Blog Question – Extra Costs of Reinstatement where costs are sacrificial

I received this question through this blog yesterday:

Hi Allan

Just wondering if in your opinion, there is any provision within the Extra Costs of Reinstatement(ECOR) clause under the [industrial Special Risks (“ISR”)] Policy Mark IV that would extend or deny indemnity for sacrificial costs incurred (as opposed to capital costs) to be deemed an ECOR.

For example, if an Insured jetty was destroyed, which when built 10 years ago was piled and built directly into the river.  When undertaking the policy review each year, a CPI increase was applied, and then following damage to the jetty, it was discovered that EPA requirements had changed and coffer dams were now required to be built at significant cost around the perimeter of the jetty to prevent the release of pollutants in the river system whilst re-constructing the jetty.

If you have any similar examples of Sacrificial Costs that have been deemed as ECOR, I would be most interested.

Kind regards,

James [surname and email provided]

PS do you have any case law in support of your answer?”

I replied that as long as the jetty was insured property and the peril was an insured peril, the Extra Cost of Reinstatement clause within the Mark IV ISR Policy would respond to any requirements by council to reinstate it to comply with any current statutory authority requirements.

A similar example is where WorkCover insists that an asbestos cement roof be removed from beneath using a scissor lift rather than by tradesman walking on the roof.

I know of no specific case law on the issue but what I can say is that in my years handling claims, I have not had any problems with a legitimate claim for extra costs of reinstatement whether a capital expense or sacrificial to reinstate insured property.

As with any Sub-Limit, it is important to ensure that the amount selected is sufficient to cover all the Extra Costs of Reinstatement which of course is not always easy as governing bodies can create new requirements on the fly.

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