Commercial building ordinance or law coverage

Building ordinance or law coverage is an endorsement that can be added to a commercial property insurance policy. It offers commercial building owners critical protection through hazard insurance if a fire, storm, or other covered event causes significant property damage and code regulations require upgrades upon rebuilding.

While standard commercial property coverage pays to replace property damage with similar materials, ordinance and law insurance covers additional costs associated with repairing or rebuilding a structure to meet current building codes and local ordinances after a covered loss.

Ordinance and law insurance, also known as a building code endorsement, is typically available in three different types of coverage, known as Coverage A, B, and C.

Each option covers a key portion of the additional costs it could take to rebuild a damaged structure to code.

The first part, Coverage A, covers the value of the undamaged part of the building that must be demolished due to code regulations. Put simply, Coverage A pays for the value lost because of the law, not because of the damage itself.

For example, a fire destroys 40% of your commercial building, but state law requires full compliance. This means that the remaining 60% of the building that’s undamaged and still usable must also be torn down.

Coverage A would cover the value of the undamaged portion of the building because the law requires the entire structure to be torn down.

Coverage B pays to tear down and clear the site of the remaining, undamaged portion of the building, including:

• Wrecking crews
• Heavy equipment
• Debris hauling
• Disposal fees

In our example, Coverage B would handle the demolition costs and debris removal of the undamaged 60% of your building.

Coverage C handles the extra costs to repair or rebuild both the damaged and undamaged areas to meet modern, stricter building codes. This covers upgrades required by law, not optional improvements.

Building codes evolve, and updated regulations may include:

• ADA access
• Sprinkler systems
• Energy efficiency upgrades
• Upgraded electrical systems
• Windstorm or water damage protections
• Increased cost of labor and materials

In terms of our example, Coverage C would cover the cost of rebuilding 100% of your structure to meet the current local codes.

Here’s an overview of what coverage you’ll get from standard commercial property insurance, sometimes referred to as replacement cost coverage, and what you’ll get when an ordinance and law endorsement is added to your policy.

In short, yes. Small businesses, especially those in older buildings or stricter code jurisdictions, should have Coverage A, Coverage B, and Coverage C.

Without all three, you risk having to pay for expensive demolition services, increased construction costs, and pricey code upgrades out of your own pocket.

No, commercial building ordinance and law insurance typically doesn’t cover the costs to rebuild someone’s home to code. Generally, damage to a private residence is covered by homeowner’s insurance.

However, if you run a home-based business, you can add ordinance and law coverage as a specialized endorsement to your homeowner’s policy or to a commercial property policy, depending on the type of coverage you purchase for your home office.

Insureon helps small business owners compare property insurance quotes from top-rated U.S. insurance companies.

If you’re ready to get started, you can work with one of our licensed agents or complete our easy online application. Once you find the right policies, you can typically start coverage and get your certificate of insurance (COI) in less than 24 hours.