We have a Commercial loan with 3 buildings - how do we determine the flood coverage needed for each building?

Loan Amount will be $740,000

On the property insurance provided, the replacement cost is listed as:
Building 1 - $750,000
Building 2 - $345,000
Building 3 - $360,000

If these are commercial buildings, you need to ACV and not the RCV.

If, however, you were referring to the ACV for example, the borrower would have to provide you an insurance policy on each of the three buildings and the three would have to equal at least $740,000,

This is because the lowest amount would be the loan amount. How this is split, as long as the individual polices do not exceed the insurable value, is up to the borrower. For example, you could not insure Building #2 for $500,000.

How they choose to break up that insurance between the buildings is not something the lender should be involved in.

Thank you. I also didn't think it was up to the Bank to determine the break up of coverage between buildings, however the insurance company is requesting we tell them the amounts.

Yeah - just tell them that they are insuring the borrower and not the bank and the borrower needs to make those decisions and as long as the borrower can provide the appropriate amount of aggregate coverage, that is all the bank requires. You do not want to say - insure building one for $140,000 and the other two for $300,000 and then have building one totally destroyed by a flood and the other two untouched. The borrower then sues you saying they would have insured it for $500,000, but you told them otherwise.

Our use of this approach has been challenged lately, do you have a citation or source for this approach?

AlohaGirl - what part of this approach are you questioning? How much is required on each building or who makes that decision?

Hi. "How much is required on each building?" We are just looking for a citation that we can point back to.

Read FAQ "Amount 6".

This amount of required flood insurance could be allocated among the three buildings in varying amounts, so long as each is covered in accordance with the statutory requirement.

If you want to get into the habit of telling the borrower the specific allocation that he needs to make when they are not insuring each building to 100% of the maximum limit or the current ACV of the buildings, I suggest you set down with your legal counsel and have a chat about lender liability if a flood occurs and the borrower suffers uninsured flood losses.