Ordinance or Law
Coverage for increased costs when building codes require upgrades during repair or rebuilding of a damaged structure.
What It Is
Ordinance or Law coverage addresses the gap between what it costs to repair or rebuild a damaged structure to its pre-loss condition and what it costs to bring the structure into compliance with current building codes, zoning laws, and other governmental regulations. Standard property policies only pay to restore the building to its pre-loss condition, which may violate current codes.
Ordinance or Law coverage has three distinct components: Coverage A pays for the loss in value of the undamaged portion of a building that must be demolished due to code requirements (e.g., a building is 60% damaged but code requires demolition of the entire structure). Coverage B pays for the cost of demolishing the undamaged portion and clearing the site. Coverage C pays for the increased cost of construction to meet current codes during rebuilding.
All three coverages are important, but Coverage C (increased cost of construction) is usually the most expensive component because modern building codes often require significant upgrades to electrical, plumbing, HVAC, ADA compliance, fire suppression, and structural systems that were grandfathered under older codes.
Why It Matters for Brokers
Older buildings are especially exposed to ordinance or law gaps. A building constructed in 1975 may be grandfathered under the current code, but if more than 50% is damaged (a common threshold), the entire building may need to be rebuilt to 2024 code standards. Without ordinance or law coverage, the insured receives only enough to restore the building to 1975 standards—which is no longer legally permitted. The gap can easily reach 25-40% of the building's value.
Real-World Example
A 1982 office building valued at $2.4M suffers 55% fire damage. The city requires full demolition and rebuild to current code because damage exceeds 50%. Rebuilding to pre-loss condition: $2.4M. Rebuilding to current code: $3.3M (including ADA upgrades, modern fire suppression, energy efficiency requirements, and seismic reinforcement). Without Ordinance or Law Coverage C, the insured is short $900,000. With a 25% Ordinance or Law limit ($600,000), the insured is still $300,000 short. Adequate coverage requires at least a 40% limit ($960,000) for this building.
Common Mistakes
- 1Not including any ordinance or law coverage, especially for buildings more than 20 years old where code gaps are most significant.
- 2Setting ordinance or law limits too low—a 10% limit on an older building may only cover a fraction of the actual code upgrade costs.
- 3Only purchasing Coverage C (increased cost of construction) and omitting Coverages A and B (undamaged portion value and demolition costs).
How brokerageaudit.com Handles This
brokerageaudit.com's Policy Checker identifies the building's construction year and cross-references it with ordinance or law coverage limits. Buildings over 20 years old without at least 25% ordinance or law coverage trigger an alert. The system recommends minimum limit percentages based on building age and local code environment, and verifies that all three coverage components (A, B, and C) are included.