Ordinance or Law Coverage Explained: A, B and C

Key Takeaways

Ordinance or law coverage pays for costs that building codes and local rules add after a covered loss; the standard form includes only a small amount.
Coverage A pays for the undamaged part of a building you must tear down, Coverage B pays the demolition, and Coverage C pays the extra cost of building to current code.
Older buildings, buildings in floodplains and buildings that no longer meet current zoning or code are the most exposed.
Some lenders require ordinance or law coverage, especially when a property doesn't conform to current land-use rules.
Size Coverages B and C from real estimates for demolition and code upgrades, not from a default percentage.

On This Page

What Is Ordinance or Law Coverage?
What Do Coverages A, B and C Pay?
Why Do Older Texas Buildings Need It?
What Does an Ordinance or Law Loss Look Like in Dollars?
Do Lenders Require Ordinance or Law Coverage?
How Much Ordinance or Law Coverage Do You Need?
What Doesn't Ordinance or Law Coverage Pay For?
What Should You Do Next?

What Is Ordinance or Law Coverage?

Ordinance or law coverage pays the extra costs you face because building codes, floodplain rules or other local laws apply when you repair or rebuild after a covered loss. Without it, a property policy usually pays to put back what you had, not what the city now requires.

The standard Building and Personal Property Coverage Form (CP 00 10) excludes most code-related costs. It includes a small additional coverage for increased cost of construction: generally the lesser of $10,000 or 5% of the building limit, and only when the building is insured at replacement cost. Real coverage comes from an endorsement, most commonly CP 04 05, Ordinance or Law Coverage.

The Texas Department of Insurance lists ordinance or law as an optional add-on for an extra cost that covers the added cost of meeting current building codes (TDI).

What Do Coverages A, B and C Pay?

The endorsement is split into parts because a code-driven rebuild creates three different costs. Coverage A pays for value you lose, Coverage B pays to tear down, and Coverage C pays to build better than before.

The parts of ordinance or law coverage (general patterns; your policy wording controls)
Part	What it pays	How the limit is usually set	Example cost
Coverage A	Loss to the undamaged portion of a building that must be demolished	Often included within the building limit	The value of the walls and roof that survived but must come down
Coverage B	Demolition cost and debris removal for the undamaged portion	Separate limit, or combined with C	Tear-down, hauling and site clearing
Coverage C	Increased cost of construction to meet current code	Separate limit, or combined with B	Sprinklers, elevation, accessibility, stronger roof design
Coverage D	Extra business income lost because code work makes the rebuild take longer	Separate endorsement, such as CP 15 31	Two more months of lost rent while permits and upgrades are completed

Coverage B is separate from the ordinary debris removal coverage for the damaged part of the building. Coverage D is often forgotten, but it connects to your business income and loss of rents coverage.

Policies show these limits in different ways. Some list a dollar amount for each part. Others show Coverage B and C as one combined limit, or as a percentage of the building limit. A combined limit is flexible, but one large demolition bill can use up money you expected for code upgrades. Check which style your policy uses before you compare quotes.

Why Do Older Texas Buildings Need It?

Codes have changed a lot since many Texas commercial buildings were built. A strip center, motel or office building from the 1970s, 1980s or 1990s may be legal as it stands but far from what a city would require of a rebuild.

Statewide baseline. Since January 1, 2006, Texas law has made the International Building Code the commercial building code in cities. The current statute points to the 2012 edition, and cities may adopt local amendments and newer editions (Tex. Local Gov't Code §214.216).
City updates. Houston, for example, adopted the 2021 International Building Code with local amendments. City Council approved them on October 25, 2023, and they took effect January 1, 2024 (City of Houston).
Floodplain rules. If repairing a building in a mapped flood hazard area would cost 50% or more of its pre-damage market value, local officials can declare it substantially damaged. It must then meet current floodplain rules, and damage from any cause counts (FEMA).
Coastal windstorm rules. In the TWIA area, buildings built, repaired or altered on or after January 1, 1988 generally need a windstorm certificate of compliance for TWIA eligibility (TWIA). Repairs must be done to the applicable windstorm building code.

Market Value Can Be Lower Than Rebuild Cost

The floodplain 50% test uses the building's market value, not its insured value. On an older building, market value can be well below the cost to rebuild. A fire that seems moderate on your policy can still cross the 50% line.

What Does an Ordinance or Law Loss Look Like in Dollars?

These simplified examples use round numbers and assume the loss is covered and the building is insured at replacement cost.

Example (Hypothetical): A Fire at an Older Strip Center in a Floodplain

A 1980s strip center is insured for $3,000,000. A fire causes $1,800,000 of damage. The city's floodplain administrator declares the building substantially damaged, so it must be rebuilt to current floodplain standards. The owner decides the practical path is to demolish and rebuild. Base policy: pays the $1,800,000 of damage (less the deductible) plus up to $10,000 of built-in code coverage. Code-driven costs: the undamaged portion worth $1,200,000 (Coverage A), $150,000 to demolish it (Coverage B), and $700,000 of extra cost to build to current code (Coverage C). Without ordinance or law, the owner faces about $2,040,000 on their own. With Coverage A plus a $500,000 combined B and C limit, the gap shrinks to about $350,000.

Example (Hypothetical): A Motel Laundry Fire

A 1970s motel is insured for $2,000,000. A laundry room fire causes $250,000 of damage. The city requires the rebuilt section to meet current fire protection and accessibility rules, adding $120,000. The built-in coverage pays the lesser of $10,000 or 5% of the limit ($100,000), so $10,000. Without Coverage C, the owner pays the other $110,000. With a $250,000 Coverage C limit, that cost would usually fit within the limit, subject to the endorsement's terms.

Do Lenders Require Ordinance or Law Coverage?

Many do, especially when a property doesn't conform to current zoning or land-use rules. Your loan documents control, so read the insurance section or ask your servicer.

Fannie Mae's Multifamily Selling and Servicing Guide is one published example. In the version we reviewed in October 2026, it required ordinance or law coverage when a property is non-conforming under current land-use law, with minimum amounts for Coverages A, B and C. It also required an increased period of restoration endorsement (Coverage D) when any building has five or more stories (Fannie Mae). Bank and CMBS lenders often ask for a zoning report and set their own lender insurance requirements.

Houston is known for not having traditional zoning. Even so, building codes, floodplain rules, parking and setback rules, and deed restrictions can still affect what you may rebuild. Ask your lender and, for legal questions, an attorney.

How Much Ordinance or Law Coverage Do You Need?

Coverage A should match the building's full insured value, and Coverages B and C should come from real estimates. There is no one right percentage. It depends on the building's age, construction, location and how far it is from current code.

Coverage A: Confirm it is included and tied to an adequate building limit. If the building limit is too low, Coverage A is too low. Our coinsurance guide explains why.
Coverage B: Get a contractor's estimate to demolish and haul away the building. Add a margin for asbestos or other special handling that may be needed in older buildings, and check how your policy treats those costs.
Coverage C: Ask a contractor, architect or engineer what a rebuild would need today: sprinklers, fire alarms, accessibility, energy rules, wind design, elevation or drainage.
Coverage D: Estimate how many extra months code work and permits could add, and price that time in lost income or rent.

What tends to drive each limit (general guide, not a rule)
Building profile	Coverage A	Coverage B	Coverage C
Built before 2006 in a Texas city	Needed if a partial loss could force demolition	Size from a demolition estimate	Often the largest; older systems and layouts
In a mapped flood hazard area	High importance: the 50% rule can force a full rebuild	Size for full demolition	Elevation or floodproofing can be expensive
Coastal, in the TWIA area	Needed	Size from an estimate	Windstorm code upgrades on repairs
Non-conforming use or layout	High importance: rebuilding may be limited	Size from an estimate	Depends on what the city will allow
Newer building to current code	Still useful	Lower	Lower, but codes keep changing

What Doesn't Ordinance or Law Coverage Pay For?

Ordinance or law coverage follows a covered loss, and it has its own limits. These are common gaps; your policy wording controls.

Violations you already had to fix. Many forms won't pay for code work you were required to do before the loss.
Losses that aren't covered. If wind or flood is excluded from the policy, the code costs from that damage are excluded too.
Upgrades you don't actually make. Coverage C usually pays only when the property is repaired or rebuilt, and many forms set a time limit, often two years.
Pollutants and fungus. Costs from rules about pollutants, mold or fungus are commonly excluded.
Flood code costs. For flood damage, an NFIP policy may pay up to $30,000 of Increased Cost of Compliance coverage for substantially damaged buildings in high-risk areas (FEMA). That is separate from your property policy.

On the coast, TWIA offers its own Increased Cost of Construction endorsement (TWIA-432) for commercial buildings, according to its agent manual. If wind is on a TWIA policy, check code coverage there too. Our Texas property risk page explains coastal and flood exposure.

What Should You Do Next?

Most owners can find out where they stand with a few documents and a couple of phone calls.

Check your forms schedule for an ordinance or law endorsement, such as CP 04 05, and the limits for A, B and C.
Note each building's year built, last major renovation and flood zone.
Ask a contractor for a rough demolition estimate and a list of likely code upgrades.
Compare those numbers to your B and C limits.
Check whether you have Coverage D for the extra rebuild time.
Read your loan documents for ordinance or law and zoning requirements.
On the coast, confirm your windstorm certificate status and TWIA code coverage.

If you'd like a second opinion on your limits, send us your declarations page or contact us. For older buildings, see our hotel and motel and shopping center pages.

Questions Owners Ask

Doesn't my property policy already pay to rebuild to code?

Usually only a little. The standard form includes a small increased cost of construction coverage, generally the lesser of $10,000 or 5% of the building limit. Larger code costs need an ordinance or law endorsement.

What is the difference between Coverage B and debris removal?

Debris removal pays to clear the damaged part of the building. Coverage B pays to demolish and clear the undamaged part that the law requires you to tear down.

Does ordinance or law cover upgrades I choose to make?

No. It pays for upgrades a code or law requires after a covered loss, not improvements you choose. You pay for voluntary upgrades yourself.

Does ordinance or law apply to flood damage?

Only if flood is covered. Commercial property policies usually exclude flood, so code costs from flood damage would need flood coverage, such as NFIP Increased Cost of Compliance.

Is ordinance or law coverage required by law in Texas?

No Texas law requires owners to buy it, as far as we know. Lenders often require it, and building codes decide whether you'll need it after a loss. For legal questions, consult an attorney.

Sources

Texas Local Government Code §214.216 — International Building Code
City of Houston — Houston Permitting Center: Codes — 2021 Houston Construction Code approved October 25, 2023, effective January 1, 2024
FEMA — Frequently Asked Questions: Substantial Damage
FEMA — Increased Cost of Compliance coverage
Fannie Mae Multifamily Selling and Servicing Guide — Property and Liability Insurance — Section 501.02E ordinance or law requirements (reviewed October 2026)
TWIA — Windstorm certification
Texas Department of Insurance — Commercial property insurance guide

Terms in This Guide

Ordinance or Law Coverage Building and Personal Property Coverage Form Loss to Undamaged Portion Demolition Cost Coverage Increased Cost of Construction Debris Removal Lender Insurance Requirements

What Is Ordinance or Law Coverage, and Do You Need It?