Ordinance or Law Insurance Coverage


The entire Board of the HOA needs to understand this coverage. There are two issues that are important and need to be fully understood:

  • Purchasing a standard Property Insurance policy is designed to put the property back to what it was prior to the covered loss.
  • Pretty simple? NOT EVEN CLOSE! What happens if the complex is older, or even a newer one, where building codes have had major changes? Certain codes such as electrical , plumbing, and sprinkler or changes due to exposures such as earthquake, flood or hurricane are always in a state of change. Even more in the forefront today are requirements to meet ADA guidelines.

Ordinance or Law coverage is in three pieces. Insurance carriers all deal with it in their own particular way; token limit, partially covered or only by endorsement.

The Board of the HOA shoulders the responsibility to purchase the correct amount of coverage. Ordinance or Law is very complex and the Board needs to work closely with their Insurance Broker on this important coverage.

The Three Coverage Types are as follows:

  • Coverage A: Provides coverage to the undamaged part of the property. The Standard Property policy provides coverage to the damaged part of the property and putting it back to what it was prior to the covered loss. Ordinance or Law Coverage provides coverage to remove the undamaged portion of the building. Example: Your building sustains a loss that 55% damaged. New Ordinance Law requires that a building with over 40% damage be tom down in its entirety. This coverage would provide the cost to rebuild the remaining 45%
  • Coverage B: Covers Demolition costs. Coverage A provides coverage for the
    cost to rebuild, this coverage is for the cost of demolition and removal of the debris.
  • Coverage C: Provides coverage for the increased cost of construction as a result of the code or ordinance changes.

These three integral coverage’s need to be part of the policy to insure that any changes to the code or ordinance do not interfere with the repair and/or rebuilding of the facility. The older the property is the more potential problems could result. The Board should always be aware of current changes that affect it in the event of loss and current construction costs.