Policy Issuance 1-95
February 1, 1995
Subject: Other Insurance Provisions
Background: The Residential Condominium Building Association Policy (RCBAP) was developed for insuring residential condominium buildings beginning October 1, 1994. Also, the Dwelling Policy and the General Property Policy were revised effective October 1, 1994.
As a result of continuing concern about the degree of underinsurance under the Condominium Master Policy introduced in 1989, a coinsurance provision was included in the RCBAP. The coinsurance provision in the RCBAP, with an 80% insurance-to-value requirement, would have been inconsistent with the Other Insurance provision in the Standard Flood Insurance Policies in use prior to October 1, 1994. That Other Insurance provision required that the maximum amount of National Flood Insurance Program (NFIP) insurance available be purchased, i.e., full (100%) insurance to value or to the statutory limit, if less. Therefore, the Other Insurance provision in the RCBAP did not contain the requirement of being insured to the maximum amount of NFIP insurance available. The intent was to allow the RCBAP to be considered primary if the other insurance policy on the building held itself to be excess insurance, because the coinsurance provision is sufficient protection against underinsurance with the NFIP.
Inadvertently, the Other Insurance provision in each of the other two new policy forms, the Dwelling Policy and the General Property Policy, was made identical to the RCBAP, even though they did not contain a coinsurance provision. The intent was for these two forms to continue to be primary in regard to other insurance so long as the maximum amount of NFIP insurance available was purchased.
Policy Statement: Where there is another flood insurance policy in addition to the RCBAP and the other policy has a provision stating it is excess insurance, the RCBAP is primary, with a co-insurance penalty applying if the RCBAP limits are not 80% or more of the replacement cost of the building at the time of loss, as required by Article 9 of the RCBAP.
Any flood loss suffered by existing insureds during the period beginning March 1, 1995, and ending May 31, 1995, regardless of renewal date, will be adjusted by applying the Replacement Cost provisions of Article 8 of the Dwelling Policy or the coinsurance provisions of Article 9 of the RCBAP using the statutory limits in effect on February 28, 1995.
Any flood loss suffered by existing insureds that (1) occurs on or after June 1, 1995, and (2) also occurs on or after the first renewal date (or the first policy anniversary date for 3-year policies) that occurs on or after March 1, 1995, will be adjusted on an Actual Cash Value basis under Article 8 of the Dwelling Policy or with a coinsurance penalty under Article 9 of the RCBAP if the building coverage limits are not sufficient in light of the new higher limits of coverage.
Whenever this Policy Issuance refers to Article 8 of the Dwelling Policy, it means Article 8 of the Dwelling Policy that became effective October 1, 1994, and also includes Article VII of the previous edition of the Dwelling Policy, if applicable.
Insurance companies and agents with such policies are advised to discuss this with affected insureds in order to make them aware of the situation and the possible need for remedial action regarding any necessary coverage adjustments, in order to avoid errors and omission exposure. With regard to RCBAP insureds, the situation should be discussed with association boards of directors and/or any other parties acting on behalf of such associations on insurance matters, such as management companies, so they may also avoid any possible errors and omissions exposure.
In endorsing policies to increase policy limits, it is important to remember that the new 30-day waiting period is also effective March 1, 1995.
Last Modified: Thursday, 25-May-2006 14:55:34 EDT