Condo Associations purchase flood insurance through a policy called the Residential Condominium Building Association Policy or RCBAP. Flood insurance does not adhere to the Florida condominium insurance statute we reviewed in the last report so, for example, kitchen cabinets are covered in the association’s flood insurance policy, but unit owner contents are not. Coverage is dictated by the National Flood Insurance Program (NFIP) rules and underwriting guidelines. The NFIP program is managed by the Federal Emergency Management Agency or FEMA.
Flood insurance covers damage from rising water from outside the home. It is defined as a general or temporary condition of partial or complete inundation of two or more acres of normally dry land or two or more properties from: 1. Overflow of inland or tidal waters; 2. Unusual and rapid accumulation or runoff or surface waters from any source; 3. Mudflow, collapse or subsidence of land along the shore of a lake or similar body of water as a result of erosion or undermining caused by waves or currents of water exceeding anticipated cyclical levels that result in a flood, as defined above.
Flood coverage for residential properties is limited to a maximum of $250,000for the building and $100,000 for contents per unit. The unit owner is responsible for contents flood insurance. $250,000 is the maximum claim for the combined total of an association and unit owner’s policies, with the association’s coverage as primary. If the association provides the $250,000 building coverage per unit, then a unit owner may only want to carry a small limit for loss assessments from the association but should carry contents insurance. If more than $250,000 building coverage is necessary to rebuild, as determined by an appraisal, the association can look to the private flood market for excess flood insurance. Areas in the condo such as a social room or exercise areas are covered by separate flood policies.
Unit owners should consider flood coverage regardless of what floor the unit is on. If a flood undermines a building’s foundation it could cause the building to collapse. Contents of a unit on the 10th floor would be lost. If the building is uninhabitable it may be demolished with the unit owner’s contents inside.
Flood insurance rates are divided into two different categories, pre-firm and postfirm. Firm stands for Flood Insurance Rate Map. It is thisrate map that determines what flood zone a property is in and what the base flood elevation level is for buildings in that zone. Each community has a specific date when elevation certificates where required in order to build in certain zones. The elevation certificate indicates the lowest floor level above sea level and provides the base flood level for a particular building.
A post-firm building is rated based on this level and the higher above the base flood level the lower the premium will be, since it would be less likely to flood. A prefirm building does not require an elevation certificate. It generally costs more for the same coverage. These rates are subsidized, so in some cases the premiums being charged are much less than they should be. FEMA is working to try to move everyone to non-subsidized rates which will take some time, but is the reason many older properties are seeing large rate increases annually. The Biggert-Waters Flood Insurance Reform Act allows for annual rate increases up to 18% for post-firm (newer) properties and 25% for pre-firm (older) properties.
Lee Gorodetsky and Jason Huff with Acentria Insurance (239-333-4833) contributed to this column.