Building codes change, and a home damaged badly enough must usually be rebuilt to today’s code, not the code in force when it was built. A standard replacement cost policy pays to rebuild with like kind and quality, but code-driven costs are paid only to the extent ordinance or law coverage provides. The Insurance Information Institute notes that even guaranteed replacement cost policies generally won’t pay that extra expense. On older and expensive homes, where code changes can touch structure, systems and materials, the coverage amount deserves the same attention as the dwelling limit.
What ordinance or law coverage pays for
On the common ISO homeowners form, you may use up to 10% of the dwelling limit for increased costs caused by enforcing a law or ordinance, and the form calls this additional insurance. It applies to three situations:
- Repairing the damaged part of a covered building to current requirements.
- Demolishing and rebuilding the undamaged part when the whole building must be torn down because of covered damage to another part.
- Remodeling or replacing undamaged portions needed to complete the repair of the damaged part.
The same coverage can pay for removing the resulting debris. It does not pay for the loss in value caused by an ordinance, or for testing and cleanup of pollutants.
Why older and expensive homes run short
The Insurance Information Institute notes that building codes are updated periodically and may have changed significantly since a home was built, and that homeowners policies, even guaranteed replacement cost policies, generally won’t pay the extra cost of meeting them. The ISO form says the same in its own way: “replacement cost” does not include code-compliance costs beyond the ordinance or law coverage.
The NAIC describes the coverage as paying to rebuild in compliance with codes and other laws that didn’t exist when the home was originally built. California’s insurance department, reviewing past wildfires, found code upgrades, new foundations and debris removal added significant costs that owners had overlooked.
For a large or older home, 10% of the dwelling limit is a fixed slice of a big number, and it may not match what the local code actually requires. See guaranteed vs extended replacement cost for how this fits with the dwelling coverage.
State rules that shape the coverage
Some states set the terms by law. Florida requires insurers to offer law and ordinance coverage limited to 25% or 50% of the dwelling limit. Unless the policyholder rejects it in writing, a policy is deemed to include the 25% option, and the coverage applies only to the damaged portion of the structure unless total damage exceeds 50% of its replacement cost.
California’s required disclosure describes building code upgrade coverage, also called ordinance and law, as covering additional costs to repair or replace a dwelling to meet the codes and zoning laws in effect at the time of loss or rebuilding. California also bars a policy from denying covered code upgrade costs after a total loss because the owner rebuilds or buys at a new location.
Other states leave it to the policy. State-by-state notes are here.
Code requirements after a flood
Homeowners policies don’t cover flood, so flood-driven code costs are handled under the flood policy. NFIP policies include Increased Cost of Compliance coverage of up to $30,000 to help raise, move or rebuild a home in a high-risk flood area that is substantially or repeatedly damaged. FloodSmart says it is filed as a separate claim, and you qualify only if you have not reached the NFIP’s $250,000 payment limit.
On an expensive waterfront home, that amount is small relative to the cost of elevating a large structure, which is one more reason to look at excess flood.
What to check on your policy
- The ordinance or law limit, as a percentage of the dwelling limit or a dollar amount.
- Whether it is additional to the dwelling limit or comes out of it.
- Whether it covers demolition of undamaged parts and the increased cost to rebuild them.
- Whether it applies to other structures, such as a guest house or detached garage.
- How it is paid if you rebuild elsewhere or take a cash settlement. See cash settlement options.
Common questions
Does my homeowners policy pay to rebuild to current code?
Only to the extent of its ordinance or law coverage. The common ISO homeowners form includes up to 10% of the dwelling limit for these costs.
Does guaranteed replacement cost include code upgrades?
Generally not. The Insurance Information Institute notes that even guaranteed replacement cost policies generally won’t pay the extra cost of meeting current codes.
Can ordinance or law coverage pay to tear down the undamaged part of my home?
On the common ISO form, yes, when the building must be totally demolished because of covered damage to another part, subject to the coverage limit.
Is ordinance or law coverage required by law?
It depends on the state. Florida, for example, requires insurers to offer it at 25% or 50% of the dwelling limit and deems the 25% option included unless it is rejected in writing.
Does flood insurance pay for code upgrades?
NFIP policies include Increased Cost of Compliance coverage of up to $30,000 for qualifying substantially or repeatedly damaged homes in high-risk flood areas, if the NFIP’s $250,000 payment limit has not been reached.
Sources
- ISO Homeowners 3 Special Form HO 00 03 10 00 (sample, published by the Insurance Information Institute)
- Insurance Information Institute: How much homeowners insurance do I need?
- NAIC: A Consumer’s Guide to Home Insurance (2022)
- California Department of Insurance: Residential Insurance Guide
- California Insurance Code § 10102 (Residential Property Insurance Disclosure)
- California Insurance Code § 2051.5 (replacement cost, time limits, rebuilding elsewhere)
- Florida Statutes § 627.7011 (replacement cost and law and ordinance coverage)
- FEMA FloodSmart: Increased Cost of Compliance coverage
General information about ordinance or law (building code upgrade) coverage as of October 2026, not legal advice. Coverage depends on underwriting and the terms, conditions and exclusions of the policy actually issued.