Nothing is more familiar to individuals living in condominium and homeowner associations than the laundry list of rules and regulations that have been adopted. As a friend of mine can attest, even putting a rope swing in your yard can result in a hefty fine. So what happens when your association rules require you to do certain things in reconstructing after a loss? Does your policy cover these expenses?
This question has come up a number of times over the years. Often policyholders would argue that if their association required the reconstruction to be done in a certain way, the Ordinance or Law Coverage should pay for these upgrades. Association rules and regulations governing the community are no different than governmental building codes that regulate construction, so why shouldn’t the additional coverage the policyholder purchased take care of these expenses?
Often times this argument worked and insurance companies took care of the extra expenses incurred as a result of complying with the association rules. Recently, however, the Sixth Circuit Court of Appeals took a look at this issue and, in the words of Lee Corso, said “Not so fast my friends.”
In Wright v. State Farm Fire and Casualty Company,1 the policyholder sustained damage to the wood shake roof of the home. State Farm covered the loss and made payment for the cost of repairing the damaged roof. Unfortunately for the Wrights, their home was located in an upscale golf community whose association bylaws provided that any roof that needed repair must be re-roofed in its entirety. Thus, partial or patch roofing was not permitted.
State Farm denied Mr. and Mrs. Wright’s request for payment of the entire cost of re-roofing the home under the optional law and ordinance coverage they had purchased. This left the homeowners paying the majority of the $47,000 re-roofing bill.
The trial court dismissed the action brought by Mr. and Mrs. Wright finding that State Farm had not failed to comply with the policy, a decision that was affirmed by the appellate court. In discussing potential coverage under the ordinance or law coverage, the court stated:
First, there was no misrepresentation regarding the actual scope of the policy’s coverage, because the policy unambiguously does not cover roof replacement. The Option OL covers only laws and ordinances, which by the usual use of the terms include only rules enacted by a governmental authority. The Wrights, in contrast, were obligated to comply with a restrictive covenant, which is a private agreement. Therefore, Option OL by its clear terms does not extend to the enforcement of the restrictive covenant.
There are all kinds of rules and regulations governing people that live in associations. Even though some seem unreasonable (like the case above), they are taken very seriously in many instances. Associations and homeowners alike should read the requirements of their community and discuss them with their agent or broker. There may not be a coverage for every scenario, but it never hurts to ask.
1 Wright v. State Farm Fire and Cas. Co., No. 13-3727 (6th Cir. Feb. 18, 2014).