Many additional claim costs can result from the enforcement of ordinances or laws, the standard commercial replacement cost property policy will not cover the following.

  • The value of the undamaged portion of a building when the code requires it to be demolished. A $1,000,000 building is 50% burned in a fire, and the local code requires that the undamaged remainder of the building be demolished. The standard insurance policy will not pay for the undamaged portion of the building to be destroyed and the debris removed.
  • The increased cost of construction due to the enforcement of building ordinances or laws for (a) the undamaged portion, (b) the damaged portion, and (c) items excluded from the standard policy
    • Here are three big problems:
      • No coverage for bringing the undamaged portion up to code. Let's imagine that the $1,000,000 building is 40% destroyed. In this case, the local building code requires that the undamaged 60% of the building also be brought up to code at a cost of $60,000. The standard replacement cost policy would not pay the $60,000.
      • No coverage for bringing the damaged portion up to code.  For example, assume that the above $1,000,000 building burns to the ground and that the portion of the replacement cost that is a result of bringing the building up to code is $100,000. The unendorsed replacement cost policy would pay only $900,000 for the building damage and would not provide the $100,000 necessary to bring the building up to current code.
        • No coverage for foundations, etc. -If a building is destroyed, the local code will often prohibit the reuse of the building foundations. The standard replacement cost policy excludes coverage on the cost of building foundations and pilings, underground pipes, flues and drains, excavation, grading, and filling. (It does this, presumably, because they are not damaged in most losses.

How do you protect yourself?  Insist that your agent endorses on Ordinance and Law coverage onto your policy.  You may generally choose the limits that you are comfortable with for additional annual premium.  

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