Ordinance or Law Coverage: Code for Recovery!



...cost of reconstruction at the new premises, or (2) the limit of insur- ance shown for Coverage C in the endorsement schedule.

Payment is made under Coverage C only after the property has been repaired or replaced on the same or another site “as soon as reasonably possible” after the loss or damage, not to exceed two years (unless the time period is extended by the insurer in writing). No coinsurance is applicable to either Coverage B or C, but 80 percent or higher coinsurance is required under the basic building coverage, including any loss under Coverage A. If an agreed value clause is selected, the coinsurance percentage may be suspended, but with the recent use by insurers of a margin clause in relation to blanket insurance, the agreed value provision may see more limited use.

None of these three coverages applies when (1) an insured fails to comply with a code requirement that existed prior to a loss; and (2) an insured must incur costs because a law requires it or others to respond to or assess the effects of pollutants.

Fungus, Rot or Bacteria Exclusion Added

Newly added with the 2002 edition of the Ordinance or Law Coverage endorsement CP 04 05 is the exclusion, not previously applicable, excluding the costs associated with any ordinance or law requiring the insured to respond in any way to “fungus,” wet or dry rot, or bacteria.

This exclusion applies to Coverage A, B and C and precludes not only the enforcement of any ordinance or law that requires demolition, repair, etc., of covered property from contamination by “pollutants,” as well as due to the presence of “fungus,” wet or dry rot, or bacteria, but also the costs associated with testing, monitoring, cleaning, removing, containing or detoxifying or neutralizing any of them.

The term “fungus” is defined in standard ISO endorsement CP 04 05 to mean “any type or form of fungus, including mold or mildew, and any mycotoxins, spores, scents or by-products produced or released by fungi.

How Much Coverage is Needed?

Once the need for Ordinance or Law Coverage is established, the question must be raised: How much of each coverage is needed?

For Coverage A, if demolition may be required after a substantial loss and the intent is to rebuild afterwards, the basic amount of insurance should equal 100 percent of the anticipated replacement cost of the building. If the property would not be replaced, then 100 percent of the actual cash value is called for. Each of these assumptions presumes that there is a significant likelihood that under the worst circumstances the loss could reach or exceed the percentage stipulated in the code...

1. Endorsement CP 04 05 02m Copyright, ISO Properties, Inc. 2001.