Summary: There are three standard policies used for writing flood insurance under the National Flood Insurance Program (NFIP). These are the dwelling, general property, and residential condominium building association policies. The following discussion is on the residential condominium building association policy (RCBAP). Nonresidential condominiums must be insured on the general property form. Since the text of the form varies little from that of the dwelling form (see NFIP Dwelling Form) we will note differences between the forms rather than provide a line-by-line analysis.

Topics covered:
Introduction
Insuring agreement
Definitions
Covered building property
Covered personal property
Other coverages
Increased cost of compliance
Property not covered
Exclusions
Deductibles
Coinsurance
General conditions
Loss settlement provisions
Liberalization clause; what law governs

Introduction

The residential condominium building association policy (RCBAP) f144cbap 08 09, along with the dwelling form and the general property form, comprise the flood coverage forms available through the National Flood Insurance Program (NFIP). The residential condominium building association policy, as the name indicates, is intended for all residential condominium buildings meeting the eligibility criteria outlined in the flood insurance manual. The form may be used for townhouse, rowhouse, or detached single family condos. The governing criterion is that the property has a condo form of ownership. Cooperative apartment buildings are therefore not eligible. Timeshare buildings having condo type ownership (the units are individually owned) are eligible, provided other criteria are met.

The general property form must be used for ineligible condominium buildings—those in emergency program communities, and those in the regular program that do not meet the requirement that at least 75 percent of the floor area of the building must be residential.

Remember that one of four methods may be used to insure an individual unit within the condominium building. An individual unit and its contents may be insured under the dwelling form, discussed elsewhere. (See NFIP Dwelling Form.) In this instance the named insured is the unit owner. Or, the condo association may purchase the insurance in the owner's and the condo association's name, as their interests may appear. If the condo association owns the unit, the dwelling form may also be used. If the unit is a non-residential unit, contents-only coverage can be purchased under the general property form or the dwelling form, depending on the type of contents.     

The RCBAP meshes with the dwelling form in that commonly owned property and improvements within the units are covered on a primary basis. In event of a loss, coverage applies first to building common elements, and then to individually owned building elements.

The RCBAP provides replacement coverage for the insured building, provided the coinsurance percentage is met (80 percent of full replacement at the time of the loss). Commonly-owned contents are insured on an actual cash value basis (provided contents coverage has been purchased). The maximum allowable limit of insurance on a high-rise or low-rise condo building is $250,000 times the number of units or the replacement cost of the building, whichever is less. The contents maximum is the actual cash value, to a maximum of $100,000 per building. The building basic limit for a high-rise condo building is $150,000. The basic limit for a detached building owned by the association is $60,000; for residential townhouses, rowhouses, or low-rise condos the limit is $60,000 times the number of units in the building.

The standard deductible is either $1,000 or $2,000 depending upon the flood zone. Expense constants range from $50 per policy (one unit) to $330 per policy (twenty-one or more units). Federal policy fees range from $40 (one unit) to $840 (twenty-one or more).

Insuring Agreement

The insuring agreement of the RCBAP is identical to that of the dwelling policy and the general property form. The insurer will pay the insured for direct physical loss by or from flood (as defined), provided that the insured has paid the correct premium, complied with all terms and conditions, and furnished accurate statements and information.

The insurer has the right to review the information and revise the policy based on that review.

Definitions

For the most, the definitions (section II. of the form) are the same in both coverage forms.  There are some differences reflective of the different types of insured property. The definition for a dwelling is omitted on the condo form. The following definition is included in the condo form, but does not appear in the dwelling form: “Residential Condominium Building. A building, owned and administered as a condominium, containing one or more family units and in which at least 75 percent of the floor area is residential.” The definition of improvements in the condo form includes “fixtures, alterations, installations, or additions comprising a part of the residential condominium building, including improvements in the units.” This differs from the dwelling form in that improvements were those comprising a part of the insured dwelling or apartment.

The definition of unit in the condo form refers to a single family unit in a residential condominium building. In the dwelling form, the definition includes “that you own.” The difference lies in the entity insured.

Covered Building Property

There is an important difference between the dwelling form and the RCBAP. The dwelling form allows an insured to apply 10 percent of the limit of liability on the dwelling to a detached garage. The RCBAP insures only the condo building and the units within the building, including any improvements. There is no coverage for any other structure used in conjunction with the building, such as a pool house or roofed garaging, although the form may be used to cover a manufactured home or travel trailer as defined.

The list of covered property in section III. Property Covered is somewhat different from the dwelling form in that certain items are covered as building property, and others are covered when in the units. Covered building property includes:

1.     Awnings and canopies;

2.     Blinds;

3.     Carpet permanently installed over unfinished flooring;

4.     Central air conditioners;

5.     Elevator equipment;

6.     Fire extinguishing apparatus;

7.     Fire sprinkler systems;

8.     Walk-in freezers;

9.     Furnaces;

10.    Light fixtures;

11.    Outdoor antennas and aerials fastened to buildings;

12.    Permanently installed cupboards, bookcases, cabinets, paneling, and wallpaper;

13.    Pumps and machinery for operating pumps;

14.    Ventilating equipment

15.    Wall mirrors, permanently installed.

The following equipment is covered when installed within the units within the described building:

1.     Built-in dishwashers;

2.     Built-in microwave ovens;

3.     Garbage disposal units;

4.     Hot water heaters, including solar water heaters;

5.     Kitchen cabinets;

6.     Plumbing fixtures;

7.     Radiators;

8.     Ranges;

9.     Refrigerators; and

10.   Stoves.

Although, as noted, the list of covered property is similar to that in the dwelling form, it is split into property covered within or without the units. Care must be taken when arranging insurance for the association (and for the unit owners). For example, without contents coverage the RCBAP form will not cover microwaves that may be located in a condo party or meeting room. A casual reading of the building property might give the impression that all built-in microwaves are covered, but the above property list refers only to those contained in individual units. 

The condominium form covers buildings in the course of construction. But if the building is not walled and roofed, then the deductible for any covered loss is twice the deductible selected to apply after the building is walled and roofed. This restriction of coverage is identical to that found in the dwelling form; the other restrictions, as well, are identical.

The items of building property covered in a building enclosure below the lowest elevated floor of an elevated post-FIRM building in certain zones as outlined are identical to those in the dwelling form.

Covered Personal Property

If an amount of coverage is indicated on the declarations page, the form covers personal property (Coverage B—Personal Property) owned by the unit owners in common while within the insured building, or personal property owned solely by the condominium association and used to conduct the business affairs of the condominium—an office desk or computer, perhaps. This is important to note when arranging coverage since the dwelling form does not provide loss assessment coverage for loss to a condominium association's personal property. If contents coverage was not included on the RCBAP, the association cannot look to unit owners' dwellings forms to cover lost or damaged property.

The following items are covered as personal property only. These are items owned by the condominium association or the unit owner with an undivided ownership interest. (Personal property owned solely by the individual unit owner must be insured under the dwelling form.) Included are:

1.     Air conditioning units, portable or window type;

2.     Carpet, not permanently installed, over unfinished flooring;

3.     Carpets over finished flooring;

4.     Clothes washers and dryers;

5.     ”Cook-out” grills;

6.     Food freezers, other than walk-in, and food in any freezer;

7.     Outdoor equipment and furniture stored inside the insured building;

8.     Ovens and the like; and

9.     Portable microwave ovens and portable dishwashers.

Again, care must be taken to include a limit for personal property on the RCBAP form if any of the above items should be covered. Note as well that outdoor equipment and furniture (such as poolside furniture and umbrellas) are covered only if they are moved inside the insured building.

Personal property is also insured for forty-five days while stored at a temporary location because it has been moved out of harm's way.

The special limits are $2,500 (as in the dwelling form) for any one loss to artwork, rare books, furs, jewelry, photographs, sports cards, or other memorabilia. Losses to antiques are adjusted on their functional value.

Other Coverages

Similarly to the dwelling form, the RCBAP contains two additional coverages: debris removal and loss avoidance measures. Loss avoidance measures consists of sandbags, supplies and labor, and property removed to safety. Like the dwelling form, debris removal coverage is included in the limit applying to the insured building. If the insured “or a member of your household” performs debris removal work, the value of the work is based on Federal minimum wage—a puzzling statement for a condo association. Expense incurred for removal of debris from or debris of the building is covered, even if the debris is carried to a location away from the described premises. Coverage also applies for debris removal for other than insured property which a flood deposits on the insured premises.

The two other additional expense amounts are identical to those found in the dwelling form. The sum of $1,000 is available for reasonable expenses incurred to move insured property out of harm's way. The removed property is covered for up to forty-five days. The sum of $1,000 is available for the expense to buy sandbags, levee fill, pumps, and wood used to save a covered building because of imminent danger of flood. For reimbursement purposes, the threat of flood must be such that a prudent person would recognize the possibility of damage, the flood must threaten insured property, and the flooding must be of a general and temporary nature in the area. Or, a legally authorized official must issue an evacuation order or order calling for measures to preserve life and property.

Neither of the additional expenses increases the limit of liability applying to the insured building.

Increased Cost of Compliance

Increased cost of compliance coverage is mandatory for all standard flood insurance policies. However, the coverage is not available for condominium units insured on the dwelling form, since the condominium association is responsible for complying with flood plain management activities. See NFIP Dwelling Form for a complete discussion. The total amount of coverage available, no matter the size of the building or number of units, is $30,000.

The coverage is available only for a condo building with a basement that meets FEMA's standards (as published in the Code of Federal Regulations [44CFR 60.3(b)(4)]). Although it is an additional amount of insurance, the total claimed for any one loss cannot exceed the maximum permitted under the National Flood Insurance Act of 1968 and its amendments. Coverage for a condo building, though, is the replacement of the building at the time of a covered loss, or $250,000 times the number of units. Therefore, although it is possible, it is unlikely that the limit selected plus $30,000 would exceed the allowed limit for any one claim.

The only difference between the increased cost of compliance provisions in the dwelling form and those in the RCBAP is that the RCBAP states that the coverage will not be included in the calculation to determine whether coverage meets the coinsurance requirement for replacement cost coverage. The dwelling form states that the coverage will not be used to calculate insurance to value requirements.

Property Not Covered

Like other property forms, the flood policy does not provide coverage for certain kinds of property. There are three items in this list that differ from the dwelling form. Numbers 9. and 11. in the dwelling form reference the unit in the building, but since this form insures the condo building itself there is no need to do so.

Number 16. in the RCBAP precludes coverage for “personal property used in connection with any incidental commercial occupancy or use of the building.” This form may be used to insure a condo building so long as at least 75 percent of the floor area is residential. This exclusion makes it clear that the owner of, say, a gift shop in the lobby cannot cover stock under this form.

Exclusions

This section parallels that of the dwelling form. The only exceptions are minor, in keeping with the fact that the RCBAP covers a condo building, whereas the dwelling form applies to a dwelling or a unit in a condo building. It is worth repeating that the flood form does not respond to an economic or consequential loss. There is no coverage for loss of profits, loss of use, loss resulting from any business or professional interruption, additional living expense.

Loss resulting from fire and explosion is not covered; however, if flood results in fire, explosion, or sprinkler leakage then coverage for those resulting losses is found on the commercial causes of loss forms (ISO CP 10 10 04 02, CP 10 20 04 02, and CP 10 30 04 02 used with the condominium association coverage form CP 00 17 04 02).

Note also that losses caused by or resulting from power, heating or cooling failure are excluded unless the failure results from direct damage from flood to the power, heating or cooling equipment on the condominium premises. So, for example, if a flood damages electrical lines leading to the condominium, but the condominium itself escapes the flood, there is no coverage under the flood form. When arranging for condominium coverage, this is important to take into account. A flood might cause a power outage resulting in loss of heat to the insured building. If the loss of heat caused pipes to freeze and burst, the commercial property basic causes of loss form would not respond, since water damage, including freezing, is not a covered cause of loss. However, the broad and special causes of loss forms should respond.

As in the dwelling form, there is now coverage for loss caused by the pressure or weight of water provided that there is a flood in the area, and the flood is the proximate cause of the damage. For example, the pressure of the flood water seeping underground could cause a foundation wall to buckle without the water's actually coming into contact with the wall. 

The exclusion for moisture, mold, and mildew has been broadened so that if the insured fails to “inspect and maintain the property after a flood recedes” there is no coverage. Of course, if the insured takes preventive measures as soon as possible there is coverage for mold clean-up.

There is no coverage for testing or monitoring for pollutants, unless required by ordinance or law. The insured condo association cannot just decide on its own to test; an ordinance or law must require it.

Deductibles

The standard deductible is $1,000 for a residential condominium building located in a Regular Program Community in Special Hazard Areas (zones A, AO, AH, A1-A30, AE, AR, AR dual zones [AR/AE, AR/AH, AR/AO, AR/A1-30, AR/A] V, V1-V30 or VE). For those policies rated post-FIRM and those in non-Special Hazard Areas, the standard deductible is $500. Deductibles apply separately to building and contents losses; different deductibles may be chosen to apply to building and contents. Increased deductibles are optional.

Buildings under construction, alteration or repair without at least two rigid exterior walls and a fully secured roof in place are subject to twice the deductible that would otherwise apply.

No deductible applies to loss avoidance measures or increased cost of compliance.

Coinsurance

The residential condominium building association policy is the only flood form that contains a separate coinsurance section, which provides examples of how coinsurance works. The dwelling form describes a coinsurance provision in conjunction with loss settlement, but it is located among the other loss settlement provisions. In the RCBAP form, this is section VII. Coinsurance. The coinsurance provision applies to building coverage only.

The condominium form states that unless the insured carries the lesser of at least 80 percent of the full replacement cost of the insured property, or the maximum amount of insurance available under the NFIP, a loss will be adjusted according to the formula: amount of insurance carried divided by required amount of insurance times the amount of the loss less the deductible. The insurer will pay that amount or the amount of insurance carried, whichever is less.

But, if the amount of insurance carried is in excess of the maximum available under the National Flood Insurance Plan, it will be reduced accordingly.

It is important to note that, in determining replacement cost value, the replacement cost of building property (including that within individual units) such as wall mirrors permanently installed, permanently installed paneling, bookcases, wallpaper, furnaces, hot water heaters, kitchen cabinets, etc., must be taken into account in order that the coinsurance penalty not be invoked. These improvements must have been made by the condo association, not by the unit owner.

General Conditions

The current flood policy has extensive conditions in this section. With the exception of the loss settlement provisions, they are virtually identical.

One that is not identical to the dwelling form is condition C. In the RCBAP, it states that if a unit owner has flood insurance covering the same loss as the RCBAP, then the RCBAP is primary. (The dwelling form condition states that if it covers the same loss as the association policy, the dwelling form is excess.)

Loss Settlement Provisions   

The loss settlement provisions differ from those in the dwelling form. Although the form provides the same three methods of loss settlement: replacement cost, special (for manufactured housing or a travel trailer), and actual cash value, the condominium association does not have the option of claiming an actual cash value settlement and then notifying the insurer of its intent to claim the additional replacement cost. The RCBAP, unlike the dwelling form, does not limit replacement cost to the building's being the insured's principal residence, which given the nature of condominium buildings would be difficult to enforce. The RCBAP does not contain the provision that the insurer will not be liable for any loss exceeding 5 percent of the amount of insurance or $1,000 unless repair or replacement is completed.

Replacement cost coverage is subject to the coinsurance provisions (discussed above) and is provided only for buildings. There is no replacement cost coverage for certain outdoor property, such as antennas, awnings, and aerials. Carpeting is excluded from replacement cost coverage whether it is laid over finished or unfinished flooring. Losses to appliances, personal property, and travel trailers or manufactured housing that do not meet the definition of this property are subject to an actual cash value settlement.

The insurer's liability for loss is no greater than the smallest of: (1) the limit of liability of the policy applicable to the building; (2) the cost to repair or replace the building with material of like kind and quality on the same premises and intended for the same use; or (3) the amount actually and necessarily spent to repair or replace the building for the same occupancy and use. Actual repair or replacement must be completed before replacement coverage applies. There is no requirement, in event of a total loss or if the entire policy limit is paid, that the building be replaced at the same property address. However, the insurer will pay no more than what it would have cost to rebuild or repair at the described location.

Liberalization Clause; What Law Governs

Like the dwelling form, the liberalization clause in the RCBAP has been extended from a forty-five day to a sixty day time frame. Any change broadening coverage that does not require an additional premium will automatically apply.

Finally, the RCBAP, in common with the other flood insurance forms, is governed by the flood insurance regulations issued by FEMA (Federal Emergency Management Agency), the National Flood Insurance Act of 1968, as amended (42. U.S.C. 4001, et. seq.) and federal common law.