HOA Ordinance or Law Insurance by Richard Thompson
Homeowner associations (especially condominiums) are required to properly insure the common elements which often include the structures. As buildings age, the unavoidable happens: they fall out of compliance with building codes. Building code changes periodically to improve fire and life safety, structural integrity standards and energy efficiency. As new building materials, equipment, engineering and designs are developed that meet that charge, code is revised. One example is the current standard of six inch versus four inch exterior walls to improve insulation performance. There are many other examples. The older the structure is, the more out of code it becomes. While the building code generally doesn't require older buildings to meet current code, if an out-of-code structure experiences fire, flood, wind or earthquake that does substantial damage, the code issue is likely to raise its ugly head. This means that even though the original structure wasn't required to comply, the rebuilt structure will be, or at least the part of it that requires reconstruction. While this is logical (why rebuild to an outdated standard?), basic fire and hazard insurance only pays for rebuilding what is there, not what could be. So, if you insure four inch walls, the insurance will only pay the cost to rebuild four inch walls, not six inch walls. You pay the difference. Fortunately, the insurance industry provides supplemental insurance coverage for older buildings called, "Ordinance or Law Coverage," which is specifically designed to pay the increased cost of reconstruction. However, this coverage must be requested. It doesn't automatically kick in simply because of building age. If your HOA buildings are ten years old or older, contact your insurance agent to discuss the merits and costs of Building or Ordinance coverage. It is usually very reasonably priced. |
