If you answered YES, there is some important information you should know.
In most parts of the United States, buildings are older than the people who use them. Right around the corner from my apartment in Schenectady, NY is one of the oldest residential neighborhoods in the country, known as The Stockade. Many buildings there were built sometime in the 1800’s and a few date back to the 1700’s. Renovations have provided new roofs, wiring, plumbing, and heating systems, but the basic structures of the buildings have not changed.
We see our clients renovate and re-purpose their buildings frequently; non-profits change old factories into apartments, entrepreneurs turn Victorian mansions into boutique inns, and homeowners gut and renovate. Many of these clients know to purchase a “replacement cost” policy so that if there is extensive fire damage to the roof, for example, the insurance company is obligated to pay for a new roof, even though the home is not new.
What many building owners do not realize is that extensive damage may necessitate more than gutting the building. Sometimes parts or all of the house must be torn down and new structures put into place. In these situations, owners of old buildings can be faced with steep costs if they are required by the municipality to build new structures that are up to building code. Many buildings have been “grandfathered” into acceptance because they have been in use for so long, but if they are partially or completely destroyed, the municipality may have the right to demand the new structure be in compliance with all current building codes. Building codes change almost yearly, and these changes can force a building owner to build a much more costly structure than the one he or she lost.
For example, Merriam’s current office space was designed in 2004 and built in 2005. Within that short span of time, the building owners had to incur an additional $200,000 of expense due to a change in building codes — because the elevator needed to be moved into its own alcove with fire doors! Similarly, some of my clients have told me they know they would be required to install water sprinklers throughout their building, should it ever need to be rebuilt.
Many insurance purchases do not realize these additional costs are not automatically covered in a building policy. In fact, they are specifically excluded in a standard policy. Thankfully, many of our high-quality companies include some “Ordinance or Law” coverage in the policy, but not all do.
If you are a building owner, I recommend that you consult a trusted contractor to get a rough idea of what it might cost to rebuild a building like yours up to current code. Once you have obtained that information, if you don’t know where to go next, contact us and we can work with you to add a satisfactory amount of Ordinance or Law coverage to your policy.
Latest posts by James Dick, CPCU, AAI (see all)
- Bundling Your Insurance: What You Need to Know - January 17, 2019
- Merriam Insurance Partners in Cutting-Edge Remote Sensor Program - January 15, 2019
- Uninsured and Underinsured Motorists: What you need to know - December 18, 2018