1. Forms
2. CP
3. CP-15-31

Form CP 15 31: Ordinance Or Law - Increased Period Of Restoration

1. What the form is

The CP 15 31, Ordinance Or Law - Increased Period Of Restoration endorsement, is a crucial component of Commercial Property insurance. Its primary purpose is to extend the "period of restoration" for Business Income and/or Extra Expense coverage when the enforcement of an ordinance or law causes delays in repairing or rebuilding damaged property. Standard Business Income (CP 00 30) and Extra Expense (CP 00 50) forms, or the Business Income (without Extra Expense) Coverage Form (CP 00 32), typically do not cover the additional time needed to comply with such laws. This endorsement specifically addresses this gap, ensuring that a business can recover lost income and/or extra expenses incurred during the prolonged shutdown or slowdown caused by mandatory upgrades or changes to meet current building codes. The extension applies only to the additional time necessary to meet the minimum standards of the enforced ordinance or law.

2. Classes of business it applies to

This endorsement is vital for a wide range of businesses, particularly those occupying older buildings or located in areas with stringent and frequently updated building codes. Examples include:

• Hospitality: Hotels, motels, and restaurants, especially older structures, may face significant delays if rebuilding requires compliance with new fire codes, ADA accessibility standards, or health regulations. For instance, a historic hotel damaged by fire might need to install new sprinkler systems or widen hallways, extending the repair time.
• Manufacturing: Manufacturing plants often have specialized construction and safety requirements. If a covered peril damages a facility, and local ordinances now mandate different construction materials or safety features, the rebuild time can increase substantially.
• Retail and Office Buildings: Older retail stores or office complexes might need significant upgrades to electrical, plumbing, or HVAC systems to meet current codes after a loss. For example, a strip mall damaged by a storm might be required to elevate the structure to meet new flood plain ordinances.
• Habitational: Owners of apartment buildings or multi-unit dwellings can face extended restoration periods if new codes require changes to unit layouts, fire separation, or egress points. If an older apartment building is significantly damaged, ordinances might require a complete redesign that reduces the number of units, impacting future rental income during the extended rebuilding phase.
• Businesses with Tenant Improvements and Betterments: Tenants who have made substantial improvements to a leased space may also need this coverage. If the building owner is required to make code-mandated upgrades that affect the tenant's improved space, the tenant's "period of restoration" for their business income loss could be extended.

3. Special considerations

Several important factors should be considered when utilizing the CP 15 31 endorsement:

• Triggering Coverage: For this endorsement to apply, the underlying loss must be caused by a covered peril under the policy. Additionally, the ordinance or law must be in force at the time of the loss (unless the "Post-Loss Ordinance Or Law Option" is selected on the CP 04 05 and this endorsement, allowing coverage for laws enacted or revised after the loss but before reconstruction begins). The ordinance or law must regulate construction, repair, demolition, or land use.
• Relationship with CP 04 05: The CP 15 31 is often used in conjunction with the CP 04 05, Ordinance Or Law Coverage endorsement. While CP 04 05 covers the direct property damage costs associated with ordinance or law compliance (e.g., loss to the undamaged portion of the building, demolition costs, and increased cost of construction), the CP 15 31 specifically addresses the time element exposure – the increased loss of business income or extra expenses due to the prolonged restoration.
• Limits and Coinsurance: The CP 15 31 does not have its own separate limit; it extends the period of restoration under the existing Business Income/Extra Expense coverage. Therefore, it's crucial to ensure the primary Business Income/Extra Expense limits are adequate to cover a potentially longer period of restoration. If the policy has a monthly limitation of indemnity, the insured might exhaust their limits before the extended period of restoration concludes if the monthly payout is maximized early on.
• Exclusions: This endorsement does not cover delays or costs associated with the enforcement of laws related to pollutants, fungus, wet or dry rot, or bacteria, even if required by an ordinance.
• "Minimum Standards": The coverage only applies to the extra time needed to meet the minimum requirements of the ordinance or law. If the insured decides to upgrade beyond what the code mandates, the additional time for those voluntary enhancements is not covered. For example, if an ordinance requires masonry construction and the insured opts for superior fire-resistive materials that take longer to install, the extra time for the upgrade beyond masonry is not covered.

4. Key information for agents and underwriters

• Risk Assessment: Underwriters should carefully assess the age and condition of the insured property, the local building code environment (including known upcoming changes), and the nature of the insured's operations. Older buildings in areas with aggressive code enforcement present a higher risk for prolonged restoration periods. Understanding the "major damage" threshold in the local jurisdiction is also critical, as this often triggers mandatory compliance with current codes for the entire structure.
• Pricing: The premium for this endorsement will reflect the increased risk of a longer business interruption. Factors influencing price include the building's age, construction type, occupancy, and the stringency of local building codes.
• Coverage Gaps: Agents should explain that standard Business Income forms exclude the increased time element loss due to ordinance or law. Failing to add CP 15 31 can leave a significant gap in coverage. It's also important to note that this endorsement does not cover the long-term reduction in income if, for example, an ordinance requires rebuilding with fewer rental units; it only covers the income lost during the extended period of repair or rebuilding.
• Adequacy of Limits: Both agents and underwriters need to emphasize the importance of adequate Business Income and Extra Expense limits. Since CP 15 31 extends the time, the existing limits must be sufficient to cover this longer duration. This is especially true if the policy includes a monthly limitation of indemnity, as the full policy limit might be needed over a longer timeframe than initially anticipated.
• Documentation: In the event of a claim, clear documentation of the enforced ordinances, the specific requirements, and the direct impact on the restoration timeline will be essential.
• Related Endorsements: Ensure that if CP 04 05 is in place for direct property ordinance or law exposures, the CP 15 31 is also considered to address the corresponding time element exposure.