Insurance Rebuilding Cover

[Always Problems]

I am the tenant of land upon which there is a "Sports Pavilion" Which is mainly constructed of Timber. I then Sub-Let the Sports Pavilion to someone else at the same rent that I am paying.(so I am not making a profit on it) I have to Insure the building myself. I then charge my Sub-Tenant the Insurance at what I am charged. In an informal discussion with my landlord the question of what would happen if the worst occured and the building was burnt down. My landlord made it plain that I would be expected to rebuild the pavilion, to the same quality of construction as it was originally built, in order for them to re-let the building when my lease ends.

To rebuild from scratch, kitchen, ladies & gents WC, Bar, fittings would perhaps be £50,000, whereas the building is only insured for £20,000.

So can I ask the Insurance Company to increase the sum insured to £50,000
AND what insurance terminology do they use for this type of cover.

[jeffrey]

Reinstatement cover (inc. all associated costs- inc. planning permission and rebuilding costs), not 'as is' market value.

[Always Problems]

Thank you JEFFREY. I have noticed that on my policy some of my buildings are insured with "Day One Reinstatement" but when I get to this specific building it is on an "Indemnity Basis".
And what is illogical is that some of my other buildings are also on an "Indemnity Basis" whereas others constructed in an identical way are "Day One Reinstatement".
What I have done over the years is that as I have added various buildings which I have now rented out, as I have bought them I have "Introduced " them to this particular insurance company which I use and it appears that all the buildings which I have owned since 1995 are listed on an "Indemnity Basis" whereas all the original buildings are on "Day One Reinstatement".
Perhaps it could be a change of personnel at the Insurance Company. I certainly know that should there be a Fire I would certainly need the premises "Rebuilding" without any expenditure to either myself or my tenant, as if I had a financial shortfall, ie An Uninsured Loss, it negates the principal of renting out as a source of investment.

So to be precise::: What is Indemnity Basis and can I expect my tenents to make up the shortfall (if any) should there be an unfortunate disaster.

[jeffrey]

'Indemnity' means reimbursing you what you've paid-out to someone else (or the value of what you've lost).

[paulb67]

Hi Always Problems

I always explain Reinstatement as "new for old" and Indemnity as "what it's worth at the time of the claim", so takes into account age and condition, therefore lower sum insured.

Day One Reinstatement refers to an inflation protection provision. You declare at day one the reinstatement value of your property and the insurer gives a percentage uplift (typically between 10% & 50% depending on the insurer) to protect against the effects of inflation. On the insurance certificate you will see two items - declared value and sum insured. Causes lots of confusion but I won't detail here.

The selection of the building sum insured therefore needs to reflect the basis of cover that you want. If insuring on an indemnity basis I'd expect the sum insured to be lower than if insuring on a reinstatement basis.

Very common for properties that are being built, or vacant or undergoing major refurbishment works to be insured on an indemnity basis. Once works complete and/or occupied the policyholder needs to provide insurer with a reinstatement sum insured if the wider cover is required. Are you a property developer that then retains some of the properties once refurbished etc. (Contractors All Risks policies are usually on an indemnity basis too).

Possible with a portfolio arrangement to have properties on different cover basis.

Your lease probably says who has the responsibility of insuring and on what basis. If you insure on the incorrect basis you will have to pick up the shortfall.

So on the Sports Pavillion, check if Indemnity or Reinstatement. If not Reinstatement change to this and increase the sum insured to £50,000. It's possible that due to the timber construction of the property the insurer is not willing to provide reinstatement cover.

Hope that this helps.

[Always Problems]

Thank you PAULB67. I have now met the Insurance Inspector/Broker and he has agreed to move the insurance to "Day 1 Reinstatement" But they have suggested that I have a "Fire Risk Assessment" done on this "Timber Building" and on one of my other buildings which I rent out as the Inspector noticed various "Tanks" for the storage of diesel for the fork lifts and the vans which are used to run the business. Who does this ?.

[paulb67]

Hi Always Problems

Lots of other threads on this subject so I will brief.

You need to look at The Regulatory Reform (Fire Safety) Order 2005.

Commercial premises, common parts of blocks of flats and HMO's are required by law to have one.

You could do this yourself, but I'd recommend using a professional.

Whilst unlikely, if you don't have one, the insurer may cancel your policy or in the event of a claim, refuse to payout. This should be in your policy wording. Something like the insurer expects you to take reasonable precautions, maintain the property and comply with the law, in order for the insurance to be valid.

Sorry but the advice you are being given from your insurer/insurance company seems to be very poor. Change to a specialist now before you have a serious issue.

1) Day One Reinstatement is an inflation protection measure and not the basis of cover.
2) Fire Risk Assessments are legal requirements and shouldn't be suggestions.

(Just in case can I add that it is a legal requirement that your fork lifts trucks are inspected by a competent person every 6 months in accordance with the Lifting Operations and Lifting Equipment Regulations 1998 (LOLER) ).