Here is an insurance coverage that like Rodney Dangerfield doesn’t get any respect! More often than not it is misunderstood, misused and/or forgotten. However, on an older building the necessity of this coverage is critical.
If you remember our blog on replacement cost, the insurance company has a contract with you called an insurance policy to replace your building in the event of a covered loss assuming that it is insured to value. The replacement cost value of the building is based on the type of construction: is it a frame built with wood, is it a concrete block or concrete and steel building, what year was it built, square footage and several other characteristics.
Replacement cost requires the insurance company to rebuild the building as it was originally constructed when it was new. But what if the building codes and ordinances have changed since the building was first built? Who pays for code and ordinance changes? If you say the insurance company you would be wrong. Remember, the insurance company has a contract with you to repair or replace the building as it was originally constructed but bringing the building up to code today would be your responsibility unless you carry ordinance and law coverage. This coverage is usually based on a percent value of the building generally starting at 10% and higher. The older the building the greater the value should be to make certain you have adequate coverage in the event of a loss.
There are several components of ordinance and law in a commercial policy that I won’t bring up in this blog. However, this is a very important part of your insurance plan and you should discuss the coverage with your insurance agent to make certain you are properly protected.