Building Ordinance / Ordinace or Law Coverage Description


(A) Coverage for Loss to the Undamaged Portion of the Building.
Pays for the loss of value of an undamaged portion of the existing building which must be
demolished and/or removed to conform with municipal ordinance, code, etc.
(B) Demolition Cost
Pays for the cost of demolition of the undamaged portions of the building necessitated by the
enforcement of building, zoning or land use ordinance or law.
(C) Increased Cost of Construction
Pays for any increased expenses incurred to replace the building with one conforming to building
laws or ordinances, or to repair the damaged building so that it meets the specifications of current
building laws or ordinances.

Operation of Building Laws

Most communities have building or zoning laws to regulate the standards for type of construction,
fire protection, electrical wiring, and plumbing, and to regulate the type of occupancy allowed in the
city and certain other areas. Under “grandfather” provisions usually included in these laws,
buildings that do not meet the standards generally are permitted to remain only because they were
erected before the laws in question were passed.
Most laws, however, provide that if a nonconforming building is damaged or destroyed, it must be
brought up to code before it can be reoccupied. Many laws also provide that if a building is
damaged beyond a certain proportion of its value — 50% is a common measure — it may not be
repaired, but must be demolished and, if replaced, replaced by a structure that meets the building
or zoning requirement.
Although there are almost countless situations where the operation of such laws is applicable,
some common examples are high-rise buildings that must be equipped with automatic sprinkler
systems, buildings with electrical wiring meeting less than minimum code, and frame buildings in
congested areas zoned for brick or fireproof construction. The effect of the operation of building
laws is to almost always result in more costly repair than repair without such requirements.
In virtually all property insurance policies, a building owner’s exposure to loss resulting from the
enforcement of building or zoning laws is effectively excluded by language identical or nearly
identical to that found in the Standard Fire Policy. The Standard Fire Policy specifies that recovery
shall be “without allowance for any increased cost of repair or reconstruction by reason of any
ordinance or law regulating construction or repair.”

The effect of this exclusion is to leave the following basic exposures uninsured:

  • The actual expense of tearing down the undamaged portion of a building if a law or
    ordinance dictates demolition and disposal of the resulting debris.
  • The loss of the value of the undamaged portion of a building.
  • The difference between the value of the building as it stands — the insurable value of the
    building — and its value if rebuilt to code. Even when insurance is written on a replacement
    cost basis (i.e., without deduction for depreciation), this exposure exists because the
    replacement cost referred to in the insurance is that required to restore the original building,
    not an improved and more expensive version of the original building.
  • An extended loss of business income, extra expense, or additional living expense.