Building Permits and Insurance Claims: What Your Insurer Owes and When

When your home is damaged by a covered peril and needs to be repaired or rebuilt, a building permit is almost always required. And building permits cost money — sometimes a lot of money. Those permit fees are a legitimate part of the cost to restore your property, and your insurance company generally owes for them. But insurers frequently refuse to pay permit fees, or delay payment by claiming you have to “incur” the cost first. This article explains what building permits are, why they matter to your claim, and how to make sure you get paid for them.

Why Building Permits Matter in Insurance Claims

A building permit is a government authorization required before construction, renovation, or major repair work can begin. Permits exist to ensure that work complies with local building codes, fire safety standards, structural requirements, and zoning regulations. In most jurisdictions, any repair involving structural work, electrical, plumbing, HVAC, roofing, or changes to the building footprint requires a permit.

When your insurance company writes an estimate to repair or rebuild your home, the cost of building permits is part of the cost of the repair. Just like you cannot rebuild a house without lumber or labor, you cannot rebuild a house without a permit. The permit fee is not optional — it is a legally required cost that must be paid before construction can begin.

When Are Permits Required for Insurance Repairs?

Not every repair requires a permit, but many do. Generally, permits are required for:

• Structural repairs or modifications (framing, load-bearing walls, foundation work)
• Roof replacement or major roof repairs
• Electrical work beyond minor fixture replacements
• Plumbing repairs involving supply lines, drains, or water heaters
• HVAC system replacement or major repair
• Window or door replacements that change the opening size
• Any addition or change to the building footprint
• Demolition work
• Fire damage repairs (most jurisdictions require permits for any fire-damaged structure repair)

For minor cosmetic work — painting, replacing flooring in kind, patching small areas of drywall — permits are typically not required. But for any claim involving significant structural, mechanical, electrical, or plumbing work, you should assume a permit will be needed.

The Insurer Owes for Permit Fees — Even If They Have Not Been Incurred

This is the most important point in this article: building permit fees are part of the cost to repair or replace your home, and the insurer owes for them whether or not you have actually pulled the permit yet.

Insurance companies frequently push back on permit fees by saying something like, “We’ll pay for the permit once you pull it and show us the receipt.” In fairness, this position is not entirely unreasonable — the insurer wants to know the exact dollar amount, and seeing the receipt is one way to confirm it. But when the insurer refuses to pay anything for permits until you show a receipt, that crosses the line from reasonable to unfair.

Think about it this way: your policy promises to pay the cost to repair or replace your damaged property. The cost to repair a house includes the permit. If you tell the insurer, “I need $3,500 for the building permit,” and the insurer says, “We won’t pay you a dollar until you go spend $3,500 of your own money first,” that is circular and unfair. You need the money to pull the permit. You cannot pull the permit without the money. The insurer is the one who owes the money.

What If the Policyholder Does Not Plan to Rebuild?

Some homeowners, after suffering a major loss, decide they do not want to repair or rebuild. They may want to sell the property as-is, move to a different area, or simply walk away. This is their right — and it does not eliminate the insurer’s obligation to pay the full cost of repairs, including building permits.

The measure of the loss is the cost to repair or replace the damaged property. That cost includes permit fees, regardless of whether the homeowner actually intends to pull the permit. If a homeowner has a damaged house and just wants to walk away from it, they deserve to be paid the full amount — including the building permits they are never going to pull.

Under California Insurance Code §2051.5, for total losses, an insurer cannot limit or deny payment of the replacement cost (including building code upgrade costs) on the basis that the insured has decided to rebuild at a new location or purchase a built home elsewhere. If the insurer cannot condition payment on where you rebuild, it certainly should not be able to condition payment on whether you have incurred a specific line item within the repair estimate.

How to Calculate Building Permit Fees

The insurer has a duty and good-faith obligation under California law to calculate what the permit fees probably are and pay that amount. Under California Insurance Code §790.03(h)(5), it is an unfair claims practice to fail to attempt in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear. When permit fees are a known component of the cost to repair, the insurer should not pay zero simply because the exact receipt is not yet available.

At minimum, the insurer should pay the lower end of a reasonable estimate of the permit fee. Ideally, the insurer should pay the full correct amount if it can be determined or reasonably estimated. What the insurer should never do is pay nothing at all.

There are several ways to calculate or estimate building permit fees:

1. Consult the City or County Fee Schedule

Most cities and counties publish their building permit fee schedules on their websites. These schedules typically calculate fees based on the total valuation of the construction project. You can look up the fee schedule for your jurisdiction, plug in the estimated cost of repair, and calculate the permit fee directly. This is publicly available information that anyone — including the insurer — can access.

2. Consult with a Contractor, Architect, or Structural Engineer

A licensed contractor, architect, or structural engineer who works in your area will know what permits are required for your type of repair and what the fees typically run. They can provide a written estimate of the expected permit costs, which you can submit to your insurer as documentation supporting your claim.

3. Calculate Based on Publicly Available Information

Many jurisdictions use a standard formula to calculate permit fees. A common approach is to base the fee on the total project valuation using a table published by the International Code Council (ICC) or a locally adopted variation. The formula typically produces a base fee plus an additional amount per thousand dollars of valuation above a threshold. Plan check fees are commonly calculated as a percentage (often 65% to 100%) of the building permit fee. Additional fees for mechanical, electrical, and plumbing permits are assessed separately.

Between the published fee schedule, contractor input, and publicly available formulas, the insurer has every tool it needs to calculate a reasonable estimate of permit costs — and no excuse for paying zero.

Who Pulls the Building Permit?

In most insurance repair situations, the contractor pulls the building permit. This is standard practice — the contractor is the one performing the work, and most jurisdictions require the permit to be obtained by the party responsible for the construction. The contractor applies for the permit, pays the fee (or the homeowner provides the funds), and the permit is posted at the job site during construction.

Homeowners can also pull permits themselves, particularly if they are acting as owner-builders. However, acting as an owner-builder carries significant responsibilities under California law, including liability for workers’ compensation and compliance with contractor licensing requirements.

Regardless of who actually pulls the permit, the cost of the permit is part of the cost to repair the property — and the insurer owes for it. The question of who physically walks into the building department and pays the fee does not change the insurer’s obligation to include that cost in the claim payment.

How Permit Costs Affect Your Total Claim Value

Permit fees can add a meaningful amount to the total claim value. On a moderate repair project of $100,000 to $200,000, permit fees (including plan check fees, mechanical, electrical, and plumbing permits, and other related fees) can easily run $3,000 to $8,000 or more. On a total loss rebuild, permit fees can exceed $15,000 to $25,000 depending on the jurisdiction and the scope of construction.

These costs are separate from the construction costs and should be itemized separately in the estimate. They should also be separate from any code upgrade costs covered under your Ordinance or Law coverage. The permit itself is not a code upgrade — it is the cost of obtaining government authorization to perform the repair work. Code upgrades are the additional construction costs required to bring the property into compliance with current building codes. These are two different things and should not be conflated.

What Happens When Unpermitted Work Is Discovered During a Claim

Sometimes, during the claims process, an inspection or contractor walkthrough reveals that previous work on the property was done without permits. This can include unpermitted room additions, bathroom or kitchen remodels, electrical upgrades, converted garages, or enclosed patios. Discovering unpermitted work during a claim creates several complications:

• The insurer may question whether unpermitted work contributed to the damage. If unpermitted electrical work caused a fire, for example, the insurer may argue that the damage resulted from the homeowner’s own negligence. This argument is not always valid — coverage depends on the cause of loss and the specific policy language — but it can create a dispute.
• The building department may require unpermitted work to be brought up to code. When you pull a permit for current repairs, the building inspector may identify existing unpermitted work and require that it be corrected as a condition of approving the new permit. The cost of correcting previously unpermitted work is a potential Ordinance or Law issue — if the correction is required by law or ordinance as part of the current repair, it may be covered under that provision.
• The insurer may dispute the value of unpermitted improvements. An unpermitted addition or remodel may not carry the same replacement cost value as a permitted one. The insurer may argue that because the work was never inspected or approved, it does not meet code and should be valued differently.

The Insurer’s Good-Faith Obligation

Under California’s Fair Claims Settlement Practices Regulations (10 CCR §2695.7(d)), every insurer must “conduct and diligently pursue a thorough, fair and objective investigation.” Under 10 CCR §2695.7(g), insurers cannot make unreasonably low settlement offers. And under California Insurance Code §790.03(h)(5), failing to attempt in good faith to effectuate prompt, fair, and equitable settlements is an unfair claims practice.

When it comes to building permit fees, these obligations mean the insurer has a duty to:

• Determine what permits are required for the scope of repair
• Calculate or reasonably estimate the cost of those permits using publicly available fee schedules, contractor input, or other reliable methods
• Include permit fees as a line item in the repair estimate
• Pay the estimated permit fee as part of the claim settlement — not withhold it pending a receipt
• If the actual permit fee turns out to be higher than the estimate, pay the difference as a supplement

An insurer that pays zero for permit fees when the scope of repair clearly requires a permit is not making a good-faith settlement offer. The cost of a building permit is knowable, calculable, and part of the cost to repair the property. Refusing to pay it is no different from refusing to pay for any other documented line item in the repair estimate.

What to Do When the Insurer Refuses to Pay for Permits

If your insurer is refusing to pay permit fees or is conditioning payment on you incurring the cost first, here is what you can do:

1. Document the permit requirement. Identify which permits are required for your repair scope. Your contractor can help with this. Get the city or county fee schedule and calculate the expected cost.
2. Submit the calculated permit cost in writing. Send the insurer a written request that includes the fee schedule, the calculation, and the total permit cost. Make it clear that this is a known cost of the repair.
3. Point out that permits are not a “must incur” item. Your policy requires the insurer to pay the cost to repair or replace your property. The permit is part of that cost. Unlike recoverable depreciation, ALE, or code upgrade costs, there is no policy provision requiring you to incur permit fees before payment.
4. Cite the insurer’s obligation.Reference the insurer’s duty under 10 CCR §2695.7 to conduct a thorough and fair investigation and to make reasonable settlement offers. An offer that excludes a known, calculable cost component is not a fair offer.
5. Request a written explanation.Ask the insurer to explain, in writing, the specific policy provision that allows them to withhold payment for permit fees. If they cannot point to a provision — and they almost certainly cannot — their position has no basis.

Permits vs. Code Upgrades: An Important Distinction

It is important not to confuse building permit fees with building code upgrade costs. These are related but separate concepts:

• Building permit feesare the government fees you pay to obtain authorization to perform construction work. They are an administrative cost — the price of the permit itself, plan check fees, inspection fees, and similar charges.
• Building code upgrade costs are the additional construction costs required when current building codes are more stringent than the codes in effect when your home was originally built. These are covered under your Ordinance or Law coverage and typically must be incurred before the insurer pays for them.

The permit fee is part of the base cost to repair your home — it belongs in the dwelling estimate alongside materials and labor. Code upgrade costs are additional costs above and beyond the base repair, covered under a separate coverage with its own limit. Do not let the insurer lump permit fees into your Ordinance or Law coverage or deduct them from that limit. They are a dwelling cost, not a code upgrade cost.

Summary: What You Need to Know

• Building permit fees are part of the cost to repair or rebuild your home and are owed by the insurer
• Permit fees do not have to be “incurred” before the insurer pays — they are not the same as ALE, code upgrades, or recoverable depreciation
• The insurer has a good-faith obligation to calculate and pay permit fees based on publicly available information, contractor estimates, or published fee schedules
• If the insurer refuses to pay anything for permits, that is not a fair settlement offer
• Permit fees belong in the dwelling estimate, not in your Ordinance or Law coverage
• Unpermitted work discovered during a claim does not void your coverage, but it may create complications
• If the actual permit cost exceeds the estimate, the difference should be paid as a supplement