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ApartmentsProperty managers and condo association board members have many responsibilities. One of their main responsibilities is to make sure they are adequately insured with all the proper coverages and limits of insurance. There are a host of coverages that a condo association needs to consider; we touched on many of them in the article Mastering Condo Association Risk with a Master Policy. However, ordinance of law is one coverage that merits additional scrutiny.

Ordinance of law insurance protects condo associations from losses caused by enforcement of new building codes and ordinances that apply to new construction or repairs of a damaged building. The classic example of an ordinance of law loss can be seen when older structures experience a loss. In addition to repairing or rebuilding the older structure it must also be brought to code. When this happens the insured may incur a lot of additional expenses for “upgrades” in construction to satisfy the newer building codes. Your policy’s building coverage, even if on replacement cost coverage, will more than likely not cover the cost associated with upgrading to meet the newer building codes. This means that the association, and ultimately the residents, are forced to pay thousands of dollars to meet current building code regulations. The largest ordinance of law exposure that condo associations face are the building codes that surround the implementation of fire sprinkler systems in habitational buildings.

In the last decade building codes have been passed that require multi-level habitation (condo complex’s & apartment complex’s) buildings to be sprinklered. However, if your building was not built within the last ten years there is a good chance that it does not have a sprinkler system. Consider the association that has a property loss to one of its older un-sprinklered buildings; the building will have to be re-built or repaired. The rebuild/repair work will include installing a sprinkler system to bring the building to code. The American Fire Sprinkler Association estimates that the average cost of installing a sprinkler system is $2 per square foot. If the damaged building is 10,000 square feet then the Condo Association is stuck paying $20,000, out of pocket, on sprinkler upgrades to bring the building up to code. Don’t get stuck paying out of pocket for a relatively inexpensive coverage.

Ordinance and law coverage is made up of three major sections. Insurance carriers have tweaked each section to best fit their risk portfolio. It is important to sit down with your insurance agent and create a risk analysis of your ordinance of law exposure. Your agent will use your risk analysis to evaluate each carrier’s ordinance and law coverage ensuring that you get the right amount of coverage for your association

Paul Grich

Contact Paul Grich

Condo and Apartment Risk Consultant
Call: (843) 468-9726
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