Ordinance and Law Insurance – When replacement cost is not enough
Why Replacement Cost Isn’t Enough: The Truth About Ordinance & Law Insurance
Many property owners feel confident when their insurance policy lists “replacement cost” coverage. It sounds like it will rebuild your property exactly as it was before a loss. Unfortunately, that’s not always the case. When disaster strikes, you may find yourself facing a surprising bill — not for repairs from the damage itself, but for upgrades and changes you’re legally required to make under current building codes. These costs aren’t always covered unless you have a specific type of protection called Ordinance & Law insurance coverage.
Let’s walk through what it is, why it matters, and a real-life example of how not having it can cost tens of thousands of dollars.
A Real Client’s Story: When Replacement Cost Wasn’t Enough
Picture this: a fire damages your building. You know you have replacement cost coverage, so you assume you’re protected. But then the city steps in with an unexpected demand.
That’s exactly what happened to the brother of one of our clients. His building was damaged in a fire, and when the rebuilding process started, the city informed him that a sprinkler system had to be installed throughout the entire structure. The price tag? $100,000.
The bad news — his policy only provided $10,000 toward this kind of code-required upgrade. Why? Because he didn’t have the right Ordinance & Law endorsement.
Now he’s facing nearly $90,000 in out-of-pocket expenses. Meanwhile, our client, who did have the right coverage, could only shake their head and say, “Thank you for taking care of me.”
The lesson here is clear: replacement cost coverage is important, but without Ordinance & Law protection, you may be leaving yourself dangerously underinsured.
What Is Ordinance & Law Coverage?
Ordinance & Law insurance is designed to fill a very specific gap. It covers the extra costs that arise when you have to bring a damaged building up to current codes during repairs or reconstruction.
When laws and codes change, older buildings may no longer meet the required standards. If damage occurs, you might be forced to upgrade the building to comply — and those expenses can be significant.
The Three Key Parts of Ordinance & Law Insurance Coverage
- Coverage A – Undamaged Portion of the Building
Sometimes, local law requires an entire structure to be demolished if a certain percentage is damaged. If you only have standard coverage, insurance pays for the damaged portion, but not the rest. Coverage A ensures the undamaged portion is also covered. - Coverage B – Demolition Costs
Even if a section of your building wasn’t harmed by the loss, you could still have to tear it down to comply with regulations. Coverage B pays for demolition and debris removal in those situations. - Coverage C – Increased Cost of Construction
This is the part that covers upgrades. If codes now require fire sprinklers, stronger roofing, energy-efficient windows, or wheelchair accessibility, Coverage C helps pay for those improvements.
Why It’s More Important Than Ever
Building codes aren’t static. They’re updated over time to address safety concerns, environmental requirements, and modern design standards.
For older properties, that means a simple repair can snowball into a major — and expensive — renovation. Even newer buildings can be caught off guard by code changes that happen between the time they’re built and the time damage occurs.
Here’s why the risk is growing:
- Code Updates Happen Frequently – Changes can require expensive updates like new electrical systems, reinforced foundations, or sprinkler systems.
- Partial Damage Can Trigger Full Compliance – A small fire or storm loss can lead to a full rebuild if local laws require it.
- Costs Add Up Fast – Upgrades can easily add 20%, 30%, or more to the cost of reconstruction.
Sprinklers: The Perfect Example
Sprinkler requirements vary widely depending on where your property is located. In some areas, adding them after damage is mandatory if you’re doing significant repairs. For commercial properties or multi-unit residential buildings, these requirements can be strict.
And as our client’s story proves, installing a sprinkler system can cost six figures. Without the right coverage, that’s your responsibility — even if the damage that triggered the upgrade was relatively small.
Other examples include:
- Rewiring the electrical system
- Installing hard wired smoke detectors
- Hurricane-resistant roof or Windows
- Wrapping your hot water pipes
- Installing additional or deeper footers
- Wrapping your hot water heater
How Much Ordinance & Law Insurance Coverage Do You Need?
A standard policy might include a small amount of Ordinance & Law protection, often around 10% of your dwelling limit. For example, a $300,000 building might have $30,000 of coverage. While that’s better than nothing, it’s often not enough for significant upgrades or full compliance work.
Many property owners choose higher limits — 25%, 50%, or even more — depending on the building’s age, condition, and location. The more complex or older the property, the greater the need for higher limits.
Key Takeaways from Our Client’s Experience
The story we shared earlier wasn’t an isolated case. Building codes are constantly evolving, and insurers design standard policies to replace what you had — not to pay for making it better or bringing it up to code.
If you own property that’s even a few years old, there’s a strong chance local requirements have changed since it was built. Without Ordinance & Law coverage, you could find yourself paying tens of thousands — or more — out of pocket after a covered loss.
Frequently Asked Questions About Ordinance and Law Insurance
- What triggers Ordinance & Law insurance coverage?
It kicks in when a covered loss leads to code compliance requirements, such as upgrades or demolition of undamaged portions of a building. - Does it cover upgrades to just the damaged area?
Sometimes. It can cover the increased cost to bring the damaged area up to code, but it also applies when you’re required to upgrade the entire building. - Is it part of my standard policy?
Usually not. It’s typically added through an endorsement or optional coverage. - Can I choose how much coverage I have?
Yes. Limits can often be increased to better match your building’s potential compliance costs. - Does it apply to both homes and commercial properties?
Yes. In fact, commercial and multi-family buildings often face stricter requirements, making this coverage even more important.
Why Choose Huff Insurance and an Independent Agent
At Huff Insurance, our job is to make sure you’re truly covered — not just mostly covered. We take the time to understand your property, your local regulations, and your risk factors before recommending the right coverage.
Because we’re independent, we can shop multiple insurance companies to find the best fit for your needs. We don’t push a one-size-fits-all policy; we tailor protection that makes sense for you.
The peace of mind our clients feel when something happens — knowing they have the coverage they need — is exactly why we do what we do. As one of our clients said after a close call, “Thank you for taking care of me.”
Huff Insurance is a full service Independent Insurance Agent We have been dedicated to Protecting Lifestyles™ since 1960. We offer a full array of Personal Insurance, Commercial Insurance and Life Insurance products. Call us at 410-647-111
