Q: APPLICABILITY 14. May a lender rely on an insurance policy providing portfolio-wide coverage to meet the flood insurance purchase requirement or the force placement requirement under the Regulation?
A: It depends. A lender may not rely on an insurance policy providing portfolio-wide coverage to meet the flood insurance purchase or force placement requirements if the policy only provides coverage to the lender (“single interest”). When a flood insurance policy has expired and the borrower has failed to renew coverage, insurance policies providing portfolio-wide coverage may be useful protection for the lender for a gap in coverage in the period of time before a force-placed policy takes effect. However, even if a lender has portfolio-wide coverage to address gaps, the lender must still ensure the flood insurance purchase requirement is satisfied at the time a loan is made, increased, renewed or extended, and the lender must still force place coverage on the borrower’s behalf in a timely manner, as required, and may not rely on an insurance policy that provides portfolio-wide coverage as a substitute for a force-placed policy.
In contrast, lenders may purchase a master flood insurance policy that provides coverage for its entire portfolio and covers both the lender and the borrower (“dual interest”). Such policies provide coverage for the entire portfolio as well as individual coverage, and include the issuance of an individual property policy or certificate after the required notice period.