Most commercial property owners purchase insurance to rebuild the structure after a loss, but what happens if you are now required to comply with local ordinances to rebuild? Though this may not sound significant, these costs can be substantial and often not covered by standard commercial policies.

What is Building Ordinance or Law Coverage?

Building ordinance or law coverage provides additional protection for building owners after a covered claim for the extra costs required by local ordinances to bring a building up to code.

This is critical coverage for property owners, especially in New Hampshire, where buildings tend to be older and grandfathered for current building code compliance. That is- until a significant claim occurs.

What can I expect after a claim if I don't have building ordinance or law coverage?

Most commercial property policies without building ordinance coverage will pay to rebuild an insured property in a covered loss, with like, kind, and quality of materials, paying only to rebuild it as it was just before the claim.

This means that if any new construction or safety features are required, you would be responsible for paying for them yourself.

What are typical updates covered by building ordinance or law coverage?

Common ordinance or law updates would likely involve compliance with the Americans with Disabilities Act, such as adding a ramp to an entryway, widening doorways, modifying public restrooms, or removing architectural barriers to allow a wheelchair to move easily throughout the building. 

Another common building ordinance requires installing a sprinkler system, especially in a larger commercial space. 

What if building codes require my commercial building to be torn down after a significant loss?

Ordinance or Law Coverage can also help pay for demolishing and rebuilding an undamaged portion of a building if mandated by local ordinances. 

For example, if 55% of your commercial property is damaged by fire, and local ordinances necessitate tearing down the remaining 45% to rebuild. The standard commercial property policy would only cover the 55%. The costs associated with demolishing and rebuilding the remaining 45% would only be covered if you have Ordinance and Law Coverage.

An area of concern is that local jurisdictions define "major" differently. This could mean if the building is damaged beyond a set percentage of its value or square footage. Neither you nor the insurance company have to agree with their determination. If the municipality says it has to come down, it will have to come down regardless who pays.

Do most commercial policies include coverage for building ordinance or law coverage?

Some policies automatically include building ordinance or law coverage, but many do not. Some carriers also include it in a coverage enhancement endorsement that provides several additional coverages if added onto the policy. Because of the importance of this coverage, it is strongly suggested you speak with your agent to find out.

Do I need building ordinance or law coverage if I own a new building? 

It is strongly suggested that all commercial property owners have building ordinance or law coverage because it is unknown when a new law will require a change to the building code. However, what we do know is that time flies and the present turns into the past very quickly.