Property insurance is designed to repair or replace your property after a loss has occurred. If you have ever insured a commercial property, you have likely gone through the process of estimating the replacement cost of your building and contents. In addition to determining the replacement cost of the building and contents, it is important to ensure that you have taken into consideration the additional costs involved in removing the debris, rebuilding to current code or conforming to current bylaws along with the costs involved in removing hazardous substances. These costs are often overlooked and can have a significant impact on the limit of insurance required.
In the event of a loss, before you can rebuild, you have to clean up the debris left behind. “Debris removal” provides coverage for the costs associated with removing the debris and hauling it away. In addition, environmental laws require that specialized contractors be hired to deal with hazardous materials and these additional costs normally fall under the “debris removal” coverage. It is fair to state that these additional costs can significantly erode your limits if they have not been addressed.
While it is common for property insurance policies to provide “debris removal” coverage, very few provide additional limits. You will occasionally see a small amount being included on a property extension but the limit is usually insignificant and has no bearing on the size of the building, the age of the building or the nature of the operations.
Other issues to consider are the costs associated with federal, provincial and municipal codes or bylaws that impact the cost of reconstructing your building. Federal and provincial building codes change on a regular basis. Municipal bylaws are also frequently amended and all three can add a significant cost to your building reconstruction. Some of the more common bylaws that affect buildings include the following:
- The additional costs to conform to current fire protection requirements such as adding a sprinkler system
- The additional costs to conform to handicapped access requirements
- The additional costs to add a 2nd story to your building as a result of the application of amended setbacks.
- The additional costs to upgrade trusses due to amended snow load requirements
As a building ages, the cost of conformity increases. As you can see, when calculating the total replacement cost for your property, the additional costs for debris removal and by-law compliance need to play a part when establishing replacement cost values.