What Is Building Codes Coverage and How Does It Work?

Building Codes Coverage, also known as Ordinance or Law Coverage, is an optional addition to a property insurance policy, such as homeowners or commercial property insurance. This specialized coverage helps pay for the additional costs required to repair or rebuild a damaged structure to comply with current building codes, zoning laws, or ordinances. It addresses expenses that standard insurance policies typically do not cover, especially when local regulations have changed since the property was originally constructed or last updated.

The Need for Building Codes Coverage

Standard property insurance policies usually cover the cost to repair or rebuild a damaged property to its condition before the loss, using similar materials and construction methods. These basic policies generally do not account for the substantial additional expenses incurred when local building codes, zoning laws, or ordinances have changed. Such regulations frequently evolve to improve safety, energy efficiency, and environmental standards, becoming stricter over time.

This coverage gap is particularly relevant for older homes or structures. For instance, if a home built decades ago suffers significant damage, rebuilding it to its original specifications might not be permissible under current local regulations. Reconstructing the property to meet contemporary codes could involve substantial, unforeseen costs that a basic policy would not cover, leaving the property owner responsible for the difference. Without this specific coverage, an insured might face considerable out-of-pocket expenses or even be unable to rebuild legally.

Components of Building Codes Coverage

Building Codes Coverage typically addresses three distinct categories of costs that arise when a damaged property must comply with updated regulations.

The first component covers the increased cost of construction for the damaged portion of the property. If a part of the structure is destroyed by a covered peril, such as a fire, and the repair or rebuild must incorporate more expensive materials or methods to meet current codes, this coverage pays the difference. For example, if older electrical wiring is damaged and local code mandates a higher gauge wire, this coverage applies.

The second component addresses the increased cost of construction for undamaged portions of the property. Sometimes, local ordinances require that if a certain percentage of a structure is damaged, the entire building, including previously undamaged sections, must be upgraded to current code standards. For instance, if a roof is significantly damaged and local codes require a more robust roofing material for the entire structure, this coverage helps pay for upgrading even the sections not directly impacted by the storm.

The third element typically included is coverage for demolition and debris removal. This applies when a building code or ordinance mandates the demolition and clearing of debris from both damaged and, if necessary, undamaged portions of the property due to a covered loss. For example, if a fire causes extensive structural damage and local authorities require complete demolition and removal of all materials before rebuilding, this coverage helps cover those specific costs.

Key Considerations for Building Codes Coverage

This coverage typically has its own sub-limit, often expressed as a percentage of the dwelling coverage on the main property insurance policy. Common sub-limits might range from 10% to 50% of the dwelling coverage, though higher percentages may be available depending on the insurer and specific policy. Property owners should carefully consider their home’s age, the stringency of local building codes, and potential rebuilding costs to select an adequate limit. For example, a home insured for $400,000 might have a building codes coverage limit of $40,000 to $200,000.

The coverage is triggered only when property damage results from a peril covered by the underlying insurance policy, such as a fire or windstorm. Furthermore, repairs or demolition must be mandated by an enforceable building code, zoning law, or ordinance. This means the coverage does not apply to voluntary upgrades or improvements made without a legal requirement following a covered loss. It is typically purchased as an endorsement or rider added to an existing homeowners or commercial property insurance policy.

Older homes, properties in areas with frequently updated building codes, or those prone to severe weather events often benefit most from this coverage. For example, a 70-year-old house in a coastal area that regularly updates its hurricane building codes would likely face significant code-related expenses if it sustained wind damage. Securing this coverage provides important financial protection against the unexpected costs of complying with modern construction standards.

What is Not Covered

Building Codes Coverage has specific limitations and exclusions. It does not pay for costs associated with routine wear and tear, general maintenance, or upkeep of a property. For instance, if a roof simply needs replacement due to age, the policy will not cover the cost to upgrade it to current codes, as there was no covered peril and no code mandate triggered by a loss.

This coverage also does not apply to voluntary upgrades or improvements. If a homeowner voluntarily installs a more energy-efficient window or upgrades electrical systems not required by law after a covered loss, those costs will not be covered. The expenses must be directly related to bringing the property into compliance with an enforceable code or ordinance following damage from a covered peril.

Damage must result from a peril covered by the underlying property insurance policy. For example, if the primary policy does not cover flood damage, then any code-mandated repairs resulting from a flood would not be covered by the Building Codes Coverage endorsement. Furthermore, this coverage generally does not address costs to rectify pre-existing code violations that existed prior to the damage and were not caused by the covered peril.