What is ORDINANCE AND LAW COVERAGE (O&L) In Insurance?

Even if your building is insured for the recommended replacement cost you probably aren’t covered for the full replacement you need!

You may have heard of the term ordinance and law coverage in relation to commercial property insurance, but many people are unaware that this type of coverage can also be a part of your homeowner’s insurance policy.

This coverage provides payment for loss caused by enforcement of ordinances or laws regulating the construction and repair of damaged buildings. Older structures that are damaged may need upgraded electrical; heating, ventilating, and air-conditioning (HVAC); and plumbing units based on city or state codes (some even require green initiatives such as installing solar panels). Many communities have a building ordinance(s) requiring that a building that has been damaged to a specified extent (typically 40-50 percent) must be demolished and rebuilt in accordance with current building codes rather than simply repaired.

Unendorsed, standard property insurance forms do not cover the loss of the undamaged portion of the building, the cost of demolishing that undamaged portion of the building, or the increased cost of rebuilding the entire structure in accordance with current building codes. However, coverage for these loss exposures is widely available by endorsement. Standard homeowner’s policies include a provision granting a limited amount of building ordinance coverage; this amount can be increased by endorsement. Also referred to as building ordinance coverage.

Coverage A – Coverage for Loss to the Undamaged Portion of the Building

When there has been a covered loss to a building, the remaining part of the building may still suffer a loss. Depending on local building codes and regulations, if there has been significant damage to the building, what’s left has suffered a loss of value. The local building code may require that the undamaged portion of the building be demolished before starting construction. Remember what the covered loss was. It was direct physical damage to covered property. The undamaged portion of the building has not suffered direct physical damage. It’s just lost value. It’s essentially worthless because local officials will not allow the building to be repaired back to its state prior to the loss. They want the rest of the building removed and the whole thing rebuilt. Selecting Coverage A on this form provides coverage for this loss. By checking the box on the form, you have the full building limit available to rebuild this building.

Coverage B – Demolition Cost Coverage

We have another problem though. It’s going to cost money to demolish the rest of that building and remove the debris so that reconstruction can begin. That’s where coverage B comes in. It provides coverage for those costs.

Coverage C – Increased Cost of Construction Coverage

This coverage provides funds to upgrade certain key systems in the building as required by local ordinance. Many policies already provide $10,000 or 5% of the building limit, but that may not actually cover the required upgrades. That’s what this does.

One way to think about O&L is that it pays for improvements to your building that the insurance company wouldn’t otherwise cover, but you are now required to incur by building Ordinance or Law (Building Code). The standard building/property coverage without the O&L endorsement pays to reconstruct the building exactly as it was before the loss.

In order to determine if you need ordinance or law coverage, consider the age of your home. If you live in an older home and experience a loss, you may be more likely to have to upgrade to current building codes compared to living in a newer home that already meets up-to-date requirements

We would love to answer any questions that you might have. Contact Kovalev Insurance today and request a complimentary consultation to ensure your property is properly protected.