Other Structures and NFIP Coverage

Author: David Thompson

When looking at the National Flood Insurance Program (NFIP), the other structures coverage is so limited that it might almost be thought of as, “There isn’t any.” To adequately protect other structures under the NFIP, a separate policy per building is required.

Insurance professionals, especially those dealing with homeowners insurance, are familiar with the “other structures” coverage provided in many insurance policies. In the homeowners program, the industry standard HO-3 policy typically provides ten percent of the dwelling limit that is available for other structures on the residence premises. This is additional coverage and applies for a variety of structures such as a detached garage, fence, shed, guest house, pool house, detached pool, and carport. On the commercial side, the other structures coverage is more limited, but can be found in many business owners policies.

Below is an analysis of the other structures coverage (or lack thereof) provided in each of the three NFIP coverage forms.

Residential Condominium Building Association Policy (RCBAP). Designed to cover residential condominium buildings (not commercial condominium buildings), the RCBAP provides absolutely no other structures coverage. A separate policy is required for each building. For example, a condominium association composed of three separate residential buildings requires three separate RCBAP policies. If there are other non-residential buildings on the premises such as a detached garage, clubhouse, or utility work building, then each of those buildings requires a separate policy using the NFIP General Property Form.

General Property Form. Buildings such as offices, restaurants, hotels, apartment houses with five or more units, and retail strip-shops are written under the General Property Form. There is no other structures coverage in this form and a separate policy per building is required.

Dwelling Form. The Dwelling Form is used to cover one-to-four family dwellings, townhouses, rowhouses, and single residential condominium units. This is the only place in the NFIP that other structures coverage is found and it is very limited. The Dwelling Form provides ten percent of the building limit as other structures coverage, but only for a detached garage. This is not additional coverage (it reduces the building limit) and the coverage does not apply if the garage is used for any residential, farming, or business purpose. Any other structures on the premises such as a guest house, pool house, or utility building affixed to a permanent site require a separate policy and are written under the General Property Form.

Example #1: Joe’s house is covered for $200,000 under the Dwelling Form and he has a detached garage valued at $40,000 on his lot. The garage is used only for parking of automobiles. He also has a guest house on the premises. The policy provides up $20,000 for coverage for the garage, but no coverage for the guest house. If both the house and garage are totally destroyed, the policy pays only $200,000. To properly protect himself, Joe needs three separate NFIP policies: a Dwelling Form for the house and two General Property Forms for the garage and guest house.

Example #2: Joe’s house is covered for $200,000 under the Dwelling Form and he has a detached garage valued at $12,000 on his lot. The garage is used only for parking of automobiles. Only the garage is damaged in a flood; $20,000 is available. Had both the house and garage been damaged, a maximum of $200,000 is available since the other structures coverage is not additional coverage. To properly protect himself in a worst-case scenario, Joe needs two policies; a Dwelling Form on the house and a General Property Form on the garage.

Example #3: Joe’s house is covered for $200,000 under the Dwelling Form and he has a detached garage valued at $40,000 on his lot. The garage has a studio apartment in it. Additionally, Joe has a small utility building on his lot valued at $8,000. The Dwelling Form provides no other structures coverage. Joe needs three NFIP policies: a Dwelling Form for the house and General Property Forms for the garage and utility building.

Remember that under the NFIP, the policy deductible applies separately to each building and separately to the contents. If Joe has three NFIP policies on his house, garage, and utility building and all buildings are damaged, then a separate deductible applies for damage to each building plus the contents in his home. In this case, total of four deductibles applies.

Insurance professionals should be familiar with the structures owned by their clients; an on-site visit is the preferred method to reveal these exposures. Once a proper risk analysis has been conducted, adequate NFIP coverage can be recommended to the customer.