If you’re running a homeowners association, you need homeowners association (HOA) insurance. This insurance product provides important property and liability protection. However, some policies have gaps that can leave associations responsible for major expenses after a loss, and older buildings are especially at risk. To make sure you’re fully covered, you should check to see whether your HOA insurance policy includes ordinance and law coverage.
Why Do HOAs Need HOA Insurance Coverage?
HOA insurance provides coverage for homeowners associations. This coverage is needed because homeowners associations typically own property shared by the members, including playgrounds, swimming pools, gates and other facilities. HOA insurance provides important coverage for general liability exposures in these common areas, as well as some property damage coverage.
COA insurance is similar, and the terms are sometimes used interchangeably, but it provides coverage designed for condo owners associations. Condos also have property shared by the owners, such as the lobbies, elevators and fitness centers. Other structures, such as the roof and building walls, will also be shared. Due to the nature of the shared property, the property damage coverage provided in the COA policy is critical. COA insurance also provides coverage for general liability exposures in these shared areas.
HOA and COA policies are sometimes referred to as the building’s master policy. Individual home and condo owners will be expected to purchase coverage for the property they own, as well as their personal belongings and their own liability exposures, while the association maintains the HOA master policy.
Think about what would happen in the following situations without a master policy:
- A shared fitness center burns down.
- The roof of a condo building is destroyed in a storm.
- A visitor slips on shared property and sues.
HOA insurance provides property and liability coverage to help with situations like these.
HOA insurance is so important that states may establish minimum requirements for coverage. Most association board members accept the necessity of HOA insurance and would not dream of going without this type of insurance. Nevertheless, HOA insurance that does not contain adequate ordinance and law coverage exposes some associations to dangerous gaps in coverage that could leave them without the protection they need.
Building Codes and Safety Regulations
Buildings are subject to local and state building codes. These codes help ensure that buildings are built to reasonable safety standards, and the codes may be updated regularly to incorporate innovative technologies and materials.
When new codes go into effect, existing buildings may be “grandfathered in.” This practice allows older buildings to continue to exist without requiring expensive renovations to bring them up to code. As a result, some older buildings may not meet some of the standards that newer buildings would be required to meet.
These grandfather clauses can help associations avoid costly renovations. However, if a loss occurs, those expensive renovations may suddenly become necessary to bring the building up to code.
Rebuilding to Code and Commercial Property Insurance Gaps
Some property coverage only insures a building for the current value, while other policies provide coverage for the replacement cost. Either way, property coverage does not typically provide coverage for the cost to upgrade a building. This can be a problem when a loss occurs and associations need to comply with building code requirements as part of the rebuild.
Imagine that half of a building is destroyed in a fire. The insurance policy covers the loss, and the insurance company pays for the repairs that are needed to restore the damaged part of the building. But what if building code regulations require the entire building to be rebuilt to code? A typical commercial property insurance policy will not cover these additional costs.
That’s why ordinance and law coverage is important.
Ordinance and Law Coverage for Homeowners Associations
Ordinance and law coverage can provide coverage for additional rebuilding costs that may be needed to comply with building regulations. It’s important to review your policy carefully for any exclusions and requirements. However, ordinance and law coverage may provide coverage for the following:
- Losses to undamaged property. It may seem strange that undamaged property could incur a loss, but in order to comply with safety regulations, this may be the case. For example, if half of a building is damaged in a fire, the other half may be considered uninhabitable.
- Demolition. If a building is deemed uninhabitable, it may need to be demolished before it can be rebuilt to safety codes. Even parts of the building that were not damaged may need to be demolished, and this can increase the expense significantly.
- Building code upgrades. New building codes may be expensive to meet. For example, new codes may require more expensive building materials. As a result, the cost of construction may exceed the cost to replace the building exactly as it had been constructed originally.
Does Your Homeowners Association Need Ordinance and Law Coverage?
Ordinance and law coverage is an often-overlooked element of HOA coverage. It provides important coverage for many associations and may be especially vital for older buildings that are more likely to out of sync with recent changes to building codes.
When deciding whether to purchase a policy with ordinance and law coverage, ask yourself two questions:
- What would happen in a worst-case scenario? If you needed to pay to demolish and rebuild a structure to bring it up to code, and this cost wasn’t covered by insurance, would you be able to cover the costs another way? How would these costs affect the health of the association? Without law and ordinance coverage, many associations lack a plan for this type of situation.
- Have building codes changed since construction, or are codes expected to change in the near future? When there are a lot of new building codes, or when those codes require costly upgrades, repairing to code can be especially expensive. Right now, some people are pushing for new building codes to help deal with climate change. For example, the U.S. Department of Energy recently announced new building energy code determinations that will result in more efficient buildings and less wasted energy.
Securing the Right HOA Insurance Policy
Homeowners associations have a responsibility to their members. The right insurance can help associations fulfil this responsibility.
Ordinance and law coverage may be excluded from many HOA insurance policies. However, enhanced ordinance and law coverage is available, and it can provide associations with important coverage. This is something that associations should consider now. Once a loss occurs, it will be too late.
Available Through Honeycomb: Enhanced Ordinance and Law Coverage
This enhanced protection covers the increased costs of reconstruction in the event that ordinance or law in the locality has changed requiring more expensive materials or additional elements which weren’t in the original building to be added upon reconstruction. This is a critical element to have on your policy to avoid big, unexpected out-of-pocket expenses when you file a claim.
Honeycomb offers some of the most comprehensive ordinance and law coverage packages on the market. Whether building owners and HOAs buy online directly from Honeycomb or through their broker, we provide bespoke coverage options and the ability to select exactly the limits needed.