TUESDAY, SEPTEMBER 20, 2016
Condo associations are commonly required to insure common element structures. With the passage of time, building codes and ordinances change to reflect new standards in construction. These changes generally relate to fire safety, structural integrity (especially here in Florida) and energy efficiency of buildings. Building are constructed to meet or exceed building codes in effect at the time of their construction, as they age buildings grow outdated and fall out of compliance with todays codes.
So what does it cover?
Let us take a look at hypothetical loss. Lets say an association has a fire that causes damage to the structure but most of the building is undamaged. One would think that insurance would pay to fix the damaged part of the building; and you would be correct, but what if the town you live in has building codes that require that the partially damaged building be demolished rather than rebuilt? If you do not have Ordinance and Law the cost difference will be on the association.
Another issue could be what if the codes now require the association to install improvements such as fire sprinkler system? With out Ordinance and Law the association will be on the hooks for this as well. In short without Ordinance and Law coverage you insurance company will only pay to replace the building to its condition prior to the loss any difference will fall on the association.
In general there are three parts to Ordinance and Law coverage:
Coverage A: In some jurisdictions the law requires that partially damaged buildings be demolished, in that situation the policy will treat the claim as a total loss, even though the building was only partially damaged.
Coverage B: This will pay for the increased cost of demolition that will incur to remove the undamaged portion of the building.
Coverage C: this pays for upgrades required by law to your building. Good examples are the aforementioned sprinkler system or a requirement that goes from 1/2 inch reinforced roof decking to 3/4 inch reinforce roof decking.
Ordinance and Law coverage is excluded by most property insurance policies for condos but can be offered as an endorsement for an additional premium. Most time the premium is fairly reasonable but in some cases it can be extremely costly.
Editors Side Note:
Most mortgage companies and banks are requiring that the association have Ordinance and Law coverage before they will loan money to an individual to purchase a unit. This has become a real hot topic button for the banks as of late and we only see the trend to continue. So if you are trying to sell a unit don't be surprised if the person you are selling too has a hard time securing a loan if your association does not have Ordinance and Law!