Property insurance policies invariably exclude property damage due to the enforcement of building codes or ordinances. This gap in insurance coverage can be closed by adding “ordinance or law” coverage. An insured may add ordinance or law coverage to their insurance policy by including two endorsements to their commercial property policy. These endorsements are : 1) Coverage to upgrade the building as required by laws or ordinances and 2) Coverage for the loss of income during the increased time it takes to bring the building into compliance with applicable codes.
For business owners, it is highly recommended for them to add both of these endorsements to their insurance policies. However, it might not be necessary for homeowners to do the same because their insurance policy may already contain such coverage. For example, in Massachusetts, most homeowners insurance policies contain a minimum of 10% of the building coverage as additional ordinance or law insurance. Therefore, Massachusetts homeowners would not need the additional endorsements.
A variety of laws could come into play when a damaged building is repaired or rebuilt, which may include local, state, and federal regulations. Also, there may be restrictions imposed by historical societies on buildings designated as significant and/or historical.
In many jurisdictions, there are requirements that a building with “major damage” must be demolished, even if part of the building may be salvaged. It is important for insurance policyholders to know what code requirements could apply as these may differ according to jurisdiction.
Fortunately, the insurance industry has created insurance policy endorsements that a property owner can purchase. For an additional premium, insurance policyholders may add the endorsements to their insurance policy, which will provide coverage for this exposure.
