What is Ordinance or Law coverage? Do you think I should buy it?

There are so many things that should be considered before you purchased insurance.

For example; you already know that every community has building ordinances or zoning laws that affect how houses are built or updated.

But did you know that there are also laws and ordinances that govern how or whether a house can be repaired after a loss?

When you have a loss that damages part of your house, the repairs, in many situations, must be made to the specifications of any regulations that are in effect at the time of the loss.

It doesn’t really matter if everything met code when your house was built. What matters now is the new building code.

Even more important than that, there are regulations that may compel you to tear down the house if the damage is more than 40–50 percent of its value.

You’re probably thinking: “So how does that affect me? Isn’t that what insurance pays for?"

Well…the answer is yes and no at the same time! Insurance pays for the cost to repair or replace the damaged part of the building.

Think of it this way: if the value of your house is $200,000 and you have $100,000 in damage, insurance pays for the damage (minus your deductible, of course).

But now that your house has sustained damage equal to 50 percent of its value, the law kicks in and requires you to tear it down—damaged and undamaged parts—and rebuild the whole thing!

Now, since insurance pays for the damaged part of the building, but even the undamaged part has to be torn down, where does the other $100,000 come from? Well, that’s where Ordinance or Law coverage comes in.

There are very few total losses; partial losses are far more likely. But a partial loss could trigger the enforcement of an ordinance or law that could cause you to have to pay more than the amount of loss covered by your policy.

Additional coverage may be purchased that would help pay for the value of the undamaged part of the house and the increased cost to rebuild according to the new code.

Replacement value doesn’t mean upgrade cost what if this happened to you…A fire causes major destruction to your building.

Because more than 50% was damaged, a local by-law requires the building to be torn down and rebuilt to current building codes.

You’re a responsible person and take the necessary steps to maintain your property.  You have replacement cost value on your policy, so you’d be fully covered…right?  Not necessarily.
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Property insurance policies generally have an “Ordinance or Law” exclusion, which means that the policy covers the building as it exists, but it does not cover the cost to upgrade the building to current building codes and ordinances after a loss.  

Therefore, having “replacement cost” coverage for your building does not mean that you have “upgrade cost” coverage, unless you purchase an “Ordinance or Law endorsement” for your property.  

Even if a property policy offers some built-in Ordinance or Law protection, often the amount of coverage isn’t sufficient in a major loss.

Building codes and zoning laws affect every piece of property no matter how big or small. These laws are continually changing…requiring new or improved features such as better wiring, handicap access, sprinkler systems and more.

​If a loss situation triggers code upgrades, it could be financially devastating unless you have Ordinance or Law coverage.

While some regard this coverage to be important only for older buildings, laws are always changing, and newer buildings can be affected. This is an area of concern for all building owners.

How ordinance and law coverage protects you:

1. Coverage for the undamaged part of your building. Your property insurance policy only protects you against actual damage caused by a covered cause of loss to a building. It doesn’t cover the cost to replace an undamaged portion of your building that is required to be torn down and rebuilt because of a local ordinance. The Ordinance or Law, Part A provides this protection based on the coverage limit you select.
2. Demolition costs. While property insurance covers debris removal for a portion of property damaged by a covered peril, it doesn’t cover demolition expenses for an undamaged portion of a building that has to be removed. Part B of Ordinance or Law provides this coverage. Since demolition costs vary based on building size and other factors, be sure that the limit you select reflects your building’s structure.
3. Increased cost of new construction. It’s wise to assess exactly what types of upgrades could be required if you had a major loss, i.e. sprinkler systems, elevators, wiring, septic system, etc. The limit you set for Part C requires serious consideration and talking with a contractor may be helpful in determining the appropriate level of protection.

If you aren’t sure that your policy provides protection for Ordinance or Law situations or you know that you don’t have coverage and want more information, our trusted Associates are glad to review your policy and discuss options.

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