insurance
Understanding Building Ordinance And Law Coverage As An Option On Your Insurance Policy
By David Gordon
Building Ordinance coverage (BOL), is most important for older buildings that would likely be subject to changes in building codes if they should have to be rebuilt after a fire. Because the Bay Area is so populated by buildings older than 30 years, this coverage is especially critical to understand and purchase. In general, only direct loss to the building is covered, not things that must be done just because the building department says so.
There are types of exposures within the building ordinance concept. These coverages can be purchased separately, but it really makes sense to get all 3 of them.
Part A – Undamaged portion of building
This can pay for the undamaged portion of a building, which the building department requires to be demolished after a covered loss before they will allow repairs to begin. The limit of coverage is typically the full building limit if this is included.
An example would be where the building department said that the first floor of a 3 story building where the top 2 floors burned would have to be removed before they would allow re-construction to begin, even though there was not direct damage to the first floor area. Without BOL, there would be no coverage for the first floor as it was not directly damaged.
Part B – Demolition of the undamaged portion
This can pay for the cost to demolish the undamaged portion of the building if required by building laws per example in “A” above. Demolition of the damaged portion building after a covered loss is already included in the basic fire policy.
Part C – Increased Cost to Rebuild
This can cover the additional cost to rebuild the damaged structure with one conforming to current codes if that cost would be higher than normal repairs. Examples would be having to add sprinklers, widen doorways, change the foundation, or make things ADA compliant.
In a recent claim, this exposure more than DOUBLED the total loss. Here’s how. The complex had 3 buildings and one of them was a total loss due to fire and water. The building department said that they had to put in a new foundation not only in the damaged building, but also in the two other buildings that were NOT damaged because they were immediately adjacent. Their engineers determined that if only the one building had a new foundation, the rates of movement bay be so different as to cause damage to all the buildings by their literally colliding with one another.
Whether or not this could really happen is not as important as the fact that it was required and if BOL had not been added to the policy, all of the work to the two “undamaged” buildings would not have been covered. This additional work caused the total loss to go from a little over $2 mill to more the $6 mill as the other two buildings were much larger.
How much BOL coverage do you need? Often there is a small amount of BOL coverage included with the basic policy. It is common for a limit of say $100,000 to be included for parts B and C as needed and part A is typically covered up to the full value of the building. You can usually buy more than that and a rule of thumb I use is to take 10% of the building amount for coverages B and C combined if the building is less than 15 years old; take 25% if it is over 30 years old and take 50% of the building amount or a high blanket limit if the building is over 45 years old.
Cost for these options would range from 10% additional premium to 50% additional premium beyond the standard policy.
Most of the “programs” as discussed in previous articles already provide high limits of from $10 to $75 million as part of their package of standard coverages at no extra charge.
The important thing to remember is that with the “peril” of building ordinance covered, no matter how high of a building limit you have on your policy, that limit would not be available to cover losses due to bulding ordinances or laws as described above. The shortfall could be staggering, and the cost to obtain coverage relatively modest. So it’s worthwhile to take the time to see what your policy has for BOL coverage and make decisions as how much to buy.
David Gordon, CLU is an independent insurance broker who
has been providing insurance products and consulting to commercial property
owners for over 25 years. Feel free to contact us at 650-654-5555 or
DGordon@GordonInsurance.com
for more information on any insurance matter or if you would like to see
a particular subject addressed in future issues.
insurance
Understanding Building Ordinance And Law Coverage As An Option On Your Insurance Policy
Building Ordinance coverage (BOL), is most important for older buildings that would likely be subject to changes in building codes if they should have to be rebuilt after a fire. Because the Bay Area is so populated by buildings older than 30 years, this coverage is especially critical to understand and purchase. In general, only direct loss to the building is covered, not things that must be done just because the building department says so.
There are types of exposures within the building ordinance concept. These coverages can be purchased separately, but it really makes sense to get all 3 of them.
Part A – Undamaged portion of building
This can pay for the undamaged portion of a building, which the building department requires to be demolished after a covered loss before they will allow repairs to begin. The limit of coverage is typically the full building limit if this is included.
An example would be where the building department said that the first floor of a 3 story building where the top 2 floors burned would have to be removed before they would allow re-construction to begin, even though there was not direct damage to the first floor area. Without BOL, there would be no coverage for the first floor as it was not directly damaged.
Part B – Demolition of the undamaged portion
This can pay for the cost to demolish the undamaged portion of the building if required by building laws per example in “A” above. Demolition of the damaged portion building after a covered loss is already included in the basic fire policy.
Part C – Increased Cost to Rebuild
This can cover the additional cost to rebuild the damaged structure with one conforming to current codes if that cost would be higher than normal repairs. Examples would be having to add sprinklers, widen doorways, change the foundation, or make things ADA compliant.
In a recent claim, this exposure more than DOUBLED the total loss. Here’s how. The complex had 3 buildings and one of them was a total loss due to fire and water. The building department said that they had to put in a new foundation not only in the damaged building, but also in the two other buildings that were NOT damaged because they were immediately adjacent. Their engineers determined that if only the one building had a new foundation, the rates of movement bay be so different as to cause damage to all the buildings by their literally colliding with one another.
Whether or not this could really happen is not as important as the fact that it was required and if BOL had not been added to the policy, all of the work to the two “undamaged” buildings would not have been covered. This additional work caused the total loss to go from a little over $2 mill to more the $6 mill as the other two buildings were much larger.
How much BOL coverage do you need? Often there is a small amount of BOL coverage included with the basic policy. It is common for a limit of say $100,000 to be included for parts B and C as needed and part A is typically covered up to the full value of the building. You can usually buy more than that and a rule of thumb I use is to take 10% of the building amount for coverages B and C combined if the building is less than 15 years old; take 25% if it is over 30 years old and take 50% of the building amount or a high blanket limit if the building is over 45 years old.
Cost for these options would range from 10% additional premium to 50% additional premium beyond the standard policy.
Most of the “programs” as discussed in previous articles already provide high limits of from $10 to $75 million as part of their package of standard coverages at no extra charge.
The important thing to remember is that with the “peril” of building ordinance covered, no matter how high of a building limit you have on your policy, that limit would not be available to cover losses due to bulding ordinances or laws as described above. The shortfall could be staggering, and the cost to obtain coverage relatively modest. So it’s worthwhile to take the time to see what your policy has for BOL coverage and make decisions as how much to buy.
David Gordon, CLU is an independent insurance broker who
has been providing insurance products and consulting to commercial property
owners for over 25 years. Feel free to contact us at 650-654-5555 or
DGordon@GordonInsurance.com
for more information on any insurance matter or if you would like to see
a particular subject addressed in future issues.