Extra Cost of Reinstatement v Additional Extra Cost of Reinstatement
I received the following question which is often asked of me:
Can you please explain this clause and how it differs from the Extra Cost of Reinstatement (provision 5) under a Mark IV ISR?
Chris” (full name and email provided)
I share my answer to Chris with followers of the blog:
Under and ISR policy my recommendation is that you sub-limit Extra Cost of Reinstatement to cover the cost of any upgrade to a building that a council or statutory authority may impose on the insured
in the event of insured damage.
In the case of the building being less than 50% damaged the ISR pays the greater of (not the lesser) the upgrade to the area damaged or the sub-limit under a policy.
Why Additional Extra Costs of Reinstatement was developed is due to the fact that authorities are increasingly likely to insist that premises be substantially upgraded not only the damaged building but other
buildings or insured property at the situation that is not damaged by the incident. Eg remove all asbestos from the situation across all buildings.
The Additional Extra Cost Memorandum gives greater protection to undamaged, separate property at the site. Another example is to provide extra off-street parking space.
This endorsement extends the policy but the standard endorsement has an embedded sub-limit of $250,000. This sub-limit was set way back in the late 1980’s and is not often insufficient.
You can ask for more if this is insufficient. If you need more I would recommend you use the following endorsement I drafted a few years back. The Endorsement Code is “ADDECPC4”. I reproduce the endorsement for your convenience below:
ADDITIONAL EXTRA COST OF REINSTATEMENT (B)
(Applicable to buildings, machinery, plant and all other property and contents other than those specified in items (b) to (i) under Basis of Settlement).
The policy extends to cover the additional extra cost of reinstatement including demolition or dismantling of the insured property damaged, necessarily incurred by the Insured to comply with the requirements of any Act of Parliament or regulation made thereunder or any by-law or regulation of any municipal or other statutory authority and not otherwise recoverable under the terms and conditions of the policy.
Provided that the indemnity afforded by this clause:
(a) shall be limited in respect of each loss or series of losses arising out of any one event to the amount shown in the Policy Schedule against Additional Extra Cost of Reinstatement (B), which amount shall
be separate from and additional to the Limit of Liability expressed in the Schedule of the policy in respect of buildings, machinery, plant and all other property and contents other than those specified in items (b) to (i) under Basis of Settlement;
(b) shall not include the additional cost incurred in complying with any such Act, regulation, by-law or requirement with which the Insured has been duly required to comply prior to the happening of the damage; and
(c) shall not be subject to the Co-insurance Memorandum contained in Section 1 of the policy.
The work of reinstatement (which may be carried out wholly or partially upon another site or sites if the aforesaid Act, by-law or regulation so necessitates subject to the liability of the Insurer(s) not being thereby increased) must be commenced and carried out with reasonable despatch, failing which the Insurer(s) shall not be liable to make any payment beyond the amount that would have been payable under the policy if this Memorandum had not been incorporated therein.
I trust this explains the difference in sufficient detail.