In a previous post, we recounted the mold exclusion challenges facing a condominium association after suffering a large fire. That property loss claim had an additional challenge, one that turned out to be a building code nightmare.
The claim stemmed from a fire in a multi-structure condominium complex consisting of four older buildings. These condos were constructed in the late 1970s or early 1980s. Back in those days, building code requirements were not as stringent as they are now, so at the time of the fire, the building did not meet the current requirements and had to be brought up to code.
Because of the fire, the condo association was facing a complete reconstruction of one building. They faced a problem, however: the limit of liability for building code issues in the association’s insurance policy was only $250K. Keep in mind, this was a condo complex with dozens of units. The current new construction code regulations required the association to install a sprinkler system and numerous other items. To do this, they had to build an entire pumphouse designed for hook-up access by every unit in the complex. This building code requirement ended up costing nearly $2M. Considering the limit of $250K in the association policy, you can appreciate how painful this out-of-pocket expense was.
If you’re in a condo association, take a close look at the limit of liability of your building code coverage. You need enough building code coverage to make your building code compliant in the event of a large property loss, and ensure your reconstruction allows you to do what you’re obligated to comply with under current building code requirements.