As cities across the country invest in urban redevelopment and infrastructure revitalization, property owners and developers are increasingly breathing new life into aging buildings. But, alongside the opportunities of restoration come critical insurance considerations, particularly when it comes to Ordinance or Law coverage.
If your commercial Property insurance policy doesn’t include coverage to address potential updates to local building codes, you may be exposing yourself to significant financial risk during a renovation or rebuild. Here’s why Ordinance or Law coverage should be an integral part of your insurance program.
Understanding the Exposure
A standard property insurance policy typically covers the cost of repairing or replacing damaged structures with “like kind and quality.” However, if your building doesn’t meet current municipal building codes, as is often the case with older properties, your coverage may fall short. Local ordinances may require substantial upgrades that go far beyond the cost of rebuilding what was lost. This is especially so in urban redevelopment zones, where stricter codes are often enforced as part of broader efforts to modernize infrastructure, improve safety, and mitigate risks from hurricanes, flooding, wildfires, and other catastrophes.
Inside Ordinance or Law Insurance
Ordinance or Law coverage is designed to provide coverage up to a certain amount in three key areas:
- Loss to the Undamaged Portion of the Building: If a building is partially damaged, but the code requires the entire structure to be demolished and rebuilt, basic insurance may only cover the damaged portion. Ordinance or Law coverage helps pay for the demolition and replacement of the undamaged sections.
- Demolition Costs: Local laws may require that even an undamaged section of a structure be torn down if the rest is damaged. Ordinance or Law coverage helps cover the cost of demolishing and removing the undamaged section of the building.
- Increased Cost of Construction: This helps cover the additional costs of rebuilding the property to meet current codes, which often require upgraded materials, systems, or designs not present in the original structure.
The Impact of Updated Building Codes
In many major U.S. cities, building codes have undergone a significant evolution in recent years. For example, accessibility requirements under the Americans with Disabilities Act (ADA) may require costly modifications, such as elevators or wheelchair ramps, during reconstruction. Energy-efficiency codes may call for new insulation, HVAC systems, or window glazing. Additionally, fire safety upgrades may include the installation of sprinkler systems or the use of fire-rated materials.
For instance, many California cities have adopted the 2022 California Building Standards Code, which includes updates to building, electrical, plumbing, mechanical, residential, fire, and energy codes. Cities, including Las Vegas, Mesa, New York, Philadelphia, Phoenix, Reno, San Antonio, St. Louis, and Tucson, have adopted more stringent building energy codes for insulation, lighting, and mechanical systems.
Without Ordinance or Law coverage, the cost of complying with these newer standards would be borne solely by the property owner, even if the loss were otherwise covered.
With the rise of adaptive reuse projects and mixed-use developments in dense urban cores, the risk of unanticipated rebuild costs is growing. Additionally, municipalities may adopt stricter codes in response to natural disasters and population growth, all of which affect how buildings must be reconstructed after a loss.
Having the right insurance coverage in place ensures that surprise compliance costs or partial coverage gaps don’t derail your redevelopment project.
About Seneca Insurance Company
Seneca Insurance Company is known for its broad appetite for writing property risks, including apartments and condos, mercantile, office buildings, and others. We offer admitted and non-admitted ISO-based policies, with catastrophe perils based on location and risk characteristics.
