Ordinance or Law Coverage
Ordinance or law coverage pays the additional cost of complying with current building codes when repairing or rebuilding a property after a covered loss.
When a covered loss requires significant repair or rebuilding of an apartment building, local authorities typically require the work to conform to current building codes rather than the codes in effect when the building was originally constructed. The incremental cost of these code-required upgrades, such as adding sprinkler systems, upgrading electrical service, widening corridors for accessibility, or installing energy-efficient systems, is not covered under the standard property insurance form.
Ordinance or law coverage fills this gap with three components. Coverage A addresses the loss in value of the undamaged portion of the building when a local ordinance requires demolition of the entire structure even though only a portion was damaged. Coverage B pays for the actual demolition and site clearing of the undamaged portion. Coverage C pays for the increased cost of construction to meet current codes.
This coverage is essential for older apartment buildings, where the gap between original construction standards and current codes can be substantial. A building constructed in the 1970s that suffers a significant fire may face code-mandated upgrades that add 15% to 30% or more to the rebuilding cost. Without ordinance or law coverage, the owner must fund these mandatory upgrades out of pocket, which can create a serious financial shortfall.