Ordinance or Law Coverage: Code for Recovery!



Historic Coverages

The three coverages available are aimed at the three separate areas of exposure outlined earlier in this article. They have a curious history, and adjusters may encounter any of several variations in the coverage available.

Prior to ISO’s introduction in the mid-1980’s of commercial property endorsement CP 04 05, three separate coverages—each provided by a separate endorsement—were available:

Building Ordinance Coverage

In conjunction with the adoption of ISO’s simplified commercial lines forms, Building Ordinance Coverage endorsement CP 04 05 was introduced. It combined the three described coverages into a single coverage.

The endorsement provided no additional insurance as such, but was available only with replacement cost coverage and presumed that the amount of insurance chosen would be high enough to cover demolition costs plus the increased cost of reconstruction in accordance with current code, in addition to normal cost of replacement new-for-old without code considerations.

Ordinance or Law Coverage

The Building Ordinance or Law Coverage endorsement, first introduced in the mid-1980s, gave way to revisions in 1990, 1995, 2000 and 2002. The latest (2002) endorsement CP 04 05 continues to provide three coverages but subject to considerably more conditions than the earlier endorsements.

Coverage A — Coverage for Loss to the Undamaged Portion of the Building. This covers the loss of value of the undamaged portion of the building when it must be demolished to comply with code requirements.

Coverge B — Demolition Cost will pay for the cost to demolish and clear the site of the undamaged portions of the covered building, where the law requires its demolition.

Coverage C — Increased Cost of Construction Coverage, to the extent of an otherwise covered cause of loss, and when increased cost is a consequence of the enforcement of an ordinance or law, will pay—if the building is repaired, reconstructed or remodeled—for (1) the repair or reconstruction of the undamaged portions of the building; and/or (2) the reconstruction or remodeling of the undamaged portions, whether demolition is required or not.

This coverage (C) also applies to the increased cost of repair or reconstruction of: excavations, grading, backfilling and filling; building foundation; pilings; and underground pipes, flues and drains. These items of property, however, remain as property not covered against their physical loss or damage under the building and personal property and other applicable coverage forms.

Coverage, however, only applies when the reconstructed or remod- eled property is intended for similar occupancy, unless a zoning or land use ordinance does not permit it. If a law requires relocation, the most the insurer is obligated to pay is the lesser of (1) the increased...

“As with the property coverage, having determined what impact enforcement of these laws might have, it is necessary to construct a worst case scenario and decide the maximum amount of coverage that might be needed.”