Ordinance or Law Coverage: The Gap Between Repairing and Rebuilding to Code
When an older home is damaged, local building codes may require upgrades that a standard policy doesn't pay for. Ordinance or law coverage fills that gap. Here is how it works with an example.
Building codes change. Electrical systems, wind resistance, fire safety, energy efficiency, and accessibility requirements all get stricter over time. A house built decades ago may be legal as it stands, but once it's significantly damaged, local rules can require repairs to meet current codes.
A standard homeowners policy pays to repair or replace damaged property with similar materials. Many standard forms exclude or sharply limit the extra cost of meeting current codes. Ordinance or law coverage is designed to pay some of that extra cost.
What it typically covers
Ordinance or law coverage generally addresses three kinds of costs:
- Loss to the undamaged portion. If codes require the whole structure to be torn down after partial damage, the value of the parts that weren't damaged.
- Demolition costs. Tearing down and removing undamaged parts that must be removed because of the law.
- Increased cost of construction. The extra cost of rebuilding to current code compared with rebuilding as it was.
Exact coverage, limits, and how they interact with your dwelling limit depend on the policy form and endorsement.
A worked example
A hypothetical older home with a $300,000 dwelling limit has a kitchen fire. Repairing the damaged area costs $80,000. Because of the extent of the damage, the local building department requires:
- electrical upgrades throughout the house: $35,000
- other code-required changes, such as wiring, smoke detection, and structural updates: $10,000
- demolition and removal of additional undamaged areas: $10,000
| Ordinance or law limit | Amount | Covers code costs? | Shortfall |
|---|---|---|---|
| None (excluded) | $0 | No | $55,000 |
| 10% of dwelling | $30,000 | Partly | $25,000 |
| 25% of dwelling | $75,000 | Yes | $0 |
Show the numbers behind this chart
| Uncovered code costs | |
|---|---|
| No coverage | $55,000 |
| 10% of dwelling ($30,000) | $25,000 |
| 25% of dwelling ($75,000) | $0 |
Who should pay attention
- Older homes, especially those built before major code changes.
- Homes in areas with strict or recently updated codes, such as high-wind or wildfire zones.
- Historic homes, where requirements can be complex.
- Homes with known non-conforming features, such as older wiring, plumbing, or structural elements.
Things to check in your policy
- Is ordinance or law coverage included, excluded, or available as an endorsement?
- What is the limit, and is it a percentage of dwelling coverage or a fixed amount?
- Does it cover all three categories above?
- Is it paid only when you actually rebuild, and within a time limit?
- Does the limit sit inside or on top of your dwelling limit?
Some states require insurers to offer ordinance or law coverage, and some policies include a small amount automatically. Your declarations page and endorsements show what you have.
The takeaway
Repairing an older home after a major loss often means rebuilding to today's codes, and that extra cost may not be covered by a standard policy. If your home is older or in an area with strict codes, check whether you have ordinance or law coverage and whether its limit is enough. Our guide on replacement cost vs. actual cash value covers the other big factors in how home claims are paid.
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