Term of the Week: Ordinance or Law Coverage

What it is

Ordinance or Law coverage pays for the increased cost of rebuilding to current building codes after a covered loss. If a tornado destroys part of a structure and local code requires the rebuild to meet modern standards — updated framing requirements, new electrical, fire-separation walls, energy code compliance — the base RCV policy pays to rebuild what was there. Ordinance or Law coverage pays for the upgrade.

Why it matters on tornado claims specifically

Brick veneer construction from the 1990s is a good example. A 1998 house may not have had continuous moisture barriers behind the veneer, may have used older tie spacing, and almost certainly wasn't built to current wind-resistance codes in most states. When that veneer comes off in a tornado and needs to be rebuilt, current code in many jurisdictions requires: a continuous housewrap or moisture barrier, specific brick tie spacing and embedment depth, and in some wind zones, an updated sheathing type or thickness.

None of that is covered under the standard replacement cost provision — it covers like-for-like. The upgrade cost is an Ordinance or Law item.

The three components

• Coverage A (Undamaged portion demolition): If code requires you to tear down an undamaged portion of the structure to bring the whole building into compliance, Coverage A pays for that demolition.
• Coverage B (Loss of value — undamaged portion): Pays for the depreciated value of the undamaged portion that had to be demolished.
• Coverage C (Increased cost of construction): The big one. Pays the delta between rebuilding to the original spec and rebuilding to current code.

Common claim mistakes

Adjusters routinely scope Ordinance or Law items under the base RCV claim and then wonder why the supplement comes in. The reverse also happens: carriers deny legitimate code-upgrade costs because the adjuster didn't flag the Ordinance or Law endorsement at first notice. Both create cycle time drag and insured friction.

On any partial loss involving cladding, roofing, or structural elements on a building more than 15 years old, check whether an Ordinance or Law endorsement is on the policy before you lock the scope. It changes the conversation with the contractor — and the reserve.