Condo Associations and the NFIP

During a condominium class, a question was asked regarding flood coverage for condominiums. Specifically, the question revolved around the maximum amount of coverage under the Residential Condominium Building Association Policy (RCBAP) and what must be done if the value of the building exceeds the maximum coverage available under the RCBAP ($250,000 per unit).

Question

“How does the association provide flood coverage when the value of the building exceeds the $250,000 per unit/per building limit allowed in the RCBAP? Do unit owners need to, or can they, purchase real property coverage to make up the difference?

For example, when there are 10 units in the building, the maximum coverage available under the RCBAP is $2,500,000. What must the association do if the structure’s replacement cost is $3,500,000? Does each unit owner purchase $100,000 real property coverage to make up the difference? Or does the association need to purchase $1,000,000 of excess flood?”

Answer

In researching the answer, I found conflicting answers. Some recommended the unit owners purchase flood coverage for their real property; others said this could not be done. My opinion was that excess coverage had to be purchased by the association as the unit owner’s policy will not respond to the real property loss as per the provisions of the RCBAP. But after reading all these different opinions, I found myself baffled.

In researching the answer, I found conflicting answers. Some recommended the unit owners purchase flood coverage for their real property; others said this could not be done. My opinion was that excess coverage had to be purchased by the association as the unit owner’s policy will not respond to the real property loss as per the provisions of the RCBAP. But after reading all these different opinions, I found myself baffled.

To remedy this confusion, I went to the source – FEMA and the NFIP. Below is their response to the question:

We are responding as a representative of the Department of Homeland Security’s Federal Emergency Management Agency (FEMA) to your inquiry regarding RCBAP coverage.

If the RCBAP is maxed out at $250,000 per unit, this is the maximum that we will ever pay in the event of a loss to the building. The unit owners would not benefit from purchasing any extra building coverage. They should only purchase contents coverage. If additional coverage is needed, the association would have to purchase an excess policy to make up the difference.

Sincerely,

National Flood Insurance Program
Bureau and Statistical Agent

First published: January 6, 2017