Policy Issuance 2-95
February 1, 1995
Subject: New NFIP Coverage Limits Available March 1, 1995 - Replacement Cost and Coinsurance Provisions
Background: The National Flood Insurance Reform Act of 1994 authorized increased amounts of NFIP coverage, which will become effective March 1, 1995. The new maximum building coverage will be $250,000 for residential buildings ($250,000 times the number of units for residential condominium buildings) and $500,000 for nonresidential buildings. Suggestions have been made that insureds should have some reasonable period of time to meet the insurance-to-value requirement for Replacement Cost coverage (Article 8 of the Dwelling Policy) and for the coinsurance provisions (Article 9 of the Residential Condominium Building Association Policy [RCBAP]) in the light of the new maximum limits of flood insurance coverage. Both of those insurance-to-value requirements are for building coverage policy limits of at least 80% of Replacement Cost or the statutory limits, whichever is less. For example, an insured owning a single family dwelling with a replacement cost of $300,000, insured on March 1, 1995 for $185,000 building coverage (the maximum amount available up through February 28, 1995) would not be in compliance with the Replacement Cost provisions cited above. That insured would need to have $240,000 building coverage to be in compliance.
Policy Statement: Existing insureds (those insured as of February 28, 1995) are allowed through May 31, 1995, or until the first renewal date (or the first policy anniversary date in the case of a 3-year policy) on or after March 1, 1995, whichever is later, to increase their policy building limits in light of Article 8 of the Dwelling Policy or Article 9 of the RCBAP and the new higher policy limits available, so as to qualify for Replacement Cost coverage or meet the requirements of the coinsurance provisions. However, policyholders with policies newly issued with effective dates on or after March 1, 1995, will not be allowed time beyond the effective date to make adjustments in their policy limits. Where there is another flood insurance policy in addition to the new Dwelling Policy or the new General Property Policy and the other policy has a provision stating it is excess insurance, the NFIP policy will be primary so long as the NFIP policy limits equal the maximum amount available.
Last Modified: Thursday, 25-May-2006 16:30:40 EDT