When historic properties, such as hotels, country clubs, theatres, museums, commercial buildings and commercially operated historic homes, experience property damage due to a fire or other covered property loss, the potential fallout from such a loss goes way beyond having to repair or rebuild the structure. There are many insurance considerations to take into account when covering these properties to ensure they are adequately protected. In addition, it’s important that the property’s historical significance is maintained after a loss.
The first thing to review is the type of Property insurance the historic structure has in place: Does the policy include Historic Replacement Cost, Extended Replacement Cost, Guaranteed Replacement Cost, and/or Historic Cash Settlement coverages? Will coverage step in so that the building can be restored with the quality, craftsmanship and materials originally used in the event of a loss?
Ordinance or Law Insurance
In addition to having Property insurance based on historic valuation with Replacement Cost options, it’s also important the policy includes Ordinance or Law coverage. Due to the age of these buildings, over time it’s only logical that the majority of historic structures do not meet current building codes and regulations, including complying with the Historic Preservation Act or other landmark regulations in force at the time of loss that stipulate the construction or repair, or require the tearing down of any property.
When a fire or other event damages a historic property, resulting in necessary repairs and/or rebuilding, the owners will have to abide by the building codes in place at the time of the loss. These codes typically involve fire safety (sprinkler systems, etc.) and ADA (Americans with Disabilities Act) compliance. For example, hallways must meet certain size specifications, ramps must be used in lieu of stairs in certain locations, and restrooms must comply with specific size requirements. These and other regulations and codes should be contemplated when rebuilding the damaged historic structure along with accounting for the additional costs to do so. According to Adjuster’s International Disaster Recovery Consulting, compliance with ordinances and laws after a loss can add 50% or more to the cost of a claim. This can be even more for historic properties.
Ordinance or Law insurance provides the following coverages:
Coverage A: Covers the loss in value of the undamaged portion of the building when the code requires demolition of the entire structure.
Coverage B: Covers the cost to demolish and clear the site of the undamaged parts of the building.
Coverage C: Provides protection for the increased costs of construction associated with repairing or rebuilding the structure to the code existing at the time of the loss.
Distinguished Programs automatically provides Ordinance Or Law insurance in our Property form for historic properties up to a certain limit, which can be increased.
Owners put in a great deal of effort and money into meeting the standards required of a historic property. They are therefore eligible to claim federal and/or state tax credits for the rehabilitation of historic, income-producing buildings over a set number of years. These tax credits in fact are contemplated in the owners’ financials. In the event of a loss where the damage to the property prevents it from being operational, owners may lose their certification eligibility to receive the historic tax credit. A “Historic Property – Federal Historic Preservation Tax Credit Recapture Endorsement” from Distinguished Programs is available to pay for the loss of these federal tax credits. For coverage to apply, the historic structure must be a certified rehabilitation property approved by the National Parks Service. In addition, the claim must be as a result of direct physical loss or damage to the certified historic structure.
Also available is coverage to pay for the expenses to become recertified. The “Certification Expense Endorsement” from Distinguished Programs pays an insured for legal and other expenses incurred to regain historic certification on the insured property. Recertification is a lengthy and expensive process, making this coverage invaluable to a property owner.
To properly protect your insureds’ historic structures, you can find additional information about our Historic Properties Program here.