Misunderstood Property Ins. Issues (Part 1)

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Building ordinance as it relates to buildings and personal property

Regarding building ordinances, any building regardless of age can be affected. Building ordinances regulate HOW buildings are built or re-built. Ordinances affect building costs, time to rebuild, demolition, and debris removal.

Ordinances come in three forms:

Municipal and/or County Building Codes

State Building Codes

Federal Building Codes

Municipal and/or County Building Codes take uniform building codes and amend them to reflect the particular needs of the community.

State Building Codes regulate specific industries for usage and building quality, such as for hospitals, schools, or public buildings.

Federal Building Codes are imposed on federally sponsored housing and governmental buildings. Though the Americans with Disabilities Act (enforceable July 26, 1992) is not a Building Ordinance Law per se, it does contain requirements for building in compliance with the federal act.

Building ordinances regulate everything about HOW a building is to be constructed:

Plumbing

Electrical

Structural support

Grading

Sloping

Roofing

Parking spaces

Set backs

Flooring

Insulation

Landscaping

Signs (placement, size, and type)

Materials used vs. occupancy

ADA

Miscellaneous

Causes Of Loss - Special Form CP 10 30 06 95
Certain losses or damages might not be covered.
"B. Exclusions
1. We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss.
a. Ordinance or Law. The enforcement of any ordinance or law:
(1) Regulating the construction, use or repair of any property; or
(2) Requiring the tearing down of any property, including the cost of removing its debris.

This exclusion, Ordinance or Law, applies whether the loss results from:
(1) An ordinance or law that is enforced even if the property has not been damaged; or
(2) The increased costs incurred to comply with an ordinance or law in the course of construction, repair, renovation, remodeling or demolition of property, or removal of its debris, following a physical loss to that property."

Note: The exclusion is for any property, not just for buildings.

Building ordinance and law coverage options
Any policy providing a different set of perils coverages needs to be endorsed with ordinance coverage. That goes for Commercial Property, Business Owners, Boiler & Machinery, Difference in Conditions, Builder's Risk including Soft Cost, etc. Ordinance coverage provides coverage due to direct physical loss by a peril insured against.

Ordinance or law endorsements provide direct physical loss coverage for BUILDINGS ONLY. There is no coverage applicable for increased ordinance or law requirements for machinery, equipment, etc.

Ordinance or Law Coverage CP 04 05

Coverage A: Coverage for loss to the undamaged portion of the building

Coverage B: Demolition cost coverage

"If a Covered Cause of Loss occurs to covered Building property and Demolition Cost Limit of Insurance is shown...we will pay..."

Coverage C: Increased cost of construction coverage

"If a Covered Cause of Loss occurs to covered Building property and an Increased Cost of Construction Limit of Insurance is shown in the Schedule above, we will pay for the increased cost to repair, rebuild or construct caused by enforcement of buildings, zoning or land use ordinance or law if the property is repaired or rebuilt. It must be intended for similar occupancy as the current property, unless otherwise required by zoning or land use ordinance or law.

"However, we will not pay for the increased cost of construction if the building is not repaired or replaced."

"B. We will not pay under this endorsement for the costs associated with the enforcement of any ordinance or law which requires any insured or others to test for, monitor, clean up, remove, contain, treat, detoxify or neutralize, or in any way respond to, or assess the effects of 'pollutants'."

Rate modification for building ordinance coverage
"Rate Modification
a. Causes of Loss Other Than Earthquake
(1) Coverage A-Coverage for loss to the Undamaged Portion of the Building. Multiply the 80% or higher coinsurance building rates by l.l5.
(2) Coverage B-Demolition Cost Coverage. Use the 80% coinsurance building rates without further modification. Multiply the rate by the limit of insurance for Demolition Cost Coverage to obtain the additional premium.
(3) Coverage C-Increased Cost of Construction Coverage. Use the 80% coinsurance building rates without further modification. Multiply the rate by the limit of insurance for Increased Cost of Construction to obtain the additional premium."

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Not only are policy forms, clauses, rules and court decisions constantly changing, but forms vary from company to company and state to state. This material is intended as a general guideline and might not apply to a specific situation. The authors, LunchTimeCE, Inc., CEfreedom, and Insurance Skills Center, and any organization for whom this course is administered will have neither liability nor responsibility to any person or entity with respect to any loss or damage alleged to be caused directly or indirectly as a result of information contained in this course.