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#826387 - 10/01/07 12:27 PM Flood Insurance - Lots of Questions
upstateNY Offline
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Joined: Apr 2003
Posts: 933
New York State
Here's my list of "new" issues that have recently arisen:
1. For contents coverage, am I correct that if we don't perfect our secured interest, that flood insurance is not required?
2. I'm having trouble finding a good definition of "contents", since some contents might be affixed, some not. The "Mandatory Purchase" guide refers to "movable property" as contents. Is that a good choice of words, so that we can exclude contents that are affixed?
3. One of our commercial mortage documents contains a cross-collateralization clause that includes just about everything in the building; furniture, fixtures, receivables, inventory, etc. If this building is in a flood zone, must we require flood coverage on the contents due to this clause? OR, only if we perfect our interest?

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#826398 - 10/01/07 01:03 PM Re: Flood Insurance - Lots of Questions upstateNY
Dan Persfull Online
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Dan Persfull
Joined: Aug 2002
Posts: 47,517
Bloomington, IN
1. No, if you have a security interest in the contents and the building the contents are located in then you must obtain content coverage. You have a security interest in the contents once the the borrower signs the security agreement covering them.

2. You may want to re-read that section: When a commercial loan on a building includes inventory and other trade or business movable property as security for a loan, that property must be covered by a separate policy under the General Property form..

If the property is "affixed" to the building then it should be covered under the building coverage, however machinery that is anchored by bolts to the floor to keep it from "walking" is not affixed to the building. It is movable by removing the anchoring bolts.

Also keep in mind safety and soundness issues you will have with your examiners by requiring hazard insurance on the content, but not requiring flood insurance on it.

3. Only if you have a security interest in the building too. IMO, a cross collateralized clause is an abundance of caution security interest. Abundance of caution security is not exempt from the flood rules.
_________________________
The opinions expressed are mine and they are not to be taken as legal advice.

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#826753 - 10/01/07 07:00 PM Re: Flood Insurance - Lots of Questions Dan Persfull
upstateNY Offline
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Joined: Apr 2003
Posts: 933
New York State
Would you consider nursery plants that are housed in a building that is in a flood zone as eligible? I know that contents in silos, grain storage buildings and cisterns are.

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#826770 - 10/01/07 07:14 PM Re: Flood Insurance - Lots of Questions upstateNY
Dan Persfull Online
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Dan Persfull
Joined: Aug 2002
Posts: 47,517
Bloomington, IN
I can't answer that with certainty but I would consider those plants to be inventory and insurable. A nursery losing a $100,000 worth of plants in a flood would be no different then a storm door manufacturer losing a $100,000 worth of storm doors due to a flood or a farmer losing $100,000 worth of grain.
_________________________
The opinions expressed are mine and they are not to be taken as legal advice.

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#826857 - 10/01/07 08:10 PM Re: Flood Insurance - Lots of Questions Dan Persfull
upstateNY Offline
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Joined: Apr 2003
Posts: 933
New York State
Yeah, I agree. We just have a situation where part of the nursey buildings are not insurable, as they are comprised of poles and plastic. The insurable building contains varying amounts of inventory, as products are moved in and outside. The shrubs, trees, etc that are outside are not insurable. What a mess.

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#826859 - 10/01/07 08:10 PM Re: Flood Insurance - Lots of Questions Dan Persfull
upstateNY Offline
Platinum Poster
Joined: Apr 2003
Posts: 933
New York State
Yeah, I agree. We just have a situation where part of the nursey buildings are not insurable, as they are comprised of poles and plastic. The insurable building contains varying amounts of inventory, as products are moved in and outside. The shrubs, trees, etc that are outside are not insurable. What a mess. Plus, as you can imagine the quantity of inventory is really high in the spring and almost nill in the fall.

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