How Much Should I Insure This Building – Part 2

How Much Should I Insure This Building – Part 2: Building Code Upgrade Coverage
As we continue our “How Much Should I Insure This Building” series, this week we look at Building Code Upgrade Coverage and Fire Insurance.
According to the National Fire Protection Association, www.nfpa.org, “there were 1,331,500 fires reported in the United States in 2010. Of these fires 482,000 were structure fires, causing 2,755 civilian deaths, 15,420 civilian injuries, and $9.7 billion in property damage. Of these fires, 98,000 were non-residential structural fires, causing 90 civilian deaths, 1,620 civilian injuries, and $2.6 billion in property damage.”
No matter how you break it down, these numbers are staggering. Last thing you want as a building owner is to lose a building or a life due to a fire. So with this bit of information rattling around in your head, let’s be realistic, fires do happen. Whether it is an accidental fire that occurs within the building or the result of an outside element (for example a wildfire, or a car runs through your front window), understanding your fire insurance policy should be part of your annual assessment of your
disaster preparedness process. For clarification, we are going to look at fire insurance policy for California and items you, as a building owner need to consider purchasing to cover your costs.
 
Standard Fire Insurance Policy in California
The standard fire insurance policy does not provide coverage for:
1. Coverage for Loss to the Undamaged Portion of the Building
2. Demolition cost coverage
3. Increased cost of construction
 
What does this mean to the building owner when you do not have coverage in these areas? Let’s take a look at each issue.
1. Coverage for Loss to the Undamaged Portion of the Building.
A building has damage, but is not a total loss. Current building code in California requires the building to be razed and rebuilt from scratch. The undamaged portion of the building is not covered unless coverage is selected and paid for prior to damage occurring.
2. Demolition Cost Coverage.
The building owner pays all incurred costs, to demolish the undamaged portion of the building and clear the site so reconstruction can take place. However, if this policy is in place, your insurance carrier will pay up to policy limit for the loss.
3. Increased Cost of Construction
If current California Building Code requires installation of items not already in the current building, then without this coverage the building owner would be required to pay these increased costs and not the insurance carrier. A few examples of increased cost of construction are:
a. Installation of elevator not present in pre-loss building
b. Installation of interior fire sprinklers not present in pre-loss building
c. Change in building material from frame to masonry

Limits for each coverage can be identified or a blanket limit can be selected. The key point is that without these particular coverage policies, you can face some serious coverage gaps in the event of a loss. Talk to your agent today to ensure that you have sufficient coverage, and take all necessary steps you can to prevent the loss from occurring in the first place.