Category: Insurance

Do Your Employees Drive Personal Vehicles for Business-Related Purposes?

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If an accident occurs while an employee or volunteer is operating their personal vehicle for company business, your company could be held liable.  Even when an employee is just running an errand, such as making a bank deposit, dropping off a proposal or picking up a part, if an accident occurs your company could suffer as a result.   

While you cannot insure a non-owned vehicle, there are other steps you can take to protect your company before a loss occurs. If your employees or volunteers use personal vehicles for company business, even if just occasionally, the following guidelines can help reduce your risk:

1.   Determine a minimum level of auto liability insurance your employees and/or volunteers must carry.  Also consider what documentation should be provided to your company to demonstrate that proper insurance coverage is in effect.  For example, you might require that employees or volunteers submit a certificate of insurance each year that verifies coverage limits.

2.   Driving records should be checked prior to an employee’s hiring.  Validate driving credentials and check for accidents and moving violations over the past 5 years.  All recruiters, managers and human resource people should be aware of this policy.

3.   Avoid having youthful drivers, those with little driving experience, or drivers with more than one moving violation or accident use their vehicle for business-related purposes.

4.   Periodically check driving records for new offenses and moving violations.  Introduce a procedure for how discovery of new offenses will be handled.

5.   Develop a written policy on business use of personal vehicles and communicate to all employees. Managers, human resource personnel and recruiters should share this information with any potential new hires.

6.   Be sure you remain in compliance with local, state and federal statutes while obtaining private information about your employees. 

Insurance can play a role in helping to protect your business from this exposure. Non-owned auto liability insurance may be obtained on a stand-alone basis or in conjunction with your general liability coverage.  Coverage for hired vehicles may also be available, if needed.

Insurance premiums for non-owned automobile liability depend on the frequency of personal vehicle use and how employees use their vehicles for your business. Premiums for this line of coverage are generally fairly reasonable.

Another way to reduce risk is to eliminate the exposure.  If employees or volunteers are prohibited from using their personal vehicles for business-related purposes, it eliminates the possibility of an accident that will affect your company.

In the meantime, while you are mapping out your risk reduction strategy, maybe you should consider making that bank deposit yourself…

Simple Keys to Understanding Homeowner’s Insurance

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To make sure you have the right type, and right amount of homeowner’s insurance, you need to understand what it does, and doesn’t, cover. Regular homeowner’s insurance will cover damage from tornadoes, fires, and burglary; but it will not cover the calamity of hurricanes, floods, terrorism, or nuclear meltdowns.

Basic Principles

*Make sure to get enough coverage to re-build your home from bottom to top.

*Choose “replacement cost” instead of “actual cash value.”

*Regularly inventory your possessions and their replacement costs. Consider a special rider for valuables such as jewelry, furs, and family heirlooms.

*Understand “loss of use” provisions. These provisions will dictate how long your insurer will pay rent while your home is rebuilt or repaired.

Best Offerings

*Look at on-line quotes and shop around, in general. Do some research to make sure the company is financially sound.

*Consider the possibility of raising your deductible to keep rates low.

*Get discounts by purchasing homeowner’s and auto insurance from the same company.

*Consider an umbrella policy to protect against lawsuits.

*Ask if special discounts are available. Some companies offer discounts to longtime customers, seniors, and non-smokers.

*Monitor and maintain a good credit score

*Unless you plan to file a claim, don’t report damages.

What Isn’t Covered

*Home office equipment

* Damage from neglect and poor maintenance practices

*Losses caused by pests such as insects, rodents, and pets

*Sewer backups and mold

In Case of Disaster

*Get in touch with your insurance company as soon as possible.

*Begin checking for damage and take photos to document calamity. Make quick fixes and temporary repairs to mitigate further damage.

*Be cautious of repairmen charging exorbitant rates and con artists impersonating insurance adjusters.

*Read the fine print before signing anything! Be careful not to sign away future compensation upon receipt of the first check.

*If a settlement offer is clearly unfair, don’t accept it.

Learning a few simple principles in advance can save you a bundle, should disaster strike.  Speak with your insurance agent to gain a better understanding of your homeowner’s insurance needs. 

Are You Liable? Protect Yourself from Home Worker Lawsuits

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As the housekeeper is vacuuming your living room, she trips over one of your daughter’s toys and seriously injures her back. While your neighbor’s teenage son is mowing your front lawn, he steps in a large hole and sprains his ankle. Will your homeowner’s insurance cover you if one of these workers decides to file a lawsuit?

Many homeowners do not realize that they could be held financially liable if a maid, landscaper, nanny or another house worker were to suffer from an injury on their property. Here are some things you should keep in mind before you hire a home worker:

Is that worker an employee or a contractor?

When you hire someone to help out around the house, you should figure out whether he or she is an employee or a contractor. This is one of the factors determines whether or not you are liable for a worker’s injury. So, how do you know if the worker is considered your employee or a contractor? It all comes down to how much control you have over the worker.

Let’s say you hire a nanny named Lisa to take care of your children and do some light cleaning in your home. Lisa follows your instructions about how to care of your kids and how to complete certain household tasks. You supply Lisa with the supplies and tools she needs to do her job. Because you have control over how Lisa works, she is most likely considered your employee.

On the other hand, let’s say you hire a professional landscaper named Bob to fertilize and mow your grass, trim the hedges and plant flowers in your yard. Bob uses his own lawn mower and yard tools and he does yard work for other homeowners, as well. Bob also has a team of workers who help him with his business, and he pays these workers. In this case, Bob would be considered an independent contractor.

Of course, these are two fairly simple examples. If you are uncertain about whether a worker in your home is considered a contractor or an employee, consult a lawyer or tax professional.

Understanding worker’s comp insurance

Some states require that homeowners who have house worker “employees” to carry workers’ compensation insurance coverage for them. However, even if your state does not require this, you should still consider purchasing this insurance for your employees. Why? Because if one of your employees is injured on your property, you may have to pay for their medical bills and other expenses out of your own pocket. However, with workers’ compensation coverage, the insurance company will cover the costs.

Alternatively, if you hire a house contractor, such as a landscaper, carpenter or plumber, they should be covered by their own workers’ compensation insurance. If a contractor is injured while doing work on your property, he or she will be covered under that policy. If the contractor doesn’t have enough coverage, you may be held financially liable. However, depending on the circumstances, you may be able to file a lawsuit against the contractor as they are required by law to have sufficient workers’ compensation coverage.

If you are looking to hire a house contractor, it’s important to ensure they are covered for worker injuries, property damage and uninstalled materials. Don’t just take their word for it. Ask for written proof that they have a contractor’s license, workers’ compensation insurance for themselves and any subcontractors and general liability coverage.

Know what your homeowner’s insurance covers

When it comes to coverage for home workers, every homeowner’s insurance policy is different. Depending on your home state, your policy may include a provision that provides limited coverage for minor workers performing lawn mowing or other tasks that require the use of power tools on your property.

On the other hand, your policy may specifically exclude domestic workers such as nannies or maids. Your policy may cover the injuries of household employees, but only after a lawsuit is filed against you. Because homeowner’s policies vary widely, it’s important to read through your contract and talk to your insurance agent before you hire a home worker.

Consider an umbrella policy

If you discover that your homeowner’s policy offers limited or no liability coverage for workers, you may consider purchasing additional liability insurance. While you may have some personal liability coverage through your homeowner’s policy, it’s probably not nearly enough to cover a major lawsuit from a home worker. If someone were to file a lawsuit against you, you could end up losing hundreds of thousands of dollars or more-even if you win.

You can further protect yourself with what’s known as an umbrella policy. This type of policy offers a higher level of liability coverage and ensures that you and your family will be protected if someone sues you for damages. Umbrella policies are typically sold in million dollar increments, and you can obtain a policy once your home and auto insurance policies meet a minimum “attachment point”-typically a liability limit of $250,000 or $500,000.

Check with the Better Business Bureau

Before you hire a home worker, you should contact the Better Business Bureau for more information. They can tell you if any consumers have filed complaints against the worker. Visit the bureau’s website at www.bbb.org.

Construction Vehicle Classification Can Affect Your Wallet

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Several factors influence how much a contractor pays for business auto insurance. The amount of insurance bought, the firm’s loss history, employees’ driving records, the condition of the vehicles, deductible levels – all of these have a major effect on the policy premium. However, the way the insurance company classifies the vehicles also impacts the premium in very significant ways.

Under the rating rules for business auto insurance, insurance companies use three factors to classify a vehicle: Its gross vehicle weight, how the business uses it, and the normal radius of its operation. The size classifications are:

  • Light – 0 to 10,000 pounds gross vehicle weight;
  • Medium – between 10,000 and 20,000 pounds;
  • Heavy – between 20,000 and 45,000 pounds;
  • Extra-heavy – More than 45,000 pounds.

The heavier a vehicle, the higher its premium due to the increased potential for severe losses.

The use classifications relevant to contractors are:

  • Service – Vehicles used to transport the business’ personnel, tools, equipment and supplies to or from a job location. Only vehicles that the business parks at job locations for most of the working day or uses to transport supervisors between job locations get the service classification.
  • Commercial – Construction vehicles that are not eligible for the service classification.

Service vehicles, because they are parked for most of the day, qualify for a lower premium than do commercial vehicles.

The radius classifications are:

  • Local – Not regularly operated beyond a 50-mile radius from where the business garages them;
  • Intermediate – Operated within a radius of between 50 and 200 miles;
  • Long Distance – Operated within a radius of more than 200 miles.

The larger the radius, the more miles the vehicle is likely to be driven and the higher the premium.

The rules also contemplate the type of contractor that uses the vehicle, though the rating factors tend not to vary greatly from one type to another.

The rating rules have charts showing the mathematical factors that apply for different combinations of size, use and radius. The insurance company multiplies these factors by its basic premium for the vehicle. For example, the factor for liability insurance for a light service vehicle (a pickup truck) with a local radius might be 1.0. The company will take the basic premium for a truck (for example, $500) and multiply it by 1.0. Conversely, the factor for a heavy commercial vehicle (a dump truck) with a local radius might be 1.50. Multiplying this factor by the $500 basic premium produces a premium $250 higher. This vehicle is on the road more than the pickup and has the potential to cause more severe injuries and damage in an accident, so the premium is higher.

Different factors apply to the premiums for comprehensive and collision coverages, and the effect may be the opposite of that for liability coverage. For example, the factor for the pickup truck might be 1.0 but the factor for the dump truck might be only 0.80. This is because a heavier vehicle should be able to withstand a crash better and sustain less damage than the lighter one. The rules base comp and collision premiums on the original cost of the vehicle, so the dump truck’s higher initial value will offset the lower factor to some extent.

It is important that a business provide accurate information about its use of a vehicle to the insurance company. Vehicles that spend most of the day on the job site should get the lower-rated service classification. Insurance companies can verify a vehicle’s weight through independent sources and its radius by examining lists of work on hand, but they will rely on information from their agents for the use classification. The business that gives its insurance agent detailed information about all its operations is a business that will pay a premium that accurately reflects its loss potential.

Longevity Is Key When It Comes to Lawyer’s Professional Liability Claims

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Retirement usually means not only leaving your job, but everything associated with that job. However, when a lawyer retires, this isn’t necessarily the case. Whether they are no longer practicing law, or starting an entirely new career, lawyers may find themselves haunted by liability claims arising from their past work.

For this reason, it’s important for departing lawyers to confirm that liability coverage will remain intact for past work. To accomplish this goal, you should review the partnership agreement, the firm’s professional liability insurance, and any recent claims. Keep in mind that partnership agreements and insurance coverage vary from firm to firm. When you review the agreement, you may find an absence of provisions for the firm’s ongoing indemnity or insurance obligations towards former members.

When reviewing the firm’s professional liability policy you’ll probably find that is written on a “claims made” basis. This means that coverage is provided for any claims made during the policy term, even if the events that precipitated the claim happened before the policy’s effective date. Even if your firm has a claims made policy, it can still have coverage gaps that significantly affect you once you decide to leave. For example, the insurer may have included provisions that limit or exclude coverage of the firm’s activities in certain practice areas. Or with claims made policies, if an exclusion is added in the future, it is applicable to all past and future work in that practice area.

Your policy review should also include an examination of its coverage limits. Since these limits cover all claims made and reported within the policy term, there may not be funds available to cover a retiring lawyer if the firm has already submitted a substantial number of claims or even just one large one.

The next step in your evaluation is a determination of how the policy defines “insured.” In some attorney-client relationships, a lawyer may be considered an employee or independent contractor. Under some policies, coverage for employees and independent contractors is either limited or non-existent.

You should also review the conditions regarding the firm’s responsibilities for policy renewal and reporting claims. Don’t assume that the firm will continue to operate as a going concern after you are gone, or that it will continue to renew its liability policy. In fact, in the case of smaller firms, dissolution is often the outcome after a key partner retires.

If the practice is dissolved, it is important that the firm and its former partners maintain insurance coverage. And since time is a crucial factor in a dissolution scenario when it comes to coverage, it is important that you meet as soon as possible with your insurance representative to discuss your coverage status and appropriate options.

Questions You Need to Ask Before Buying Commercial Auto Insurance

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Purchasing commercial auto insurance may be one of the most important insurance decisions that a business owner makes. Anyone who purchases or uses a vehicle for business use, be it a singular vehicle or multiple vehicles, will have to purchase commercial vehicle insurance. To get the best coverage at the best rate, you should ask yourself a number of key questions before you meet with your insurance broker.

Here are some of the most vital questions you need to ask yourself and the reasons why they are so relevant:

Do You Know What Defines Commercial Vehicle Usage?

Although you may use a vehicle infrequently for commercial purposes, your personal auto coverage invariably excludes using a vehicle for commercial purposes. Also, each policy clearly defines what is meant by commercial use, so you need to be very clear on the differences so you do not end up having a claim denied.

How Many Total Drivers and Vehicles Does the Company Require?

Insurers who provide commercial auto insurance may distinguish the available coverage options depending on both the number of drivers and the number of vehicles. Multiple vehicles and drivers may best be served by fleet insurance. Different insurers will vary in how they base their rates and will do so based not only upon the number of vehicles insured but also the class of the vehicles involved. The best insurance option may be to consider purchasing fleet insurance as opposed to having the vehicles insured individually. It all depends on your needs.

What Strategies Can You Use to Reduce Your Commercial Vehicle Premium?

There are a number of other questions and measures that can help lower your premiums for either individual vehicle usage or fleet use.

Do You Know Your Drivers’ Records?

Drivers with multiple claim records or violations are clearly going to cause your premium rates to increase. Ensure that you are aware of the driving records of any new or current employees who will be driving the vehicles. Have all employees who drive report any and all accidents or driving infractions immediately. Make it company policy.

What Kind of Car Are You Buying or Leasing?

Although it might seem like a good idea to have the luxury or sports car to make a statement, just remember that you are going to pay for such vehicles. You may want to get a great looking mid-sized sedan that has a superior safety rating because an insurer is most definitely going to factor in the types of vehicles driven.

What Anti-Theft and Safety Devices Will the Vehicle(s) Have?

Vehicle theft is still a major concern, especially in urban settings. When insuring your vehicle(s), an insurer is going to consider several things:

·  The location of your business, because not all parts of an urban setting are necessarily treated the same. High crime areas will most often lead to higher premiums.

·  Whether or not alarms or GPS devices are installed in the vehicle(s).

·  What the vehicle has for air bags and other safety devices such as beepers, sensors, or cameras.

What Kind of Deductible Can You Afford?

The amount of deductible you are willing to absorb can also have a dramatic impact on your premium because all insurers pretty much adhere to a simple formula: The higher the deductible – the lower the premium.

Will Federal or State Laws Impact Your Coverage?

Certain vehicles and what they transport can also be affected by federal laws and, in some instances, can be state-specific. Check out any legislative requirements which impact what you need to do beforehand.

Teens Drinking at Parties = Insurance Issues

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Every spring brings with it the prom and graduation party seasons. Unfortunately, these events often become occasions for teens to drink alcohol. Teens at unsupervised parties risk harming themselves and others when they drink. Parents who host these parties may bear responsibility for what happens there and for injuries or damages occurring after the guests leave. While their liability insurance may cover any financial damages, the circumstances of the accident determine which policy will respond, and this will affect how much coverage the parents have.

Assume that a guest consumes several beers at the party, drives off in his car, and gets into an accident, injuring himself and a passenger. The parents of both injured teens sue the parents who hosted the party, who in turn notify their homeowner’s insurance company. However, the policy’s personal liability coverage does not apply to an insured person’s legal liability for:

  • The occupancy, operation, or use of a motor vehicle by any person
  • The entrustment of a motor vehicle by the insured person to anyone else
  • The insured person’s failure to supervise or negligent supervision of any person using a motor vehicle
  • The actions of a minor involving a motor vehicle.

Because of this, the homeowner’s policy will not cover the parents’ liability or defense costs. Their personal auto insurance policy may cover them, however. The policy’s liability insurance covers the individuals named on the policy and household residents who are their relatives for their liability for bodily injury from an accident arising out of the use of any auto. Therefore, even though the parents were not actually operating the vehicle involved in the accident, their policy will cover their liability. In addition, the auto policy that applies to the car involved in the accident (the guest’s insurance, or, more likely, his parents’) will also cover the hosts’ liability for the passenger’s injuries. The hosts’ policy will step in if the owners’ policy either does not apply or pays out its maximum limit of insurance.

Now assume that the guest consumes the beer, but a sober guest gives him a ride home. Rather than go straight to bed, the young man goes for a swim in his parents’ pool and drowns. His parents sue the hosts, alleging that his judgement was impaired because the hosts allowed him to drink. In this situation, the homeowner’s policy should pay for the the hosts’ liability and legal defense. Because this accident did not involve a motor vehicle, and no other policy provisions that would remove coverage apply, the policy will cover this claim.

While one policy or the other may apply to a liquor liability claim, there could be significant differences between the amounts of coverage the two policies provide. Most homeowner’s policies provide personal liability coverage of at least $100,000 for each occurrence; many provide limits of $300,000 or $500,000. Auto policies may provide much less coverage. Most states have laws setting the minimum amounts of liability coverage that an auto policy may provide, but those limits are relatively small. For example, New York law requires minimum limits of $25,000 for injuries to one person and $50,000 for injuries to two or more people (higher amounts apply for death claims.) Should a young person become seriously injured or killed, the damages claimed could well exceed these amounts. Parents should consider buying as much liability insurance as they can afford; they should also think about buying an umbrella policy, which pays for damages that surpass the amounts payable under homeowner’s and auto policies.

Of course, the best course of action is to properly supervise parties, so that everyone has a good time and lives to have another one someday.

Know Your Commercial General Liability Insurance Limits

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A commercial general liability policy (CGL) lists six different limits on the policy’s declarations page. While the limits may be listed separately, it’s important to understand that they are all interrelated. That means that payment of damages for one limit will affect another limit.

To illustrate how these limits interact, it is necessary to examine each one in detail:

The General Aggregate Limit  – The maximum amount the insurer will pay during the policy period for all damages including bodily injury, property damage, personal and advertising injury except for any amount paid as damages because of bodily injury or property damage included within the products-completed operations hazard. The definition of the products-completed operations hazard is outlined in the policy and a separate aggregate limit applies to this type of claim. Also included within the general aggregate are damages paid for medical payments.

Products-Completed Operations Aggregate Limit – The maximum amount the insurer will pay for damages because of bodily injury or property damage included within the products-completed operations hazard. The specified hazards are those described within the definition of the products-completed operations hazard and are limited to bodily injury or property damage that:

1.             Occurs away from the insured’s premises.

2.             Caused by the insured’s products that are no longer in the insured’s possession or an insured’s work that has been completed.

Personal and Advertising Injury Limit – The maximum amount the insurer will pay if legally obligated to pay damages due to personal and advertising injury offenses. The personal and advertising injury limit applies separately to each person or organization that sustains damages because of a covered offense. However, regardless of the number of persons or organizations claiming damages, or the number of offenses claimed during the policy period, the insurer is only obligated to pay up to the general aggregate limit.

Each Occurrence Limit – The maximum the insurer will pay for the sum of all damages due to bodily injury, property damage and medical payments. Keep in mind that there is an aggregate limit for bodily injury and property damage claims that arise from the products-completed operations hazard and a separate limit for all other bodily injury and property damages. However, the each occurrence limit does apply to all sums paid for medical payments.

Damage to Premises Rented to You Limit – This coverage is actually an exception to certain exclusions found in the bodily injury and property damage coverage. The first exception provides coverage for property damage to a premises and its contents, rented to the insured for 7 or fewer consecutive days if an insured is legally obligated to pay for such damage due to any cause except fire.

The second exception provides coverage for damage to the premises only if an insured is legally obligated to pay for property damage due to fire. However, if an insured is held liable solely due to an agreement to be responsible for the property or for damage to the property, there is no coverage. Liability has to be imposed on the insured as the result of a lawsuit in order for coverage to apply.

The Damage to Premises Rented to You limit applies to any one premises. Any property damage paid under this limit will reduce the each occurrence limit for that same occurrence and will also reduce the general aggregate limit.

Medical Expense Limit – The medical expenses coverage is a separate insuring agreement that obligates the insurer to pay reasonable medical expenses for bodily injury, caused by an accident, without regard to fault. Medical payments are subject to the medical expense limit. The medical expense limit applies separately to each person. However, medical payments will reduce the each occurrence limit for that same occurrence and will also reduce the general aggregate limit.

Cutting the Cost of Your Teenager’s Car Insurance

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Auto insurance for teenagers has always been expensive, and that will probably never change. It’s common for most parents to add their teen as a named driver to the family auto policy because it is usually the most affordable alternative.

However, less expensive doesn’t mean cheap. That’s because insurers calculate their rates based on the likelihood of a driver getting into an accident. The National Safety Council says that drivers between the ages of 16 and 17 are three times more likely to be killed in a traffic crash than drivers between the ages of 25 and 64. Statistics like these make drivers under the age of 25 bigger risks in the eyes of auto insurance companies, so expect your premium to increase anywhere from 50 to 75 percent.

There are some other important factors that affect how much you will pay when adding your teen to your insurance:

  • Gender – Teenage boys are considered to be more reckless and bigger risk takers than teenage girls. All of that bravado comes with a price, higher rates than for teenage girls.
  • Experience – Lack of driving experience translates into higher premiums because insurers assume that inexperience makes the driver more prone to accidents.
  • Geography – Driving in a high-traffic geographic area is another rate booster because it increases the probability of getting into an accident.

While the deck seems to be stacked against you, there are ways you can lower premiums:

  • Buy them an older model car – Older cars cost less to insure than newer models.
  • Avoid the extras – All of those add ons that teenagers love, like chrome rims and big stereo systems, will increase the rate you’ll pay.
  • Lower/drop collision coverage on older cars – If the value of the car is less than the product of your annual premium times 10, think about dropping the collision and/or comprehensive coverage portion of your policy.
  • Raise your deductible – A higher deductible can lower your auto insurance rate by 15 to 30 percent.
  • Enroll the teen in a defensive-driving class – This could result in a premium decrease.
  • Obtain car insurance from the same company that provides your homeowner’s or renter’s insurance – Many insurers will offer a 10 to 20 percent discount for multiple lines of coverage.
  • Maintain your credit score – Insurers base your premium in part on your credit score; the higher it is, the lower your rate will be.

Ask about low mileage discounts – As gas prices increase, many people aren’t driving their car as much. If you drive less than the annual average miles allotted by your insurer, see if you can qualify for a low mileage discount.

New Building Codes Can Leave You Under-Insured

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The owner of a commercial building may believe that replacement cost insurance coverage on the building is sufficient to protect her from financial loss. After all, she took the insurance agent’s advice and bought enough insurance to pay for repairing or replacing the building if it were completely destroyed. However, this may be a false sense of security, particularly if the building is an older one. While the building may not have changed greatly over the years, local building codes undoubtedly have. Even codes in effect at the time the building was constructed may affect your insurance coverage.

Many local governments have ordinances that require the demolition of a building when more than 50 percent of the building has been damaged. These ordinances require the reconstruction of the building in accordance with current building codes. Zoning and land use codes may have changed over the years prohibiting the reconstruction of that type of building at the same site. This could require the owner to rebuild somewhere else or with a much different building design. Laws and codes requiring buildings to be easily accessible to handicapped people may affect rebuilding if the building previously lacked ramps, doors that can be opened remotely, wheelchair-accessible toilets, and other accommodations.

All of these requirements may significantly increase the cost of rebuilding. Unfortunately, standard commercial property insurance policies provide very little coverage for these higher costs. Most will pay either 5 percent of the amount of insurance on the building or $10,000, whichever is less, for the increased cost of construction resulting from a local ordinance or law. Therefore, the amount of insurance available for a building insured for $150,000 is $7,500; the amount available for a building insured for $500,000 is $10,000. The costs of demolition and rebuilding up to new codes or at a new location can quickly use up this relatively small amount.

Building owners should consider buying additional insurance to cover this possibility. Many insurance companies offer ordinance or law coverage for an additional premium. This coverage will pay for the additional costs of demolition and construction unless the costs result from failure to comply with previous ordinances or from the release of pollutants. Included are three distinct coverages for the specified building:

  • Coverage A – Loss to the undamaged portion of the building
  • Coverage B – Cost of demolishing the undamaged portion of the building
  • Coverage C – Increased cost of construction or repairs to comply with ordinances or laws

The amount of insurance available under Coverage A equals the amount of insurance covering the entire building. Separate amounts apply to Coverages B and C. There is no coverage if the damage results from a cause that the policy excludes. For example, most policies do not cover flood damage, so the policy will not pay if the law requires the owner to demolish the building after a flood. Also, the insurance will pay only the amount necessary to meet the minimum requirements. The insurance will not pay for the cost of exceeding requirements during rebuilding.

This insurance covers the owner only for the cost of repairing or replacing the building, not for income lost during additional reconstruction time. Separate coverage is available for this exposure.

An insurance agent can advise building owners on the types, amounts, and costs of coverage they may need to meet updated codes. Whether or not they ultimately decide they need the coverage, they should give it careful consideration. The last thing any owner wants is a surprise uninsured expense after a disaster.