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Flood Insurance Coverage Conundrum
Answer by Dan Persfull, BOL Guru
Guru Bio
Question: We have financed the construction of a six story condominium building that is located in a flood zone. Our borrower is a commercial entity and for our purpose, the project is a commercial development. Our borrower has obtained $250,000 of flood insurance coverage, however, we are requiring $500,000 which is the maximum available for commercial property through FEMA. The borrower's insurance company has been unable to increase the policy. The insurance company states that the building is residential in nature since the end result will be a condo building. The insurance agent has tried to convince the insurance company that it is really a commercial property and has been unsuccessful in this argument. Do you have any suggestions or solutions for our insurance conundrum?
Answer: Flood insurance coverage is based on residential or non-residential property. If the condo units are going to be residential units, then the insurance company is correct. It is residential property. However, the coverage for a residential condo building is the replacement cost of the building or $250,000 times the number of units in the building, whichever is less.
First published on BankersOnline.com 4/21/08
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