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Leland, there are sewer systems that are above ground and don't require attachment to a municipal sewer system. Systems such as this are common in South Louisiana.

If you had a house any place in the US and the sewer line had to be replaced, why would you dig up the old sewer line? ( IF insurance was not involved?)

There is $50,000 of code upgrade coverage. New codes require "no septic" which means a sewer line must be dug. The house burns down and the septic system is damaged. (Malibu has big wildfires every few years). Coverage features 5% debris removal (additional coverage). Coverage on the dwelling is $100,000. HO3. (it would more likely be Dp1 or DP3, but let's say it is an HO3)

Why would the septic system be damaged if the house burned down? 

I don,t think code up grade covers a major modification like a sanitary sewer systen on real estate. This is not the same, but Cal. has a lot of flood claims(river of mud) and all of the under ground is excluded in the NFIP flood policy.. An out lawed septic system has to be damaged by an insured peril, before debis removable is triggered. Also the section I exclusions exclusion  A,B. and C would apply. This is all on page 11 of HO 00 03 10 00

On claims I have handled in the past in Malibu and other areas the wildfire has damaged the septic systems. Sometimes they are made with plastic.

But its true that if it isn't really damaged, the city shouldn't be making you upgrade it. But try to argue with a city.

Some cities are known for seeing just a little bit of damage and saying that the "system" is "substantially" damaged so the whole thing needs to be replaced and the city won't allow repair.

When the insured has no code upgrade coverage the insured's contractor will argue that the "system" (septic/plumbing/electrical etc.) was not "substantially" damaged and forcing a code up grade is not right.

When the insured has code upgrade coverage the contractor might be more likely to agree with the city.

One problem is that if the city say something must be upgraded (by law) it is not easy to disagree with them- they wrote and own the rule book.

If the city says something is 1) damaged and 2) needs to be upgraded, how is the insurance company going to tell the insured that the city is wrong and deny coverage? Not easy to do.

  When the county utility installs a sewer system in a certain area of the county the people usually have a designated time to hook on at a reduced price. if the resident does not complete the hookup in an alotted time then they are penalized for not hooking up by the dead line. We have a suburb up here where people have rerouted their septic to a sewer main that is installed along the street. So actually all thats left of the septic system underground is the laterals. if I had to guess I would say first and foremost it is just like its always been it is the carrier's job to make the insured whole again. "FROM A COVERED PERIL!" If they are expecting to have the carrier pay for a line running clear to the nearest point of a new sewer line ,in my mind that would be betterment.

  That would be no different than not paying for caisons to be installed on a home on a hillside that didn't have them before!

That is my 2 cents worth I could be wrong !

Yes I am aware of that but not a sewer line that leaves the insured property.

Lets ask the coverage man ( I appoint Leland) how this loss should be worked. The insured says a tree is leaning over his house from a windstorm last night. He demands you send a tree remove it as the city inspector said his day care license will be pulled if.......................

And don, t say call the examiner, he could have done this on the phone, and what does he /she want you to do... wring your hands is not the correct answer . Have you ever heard someone say ever bad thing that happens is not covered by insurance. It,s more like 16-18 named perils and 1/2 dozen real "risk of loss" sudden, unexpected and unentended and certainly an accident.