The Hidden Gap in Property Insurance
Standard property insurance policies cover the cost to repair or replace damaged property. But what happens when building codes have changed since your building was constructed? You may be required to bring the entire building up to current code—not just repair the damaged portion.
This gap can leave property owners with hundreds of thousands of dollars in unexpected costs.
What Is Ordinance or Law Coverage?
Ordinance or law coverage addresses three distinct exposures:
Coverage A: Loss to Undamaged Portion
When a building is partially damaged, many jurisdictions require demolition of undamaged portions if they don't meet current codes. Standard property policies exclude this loss.
Example: A fire damages 40% of your building. Local codes require that any building more than 30% damaged must be demolished entirely. Without Coverage A, you only receive payment for the 40% actually damaged.
Coverage B: Demolition Cost
Covers the cost to demolish the undamaged portion of a building when required by ordinance or law.
Example: After the fire above, it costs $200,000 to demolish the remaining 60% of the building. Without Coverage B, this cost comes out of pocket.
Coverage C: Increased Cost of Construction
Covers the additional cost to rebuild to current codes, which may be significantly higher than the original construction.
Example: Your 1985 building had minimal energy efficiency requirements. Current codes require modern HVAC, insulation, sprinklers, and ADA compliance. These upgrades add $500,000 to reconstruction costs.
Common Code Compliance Issues
Fire and Life Safety
- Sprinkler systems (often required for entire building after significant loss)
- Fire-rated walls and doors
- Emergency lighting and exit signage
- Standpipes and fire department connections
Accessibility (ADA)
- Accessible entrances and routes
- Elevator requirements
- Restroom modifications
- Parking lot reconfiguration
Energy Efficiency
- Insulation requirements
- Window efficiency standards
- HVAC system efficiency
- Lighting requirements
Structural
- Seismic retrofitting
- Wind load requirements
- Foundation upgrades
- Roof load capacity
Environmental
- Asbestos abatement (triggered by renovation)
- Lead paint remediation
- Stormwater management
- Green building requirements
Real-World Scenarios
Scenario 1: Earthquake Damage
A 1970s office building suffers earthquake damage to 35% of the structure. Local seismic codes now require:
- Full seismic retrofit of entire building
- New foundation anchoring
- Structural bracing throughout
Without ordinance coverage: Owner receives payment for 35% damage only
With ordinance coverage: Full demolition and code-compliant reconstruction covered
Scenario 2: Fire in Historic Building
A fire damages 25% of a downtown retail building. Current codes require:
- Sprinkler system throughout
- ADA-compliant entrance
- Updated electrical systems
- Energy-efficient windows
Without ordinance coverage: $300,000 gap in reconstruction costs
With ordinance coverage: Additional $300,000 covered
Scenario 3: Roof Damage
Wind damages the roof of a warehouse. Repairs trigger building permit that requires:
- New rooftop HVAC units meeting current efficiency standards
- Updated roof insulation
- New skylights meeting fire codes
Without ordinance coverage: Owner pays for upgrades out of pocket
With ordinance coverage: Increased costs covered
Policy Considerations
Blanket vs. Scheduled
Ordinance coverage can be:
- Blanket (one limit for all three coverages)
- Scheduled (separate limits for A, B, and C)
- Combined with building limit
Limit Selection
Consider:
- Age and construction of building
- Current code requirements
- Local enforcement practices
- Potential for complete reconstruction
Typical Limits:
- Minimum: 25% of building value
- Moderate: 50% of building value
- High risk/older buildings: 100% of building value
Cost Considerations:
Ordinance coverage is typically very affordable:
- Usually 2-5% of total property premium
- Provides significant protection for older buildings
- Required by many lenders
Portfolio Considerations
For property owners with multiple buildings:
- Assess each property's exposure individually
- Older buildings need higher limits
- Recently constructed buildings may need minimal coverage
- Consider blanket limits across portfolio
Working with Your Broker
To properly evaluate your exposure:
1. Provide building age and construction type
2. Identify any prior code-related upgrades
3. Assess current code requirements in your jurisdiction
4. Review lease obligations regarding improvements
5. Consider future redevelopment plans
Core Brokers helps property owners assess ordinance or law exposures and structure appropriate coverage. Contact us for a property portfolio review.