(3) Increased cost of reconstruction—the added cost to repair or rebuild in accordance with the current code. This may include such things as installing a sprinkler system or other fire protection equipment in a previously unprotected building, rebuilding with a heavier class of construction, i.e., fire resistant construction replacing brick, wood joint construction, or redesigning to meet earthquake or hurricane resistant standards.
Often included in this cost will be extensive architects’ and engineers’ fees needed to determine what will be required to meet current code requirements. Because time is of the essence in getting construction under way, premium prices will often be involved in this work. But in applying the exclusion to these costs, only those costs involved in upgrading to meet code requirements are excluded, while the routine architects’ and engineers’ fees associated with rebuilding or restoring the property after loss—even though involving premium prices—are covered unless the policy contains the now archaic architects’ and engineers’ fees exclusion.
The question naturally arises at this point: How can we determine whether the exclusion will apply in any given case and what will be its probable effect on a loss adjustment?
Agents, brokers, risk managers and consultants are well advised to become familiar with local and state building and zoning laws and with the construction and occupancy details of any property with which they are involved. The problem is that it is not always easy to determine the precise, applicable codes or laws.
Consultation with the city or county building department will often be the most helpful in this regard. These officials may even be aware of federal laws that might come into play or be able to offer the names of persons who are knowledgeable in this area.
Some basic questions should be raised:
As an alternative, it might be advisable for agents, brokers and consultants to recommend that clients seek the assistance of competent attorneys involved in real estate law.
Given answers to these questions it is then possible to construct a “worst case scenario” involving the effects of these laws in the event of possible loss to the property. Based on this scenario, appropriate insurance can then be arranged, nullifying the Ordinance or Law Exclusion and replacing it with one or more of the three coverage extensions available to provide adequate protection.