Building standards are codified at the state level. Local building departments are responsible for establishing policies that govern the applicability and enforcement of building codes.
Generally speaking, a building is considered “to code” if all work requiring a permit has one. It is the permit process itself that gives local building authorities the opportunity to enforce codes that either were not in effect at the time the last permit for the building was secured, or enforcement was not required due to the minimal scope or scale of the work performed.
There’s a risk of increased costs due to the enforcement of codes every time work is performed that requires a permit, regardless of the age of the building or the reason for repair. But an older building, even one fully compliant as of its most recent permit, will likely have to do some catching up at some point. If the reason for the permit is to repair substantial building damage that might partly be paid for by the owner’s insurance, there’s a very good chance building corrections, a euphemism used by building department staff, will be required.
Though standard commercial property forms don’t cover increased loss due to the enforcement of building ordinances (there is $5,000 in token coverage included in the Additional Coverages section), coverage is readily available by endorsement. Limits for Ordinance or Law Coverage can be tailored to the individual risk and are reasonably priced. Some insurers choose to include a meaningful limit, typically up to $100,000.
There are some important caveats to Ordinance or Law Coverage. For one, coverage does not apply to an increase in loss that results from the enforcement of code the property owner was required by law to comply with before the loss occurred and had not completed. A typical example is work (repairs, additions, alterations) performed without a permit. The building standards that would have been enforced had a permit been obtained are still required of the property owner. Some insurers may provide a minimal limit ($2,500) for this exposure, but most do not.
Equally critical to know is that the endorsement for Ordinance or Law Coverage used with standard commercial property policies does not extend to Loss of Income coverages. Delays in rebuilding as a result of the enforcement of building ordinances can have a significant impact on business operations. There is an available endorsement for adding such coverage called ‘Ordinance or Law – Increased Period of Restoration’, which modifies the Business Income and Extra Expense coverage forms. Similarly, it excludes increased loss from delay caused by the enforcement of codes the owner was required to comply with even in the absence of damage to the building.
Interested Readers Wonder …
• I’d like to find the current building codes in my community so that I can better inform my clients as to what they can expect. Can I find my city’s building policies or rules online?
• What limits should I suggest my client consider for Ordinance or Law Coverage?
• A client is facing significant increased costs following vehicle damage to their building that triggered code corrections requiring wheelchair access. They elected not to purchase Ordinance or Law Coverage. Any suggestions for the future?
Building Policies and Rules
Many municipal building departments do provide useful links for the public, and that’s a good start, but keep in mind that local building officials have the authority to make exceptions to their own policies and rules, and do, when they determine it’s in the public’s best interest.
Considering Limits For Ordinance or Law Coverage
Start with some of the more common “corrections” a building department is likely to require before granting a permit. An automatic fire sprinkler system could be $10 – $15 per foot to design, engineer, and install. Count on a minimum of $50,000 if the building has an occupant that serves the public and its restrooms and entrances are not wheelchair accessible. Add something for energy-efficient lighting, water-saving plumbing fixtures, maybe even specific glazing requirements for south and west facing windows. Ask an adjuster what they’ve experienced. Consider limits between $100,000 and $500,000, for older buildings.
Clients Who Opt Out of Ordinance or Law Coverage
First, choose construction professionals (architects, engineers) with experience navigating building department requirements effectively. Second, the best approach for an older building is to submit construction plans which closely resemble the as-built conditions. A common misstep is to submit construction plans that incorporate certain changes the building professional presumes will be required, because, they may not. The building department will review the plans and, ideally, the owner’s engineer will discuss the situation with department staff. It’s at this point that department staff may mandate certain corrections. A building owner facing significant unexpected costs as a result of enforcement does have the option to request appeal due to hardship. These best practices always apply, with or without Ordinance or Law Coverage.
Tips for Managing Building Code Upgrades
Few property owners are experts in engineering and building code requirements. As a result, they tend to trust the advice of the contractors and engineers they hire. This doesn’t always go well. Some engineers will recommend upgrades because they believe the upgrades will be mandated. This can lead to additional costs and upgrades that aren’t always necessary.
To avoid unnecessary and expensive upgrade, it’s smart to submit plans that are as close to the current conditions as possible. The building department may require additional changes or corrections, but this approach reduces the chance of unnecessary upgrades.
A standard property insurance policy does not provide adequate coverage. Building owners should consult with their insurance agent to make certain their property coverage and their loss of business income coverage contemplate additional and unforeseeable costs of complying with building codes that weren’t required of the owner until the building required repairs as the result of a covered loss.
Deans & Homer underwriters are ready to help agents source coverage that meets the needs of their clients and ensure sufficient insurance funds are available to be made financially whole in the event of a covered claim. Deans & Homer’s flagship Premier Building Owner’s Package has broad ordinance or law coverage for structures ($250,000 base limit) and up to 30 months loss of rents built in. This limit can be increased. Contact us for assistance.
