Vacant Buildings Pose Risks, Insurance Challenges

According to the website, the average vacancy rate for offices nationwide in the second quarter of 2018 was 12.2%, while 12.1% of retail spaces and 7.8% of industrial spaces were vacant.

Unfortunately, when buildings stand vacant they become susceptible to a variety of problems.

There are roughly 31,000 fires in vacant buildings annually, resulting in dozens of deaths, hundreds of firefighter injuries, and an average $642 million in property damage.

Vacant buildings receive little or no maintenance, attention or security. This can lead to problems such as:

  • With no security on the premises, the building becomes a target for vandals. Vacant buildings frequently wind up with broken windows and graffiti-covered walls.
  • Fixtures and materials inside the building, such as copper piping, may attract thieves.
  • Vacant buildings can become convenient hang-outs for young people or shelters for the homeless; they also can become centers of criminal activity, such as drug-dealing.
  • Trespassers smoking on the premises, decayed wiring, arson, and production of illegal drugs like methamphetamines may cause fires in vacant buildings. In addition, automatic sprinkler systems may be shut off, allowing fires to spread, and lack of security prevents early detection.
  • Toxic substances remaining on the premises may leak and contaminate soil and groundwater.


Owners of vacant properties can take many steps to prevent these problems or make them less likely.

  • Visit the property at least weekly, or hire a property management company to do so.
  • Clear the exterior of the building of scrap wood, paper, cardboard and brush.
  • Remove any toxic substances that could contaminate the area or harm police or firefighters.
  • Maintain sidewalks and parking areas in good condition, and clear them of snow and ice.
  • Erect obstacles to keep vehicles and pedestrians out of parking areas.
  • Hire security guards to watch the building at night, and have exterior lighting turned on.
  • Maintain heat or drain the plumbing system to keep pipes from bursting, but keep at least a minimum temperature in areas protected by automatic sprinkler systems.
  • Maintain electricity supply to emergency lighting and exit signs.
  • Shut off utilities, except where necessary to power desired lighting and alarm systems.
  • Maintain fire detection systems and link them to a central station monitoring service.


Insurance implications

Buildings that are more than 70% vacant for more than 60 days also lose some important insurance coverage.

If the building is largely vacant, the standard commercial property insurance policy reduces loss payments by 15% for most causes of loss and does not cover others at all, including vandalism, water damage, glass breakage, and theft.

For an additional premium, the building owner may be able to purchase vacancy permit coverage, which reinstates some or all of this coverage for a specific period of time. An alternative – vacancy changes coverage – can reduce the minimum occupancy that the building must have before the insurance company will consider it vacant from the standard 31%. We can work with you to get the coverage you need.

A vacant building is never a good situation, but with the proper precautions, the owner can maintain its value and keep it secure until new tenants move in.

If you have any questions or would like to speak to a professional advisor, please contact ACBI Insurance at 203-259-7580.

Automated Property Protection: A Good Investment

According to the Insurance Information Institute, in 2013 there were 487,500 structure fires (55 every hour) in the U.S., costing $9.5 billion in losses. In 2012, there were 670 burglaries for every 100,000 inhabitants. In addition to the expense, these losses were disruptive, dangerous, emotionally upsetting, and bad for business. Small wonder that many households and businesses invest in automated systems to prevent or reduce losses.

The effectiveness of systems such as central station fire and burglar alarms, sprinkler systems, surveillance cameras, and point-of-sale systems can be dramatic. While automatic fire sprinkler systems do not prevent fires, they do limit the damage. The National Fire Protection Association reported that, over a five-year period, the cost per fire in eating and drinking establishments with sprinkler systems was one-fourth of the cost for those without them. A University of North Carolina at Charlotte study revealed that 83 percent of convicted burglars considered the presence of alarm systems when deciding which homes to target.

Surveillance camera systems, in addition to discouraging potential criminals who are aware of them, create a record of events. Their recordings can be a significant help to security personnel and law enforcement officers investigating theft or property damage incidents. Point of sale systems in stores, because they do not exchange cash, can prevent traditional cash register thefts, though they could be vulnerable to data theft.

Installing these systems can do more than just prevent or reduce losses. They can also make it easier for property owners to get insurance and reduce their premiums. The Insurance Services Office is an organization that calculates the portion of insurance rates necessary to pay for losses. Many of its calculations apply one “loss cost” to an entire group of similar buildings, not recognizing individual differences. However, ISO individually inspects and calculates loss costs for every commercial property that has a sprinkler system. Owners of these properties will pay premiums that reflect the specific characteristics of their buildings, not premiums developed with the average in mind.

The effect of other protective devices on premiums will vary from one insurance company to another, depending on the type of property. Many insurers will not offer burglary and theft coverage to jewelry stores that do not have central station burglar alarms. Other types of businesses may not face that requirement but will still get reduced premiums because of the security protections. Protective devices not typically found in a certain type of building make a building that has them a better than average risk for the insurer. Underwriters will typically reduce the premium, both to reflect the lower risk and to make their prices more competitive.

The cost of installing these systems varies with the system’s sophistication. A business with theft target items on premises, such as jewelry, electronics and copper pipe, will need multiple cameras and constant monitoring. Premises that are less attractive to thieves may need a less expensive burglar alarm. Sprinkler systems are normally installed when a building is first constructed; regular maintenance, testing and monitoring add to the cost.

While these devices come with price tags, some of that cost will be offset by reduced insurance premiums and deductibles not paid. There are also intangible benefits, such as avoiding the disruption caused by property damage and police investigations of a crime.

Homeowners and business owners interested in installing an automated loss control system may find that more insurance companies will want to insure them and compete for their business. Installing these systems can save money and provide peace of mind.  If you have any questions, please contact ACBI at 203-259-7580 or visit our website


How Much Commercial Property Insurance Do I Need?

The whole idea behind insurance is protection. When you buy property insurance for a building, the goal is to have enough coverage so that your insurance claim will put you in roughly the same economic position you were – or as close to it as possible – before disaster struck.

The Three Property Valuation Methods

From an insurance perspective, there are three basic methods for valuing and assigning coverage limits to a commercial property: fair market value (FMV), actual cash value (ACV) and replacement cost. It’s important to understand that these numbers can be very different from each other – and sometimes radically so. The three approaches are not interchangeable at all. It’s very important to understand the type of insurance coverage you own and how claim settlement figures are arrived at.

Fair Market Value

The concept of fair market value is familiar to most of us. A property’s FMV is the price a property would sell for if placed on the market today, and purchased by an informed, knowledgeable counterparty in an arms-length transaction. That is, there are no outside influences or competing loyalties affecting the property’s market price.

To calculate fair market value, appraisers will rely a good deal on “comps,” or recent sales of nearby comparative properties. But valuation for commercial properties can be tricky, since there may be relatively few truly comparable sales of similar properties nearby.

Also, FMV can be subject to wide swings in investor sentiment – as property owners across the country learned in the last decade.

Actual Cash Value

This approach to underwriting attempts to calculate what it would take to replace a property and its fixtures – and then subtract an amount from that value for depreciation. For example, if a property includes a seven-year-old refrigerator that is depreciable over ten years, the insurance company may only value the refrigerator at about 30 percent of its replacement value. If you are insuring a 13 year-old rental house that is depreciable over 27.5 years, the insurance company may only be willing to pay half of the home’s replacement value.

This amount is grossly inadequate, in practice, for most of small business owners, who don’t maintain the kind of sinking funds this kind of coverage requires. After all, if your business relies on a working refrigerator and you lost it in a disaster, you lost a whole refrigerator – not just 30 percent of one.

Replacement cost

Replacement cost underwriting attempts to estimate what it would cost to reconstruct the property on site, using comparable or equivalent construction methods and materials, where possible. This can be a very different figure from market value because buyers will also deduct for age and depreciation. Some industry experts also believe that replacement cost provides a useful cap on figuring reimbursements and insulates the risk pool from the distorting effects of appraisal fraud: Commercial property buyers won’t pay more for a property than it would cost to build the same thing next door!

Location is particularly important for commercial properties. Most experts recommend using replacement cost as a basis for calculating needed insurance coverage on commercial properties.

Most insurance agents have access to programs that help streamline estimating the cost of rebuilding common, basic structures.

Flood Insurance is Separate

Remember, standard commercial insurance policies don’t cover flood damage. To protect yourself against the financially devastating effects of flooding, you will need to secure separate flood insurance, both on the building itself and any contents in it you may own.

Special Situations

Some situations call for a more specific approach. If you own an historic or antique building, for example, you probably have some unique concerns that a typical warehouse owner around the corner may not have. For example:

  • Rebuilding with prefab or other low-cost building techniques may not be warranted – especially if your business derives significant value from the unique character of an older building.
  • Rebuilding may require materials and artisan workmanship no longer readily available.
  • Your old structure may have been built before construction and wiring standards were modernized. This is particularly true if you are in earthquake-prone areas. Rebuilding may require additional expenses to bring the structure up to code.
  • You may have greater business interruption costs than other comparable businesses because it takes that much longer to rebuild.

These cases call for a much more detailed and specific approach than simply calculating costs per-square-foot and adding some coverage for contents. A good insurance agent can help walk you through the issues involved in appraising these kinds of structures and estimating rebuilding costs. You may need to hire an outside appraiser with experience in certain specific construction techniques. At the end of the day, insuring antique, historic or specially-built or designed buildings is a team effort between yourself, your insurance agent and the insurance carrier.

Replacement Cost is available in most cases and unless you don’t intend to rebuild, this is the best option, since it will pay for the entire cost replacement your building without consideration for depreciation. When insuring for replacement cost, most policies require that you insure to 100% of what it would cost to replace your building. Insuring for 90% of actual building replacement cost would result in a co-insurance penalty of 10%. This means that if you had a partial loss, you would only get 90% coverage due to the co-insurance penalty found in policies with this clause. This is why it is so important to work with your agent and the insurance company appraiser, if an appraiser has been assigned to value your building. You building is your investment, and protecting your investment is a wise financial decision.  Contact ACBI with any questions.

Insuring Historic Commercial Buildings

How do you insure a one-of-a-kind historic treasure?

Insuring a standard cookie-cutter mini-mall building is one thing; insuring a 100-year-old historic downtown building, with legacy construction techniques and materials – and irreplaceable charm – is quite another.

For example, historic buildings often use construction techniques and materials that are no longer common, or even available at all. Also, older buildings tend to be in older neighborhoods. Some older structures don’t have the fireproofing expected of newer structures – which means antique buildings are at an elevated risk of fire spreading from nearby buildings. Not every insurance company or agent understands how to underwrite these kinds of properties and ensure the building owner is adequately protected.

The Problem with ‘Replacement Value’ Methodology

Typically, commercial properties are insured using the replacement value as a guide for setting policy premiums and limits. For insurance purposes, replacement value is the cost it would take to rebuild a structure with the same function on the site, if you had to rebuild completely. If you started with a 400-seat movie theater, for example, replacement value would cover what it would take to rebuild another 400-seat movie theater on the same site.

But that kind of underwriting doesn’t work for historic properties: If you have a historic movie theater that is 100 years old, with antique, one-of-a-kind trim, mahogany counters in the lobby, and a value collection of cinema posters and cinematic museum artifacts in the lobby, it doesn’t make sense to have a policy that limits you to replacing it with a generic modern McTheater design. But a poorly-written policy limiting you to “replacement cost value” will paint you into that very corner.

Take Specialized Construction Methods and Materials into Account

Standard commercial building insurance policies only cover building techniques where rebuilding costs fall within standard industry guidelines and where the construction materials and skilled labor are readily available. That means that unless you make allowances when you purchase your insurance policy, your coverage will not compensate you for the cost of skilled specialists and artisans you will require to recreate your special building – even if the unique character of the building was a key part of the building’s attraction and utility in the first place.

The alternative, actual cash value replacement, doesn’t make sense for antique buildings, either. That’s because if the building is damaged or destroyed, you only get reimbursed for the book value of the property, after a deduction for depreciation.

Naturally, depreciation on antique buildings can be substantial.

Simply insuring a property for its current market value may not work either: A property could sell on the market for much less than what it would cost to replace it.

Functional Replacement Cost Coverage

Another approach to insuring older properties is functional replacement cost. This is, at least cosmetically, a useful lower-cost option to insuring antique properties. A functional replacement cost would take an antique fixture and replace it with a modern fixture that accomplishes the same thing with modern materials but at a lower cost. An old solid oak or mahogany fixture, for example, may be replaced with a plywood fixture of similar appearance and function. It keeps costs down, but both insurers and landlords should understand that even though function and a certain amount of appearance is restored via functional replacement cost insurance, quite a bit of value is lost in the process.

The Solution

For owners of antique buildings, it’s important to get actual historic replacement cost written into the policy. Not every carrier does this, and some agents who don’t regularly deal with these kinds of issues aren’t even aware of its importance. Generally, this kind of coverage means an on-site inspection and expert appraisal. Some carriers provide special underwriting for antique structures. We can help walk you through how to combine these coverages and apply them to your unique situation:

  • Allowing for costs of artisan construction and restoration experts.
  • Choice of valuation definitions
  • Increased business interruption coverage to account for the time-consuming, meticulous process of restoring a damaged historic property.
  • Registration, certification and regulatory expenses unique to antique or historic structures
  • Compensation for loss of tax credits/deductions if restored or rebuilt property loses eligibility.
  • Cost of upgrades under ‘green building’ standards
  • Underwriting for museum artifacts and valuable collections, works of art and historic documents.

Underwriting Is Key

Specific underwriting issues vary substantially from property to property. The distance to the nearest fire station can impact premiums, for example. And some types of property are prone to containing machinery or components never encountered elsewhere. For example, a church or cathedral may contain a large pipe organ that would cost hundreds of thousands of dollars to replace. And stained glass works can vary widely in total value from property to property, even among buildings the same size.

Insuring Contents

If the contents of your antique building are pretty straightforward, this isn’t a difficult riddle to solve – standard underwriting techniques apply to insuring the inventory of, say, a bike store in an antique building that apply anywhere. But unique commercial buildings often have unique tenants. A museum, for example, should approach insuring its contents with the utmost attention to detail, because of the value and generally irreplaceable nature of the museum’s artifacts.


Antique and historic buildings don’t lend themselves well to standard, off-the-shelf property insurance policies. Don’t settle for a computer-generated policy based on construction material and square footage. That works okay for mass produced buildings, but not for antiques. An on-site inspection and appraisal by a qualified expert is a must.

It also takes experience in the industry. These buildings aren’t a great match for brand new agents. It takes years for insurance professionals to develop the experience and underwriting expertise to ‘see around corners’ and recommend adequate coverage.  If you have questions, contact the seasoned professionals at ACBI.

10 Ways Commercial Property Owners Can Protect Vacant Buildings

Vacant buildings are common products of a slow economy. Researchers said that recent statistics only show about a one percent decrease in vacant buildings in recent years. If buildings do not have any personal property or occupants in them, they are more likely to face several types of problems. Every year, there are over 30,000 fires in vacant buildings, and many of these result in severe injuries or deaths. They also cost well over $640 million in property damage. Most vacant buildings do not have good security or maintenance. This can lead to the following types of problems:

– Copper piping and other valuable fixtures inside the building may attract thieves.

– Buildings become vandalism targets when there is no security on the premises. These buildings often end up with graffiti on their walls and broken windows.

– Many young people are attracted to vacant buildings to use as places for parties or drug use. They are also common places for homeless people or drug dealers.

– Groundwater and soil may become contaminated by toxic substances leaking from a vacant building.

– Fires are common due to smoking trespassers, arsonists, decayed wiring and drug production. To complicate the matter, the automatic sprinkler system may be turned off. This makes it easier for fires to spread. With a lack of security, early detection is nearly impossible.

No building owner wants to be fined for hazardous substances leaking or for a fire that could have been prevented. Building owners can take several steps to protect their vacant properties and make them less likely to be destroyed. The following are some useful tips:

– The exterior of the building should be cleared of cardboard, paper, brush and scrap wood.

– Stop by the property at least once each week. Another option for owners who live out of state is to hire a property management company to care for the building.

– Keep parking areas and sidewalks in good condition, and they should be cleared of ice or snow during the winter.

– If there are any toxic substances that may cause contamination and might harm people or emergency responders, they should be removed.

– Put up obstacles to ensure pedestrians and vehicles stay out of the parking area.

– Pay security guards to monitor the building overnight, and keep exterior lights turned on during the night.

– Make sure the electricity for exit signs and emergency lighting is always on.

– To avoid bursting pipes, make sure the heat stays on or the plumbing system is drained. There should be a minimum temperature set to keep automatic sprinkler systems safe.

– Turn off the utilities except when needed to power alarm systems and lighting.

– Fire detection devices should be linked to a central monitoring service and maintained well.

If a building is almost 70 percent vacant for longer than 60 days, it may lose some vital insurance coverage. Standard commercial policies lower loss payments by 15 percent for the majority of losses. This does not include water damage, theft, vandalism or breaking glass. The building owner may opt to buy a vacancy permit for an additional premium. This permit replenishes some or all of the coverage for a specified time period. Vacancy changes coverage is also available, and this form of insurance will lower the minimum occupancy the building must have before it can be considered vacant in comparison with the standard percentage. To learn more about this coverage option and how to add it, contact ACBI.

Earthquake Protection ~ Do You Need Coverage?

PLAINFIELD, CT (WFSB) – Five small earthquakes rattled New England on Monday, January 12th. The Weston Observatory at Boston College said the first four happened within 20 minutes of each other. The fifth was 5 1/2 hours later. It was the third day in less than a week that rumbles shook the Plainfield region.

Plainfield police said it happened around 6:30 a.m. Scientists from the observatory registered the largest of the four at a 3.1 magnitude. Though the U.S. Geological Survey told Eyewitness News it was 3.3. It was felt in Rhode Island and as far away as New Bedford, MA, and Framingham, MA. The observatory said the smaller ones were recorded at 1.1, 0.9 and 2.0. A quake around noon time registered at 1.3.     *Click for link to full WFSB article*

When most people think about earthquakes in the United States, California and Alaska are the two states that come to mind. However, earthquakes can happen in any part of the country. They are a very real threat that everyone must consider and plan for. One of the most vital aspects of proper preparedness is having ample insurance coverage. Earthquake damage isn’t covered in the majority of homeowners policies. This is also true for business policies. Both types of policies specify that damage from earth movement is not covered. While actual damage from a quake may not be covered, property insurance may provide coverage for fires and other incidents that occur as a result of it.

Many people think they won’t experience a major earthquake during their lifetime. This is especially true for those who live in areas where earthquakes happen every 100 years or less. Although many people may not experience a strong earthquake, there are over 5,000 incidents recorded each year by the USGS. Damage from earthquakes has been recorded in all 50 states in history. There have been reports of damage in 39 states alone since 1900. This proves that while some people may not live in areas that commonly experience earthquakes, they’re still not immune to the threat.

Earthquake insurance is available as a rider, which is added to a Home or Business policy.  Since they’re unpredictable and happen suddenly, it’s best to be prepared for all types of disasters. Earthquake insurance is so important that it can’t be stressed enough. The nation’s average is less than 12% who carry this coverage.

Earthquake insurance costs vary by location, building type and the age of the building. Buildings more likely to withstand the force of earthquake are less costly to insure.

Every earthquake policy also has a deductible. This means that homeowners must pay upfront for a portion of the damages before the insurer pays the remaining amount. The deductible may be up to 20% of the structure’s replacement value. The percentage depends on the insurer and the location of the structure.

There are also options for renters. There are coverage policies that protect personal property. In addition to this, they usually cover living expenses if the building becomes uninhabitable after an earthquake. It’s important to keep a list of belongings and their values. Major appliances, furniture, electronics and other expensive items must all be documented properly. A new way of creating a record of belongings is making a narrated video tour of the home and focusing on belongings.

Call ACBI at 203-259-7580 to discuss earthquake coverage that is right for your individual needs.

Disasters that Insurance Policies do not Cover

Every year, many home and business owners discover there are certain disasters their policies do not cover. It is important to consider these issues before they happen and cause damage that will have to be paid for out of pocket. Earthquakes, floods and acts of terrorism are three types of disasters that a policy will not cover.

Flood Damage Protection

Every home and business owner needs to know if his or her property is located in a flood zone. If it is, it is crucial to purchase a flood policy. Business owners should also find out how often floods have happened in that particular area in the past. In some cases, the government is slow to map out flood areas, so it is important to ask more than one source. To purchase a flood policy, discuss options with an agent. Flood insurance is provided by the National Flood Insurance Program. If a building is in a flood zone and its floor plans do not conform to plain building codes, the government requires it to be torn down after damages are more than 50 percent of its market value. People may purchase ordinance or law coverage, which is helpful for covering the costs of tearing down a building. Business owners should also make sure their properties are compliant with any coinsurance clauses in their policies.

Earthquake Protection

Homeowners and business owners do not have earthquake protection in their policies. People who live in areas that are prone to earthquakes should purchase this coverage. Even if most earthquakes are small, history has shown that any areas prone to quakes will eventually have ones that are large enough to cause significant damage. For homeowners, there are special earthquake insurance policies, and there are endorsements available for commercial properties. There are different types of deductibles for earthquake policies. They are calculated on a percentage of the coverage instead of a specific dollar amount. For example, a building owner who insures a property at five percent for $200,000 would have to pay for the first $10,000 of damages. It is important for business owners to remember that interruption protection only applies for losses that occur due to covered disasters or incidents. If a business does not have earthquake protection and has to shut down for a while, there will be no compensation for lost income. However, homeowners and businesses may have an option to add an endorsement to add earthquake coverage or purchase a seperate policy.

Acts Of Terrorism Protection

In 2002, the Terrorism Risk Insurance Act was passed. It ruled that only businesses purchasing special coverage would be compensated for losses resulting from acts of terrorism. Many policies already include this, however you need to check your policy to be sure. The only exception for this type of insurance is workers’ compensation, which only provides coverage for deaths and injuries resulting from acts of terrorism.

Nearly every business or home needs one or more of these types of coverage. Homeowners and business owners who are not protected could end up paying thousands out of pocket for damages. The premiums for these types of policies or endorsements are affordable, so it is important to discuss options and review coverage as soon as possible.  If you have any questions, call ACBI at 203-259-7580 or visit our website. 

Who is Liable When a Tree Falls on a Neighbor’s Property?


Many people have one or more types of trees on their property. Trees provide shade and complement landscaping nicely, but they can also cause major disputes when they fall over. A tree may fall over if it is not properly maintained and diseased, or it may fall over during a storm. When a tree falls over onto a neighbor’s property, a homeowner is often left to wonder if he or she is liable. Most people assume that they are liable since it is their tree. However, this is not always true.

When a tree falls over onto a neighbor’s property, that neighbor should submit a claim to his or her insurance company immediately. The insurance company is usually responsible for taking care of the damages. This is true if the tree fell over due to an act of nature. For example, a healthy tree that falls over during a tornado, hurricane, wind storm or winter storm would not be the responsibility of the homeowner. Since the homeowner living on the property where the fallen tree was rooted did not intentionally push the tree over, nature is responsible. This means that the neighbor’s insurance policy should cover it under perils.

However, there are some cases where a homeowner could be held liable. If the tree fell on the neighbor’s home when the homeowner was trying to cut down the tree without professional help, the damage would be the homeowner’s responsibility. Also, if the tree was dying, unstable or diseased and the homeowner knew about it, he or she could be liable if it falls over on its own. He or she could also be liable if it falls over during a very light storm that would not normally knock over a tree. When homeowners know they have dying, diseased or unstable trees, it is their responsibility to take steps to prevent them from causing severe damage.

In the event a homeowner is liable for the damages, his or her personal insurance company will have to pay the damages. The insurer will have to also investigate the claim and defend the homeowner if he or she is sued by the neighbor whose property the tree fell on. If the homeowner being sued loses, his or her insurer will pay up to the policy limit for damages. For any further damages beyond that, the homeowner is financially responsible. Neighbors can also submit liability claims against homeowner policies.

Most cases involve trees falling over due to storms or acts of nature, so many homeowners whose trees fall over do not have to worry about their insurers footing the bill. Also, they do not have to worry about premium increases if they are not found liable for the damages. In some cases, neighbors may still try to sue to recover their deductibles. The best way to avoid this scenario is to prevent it in the first place. Homeowners should check their trees regularly and have them inspected at the first sign of disease or any health issues.

A professional arborist can analyze the tree to see if it needs any special treatments, pruning or complete removal. This may seem like an unnecessary expense, but it is much less expensive than the potential cost of paying for a neighbor’s home being destroyed and the legal costs that ensue. For those who plan to stay in their homes for any length of time, it is best to try to keep peace with neighbors, so this is also a good way to prevent quarrels or ongoing problems. To learn more about damage claims from fallen trees, call ACBI at 203-259-7580 or visit our website.

Old Plumbing? Make Sure Your Insurance Will Let You Replace to Code


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.