6 minute read
The Importance of Building Ordinance & Law Coverage By Mike Rey
The Importance of Building Ordinance & Law Coverage
By Mike Rey
Picture yourself at home having a cup of coffee while overlooking your peaceful common area greenbelt. The morning is beautiful, nice and clear, with a slight breeze. Later that morning, you notice the wind picking up and changing into strong gusts. In Southern California, we call them “Santa Anas” and we all know what that means—fire danger. Off in the distance, you see smoke and pray that it is confined and will be put out quickly. A half hour later, the winds gain strength and the plume of smoke becomes ominous. As you watch, large flames can be seen through the dense smoke. You hear sirens and see first responders coming into your neighborhood. The dreaded knock at your door lets you know it’s time to evacuate. There is no time to plan so you grab a few photos and leave your home and all your possessions behind, hoping for the best.
On the morning of October 19, 1991 at approximately 11:30 am, this very scenario happened among the hillsides of Oakland and is known as the “Tunnel Fire.” Strong winds and an improperly extinguished house fire are to blame. What firefighters thought of as a routine house fire, quickly erupted into a raging inferno. Known to fire experts as an “Urban Interface Conflagration,” this is what happens when large fires occur in suburban communities. In California, we have experienced Urban Interface Conflagration in Santa Barbara, Simi Valley, Malibu and most recently in Thousand Oaks. The economic losses in such fires reach billions. The Tunnel Fire had an estimated loss of $1.5 billion with human loss of 25 persons and more than 150 injured, including fire fighters. It burned an estimated 1520 acres, destroying 2,843 single family homes and 437 apartment and condominium units. Driving the fire were wind gusts of 65 mile per hour.
Photos from Oakland Tunnel Fire Search
Many of the destroyed homes from this upscale area were old and some had been built in the early 1900’s and were registered as historic sites. When it came to settling claims with insurance companies, homeowners learned that the costs to bring these homes up to current code was not covered under the standard insurance contract. This resulted in multiple lawsuits against the insurance carriers. The insurance industry rejected the costs for upgrades partly because many of these homes had
not been recently reviewed and were therefore underinsured. At that time, there was no coverage in existence to pay for building code changes.
As a result of the lawsuits, Building Ordinance and Law coverage was born. This coverage is designed to bring all structures up to current building standards to meet not only fire codes but all codes such as ADA (Americans with Disabilities Act) codes.
The outcome of these devastating fires is the addition of new codes to protect homes during a fire. These new codes work to protect homes but also increase the
FOR EXAMPLE, THE DEVASTATING “TRIANGLE COMPLEX FIRE” OF YORBA LINDA LEAD TO THE FOLLOWING NEW CODES:
• The requirement for pump stations to be built in communities. During the fire, there was a lack of water pressure in the hills, which made it necessary for fire fighters to borrow mobile pumps from Laguna Beach to get water up to the fire.
• Homes in Yorba Linda must now have enclosed roof eaves with ventilation to prevent embers from settling under the roof and thus destroying the home.
• Homes over 2500 square feet must have a fire sprinkler system within the attic of the home.
These are just a few of the costly but potentially lifesaving code changes that have been passed since this fire occurred in 2008.
SOME RECENT STANDARDIZED STATEWIDE ORDINANCES INCLUDE:
• Fire hydrants must have 4 ½ and 2 ½ inch outlets
• Residential buildings must have carbon monoxide and smoke alarms installed if renovation or new construction exceeds $1,000
• Smoke alarms must be located outside each separate dwelling unit and the sleeping area of any bedroom
• Fire system pressure valves must be checked every five years
• Alarm devices must be checked quarterly cost of rebuilding homes that are destroyed.
Rebuilding a destroyed structure to conform to the latest building codes can add an additional 50% or more to recovery costs. Estimated replacement ordinance costs are between $60 to $80 per square foot. In an article found in the March 2018 issue of CAI’s Common Ground, Dana Wilke states that, “Retrofitting an existing structure is substantial…from $5,000 to $15,000 per unit.”
When you review your association’s coverage, it is important that you specifically ask about Building Ordinance and Law coverage. It can be overlooked, especially if the board is primarily focused on cost. Don’t make that mistake.
MANY CARRIERS HAVE A BASE MINIMUM OF COVERAGE RANGING FROM $25,000 TO $250,000. BUILDING ORDINANCE AND LAWS COVERAGE INCORPORATES THREE PARTS:
• COVERAGE A – Undamaged Building Cost. This coverage is for required demolition of parts of a building not damaged by the peril;
• COVERAGE B – Demolition and Debris Removal. This pays the cost to demolish and clear the site of undamaged parts of the building caused by enforcement of building, zoning or land use ordinance or law in force at the time of loss;
• COVERAGE C – Increase Cost of Construction. Pays for the increase in cost to repair, rebuild or construct the property caused by enforcement of building, zoning or land use ordinance or law when loss results from a peril.
Building Ordinance and Law coverage is a vital component to the overall property coverage for any building. Since building codes are revised frequently, having adequate coverage prior to a loss is important. Check your policy because some property policies exclude Ordinance and Law coverage, however, you can usually purchase a separate endorsement if needed.
When obtaining bids for your association, ask the agent or broker to specifically discuss this coverage with the board. Be prepared because Building Ordinance and Law coverage could increase the annual premium by a few thousand dollars depending on the size of the association.
The additional cost is typically worthwhile when compared to potential losses. When basing your insurance coverage purely on price, the actual cost to the association after a fire could be substantial.
Some policies have higher limits than others so work with your agent to find the proper amount of coverage for your association. The agent will be able to calculate a recommended amount of coverage.
In conclusion, when you have your insurance program reviewed, make sure you include Building Ordinance and Law Coverage. While it is important for associations to be cost conscious, skimping on insurance can lead to a secondary disaster - special assessments. Make sure your agent/broker is an expert in common interest development (CID) insurance and rely on his or her counsel when making these important decisions.
Mike Rey is the owner of Rey Insurance Services, a FARMERS® Insurance Agency. Mike can be reached at (949) 487-9661 or by email at Mike@ReyInsuranceServices.com.
