Proposed updates to New York’s building and energy conservation construction code could leave some of the state’s property owners with insurance coverage gaps. Agencies and brokerages may want to begin offering property insurance clients higher limits of Ordinance or Law Coverage.
The New York Department of State announced last month that it is considering amendments to the State Uniform Fire Prevention and Building Code and the State Energy Conservation Construction Code. The amendments would repeal the current versions of the codes and adopt amended and updated versions. The Notice of Proposed Rule Making in the New York State Register lists many proposed requirements for construction of all kinds, including residential and commercial.
Updated building codes will likely increase the cost of repairing or reconstructing a damaged building. These costs might be insured by Ordinance or Law Coverage. This is a bundle of coverages that apply when local building ordinances require the demolition of a building damaged beyond a certain extent or that reconstruction complies with updated codes. It also covers the value of the undamaged portion of a building that must be knocked down.
Standard homeowners and commercial property insurance policies provide very limited Ordinance or Law Coverage. The ISO Homeowners 3 – Special Form, HO 00 03 03 22 (also known as the HO-3) automatically provides the coverage with a limit equal to 10% of the limit on the dwelling. For example, if the dwelling limit is $500,000, the policy provides $50,000 coverage for the value of the undamaged portion, the cost of demolition, and the increased cost to meet code requirements, combined.
The ISO Commercial Building and Personal Property Coverage Form, CP 00 10 10 12 provides even less. It covers the increased cost of construction to meet code requirements, but not for the value of the undamaged portion or the cost of demolition. The limit of insurance is small – 5% of the building’s value at the time of the loss, multiplied by the coinsurance percentage shown in the policy Declarations, or $10,000, whichever is less.
However, ISO offers endorsements for both types of policies to fill a potential coverage gap. Homeowners endorsement HO 04 77 03 22, Ordinance or Law Increased Amount of Coverage, can increase the 10% limit to 25%, 50%, 75%, or 100%. Commercial Property endorsements CP 04 05 09 17, Ordinance or Law Coverage; CP 04 26 09 17, Ordinance or Law Coverage for Tenant’s Interest in Improvements and Betterments (Tenant’s Policy), and CP 15 14 09 17, New York – Ordinance Or Law – Increased Period Of Restoration provide the coverage for commercial direct damage losses, tenants’ improvements and betterments losses, and Business Income and Extra Expense Coverage losses. Options for limits vary.
Carriers who use forms other than ISO forms may have similar endorsements available. For example, Underwriters Rating Board (URB) offers several Ordinance or Law endorsements for both homeowners and commercial property policies.
The Department of State has scheduled in-person and virtual public hearings on the proposed updates for late May. The public comment period ends on May 27. It seems almost certain that at least some updates to the building codes will be adopted sometime this year. To offer your clients better protection, explain to them the changes under consideration and why Ordinance or Law Coverage may be important to them.