There’s a provision that most standard insurers don't cover: Ordinance or Law. While many insurers give the option to insure for Ordinance or Law losses, most do not come standard. So what does Ordinance or Law coverage do? What happens without it?
Every community has building codes, laws, and zoning ordinances, and they are constantly being modified and reinvented as new technology and information comes out. Easy examples would be the banning of the use of asbestos and the requirement of egress windows being used for basement bedrooms. While those two examples have been around for quite some time, new laws and codes are always coming out.
However, with the new laws and ordinances, it would be far too inconvenient, costly, and downright annoying to require building owners to make changes to comply to all of the new rules right as they come out. Instead, these new rules only affect new construction, large renovations, the replacement of certain items, and when certain percentages of buildings have been destroyed. The Ordinance or Law coverage can be crucial because most standard policies do not cover the additional expenses incurred due to complying with laws and ordinances. The basic insurance policy often only covers you to replace your building to the exact same specifications it was before the loss. So if any laws and ordinances require you to add extra features or use more expensive materials, the additional expenses would not be covered. Furthermore, when buildings are damaged to a certain extent (the exact percentage varies, but is typically 50%), the whole structure must be torn down and replaced entirely. The extra expense to demolish the building and the loss and rebuilding costs of the otherwise undamaged part of the building would not be covered without Ordinance or Law coverage.
Let's Discuss a Couple Examples:
Example 1: Say you have a home worth $200K that was 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, the extra costs to replace the undamaged 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 to fund all of the demolishing and extra rebuilding expenses. These extra costs could easily cost $100K or more, depending on the size, type, and use of the building!
Example 2: The next example pertains more to commercial property owners. Let’s say your commercial building was completely destroyed. The insurance company is going to pay to rebuild, but the problem is that the city has rezoned. These new laws 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. For example, due to the Americans With Disabilities Act of 1990, you may be required to rebuild with the building being accessible and accommodating 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!