Ordinance or Law Coverage--Properly Protecting Your Buildings

There’s a provision that most standard insurers don't cover: Ordinance or Law. Many insurers give the option to insure for Ordinance or Law losses, but most don't come standard. But what is Ordinance or Law coverage for? What happens without it?

Every community has building and zoning ordinances, and these ordinances are constantly being modified and reinvented as new technology and information comes out. Easy examples would be the banning the use of asbestos and the requirement of egress windows being used for basement bedrooms. These and many other ordinances and laws come into play when a certain percentage of your building is destroyed (the exact percentage depends on your current city code, but is typically 50%), or when certain things need to be replaced. The coverage comes into play because the basic insurance policy itself often only covers you to replace to the exact same condition to what was lost, instead of up to the new code standards. Let me show a few examples.

For my first example, let's say you have a $200K home built in 1910, and (for simplicity’s sake) a storm destroys exactly half of your home. Being half destroyed, the city ordinance requires you to rebuild the whole home up to current standards. In this case, the standing part of your home must be demolished and rebuilt, even though it is technically undamaged. With Ordinance or Law coverage, the cost to demolish the standing portion would be covered, along with any increased costs of construction from building up-to-code. Without Ordinance or Law coverage, you would be held responsible for all of the demolishing and extra rebuilding expenses.

The next example pertains more to commercial property owners. Let’s say your building was completely destroyed. The insurance company is going to pay to rebuild, but the problem is that the city has rezoned, or new land use ordinances have been created. These new laws may require you to move your building elsewhere. The extra cost of the new land would not be covered without Ordinance or Law coverage. Also, you may be required to rebuild in a completely different fashion. Due to the Americans With Disabilities Act of 1990, you may be required to rebuild with the building being accessible to those who are physically disabled. That may require elevators, entryway-ramps, widened doors, raised toilet seats, etc, that weren't there previously. These increased costs would not be covered without Ordinance or Law coverage.

Laws and ordinances are being changed all the time. If your home or commercial building is fairly old and hasn't been remodeled or changed much since it was built, you’re at even more risk in the event of a loss. Remember that undamaged parts of your building may have to be remodeled or completely rebuilt to satisfy the new codes. Also, the new materials and structures that are needed can drive up costs as well. Don’t worry if you can’t keep up with all the new laws, just make sure you are properly insured to cover anything in the event of a loss. Please contact your agent to see what it would take to properly cover you! 

Note from the Author (Nov. 14, 2014): After two years of work, we've entirely redesigned our website! Using SquareSpace, we were able to import this blog and we are continuing our blog there. To find the current version of this article and our new articles, click HERE.