Term of the Week: Ordinance or Law Coverage

What It Is

Ordinance or Law (O&L) coverage — sometimes called Building Ordinance coverage — pays for the increased cost of rebuilding or repairing a structure to comply with current building codes, zoning laws, or ordinances when a covered loss triggers reconstruction. It typically has three components:

• Coverage A (Loss to the Undamaged Portion): Pays to demolish and remove the undamaged portion of a structure that must be torn down because local ordinance requires it when the damaged portion is repaired.
• Coverage B (Demolition Cost): Pays the actual cost of demolishing and hauling away the undamaged portion.
• Coverage C (Increased Cost of Construction): Pays the additional cost to rebuild to current code versus the original construction standard.

Why It Matters on CAT Total Losses

A home built in 1985 likely predates current energy codes, wind-load requirements, electrical standards, and in tornado-prone areas, potentially newer IRC provisions for wall bracing and roof-to-wall connectors. When that home is destroyed and rebuilt, the contractor doesn't rebuild to 1985 specs — they build to what the permit requires today. That delta is real money: upgraded electrical panels, engineered lumber, modern shear walls, impact-resistant windows in some jurisdictions. It adds up fast.

On a total-loss file, O&L Coverage C is often the largest line item most adjusters forget to check. If the insured has it, it needs to be scoped and estimated separately — not buried in the dwelling replacement cost estimate.

Common Mistakes

• Assuming RCV already covers code upgrades. It doesn't. RCV replaces like-for-like at today's prices. O&L covers the delta between like-for-like and code-compliant construction.
• Skipping it on partial losses. O&L applies on partial losses too — if local ordinance requires you to bring the whole structure up to code when you repair 51% of it (the common "50% rule"), the coverage should be triggered.
• Missing the sublimit. O&L is almost always a sublimit — often 10–25% of Coverage A. Check the dec page. If the insured is underinsured on O&L, document it clearly and note it in the file.

The Adjuster's Move

On every total-loss inspection: check the dec page for O&L before you leave the driveway. If it's there, flag it in your scope notes. If the rebuild will require meaningful code upgrades — and on anything pre-2000, it usually will — get a contractor to break out the code-upgrade costs as a separate line. That's what the coverage is there for.