Building Ordinance or Law Coverage

Most home insurance policies include coverage for “building ordinance or law,” a somewhat esoteric and misunderstood coverage that can be essential to putting your home back together after a claim.

The average home insurance policy includes 10% of the dwelling amount on a policy at the time of a claim this means that if you have suffered damage to your home and a law or local ordinance calls for a change comply, you have a limited amount of money available to pay.

Here a few examples to help you better understand the concept:

• A home is damaged by a broken pipe running to the second floor bathroom.  When contractors begin to remove the damaged Sheetrock in the home, it is discovered that the wiring in the home is not to code and must be updated.  The wiring is not part of the claim, but the job cannot be completed until the wiring is changed.
• A detached garage is crushed by a tree and completely destroyed.  Local Township ordinances have changed over the years so that all new garages must be installed farther away from property lines than the one that was damaged was originally.  This means that the new garage needs to have a new foundation built in a different location than the old, thereby increasing the cost of the claim.
• A home is burned by fire and is deemed to be 60% damaged by local authorities.  As UCC codes specify that any home more than 50% damaged must be razed and rebuilt, the 40% undamaged portion is not considered to be part of the insurance claim.

Coverage Options for Overruns Created by Ordinance or Law

In each of these cases, extra funds are required to complete repairs, and in each case, the cost to repair is increased by an ordinance or law.  As noted above, most policies only provide 10% of the home value to be available for cost overruns of this nature, which means that the balance is paid out of pocket by the homeowner.  In the case of the home damaged by fire, this can be a substantial sum.

There is a solution – most mid-market home policies can have this coverage increased to higher amounts, albeit for an additional annual fee.  There are also classes of higher end home insurance policies, some of which are surprisingly affordable, that include 50% or more of the home value for building ordinance coverage.  MetLife’s Platinum policy offers this in most states,  At the high end, policies from CHUBB, Encompass and others offer 100% building ordinance coverage – if a home is valued at $750,000 on a policy, the policy permits an additional $750,000 to be paid out for a building ordinance.

Some policies, such as those obtained from the “non-admitted” market when homes have had too many loses in a short period of time, have no ordinance coverage by default.  This can be common with insurers such as Lloyd’s of London, Scottsdale, and Lexington.

This same concept also applies to policies covering commercial properties, and in many cases a commercial policy does not contain any coverage for this.