In the aftermath of a major property loss, home and business owners attempting to rebuild can be faced with the additional cost of complying with current building codes. Policyholders either business or homeowners are often shocked to learn that standard insurance policies won’t help pay for the required upgrades. Since property insurance coverage is based on either Replacement Cost(RCV) or Actual Cash Value (ACV) of the pre-damaged property, these particular upgrades and associated costs are not included in the coverage.
What Is Building Code Upgrade Coverage?
If your home or business was built 5 years or 10 years ago, it’s more than likely no longer compliant with current building codes. For example, let’s assume your home is destroyed in a fire. When it’s rebuilt, it will have to comply with current building codes. This often means an increase in the costs of rebuilding your home. Unfortunately, these extra costs are normally not covered in a standard homeowners insurance policy. In order to be covered, you’ll need to request a building code upgrade endorsement (also known as Law or Ordinance coverage) for your existing policy.
What Codes might I have to comply with?
Building Codes vary by area and are in place to protect public health, safety and general welfare. These standards are enacted and enforced by a local government and can encompass the following:
- Americans with Disabilities Act (ADA) Regulations, e.g. elevators, ramps, handicapped restrooms
- Electrical, plumbing, and other mechanical systems
- Energy provisions/consumption
- Exits – stairs, halls, etc.
- Fire walls and fire resistant materials
- Foundations and other structural components
- Minimum height requirements
- Sprinkler systems
An Essential Tool for Recovery
A Building Code Upgrade endorsement “provides coverage for the increased costs associated with making a damaged or destroyed property compliant with current building code standards.” Property owners are not expected to update their property every time a new code is enacted; however, if the property needs to be rebuilt due to a disaster then it must meet the current regulations in place at the time of the loss– which can be extremely costly.
Building Code Upgrade coverage is crucial to a property owner’s recovery from a disaster. We recommend meeting with your agent or broker to fully understand what is covered or excluded from your policy, assess your property’s risk, and add on any applicable endorsements necessary that will aid in your potential recovery.
