Should I Get Ordinance or Law Coverage?

Standard property insurance policies are designed to cover direct physical damage to a building from covered events. However, the costs associated with repairing or rebuilding a damaged property can extend beyond mere physical restoration, especially when local building codes and ordinances come into play after a loss.

Understanding Ordinance or Law Coverage

Ordinance or Law (O&L) Coverage is an endorsement or a specialized form of insurance that assists property owners in complying with current building codes and ordinances when repairing or rebuilding a damaged structure. These codes are subject to change over time, meaning a building constructed years ago may no longer meet today’s requirements. When a property sustains damage from a covered loss, O&L coverage addresses the additional costs incurred due to these updated requirements, extending beyond the direct physical damage covered by a standard policy. Its purpose is to bridge the financial gap between simply restoring a property to its pre-loss condition and bringing it up to current legal standards.

Key Components of Coverage

Ordinance or Law coverage typically consists of three distinct components, each addressing a specific financial exposure related to updated building codes. These components are often referred to as Coverage A, B, and C.

Loss to the Undamaged Portion of the Building (Coverage A)

The first component, Loss to the Undamaged Portion of the Building (Coverage A), covers the financial value of the part of a building that was not directly damaged by a covered peril but must be demolished due to updated building code requirements. For instance, if a local ordinance mandates that an entire structure must be brought up to current code if a certain percentage is damaged, this coverage pays for the undestroyed portion that must be torn down. Without this specific coverage, a standard policy would only pay for the physically damaged section, leaving the owner to bear the cost of demolishing the remainder.

Demolition Cost (Coverage B)

The second component, Demolition Cost (Coverage B), addresses the expense of tearing down the undamaged portion of a building as required by ordinance or law. This includes the costs associated with the actual demolition process and the removal of debris from that undamaged section.

Increased Cost of Construction (Coverage C)

The third component, Increased Cost of Construction (Coverage C), covers the additional expenses to rebuild or repair the damaged property to meet current building codes and ordinances. This means if new codes require more expensive materials, different construction methods, or the installation of new systems, this coverage helps pay for those upgrades. Rebuilding to pre-loss standards might not be legally permissible or practical.

When This Coverage Becomes Relevant

Ordinance or Law coverage is important for property owners facing rebuilding or extensive repair needs. Key factors include the age of a building, as older structures are often out of compliance with current codes, and local building codes, where strict or frequently updated regulations can increase reconstruction costs. The property’s value and potential reconstruction costs should also be considered. Owners planning significant renovations should assess this coverage, as such projects often trigger requirements to meet current codes. Changes in zoning laws could also influence rebuilding requirements.

Integrating with Standard Property Insurance

Ordinance or Law coverage is typically not a standalone policy but rather an endorsement added to a standard property insurance policy. Standard property policies generally only cover the cost to repair or replace the property to its condition immediately before the loss occurred. Without this specific coverage, property owners would be responsible for the difference between restoring the property to its outdated specifications and rebuilding it to comply with current building codes. O&L coverage serves as a necessary complement to standard property insurance, ensuring more comprehensive protection against the full scope of rebuilding costs.