Condominium Associations are required by their governing documents to insure their common area property which for almost all associations includes buildings.  Property Insurance is the insurance coverage used to insure structures against many types of losses including fire, windstorm, hail, etc.

A very prominent exclusion in the Property Insurance coverage form is the Ordinance Or Law Exclusion which eliminates coverage for any loss related to the enforcement of any ordinance or law. This exclusion is applicable to any “increased cost incurred to comply with an ordinance or law in the course of construction, repair, renovation, remodeling or demolition of property, or removal of debris.”

Fortunately, coverage is available to address the exposures created by the Ordinance Or Law Exclusion. Not surprisingly, the endorsement to provide this protection is called Ordinance Or Law Coverage. While the Directors and Officers of the association that are responsible for properly insuring the building structures will never find the Ordinance Or Law term in their governing documents, it is important for them to understand this very significant exposure.

A Condominium Association must comply with any law or ordinance, more specifically referred to as Building Codes.  To address this exposure, Ordinance or Law Coverage provides three separate types and limits of coverage as follows:

  1. Value of the Undamaged Portion of Insured Property 
  2. Cost of Demolition   
  3. Increased Expenses 

The best way to understand this coverage is to provide an example of a serious loss to a building involving regular Property Coverage and all three Ordinance or Law coverage types.

Claims Scenario:

  • Property Insurance Limit: $1,000,000
  • Fire Damage: $600,000

Insurance Payment:

  1. Property Insurance for the fire damage: $600,000
  2. Value of the Undamaged Portion which must be torn down: $400,000
  3. Cost of Demolition to tear down and remove the undamaged portion: $100,000
  4. Increased Expenses required to rebuild under the current Building Code: $200,000

With the proper amount of Ordinance or Law coverage, the total insurance payment under this scenario is $1,300,000.  Without Ordinance or Law Coverage, the association would have been underinsured by $700,000!