Multi-Family Complexes (Apartment and Condo)



...association had purchased ordinance or law coverage as a part of their property insurance program.

The insurance company adjuster’s initial estimate of $825,000 quickly was revised upward to $10.5 million. Moreover, there was another $6.5 million for increased cost of construction due to ordinance or law requirements. Items covered under the ordinance or law provisions included the cost of such things as:

How do you know whether ordinance or law coverage is needed? In most jurisdictions and with most building or zoning laws, existing properties are “grandfathered” when the law changes and property owners need not comply until such time as new building permits are required, when major changes in construction are planned, or when the property is significantly damaged as by fire, wind, explosion, flood, earthquake or the like.

There are exceptions—where changes require immediate compliance, but these are rare and are usually accompanied by sufficient publicity to alert owners to the need to comply.

Persons charged with the risk management function should consult with the government officials in charge of enforcing the building or zoning laws to determine what changes in construction methods or materials would be required following a loss and what degree of damage (frequently 50 percent or 75 percent) would call for demolition of existing property in order to rebuild. Also, the question of whether the property would be rebuilt—on the same or perhaps on another site—should be addressed and taken into account in arranging the insurance.

When answers to these questions have been found, the risk manager can then proceed to arrange adequate ordinance or law coverage. (For an in-depth study of this coverage, refer to Adjusting Today Ordinance or Law edition.)