[lumullins1121]

A Commercial borrower has submitted a Builders risk policy (building a rental property) with an Inland Marine endorsement as their flood insurance coverage. I do not feel like this would work for this. My research says that flood damage is not covered by this. This is the first time I have been presented with this type of policy so i am looking for some guidance. Is this acceptable?

[Kimberly Boatwright, CAMS, CRCM]

To use a Private Policy the Regulation requires the following:

1. That the policy is issued by an insurance company that is:
• Licensed, admitted, or otherwise approved to engage in the business of insurance by the insurance regulator of the State or jurisdiction in which the property to be insured is located.
• Recognized, or not disapproved, as a surplus lines insurer by the insurance regulator of the State or jurisdiction in which the property to be insured is located in the case of a policy of difference in conditions,
multiple peril, all risk, or other blanket coverage insuring nonresidential commercial property.

2. The Policy must also at minimum contain:
• Define the term ‘‘flood’ to include the events defined as a ‘‘flood’ in an SFIP.
• Contain the coverage specified in an SFIP, including that relating to building property coverage; personal property coverage, if purchased by the insured mortgagor(s); other coverages; and increased cost of
compliance coverage.
• Contain deductibles no higher than the specified maximum, and include similar non-applicability provisions, as under an SFIP, for any total policy coverage amount up to the maximum available under the NFIP at the
time the policy is provided to the lender.
• Provide coverage for direct physical loss caused by a flood and may only exclude other causes of loss that are excluded in an SFIP. Any exclusions other than those in an SFIP may pertain only to coverage that is in
addition to the amount and type of coverage that could be provided by an SFIP or have the effect of providing broader coverage to the policyholder; and
• Not contain conditions that narrow the coverage provided in an SFIP.
• A requirement for the insurer to give written notice 45 days before cancellation or non-renewal of flood insurance coverage to:
o The insured; and
o The financial institution that made the designated loan secured by the property covered by the flood insurance, or the servicer acting on its behalf.
• Information about the availability of flood insurance coverage under the NFIP.
• A mortgage interest clause similar to the clause contained in an SFIP; and
• A provision requiring an insured to file suit not later than one year after the date of a written denial of all or part of a claim under the policy; and

3. The regulation also allows a Financial Institution to rely on the Compliance Aid Statement in the Policy if it is worded exactly as the regulation has it written.

If a Private Policy does not meet these standards then it will not meet the Regulation requirements for required flood coverage.

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