10 ADJUSTINGTODAY.COM Similarly, in 2012, ISO introduced an additional coverage for “increased cost of construction” in its Building and Personal Property form, the base form for an ISO-based commercial property policy. Like the homeowners ordinance or law coverage, the commercial increased loss of construction coverage pays up to a built-in limit (the lesser of $10,000 or 5% of the limit on the damaged building), provided the building is covered on a replacement cost basis. Unlike the homeowners coverage, however, the commercial increased loss of construction coverage pays only for the additional cost of restoring damaged property to current codes; it does not pay for loss to undamaged property. Questions remaining For all the detail in the various insurance policy provisions addressing losses due to the enforcement of building ordinances or laws, there are still fundamental questions regarding the exposure that can only be addressed on a case-bycase basis according to the specific circumstances of a law. What is the nature of the law? Standard insurance policy language generally defines a building ordinance or law as a measure “regulating the construction, use or repair of any property,” or words to that effect. Ordinance or law provisions were developed with building codes and zoning regulations in mind, but they can respond to other types of building laws. Most notably, the 1990 Americans with Disabilities Act (ADA) and its state and local analogs are designed to open opportunities to people with physical disabilities, not to regulate building safety. Nonetheless, ADA mandates regarding handicapped accessibility directly regulate the construction and reconstruction of buildings. To cover that exposure, ISO provides endorsement CP 15 31 Ordinance or Law—Increased Period of Restoration, which extends the period for restoring operations to include additional time needed to repair or reconstruct property to comply with a building ordinance or law. Another situation in which property owners may find themselves underinsured for their actual losses can come amid conditions of “demand surge.” Demand surge happens when a large number of properties in a single area suffer damage, resulting in sharply increased demand and rising costs for repairs. To address this situation, insurers have access to the ISO endorsement CP 04 09—Increase in Rebuilding Expenses Following Disaster. CP 04 09 provides additional insurance for damage to covered buildings in situations where the cost of materials and labor have increased following a federally or state-declared disaster. Among other things, the endorsement expressly allows up to 20% of the additional insurance to cover costs under Coverage C of the Ordinance or Law endorsement (CP 04 05). Built-in coverage As building codes proliferate and enforcement becomes more rigorous, insurers have moved to build some degree of coverage for building upgrades into standard insurance policies. In 2000, ISO introduced an additional “ordinance or law” coverage in Homeowners policy forms. This additional coverage pays for increased costs of reconstruction due to enforcement of an ordinance or law that regulates the construction, renovation, demolition, etc., of damaged or undamaged building property. The built-in limit for this additional coverage is 10% of the limit for the insured residence; the limit can be increased by adding an endorsement to do so.
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