Here is a sentence heard more than once from a California homeowner after a fire: I had replacement cost, so why is there a gap? In the example from Speaking of Insurance episode 36, the policy paid to rebuild the house that stood there, and the city would not let them rebuild that house. The code can require today's standards: fire resistant siding, ember resistant vents, new electrical, maybe solar, maybe a sprinkler system. Aaron Bollinger of Bollinsure Insurance Services gives that difference a name. It is ordinance or law coverage.

This page follows that episode. The issued policy controls. A story about someone else's fire is not a coverage opinion on your house.

Why building codes change

The episode starts with the reason the gap exists. Building codes change. The recording names Title 24, the California Building Standards Code, and Chapter 7A of the California Building Code, the wildland-urban interface rules for exterior construction in a fire area. This page does not reprint those codes. The edition the city enforces at the time of the rebuild is the one that matters, and it can be a newer edition than the one the house was built under.

Grandfathering ends when the house is badly damaged

A house can be legal as it stands and still be out of today's code. The episode's point is that grandfathering ends once the house is destroyed or badly damaged. The rebuild is then held to the code in force for that work, not to the code in force when the house was built. How much damage is enough to end grandfathering is a question for the building official and the policy. This page does not pick a percentage of damage that triggers it.

The episode lists what a high fire hazard area can require:

  • A Class A roof.
  • Ember resistant vents.
  • Tempered or multi-pane glass. Around 2:15, that is the glass requirement. The recording is not describing a single pane of ordinary glass.
  • Defensible space.
  • Fire sprinklers, in some jurisdictions. Around 2:28, the words spoken as "five sprinklers" mean fire sprinklers. Some jurisdictions require a fire sprinkler system in a new single-family home. Not every city does. The permit, not the podcast, is the list for that address.

What a standard homeowners form gives you

Around 3:05, the ISO homeowners form in the episode is the HO 00 03, often called the HO-3. The episode describes that form as excluding ordinance or law, and then giving additional coverage of 10 percent of Coverage A. That 10 percent is the amount the episode is describing on that form. It is not a promise that every California policy includes it, and it is not a promise that 10 percent will pay the code work on an older house.

Read the loss settlement wording and the ordinance or law wording together. Around 9:37, the words spoken as "read the law settlement" mean that. One section without the other can make the limit look larger than the claim will pay.

Extended replacement cost is a different coverage

Extended replacement cost raises the dwelling limit by a percentage the endorsement states. The episode treats that as a different thing from code upgrade coverage. Having extended replacement cost does not mean the policy pays to meet a new code. Having ordinance or law coverage does not mean the dwelling limit itself went up. Ask which one is on the declarations page, and at what amount.

Three pieces on a commercial form

The episode also names the commercial endorsement CP 04 05, in three pieces. Coverage A is the undamaged portion of the building. Coverage B is demolition. Coverage C is the increased cost of construction. A homeowners form is not that endorsement. Which of the three a commercial policy bought is printed on the endorsement, not assumed from the name. The commercial property guide is the business-building conversation. This page does not restate it.

Wildfire rebuilds, and the 36-month window

A wildfire is where the episode says the code layer gets large, because the house that stood there often cannot be put back the same way. The wildfire articles and the California FAIR Plan page on this site are the place for mitigation, moratoria, and the FAIR Plan's own figures. This page does not repeat those counts.

The episode describes a 36-month window, and rebuilding at a different location after a declared disaster. Insurance Code section 2051.5 is the rule that lines up with that description, and it is narrower than a slogan:

  • For a loss relating to a state of emergency, a policy may not set a time limit of less than 36 months, measured from the first payment toward actual cash value, on collecting full replacement cost. The policy limit still applies. A loss that is not tied to a state of emergency is on the section's 12-month rule, unless the policy allows more time.
  • On a total loss, the policy may not deny building code upgrade cost, or replacement cost, that the policy otherwise covers, only because the insured rebuilds at a new location or buys an already built home at a new location. The amount may not exceed what it would cost, including the building code upgrade cost and any extended replacement cost the policy provides, to rebuild at the original location.

The clock, the trigger, and the cap are in the statute and in the policy. This summary does not start the clock for a claim.

Ways the episode describes closing the gap

The recording names HO 04 77 as a way to buy a higher ordinance or law limit, and it names two percentage tiers, 25 percent and 50 percent. Whether a carrier offers those tiers, or a different amount, is on the form you are shown. A percentage of Coverage A is only as large as Coverage A. A low dwelling limit makes a high percentage smaller than it sounds.

The episode also describes a FAIR Plan policy paired with a difference-in-conditions policy. That pairing is one way the code-upgrade question shows up when the dwelling is not on a standard homeowners form. Read the FAIR Plan declarations and the DIC together, and ask where ordinance or law sits on each. The FAIR Plan page linked above is the longer reading. This guide does not become that article.

A commercial limit is whatever the commercial form states. It is not the 10 percent the episode describes on the HO 00 03.

What ordinance or law does not do

The episode is as clear about the boundaries as it is about the coverage:

  • No covered loss. It does not pay to bring a house up to code when nothing covered has happened.
  • An excluded peril stays excluded. The episode names earthquake. Ordinance or law on the homeowners form does not turn an earthquake into a covered cause of loss.
  • A CEA policy is separate. CEA earthquake policies can include their own building code upgrade limit. The clarification is to check that amount on the CEA policy. This page does not state a CEA dollar figure.
  • A violation that was already there. The episode says the coverage does not pay for a code violation that predates the loss.
  • Pollutants. The episode names pollutants as outside the coverage.
  • Cash before the rebuild. The episode says a cash settlement does not pay the code-upgrade cost until the home is rebuilt. Section 2051.5 says an insurer that requires repair or replacement in order to pay full replacement cost pays actual cash value until the property is repaired, rebuilt, or replaced. The ordinance or law wording can work the same way. Read it.

That list is what the episode covers. It is not every exclusion on every form.

Daniel's example

The recording walks one rebuild, Daniel's, in Ventura County. The code items come to $140,000. Ordinance or law at 10 percent leaves a $65,000 gap on those items. With HO 04 77 at 50 percent, the limit in the example is $375,000, and that limit covers the $140,000. Those three figures are the example. They are not a quote, and they are not the limit on a policy this page has not read.

Four questions

The episode closes with four questions to ask about your own policy. Use the recording for the questions themselves. Bring the declarations page, any ordinance or law endorsement, the dwelling limit those percentages would apply to, and whether the home is in a high fire hazard area.

See home insurance in California, or request a home insurance review. You can also call 562-268-9355.

This guide is general educational information. It is not legal, tax, or coverage advice. Coverage, eligibility, and pricing depend on the carrier, underwriting, and your policy terms. CA License 6013787.

Sources and Further Reading