What are “Ordinance or Law” exclusions? How do they impact my policy? Let’s get started:
When rebuilding after a severe loss, adhering to continually changing building codes and environmental laws can quickly turn things into the worst case scenario.
This is because even when the property insurance you have purchased is sufficient to cover full replacement, the “Ordinance or Law” exclusion in your policy means that your insurer is not liable to pay for any of the additional costs that may be required to be in compliance with updated regulations.
Often these costs can be extremely onerous, adding 50 percent or more to the budget of the project. Understanding these five areas of loss that are affected by the Ordinance or Law Exclusion will help you purchase the right coverage to address your needs and get you on track to recovery.
Loss of Value
If damage to a structure is significant, building codes often require that the remaining portion be modified or demolished before reconstruction can begin. This can be the case even when the law allows reconstruction using the same materials and/or design as the existing structure. Sometimes the current building code or zoning laws may not even permit reconstruction at the existing site. In these instances, the loss of value to the undamaged portion of the building would be uninsured.
Cost of Demolition
Also excluded would be the cost of the required demolition of any undamaged portions of the structure and removal of the debris. While insurance would still cover the demolition costs of the damaged portions, this still typically leaves the property owner responsible for between 40 and 50 percent of the total cost of the demolition.
Increased Cost of Reconstruction
These costs fall under many categories and can multiply quickly for any reconstruction project. They may include updated fire safety systems, electrical, plumbing, and more expensive building materials. Depending on the location, new earthquake, hurricane, and flood related standards may be required as well. Additionally, engineers and architects will be needed to determine the materials and construction practices required to meet current codes and laws. Their fees will be a significant contributor to the overall cost.
Environmental and Health
In recent years, many new laws have been passed at the federal and state levels with the goal of addressing environmental pollution. When applied to reconstruction, the practices required by these regulations can often mean greatly increased cost. They may require decontamination, remediation, or environmental testing be carried out. New or updated structures may also be required to have pollution control devices installed. This applies not only to pollutants, but also to any required testing, monitoring, or removal of fungus, wet or dry rot, or bacteria.
Sometimes the greatest loss is not the damage to the property itself, but the loss of income resulting from delays in construction. The need to revise plans or extend schedules in order to be in compliance with current building codes and laws may mean that it will be a long time before your business can resume operations. The Ordinance or Law Exclusion means that any lost income during this period is excluded from Business Income and Extra Expense coverage.
Have questions about your property insurance claim? Feel free to contact Stark Loss for more information about how a Public Adjuster can help.