A business has a Commercial Property Policy with an Ordinance or Law exclusion. After a fire severely damages their building, local building codes require them to demolish the remaining structure and rebuild to higher standards, increasing reconstruction costs significantly. Which part of these additional costs would typically be covered without an endorsement?
- AThe entire cost of demolition and rebuilding to new code standards.
- BThe cost to demolish the undamaged portion of the building.
- COnly the cost to rebuild the damaged portion to its pre-loss condition, disregarding new codes.
- DThe increased cost to rebuild the undamaged portion of the building to meet new codes.
Show answer & explanationAnswer & explanation
Correct answer: C. Only the cost to rebuild the damaged portion to its pre-loss condition, disregarding new codes.
The standard Ordinance or Law exclusion removes coverage for increased costs due to complying with building codes or laws after a covered loss. Without an 'Ordinance or Law' endorsement, the policy will only pay to rebuild the damaged portion of the structure to its condition *before* the new codes mandate changes. It will not cover the cost of demolishing undamaged portions or the increased cost to upgrade to new code standards.
Why the other options are wrong
- A. This comprehensive coverage requires the Ordinance or Law endorsement.
- B. The cost to demolish undamaged portions is excluded without an endorsement.
- D. This increased cost is specifically excluded without an Ordinance or Law endorsement.
Ordinance or Law Exclusion (Commercial Property)
A standard exclusion in commercial property policies that eliminates coverage for loss or increased cost of repair or reconstruction due to enforcement of any ordinance or law regulating construction, repair, or demolition.
- Prevents payment for increased costs mandated by current building codes after a loss.
- Without an endorsement, policy only pays to restore to *pre-loss* condition/codes.
- Endorsement (Ordinance or Law Coverage) can be added to cover these additional costs.
- Covers value of undamaged portion, demolition, and increased cost of construction.
Memory trick: Old Codes Pay, New Codes Need an Endorsement.