If a piece of equipment/machinery (conveyor belt) is bolted to the floor in the building, does that make it covered as a fixture in the building coverage of the NFIP general property form, or would you still need contents coverage to cover the equipment?

I am a little skeptical that the fact it is bolted to the floor automatically makes it a fixture. If I bolted my desk to the floor, would that make it a fixture covered under the building coverage?

My guess is that's it is content - not part of the building. However, I think this is a question for an insurance agent.

HA: The NFIP manual has a list of the 'fixtures, machinery and equipement' that is covered under the building property coverage. Go to the NFIP Manual, Policy section, page POL 58, item #4. A conveyor belt does not appear to be included in the building coverage so it would require separate contents coverage.

Insurance agent is supposedly telling borrower if it is bolted to the building then it is considered part of the building.

Show the borrower or agent the NFIP manual Phil quotes. If the agent won't budge, I'd get a second opinion from another insurance agent. I know of lots of things that are bolted down that are still covered under contents coverage. That's not a blanket statement the agent should make.

Thanks, that is what I thought as well.

received this reply to my "ask the expert" question...

-----Original Message-----
From: AskTheExpert <asktheexpert@nfipiservice.com>

We are responding as a representative of the Department of Homeland Security's Federal Emergency Management Agency (FEMA) to your inquiry regarding flood insurance coverage for a conveyor belt through the National Flood Insurance Program (NFIP),

If the conveyor belt is a permanent fixture of the building it would fall under coverage A. If the liquor store owner is renting the building and has installed the conveyor belt than it would fall under Coverage B. Coverage will be determine by the status of the conveyor belt: permanent or temporary.

A flood policy application with photos can be submitted to the flood underwriting or flood servicing department to resolve the inquiry of Coverage A or B. The agent does serve a key role in writing and determining eligibility, it is their responsibility to communicate with the insurance company if there are concerns.

We hope this information has addressed the concerns raised in your inquiry. If you need additional information or assistance, please reply to this message and reference your customer number, 2060196, or visit FEMA's Flood Insurance website at http://www.fema.gov/business/nfip/.

Sincerely,

National Flood Insurance Program
Bureau and Statistical Agent

So, as a lender, if you are told that the insurance agent has said since the conveyor belt is bolted to the floor it is considered a fixture, would you be comfortable that you have complied with FDPA requirements for this equipment loan (conveyor belt secures the loan), in a building in a flood zone, where the lender also has the mortgage on the building?

How is it insured for hazard?

How is it carried on the company's books?

The hazard policy has building and contents coverage so my guess is it would be covered under either.

I meant for hazard how do they classify it.

I have to tell you that when I was in commercial lending I saw many pieces of machinery and equipment that were classified as fixtures. It often revolves around just how big, just how much effort to move it. Equipment treated that way is amortized differently on the company's books, and so forth.

Kathleen B - I am not sure how it is classified on the hazard policy. The equipment fincnace loan was originated and the equipment was installed after the bank originated the building loan. I currently only have the dec page of the hazard policy and the dec page of the flood policy from the time of origination of the building loan.

If they are separate loans and not cross collateralized, there is no flood insurance requirement. You have to have both the building and contents on a single loan. Safety and soundness issue aside of course.

rlcarey...does it say in any guidance that it has to be on a single loan (unless cross collateralized)? if yes, please cite.

Thanks!

Yes - it must be a single loan seared by BOTH the building in the SFHA AND the contents in that building. If you have loan #1 secured but the building and loan #2 secured only by the contents in that building, you do not need flood insurance on the contents (as a compliance requirement).

See Q&A #38 in the Interagency Q&A.
http://www.bankersonline.com/tools/flood_faq_2011_10_17.pdf

This is the Q&A referred to....

38. If the loan request is to finance inventory stored in a building located within an SFHA, but the building is not security for the loan, is flood insurance required?
Answer: No. The Act and the Regulation provide that a lender shall not make, increase, extend, or renew a designated loan, that is a loan secured by a building or mobile home located or to be located in an SFHA, “unless the building or mobile home and any personal property securing such loan” is covered by flood insurance for the term of the loan. In this example, the collateral is not the type that could secure a designated loan because it does not include a building or mobile home; rather, the collateral is the inventory alone.

Maybe I am overly cautious, but I don't think this really tells me that if the bank owns both loans (loan 1 on building and loan 2 on euqipment located in the building) I would not need coverage on the equipment. Just my opinion and probably an overly cautious one at that.

You need real estate to trigger flood for a loan. If a particular loan is merely secured by contents, flood has not been triggered.

Overly cautious - probably.

Is the specific loan for the conveyor belt also secured by the building? If the answer is no, the answer is no. Other loans to the customer only come into play on a safety and soundness basis.

38. If the loan request is to finance inventory stored in a building located within an SFHA, but the building is not security for the loan, is flood insurance required?

Answer: No.