What drives the cost
Demolition and disposal of charred and smoke-saturated material. Structural repair and engineering. Replacing heat-exposed wiring. Insulation to current code. Cleaning and sealing the remaining structure. Code upgrades: energy code, electrical, smoke and CO detection, fire-rated assemblies, sometimes sprinklers in multi-family. Finishes to like kind and quality. Permits and inspections. The schedule, which stretches with approvals and materials.
Who pays
Dwelling coverage pays like-for-like reconstruction up to the limit, usually at replacement cost with depreciation withheld until completion. Extended replacement cost adds a percentage above the limit if your policy has it. Ordinance-or-law coverage pays code-required upgrades up to its own limit, commonly 10 percent of the dwelling limit unless increased. You pay the deductible, owner upgrades and anything above the limits.
Where it goes wrong
A dwelling limit set years ago that no longer covers the market. No or low ordinance-or-law coverage on an older house that needs everything brought to code. Mixing code upgrades and owner upgrades into one estimate so neither is clear. Accepting a lump-sum settlement before a scope is written. Choosing not to rebuild without knowing the policy pays only actual cash value in that case.
What to do
Read the declarations page in the first week. Ask for the scope in writing with the three kinds of cost separated. Ask the adjuster how extended replacement cost and ordinance-or-law apply. If the numbers exceed coverage, discuss options early: scope reductions, phasing, your own funds, or in rare cases rebuilding smaller.
