Our responsibility for flood coverage

Posted By: Ski

Our responsibility for flood coverage - 12/29/15 07:24 PM

Commercial customer made a loan secured by three separate commercial buildings in 2007. We ran determinations on all three with our long-time flood service provider. All determinations came back Zone X. Loan is maturing and original flood determination is now older than seven years, so we pull new ones.

New determination on one of the properties is Zone A. So we contact our long-time flood service provider to see what happened.

They respond:
"When 2007 Certificate was originally completed our automated mapping system incorrectly mapped the property further South than actually located causing the incorrect flood zone to be returned."

So we notified our borrower and now we will have to force-place until borrower gets survey, etc. completed in order to get his own policy.

Chief Commercial lender asks:
"What I am not sure about is, are we responsible to insure the property since 2007, the date we originally took this property into the Bank as collateral?"

I say no, since we only just found out that due to the long-time flood service provider's error, we are only responsible to insure the property from the date we discovered the need for flood coverage.

All comments graciously accepted.
Posted By: TMatt87

Re: Our responsibility for flood coverage - 12/29/15 07:42 PM

You can't do anything about it now. Check with your contract with your flood vendor. Ours has a section where they guarantee the correct zone determination and if they are incorrect, they will reimburse us for any regulatory fines or litigation that results from the error.
Posted By: David Dickinson

Re: Our responsibility for flood coverage - 12/29/15 08:38 PM

Matt's right. We all make mistakes, but I'd want to find out how it won't happen again. Many flood vendors use an automated mapping system, but if you've every used Google Maps and found it put you on the wrong side of the street (or blocks away), you'll understand the short fall of these systems. The best flood vendors use a manual system or a manual system when the automated mapping puts the property within a certain distance of a SFHA. I'd ask your vendor about this. If they don't have a satisfactory response, you're probably sitting on other errors and it's only time before even more errors are made/discovered.
Posted By: Ski

Re: Our responsibility for flood coverage - 12/29/15 09:00 PM

But the Chief Commercial Lender's question is:

"What I am not sure about is, are we responsible to insure the property since 2007, the date we originally took this property into the Bank as collateral?"

I say no, since we only just found out that due to the long-time flood service provider's error, we are only responsible to insure the property from the date we discovered the need for flood coverage.
Posted By: Skittles

Re: Our responsibility for flood coverage - 12/29/15 09:13 PM

How can you now insure something for the previous 8 years? If you had known it was in an SFHA then yes; but you can't retroactivally place insurance back that far.
Posted By: David Dickinson

Re: Our responsibility for flood coverage - 12/29/15 10:54 PM

What Skittles said. smile

Since it's the Chief Commercial Lender, ask him or her "how would we do that?"
Posted By: Kathleen O. Blanchard

Re: Our responsibility for flood coverage - 12/29/15 11:03 PM

First, flood vendors are required by law to guarantee results, so see what that gets you in terms of fines, etc as mentioned above, Ask about having your other properties rerun at no charge now that you know about this error.

And lastly, as the others have said, you correct going forward. Even if you could get years of insurance retroactively, what would it get you? The violation still stands-that cannot be erased, and there was no flooding. It would not resolve anything.