What Is Ordinance And Law Insurance Coverage?

If your roof is damaged, your insurance will pay to fix it, right? But what if you need to replace the entire roof to ensure it complies with new building codes and local laws? Will your policy cover the cost of the whole thing? The answer may seem like it would be yes, but that isn’t always the case. You may require a special insurance endorsement, called ordinance and law coverage.

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Ordinance And Law Coverage Defined

Ordinance and law coverage provides financial compensation to rebuild a building, after it has been destroyed, in a manner that complies with the most up-to-date building codes and laws.

For example, if your roof is destroyed and you do not have ordinance and law coverage, your insurance policy would pay you the value of the roof prior to it being destroyed or the cost to replace the roof as it existed previously. This is true even if a new ordinance was passed that requires you to use a certain type of more costly textiles to rebuild your roof—your insurance would not cover this difference in price unless you had ordinance and law coverage. 

When you do have ordinance and law coverage, your insurance will pay the amount it costs to replace the roof in compliance with new laws, so utilizing the more expensive textiles will not cost you money out of pocket.

When You Need Ordinance And Law Coverage

While we recommend everyone consider ordinance and law coverage, it is especially necessary if you live in an area with strict building codes that are regularly updated. When updates to laws and building codes first occur, you are not typically obligated to comply immediately. However, you must comply once you replace the affected location. 

For example, if your city has a new code that requires a fire escape for all buildings over three stories, you won’t have to install the fire escape as soon as you’re able. However, if you perform any renovations to your building, you are expected to include the fire escape at that time. In this instance, ordinance and law coverage would help pay for the cost of that addition to the renovation. 

While the installation of something like a fire escape may not break the bank, complying with some building codes can be incredibly costly and seriously impact your business’s finances. For example, many cities have an ordinance requiring that you completely demolish and rebuild a building if it is damaged to a certain extent (typically 50%). If you have a standard commercial insurance policy, it would only cover the cost of rebuilding the damaged portion versus paying to rebuild the entire structure. TThe lack of ordinance and law coverage in this circumstance could lead to financial ruin for a business—especially a small business—because it’s a huge financial burden to shoulder the cost of demolishing and rebuilding even part of a property. However, having ordinance and law coverage means you won’t have to pay to rebuild the entire building.

Is ordinance and law coverage a separate insurance policy?

No. You do not need to take out a separate insurance policy to obtain ordinance and law coverage; It is an endorsement (added coverage) on your pre-existing commercial property policy. However, it does act as a separate policy in one sense—you don’t automatically have ordinance and law coverage. It is an additional coverage that you must request to be added to the end of your policy.

What buildings can I get insurance and law coverage on?

You can get insurance and law coverage on almost any building. While some historical sites may have more trouble getting this coverage, most other commercial properties can expect to get approved for this endorsement if they want it. Even personal properties, such as your home, can receive ordinance and law coverage.

The Bottom Line

You may think you are fully covered in the event of an emergency, but issues you don't even think about can limit your ability to be financially protected. One of these issues is complying with building codes when you rebuild a portion of your property. You may be required to make a small change or even rebuild the entire structure itself. Adding an ordinance and law endorsement to your commercial property policy is typically an inexpensive way to ensure your building is protected in the event of a disaster.