Rebuilding to a Code That Hasn't Caught Up

Thursday, September 10th, 2026 — After Hurricane Ian came ashore at Fort Myers Beach in September 2022, hundreds of homeowners learned a rule they had never heard of. Under the National Flood Insurance Program's regulations, which every participating community adopts into local ordinance, a structure in a special flood hazard area that is damaged to more than 50 percent of its pre-loss market value cannot be repaired as it was. It must be brought into compliance with current floodplain rules, which on a barrier island means elevating the living space above the base flood elevation, often by eight to twelve feet. A homeowner whose ground-level 1970s ranch house lost its roof and flooded to the ceilings did not have a repair. They had a demolition and an elevated new build, at two or three times the cost, under a code that did not exist when the house was built.

Their homeowners policy paid replacement cost for the wind damage, subject to the limit. Their flood policy, if they had one, paid up to $250,000 for the building plus up to $30,000 in Increased Cost of Compliance coverage toward the elevation. The gap between what the policies paid and what compliance required was, for many, several hundred thousand dollars. The adjuster on each of those files delivered that news, and the ones who delivered it well had three separate conversations to manage: with the policyholder, with the contractor, and with the building department.

Ian is one example. After the Camp Fire, Paradise, California required rebuilds to meet the state's Chapter 7A wildfire-resistant construction standards. After the Marshall Fire, Louisville, Colorado initially required rebuilds to meet a newly adopted energy code with net-zero provisions, then relaxed the requirement for fire victims after homeowners demonstrated that their insurance would not cover the difference. Codes are changing faster in the wake of disasters, they are changing in the direction of resilience, and the cost of that resilience lands on the rebuild, where the insurance was priced for the old house.

The coverage that pays for the gap

Before the three conversations, the coverage.

The standard ISO homeowners form includes an Ordinance or Law additional coverage equal to 10 percent of the Coverage A limit. It pays the increased cost to repair or rebuild the damaged portion in compliance with current code, the cost to demolish and rebuild undamaged portions when the code requires it, and the cost of removing debris from that demolition. It does not pay for compliance costs unrelated to the covered loss, and it does not apply to pollution or contamination remediation. Endorsements raise the percentage to 25, 50, or higher, and some carriers include a higher default. On a $400,000 Coverage A policy, the base coverage is $40,000. An elevation on a barrier island costs more than that before the piers are set.

Commercial property forms are stingier by default. The standard building and personal property form includes a small increased cost of construction additional coverage, typically the lesser of $10,000 or 5 percent of the building limit. Meaningful ordinance or law coverage requires the separate endorsement, which is structured in three parts: coverage for the loss in value of the undamaged portion of a building that must be demolished, coverage for demolition costs, and coverage for increased cost of construction. Commercial policyholders who did not buy it, or bought it with inadequate limits, discover the gap at the permit counter.

Extended replacement cost endorsements, which pay a percentage above the Coverage A limit when the rebuild exceeds it, help with demand surge and inflation but are generally separate from and in addition to ordinance or law coverage. Know which endorsements are on the policy before the first conversation, and know their limits.

Flood policies through NFIP include Increased Cost of Compliance coverage up to $30,000 for elevation, relocation, demolition, or floodproofing required after a substantial damage determination. That figure has not changed in decades and covers a fraction of an actual elevation, but it is money, and it requires a substantial damage letter from the local floodplain administrator to trigger.

The conversation with the policyholder

The policyholder wants their house back the way it was, and they are about to learn that the way it was is illegal to build. The adjuster's job in this conversation is to explain the constraint, quantify the coverage, and reset the plan.

Start with the substantial damage determination or the code trigger, whichever applies. Explain that the local building department, and not the carrier, decides whether the repair must comply with current code, and that the carrier's coverage responds to that determination. Policyholders frequently believe the insurer is imposing the code requirement, and clearing that up early prevents weeks of misdirected anger.

Then quantify. "Your policy has $40,000 in ordinance or law coverage. The building department is requiring elevation. Based on the contractor estimates we have seen in this area, elevation is running $120,000 to $180,000 for a house this size. Here is how the coverage applies and here is the gap." Policyholders can plan around a number. They cannot plan around a vague warning that costs might exceed coverage.

Then point toward the other sources. FEMA's Increased Cost of Compliance if a flood policy exists. Hazard mitigation grants through the state, which after major disasters often fund elevation and hardening. SBA disaster loans. State resilience programs such as Florida's My Safe Florida Home, Alabama's Strengthen Alabama Homes, and Louisiana's Fortify Homes Program, which pay for roof and structural upgrades to the IBHS FORTIFIED standard. An adjuster who knows these exist and can name them has given the policyholder somewhere to go.

Then talk about choices. Some policyholders will rebuild smaller to fit the budget. Some will sell the lot. Some will rebuild elsewhere, and many policies, along with several states' laws, allow the replacement cost benefit to be applied to a replacement dwelling at another location, up to the amount that would have been paid to rebuild on site. Lay out the options without steering, and document the conversation.

The conversation with the contractor

The contractor knows the code better than the adjuster does, or should, and the contractor also has an interest in the scope being as large as possible. Both facts shape the conversation.

Ask the contractor to separate the estimate into three parts: repair of covered damage to pre-loss condition, code-required upgrades to the damaged portion, and code-required work on undamaged portions. Most estimates arrive as a single number, and the adjuster cannot apply the coverage without the breakdown. A contractor who cannot or will not separate them is either unfamiliar with insurance rebuilds or is hoping the upgrades get paid as damage.

Ask for the code citation on every upgrade item. "Required by code" is a claim. "Required by the county floodplain ordinance as applied in the substantial damage letter dated 11/14" is a fact. Contractors in a post-disaster market will sometimes include upgrades that are good practice but not required, or that are required only for new construction and not for repair. The building department's determination letter and the permit conditions are the authority.

Ask about resilience upgrades that are optional. A FORTIFIED roof deck, impact-rated windows, ember-resistant vents, relocation of attic plumbing into conditioned space, elevation of mechanical equipment. None of these are owed under the policy unless code requires them, but many are inexpensive relative to the rebuild, some qualify for grant funding or premium credits, and a policyholder who is already rebuilding is in the only position they will ever be in to add them cheaply. The policyholder decides, and the adjuster can make sure the question gets asked.

Watch the pricing. Post-disaster demand surge is real and regional databases lag it. So is opportunistic pricing. A line item that is 30 percent above database in a market where everything is 30 percent above database is demand surge. A line item that is 30 percent above database when the rest of the estimate is at database is something else. Document local pricing evidence as you find it.

The conversation with the building department

Adjusters underuse this one. The floodplain administrator and the building official decide what the rebuild must include, and their determinations drive the coverage analysis. An adjuster who understands the local process can move a file weeks faster.

Find out how substantial damage determinations are being made. After a major event, communities inspect thousands of structures and issue determinations, sometimes on a preliminary basis subject to appeal. The determination compares the cost of repair to the pre-loss market value of the structure, excluding land. Both figures are contestable, and policyholders who appeal with a documented appraisal and a detailed repair estimate sometimes get a determination reversed. The adjuster's estimate is often the repair cost figure the community uses, which means the adjuster's scope has consequences beyond the claim.

Ask whether the community tracks substantial damage cumulatively. Some jurisdictions apply the 50 percent test to a single event. Others add up repairs and improvements over a period of years, so that a house that took 30 percent damage in one storm and 25 percent in the next crosses the threshold on the second claim even though neither loss did on its own. A policyholder on a repeat-loss property may be closer to a mandatory elevation than either they or the adjuster realize, and finding that out before the scope is finalized changes the conversation with the policyholder entirely.

Ask how the community handles the undamaged portion. When code requires demolition of a structurally sound wing because the damaged portion cannot be brought into compliance without it, the ordinance or law coverage responds, but only if the file documents that the building department required the demolition. A contractor's opinion that it would be easier to take the whole thing down is a different matter, and the two should not be confused in the estimate.

Find out what code edition applies and whether the community has adopted any post-disaster amendments. Some communities relax requirements after a disaster to speed rebuilding. Some tighten them. A few do both, in sequence, as Louisville did after Marshall. The requirements in force on the permit date are the ones that count, and they may differ from what was in force on the loss date.

Find out the permit timeline. A community processing thousands of permits with a normal-year staff produces delays that extend ALE, defer repairs, and push rebuilds into the next year's pricing. Document the timeline in the file so that delay is attributable to the process rather than to the carrier or the policyholder.

Establish a contact. Most building departments after a disaster are overwhelmed and grateful for an adjuster who calls with specific questions rather than general complaints. The relationship pays off across every file in the jurisdiction.

The widening gap

Every trend in this series pushes in the same direction on the rebuild. Perils are showing up in new places, codes are responding with resilience requirements, construction costs are rising faster than policy limits, and the difference lands on the policyholder at the worst moment of the process. The industry's answers, higher ordinance or law percentages, extended replacement cost, resilience grants, and premium credits for FORTIFIED construction, are real and growing, and none of them is on the policy of the homeowner standing in front of the adjuster today unless someone put it there before the loss.

What the adjuster controls is the three conversations. A policyholder who understands the constraint, has a number, and knows where else to look can make decisions. A contractor who has separated the estimate and cited the code produces a scope the coverage can be applied to. A building department that knows the adjuster's name returns calls. Before the first of those conversations, pull the declarations page and write down the ordinance or law limit, the extended replacement cost percentage, and whether a flood policy exists. Every number that follows depends on those three.