Keeping Up With Building Codes - Commercial Property Insurance
I recently learned that the city building code requires automatic fire sprinklers for a building like mine. Will my property insurance 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 you 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.