A homeowners policy is a promise to put the house back. What it puts back is the house you had, built the way it was built. The building department has a different mandate: it enforces the code in effect today.
The distance between those two positions is what ordinance or law coverage exists to close. Older the house, wider the gap.
Where the gap comes from
Building codes change continuously. Over the life of a house, requirements are added or tightened for electrical systems, plumbing, insulation and energy performance, structural connections, roof attachment and underlayment, egress windows, stairs and railings, smoke and carbon monoxide detection, and accessibility in some structures.
None of that is a problem while the house stands. It becomes a problem at the moment you rebuild after a covered loss, because the permit is issued against today's code.
The policy's core obligation is to pay to repair or replace with like kind and quality. Bringing the work up to current code is an additional cost driven by law, and standard policy language commonly excludes the increased cost of construction due to enforcement of an ordinance or law. The additional coverage is the carve-back to that exclusion.
The three things it pays for
Ordinance or law coverage is usually structured in three parts, and knowing which part you need matters when you are reading a limit.
Increased cost of construction. The extra cost of making the repaired or rebuilt portion comply with current code. Rewiring to a current standard, upgrading the electrical service, adding hurricane straps, meeting current insulation requirements.
The undamaged portion. The value of the parts of the building that were not damaged but must be torn down anyway because the code requires it. This is often the largest of the three and the least anticipated.
Demolition and debris removal. The cost of demolishing and hauling away the undamaged portion that a code requires be removed.
Why the undamaged portion is the big one
Many jurisdictions apply a substantial damage or substantial improvement rule: if the cost of repair exceeds a stated percentage of the structure's value, often around half, the whole structure must be brought into compliance, and in some cases demolished and rebuilt.
The practical effect is a cliff. A loss that damages a large but not catastrophic share of the house can convert a repair into a full teardown and rebuild. The policy pays to repair the damaged part; the rest requires ordinance or law coverage.
This rule interacts with flood elevation requirements in mapped flood zones, where a substantially damaged structure may have to be elevated to meet current requirements. Flood policies handle this differently from homeowners policies, and flood is a separate policy in any case. See flood insurance and the NFIP explained.
How much you have
Most modern homeowners forms include a modest amount of ordinance or law coverage automatically. Since ISO added it to the homeowners forms, a built-in limit of ten percent of the Coverage A dwelling limit has been the common baseline, and it can typically be increased by endorsement to substantially higher percentages.
Three things to check on your own policy rather than assume:
- Whether you have it at all. It is usually listed under additional coverages, sometimes as a separate line on the declarations page.
- The percentage. Ten percent is common as a default, not as a rule, and it varies by form, insurer and state.
- Whether it is an additional amount or part of Coverage A. On some forms it sits inside the dwelling limit rather than on top of it, which means a rebuild that exhausts Coverage A leaves nothing for code upgrades.
Who needs more than the default
The default is thin for some houses and adequate for others. The factors that push toward buying more:
- An older home, particularly one with original wiring, plumbing, or a foundation and framing that predate current structural requirements
- A jurisdiction with an aggressive substantial damage threshold
- A coastal or high-wind area, where roof attachment, opening protection and connection requirements have tightened significantly
- A seismic zone, where retrofit requirements can be triggered
- A mapped flood zone, where elevation requirements attach
- A historic district, where required materials and methods can cost far more than standard construction
- A home with known non-conforming features, such as a converted space, an older addition, or a structure that no longer meets setback rules
If you have made no updates to wiring, plumbing, roofing, insulation or HVAC in many years, that is a reasonable prompt to ask your agent to price a higher limit.
What it does not do
Being clear about the boundaries prevents disappointment.
- It requires a covered loss first. It does not pay to bring a house up to code just because the code changed.
- It only covers what the law requires. Voluntary upgrades made at the same time are yours to fund.
- It does not extend coverage to an excluded peril. If the loss itself is not covered, neither is the code upgrade.
- It does not fix an inadequate dwelling limit. If Coverage A is too low to rebuild the house at all, code coverage does not repair that problem. See how much dwelling coverage do you need.
- It is not the same as an inflation guard or extended replacement cost. Those address construction cost increases; this addresses legal requirements.
Where else it shows up
Condominium units. Code upgrades in a shared building can be assessed to unit owners, and both ordinance or law and loss assessment coverage may be involved. See condo insurance and the master policy.
Rental property. Dwelling fire forms handle this differently from homeowners forms, and the coverage often has to be added rather than assumed. See landlord insurance and dwelling fire forms.
Roof replacement. Even a routine roof claim can trigger code requirements for underlayment, decking, fastening or ventilation that the original roof did not have. See roof age, roof claims and payment schedules.
Questions for your agent
- Do I have ordinance or law coverage, and at what percentage of Coverage A?
- Is the limit in addition to Coverage A or included within it?
- Does it cover all three parts, including the undamaged portion and demolition?
- What increased limits are available, and what would each cost?
- Given the age of my house and my local code, what would you recommend?
- Does my jurisdiction have a substantial damage rule, and what is the threshold?
The last question is one your local building department can answer directly, and it is worth asking before a loss rather than during one.
Related reading: what homeowners insurance covers, filing a home insurance claim, and renovating a home.
Ordinance or law coverage structure, built-in limits, available increases and local code requirements vary by insurer, by policy form, by state and by jurisdiction, and your policy documents and local code control. For your own situation, speak with a licensed agent, your local building department, or your state's Department of Insurance. You can also request home insurance quotes and get connected with licensed providers in your area.