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A recurring theme across property claims involving older buildings is the gap between what a structure needs to be repaired to its pre-loss condition and what current building code requires once repairs are permitted. Ordinance or law coverage is the policy provision most homeowners and property policies use to address that gap, and understanding its basic structure helps explain why code-driven costs sometimes appear as a distinct category within an estimate.
Ordinance or law coverage is typically broken into components addressing different kinds of code-driven cost. One component addresses the cost to demolish and clear away the undamaged portion of a structure when code requires full removal rather than partial repair. Another addresses the increased cost of construction that results from having to rebuild damaged portions to current code rather than to the original, non-code-compliant specification. A third sometimes addresses the value of the undamaged portion of the building itself, where code requires its demolition. These components are often subject to their own sublimits, separate from the main dwelling or building coverage limit, and the specific structure of this coverage varies by policy form and by carrier.
Because ordinance or law provisions are written into the policy contract, questions about whether a specific code-driven cost is covered, how a sublimit applies, or whether a given repair even triggers code compliance in the first place are questions of policy interpretation. Those questions belong to the policyholder and the carrier, and ultimately to their respective legal counsel or the courts if a dispute arises, not to an appraiser working within an appraisal proceeding. Appraisal addresses the amount of loss, and where ordinance or law issues intersect with that amount, the appraisal panel’s role remains limited to identifying and pricing the physical scope of work, not to deciding whether a coverage provision applies to it.
In practice, this means an appraiser who identifies that current code requires a wider fastener spacing, a different underlayment, or additional insulation as part of a repair is documenting a construction requirement, supported by the applicable code section and, where available, a building official’s confirmation. Whether that documented cost is then paid under ordinance or law coverage, under some other provision, or not at all, is a separate determination made outside the physical scope-and-price analysis that defines appraisal work.
Ordinance or law provisions have expanded in most policy forms over time as building codes themselves have grown more detailed, but the specific limits, definitions, and triggering conditions still vary considerably from one carrier’s form to another and from one state to the next, since insurance regulation, like building code adoption, is largely a state-level function in the United States. A policy issued in Minnesota can define increased cost of construction differently than a policy issued in a neighboring state, and even within a single carrier’s product line, an older policy form may lack a provision that a more recently issued form includes. This variability is one more reason coverage questions get resolved by reading the specific policy in force rather than by applying a general industry assumption, and it is also why appraisers, whose function is limited to amount of loss, generally decline to characterize any disputed cost as covered or excluded regardless of how confident they may be in the underlying construction facts.
This article is general education about how the appraisal process commonly works. It is not legal advice, and specific procedures can vary by state and policy.
Russ Lis is a working property insurance appraiser and umpire based in Minnesota, serving clients nationwide. Contact Appraisal Resolution.