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Ordinance or Law Insurance: What You Need To Know

By Amy Burdick | Posted on October 2, 2023

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Do you want to know more about ordinance or law insurance? Here is a quick overview for you.

What is ordinance or law insurance?

You may assume that your insurance policy will cover all of your repair and replacement expenses should your building experience damage or loss. It’s true–the purpose of your insurance is to do exactly that. However, you may find that you have additional expenses that aren’t directly covered by your policy. 

Consider adding some additional coverage to your policy known as ordinance or law insurance. Ordinance or law coverage is invaluable for several reasons. It could be the difference between keeping your business running after a disaster or plunging you into financial distress, potentially ending your business.

This insurance covers additional costs associated with getting your business compliant with all the current codes and laws. Ordinance or law coverage will help you bridge the gap between the amount your claim will cover and your actual expenses.

When would you use the coverage?

Here are a couple of situations that you may experience if your building ever suffers a catastrophe.

Imagine that your building may have been only partially damaged, but the damage affects systems that run through the entire building. The city codes may require you to replace the entire plumbing, electrical, or HVAC system.

Then you may discover that building codes have changed since the system was installed and you will incur extra costs to get them to meet the current codes. A new system is likely to be an upgrade. You can be sure that it will be more expensive than the basic replacement cost of the existing system.

Also, insurance only covers the damaged parts of a building, not the undamaged sections of your building. While this seems obvious and reasonable at first glance, some municipalities require complete demolishment if a certain percentage of the building is destroyed. The remaining part of the building may prove upon inspection to have some structural issues or the building code may require it to be demolished. You would then have to pay out-of-pocket to rebuild the undamaged section. The additional law or ordinance insurance coverage provides the funds for rebuilding the entire structure. 

Along with these situations, ordinance and law insurance covers demolition and removal costs, which alone can be substantial.

Real scenario handled by our team:

The owner of a fire-damaged building received a $250,000 settlement from his insurance company to repair the facility. When he applied for a permit for the reconstruction, he discovered that a city ordinance required all buildings to be built a minimum of 50 feet away from the street. His building didn’t comply with the ordinance.

So he had to demolish and rebuild his entire building at an additional cost of $300,000. His standard insurance didn’t cover the additional amount, since that loss fell under an ordinance or law policy.

How do you know if you need ordinance or law coverage?

Having ordinance or law coverage is a wise safety net for anyone who owns a commercial building. But there are a couple of obvious indicators that will make the extra coverage crucial.

  1. The building is older. If so, the chances are excellent that it’s not completely compliant with current codes.
  2. The building is located in an area where new building codes have recently been established. Perhaps the area has undergone some revitalization. The region may have also suffered one or more natural disasters, leading to new stricter building regulations. 
  3. You may own a number of dealerships. These buildings are in different areas and presumably, the various locations have differing laws and restrictions. 

If you suspect that your building falls into these categories, you can always ask a builder or an inspector to confirm current building and safety codes. However, it would be difficult, if not impossible, for you to stay aware of all the building codes and to account for all contingencies and changes. Also, you would need to maintain a substantial financial reserve in the event of a disaster. 

More importantly, you should discuss your situation with your insurance advisor. Many commercial policies include some ordinance or law coverage. You’ll find that it’s often a very minimal amount that won’t be likely to help you much. Your insurance advisor can help you find the best ordinance or law coverage options for one or all dealerships in the same property policy. 

The wise option is to purchase some ordinance or law coverage to insure against the additional costs that a building upgrade or extensive remodeling could cost to keep your business running as seamlessly as possible.

What to do now?

If you’re an equipment dealer who would like some answers about insurance, our team is ready to help!

Contact our Director of Sales and Marketing, Seth Hird at or call us at (512) 359-9736

We realize that insurance can seem like a frustrating but necessary evil. So we’re here to serve you in whatever way possible.


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