Do I need Flood Insurance If I Live On The 5th Floor?
By Christopher Carter - Real Estate Broker Associate
June 22, 2023
When I hear that question, I'm pretty sure we are talking about a condominium building. Most people think of Flood Insurance in relation to Single-Family Homes, though every type of property has some exposure to flooding. Today, we are discussing Flood Insurance for Florida condo buildings and Associations, which is in addition to any individual residence unit insurance an owner may purchase.
Flood Insurance is separate from any other coverage, NOT included in an Association's Hazard & Liability Policies or Windstorm Coverage. Floods are a completely separate risk, and insurance protection for them requires a separate policy.
Let's start with a few definitions common to all Flood Insurance:
Flood - As defined by the NFIP - “A general and temporary condition of partial or complete inundation of two or more acres of normally dry land area or of two or more properties (at least one of which is your property) from: Overflow of inland or tidal waters, Unusual and rapid accumulation or runoff of surface waters from any source, Mudflow or Collapse or subsidence of land along the shore of a lake or similar body of water as a result of erosion or undermining caused by waves or currents of water exceeding anticipated cyclical levels that result in a flood as defined above.”
NFIP - National Flood Insurance Program administered by FEMA, the Federal Emergency Management Agency
FIRM - Flood Insurance Rate Map which shows areas/zones of relative flood risk in a specific geographic area
And one real estate term as defined by the Condominium Act (Florida Statutes Chapter 718):
Condominium - “Condominium” means that form of ownership of real property created pursuant to this chapter, which is composed entirely of units that may be owned by one or more persons, and in which there is, appurtenant to each unit, an undivided share in common elements, (according to attorneys, "undivided" means an individual owner's portion of the common elements cannot be sold or transferred separately).
Condominium Owners Associations (COAs) are obligated and responsible under their Governing Documents to maintain insurance against possible hazards to the common structure(s) and shared areas which can include the: Entrance and Lobby, Roof and exterior walls, Parking areas, Building structure, Electrical, HVAC, elevator, and other mechanical systems or Offices, fitness/meeting rooms, clubhouse and other shared onsite amenities.
Flood Insurance is an important part of required coverage for many Condominium Associations in Florida. While there are some carriers now offering their own Flood Policies, the most common form of protection is the NFIP's Residential Condominium Building Association Policy (RCBAP) which requires that at least 75% of a building's floor area is residential.
The areas most exposed to flood risk in a Condominium Building are usually: Ground floor entries, meeting rooms, and offices, Elevator shafts that extend below ground level and Parking areas (both under the building and ground-level).
RCBAP Coverage (often called a "master flood policy") applies to the Association-owned structure, its common elements/areas, and does NOT cover individually-owned units that may be at flood risk. Flood Coverage for individual residence units can be purchased by the unit owner under what is called NFIP's Dwelling Form.
Since all individual unit owners also own part of the common elements/areas and are members of the COA, they all pay a part of the Association's Flood Insurance premium in their scheduled assessments (condo "dues"). Yes, even when you live on the 5th floor as our headline question asks.
A couple of years ago, the NFIP modified their risk and premium rate analysis for Single-Family Houses, depending less on Flood Maps and more on individual property physical location, design, and exposure to evaluate risk, and therefore Flood Insurance premium costs. This new method for evaluating individual properties is called Risk Rating 2.0.
However, RCBAP Policies still start with a building's Flood Zone as shown on the FIRM. Buildings in any A and V Flood Zones are located in Special Flood Hazard Areas. Being in an SFHA means flood risk is one of the hazards for which the Association should carry insurance protection.
(V stands for Velocity and refers to moving water from wave or current action. Most Florida beachfront condo buildings are in V Flood Zones.)
Here are 3 basics about the RCBAP program:
• RCBAP is Single-Peril Coverage, meaning it only pays for direct physical loss by (or from) Flood Damage as defined in the policy.
• Is based on Replacement Cost Value, with deductibles calculated as a % of loss value, not maximum policy limits.
• Does NOT cover the Association's Personal Property such as Lobby/office furniture, fitness room equipment, etc. These items can be covered by a separate contents policy with an additional premium.
RCBAP Coverage does NOT include:
• Any individually-owned residence units or their contents
• Damage from moisture, mold, or mildew caused by inaction to prevent or control it
• Vehicles such as owners' cars and golf carts
• Swimming pools
• Landscaping trees, plants, fences, decks, walkways
• Financial losses from business interruption
• Permit costs for demolition, renovation, or repair of the condominium property
Florida's Condominium Act does not require COAs to have Flood Insurance, though it may be considered irresponsible and careless if the Board of Directors does not maintain Flood Insurance for a building located in a SFHA. Each COA's Governing Documents state the Association's obligation and requirements for insuring the property and common elements.
This is important - when a Florida condo building is in a Flood Zone that starts with an A or V (SFHA), very few lenders will approve and fund Mortgage on an individual unit in that building unless the Association carries Flood Insurance on the common elements/areas (a "master policy").
Not many lenders will accept the risk of lending money for the purchase of an individual unit in a condo building that should carry Flood Insurance, though it doesn't. In this case, individual unit financing is only available from portfolio lenders (usually regional banks) who hold and service the loan as an in-house investment rather than selling it to institutional investors in the secondary Mortgage market.
• Insufficient or no Building Flood Coverage can result in significant Special Assessments to owners in the event of Flood Damage.
• Insufficient/Lapsed RCBAP Coverage can make it difficult or impossible for a buyer to get purchase financing on an individual unit in the building.
It is also important to note that Condominium Associations with multiple separate buildings usually need a separate RCBAP Policy for each building, with its own separate premium cost. Each building by itself has exposure to Flood risk. Even within the same community and same Flood Zone, individual buildings can have very different flood risks.
Florida has many different designs and styles of condominium buildings, which is why Flood Risk exposure is evaluated on a case-by-case basis. There are no 2 buildings that have exactly the same Flood risk.
Consider this - a 15-story condominium building may have 120 individual units with just 5 individual residence units on the ground floor. Another COA also with 120 units may have 15 separate buildings containing 8 units each. In this arrangement, there are 60 individual residence units on the ground floors.
In the high-rise arrangement, there is likely significant ground-floor Association area to protect from flooding (lobby, offices, meeting rooms), while in the low-rise design there can be little or no ground-floor Association-owned area to protect because all buildings contain only individually-owned units without lobby space. This is why many COAs with low-rise buildings do not carry Flood Insurance.
Remember - an Association's RCBAP Flood Policy does NOT cover any individually-owned residence units. For this reason, I suggest that ALL owners of ground floor condo units in A or V Flood Zones carry their own Dwelling Form Flood Insurance.
Finally - Not all Water Damage is Flood Damage.
Flood Insurance only covers rising groundwater and/or tidal surge causing damage to a building and its mechanical equipment. Damage caused by other factors (like wind) is covered by other types of insurance. Windstorm Insurance does not cover flooding, and Flood Insurance does not cover damage from high winds.
Let's answer our headline question: Yes, owners of residence units on the higher floors of Florida condo buildings DO need Flood Insurance because they also own part of all the ground-floor areas that are exposed to flood risk. The COA's Flood Policy takes care of this, and all owners contribute to the premium cost. It is strongly advised that condo owners also have insurance protection for their individual residence units, at least a basic HO-6 Condo Policy.
And there we are, a very brief introduction to the basics of Flood Insurance for Florida Condominium Buildings and Associations.
Editor's Note: Christopher Carter is NOT an attorney. He does not give legal advice. For interpretation and application to specific circumstances of anything you read in this article, you must speak with a Florida-Licensed Real Estate attorney.