Ordinance Coverage In A Commercial Insurance Plan
By: John Hilsey
The unfortunate reality of owning commercial property is the potential of catastrophic damage to buildings. Most of the time, this damage can be repaired and business can go on as usual. However, there are times when more than 50% of the structure is destroyed. In these cases, many state and local ordinances around the country require the structure to be completely rebuilt according to the latest codes. This would not be too much of a problem for a new business that was built during a time when the newest codes were already in place. Older businesses, on the other hand, often face far more expense since they were constructed during a time when the local laws were different.
This is exactly the situation where ordinance coverage comes in handy as part of a comprehensive commercial insurance plan. This coverage will pay for the replacement of the structure that existed before the damaging event, substantially reducing the costs of rebuilding and allowing the business owner to get back up and running in the shortest amount of time possible.
You might be asking yourself what kind of situation requires the use of an ordinance coverage clause, especially since this is such a specific situation that not many people think about when shopping around for a commercial insurance quote. One example would be a tornado or sudden storm that comes along and destroys more than 50% of your business. Another situation would be damage sustained as a result of a nearby fire or flood.
Please note that ordinance coverage does not cover the updates that need to be made to the new building. In other words, while the insurance company will pay for replacing the structure that already existed, the new parts of the building that are required by the ordinance must be paid for out of the business owner's pocket.
One additional clause that you might also want to look into is builder's risk insurance. The reason I mention this particular bit of coverage is that it is closely related to the ordinance clause. One can imagine a situation where, in the middle of rebuilding the structure to meet code requirements, another damaging event occurs and does away with all the hard work that had been done up to that point. Thankfully, builder's risk insurance covers just this kind of event, so be sure to ask your insurance agent about obtaining both of these clauses in your plan!
Whether your business is new or older and more established, you should be familiar with these important clauses in your insurance plan. Be sure to ask your insurance agent about the specifics of your plan so that you are always aware of what is covered!