Understanding Ordinance or Law insurance
O&L insurance has three main components that work in tandem during a claim to ensure comprehensive coverage. Without O&L insurance, businesses can face significant financial difficulties and delayed repairs or reconstruction.
1. O&L coverage A
When local building codes require the demolition of undamaged parts of a building after a partial loss, coverage A helps cover the value of those undamaged portions.
For example, if a restaurant's front wall is damaged and local regulations require all exterior walls to be rebuilt as per current standards, coverage A will cover the value and rebuild costs of the "undamaged" portions, even though they were not affected by the original damage.
2. O&L coverage B
This component covers the demolition and debris removal expenses, ensuring the owner doesn't not bear the financial burden of the necessary removal of the undamaged portion.
For instance, if a bakery has been partially damaged by a fire accident, but the building codes require the entire structure to be demolished and rebuilt to meet current standards, coverage B of your O&L insurance will cover the cost of demolishing the undamaged parts of your building.
3. O&L coverage C
The need for significant upgrades on an older structure to comply with new regulations can increase the expected construction costs due to the required mandatory improvements. This situation is where coverage C comes into play.
For example, if updated building codes mandate the installation of fire sprinklers in a commercial space, coverage C of O&L insurance would pay for the costs associated with installing the sprinklers.
"Standard business interruption insurance covers losses during the initial repair phase, but it generally excludes the additional time required for code upgrades unless specified in the policy. This is why businesses should have O&L insurance with the maximum available sublimit."
Brett Kubasek, Insurance and Risk consultant, Gallagher Small Business
Understanding sublimits in local ordinances and regulations
A sublimit is a specific limit within an insurance policy that applies to certain types of coverage, such as the increased construction cost under coverage C in O&L insurance. Coverage C is subject to a sublimit that defines the maximum amount an insurer will pay for increased construction costs. Therefore, adequate sublimit is vital to complying with evolving local ordinances and building codes.
