Flooding as a result of Hurricanes Matthew, Harvey, Irma and Maria have adversely affected many condominiums causing the unit owners and associations to review insurance policies and by-laws to guide them in the recovery process. In typical scenarios, the most desirable locations for condominium living are along water bodies designated as Special Flood Hazard Areas (SFHAs). Therefore, the majority of the common elements or areas are on the ground and first floor, putting them at the highest risk of flooding. For many years, only the lower unit owners purchased flood insurance through National Flood Insurance Program (NFIP) since the consensus was that only those units would be at risk.
However, the reality is the buildings foundation, mechanicals, pumps, elevators, lower level parking and many other building elements and common elements are at risk. The associations and the lenders soon realized that the Standard Flood Insurance Policy (SFIP) dwelling limits and the limits based upon the insurable interests of individual unit owners proved to be insufficient to cover flood losses to the building and common elements. To address this gap in coverage and spread the cost of adequate flood coverage among all unit owners, the NFIP created the Residential Condominium Building Association Policy (RCBAP).1
The RCBAP is a master policy for residential condominiums where 75 percent or more of the building’s floor area is for residential use. It provides maximum building coverage for the lesser of 100 percent of the replacement cost value of the building, including amounts to repair or replace the foundation and its supporting structures, or the total number of units in the condominium building times $250,000. It can only be purchased by an eligible condominium owners association. Though it includes coverage for the building, including the units and improvements,2 personal property coverage is limited to that belonging to the association.
Ostensibly, in recognition of this gap in coverage for the unit owner and the intent for the RCBAP to be the master policy, the RCBAP provides an Other Insurance clause3 designating it as primary for the same loss insured by a unit owner. A unit owner may purchase an SFIP Dwelling Coverage policy4 to insure its personal property and to provide loss assessment coverage, as well as coverage for the unit structure, which then provides an overlap. In the case of an overlap, the SFIP Dwelling policy also has an Other Insurance clause,5 designating it as an excess coverage policy.
Knowing this, you would expect condominium unit owners to be fully covered for the peril of flood. Yet, not all condominium associations purchase the RCBAP, as some of the older by-laws do not require flood insurance and the procurement is a Board decision based upon the vote of the association members who often do not desire to share the risk or are not obligated by a mortgagee to carry the additional coverage. However, since this practice would place a lender at risk for the foundational protection of the building and common elements, Fannie Mae and Freddie Mac have recently passed regulations6 that require the purchase of an RCBAP by an association prior to its lending to a unit owner located in an SFHAs.
As the flood losses are assessed and the damages continue to be identified, all available policies and coverage will be a welcome sight. However, all condominium associations and unit owners should keep in mind that in all government sponsored programs, there is to be no duplication of benefits. And, though the NFIP allows for policies under the act to cover the same loss, it does not allow for a duplication of payment or for payment beyond the maximum policy benefits. Sorting through the coverages of multiple policies and the exclusions and limitations may seem daunting in an already complicated recovery process, but well worth the effort.
2 Id. at III. PROPERTY COVERED, A. COVERAGE A—BUILDING PROPERTY We insure against direct physical loss by or from flood to: 1. The residential condominium building described on the Declarations Page at the described location, including all units within the building and the improvements within the units.
3 Id. at VIII. GENERAL CONDITIONS, C. OTHER INSURANCE, 2. If there is a flood insurance policy in the name of a unit owner that covers the same loss as this policy, then this policy will be primary.
5 Id. at VII. GENERAL CONDITIONS, C. OTHER INSURANCE, 2. If there is other insurance in the name of your condominium association covering the same property covered by this policy, then this policy will be in excess over the other insurance.