By Lawrence Berman, Berman Adjusters
When you purchase insurance to protect your investment and/or commercial property, are you aware of the fact that the cost to comply with building codes is usually excluded? Many property owners are not. They are only confronted with this issue after a fire or other damage claim occurs. The cost to bring an older building into compliance with current life-safety regulations can be substantial.
Building codes change periodically and may encompass electrical wiring, sprinkler systems, emergency lighting systems, structural improvements and handicap accessibility. As a property owner or property manager, it is very important that you understand the Ordinance or Law Exclusion. Usually the clause states that the insurance company will not pay for loss or damage caused directly or indirectly by: "The enforcement of any ordinance or law, (1) Regulating the construction, use or repair of any property; or (2) Requiring the tearing down of any property, including the cost of removing its debris,"
This exclusion eliminates coverage for building codes which regulate construction, electrical, plumbing, life safety, zoning laws, etc. The normal replacement cost coverage provided is intended to give similar construction to what you had prior to the damage incident. Even when building codes allow reconstruction with similar materials and plan design, they may also require demolition of the undamaged section of the building.
This might be mandated if the structure is damaged beyond a specified percentage of its value (i.e., 50%., 60% or 70%). Also, issues involving pollution, environmental problems, septic systems, earthquake, hurricane and flood related construction would be excluded. Many municipalities have provisions allowing "grandfathering" which permits existing structures or occupancies to be used without upgrading to current requirements. Once a building is substantially damaged, compliance with all current building codes will be mandated in order to repair or rebuild.
You should seriously consider adding Ordinance or Law Coverage to your existing replacement cost policy so that if a property damage loss occurs, you will have insurance to pay all of the costs necessary to rebuild in compliance with the existing codes. The endorsement contains the following three coverages: Coverage A - the loss of value of the undamaged portion of the building when it must be demolished due to code requirements; Coverage B - Demolition Cost, which requires a specific amount of insurance; and Coverage C - Increased Cost of Construction, which also requires its own specific amount of insurance.
The current Ordinance or Law Coverage endorsement includes an exclusion for any costs associated with the enforcement of any ordinance or law regulating pollution controls or cleanup. In order to detemrnine the amount of Ordinance or Law Coverage, you might choose to apply a worst case scenario to each of the three sections - A, B and C. Once you have calculated the maximum amount of coverage that you might need, your insurance agent or broker should secure the necessary policy endorsement.
It might he helpful to have a code consultant and/or an insurance advisor assist in preparing an analysis of what codes might apply to your property and include this in a disaster recovery plan. The increased costs necessary to rebuild in compliance with existing codes may be substantial. As a real estate professional, you should be prepared for a catastrophe by purchasing adequate Ordinance or Law Coverage insurance to augment your replacement cost policy.
Lawrence Berman, SPPA is president of Berman Adjusters, Inc. dba Berman Adjusters, vice president, director and founding shareholder of TAG/The Adjusters Group, past president of the National Association of Public Insurance Adjusters and is secretary of the Massachusetts Association of Public Insurance Adjusters.
By Lawrence Berman, Berman Adjusters
Most people in the real estate industry are not aware of this State Board. However, the regulations which it proposes and enforces has a direct bearing on all buildings located within the Commonwealth of Massachusetts. The board held its first meeting in January 1946 and as such, Massachusetts was the first state to create a uniform fire code.
In 1994, the Commonwealth of Massachusetts embarked upon a reorganization of the Office of Public Safety. As a result of that action, the Department of Fire Services was created in July 1996. The Fire Services Commission now has the responsibility of selecting a state fire marshal as opposed to the prior system of appointment by the governor. Stephen D Coan is presently the State Fire Marshal and prior to being appointed to that position, had been the director of the Fire Training Academy, which is a nationally recognized facility located in Stow, Mass.
The Board of Fire Prevention Regulations, pursuant to Massachusetts General Laws Chapter 22D Section 4, is a state regulatory board charged with promulgating the Massachusetts Fire Prevention Regulations, 527 CMR 1-50 (also known as the Massachusetts Comprehensive Fire Safety Code). The purpose of this code is to prescribe the minimum requirements and controls to safeguard life, property and public welfare from the hazards of fire and explosion created by the storage, handling or use of substances, materials or devices or from other conditions hazardous to life, property and the public welfare.
The Board of Fire Prevention Regulations is comprised of 14 members in total with these members being appointed by the governor for a term of six years. The state fire marshal is a member who serves in an ex officio position. Along with the state fire marshal, the board is made up of three fire chiefs (chief of department) which must come from the Fire Chiefs Association of Massachusetts, a member of the Massachusetts Fire Prevention Association, four registered professional engineers, a representative of the public, a graduate chemist, an inspector of wires, a representative of the blasting industry and a licensed electrical contractor.
This board meets the first Thursday of every month in a meeting which is open to the public. The public has an opportunity to address the board to present any comments or proposed amendments to regulations at two statutory public hearings which are held each year. The board also holds public hearings at other times throughout the year, as deemed necessary in order to amend or repeal any regulations.
If you have any questions regarding the board and/or any fire prevention regulations, please contact Maura Ware, legal counsel and executive secretary to the board, Department of Fire Services, P.O. Box 1025, State Rd., Stow, MA 01775. Any persons interested in requesting formal interpretations of the board or to have proposed amendments that they would like the board to consider, should address their concerns in a letter to chairman of the board, V. Carlisle Smith, at the above address. Hopefully, this information will be helpful to people in the real estate industry.
By Lawrence Berman, SPAA, Berman Adjusters
Most people buy insurance to protect their business property. Trying to collect the full amount on a claim may be a difficult exercise. Many insurance agents do an excellent job of providing insurance to protect your property. However, priorities can change when it comes time to collect on a large claim. This occurs because there may be conflict of interest. An insurance agent is your friend when you purchase insurance. When a loss occurs, you then realize that the agent represents the insurance company that is seeking to minimize its payment to you. Some people mistakenly feel that insurance companies will provide a fair estimate and offer of your damages. Others understand that this scenario may be similar to allowing the I.R.S. to prepare your tax return for you.
As investment property owners, you should consider purchasing All Risk insurance, which provides coverage for damages occurring from fire, water, windstorm and vandalism. You should also purchase coverage which includes "demolition and increase cost of construction" which will cover you so that you may bring a building up to code after a loss occurs. Other important coverages may be Blanket Insurance, Agreed Amount Insurance, Loss of Income Including Extra Expense Coverage, Backup of Sewers and Drains, and possibly Flood and Earthquake Insurance.
As claims increase in size, the procedure often becomes more complex. Most policyholders don't have the time or expertise to submit a complicated insurance claim. They usually encounter problems in properly documenting and valuing the damaged property. If you're not an expert in property damage valuation and/or you do not have the time to reconstruct destroyed records, you may be in the uncomfortable position of having to accept the insurer's offer even though you know your damage may be greater than their assessment.
Most people are not aware of public insurance adjusters and/or loss consultants who may be hired on a fee basis to represent the policyholder. These adjusters represent the consumer and are knowledgeable in property damage evaluation and insurance claim negotiations. As a profession, it is increasing in acceptance as more apartment and commercial building owners hire public adjusters so that they may avoid hassling with their insurance company, or solely relying on the insurance company's adjuster. In many cases, the insurance companies may be hostile, adversarial, and may attempt to deny liability for your damage claim.
Public adjusters perform many functions, including review of your policy coverage, a coordinating emergency repairs and post-loss cleanup, suggesting strategies for reducing damage and recommending appropriate courses of action to return your building to pre-loss conditions.
Property insurance policies normally contain many clauses and exceptions which could have an important effect on your ability to collect an appropriate adjustment from the insurance company. Very few policyholders ever read their policies, nor do they have their insurance agents explain the nuances to them at the time they purchase the coverage. For this reason, the insurance company has a big advantage over the policyholder when the loss occurs. Knowledgeable, experienced public insurance adjusters are experts in interpreting and understanding policy provisions. They also provide an outstanding service in valuing your property so that you get a fair settlement from your insurer.
In most states, public adjusters are licensed and regulated by the state's insurance department. Many states require public adjusters to pass licensing examinations and to be bonded. Most of the more knowledgeable public adjusters are members of and have obtained an accreditation from the National Association of Public Insurance Adjusters.
Lawrence Berman is president of Berman Adjusters. He is vice president and founding shareholder of TAG/The Adjusters Group. He is also past president of the National Association of Public Insurance Adjusters. He is currently secretary of the Massachusetts Association of Public Insurance Adjusters. He is also a member of the Massachusetts Board of Fire Protection Regulations.