Cities amend their building codes frequently, which can result in significant costs to property owners who must remodel in order to meet the new standards. Fortunately, the new codes will often include a “grandfather” provision that exempts existing buildings from making the changes. Typically, as long as the non-compliant aspects of a building remain in their current conditions, under those provisions the property owner does not have to rebuild. However, any non-compliant features of a building cannot be replaced or updated without meeting the new code’s requirements.
When new building codes are enacted, we will invariably receive a few inquiries from our policyholders asking whether their property insurance will pay for the construction costs to comply. The short answer is “no.” Property insurance only pays for damages incurred by a covered cause of loss, and we’ve never written a policy that covered costs for building code compliance absent a cause of loss. However, there is a “long” answer.
If the property is damaged by a covered cause of loss, your insurance may cover the additional costs, if any, to restore it to the standards required by the new building codes. To be sure, most policies will only pay to replace or rebuild the property as it existed at the time of the covered loss; however, several insurers offer optional coverage – commonly referred to as “Ordinance and Law coverage” – that would pay the costs to rebuild to code. To lower premium costs, the policies can limit compensation to a certain dollar amount, say $15,000, or to a percentage of the building replacement cost limit.
While each property is unique and the particulars of an owner’s financial status can determine the right course of action, there are cases in which we will more strongly recommend a higher level of property insurance coverage to one of our policyholders:
• Obviously, an older building that is more likely to be significantly out of compliance might merit O&L coverage if there are no or inadequate grandfather provisions.
• If your community has excessively onerous building codes, we might recommend additional coverage.
• The building codes in some cities vary by neighborhood, such that we may recommend coverage for some areas and not others.
• Some communities require that undamaged portions of the building would still have to be demolished and rebuilt to code if they represent a certain percentage of the property’s value, usually 50% or more. If so, we may recommend O&L coverage.
• If your property was in an unincorporated area that has since been annexed by a city, it may now be subject to more stringent codes and additional coverage may be justified.
How can you determine how much coverage your property needs? The real estate insurance professionals at Nahai Insurance can help. Our agents have a working knowledge of the general requirements established by the International Code Council (ICC), a universal building code that has been adopted (with local amendments) by most cities, as well as code requirements for electrical, plumbing, and heating/cooling systems. We also know the areas of non-compliance that are typically enforced against property owners and those that incur the greatest costs to remedy.
We may suggest a meeting with the local fire marshal or building inspector to identify and clarify your property’s non-compliance. Or, we may recommend a consultation with an architect or general contractor to determine the extent and cost of necessary repairs. The result is a professional recommendation supported by the unique facts and circumstances of each property investment.
Contact your Nahai agent to learn more about building code coverage.