Increased Cost of Construction Coverage for Tenant's Improvements and Betterments

March 7, 2016

We have an insured tenant presenting a claim under BP 00 03 01 10 for upgrades required when repairing covered property. The damage is to an Ansul system and hood vent. A cooking fire caused damage to various parts of the system because of a malfunction. The system was installed by the insured as an improvement years ago. The code now requires an upgrade to type of system used. There is no building coverage in the policy. Does the increased cost of construction additional coverage apply to the improvements and betterments even though the policy says the coverage “applies only to buildings” insured at replacement cost? Does the ordinance or law exclusion apply to the upgrade costs?

North Carolina Subscriber

The form is pretty specific in stating that the increased cost of construction additional coverage applies only to buildings insured on a replacement cost basis. Since your insured does not carry building coverage, this additional coverage would not apply. On the other hand, the ordinance or law exclusion is broader and applies to “any property,” which means it would apply to the insured's Ansul system and hood vent. The cost for upgrades would not be covered.