You are the owner of a building that is damaged by a small fire. The building is covered by a standard commercial property policy, so you submit the claim to your carrier.
Meanwhile, the contractor you hired surveys the damage and says that in order to make the repairs, you will need to redesign the floorplan to meet the requirements of the Americans with Disabilities Act (ADA). The additional costs to design and rebuild the damage area are steep, but you submit the information to the insurance carrier confident that the costs will be covered. To your dismay, the insurance adjuster tells you that only $10,000 of the additional costs are covered and you are left on the hook for the remainder.
This is a straightforward example of a coverage gap caused by the ordinance or law exclusion found in most commercial property policies. A property policy agrees to reimburse the insured or replace the property with like kind or quality. This fails to take into account the possibility that like kind or quality is no longer an option due to municipal codes or ordinances.
Luckily, ordinance or law coverage can be easily added to your commercial property policy. Ordinance or law coverage adds regulatory costs back onto the property policy as a covered cause of loss. The coverage consists of three parts:
- Coverage A pays for the loss in value of the undamaged portion of a building which needs to be demolished due to the enforcement of an ordinance or law. If your building sustains partial damage but the city requires you to demolish the undamaged portion, then this coverage would come into effect.
- Coverage B pays for the cost to demolish and remove the undamaged portion of a building. Your debris removal limit only covers the damaged portion of the building, so this coverage is necessary to pay for the rest.
- Coverage C pays for additional costs resulting from construction requirements set by an ordinance or law. This coverage would help pay the additional redesign and construction costs mentioned in the example above.
A standard commercial property policy only provides ordinance or law coverage up to $10,000 or 5% of the limit, whichever is less (CP 00 10). It is important to add sufficient ordinance or law coverage to your property policy to prevent you from paying the costs out of pocket. The Commercial Insurance Consultants at Hausmann-Johnson Insurance can help you determine the ordinance or law coverage you need to adequately insure your commercial properties.
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