Flood Policies, Condo Units, and Additions and Alterations

Author: David Thompson

In many states, what is covered under an HO-6 and a condo association master policy is governed by state law. That may not be the case when there is a flood claim and federal law pre-empts state law. For example....

Question "I provide a flood policy for a condo unit owner, and the policy includes both building and contents coverage. During hurricane Jeanne water entered the unit causing damage to carpet over a bare concrete floor, and in addition a substantial amount of personal property was damaged. The flood carrier paid for the damage to the personal property and now says that the carpet is covered by the condo master flood policy. I thought Florida law required the unit owner to insure the carpet. Is the company correct?"

Answer The short answer is the company is correct. Carpet over unfinished floor is a building item and is covered on a primary basis by the condo master flood policy, technically named the Residential Condominium Building Association Policy, RCBAP. This issue has come up a lot during Florida’s active 2004 storm season so you’re not alone in learning something new.

Remember, the National Flood Insurance Program (NFIP) policy is a federal policy and is not subject to state statutes. Here in Florida we insurance folks are accustomed to reciting Florida statute 718.111(11)b when we insure condo units. That statute specifically states that the unit owner has the responsibility to insure items such as the following: (the list is not all inclusive)

Floor coverings (such as carpet and tile)
Wall coverings (such as wallpaper and paint)
Cabinets
Central air conditioners
Water heaters
Electrical fixtures (chandelier for example)
Upgrades (such as a new interior wall or upgraded custom bath tub)

When an agency provides a homeowners policy (HO-6) for the unit owner all of the above items are included in the Coverage A amount, sometimes referred to as “additions and alterations.” Such interior building items can easily exceed $50,000 in value and at times can be significantly more than that amount. The coverage is provided because of the Florida statute mandating that the condo master commercial property policy will not cover these items.

However, the RCBAP approaches coverage with its own unique wording, and again is not subject to the Florida statute. Here’s what the RCBAP covers as “building” property:

A. COVERAGE A - BUILDING PROPERTY

We insure against direct physical loss by or from flood to:

1. The residential condominium building described on the Declarations Page at the described location, including all units, within the building and the improvements within the units.

2. We also insure such building property for a period of 45 days at another location, as set forth in III.C.2.b., Property Removed to Safety.

3. Additions and extensions attached to and in contact with the building by means of a rigid exterior wall, a solid load-bearing interior wall, a stairway, an elevated walkway, or a roof. At your option, additions and extensions connected by any of these methods may be separately insured. Additions and extensions attached to and in contact with the building by means of a common interior wall that is not a solid load-bearing wall are always considered part of the building and cannot be separately insured.

4. The following fixtures, machinery, and equipment, which are covered under Coverage A only:

a. Awnings and canopies;

b. Blinds;

c. Carpet permanently installed over unfinished flooring;

d. Central air conditioners;

e. Elevator equipment;

f. Fire extinguishing apparatus;

g. Fire sprinkler systems;

h. Walk-in freezers;

i. Furnaces;

j. Light fixtures;

k. Outdoor antennas and aerials fastened to buildings;

l.   Permanently installed cupboards, bookcases, paneling, and wallpaper;

m. Pumps and machinery for operating pumps;

n. Ventilating equipment;

o. Wall mirrors, permanently installed; and

p. In the units within the building, installed:

(1)   Built-in dishwashers;

(2)   Built-in microwave ovens;

(3)   Garbage disposal units;

(4)   Hot water heaters, including solar water heaters;

(5)   Kitchen cabinets;

(6)   Plumbing fixtures;

(7)   Radiators;

(8)   Ranges;

(9)   Refrigerators; and

(10) Stoves.

As you look over the above list it’s clearly evident that many of the items listed are the same items that must be accounted for in the HO-6 Coverage A limit. However, when selecting a limit of building coverage under the unit owner’s flood policy it may not be as critical to include all of the items. It would not be unusual for the Coverage A limit on the HO-6 and the building limit on the unit owner’s flood policy not to match.

This is not to say that the unit owner’s policy will not cover these interior buildings, because it will, as long as building coverage has been purchased. Where the RCBAP and the unit owner’s policy both cover the same property both policies are very clear; the RCBAP is primary and the unit owner’s policy is excess.

Given all of this, is it still a prudent move for the unit owner to purchase building coverage on their flood policy? Absolutely for several reasons:

If there is no RCBAP in place the unit owner has his own primary coverage.
If the RCBAP has a large deductible and the unit owner sustained building damage then their policy will respond.
Should the unit owner be assessed by the association for a flood loss, the unit owner’s policy will cover the loss assessment up to their building limit with no deductible. This alone is a compelling reason for all condo unit owners to have their own building flood coverage.

So, there you go…a very long answer to a short question!