For most residents in a condominium association a flood is a very scary prospect – particularly if the Association has failed to purchase any flood coverage to protect the community. Are there any steps the individual unit owner can take to unilaterally protect his investment? With the mammoth-sized storms predicted for California this winter, we felt the timing was ideal to revisit the flood insurance options that may be available to condominium residents:
Federal Government to the Rescue: The National Flood Insurance Program (NFIP), which is part of FEMA (and under the umbrella of the Department of Homeland Security), offers a Dwelling Policy tailored for condominium unit owners. This coverage is typically offered by the same insurance carrier writing the unit owner’s underlying Condominium Unit Owner Coverage (HO-6). That carrier will service the policy, collect the premium (and remit to the NFIP), and adjust the claim – but the NFIP ultimately pays the losses. Since flood is always excluded on the HO-6, the “flood only” policy offered by the NFIP is truly the best way to protect the owner’s interests should there be a flood loss that damages the home’s interior.
Three Important Protections: There are three important protections afforded to unit owners by the NFIP Dwelling Policy (and these protections exist regardless of whether your Association’s Board of Directors has purchased flood protection or not);
- Coverage A (Building Property)*:This portion of the flood policy is designed to cover the portions of the interior of the condominium unit that are the individual unit owner’s obligation to fix, repair, and maintain per the CC&Rs. This includes items such as permanently installed cupboards, bookcases, cabinets, paneling, and wallpaper; plumbing fixtures; built-in dishwashers; built-in microwave ovens; carpet permanently installed over unfinished flooring; central air conditioners; fire sprinkler systems; furnaces; garbage disposal units; hot water heaters, including solar water heaters; light fixtures; ranges, cooking stoves, and ovens; refrigerators; and permanently installed wall mirrors.
- Coverage A (Flood Loss Assessment Coverage)*:One of the most surprising features of the NFIP Dwelling policy is the ability for the flood program to pay “up to the Coverage A limit” for the unit owner’s share of loss assessments charged against him by the condominium association in accordance with the CC&Rs as a result of direct physical loss by or from a flood to the building’s common elements.
- Coverage B (Personal Property – Contents):When the unit owner purchases personal property coverage, the NFIP insures against direct physical loss by or from a flood to personal property inside the condominium unit at the described location. The policy can cover property owned by the unit owner or his household family members. Personal Property – Contents coverage limits are $100,000 for all NFIP residential policies. Be advised that the NFIP handles flood-related Personal Property – Contents damage on an Actual Cash Value (ACV) basis. The claims adjuster will determine the cost to repair or replace an insured item of property at the time of the loss, then subtract an amount for physical depreciation. The value of physical depreciation is based on the age and condition of the item.
*The Coverage A limit is shared between the Building Property and Loss Assessment Coverage. For example, if an owner purchased $100,000 of Coverage A protection and sustains $75,000 of flood damage inside the interior of his unit, there would only be $25,000 left for any potential special assessment levied by the Association to address flood damage to the Association’s common areas. The special assessment can be very large, especially if the Association has no flood coverage. An owner can purchase up to $250,000 of Coverage A protection.
If your Association has buildings located in a Special Flood Hazard Area (SFHA), lenders will require the Association to obtain flood coverage. Unfortunately, Mother Nature can be unpredictable. Even though flood insurance is not federally required, anyone can be financially vulnerable to floods. For example, FEMA reports that 20% of flood insurance claims come from moderate-to-low flood risk areas. People outside of mapped high-risk flood areas also receive one-third of Federal Disaster Assistance for flooding. With the massive El Niño-related storms predicted by climatologists for California in the upcoming five months, both the Association and individual unit owners should take steps to procure coverage. Typically, there is a 30-day waiting period from the date of purchase before the policy goes into effect, so it is important to buy insurance before a storm approaches, and floodwaters start to rise.