What is Building Ordinance or Law Coverage?

What is Building Ordinance or Law Coverage?

If your property were destroyed by a fire or other covered event, your standard property insurance would usually pay to rebuild it. But what happens when local building codes require upgrades that did not exist during the building's original construction? The cost difference between rebuilding what you had and rebuilding to current code requirements can be substantial, and standard insurance policies typically do not cover that additional cost.

Building ordinance or law coverage, also called building code insurance, pays for the cost to rebuild a destroyed structure and upgrade it to meet current building codes after a covered loss. This coverage is typically not included in standard building and homeowners insurance policies, leaving many property owners with unexpected out-of-pocket expenses when rebuilding. Understanding what this insurance coverage provides, who needs it, and how to add it to your policy helps you avoid costly surprises after a loss.

What Is Building Ordinance or Law Coverage?

Building ordinance or law coverage is insurance that pays for costs related to building code compliance after a covered loss. It covers the difference between rebuilding a structure as it originally existed and rebuilding it to meet current codes. This coverage is available for both residential and commercial properties.

This coverage exists because building codes change and become more stringent over time. Many older buildings were built to codes that are now outdated, but after a loss, rebuilding must comply with the latest building codes. Standard insurance pays to replace what was lost, not to upgrade it. The gap between replacement cost and code compliance cost can be significant, sometimes reaching tens of thousands of dollars or more.

Building ordinance coverage is triggered when a covered peril damages or destroys part or all of a structure and local building codes require upgrades during rebuilding. It also applies when ordinances require demolition of undamaged portions of a building or when laws mandate changes to construction methods or materials.

What Does Building Ordinance or Law Coverage Include?

Building ordinance or law coverage typically includes three components that work together to address different aspects of code compliance costs.

Coverage A

This addresses loss to the undamaged portion of a structure by covering the value of undamaged portions that must be demolished due to code requirements. For example, if a fire damages one section of a building but code requires demolishing the entire structure, this coverage pays for the loss of property you cannot keep or rebuild.

Coverage B

This provides demolition cost coverage by paying for the actual cost to demolish undamaged portions of the structure and covers debris removal from required demolition. This applies when ordinances mandate tearing down the remaining structure and is separate from the debris removal coverage in standard property policies.

Coverage C

Meant to cover the increased cost of construction, this coverage pays the additional expense to rebuild the structure to current codes, covering the difference between original construction costs for damaged portions and code-compliant construction costs for undamaged portions. This is often the largest portion of building ordinance claims.

Common code upgrades covered under this insurance include:



• Electrical system upgrades
• Plumbing updates
• Structural reinforcements for earthquake, wind, or flood zones
• Fire safety improvements such as sprinklers and fire-rated materials
• Energy efficiency requirements
• ADA accessibility compliance for commercial properties
• Roofing material and installation standards

Why Is Building Ordinance or Law Coverage Important?

Building Codes Change Over Time

Building codes are updated regularly for safety and efficiency, and buildings constructed decades ago met the codes of their time but may fall far short of current requirements. Older homes and commercial properties face the biggest gaps between original and current standards.

Standard Insurance Does Not Cover Code Upgrades

Homeowners policies and commercial property insurance policies are designed to replace what was lost, not to pay for improvements or upgrades. This gap leaves property owners responsible for the difference, and unexpected costs can reach tens of thousands of dollars depending on the property's age and the extent of code changes since original construction.

Partial Losses Can Trigger Full Rebuilds

Some areas have percentage rules that require the entire structure to meet current codes if damage exceeds a certain threshold. Even partial damage can require complete demolition and rebuilding, and undamaged portions may need to be torn down to comply with these rules.

Avoiding Financial Hardship

Without building ordinance or law coverage, property owners must pay code compliance costs out of pocket. These costs can exceed available funds, potentially resulting in incomplete rebuilds or significant financial strain. Coverage provides peace of mind and financial protection when you need it most.

Who Needs Building Ordinance or Law Coverage?

Older Properties

Owners of older homes and businesses have the greatest need for this coverage. Buildings constructed before current codes took effect, properties that have not been significantly renovated, and structures with outdated electrical, plumbing, or structural systems all face potential code compliance costs after a loss.

Buildings in Areas with Strict Codes

Property owners in areas with strict building codes should also consider this coverage. Regions with earthquake retrofitting requirements, coastal areas with hurricane and wind codes, flood zones with elevation requirements, and areas with updated fire safety codes all present situations where code compliance costs can be substantial.

Commercial Property Owners

Commercial properties face particular exposure to code compliance costs. Office buildings, retail spaces, and industrial properties are subject to commercial codes that are often more stringent than residential codes. Properties subject to ADA compliance requirements, buildings with outdated fire suppression systems, and structures that must meet commercial code standards all benefit from building ordinance or law coverage.

To determine whether your property is up to current codes, contact your local building inspection office. You can request an inspection or code compliance review, review permits and inspection records for your property, or consult with a licensed contractor familiar with local codes.

How Does Building Ordinance or Law Coverage Work?

Building ordinance or law coverage is typically added as an endorsement to homeowners or commercial property insurance policies. It may be offered as a percentage of dwelling coverage, or as a specific dollar limit. Coverage applies only after a covered loss triggers rebuilding, meaning the underlying cause of damage must be covered by your policy.

Claims Process

After filing a claim for a covered loss, such as fire or storm damage, property owners obtain estimates for rebuilding to current codes. After the difference between standard replacement and code compliance costs has been documented, the insurance carrier pays the replacement cost through standard coverage plus the additional code compliance costs through the building ordinance or law coverage.

Coverage Limits

For building ordinance or law insurance, coverage limits are separate from dwelling coverage limits. Higher limits provide more protection for properties with significant code gaps. Consider the age of your property when selecting limits, as older properties typically need higher coverage amounts. This coverage works alongside dwelling coverage, not instead of it, and coordinates with other coverages such as debris removal and extended replacement cost.

Building Ordinance or Law Coverage for Commercial Properties

Commercial properties face unique considerations when it comes to building code compliance. Commercial codes are often stricter than residential codes, and ADA accessibility requirements apply to commercial buildings. Fire suppression and safety codes are extensive for commercial structures, and older commercial buildings may have significant compliance gaps that create substantial costs after a loss.

Building ordinance or law coverage can also help commercial property owners avoid Errors and Omissions claims. Business owners can face E&O claims related to failure to maintain code-compliant properties, creating additional liability exposure. Coverage helps address compliance costs after a loss and protects the business from additional financial exposure. Working with a commercial insurance specialist helps assess needs and select appropriate coverage.

How Much Building Ordinance or Law Coverage Do You Need?

Several factors determine how much coverage you need:



• The age of your property and the construction standards in effect when it was built
• Current local building codes and any recent updates
• The potential cost of major system upgrades to electrical, plumbing, and structural systems
• Whether partial damage could trigger full rebuild requirements under local ordinances

Work with your insurance agent to choose the right coverage amount. Discuss your property's age and condition, review local building code requirements, and consider assessing potential upgrade costs with a contractor. The goal is to select coverage that provides adequate protection without overpaying. Ask your agent whether building ordinance or law coverage is already included in your current policy, what coverage limits are available, how this coverage coordinates with your dwelling coverage, and whether there are exclusions or limitations you should know about.

Protect Your Property with Building Ordinance or Law Coverage

Building ordinance or law coverage pays for the cost to rebuild a structure and upgrade it to meet current building codes after a covered loss. This includes coverage for loss to undamaged portions that must be demolished, demolition costs, and the increased cost of construction to meet current codes.

This type of insurance is typically not included in standard homeowners and commercial property insurance policies, making it an important additional coverage for owners of older properties and commercial buildings.

Reach Out to a BIS Benefits Insurance Broker Today

At BIS Benefits, we help businesses with 15 employees or more find the right group benefits and commercial insurance policies for their unique needs. One of our brokers can review your insurance policy, determine whether you'd benefit from building ordinance or law coverage, and help you find the right solution for your business. If you're located in the state of Georgia, request a quote from BIS Benefits today to speak to one of our expert brokers.