What is Ordinance or Law Coverage?
When you experience a covered property loss your insurance policy entitles you to repairs that return the structure to pre-loss condition— nothing more and nothing less. But, what if that pre-loss condition is no longer acceptable in your community because building codes, laws or regulations have changed over the years and additional, mandatory work is required to get the structure up to current local regulations and standards?
Even if you have replacement coverage the replacement cost valuation provision states that any changes required due to ordinance or law are not covered as this would result in betterment of the insured—something that insurance policies explicitly exclude.
What this ultimately means is if you suffer a loss and building codes have changed since the structure was built, the costs to bring that building up to code fall directly on you unless you have an Ordinance or Law endorsement. This coverage is not required in most U.S. states, and most policies exclude it.
There are three major components of ordinance or law coverage:
• Coverage for the Undamaged Part of the Building – This covers the cost to replace an undamaged portion of a building that is required to be torn down and rebuilt due to a local ordinance.
• Demolition Costs – This covers the cost to demolish the undamaged portions of the building that needs to be rebuilt to updated building codes.
• Increased Cost of New Construction – This covers the increased expenses associated with any upgrades necessary to ensure the new structure conforms to current building codes.
Real World Examples
One way in which we have seen this coverage gap surface is when there’s a significant loss on an older structure, like a fire or storm that affects 75% of the structure. (The percentage of damage “triggers” that would cause upgrades or demolition and rebuilding of undamaged portions of the property vary by municipality and type of building.) Lack of Ordinance or Law coverage means the policyholder is saddled with the demolition of the condemned remainder of the building and the expenses related to rebuilding the entire structure up to current codes.
Another scenario where this gap makes itself apparent is when damage occurs to a portion of a structure, but further professional investigation or inspection reveals code violations. A good example is a loss that only affects one or two rooms in a structure, like a controlled kitchen fire.
As the restoration process proceeds, it is discovered that the electrical system in the entire house, despite not being damaged by the fire, is no longer code compliant. The policyholder has absolutely no choice whether or not to fix it, and if they have no Ordinance or Law coverage this means they’re responsible for the costs associated with getting the system updated.
When Should You Purchase Ordinance or Law Coverage?
The older the building the greater the exposure to losses where Ordinance or Law coverage is necessary. In our experience, any building over fifteen years old runs a serious risk of involving variables that require this additional coverage.
By having a discussion about Ordinance or Law with us at Chapman Insurance, you can avoid a potential financial penalty later. Lack of Ordinance or Law coverage can easily cause a life-changing financial event or cause a business to be unable to recover from a significant loss.
*this information is brought to you by our partner Accutech Restoration & Remodeling*
As a restoration contractor, we see the devastating results – “up close and personal” – when property owners find out that they are not fully covered after suffering a major loss. The truth is that insurance can be complicated and everyone needs to educate themselves about the specifics of what their policy does and doesn’t cover.
At Accutech Restoration, we want to provide information that can help you avoid a terrible financial penalty for not being fully informed about one of the most important risks many policyholders are not covered for —“Ordinance or Law” coverage. We urge you to have a discussion with Brady at Chapman Insurance concerning this coverage!