Ordinance or Law Coverage for Hawaiʻi Commercial Buildings: Who Pays for Code Upgrades

When an older building is damaged, the repair rarely stops at putting things back the way they were. Once a permit is pulled, the county can require the repaired work, and sometimes more of the building, to meet current codes. In Hawaiʻi, where many commercial buildings and condominiums were built under older codes, those upgrades can be a large share of the cost. Whether insurance pays for them depends on ordinance or law coverage.

The gap in a standard policy

Widely used commercial causes of loss forms exclude loss caused by enforcement of an ordinance or law that regulates construction, repair or demolition. The main coverage form adds a small Increased Cost of Construction coverage: the lesser of $10,000 or 5% of the building’s limit, paid only if the building is insured for replacement cost and is actually repaired or replaced, generally within two years. On a commercial building, that rarely goes far.

The three coverages in an ordinance or law endorsement

Coverages B and C may have separate limits or one combined limit. Check your declarations or the endorsement schedule to see which you have, and how much.

Conditions that trip people up

• The law must be in force at the time of the loss, unless your endorsement includes a post-loss ordinance option.
• No payment for prior violations. If the building was already required to meet a code before the loss and did not, the cost to fix that is not covered.
• Increased cost is paid on completion. Coverage C is generally paid only when the building is actually repaired or replaced, as soon as reasonably possible, and within two years unless the insurer agrees in writing to extend.
• Rebuilding elsewhere has limits. If you rebuild at a different site, increased cost is generally capped at what it would have cost at the original site.
• Coinsurance. On widely used endorsements, coinsurance does not apply to Coverages B and C.
• Valuation matters for Coverage A. The undamaged portion is paid on the same basis as the building, replacement cost or actual cash value.
• The underlying damage must be covered. Code costs follow a covered loss. They do not stand on their own.

Hawaiʻi codes that often drive commercial upgrades

• Building codes. The state building code is based on the 2018 International Building Code and related codes, and each county enforces its own adopted version. Maui County has enforced the 2018 International Building Code with county amendments since October 28, 2023.
• Wind design and load path. Hawaiʻi’s amendments use a Hawaiʻi-specific wind map that accounts for terrain, so design wind pressures vary by site and run higher on many ridges and hillsides. Opened roofs and walls can trigger uplift connectors, fastening upgrades and special inspection.
• Windborne debris protection. In debris regions, replaced windows and doors may need to be impact-rated or protected.
• Existing building rules. The existing building code governs repairs. Substantial structural damage can trigger a structural evaluation and broader upgrades.
• Energy code. Insulation, lighting and mechanical upgrades on the parts of the building you alter.
• Accessibility. Federal ADA rules can require accessible path of travel upgrades when primary areas are altered, generally up to 20% of the cost of the alteration.
• Fire and life safety. Alarm, egress and sometimes sprinkler requirements in larger alterations.
• Flood rules. In a special flood hazard area, a building that is substantially damaged, generally 50% or more of its market value, must be brought into compliance with floodplain rules, which can mean elevation or floodproofing.
• Special districts. Special management area and historic district reviews, such as in Lahaina, add design, review and permit costs.

How to document code costs in a claim

1. 01
   Get a code review earlyHave an architect or engineer identify which code items the repair will trigger, before the scope is final.
2. 02
   Separate the code itemsList ordinance or law costs in their own section of the estimate, each with the code section and a one-line reason.
3. 03
   Attach the county’s requirementsInclude plan review comments, correction notices or letters from the building official.
4. 04
   Split A, B and CKeep undamaged-portion value, demolition and increased cost apart, so each is measured against the right limit.
5. 05
   Track the clockNote the two-year completion window and ask for any extension in writing, before it runs out.
6. 06
   Submit as you incurSend invoices for code work as it is completed, since increased cost is usually paid when it is spent.

Before your next renewal

Ask your agent four questions: Do we have an ordinance or law endorsement? Which of Coverages A, B and C does it include? What are the limits for B and C, and are they separate or combined? Does it include a post-loss ordinance option? For older buildings, a code review by a design professional can help you set those limits. For the full picture of your policy, see What Your Commercial Policy Covers.

Common Questions