Q: A borrower intends to purchase a condo unit in a residential condominium building that has a master private flood insurance policy covering each unit. The private policy meets the minimum amount of coverage required under the regulation, but the policy was not issued by an insurer that is licensed, admitted or otherwise approved to engage in the business of insurance in the state where the property is located. Can the lender accept the master policy or will the lender need to require the borrower to purchase his or her own flood insurance policy for the condo unit?
A: This situation is unlikely to arise since the insurance broker is generally required under state law to confirm that the insurer is licensed or admitted in a particular state. For non-admitted or surplus lines insurers, the broker must be licensed to sell surplus lines insurance and such brokers are responsible for ensuring that the surplus lines insurer meets eligibility criteria to write policies in the state.
If, however, a lender obtains the condo association's policy or other proof of insurance and determines that the policy was not issued by an insurer that is licensed, admitted or otherwise approved to engage in the business of insurance by the state in which the condo unit is located, the lender will need to require the borrower to obtain his or her own policy for the unit in an amount sufficient to meet the minimum amount of coverage required.
This Q&A was part of the discussion in the Outlook Live – 2019 Interagency Flood Insurance Update on Private Flood Insurance Rule webinar held on 6/18/19 and focused on the new private flood insurance rules that become effective 7/1/19. Information may be found here: https://www.webcaster4.com/Webcast/Page/577/30085