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#1755560 - 11/06/12 06:48 PM Multiple Buildings AND Contents?????
upstateNY Offline
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I hope I can ask this and make it clear. We have a loan secured by 2 parcels, both in flood zones. Loan balance is $1 million. Parcel A has flood coverage for $110,000 and is fine. Parcel B has 3 buildings, one of which has flood insurance for $500,000. The other two were mistakenly not insured and no value is assigned to them in the appraisal. So, I know we need to obtain values for those two buildings and insure them.
We also have a secured interest in all equipment and fixtures valued at $3 milion and stored in the buildings on Parcel B. How do we split up the contents coverage, when the items are stored amongst the three buildings?

As an example, let's say we end up with:
Building 1 - $110,000
Building 2 - 500,000
Buildng 3 50,000
Building 4 0 40,000
Total Insurance - $700,000 for buildings

Should we obtain one policy for $300,000 in contents coverage to bring the total to $1 million? Or does the contents coverage have to be separated by building?
Last edited by upstateNY; 11/06/12 08:57 PM.
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Flood Compliance
#1755577 - 11/06/12 07:23 PM Re: Multiple Buildings AND Contents????? upstateNY
rlcarey Offline
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Depends how much equipment is stored in each respective building. If you have $500,000 of content coverage on building 1 and only $20,000 in equipment is located there, it won't do you much good.
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#1755606 - 11/06/12 08:03 PM Re: Multiple Buildings AND Contents????? rlcarey
upstateNY Offline
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Originally Posted By: rlcarey
Depends how much equipment is stored in each respective building. If you have $500,000 of content coverage on building 1 and only $20,000 in equipment is located there, it won't do you much good.


So what if equipment and inventory gets moved around, allocated to different buildings? We wouldn't even know that.

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#1755635 - 11/06/12 08:37 PM Re: Multiple Buildings AND Contents????? upstateNY
Dan Persfull Offline
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http://www.gpo.gov/fdsys/pkg/FR-2009-07-21/pdf/E9-17129.pdf

See Q&A #39.


This is not conducive to S&S issues with this scenario but you have to have the buildings and contents covered. As long as you meet the minimum requirements then you can allocate the coverage among each policy for the buildings. But if building A has $20,000 content coverage but on that particular day has $100,000 of contents in it you stand to lose $80,000 if a flood loss occurs.

If the insurable value of all the buildings is $700,000 and the insurable value of the contents is $500,000 then you need a minimum combined coverage of $1,000,000 - the loan balance which is the lessor of the coverage requirements.

To satisfy the requirements you can insure the buildings for $700,000 and the contents for $300,000.
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#1755798 - 11/07/12 01:34 PM Re: Multiple Buildings AND Contents????? Dan Persfull
upstateNY Offline
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Originally Posted By: Dan Persfull
http://www.gpo.gov/fdsys/pkg/FR-2009-07-21/pdf/E9-17129.pdf

See Q&A #39.


This is not conducive to S&S issues with this scenario but you have to have the buildings and contents covered. As long as you meet the minimum requirements then you can allocate the coverage among each policy for the buildings. But if building A has $20,000 content coverage but on that particular day has $100,000 of contents in it you stand to lose $80,000 if a flood loss occurs.

If the insurable value of all the buildings is $700,000 and the insurable value of the contents is $500,000 then you need a minimum combined coverage of $1,000,000 - the loan balance which is the lessor of the coverage requirements.

To satisfy the requirements you can insure the buildings for $700,000 and the contents for $300,000.


Just this AM, I received an opinion that we must obtain $500,000 in contents coverage for each building. That would bring building and contents coverage to a total of $2.2 million, well over the balance of the loan.

I really don't know what is correct.

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#1755802 - 11/07/12 01:38 PM Re: Multiple Buildings AND Contents????? upstateNY
rlcarey Offline
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Informed by whom? If this has been generated from a safety and soundness decision, I can fully understand the rationale.
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#1755808 - 11/07/12 01:51 PM Re: Multiple Buildings AND Contents????? upstateNY
Dan Persfull Offline
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Where did the opinion come from? I would counter the opinion with the provided Q&A.

The minimum coverage requirement is the lesser of:

The insurable value of the property or properties,
The outstanding loan balance(s), or
The maximum coverage available for the property type through the NFIP.

The minimum coverage is not "per building", it's per designated loan. If you have multiple properties securing a loan as long as you have all the properties collectively insured for the minimum coverage requirement then you are compliant.

Now with that said. If you want to be sure your contents are 100% covered regardless which building they are in then $500,000 per building would assure you of full coverage should for any reason the entire $500,000 contents would be located in one building at the time of a loss.

This IMHO boils down to a managed risk decision for what coverage your management wants to require. As long as they meet the minimum coverage requirements there is nothing stating the contents have to be insured to 100% value.
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#1755855 - 11/07/12 02:58 PM Re: Multiple Buildings AND Contents????? upstateNY
Sugarbaker Offline
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Do the minimum coverage requirement calcuation take contents into consideration? For example, we have a commercial loan for $300,000 with building and contents as collateral. RCV on the building is $350,000 and contents value is $200,000. How should the insurance be divied up based on the requirement to have the lesser of . . . the outstanding balance of the loan. Should be building be insured for $300,000 and that means we don't technically have to require insurance on the contents? Or can we place $200,000 on the building and $100,000 on the contents? Some confusion over this right now.

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#1755863 - 11/07/12 03:02 PM Re: Multiple Buildings AND Contents????? upstateNY
Dan Persfull Offline
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How should the insurance be divied up based on the requirement to have the lesser of . . . the outstanding balance of the loan.

See the above linked Q&A in post #1755635.
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#1755866 - 11/07/12 03:03 PM Re: Multiple Buildings AND Contents????? rlcarey
upstateNY Offline
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Originally Posted By: rlcarey
Informed by whom? If this has been generated from a safety and soundness decision, I can fully understand the rationale.


A presenter at a recent flood compliance webex that we listened to.

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#1755875 - 11/07/12 03:19 PM Re: Multiple Buildings AND Contents????? Dan Persfull
Sugarbaker Offline
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Originally Posted By: Dan Persfull
How should the insurance be divied up based on the requirement to have the lesser of . . . the outstanding balance of the loan.

See the above linked Q&A in post #1755635.


The example they give shows the building being fully insured. So in all circumstances must the building be fully insured? Our auditor says that the calculation applies to the building and not the contents but that we should have insurance on the contents too. So my question is in the example given in the Q&A would it be okay to have $100,000 on the building and $100,000 on the inventory - same coverage amout just divided differently among the collateral?

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#1755899 - 11/07/12 03:38 PM Re: Multiple Buildings AND Contents????? upstateNY
Dan Persfull Offline
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Bloomington, IN
Let's change the figures in the example:

Loan Balance $1,250,000
Non residential building insurable value $750,000
Content insurable value $600,000

The minimum coverage requirement is the lesser of:

The insurable value of the property or properties - $1,350,000 ($750,000 bldg + $600,000 contents)

The outstanding loan balance(s) - $1,250,000

The maximum coverage available for the property type through the NFIP - $500,000 for the Bldg & $500,000 for the contents - total $1,000,000

Minimum coverage requirement for this loan $1,000,000.

When the values are less than the maximum coverage limits you can allocate the coverage as you wish so insuring each for $100,000 would meet the requirements but I think you would want more coverage on the building. The contents don't do you much good if there is no place to put them.
Last edited by Dan Persfull; 11/07/12 04:05 PM.
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#1756063 - 11/07/12 05:16 PM Re: Multiple Buildings AND Contents????? upstateNY
upstateNY Offline
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Originally Posted By: upstateNY
I hope I can ask this and make it clear. We have a loan secured by 2 parcels, both in flood zones. Loan balance is $1 million. Parcel A has flood coverage for $110,000 and is fine. Parcel B has 3 buildings, one of which has flood insurance for $500,000. The other two were mistakenly not insured and no value is assigned to them in the appraisal. So, I know we need to obtain values for those two buildings and insure them.
We also have a secured interest in all equipment and fixtures valued at $3 milion and stored in the buildings on Parcel B. How do we split up the contents coverage, when the items are stored amongst the three buildings?

As an example, let's say we end up with:
Building 1 - $110,000
Building 2 - 500,000
Buildng 3 50,000
Building 4 0 40,000
Total Insurance - $700,000 for buildings

Should we obtain one policy for $300,000 in contents coverage to bring the total to $1 million? Or does the contents coverage have to be separated by building?


UPDATE: We have Examiners here, so I posed the question. The minimum required would be $300,000. But from a S&S standpoint, they would like to see $500,000 of contents coverage per building.

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#1756078 - 11/07/12 05:27 PM Re: Multiple Buildings AND Contents????? upstateNY
rlcarey Offline
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Of course they would........
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#1756684 - 11/09/12 02:19 PM Re: Multiple Buildings AND Contents????? upstateNY
happyauditor Offline
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NY
Similar scenario but loan does not include security interest of contents...can someone please confirm for me if I am interpreting this correctly?

One loan for $3,000,000 secured by 5 non-residential buildings.

Max available under NFIP total is $2,500,000 (5 buildings x $500,000)

Insurable value total = $1,800,000 (rcv for each building 500,000 + 300,000, +400,000, + 400,000 + 200,000)

Therefore, minimum insurance required for the loan in this scenario is $1,800,000.

Now let's assume same circumstances except total insurable value is $2,900,000, then minimum insurance required for the loan would be the max available under the NFIP ($2,500,000).

I would just like to know if I am caluclating this correctly. I am basing this on the 2009 Q&A # 14.

Thanks.
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#1756685 - 11/09/12 02:22 PM Re: Multiple Buildings AND Contents????? happyauditor
Dan Persfull Offline
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You are correct on both accounts.
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#1756688 - 11/09/12 02:27 PM Re: Multiple Buildings AND Contents????? upstateNY
happyauditor Offline
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NY
Thank you Dan.
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