Remediation Costs for Gutting Building

Our client carries building and personal property coverage under a CP 00 10 form with an endorsement for ordinance or law coverage under form CP 04 05 10 00 with an additional $250,000.00. Replacement cost coverage applies. A nine unit, three-floor apartment building sustained a fire loss originating on the third floor that burned through the roof. As a result, there is extensive water damage throughout on all three floors and in the basement. There is plenty of coverage on the policy, so we have no issue with values. It was agreed that the entire interior should be gutted to the framing. However, prior to starting the work, a hazardous material survey was done and it was determined that there is asbestos throughout the building, including roofing material. The cost to remediate is $258,000; code upgrades are $50,000, which will use part of the $250,000. The damage to the building exceeds $800,000 without the demolition work.

The insurance company insists on applying all of the demolition/remediation work to the ordinance or law coverage. By doing that, the damages of $258,000 plus the $50,000 exceed the limit of $250,000 and will cost the insured over $50,000. I argue that the damages were caused by the fire and water and should be treated as normal demolition even though the cost is higher because of the asbestos and therefore not subject to the ordinance or law endorsement. No authority is forcing them to remove it. The insurance company agrees the entire building must be gutted as a result of the fire and water. The building contractor has prepared an estimate to rebuild but has no demolition because the remediation contractor is doing all of the demolition.