We have a customer who is purchasing a condo unit and has provided an Acord Evidence of Property Insurance listing property and flood insurance. The property insurance section states that the policy is for RCV and the coverage breakdown is $190,000 per unit for 72 units, $380,000 for a duplex unit and $90,000 for a pool house for a total of $14,150,000. For flood insurance it states "Flood Coverage, Replacement Cost 72 Single Units @$150,000 sub-limited per unit with a sub-limited maximum of $5,000,000". The amount of flood insurance is listed as $5,000,000 I have never seen condo flood insurance on anything but a RCBAP so I'm not really sure what to do with this. Is this a private policy and do we have adequate coverage? I don't think we do but I'm not sure.

Sounds like a private policy to me. I have no idea what "sub-limited" means.

A quick google search indicates: A sub-limit is an extra limit in an insurance policy’s coverage of certain losses. These losses are a part of the original policy limit, that is, the sum assured.

Which tells me you have $5MM in coverage or $69,444 per unit.

That is what I was thinking. I'm going to request the customer get additional coverage to the match the RCV. Do I use the RCV for the flood of $150,000 or the property of $190,000? I'm thinking the flood amount of $150,000.

Thanks for the help!!!

If the RCV is $14.15MM, then the per unit requirements would be that divided by the number of units in the building.

However, if the private policy is really limited to $5MM and the condo receives more damage than that, your NFIP flood insurance policy may end up being worthless, if the unit in question is not actually damaged. For example, if it is on the 7 floor and the first three floors flood or the foundation is damaged, it will not pay. Unless the condo owners assoc. can come up with the rest of the money to fix the condo building, you have worthless collateral.

We have contacted the agent and was told that flood insurance is limited to $5MM. The bank is fine making the loan due to the strength on the customer but how do we satisfy the flood insurance requirement?

Well, first you would have to review the private insurance policy itself to even see if you have to accept it. I know how the interaction between a RCBAP and an individual NFIP dwelling policy works, but I have no idea how a private policy and a NFIP individual dwelling policy works or if it even does. If you are relying on the strength of the borrower - then make him an unsecured loan to purchase the condo or take other collateral, as that is basically what you will be doing anyway if it floods.