ArticleRead time: 4 min

How a $1 Million Policy Became Worthless

years ago, we got a new customer under some very difficult circumstances.

What happened was that my future customer, (I'll call him Mr. Unlucky), owned a 65 year old building on Long Island. It was a mixed use property with a Chinese take-out restaurant on the ground floor and apartments above.

There was a fire in the Chinese restaurant (they didn't have insurance) and it spread to 2 of the 6 apartments. The damage was extensive. The restaurant was totally destroyed and even though there was damage to only 2 apartments, all 6 units were deemed uninhabitable by the fire marshal and were ordered to vacate.

What happened next was the really sad part.

As I mentioned, this building was 65 years old. The building was insured for $1,000,000 (more than enough) and the total damage to rebuild according to his contractor and architects was $675,000. He also had loss of rents of about 10,000/month.

Mr. Unlucky's problems began when the insurance company offered only $420,000 for the building. Also, the loss of rents payments would stop after 5 months.(estimated time of completion) The big difference is because the building code has changed and in order for the building to be brought up to code, it would cost the difference between the $675,000 estimate and the $420,000 offered by the insurance company. The new code required a sprinkler system. It would be about $250,000 extra to install a sprinkler system. You see, the purpose of insurance is to put you in the same position as you were immediately prior to the loss. If the building code or town ordinances change, you are basically out of luck.

Unfortunately, Mr. Unlucky's problems were just beginning. A few months after the loss, the town ordered the building torn down because too much of the building was damaged and with the new building code and ordinances, it could not be "grandfathered". The demolition cost was also not covered by insurance.

But wait, there's more! 3 other coverage triggers were set off here. 1) Loss of rents: The insurance company will only pay Loss of Rents for the amount of time to rebuild the partial loss (5 months), not the full demolition and rebuilding (12 months). 2) Demolition costs-(approximately $125,000) not covered by insurance. 3) Rebuilding the entire building not just the portioned damaged by the fire.

Here's a list of Paid losses vs actual loss for Mr. Unlucky:


Actual Loss

Amount Insurance Co Paid




Loss of Rents



Demolition Costs



Total Loss



Mr. Unlucky is out almost $1,000,000! Given the size of the loss, (most of it not covered by insurance), he was not able to rebuild and sadly, the bank seized his property.

You can see where I'm going here. Mr. Unlucky had a missing coverage called "Ordinance or Law". Basically if building codes change, it pays for increased cost of construction, Loss of rents for a longer time frame and demolition costs. This coverage is available on almost every type of Package or Business Owner Policies. If your building is over 10 years old, odds are it is not up to the most current code!

Now I can bore you with how Ordinance or Law works or coverage triggers etc., but wouldn't it be easier if we had an old fashion conversation about your individual situation? We can talk about whether or not you need this coverage and if so how much you really need. Ordinance or Law Coverage is relatively inexpensive. Don't be like Mr. Unlucky. Call me today and get the peace of mind you deserve. Check out our website at or call us at 888-997-9801

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