HOMEOWNERS GUIDE

Ordinance or law coverage: the part of the rebuild your dwelling limit does not price

Ordinance or law coverage pays the extra cost of repairing or rebuilding to current building codes after a covered loss. The standard ISO sample form allows up to 10 percent of your dwelling limit for it, $40,000 on a $400,000 limit, and more can be bought by endorsement. Your dwelling limit was set to rebuild the home you have. The building code your city enforces today may not let a contractor rebuild that home. It can require wider stairs, different wiring, stronger roof connections, sprinklers, or demolition of a part of the house the fire never touched. The gap between the home you had and the home the code requires is a separate bill, and ordinance or law coverage is the line on your policy that pays it, up to a limit most homeowners have never read.

Disclaimer: Published averages and ranges, not a quote. This page is not insurance advice. Your premium will differ based on your home, location, claims history, and insurer. Flood insurance is separate from a standard homeowners policy.

Check and size this coverage in seven steps

1. Find the line. Open your declarations page and look for ordinance or law, building ordinance, or law and ordinance, in the additional coverages or endorsements block.
2. Convert the percentage to dollars. Multiply the stated percentage by your Coverage A dwelling limit and write the dollar figure down. A percentage hides its size; a dollar figure does not.
3. Date your home against the code. Note the year the home was built and the last time its wiring, plumbing, heating, and roof were brought to current standards.
4. Ask about the local demolition rule. Find out whether your community orders demolition and a full rebuild once damage passes a stated share of the building, and what that share is.
5. Price two levels. Ask the insurer to quote the limit you have and the next percentage level up, on otherwise identical terms, so the comparison is clean.
6. Confirm the three buckets. Ask whether your limit covers increased construction cost, demolition and debris removal, and the undamaged portion a law orders removed, or only the first of the three.
7. File the answer with the policy. Keep the written limit, the percentage, and the insurer reply with your declarations page, where a claim will need them.

Why a correct dwelling limit still leaves this gap

Replacement cost has a precise meaning in the NAIC consumer guide: the cost to rebuild your home or repair damages using materials of like kind and quality. Like kind and quality describes the house that stood there. It does not describe the house a current building code requires in its place. If your home was built under an older code, and the code has changed since, rebuilding the same house in the same way can be illegal. The contractor still has to build the legal version. Somebody pays the difference, and the standard dwelling settlement was never sized for it.

The NAIC defines the coverage that answers this directly: ordinance or law coverage is a type of coverage that pays the extra cost to rebuild your home to meet new or updated building codes or ordinances that did not exist when your home was first built, also called building code upgrade coverage. The NAIC shopping worksheet then treats it as a line to compare in its own right, listed beside the dwelling limit and the settlement basis, and the guide's list of questions for an agent includes this one, word for word in substance: how does this policy cover increased costs to rebuild my home, such as to meet new building codes? A coverage that regulators tell you to ask about by name deserves more than the default setting it shipped with.

The exposure concentrates in the systems of the house. IRMI, the insurance reference publisher, describes building ordinance coverage as coverage for loss caused by enforcement of ordinances or laws regulating construction and repair of damaged buildings, and names the parts of an older structure that codes most often reach: electrical, heating, ventilating and air-conditioning, roofing materials, fences, and plumbing. A repair that opens a wall or a ceiling can pull one of those systems into the permit, and the permit can pull the rest of that system up to current code. The damage was local. The code order rarely is.

The three buckets this coverage pays for

Policies group these buckets differently. Some state one combined limit for all three; some build a limited amount into the form and sell more by endorsement. That grouping decides real money after a large loss, because demolition billed against the same limit leaves less of it for construction. Step six of the overview above exists for this reason: ask which buckets your limit covers, and whether they share one ceiling, before you compare the number to anything.

What the standard form's own wording grants

Much of what is said about this coverage is a summary of a summary. The wording itself is short enough to read whole. In the ISO Homeowners 3 sample form (HO 00 03 10 00, the 1999 edition the Insurance Information Institute publishes), Ordinance Or Law is additional coverage 11 under Section I. Its first sentence sets the size: "You may use up to 10% of the limit of liability that applies to Coverage A for the increased costs you incur due to the enforcement of any ordinance or law." It then lists three things that ordinance or law must require or regulate, and they line up with the three buckets in the table above. The first is the construction, demolition, remodeling, renovation or repair of the part of a covered building damaged by a covered peril. The second is the demolition and reconstruction of the undamaged part, "when that building or other structure must be totally demolished because of damage by a Peril Insured Against to another part" of it. The third is the remodeling, removal or replacement of the portion of the undamaged part "necessary to complete the remodeling, repair or replacement" of the damaged part.

Three more lines in the sample change how the money behaves. Paragraph b lets you spend all or part of the same amount on the increased cost of removing debris from that work, so debris shares the ceiling rather than adding to it. Paragraph c names two things it never pays: the loss in value to a building caused by a code requirement, and the cost of testing for, cleaning up or otherwise responding to pollutants. Read that first exclusion next to the undamaged-portion bucket in the table above: in the sample, an undamaged part that the law requires to come down is paid through the cost of its demolition and reconstruction under the second purpose when the whole building must be demolished, or through its removal or replacement under the third purpose when that is needed to complete the repair, while a drop in a building's value caused by a code requirement, with no such work, is not paid at all. Other forms may word that bucket differently, so check which way yours is written. The clause ends with a sentence worth finding on your own form: "This coverage is additional insurance." In the sample, then, the 10 percent sits on top of the dwelling limit, so a fire that uses the whole Coverage A limit still leaves the code amount available. The sample's general ordinance or law exclusion, in Section I, says its first paragraph does not apply to the amount of coverage this clause provides; the exclusion's paragraphs on loss in value and on pollutants keep applying. That is how the sample works. Insurer forms, newer ISO editions and state amendments can differ on the percentage, on whether the amount is additional, and on what shares the limit, so the clause in your own policy is the one to read.

What this coverage does not pay for

It does not pay for the damage itself. The fire, the windstorm, or the burst pipe is settled under your dwelling coverage, with its own limit, settlement basis, and deductible. Ordinance or law coverage begins where that settlement ends: at the extra cost the law adds to the repair.

It does not pay for damage from a cause your policy excludes. Flood and earthquake sit outside a standard homeowners policy, as the NAIC consumer pages state plainly, so code costs that follow flood or earthquake damage need an answer from the separate product that covers that damage, if you carry one. It does not pay for upgrades you choose for your own reasons, however sensible they are. And it does not settle a code problem that already existed before any loss, on a part of the home no covered repair touches. The trigger, in every case, is a covered loss plus an enforcement requirement attached to repairing it. Keep those two halves together and most claim surprises on this line disappear.

After a flood: the 50 percent rule and the flood policy's own code coverage

Flood is where a code order can be largest, because the 50 percent rule can require raising the whole house, and it is where the homeowners line does not reach. The flood side has its own rule and its own small pot of money, both written into federal regulations a homeowner can read.

The rule is substantial damage. Federal floodplain regulations define it as "damage of any origin sustained by a structure whereby the cost of restoring the structure to its before damaged condition would equal or exceed 50 percent of the market value of the structure before the damage occurred" (44 CFR 59.1). The same section counts a substantially damaged structure as a substantial improvement "regardless of the actual repair work performed," and the program's floodplain standards (44 CFR 60.3) require communities to have the lowest floor of substantially improved homes in zones A1-30, AE and AH elevated to or above the base flood level. That chain is why a flooded house can be told to rise before it is rebuilt. Note the measure: repair cost against the market value of the structure, not the price of the house and lot together.

The money is Coverage D, Increased Cost of Compliance, in the Standard Flood Insurance Policy dwelling form (44 CFR Part 61, Appendix A(1)). The form says it "pays you to comply with a State or local floodplain management law or ordinance affecting repair or reconstruction of a building suffering flood damage," and lists the eligible work as elevation, floodproofing, relocation or demolition of the building. Its limit: "We will pay you up to $30,000." That amount applies only to policies with building coverage, is paid in addition to the building limit on the declarations page, and carries no separate deductible, though building and code payments together cannot exceed the program maximum. To qualify, the building must either have flood damage whose repair cost equals or exceeds 50 percent of its market value, with the community enforcing a substantial damage rule, or be a repetitive loss building: flood damage twice in 10 years, with repairs averaging at least 25 percent of market value each time the earlier claim paid by the program, and the state or community enforcing a cumulative substantial damage or repetitive loss provision against the building.

Set the two numbers side by side: a 50 percent trigger measured on the structure's market value, and a $30,000 ceiling on the compliance work. Get a contractor's estimate for the required work before you assume the ceiling covers it, and do not expect the homeowners policy's ordinance or law line to pay whatever is left, because the flood was never a covered loss there. A homeowner in a flood zone should know both figures before a storm season, not after one. Our flood insurance guide covers how the flood policy is bought and its waiting period.

The limit is a percentage, so do the arithmetic

IRMI states the starting point: standard homeowners policies include a provision granting a limited amount of building ordinance coverage, for example 10 percent of the dwelling limit, and this amount can be increased by endorsement. Ten percent sounds like a cushion until it is written as money. This table converts three percentage levels at the three dwelling limits this site uses most, so you can place your own policy on it.

Read the table as capacity, not as a prediction. No source on this page claims that a given home will need a given amount after a loss, because the bill depends on your local code, the age of your systems, and how much of the home a single loss opens up. What the table does settle is the order of magnitude you are choosing between. Moving from 10 percent to 25 percent on a $400,000 dwelling limit moves the ceiling from $40,000 to $100,000. That is a $60,000 difference in capacity, decided at renewal for a premium difference you can ask the insurer to state in dollars. Compare the two numbers side by side, the capacity and the price, and the decision stops being abstract. When you shop the change, keep every other term identical, the method our renewal shopping guide sets out, so the price you see belongs to this line alone.

A worked example, labeled and checked

Hypothetical illustration, with the arithmetic checked by this desk. The home, the loss, and every cost below are invented for clean numbers; they are not an average, a quote, or a claim outcome.

Suppose a home carries a $400,000 Coverage A dwelling limit and the built-in ordinance or law amount of 10 percent, a limit of $40,000. A covered fire damages part of the home. Restoring the damaged part as it was costs $180,000, and that part is settled under the dwelling coverage in the usual way. The city then attaches code requirements to the repair permit:

Check the addition: $14,000 plus $9,000 is $23,000; plus $7,000 is $30,000; plus $22,000 is $52,000; plus $18,000 is $70,000. Against the 10 percent limit of $40,000, the coverage pays $40,000 and $30,000 of the code bill comes from the homeowner, subject to the policy terms that govern any real claim. Against a 25 percent limit on the same dwelling, a ceiling of $100,000, the same $70,000 code bill fits inside the limit, with $30,000 of capacity to spare. Nothing about the fire changed between those two outcomes. The percentage chosen at renewal changed, and it changed the result by $30,000. That is the whole argument for reading this line before a loss instead of during one.

Which homes carry the most code exposure

Age alone does not settle the question, and this desk will not pretend a formula exists. A small, recently rewired older home can carry less exposure than a larger newer home in a jurisdiction that rewrites its code often and enforces a low demolition threshold. The profile table is a way to find your question, not an answer. The answer comes from the insurer, in writing, against your own declarations page. If a renovation has already changed your home's systems or its rebuilding cost, report it: our renovation guide shows how an unreported remodel quietly understates the dwelling limit itself, and every percentage on this page is only as good as the limit it is a percentage of.

Florida: a statutory offer, and a damaged-portion limit

Florida writes this coverage into statute, in section 627.7011 of the Florida Statutes. Before a homeowners policy is issued, the insurer must offer replacement cost coverage on the dwelling both without and with law and ordinance coverage, the latter limited to 25 percent or 50 percent of the dwelling limit as the policyholder selects. If the insurer does not obtain the policyholder's written refusal, the policy is deemed to include law and ordinance coverage at 25 percent. Insurers must also print a notice in bold type with the policy documents at issuance and every renewal, recommending that the policyholder discuss law and ordinance coverage with the agent.

The same subsection sets a limit that changes the worked example above for a Florida home. It says that law and ordinance coverage applies only to repairs of the damaged portion of the structure, unless the total damage to the structure exceeds 50 percent of the replacement cost of the structure. Below that line, a Florida policy written to the statutory form would not pay to bring the undamaged part of the house to code; above it, the whole structure is in play. Ask your insurer how your own form handles the undamaged portion, because a policy can be broader than the statutory minimum, and read the line against the 50 percent demolition thresholds many local codes use.

How this differs from extended and guaranteed replacement cost

These lines sit near each other on a quote and are easy to merge in your head. Keep them apart. Extended replacement cost pays a stated percentage above the dwelling limit when the rebuild of the home you had overruns the estimate. Guaranteed replacement cost removes that ceiling. Both answer the question: what if rebuilding this home costs more than we insured it for? Ordinance or law coverage answers a different question: what if the home we are allowed to rebuild is not the home we had? A policy can carry guaranteed replacement cost and still leave the code bill to a small percentage limit, because the guarantee follows the dwelling settlement, not the code order. Our guide to the three settlement levels works the first question in dollars, and our dwelling coverage worksheet sets the limit both questions depend on.

The eight-point audit for your declarations page

1. The ordinance or law line is present, or the insurer has confirmed a built-in amount in writing.
2. The percentage and its dollar value at your current Coverage A limit are both written down.
3. You know whether the limit is one combined ceiling or split across the three buckets.
4. You know whether demolition and debris removal draw on this limit or on a separate one.
5. The dwelling limit the percentage rides on matches your current rebuilding estimate, not last decade's.
6. You have priced at least one percentage level above the one you carry, on identical terms.
7. You know your community's demolition threshold and have noted it with the policy.
8. The dates of your last wiring, plumbing, heating, and roof updates are recorded, so a claim conversation starts from facts.

Run the same audit against the wider policy with our coverage checklist, which already asks whether ordinance or law coverage is present at a level that fits your home's age and local code exposure. Then set the result against your state benchmark on the cost by state table, so any premium change this line produces is judged against a published average with its source named, not against a feeling.

If a loss happens: documenting the code part of the claim

A code claim is won or lost on paper, because the coverage pays for a requirement, and a requirement has to be shown. Four documents do most of the work. First, the requirement itself in writing: the permit conditions, an inspector's note, or a letter from the building department that names the code section and the work it demands. A contractor saying the city will want it is a prediction; an inspector writing it is enforcement, and enforcement is the trigger this coverage answers.

Second, a contractor estimate split into two columns: restoring the damaged part as it was, and the added work the code requires. That split mirrors the way the policy itself is built, dwelling settlement on one side and ordinance or law costs on the other, and it lets the adjuster price each side against the right limit instead of arguing over one blended figure. Third, photographs of the existing systems before any demolition, showing the wiring, plumbing, or structure the code order is about. Once the walls are open and the old work is in a skip, the condition that made the upgrade mandatory is gone, and a dated photograph is the record that remains. Fourth, the invoices as the work proceeds, kept with the permit and the inspection sign-offs in the same claim file our claim filing guide tells you to build from the first day.

Send the code documents early, with the first estimates, rather than after the settlement offer arrives. An adjuster who sees the written requirement at the start scopes the claim with the code bill inside it. An adjuster who meets the requirement after the offer has to reopen a settled scope, and reopening is slower for everyone. If the insurer disputes whether a requirement applies, ask for the dispute in writing and take the written code order and the written dispute to your state department of insurance, which is the escalation path the NAIC consumer guidance points to for claim disagreements.

Common questions