Flood insurance

Why your master policy won't pay for flood damage

A pipe bursting inside a wall is a covered property loss. Water rising from outside, a storm surge, an overflowing creek, groundwater pushing up through a slab, is a different peril entirely, and standard property forms exclude it by name. This is true whether the water damaged common areas or a ground-floor unit.

"Flood damage is excluded under standard homeowners and renters insurance policies."

Source: Which disasters are covered by homeowners insurance?, Insurance Information Institute

If your association's building sits in a flood zone, or even near one, a paid-up master policy with no gaps still will not respond to a flood claim unless the association separately bought flood coverage.

The RCBAP: the association's own flood policy

The National Flood Insurance Program (NFIP) built a policy specifically for condominium and HOA buildings, and it works differently from an individual homeowner's flood policy in one important way: the association is the only party allowed to buy it.

"The RCBAP is a master flood insurance policy issued by the Federal Emergency Management Agency (FEMA) for residential condominiums." "An RCBAP may be purchased only by the condominium owners' association."

Source: What is a NFIP Residential Condominium Building Association Policy?, Office of the Comptroller of the Currency, U.S. Treasury

Building coverage under an RCBAP is not open-ended. It stops at whichever number is smaller: the building's full replacement cost, or the number of units multiplied by $250,000. A 40-unit building worth $12 million in replacement cost would still cap out at $10 million (40 times $250,000), because that figure is the lesser of the two. Eligibility has its own floor too.

"the lesser of 100 percent of the replacement cost value of the building, including amounts to repair or replace the foundation and its supporting structures, or the total number of units in the condominium building times $250,000." "75 percent or more of the building's floor area must be for residential use."

Source: What is a NFIP Residential Condominium Building Association Policy?, Office of the Comptroller of the Currency, U.S. Treasury

A mixed-use building that falls below that 75 percent residential threshold does not qualify for an RCBAP at all. What that means for a mixed-use building's coverage instead is a question for a flood agent, not something a general rule can answer. Current dollar limits and program details are also worth confirming directly with FEMA's NFIP program or a flood agent before you budget around them.

What NFIP flood coverage still won't pay for

Buying flood coverage does not mean every water-related claim gets paid. Two exclusions catch boards off guard most often: mold damage the owner could have prevented, and earth movement, even when a flood is what caused the ground to move.

"Damage caused by moisture, mildew, or mold that could have been avoided by the property owner, or which are not caused by a flood." "Damage caused by earth movement, even if the earth movement is caused by flood."

Source: Types of Coverage, Federal Emergency Management Agency (NFIP)

There's also a structural gap worth planning around: the RCBAP is a building policy, bought by the association. It is not built to cover a unit owner's own contents or interior finishes. Where that responsibility sits for your owners, and whether they need their own flood coverage on top of the RCBAP, depends on your declaration and each owner's mortgage requirements. Ask your flood agent to walk through exactly what the RCBAP does and does not reach inside a unit.