Building Ordinance Coverage

Building ordinance coverage is insurance that covers the increased costs associated with repairing a damaged building. Such costs are due to changes in building codes since the building’s construction date. Older structures that are damaged may need upgraded heating, ventilating, electrical wiring, air-conditioning (HVAC), fencing, roofing materials, and plumbing units to be up to date with city codes. Building ordinance coverage helps policyholders afford potentially unforeseen expenses associated with fixing extensive property damage.

Building ordinance coverage is not typically included in a standard insurance policy and must be purchased as an endorsement to that policy. Some policies include only a limited amount of building ordinance coverage, and the property owner may wish to purchase more. In that case, the insured will pay a higher premium for the extra coverage.

Local governments establish building codes to protect occupants’ safety. Over time, construction standards that were once considered safe can become outdated as new knowledge and new materials make it possible to build safer establishments. When a building is sufficiently damaged to the point that it requires significant reconstruction, cities require the new construction to meet the new building codes. Sometimes the expenses associated with complying with these codes are higher than what it would cost to reconstruct the building to its previous standard, and a basic insurance policy might not provide enough coverage for these increased costs. Building ordinance coverage fills in this gap.

Building codes or ordinances are set by local governments to ensure the health and safety of building occupants. Building codes vary from one location to another, and some governments are more strict about them than others. Building ordinance coverage is important because it will help the insured pay for the significant costs of demolition, loss of value and increased construction cost affiliated with bringing a building up to code.    

For example, suppose John’s home has a fire that destroys 60 percent of the structure. His city’s building codes require that when more than 50 percent of a building is damaged, the entire structure must be torn down and rebuilt to current codes. John’s basic homeowners insurance policy only pays to rebuild the 60 percent of the home that was damaged, but his building ordinance coverage pays to demolish the remaining 40 percent and rebuild 100 percent of the structure. His building ordinance coverage also provides enough money for John’s home to be rebuilt to current codes, not the 1970 codes that were in effect when his home was originally constructed.