This winter, too many building owners will get caught by surprise: They’ll have pipes burst in the cold, doing tens of thousands of dollars in damage. They’ll get estimates to repair. They’ll file a claim with their property insurance company – only to find out that their policy will only cover a fraction of their costs.
The problem: Insufficient coverage for building code upgrades.
Here’s what happens: Building codes evolve, but buildings don’t. If you are the owner of an older building or even an historic building, chances are the previous owner has not been tearing the building apart and replacing plumbing every time municipal or state authorities pass an adjustment to the building codes governing plumbing, sewage or septic systems.
But most local ordinances are clear: Owners of damaged buildings must make all repairs in accordance with the new codes, not the codes that were in force at the time the property was damaged.
The problem: Not every insurance policy provides this specific coverage. Indeed, for a brand new building, there’s little need for it. But the exposure becomes greater the more years that go by and the more local authorities revise building codes.
Here are some examples of the kinds of issues that can befall a property owner, just with plumbing-related issues alone:
Regulations require specific plumbing materials, forcing you to replace all the plumbing in the building with copper, for example, rather than galvanized steel. Even if you only have to replace a portion of your plumbing, copper and galvanized systems don’t necessarily mix without a plumber taking specific measures to prevent the two metals from coming into direct contact.
You must renovate your property to comply with the Americans with Disabilities Act, or some similar intervening law, which may require changes to bathing and toileting facilities that in turn require remodeling.
In one case, for example, a fire destroyed the gymnasium area of a school. The school system rebuilt the gymnasium with a larger girls’ locker room area, which the school board understood was required under Title IX, which forces schools to bring boys’ and girls’ athletic programs into parity. The insurance company refused to pay the extra costs of building the larger girls’ locker room. A court sided with the insurance company.
In some areas, like Dade County, Florida, if a home is more than 50 percent destroyed by wind, for example, you must tear down the entire home and start from scratch, raising the new structure above flood level. Not every insurance policy is designed to cover a teardown and complete rebuild. This was a frequently-encountered issue among the waterfront communities affected by last year’s Hurricane Sandy.
Check Your Policy
Some policies do provide basic protection against the additional costs of bringing a damaged building up to code. Many insurance forms today specifically exclude or limit coverage – at least on the base policy – for costs associated with replacing or repairing a damaged structure up to new building codes beyond those that existed when the policy was issued. To be protected against the risk of having to spend additional money, over and above like-kind replacement – to bring a property up to code, you must obtain an additional policy or rider, generally called “law and ordinance insurance,” “building ordinance coverage” or variations on that theme.
Commercial policies provide less coverage, typically, than residential policies, though it’s generally a simple matter to add this coverage by endorsement. The insurer simply adds a rider.
Courts have been more willing to side with homeowners than commercial insurance policyholders in code-related disputes, and many home insurance policies provide some rudimentary protection against code-compliance related costs. However, many people would do well to purchase additional coverage to protect themselves from disaster rather than deal with coverage issues after a claim occurs.
Whether it’s coverage for your home or a commercial building, these issues should be addressed with your agent, especially if the property is an older building. If you have any questions or would like to review your coverage, please call ACBI at 203-259-7580 or visit our website.