Flood Insurance on Adjoining Buildings

Inquiry/Issue

The Bank has a commercial mortgage closing in which the collateral property is located within an SFHA. The property is described in the appraisal as consisting of five parcels of land that have been improved with five two-story wood framed and masonry multi-tenanted commercial buildings. The buildings have been constructed in a manner where they are fully adjoined. The Bank asks whether it should obtain proof of flood insurance coverage for one building or five.

Response Summary

For flood insurance purposes, whether there are five buildings or one depends on how the buildings are adjoined. If they are separated by solid, load-bearing walls with doorways or other openings in the walls, they must be insured as one building. If the load-bearing walls have no openings, they may be insured separately. The Bank should refer this matter to the appraiser for clarification on whether there are separate buildings, and to the flood insurance issuer, to determine the appropriate flood insurance coverage for such a structure.

Response Detail

The buildings are described as being “adjoined,” meaning that they are contiguous or touching. For flood insurance purposes, whether there are five buildings or one depends on how they are adjoined.

A single building structure is separated from other buildings by intervening clear space, but it can be separated into divisions by solid, vertical, load-bearing walls.

If buildings share load-bearing walls and there are doorways or other openings through the walls, the NFIP guidance says that “the structure must be insured as 1 building.”

The divisions in such a structure could be separately insured only if all of the following criteria were met:

• Each building is separately titled and contiguous to the ground
• Each building has a separate legal description
• Each building is regarded as a separate property for other real estate purposes, meaning that it has most of its own utilities and can be deeded, conveyed, and taxed separately

If the buildings share load-bearing walls that divide them from the lowest level to the highest ceiling but have no openings, then the NFIP says that “each division may be insured as a separate building.” This indicates that insuring them as a single building or as separate buildings is optional.

The NFIP also insures additions and extensions. An addition or extension attached to and in contact with the building by means of a common interior wall that is not a solid load-bearing wall is always considered part of the building and cannot be separately insured. In this case, if the interior walls separating the buildings are not load-bearing, it would indicate that the five buildings are actually a single building structure.

On the other hand, if the buildings are separated by load-bearing walls without openings and the criteria of separate title, separate legal description, and separate treatment for real estate purposes are met, then they should probably be separately insured. NFIP Flood Insurance Manual (effective June 1, 2014), G-5.

The Bank should refer this matter to the appraiser for clarification on whether the buildings are separate buildings, and to the flood insurance issuer for a determination of the flood insurance coverage that would be appropriate for such a structure.

This entry was posted on Friday, September 5th, 2014 at 8:48 pm.