Given the general availability of optional endorsement CP 04 05, one might ask why automatic increased cost of construction coverage is even necessary. This is an intriguing question, given that the automatic additional coverage is capped at $10,000, whereas the optional CP 04 05 endorsement allows the insured to purchase a limit which will address the exposure for any given building.
According to one source, there are two possible answers. The first is to call the insured’s attention to the need for this coverage at higher limits through purchase of the optional coverage endorsement CP 04 05. The second reason is to reduce the number of potential cases where insureds have been successful in maintaining that increased costs of construction are inherent in replacement cost coverage. 1 This is a common approach insurers take when opportunities exist for insureds to obtain coverage through ambiguities. By providing a small limit automatically, these attempts by insureds are all but thwarted.
Chances are that when an insured suffers a significant loss or damage that triggers the need to upgrade the property to meet current code requirements, the enforcement could increase the time necessary to repair or rebuild the building. With that exposure in mind, insureds should not overlook purchase of the Ordinance or Law Increased Period of Restoration Endorsement CP 15 31. Available with the Business Income (and Extra Expense) Coverage Form, the Business Income (with Extra Expense) Coverage Form and the Extra Expense Coverage Form, coverage is extended to include the amount of the actual and necessary loss the insured sustains during the increased period of suspension of operations. The suspension, however, must be caused by or result from an ordinance or law regulating the construction or repair of any property. It is important to keep in mind that this coverage is triggered by a covered cause of loss occurring to the property.
Of course, if the endorsement (CP 04 05) covering increased cost of construction is triggered, business income and/ or extra expense will likewise be activated. The endorsement, CP 15 31, covering the increased period of restoration occasioned by the insured’s compliance with ordinance or law, should insure...