Ordinance Or Law Coverage
Much thanks to the Lawyers info blog for their help with this article.
If you are purchasing insurance for an older building either because you own it or your lease requires it, understand that a normal Basic Form, Broad Form or Special Form policy designed to replace your existing building should it be destroyed probably would not be adequate. The problem is that legal requirements adopted since the building was constructed will normally require that stronger, safer, more fire-resistant building be constructed. Doing this can cost far more than simply replacing the old building. To cope with this possibility, you want a policy that will not only replace the building but also pay for all legally required upgrades. This coverage is called Ordinance or Law Coverage.
Hopefully, you will never have to rebuild. However, if you do, even if it is only to repair part of a building, the work must meet current building codes and other applicable laws. These probably impose tougher standards, which cost more to meet than codes required when your building was first constructed. Do not expect your property insurance policy to cover the costs that new building codes and other laws can add. Even replacement cost coverage will not take into account any additional costs needed to bring your property up to more stringent standards imposed by law.
For small additional premium, you can remove this risk by getting an "ordinance or law" endorsement that covers the added cost of rebuilding or repairs that comply with new applicable laws. Make sure the endorsement also covers you with respect to rebuilding and recouping the value for any undamaged parts of your buildings that are affected. Very often, local building codes require that if a significant portion of a building is destroyed, for instance 50 percent or 80 percent, the entire building must be demolished before being rebuilt. In addition, as a practical matter, you may need to reconstruct certain undamaged portions of your building along with the damaged parts to meet new code requirements or to comply with other laws.
It is usual for insurers to not offer ordinance or law coverage even though it may be requested if your building is of a certain age, usually 20 years old. The insurer's thoughts are that the building should have been maintained throughout the years and if the entity is asking for this type of coverage, it is to pay for the building code changes the insured was unwilling to comply with. And if you think this may be an increased cost to you for one building, compound this figure if you elect to be somewhere in condominium units. Not only will the insurers refuse to provide building ordinance coverage on older buildings which may be included in appraisals but you as the unit owner will also be assessed for any ordinance or law changes requiring it to be in accordance with the state's building code. If a hurricane comes through and damages your building, you may be assessed again over an above all other assessments to comply with the state's building codes when repairing your building.