Building Code Upgrade and Insurance (part 2)

Building code upgrade is often a gaping hole  for commercial property owners, as we previously explained in Part 1 that code upgrade is excluded from standard policies unless purchased and endorsed additionally.

Specific codes for claims must be in the endorsements to trigger code upgrade coverage
If a claim is excluded from coverage code, upgrades are also excluded.
Assuming an old building was burned down, its rebuilding is required to be in compliance with code for elevators and will cost $500,000 more. Both the owner and the architect should identify what code requirements are needed. To have insurance coverage for this added cost, your code upgrade endorsement BEFORE the fire took place should have already included specific claim code for elevators.  

Insurance reimburses code upgrade costs only upon completing upgrade
An insurance settlement is paid before construction starts, but to get insurance company to pay for code upgrades, you need to pass some hurdles:

1. An insurance company verifies if a code upgrade claim is triggered by a covered peril. Upon determining that code upgrade is indeed required for the rebuilding, then the code work can be done in order to be paid by the insurance coverage.
2. The owner must pay out of pocket for all code upgrading construction before insurance company reimburse the cost.
3. If the code work isn’t completed, the insurance company has no obligation to pay for the code upgrades, even if they agree they are covered.

Locations for rebuilding may prevent receiving code upgrade reimbursement
If a policy specifically states that code upgrades are only available at the location where the loss occurred, but the rebuilding took place at another location, then the owner very likely will have a steep uphill battle to receive reimbursed cost. If a policy clearly allows code upgrades to an alternate location replacing the location where the loss occurred, then upgrade can be reimbursable.

Purchase of an alternative property with insurance and upgrade settlements
If the owner of a damaged building uses the insurance and upgrade settlement funds to buy an alternate property, then you can move the code coverage to the replacement property but only to the extent of the same code requirements. If the damaged property’s policy includes upgrade for an ADA ramp and you are required to install ADA ramp at the replacement property, insurance will cover the cost.
There are many other nuanced areas related to upgrade coverages, costs and reimbursements. Before the renewing date of your policy, please contact us for a review to ensure your complete understanding of what are covered and what are not.  We help you research about your jurisdictional building code changes as well. As the “extra milers” we are with you every step of the way to protect your properties and your bottom line.