The Top 10 Association Insurance Questions - Part 9

We are nearing the end of "The Top 10 Questions asked by Board Members and Community Managers Regarding HOA and Condo Association Insurance." Today, we discuss the ninth installment.

By: Brian J. Finnerty (CIC), Area Sr. Vice President, Arthur J. Gallagher Risk Management Services

Question 9:
What is Ordinance or Law coverage? 

This is coverage provided under a property insurance policy that if elected can provide protection to the insured for increased repair cost that can be triggered by building codes and ordinances.  In many municipalities when substantial building damage occurs, those buildings must be rebuilt and rebuilt to current code.  These building code updates are often not covered by the standard property policy because they are looked at as putting the insured in a better position than they were before a claim which is not the intent of insurance.  The insured must rely on “Ordinance or Law” coverage to help pay to reconstruct back to current code.

The three components of this coverage are:
  • Coverage A: Loss of Value to the Undamaged Portion of the Building-Can cover the cost to rebuild the undamaged portion of the insured building.
  • Coverage B: Demolition coverage-covers the cost of demolition of the undamaged portions of the building in an effort to bring the building back to code.
  • Coverage C: Increased Cost of Construction-This provides for the increased cost to build back to code. 
So who needs this coverage?  The obvious answer is any association where the buildings are older would have more exposure to these types of claims.  However, as a general rule of thumb this is not an expensive line item on the property insurance policy and I suggest that all associations at least entertain this coverage. 

Make sure to check back next Monday for the final installment of this insurance series!