A customer recently learned that the city building code requires automatic fire sprinklers for their building and asked if their property insurance would pay for installation of a sprinkler system.
Your commercial property insurance policy responds only when your building is damaged by a covered cause of loss, so it won’t help pay the cost to install sprinklers or comply with other building code requirements right now.
Fortunately, however, the city building code probably includes a “grandfather” provision that says you don’t have to retrofit your building to comply with current codes unless and until your building is damaged by some catastrophe. If that happens, your property insurance may help pay the additional costs you incur to rebuild or repair your building to meet current codes.
Local building codes are updated periodically and may have changed significantly since your building was constructed. If your building is badly damaged, the building officials in your community may require you to rebuild it to meet new building codes. Some communities require you to demolish undamaged parts of the building if they determine the damage exceeds a certain percentage of its value, usually 50 percent.
Most commercial insurance policies will only pay enough to replace your building as it existed at the time of the loss. Some policies cover the extra expense of rebuilding to code, but only up to a certain dollar amount like $10,000 or a certain percentage of the limit like 5 percent. Most insurance companies offer an additional limit for building code coverage for an additional premium.
To fully cover the additional costs related to required building code enforcement, you must add the necessary amount to the limit of insurance and purchase additional coverage – commonly called “ordinance and law” coverage – if offered by the insurance company.
How much additional insurance do you need?
The only way to begin the process of determining that is to consult with a local architect or general contractor, or meet with the fire marshal and/or the building code official in the city where your building is located.
Many city governments follow the “universal” building code established by the International Code Council (ICC). The ICC code was implemented in 2000, so some cities may instead be following an older set of code established by the Building Officials and Code Administrators (BOCA), the International Conference of Building Officials (ICBO), the Southern Building Code Congress International (SBCCI), or the Council of American Building Officials (CABO). And that’s just the building code. There are separate codes for electrical, plumbing and mechanical (heating and air conditioning). The requirements of federal laws, such as the Americans with Disabilities Act, must also be considered. Along the Texas coast, the Texas Windstorm Insurance Association enforces state laws regulating construction in hurricane-prone areas.
Codes are not necessarily consistent throughout a city or county. The code for one neighborhood may be different from the code applicable to a neighborhood eight blocks away!
To make matters more complicated, growing cities and towns can annex new territories into their city limits at any time. Buildings within those annexed areas that were constructed years ago can be forced to comply with the city building codes.
Whose job is it to determine the proper amount of insurance needed to cover current building codes? Ultimately it is your responsibility to establish the value of your property and select the amount of insurance for your policy. We can help with that decision and explain what you can do to avoid an unpleasant surprise after a loss.
Contact your Anco Insurance agent or account manager for additional information on building code coverage.
This article was prepared and made available to your agent by the Independent Insurance Agents of Texas, which is solely responsible for its content. Please read your insurance policy. If there is any conflict between the information in this article and the actual terms and conditions of your policy, the terms and conditions of your policy will apply. The Independent Insurance Agents of Texas is a non-profit association of more than 1,500 insurance agencies in Texas, dedicated to helping its members succeed, in part by providing technical resources that explain insurance policies sold to their customers.
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