What if Code Upgrades Delay the Time to Complete Repairs? - Understanding Business Interruption Claims, Part 20
(Note: This Guest Blog is by Michelle Claverol, an attorney with Merlin Law Group in the Coral Gables, Florida, office. This is the part of a series she is writing on business interruption claims).
Complying with code upgrades often extends the period of time it takes to repair or replace the property after a loss. Depending on the type and nature of the code requirements, repairs could be extended for several months and depending on the type of policy this time delay may not be covered. Depending on the size of the business, this could translate into significant unrecoverable losses.
At its very basic form, the standard ISO CP 00 30 "Business Income (and Extra Expense) Coverage Form" states that:
"period of restoration" does not include any increased period due to the enforcement of any ordinance or law that regulates the construction, use or repair, or requires the tearing down of any property.
Most business policies also have a standard ISO CP 00 10 “Building and Property Coverage Form,” which will provide coverage for the increased costs incurred to comply with the enforcement of new building codes up to a cap or limit. However, the delay in repairs or replacement caused by complying with the required forms may still not be covered by this basic form.
Large-scale business owners, should speak with their brokers about company or manuscript forms that provide not only complete coverage for the increased costs, (i.e., not limited to a percentage), but will also provide coverage for the period of time required to adhere to the code upgrades. Typical wording is the following:
Increased Cost of Construction
This policy also covers any increase in the Business Interruption and extra expense loss arising out of the additional time required to comply with state law or ordinance.
All business owners should call their agents to give their policies a little spring check-up on code upgrade coverage.
I have a case where insurers have created delays with lowball offers that have resulted in all of the valuable Business Income Sand to pass through the hourglass. Now that it is determined and documented that substantial more sums are owed for the required restoration, time has run out.
Now that the 12 months of available BI coverage is expired, with never being used, is there any alternative for recovery.
Bill Cook
Hi Bill,
The question whether a carrier's delay could extend the Period of Restoration is a question of fact and I would need more information to address your question. For a more detailed explanation on this issue, please see my blog entry titled, Can a Carrier's Delay Toll the Period of Restoration? -- Understanding Business Interruption Claims, Part 10 and feel free to contact me should you wish to discuss this matter further.
Michelle
Increased cost of compliance due to code changes seems to be one of the most obvious but least understood parts of forensic investigation process. Indeed many engineers and other consultants do not even recognize this issue when it is obvious.
In a recent investigation in Houston, we found that the amount of deflection of the framing members of the shear walls required the framing members to be replaced. The changes in the building code were such that the 2X4 construction could no longer be used and 2X6 framing members would be required. Every other consultant on this project missed this important information. The carrier acknowledged the code issue and building use did require the construction changes. I am not sure if the City building department would have caught this code violation; however, I am glad we did not have to depend on the City building department to do our work for us.