A B C’s of Ordinance or Law Coverage – By Kevin Degginger

Imagine a covered cause of loss leads to major damage to your building. Since more than 50% was damaged, local law requires the whole building to be torn down and rebuilt to current building codes. You have building coverage with replacement cost valuation on your policy, so you’re covered…..Right? Unfortunately the real answer is, It Depends. Property policies typically have an Ordinance or Law exclusion meaning, coverage does not pick up the cost associated with upgrading a building to meet current codes and ordinances after a loss. Thus, merely having replacement cost coverage for a building doesn’t mean you have “upgrade cost.” This gap is made up by adding an “Ordinance or Law Endorsement”. Ordinance or Law coverage is broken into three segment limits. Coverage A – typically matching the building coverage limit- this coverage covers the loss of value of the undamaged portion of the building that must be torn down due to the building code being enforced following a loss. Coverage B – is your demolition cost- paying for the cost to actually demolish and remove the remaining portion of the building left standing after a covered cause of loss. Finally, Coverage C – increased cost of construction – covers the additional cost to upgrade building to meet any changes in code since the original building was constructed. Lastly, make sure your policy includes debris removal. Without it, you will be expected to pay the expenses associated with removing the demo’d property prior to rebuilding.

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