Condominium associations and their board members are required by Florida statute to obtain adequate property insurance for full insurable value. Most associations therefore purchase Commercial Property policies to cover risks, such as fire, lightning, and wind. However, many of these policies exclude coverage for new building ordinance or law requirements, because in the insurance company’s mind this would put the association in a better place than they were before the loss.
For an additional premium many carriers will offer what they call Ordinance or Law coverage, which provides the association the option to purchase coverage for 3 types of building ordinance or law requirements. These requirements would apply after a physical damage loss, such as fire, lightning, or wind.
Coverage A: Loss to the Undamaged Portion of the Building
These coverages are best explained through example, so let’s provide one for you. As a result of a unit owner forgetting to blow out a candle at night, your association sustains a large fire. The fire results in destruction of 60% of the building. The other 40% shows no sign of loss. This coverage would pay to rebuild the undamaged 40% of the building if the municipality advised your association that the entire building had to come down.
Coverage B: Demolition Cost Coverage
This coverage pays for the demolition of the undamaged portion of the building. In the above example, this would pay for the 40% of the building that was undamaged as a result of the fire.
Coverage C: Increased Cost of Construction
The older your building is the more important Coverage C is. Coverage C pays for the increased cost of construction due to new ordinances or laws. For example, when your new condominium is built after the fire it now must be ADA compliant and may require impact resistant windows if located near the coast.
Now that you understand the importance of Ordinance or Law and the coverages that are included, the question is, “How much insurance coverage does your association need?” You can usually select a limit for each coverage, but the most common way to add coverage is to purchase full Coverage A and a combined limit for Coverage B and C. That limit is usually a percentage of the building cost (such as 2%, 5%, or 10%). When determining a limit, it is best to include your insurance agent in the conversation.
If you have any questions about Ordinance or Law coverage, or any coverage for your condominium association, please reach out to Brian Ford at BFord@InsuranceResourcesLLC.com