An insurance broker receives an inquiry from a client regarding by-law insurance. Give reasons why such an inquiry might have been made. What losses would such insurance cover?
Answer:
One of the exclusion of Basic Fire Policy says the by-law expenses are not covered. It means loss arising in any way from the enforcement of any by-law or other law regulating zoning or the demolition, repair or construction of buildings, making it impossible to repair or reinstate the property as it was just before the loss, is excluded.
Expenses imposed by-law are independent of any insured peril. Insureds would be subject to by-laws even if the loss was caused by an uninsured peril or even if there is no insurance. Therefore, insurers are not obliged to assume such expenses.
If insureds wish to be indemnified of by-law expenses, they need to add to their policies some additional coverage by endorsement, which insurers receive additional premium and insureds receive boardened financial protection and they will recover the additional costs that by-laws impose on them.
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