Flood FAQs #33 – What are the major factors involved with the individual unit owner’s dwelling policy’s coverage limitations with respect to the condominium association’s RCBAP coverage?

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Q:  What are the major factors involved with the individual unit owner’s dwelling policy’s coverage limitations with respect to the condominium association’s RCBAP coverage?
 
 
A:   The following examples demonstrate how the unit owner’s dwelling policy may cover in certain loss situations:
 
Example 1: (RCBAP insured to at least 80 percent of building replacement cost)
• If the unit owner purchases building coverage under the dwelling policy and if there is an RCBAP covering at least 80 percent of the building replacement cost value, the loss assessment coverage under the dwelling policy will pay that part of a loss that exceeds 80 percent of the association’s building replacement cost allocated to that unit.
• The loss assessment coverage under the dwelling policy will not cover the association’s policy deductible purchased by the condominium association.
• If building elements within units have also been damaged, the dwelling policy pays to repair building elements after the RCBAP limits that apply to the unit have been exhausted. Coverage combinations cannot exceed the total limit of $250,000 per unit.
 
Example 2: (RCBAP insured to less than 80 percent of building replacement cost)
• If the unit owner purchases building coverage under the dwelling policy and there is an RCBAP that was insured to less than 80 percent of the building replacement cost value at the time of loss, the loss assessment coverage cannot be used to reimburse the association for its co-insurance penalty.
• Loss assessment is available only to cover the building damages in excess of the 80-percent required amount at the time of loss. Thus, the covered damages to the condominium association building must be greater than 80 percent of the building replacement cost value at the time of loss before the loss assessment coverage under the dwelling policy becomes available. Under the dwelling policy, covered repairs to the unit, if applicable, would have priority in payment over loss assessments against the unit owner.
 
Example 3: (No RCBAP)
• If the unit owner purchases building coverage under the dwelling policy and there is no RCBAP, the dwelling policy covers assessments against unit owners for damages to common areas up to the dwelling policy limit.
 
• However, if there is damage to the building elements of the unit as well, the combined payment of unit building damages, which would apply first, and the loss assessment may not exceed the building coverage limit under the dwelling policy.
 
 
 
ADDITIONAL INFORMATION – This Q&A was included in the “Interagency Questions and Answers Regarding Flood Insurance.”   For ease of collection, this has been obtained from the FDIC’s Compliance Examination Manual – April 2016, which may be found here:  https://fdic.gov/regulations/compliance/manual/5/V-6.1.pdf
 

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