This course is designed to assist Large Commercial and RCBAP registered adjusters with the most challenging aspects of adjusting NFIP flood losses under the Residential Condominium Building Association Policy (RCBAP) and the Dwelling Form, commonly referred to as the unit-owner policy.
Flood losses to condominium buildings insured under the RCBAP and Dwelling Form are complex and must be thoroughly investigated to ensure proper claim handling. This course reviews specialized knowledge areas and adjustment concepts for consideration and use when adjusting these types of claims.
Course Objectives
At the end of this course you will be able to:
Identify Homeowner Associations (HOAs), townhomes, and other forms of ownership not eligible for coverage under the RCBAP
Determine building value, insurance to value, and Replacement Cost Value
Compute coinsurance calculations using examples and case studies
Identify documentation associated with RCBAP and unit-owner policies (e.g. condominium bylaws, appraisals, and ownership verification)
Explain coverage differences as applied to condominium and unit-owner policies insured under the RCBAP, General Property Form, and the Dwelling Form
Explain coverage for business units (General Property Form) located in condominium buildings
Describe condominium loss assessment and the Dwelling Form
Lesson 1 Objectives
In this lesson you will learn how to:
Locate documentation used to verify that a building is owned in the condominium form of ownership
Identify buildings that are eligible or ineligible for coverage under the RCBAP
Identify Homeowner Associations (HOAs), townhomes, and other forms of ownership not eligible for coverage under the RCBAP
Overall Customer Experience
It is FEMA’s goal to improve the overall customer experience with the NFIP. People, especially policyholders, enjoy dealing with someone they like. Registered adjusters have only one opportunity to make a good first impression so you definitely want to start off on the right foot.
Overall Customer Experience
RCBAP claims can be complicated and time consuming; therefore, regularly explain to the customer what you are accomplishing and get in the habit of staying in touch wherever you are. Policyholders are always a little anxious and concerned that their claim is lost or has fallen through the cracks. An adjuster’s attention to regular communication can make a significant difference in the policyholder’s opinion of the NFIP. Invest in this one act of kindness and make it part of your normal procedure. It’s an investment in a satisfactory claims result for the policyholder and for you.
Overall Customer Experience
Begin by explaining the claims process and set realistic timelines for the insured. Also, provide the insured direction on how they can assist in the documentation of their loss to help expedite the claim process.
Overall Customer Experience
Again, remember, you only have one opportunity to make a good first impression! Here are a few other important tips for a successful customer experience:
• Dress comfortably but professionally (please no jeans, t-shirts, or shorts)
• Be well groomed—look like a professional flood adjuster
• Act like a professional
• Introduce yourself and at the same time present your Flood Control Number card with a government-issued picture ID (driver’s license is fine)
• Introduce those qualities that make you likable to your family and friends into your professional career
It is not rocket science, but it may take a little practice.
The Origin of the Word Condominium
"Condominium" comes from Latin. It’s formed from two words:
con meaning "together with" and
dominium which translates to "right of ownership"
What Is a Condominium?
“Condominium” is the legal term used to describe a type of joint ownership of real property in which portions of the property are commonly owned and other portions are individually owned. In modern property law, it means individual ownership of one dwelling unit within a multi-dwelling building.
Condominium Association
When handling condominium association losses under the NFIP, a registered adjuster should consider that there may be multiple policies and policyholders—the condominium association’s RCBAP and each unit owner's Dwelling Policy. A registered adjuster must know coverages, limitations, and exclusions for all policies to accurately adjust the loss. In addition to knowing each policy, you should communicate how the policies work and describe the coverages to the policyholders. The RCBAP adjuster may not have the unit-owner policies and there may be other registered NFIP adjusters handling the unit-owner policies.
Condominium Association
A condominium association is an entity made up of unit owners and is responsible for the maintenance and operation of:
Common elements owned in undivided shares by unit owners
Other real property in which the unit owners have use rights, where membership in the entity is a required condition of unit ownership
Working With the Association
The assigned RCBAP registered adjuster must confirm that the policyholder/named insured is a condominium association. The named insured on an RCBAP is always a condominium association, which is a legal entity comprising all unit owners.
In some instances, the adjuster may need to investigate to identify the legal entity. Occasionally, a Homeowner Association (HOA) or a cooperative is listed as the named insured, but neither an HOA nor a cooperative is eligible for the RCBAP.
Working With the Association
Typically, condominium associations have a board of directors and some have an insurance committee. Registered adjusters may work directly with the chair of the board, the chair of the insurance committee, or both. If the association is relatively new, it may be in the development phase of construction, meaning the original developer may still own a few units that are actively for sale. (State law stipulates the details of this temporary situation.)
Working With the Association
There may also be a property manager (or management company) involved to whom the association has delegated some or all of the duties of running the day-to-day operations, including managing the flood claim on behalf of the association. When there is a property manager, the adjuster should obtain a copy of the legal delegation document signed by association officials and the management company. This could be in the form of a contract and may or may not be a document that is filed with the local government. If there is no such document the adjuster should ask for one to be drafted and signed by the parties.
Cooperatives – Not Eligible for the RCBAP
An alternative to the condominium is the cooperative, in which residents own a share of a corporation, with each share entitling the owner to reside in a particular unit in the building.
Cooperatives are buildings owned and managed by a corporation. Residents buy shares of the corporation rather than the actual real estate.
Cooperatives are not eligible for coverage under the RCBAP.
Timeshare Buildings
Timeshares may also be condominiums but are not always—it depends on how they are owned.
Timeshare buildings not in the condominium form of ownership are ineligible for the RCBAP.
Timeshare buildings in a condominium form of ownership in jurisdictions where title is invested in individual unit owners are eligible buildings, providing all the other criteria for a residential condominium building are met.
As with all residential condominium buildings, to be insured under the RCBAP, 75% of the total floor area within the building must be residential.
Townhouses or Row Houses
Being a condominium is not about a type of building. Townhouses or row houses can be owned as condominiums and may be written under an RCBAP. A townhouse or row house is usually a series of single-story or multi-story units. And they may be in the condominium form of ownership.
If the unit owners hold title to their units and the land beneath them, they are not eligible for an RCBAP and should be written under the Dwelling Form.
Single-Family Dwellings
Even a single-family dwelling can be a condominium. These are commonly called “detached condominiums.” Once again, it’s not the building type—but the form of ownership—that defines a condominium.
Documents Proving RCBAP Eligibility
When working RCBAP claims, NFIP flood adjusters should investigate and verify building eligibility and ownership. Request and obtain copies of the following documents:
Declarations of the condominium (master documents that are applicable)
Articles of Association or Incorporation
Bylaws and rules and regulations
List of owners
List of additional insurance
Property insurance policies
Deed establishing ownership
Appraisal
Statement signed by an officer or representative of the condominium association confirming that the building is in a condominium form of ownership
Homeowner Associations and Property Owners Associations
Occasionally during the investigation an adjuster discovers a form of ownership other than a legal condominium association. Only buildings having a condominium form of ownership are eligible for the RCBAP. Owner associations such as a homeowner association (HOA), property owners association (POA), or other similar types of ownership differ from a condominium association and are therefore ineligible for the RCBAP.
Buildings Ineligible for the RCBAP
RCBAPs written for buildings found not to be in a condominium form of ownership will be rewritten under the correct policy form for up to the maximum amount of building coverage allowed under the NFIP for the type of building insured, not to exceed the coverage purchased under the RCBAP.
Is the Building Eligible for the RCBAP or Not?
The RCBAP is required for all buildings owned by a condominium association containing one or more residential units and in which at least 75% of the total floor area within the building is residential without regard to the number of units or number of floors. Residential condominium buildings that are being used as a hotel or motel or are being rented (either short or long term) must be insured under the RCBAP.
In the case of Condominium buildings, not all areas of a building are considered residential floor area. In cases where the residential floor area may not meet the 75% threshold, registered adjusters need to work with the carrier and the underwriting department to determine the percentage of residential floor area in a Condominium building.
Eligible Residential Condominium Building
Registered adjusters should confirm that the risk meets the RCBAP requirement that the floor area be at least 75% residential. Sometimes this is an easy process, but other times specific measurements must be taken to determine the percentage of residential versus non-residential use.
Lesson 1 Summary
Here are the key points discussed in this lesson:
RCBAP documentation for ownership and eligibility and verification
RCBAP eligible and ineligible buildings
The next lesson presents information on the RCBAP replacement cost and coinsurance.
Lesson 2 Objectives
After completing this lesson you will be able to:
Locate a recent property valuation report
Identify the full replacement cost of a building
Determine the maximum amount of coverage available for a condominium building
State the RCBAP’s coinsurance penalty formula
Determine the amount of flood insurance necessary to avoid the coinsurance penalty
Calculate the limit of recovery
Property Valuation Report
During an RCBAP flood loss investigation, an NFIP adjuster must provide a detailed industry acceptable replacement cost evaluation of the building. A recent property valuation report that states the value of the building, including its foundation, on a Replacement Cost Value (RCV) basis is acceptable. Since insurance agents are required to update this information and provide it to the insurer at least every three years, be sure to collaborate with the insurer/agent to obtain the most recent valuation.
Building Replacement Cost Eligibility
An RCBAP building may qualify for replacement cost in one of two ways:
If the building is insured for 80% of its replacement amount
If the building is carrying the statutory limit under the program ($250,000 X the number of units)
If the building does not qualify for replacement cost, then the building will be settled under the coinsurance settlement section of the policy.
Full Replacement Cost
The full replacement cost of a building will include:
The Replacement Cost Value of any covered building property
The Replacement Cost Value of improvements installed by the condominium association or the unit owner
RCBAP – Loss Settlement Clause
RCBAP building claims can be settled at Replacement Cost Value (RCV) without deductions for physical depreciation (RCBAP Section VIII.V.2, Replacement Cost Loss Settlement). Again, a condominium is not a type of building, it is a form of ownership of a building.
RCBAP – Loss Settlement Clause
A condominium is not a type of building; it is a form of ownership of a building. The one exception to RCV settlement for an RCBAP is the use of the Special Loss Settlement Clause (Section VIII.V.3) when the building is a manufactured home, mobile home, or travel trailer as defined in the RCBAP (Section II.B.6.b and c).
To qualify, the same requirements found in the Dwelling Form apply: The building must be at least 16 feet wide with at least 600 square feet within its perimeter walls, and it must be the principal residence of the policyholder.
RCBAP – Loss Settlement Clause
The Special Loss Settlement Clause comes into play when the residential condominium building is a manufactured home, mobile home, or travel trailer and is totally destroyed or in the insurer’s judgment (the adjuster’s recommendation is considered) it cannot be economically repaired. This is the same Special Loss Settlement Clause found in the Dwelling Form. Payment will be the least of: the replacement cost of the manufactured home or travel trailer, or 1.5 times its actual cash value, or the building limit of liability shown on the declaration page of the policy.
RCBAP – Loss Settlement Clause
However, if it is the judgment of the insurer that the manufactured home, mobile home, or travel trailer is repairable, the Replacement Cost Loss Settlement will be used, but still limited to the building policy limit.
Determining the Building's Maximum Coverage Limit
A building’s replacement cost is one of three values used to determine the coinsurance. Another important value is the building's maximum coverage limit available under the NFIP. To determine the maximum limit available on a residential condominium building, use the single-family dwelling statutory coverage limit available under the Standard Flood Insurance Policy and multiply it by the number of units in the building.
Here are two examples:
If you have 10 units in a condo building, $250,000 times 10 equals $2.5 million; this reflects the maximum coverage amount available for the building.
$250,000 x 10 = $2,500,000
If you have 100 units, then $250,000 times 100 equals $25 million, reflecting the maximum coverage amount available for the building.
$250,000 x 100 = $25,000,000
RCBAP – Coinsurance Clause
Having identified the maximum amount of coverage and the replacement cost value, let's discuss coinsurance and how and when coinsurance applies. Coinsurance (RCBAP Section VII, A-D) is an important tool that encourages condo associations to purchase insurance for at least 80% of the full replacement cost of the residential condominium building. This coinsurance tool has been used by private-sector commercial policyholders to reduce premium by purchasing less than 80% of the full replacement cost of the building in exchange for a reduction in claim payments. That policyholder becomes a “coinsurer,” thus the name. The private sector uses the coinsurance clause to promote premium equity.
Coinsurance
Coinsurance applies only to building coverage under the Residential Condominium Building Association Policy (RCBAP). Building coverage purchased using the Dwelling Form cannot be added to RCBAP coverage to avoid coinsurance.
Coinsurance and Loss Assessment
Coinsurance applies only to building coverage under the RCBAP. Unit-owner building coverage purchased using the Dwelling Form will respond to loss assessments resulting from a coinsurance penalty applied, even if the RCBAP limits have not been exhausted.
Coinsurance and Loss Assessment
The Dwelling Form Section III. Property Covered, C.3.b.4 states that the policy will "not pay any loss assessment charged against you...that results from a loss sustained by the condominium association that was not reimbursed...because the building was not, at the time of loss, insured for an amount equal to the lesser of: a. 80% or more of its full replacement cost or b. the maximum amount of insurance permitted under the Act." Section VII.C.2 states "If there is other insurance...then this policy will be in excess over the other insurance.”
Coinsurance and Loss Assessment
In 2016, FEMA issued Bulletin w-16024, which states that until FEMA amends the Dwelling Form of the policy, FEMA is implementing Section 100214 of Biggert-Waters through a general waiver of Section III.C.3.b(4) and a limited waiver of Section VII.C.2.
The bulletin states in part, "42 U.S.C. Section 4019, as amended by Section 100214 of Biggert Waters, prohibits FEMA from denying payment to condominium unit owners who purchased unit-owner building coverage under the Dwelling Form policy for building claims that cannot be paid by the...RCBAP.... Section 100214...prohibits FEMA from enforcing Section III.C.3.b(4) and that provision is hereby waived....Under certain circumstances, application of Section VII.C.2 also prevents implementation of Section 100214 and that provision is hereby waived in part. This will allow the Dwelling Form policy to respond as if the RCBAP coverage were exhausted." In all other instances the unit-owner policy is excess to the RCBAP and payment of the unit-owner policy building coverage may not be paid until the building limits of the RCBAP have been exhausted (paid in full).
RCBAP – Coinsurance
Loss payment for a condominium building not insured to 80% of its replacement cost or the maximum amount of insurance available is determined using this formula:
The amount of insurance carried divided by the amount of insurance required multiplied by the full RCV loss minus the amount of the building deductible equals the Limit of Recovery.
RCBAP – Coinsurance Cautions
There are two cautions. First, take care in the division portion to not end up with a fraction that has a value greater than 1. This will lead to recommending a payment that is greater than the RCV loss.
RCBAP – Coinsurance Cautions
The second caution is that the step from division to multiplication should be a single expression on a calculator in which the quotient is not expressed but is held in the calculator and the multiplication function applied.
For example:
Correct Method: $6,000,000 divided by $9,000,000 multiplied by $4,000,000 = $2,666,666.67
Incorrect Method: $6,000,000 divided by $9,000,000 equals 0.67, and 0.67 then multiplied by $4,000,000 equals $2,680,000.00
As these examples make clear, the calculation method can change the results dramatically.
RCBAP – Example
Insurance Required = 80% of the full replacement cost value of a building when RCV is the appropriate loss settlement.
Insurance Required = $187,500 (full replacement value) x 80% = $150,000 or the insurance required.
RCBAP – Limit of Recovery Example
A small condominium building has a replacement cost value (RCV) of $187,500.
80% of the RCV equals $150,000 (the insurance required). The building carries only $130,000 in flood insurance, with a $500 deductible. It sustains a $120,000 flood loss.
What is the limit of recovery?
Insurance carried ($130,000) divided by insurance required ($150,000) times the amount of the loss ($120,000) equals $104,000. After subtracting the $500 deductible, the limit of recovery is $103,500.
The General Property Form
The General Property Form has NO coinsurance and no replacement cost provision. The General Property Form is always adjusted on an Actual Cash Value (ACV) basis.
Case Study Using the Coinsurance Calculation
A condominium covered under the RCBAP is flooded and receives 7 million dollars in damage. The building’s replacement cost at the time of loss was $20 million. So the insurance required (80% of $20 million) is $16 million.
The amount of insurance carried divided by the amount of insurance required multiplied by the full RCV loss minus the amount of the building deductible equals the Limit of Recovery.
Case Study Using the Coinsurance Calculation
Instead of writing $16 million in coverage, the condominium association insures its building for just $8 million. When a building that should be insured for at least $16 million is only insured for $8 million, a considerable penalty is applied to the $7 million loss.
Lesson 2 Summary
Here are the key points discussed in this lesson:
Condominium building Replacement Cost of Value and the coinsurance penalty
Loss settlement limit of recovery
Amount of flood insurance needed to avoid a coinsurance penalty
The next lesson presents coverage differences that apply to the three SFIP forms and replacement cost. Let's begin by reviewing a case file.
Lesson 3 Objectives
After completing this lesson you will be able to:
Explain coverage differences as they apply to condominium and unit-owner policies insured under the RCBAP, General Property Form, and Dwelling Form
Explain coverage for business units (General Property Form) located in condominium buildings
The Private-Sector Approach to Condominium Insurance
Unit owners also have an undivided interest in condominium building common areas including the land (parcel that includes the condominium building and commonly owned buildings).
The Private-Sector Approach to Condominium Insurance (Cont'd)
Unit owners have an undivided interest in other commonly owned buildings or common places within the condominium building that are for their use (such as office, lobby, elevators, hallways, recreational buildings, kitchen, etc.).
The Federal Approach to Condominium Insurance – the RCBAP is Different
Unlike private-sector policies, the RCBAP insures all building elements including any betterments and improvements installed and paid for by the unit owner. There are no boundaries except the exterior footprint of the condominium building.
The Federal Approach to Condominium Insurance – the RCBAP is Different (Cont'd)
Any commonly owned, non-residential buildings, such as a detached recreational building or a pool house, must be separately insured under the General Property Form. Registered adjusters should be aware of these differences.
The Private-Sector Approach to Condominium Insurance
Private-sector insurance products (policies) for associations and unit owners follow state law in the allocation of responsibilities. When it comes to the boundaries of an “airspace” condominium unit, private-sector policies typically include the interior, unfinished surfaces of the unit’s perimeter walls, floors, ceilings, windows, and doors. A unit owner is responsible for building elements from the boundary in and the association is responsible for everything else.
RCBAP – Maximum Amounts of Insurance Available
The maximum amounts of insurance available are also referred to as the statutory limits because they are included in NFIP controlling statute. These are the limits Congress has set for the NFIP. The maximum amount of all building claim payments on a residential condominium building is $250,000 times the number of units.
$250,000 X Number of Units = RCBAP Maximum Amount of Insurance
RCBAP – Maximum Amounts of Insurance Available (Cont'd)
Once an RCBAP that is insured to the statutory maximum has exhausted its limits (fully paid $250,000 times the number of units), there is no other building payment available including the unit-owner policy (Dwelling Form) or the Increased Cost of Compliance (ICC) benefit (RCBAP Section III.D Increased Cost of Compliance). This demonstrates the importance of collaboration between the RCBAP adjuster and the unit-owner adjuster to assure that combined building payments do not exceed the maximum amount of insurance available for the RCBAP—to avoid an overpayment or underpayment.
Other Insurance
When the RCBAP registered adjuster considers any other insurance, the other policy must be concurrent (policy in force on the date of loss) and it must include flood coverage insuring the same building as the RCBAP.
Once this is verified, there are two considerations: First, was the other policy not an NFIP flood policy?
Other Insurance (Cont'd)
Second, does the other policy include a provision stating that it provides excess insurance? If yes (and most polices in these situations do include excess wording), the RCBAP will be the primary insurance. This is an important concept because in most cases, the excess policy will not pay until the building policy limits of the primary RCBAP have been exhausted (paid in full).
Other Insurance (Cont'd)
If the other policy is not excess, the RCBAP will be primary (see the example below) but subject to its own deductible up to the deductible of the other policy.
For building and personal property losses, the insurer should take the deductible from the gross loss before applying policy limits. For example, if the covered loss is $110,000, the policy limit is $100,000, and the deductible is $5,000, the insurer should apply the deductible to the $110,000 loss, which leaves $105,000, meaning the insurer should pay the $100,000 policy limit unless coinsurance applies (see SFIP Section VII Coinsurance).
After that, the RCBAP will pay in the same proportion that the RCBAP building policy limit bears to the total building policy limits of both policies for the remainder of the loss. In other words, if the total insurance is $3 million and the RCBAP building limit is $1 million, the RCBAP will pay 1/3 of the remaining loss up to the RCBAP limit of liability. The other insurance policy will pay 2/3 of the remaining loss.
Other insurance coverage: $2,000,000 Deductible: $50,000
RCBAP pays up to the other insurance’s $50,000 deductible, but then deducts the RCBAP’s $25,000 deductible.
$50,000 minus $25,000 equals $25,000.
The remainder of the claim will be prorated based on the total amount of coverage, and in this case the NFIP coverage is one-third of the total coverage.
Remaining unpaid loss = $1,950,000 ($2,000,000 minus $50,000 deductible)
RCBAP pays 0.3333 X $1,950,000 = $649,935
Total RCBAP payment = $25,000 + $649,935 = $674,935
Other insurance pays 0.6667 X $1,950,000 = $1,300,065. Minus $50,000 deductible = $1,250,065. Other insurance policy provisions may apply.
Special Use Issues
A residential condominium will have no less than 75% of its floor area devoted to residential space. In Lesson 1, we discussed how claims for residential units and common areas are settled. Building losses for commercial or non-residential units in a residential condominium building are settled in exactly the same way as residential buildings. In addition, for a non-residential building, a General Property Form (GP) contents-only policy may be purchased with limits up to $500,000.
Special Use Issues
The commercial unit owner in a residential condominium may not purchase additional building coverage using the GP. Also, the GP has no condominium loss-assessment coverage. Up to 10% of the GP contents limit of liability (not additional insurance) may be used to pay commercial unit owners for walls, floors, and ceilings only when not covered by the RCBAP (GP Section III, Coverage B, 8).
The GP adds provisions for tenant (not unit-owner) betterments that are similar to the treatment of tenant betterments in the Dwelling Form (GP Section III, Coverage B, 7).
General Property Form: Non-Residential and Residential Unit Owners
A registered adjuster must be able to distinguish between a residential condominium with non-residential (commercial) unit owners and a non-residential (commercial) condominium with residential unit owners. When the total area used for commercial purposes exceeds 25%, the RCBAP is not the correct policy.
General Property Form Insuring a Non-Residential Condominium
Only a General Property Policy may insure commercial condominium buildings; the building coverage limit is $500,000. Non-residential condominium buildings and their commonly owned contents may be insured in the name of the association under the General Property Form. The “non-residential” limits apply.
The owner of a non-residential or residential condominium unit within a non-residential condominium building may only purchase contents coverage for that unit. Building coverage may not be purchased in the name of the unit owner.
In the event of a loss, up to 10% of the stated amount of contents coverage can be applied to losses to condominium interior walls, floors, and ceilings that are not covered under a policy issued to the condominium association. The 10% is not an additional amount of insurance.
RCBAP Insuring a Residential Condominium
Residential unit owners may purchase Coverage A. Building Coverage under the Dwelling Form up to $250,000 limits. This coverage includes the unit (note: the RCBAP is primary) and Loss Assessment coverage. The unit owner may also purchase Coverage B. Personal Property coverage under the Dwelling Form up to $100,000 limits. Coverage B provides coverage for the unit owner’s contents and interior walls, floor, and ceiling (not otherwise covered by the RCBAP) for up to 10% of the limit of liability. This does not increase Coverage B limit of liability.
RCBAP Insuring a Residential Condominium
Non-residential unit owners may not purchase Coverage A. Building Coverage under any Form of the SFIP. However, Contents Only coverage can be purchased either under the General Property Form or the Dwelling Form, depending on the type of contents. Personal Property coverage can be purchased under the General Property Form up to $500,000 limits. Coverage B provides coverage for the unit owner’s contents, stock, inventory, and interior walls, floor, and ceiling (not otherwise covered by the RCBAP) for up to 10% of the limit of liability. This does not increase Coverage B limit of liability.
Unit-Owner Claim
An adjuster arrives at the loss and during the verification process finds that there is an RCBAP in place for the association, and the unit owner has a Dwelling policy.
What items should the adjuster consider now that this is a unit-owner claim versus an RCBAP?
If the building is insured under an RCBAP, then there is little the adjuster can do to settle the building portion of the unit owner’s policy until the RCBAP is addressed based on the statutory limit and any coinsurance penalties. The adjuster can handle the unit owner’s content loss if they purchased contents coverage and the contents were damaged by the flood.
Unit-Owner Claim vs. RCBAP Claim
You just received the case file for a unit-owner policy in a condominium building. The policy has $125,000 in building coverage, and the replacement cost of the unit is $130,000. In addition, the condominium association has an RCBAP for the five-unit condominium building. The condominium association has a policy for $500,000 and the building replacement cost is $1,000,000.
What is the loss settlement under both the Dwelling Form and the RCBAP?
Let's begin working this case by reviewing a few key coverage differences between the Dwelling Form, General Property Form, and the RCBAP.
Unit-Owner Claim vs. RCBAP Claim
Unit Owner
RCV Unit: $130,000.00
Building Coverage: $125,000.00
Building Coverage Deductible: $5,000.00
Unit Flood Damage: $47,065.05
Less Depreciation: $5,017.60
Building Claim after depreciation and deductible: $42,047.55
RCBAP - RCV Condominium Building
RCV Condominium Building: $1,000,000.00
Building Insurance Carried: $500,000.00
Building Insurance Required: $800,000.00
RC Loss (before deductible): $235,325.25
Building Deductible: $10,000.00
Unit Coverage
Notice that each SFIP form will cover a building unit, but each coverage is slightly different.
Let's start with the RCBAP. If the insured building is a condominium building in the name of the condominium association, coverage is provided for all units within the building, and the improvements within the units.
Item
Dwelling
General Property
RCBAP
Unit
Coverage for a single-family unit you own in a condominium building
Coverage for unit in a condominium building
Coverage for a single-family unit in a residential condominium building
Unit Coverage
For units insured under the Dwelling Form, coverage is provided for a single unit.
Item
Dwelling
General Property
RCBAP
Unit
Coverage for a single-family unit you own in a condominium building
Coverage for unit in a condominium building
Coverage for a single-family unit in a residential condominium building
Unit Coverage
A residential condominium association building in which the floor area is not at least 75% residential must be written under the General Property Form.
The General Property Form provides building coverage for all units within the building and the improvements within the units, provided the units are owned in common by all unit owners.
Item
Dwelling
General Property
RCBAP
Unit
Coverage for a single-family unit you own in a condominium building
Coverage for unit in a condominium building
Coverage for a single-family unit in a residential condominium building
Improvements
If the policyholder is a tenant, up to 10% of the limit of liability for Coverage B. Personal Property may be applied to cover improvements made or acquired solely at the policyholder’s expense for which coverage would be provided under building coverage (Coverage A), and that have not been paid under Coverage A for the same loss event under a policy held in the building owner’s name.
Item
Dwelling
General Property
RCBAP
Improvements
Fixtures, alterations, installations, or additions comprising a part of the insured dwelling
Fixtures, alterations, installations, or additions comprising a part of the building
Fixtures, alterations, installations, or additions comprising a part of a residential condominium building, including improvements in the units
Improvements
As previously mentioned, improvements made or acquired solely at the policyholder’s expense are covered for up to 10% of the limit of liability for Coverage B, Personal Property.
Note: If the policyholder is a tenant and has personal property coverage, the coverage extends to the policyholder’s cooking stove, range, and refrigerator when tenant ownership can be (is) substantiated. These appliances are not considered betterments and improvements.
Item
Dwelling
General Property
RCBAP
Improvements
Fixtures, alterations, installations, or additions comprising a part of the insured dwelling
Fixtures, alterations, installations, or additions comprising a part of the building
Fixtures, alterations, installations, or additions comprising a part of a residential condominium building, including improvements in the units
Improvements and Betterments
Let's first look at improvements and betterments and the differences between the different forms of the Standard Flood Insurance Policy.
Item
Dwelling
General Property
RCBAP
Improvements and Betterments
Coverage, if tenant has personal property coverage.
10% of personal property coverage
No Coverage
Replacement Cost Building
Replacement cost loss settlement is available under certain conditions.
Item
Dwelling
General Property
RCBAP
Replacement Cost Building
Coverage, if insured to 80% of RCV and is a single-family dwelling that the insured lived in 80% of the previous 365 days
No Coverage
Coverage, with compliance with the coinsurance provision
Dwelling: Must be a single-family dwelling and insured to at least 80% of the replacement value of the building or carry the maximum building limit of coverage ($250,000) to qualify for Replacement Cost.
RCBAP: Must be insured to at least 80% of the building's replacement value or carry the maximum building coverage of $250,000 times the number of units.
Loss Assessment
The Dwelling Form is also the only policy that responds to loss assessment assigned by a condominium association. There are limitations to what can qualify for coverage under the Dwelling Form for a condominium loss assessment.
Item
Dwelling
General Property
RCBAP
Loss Assessments
Coverage
No Coverage
No Coverage
Lesson 3 Summary
Here are the key concepts discussed in this lesson:
Coverage differences as they apply to condominium and unit-owner policies insured under the RCBAP, General Property Form, and Dwelling Form
Explain coverage for business units (General Property Form) located in condominium buildings
Lesson 4 Objectives
After completing this lesson you will be able to:
Describe condominium loss assessment under the Dwelling Form
Unit-Owner Claim vs. RCBAP Claim
You just received the case file for a unit-owner policy in a condominium building. The policy has $125,000 in building coverage and $100,000 in contents coverage, and the replacement cost of the unit is $130,000. In addition, the condominium association has an RCBAP for the five-unit condominium building. The association has a policy for $500,000, and the building replacement cost is $1,000,000.
What is the loss settlement under both the Dwelling Form and the RCBAP?
Let’s start by taking a look at coverage differences between the Dwelling Form, General Property Form, and the RCBAP.
Loss Assessment Coverage
When it comes to commonly owned building elements, the Dwelling Form provides limited coverage for loss assessments against condominium unit owners for flood damage to common areas of any building owned by the condominium association. The loss assessment coverage is available only under certain circumstances.
Dwelling Form and Loss Assessment Coverage
The three circumstances in which loss assessment coverage is provided:
No RCBAP
RCBAP Insured to at Least 80% of Building Replacement Cost
RCBAP Insured to Less Than 80% of the Building Replacement Cost
Let’s review each circumstance starting with No RCBAP.
Dwelling Form and Loss Assessment Coverage – No RCBAP
If the unit owner has building coverage under the Dwelling Form and there is no RCBAP, the Dwelling Form responds to a loss assessment against the unit owner for damages to common areas, up to the building coverage limit under the Dwelling Form. See Dwelling Policy, Section III Property Covered, C. Other Coverages, 3. Condominium Loss Assessments for more information.
If there is damage to building elements of the unit as well, the building coverage limit under the Dwelling Form may not be exceeded by the combined settlement of unit building damages, which would apply first, and the loss assessment.
Dwelling Form and Loss Assessment Coverage – RCBAP Insured to At Least 80% of RCV
If the unit owner has building coverage under Dwelling Form, and the RCBAP is insured to at least 80% of the Replacement Cost Value at the time of loss, the Dwelling Form responds to loss assessment against the unit owner and will pay that part of the loss that exceeds 80% of the association’s building replacement cost.
Loss assessment coverage will not cover the condominium association’s policy deductible purchased by the association or contents of the association or non-covered items. Please refer to the policy form
If there is damage to building elements of the single-family unit, the Dwelling Form (Coverage A) pays to repair the single-family unit building elements after the RCBAP limits that apply to the unit have been exhausted
The coverage combination cannot exceed the $250,000 maximum coverage limit
RCBAP Insured to Less Than 80% of RCV
In cases where the RCBAP is insured to less than 80% of the Replacement Cost Value, the RCBAP is primary, and the Dwelling Form (Coverage A) is considered excess after the RCBAP limits are exhausted.
The Dwelling Form will respond to a loss assessment resulting from the coinsurance penalty under the RCBAP as though the RCBAP limits have been exhausted.
Course Summary
In this course, you reviewed the most challenging aspects of adjusting NFIP flood losses under the RCBAP and the Dwelling Form. These and other knowledge areas are crucial to the adjustment process. Below are key areas you reviewed:
Forms of ownership not eligible for coverage under the RCBAP
Building value, insurance to value, and Replacement Cost Value
Coinsurance calculations
Documentation associated with RCBAP and unit-owner policies, e.g. condominium bylaws, appraisals, and ownership verification
Coverage differences as applies to condominium and unit-owner policies insured under the RCBAP, General Property Form, and the Dwelling Form
Coverage for business units (General Property Form) located in condominium buildings