Condominium associations frequently insure aging common elements, such as clubhouses, recreation centers, maintenance buildings, and other shared facilities, under replacement cost property insurance policies. Condominium and homeowners associations may assume that replacement cost coverage will fully fund rebuilding after a catastrophic loss.
However, as Piatt Lake Bible Conference Association v Church Mutual Insurance Co., No. 2:23-CV-73, 2025 WL 1936703, at *9 (WD Mich, July 11, 2025) illustrates, replacement cost coverage may be limited to rebuilding existing structures, leaving community associations exposed to significant unfunded code compliance costs that arise based on current building codes. As discussed below, this case highlights the importance of condominium and homeowners associations closely examining their property insurance coverage limits and not relying solely on insurers or agents to identify gaps in coverage.
Facts
Piatt Lake Bible Conference Association (“Piatt Lake”) owned and insured a large multipurpose building used for group gatherings and events. In 2020, the structure collapsed under heavy snow and ice accumulation. Piatt Lake subsequently submitted an insurance claim under the commercial property insurance policy it held with Church Mutual Insurance Company (“Church Mutual”), which included replacement cost coverage, as well as a separate ordinance or law provision with a $100,000.00 sublimit for code compliance costs. Piatt Lake expected Church Mutual to fully cover the cost of rebuilding the large multipurpose building. However, rebuilding the structure required substantial upgrades to meet modern building codes, and the cost of these upgrades exceeded $1,000,000.00. Church Mutual paid Piatt Lake its replacement cost benefits and paid the ordinance-or-law coverage up to the policy’s $100,000.00 cap, but denied payment beyond that amount. As a result, Piatt Lake was left to pay a substantial amount of costs attributable to code compliance in order to rebuild the structure.
In 2025, Piatt Lake filed a lawsuit against Church Mutual for breach of contract and negligence-based claims. Piatt Lake alleged that Church Mutual failed to adequately explain the limitations of the ordinance-or-law coverage and that the Association reasonably believed it was fully insured for all rebuilding costs. Church Mutual moved for summary judgment, which was granted, dismissing Piatt Lake’s case against it.
The Court Enforces the Code Compliance Insurance Coverage Limit
In dismissing Piatt Lake’s case, the trial court held that the insurance policy’s ordinance-or-law sublimit was enforceable as written. The policy expressly provided that the cost to repair, rebuild, or replace would not include any increased costs attributable to the enforcement of any ordinance or law regulating the construction, use, or repair of any property. The trial court rejected Piatt Lake’s argument that replacement cost coverage necessarily included all code upgrades. Specifically, the trial court held that the replacement cost coverage was subject to an express limitation and cap for code compliance, and therefore, this policy language controlled.
The Court Found No Duty to Advise the Association on Coverage Adequacy
Piatt Lake also argued that Church Mutual was negligent for failing to advise it that the ordinance-or-law coverage was inadequate. The trial court rejected this claim, relying on established Michigan law, which holds that insurers and agents generally do not owe a duty to advise an insured about coverage adequacy unless a special relationship exists between them. A special relationship will only arise under specific circumstances, such as an insurance agent misrepresenting coverage, failing to clarify an ambiguous question, giving inaccurate advice, or expressly agreeing to undertake an advisory role. The trial court found that no special relationship existed and rejected the association’s claim that a special relationship arose from the business relationship it had developed with Church Mutual over time. Specifically, the trial court found that there was no evidence that Church Mutual undertook an advisory role or made any misrepresentations about the association’s coverage. The trial court reasoned that Piatt Lake’s subjective belief that it was fully covered under its policy was not enough to impose a duty or create liability for Church Mutual. Ultimately, the trial court held that Church Mutual did not owe any duty to Piatt Lake beyond the obligation to honor the terms of the policy, which it did.
Key Takeaways for Condominium Associations
The court’s decision in Piatt Lake Bible Conference Association v Church Mutual Insurance Co., No. 2:23-CV-73, 2025 WL 1936703, at *9 (WD Mich, July 11, 2025) underscores the importance of understanding the limits of an association’s insurance coverage and the potential financial impact policy limits may have on a community association when faced with a loss involving common elements that predate current building codes.
- Replacement Costs Are Not Unlimited. Replacement cost coverage does not override ordinance or law limits that cap code compliance expenses. Older common elements will often trigger more expensive code upgrades after a loss that are often not covered under standard replacement cost provisions. Having an experienced condominium and homeowners association attorney carefully review and verify the coverage and limits of your community’s property insurance policy is crucial to ensure the appropriate coverage is in place.
- Coverage Limits will be Enforced as Written. Condominium and homeowners associations should be aware that courts will not expand insurance coverage beyond clear policy limits, even where a catastrophic loss creates severe financial hardship for an organization or its members.
- Do Not Assume Your Insurance Agent Will Flag Coverage Gaps. Michigan law generally imposes no duty on insurers or agents to advise community associations about coverage adequacy. Community association boards should review insurance policies and consult community association counsel regarding potential issues when renewing their policy each year.
Need Help Evaluating Condominium Insurance Coverage?
If your condominium association is reviewing its property insurance coverage or has questions about ordinance-or-law limits, or replacement cost provisions, Hirzel Law’s condominium and homeowners association attorneys can help. We will work with you and your association to identify coverage gaps and reduce the risk of unexpected costs to your community after a loss.
Reprinted with permission from The Michigan Community Association Law Blog – Get Essential Condo & HOA Tips from the Attorneys at Hirzel Law, PLC!