’t covered by traditional building coverage.
- Demolition- There is a small sublimit included with the building coverage but most of the time this will be insufficient and you’d likely be left with this expense.
- Increased Cost of Construction- State and Federal building code is updated regularly to reflect changes in policy and safety and this can have a dramatic effect as our infrastructure ages. Examples include sprinklers, ADA (American Disability Act), and hurricane protection.
- If you depend on the physical premises to generate income then attaching ordinance and law to business income is vital as it too is excluded from that section of the property coverage. If there is a delay in the construction due to a building ordinance application, loss of income during this period of restoration would not be covered.
- Each jurisdiction has their own threshold for what constitutes “major damage”, most range from 30% to 60%. This becomes the trigger that decides when a partially damaged building needs to be completely demolished. This will either trigger ordinance and law to kick in or leave you scrambling to grab your wallet.
This isn’t meant to scare but to reveal an aspect about a common insurance coverage that most don’t even think of when they purchase insurance (but should). Our buildings are getting older and technology is increasing and with that comes change. Why not be prepared for change? Because it’s coming.