Policy Issuance 5-97

July 11, 1997

Subject: Residential Condominiums Occupied as Hotels or Motels or Rented on a Short-term Basis

Background: A May 1997 revision in the Flood Insurance Manual on page CONDO 6 was intended to clarify that the rule in the General Rules Section that hotels and motels were considered as nonresidential also applied to condominiums. Since this clarification appeared, we have been contacted by a number of WYO Companies and agents who expressed concern that this issue was widely misunderstood. They advised that there was little practical difference between a condominium being run as a hotel or motel, and one where a number of units were being rented out during weeks when the owners were not using them. It was requested that this issue be reviewed to see if there was a more equitable determination that could be made under the NFIP rules.

In reviewing this issue, we referred to the understanding that we reached with Congress that allowed the NFIP to offer full single family dwelling limits on each condominium dwelling unit, which subsequently resulted in the creation of the Residential Condominium Building Association Policy (RCBAP). This understanding was based on a condominium dwelling unit being treated the same as a single family dwelling. Since a detached single family dwelling is written using the Dwelling Policy regardless of the rental status, a condominium building containing dwelling units should not have its eligibility for the RCBAP affected by the rental status.

Policy Statement: A building in the condominium form of ownership with at least 75% of its floor area consisting of dwelling units, which may be rented on a long- or short- term basis, is a residential condominium building and therefore is to be written using the RCBAP. Residential condominium buildings that are currently being insured on the General Property Policy because their units are being used as a hotel or motel or are being rented on a short-term basis must now be insured on the RCBAP. WYO companies and agents have until December 31, 1997, or the end of the policy term in effect on the date of this Policy Issuance, whichever is later, to rewrite the policy under the RCBAP. If a loss occurs to a residential condominium building before the required conversion date, it will be adjusted under the terms of the General Property Policy with no right of reformation to a RCBAP.

If a flood loss occurs to a residential condominium building after the required conversion date and it is still insured under the General Property Policy, the policy will be reformed to a RCBAP with the amount of coverage purchased under the General Property Policy, the policy will be reformed to a RCBAP with the amount of coverage purchased under the General Property Policy. If additional premium is due, the reformation provisions of the policy will apply and the insured will have 30 days from the date of notice of theadditional premium due to submit the premium. If the premium is not received within the 30-day period, coverage will be reduced to the amount that the premium already paid for the General Property Policy will buy at RCBAP rates. There will be no right to increase the amount of coverage above the amount purchased under the General Property Policy to cover the loss. All the provisions of the RCBAP will apply including the co-insurance provision.

Examples:

  1. One-year policy term effective May 1, 1997, to May 1, 1998; the policy must be converted to a RCBAP no later than May 1, 1998.
  2. One-year policy term effective October 1, 1997, to October 1, 1998; the policy must be converted to a RCBAP no later than December 31, 1997.
  3. Three-year policy term effective May 1, 1996, through May 1, 1999; policy must be converted to a RCBAP prior to the end of the current policy year of May 1, 1997, to May 1, 1998.

Last Modified: Wednesday, 24-May-2006 11:41:39 EDT