1. Forms
2. BP
3. BP-04-15

What the Form Is

The BP 04 15 - Ordinance Or Law Coverage endorsement modifies the standard Businessowners Policy (BOP), such as the BP 00 03 Businessowners Coverage Form. Its primary purpose is to provide crucial financial protection against increased costs a business owner may incur due to the enforcement of local building ordinances or laws following a covered property loss. Standard property policies often limit or exclude coverage for these additional expenses. This endorsement typically offers three distinct coverages:

• Coverage A: Coverage for Loss to the Undamaged Portion of the Building: If a building suffers a covered loss, and an ordinance or law requires demolition of the undamaged portion of the building, this coverage pays for the loss of value of that undamaged portion.
• Coverage B: Demolition Cost Coverage: This covers the expense to demolish and clear the site of the undamaged portions of the building when such demolition is required by an ordinance or law.
• Coverage C: Increased Cost of Construction: This pays for the increased expenses to repair or reconstruct the damaged property to meet the current building codes or standards, or to reconstruct the undamaged portion if it must be demolished and rebuilt to code. This can include upgrades required by laws like the Americans with Disabilities Act (ADA).

Classes of Business It Applies To

This endorsement is particularly vital for businesses that own or are responsible for insuring buildings, especially older structures or those in areas with evolving and stringent building codes. Real-world examples include:

• Owners of Older or Historic Buildings: A pre-war commercial building in a downtown district might have been "grandfathered" under older building codes. After a significant fire, local ordinances may require that any reconstruction meet modern seismic, electrical, and fire-safety standards, significantly increasing rebuilding costs.
• Businesses in High-Risk Zones: Properties in coastal regions prone to hurricanes or areas with specific earthquake-resistant building codes often face mandatory upgrades to stricter standards during post-loss reconstruction.
• Restaurants and Hospitality: A restaurant undergoing repairs after a kitchen fire might be required to install an entirely new, and more expensive, fire suppression system or make changes to comply with updated health and accessibility codes.
• Manufacturing and Industrial Facilities: These often have specialized construction. If a section of a plant is damaged, rebuilding might trigger requirements for updated ventilation, waste disposal, or safety systems mandated by new environmental or worker safety laws.
• Any Business with an Aging Structure: As buildings age, the gap between their original construction standards and current codes widens. Even a partial loss can trigger costly mandatory upgrades for businesses like retail stores, office buildings, or warehouses.

Special Considerations

Several important factors govern the application of Ordinance Or Law Coverage:

• Ordinance In Force: The specific ordinance or law compelling the demolition or increased construction costs must be in effect at the time the covered loss occurs. Coverage typically applies only to the minimum requirements needed to comply with the ordinance or law.
• Covered Cause of Loss: The initial damage to the building must be caused by a peril insured against in the underlying Businessowners Policy for this endorsement to respond.
• Separate Limits: Often, Coverages A, B, and C will have separate limits of insurance that must be selected and shown in the Declarations or on the endorsement schedule. These limits are in addition to the main Building and Business Personal Property limits of the BOP.
• Triggering Demolition: Local codes often define a "major damage" threshold (e.g., if more than 50% of the building is damaged). If this threshold is met, authorities may require the entire structure, including undamaged portions, to be demolished and rebuilt to current codes.
• Replacement Cost Basis: For Coverage C (Increased Cost of Construction) to be most effective, the underlying building coverage in the BP 00 03 should be written on a replacement cost basis.
• Exclusions: Coverage typically does not apply to costs associated with pollutants, fungi, or bacteria unless these are specifically addressed by the endorsement or an ordinance directly related to a covered loss. Costs you were required to comply with before the loss, even if the building was undamaged, are generally not covered.

Key Information for Agents and Underwriters

Agents and underwriters should consider the following when discussing, placing, or rating this coverage:

• Risk Assessment:
  • Age and Condition of the Building: Older buildings are prime candidates as they are more likely to be non-compliant with current codes.
  • Location: Buildings in urban centers, coastal areas, or regions with stringent and frequently updated building codes (e.g., seismic zones, floodplains) present higher risk.
  • Occupancy Type: Certain occupancies (e.g., schools, healthcare, assembly) may have more rigorous code requirements.
  • Local Code Enforcement: The diligence of local code enforcement can impact the likelihood of ordinances being strictly applied.
• Pricing and Limits:
  • Premiums will correlate with the age of the building, its location, and the limits selected for Coverages A, B, and C.
  • It's crucial to help the insured select adequate limits for each coverage part, considering potential demolition costs (which can be substantial, especially in dense urban areas) and the likely extent of required upgrades.
• Coverage Gaps:
  • The standard BP 00 03 Businessowners Coverage Form provides only a minimal amount of Increased Cost of Construction coverage (e.g., $10,000) as an Additional Coverage and typically excludes the costs of demolishing undamaged property or the value of that undamaged property. BP 04 15 is essential to fill these significant gaps.
• Underwriting Guidelines:
  • Verify that the underlying property coverage is insured to value, preferably on a replacement cost basis.
  • For older buildings or those in high-demand code areas, underwriters may require more detailed building information or inspections.
  • Consider the financial stability of the insured to handle deductibles and any costs exceeding the selected Ordinance or Law limits.
  • The schedule on the endorsement must clearly identify the building(s) to which the coverage applies and the specific limits for each coverage part (Loss to Undamaged Portion, Demolition Cost, Increased Cost of Construction).