FC&S editors acknowledge the contribution of Donald L. Schmidt, ARM, CEO of Preparedness, LLC, a Sharon, Massachusetts, firm that provides consulting services in the areas of Risk Assessment, Mitigation, Response, and Recovery (www.Preparednessllc.com). Mr. Schmidt provided information on the process by which building codes are developed, adopted, and enforced.

Summary: Various types of political jurisdictions often adopt and then enforce ordinances or laws that regulate the construction, operation, and occupancy of different types of buildings. These ordinances and laws fall within the broad category usually referred to as building codes. Many building-related ordinances and laws are based on uniform codes and standards promulgated by the National Fire Protection Association (NFPA) or the International Code Council (ICC). Ordinances and laws may differ depending upon the type or occupancy of structures. For example, states may adopt and enforce separate residential and commercial building codes. Likewise, the building codes that govern public buildings may differ from those for private buildings. Healthcare facilities, including hospitals and assisted living homes, may need to conform to even more stringent codes. This article provides an overview of various types of ordinances and laws that affect building construction and repair. It then reviews how various insurance policies treat the additional costs of conforming to building codes when settling a claim that arises from a covered cause of loss. In conclusion, we discuss various courts' take on the exclusion for coverage related to ordinance or law.

Topics covered:

Overview of building codes

Commercial property exclusions

Commercial property coverage

Businessowners treatment

Homeowners exclusions

Homeowners coverage

Endorsements to cover the exposure

Court interpretation of policy language

Overview of Building Codes

Professional organizations that specialize in safety develop best practices, which then are promulgated as written standards that may be adopted by political jurisdictions such as municipal, state, and federal governments. These ordinances and laws then become mandatory requirements that then are enforced by the applicable jurisdictions.

Building codes may address areas such as fire suppression by requiring that certain types of buildings have installed and operational fire suppression systems that can detect a fire, set off an alarm, and then suppress or control it. Other areas that frequently are a part of building codes are the installation and use of fire doors, stairwell construction and protection, electrical standards, elevator requirements, and the like.

For example, the National Fire Protection Association (NFPA) publishes hundreds of codes and standards, many of which are adopted by various jurisdictions as a basis for building codes. The NFPA Web site and catalog, http://www.nfpa.org, lists codes and subject areas such as the Life Safety Code©, Uniform Fire Code™, NFPA 5000® Building Construction and Safety Code®, hazardous materials codes, electrical safety codes, and standards for various types of fire suppression equipment such as portable fire extinguishers and fire suppression systems.

The International Code Council (ICC) publishes the International Fire Code (IFC). According to Donald L. Schmidt, ARM, CEO of Preparedness, LLC, both the NFPA Uniform Fire Code and the IFC are adopted in individual states across the country.

The NFPA has developed numerous documents that address specific technical subjects such as fire suppression systems and fire hazards, among others. Many of these documents are mandatory references within both the ICC's fire code and NFPA's Uniform Fire Code. Businesses within jurisdictions that have adopted the IFC may also comply with the requirements of many NFPA documents that have been incorporated as mandatory references with the IFC.

The code adoption process varies from state to state and municipality to municipality. Some major cities adopt their own codes—mostly by writing amendments to model codes to meet local needs. For example, following Hurricane Andrew's August 24, 1992 devastation in Florida , local building codes were revised. The new code required, among other items, metal bracing to anchor roofs to walls, more reinforcement of roof trusses, and, in high wind zones, exterior windows that were made of impact glass, protected with storm shutters, or engineered to withstand internal pressure. The code adoption process requires enabling legislation that may mandate retroactive compliance for all facilities after a specified number of days past legal adoption. Other states allow “grandfathering” of existing facilities. Grandfathering is often permitted by making new building codes apply only to new construction, renovations, and additions. Grandfathering is not as commonly seen with fire codes.

Frequently, legislation is passed to adopt a new code or standard or a newer edition of a code or standard. The legislation will address applicability (i.e., all facilities, only new facilities, etc.,) the timeframe for compliance, and procedures for hearing appeals and granting waivers. The code or standard prescribes the technical requirements. However, the process can often take a long time. Florida 's code, although revised on a regular basis, finally included in the 2002 revision the recommendations arising out of Andrew.

On many code issues, the “authority having jurisdiction” (such as the fire marshal, building inspector, or other governmental representative) typically has the authority to do what is necessary to protect the public. Codes and standards frequently are revised and updated, many as frequently as every three years.

Building codes reflect local concerns. For example, the suggested Ohio 2007 revisions include reference to such items as aisle access way width when tables and seating are involved, and egress balconies. (As an aside, Ohio 's draft plumbing code revision says: “Words stated in the present tense include the future; words stated in the masculine gender include the feminine and neuter; the singular number includes the plural and the plural the singular” [§ 201.2]. Should policies of insurance take a hint?) But in California , the proposed building standards for healthcare facilities include, as might be expected, reference to earthquake anchorage, bracing, and installation of structural elements in new construction, and retrofitting existing structures in order to manage the earthquake exposure.

As safety professionals learn more about specific hazards, codes are revised, often with interim amendments added. The Beverly Hills Supper Club fire in Kentucky , 1977, in which 165 persons died, was linked to use of aluminum wiring installed in 1970 and 1971. Following the fire, it was learned that, without proper receptacles, heat from the wiring could ignite nearby materials. Fire traveled up between walls until the building was engulfed. The building code was soon revised to prohibit the use of aluminum wiring. After the February 21, 2003 well-chronicled fire at The Station nightclub in Rhode Island , NFPA's technical committee on life safety adopted an interim requirement for automatic sprinklers in nightclubs of a certain minimum size or larger. That fire also precipitated a move in Rhode Island to stop grandfathering compliance with the latest fire code, a practice that had been in place for nearly fifty years. Of course, in the Rhode Island fire, human negligence in setting off fireworks near flammable soundproofing foam was the cause of the fire, rather than, as in the Beverly Hills fire, a standard building product. Nonetheless, fire codes can and do attempt to account for human shortsightedness as well as building practices.

One last note: in this article, the local building ordinances and their effects on insurance that we discuss do not include floodplain or coastal elevation requirements. These requirements are directly related to flood insurance. In the dwelling form, for example, coverage D is for increased cost of compliance and provides up to $20,000. But coverage is limited to the increased costs necessary to comply with a state or local floodplain management law which affects repair or reconstruction—elevation, flood-proofing, relocation, or demolition—of a flood-damaged building. The coverage is not intended to respond to any loss other than one caused by flood.

Commercial Property Exclusions

Couch on Insurance Third Edition, in § 152:22, which discusses exclusions in general, notes that “[u]nlike losses caused by violence or warlike activity as discussed previously in this chapter, some losses occur because of the actions of a civil authority functioning in its ordinary governing capacity. Because this kind of loss is unpredictable, it is typically excluded from most property insurance policies. Many such provisions excluded liability for the insurer for loss or damage caused directly or indirectly by enforcement of any ordinance or law regulating construction, repair or right to use property or requiring the destruction or tearing down of any property… An insured may seek coverage for some of the excluded losses by paying additional premium.” Indeed, it is the unpredictability of building codes and their resulting enforcement that creates a problem for insurers as well as their insureds. Rate-making must rely on being able to predict a certain number of losses. But when the type of loss changes because the building codes change, rate-making becomes an art rather than a science. Using the Beverly Hills Supper Club fire as an example, the building incorporated what was then thought of as “state of the art” aluminum wiring. Only after the disaster occurred was the wiring found to be dangerous.

All three ISO causes of loss forms CP 10 10 04 02, CP 10 20 04 02, and CP 10 30 04 02 exclude coverage for any additional costs to repair or replace a building that are necessary because of an ordinance or law that regulates the construction, repair, or use of a building. They also exclude coverage for the additional costs that may arise because property must be demolished due to an ordinance or law that requires it. Each form contains the following exclusion: