Duplicate Policies

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The National Flood Insurance Program (NFIP) prohibits the duplication of policies on the same building or property for the same type of coverage. This rule is designed to prevent overlapping insurance, ensuring efficient claims handling and compliance with program guidelines. However, specific circumstances and exceptions may apply. Below is an overview of NFIP’s rules and processes regarding policy duplication.

Non-duplication

Generally speaking, only one flood insurance policy may provide building coverage for a policyholder on one building. Multiple policies can divide building coverage and contents coverage when there are clear cases of separate insurable interests. Single structures can also divide coverage due to additions or extensions.

• Exceptions: While the NFIP generally prohibits duplicate coverage, there are limited exceptions where duplicate policies may coexist:
  • Residential Condominium Building Association Policy (RCBAP): A unit owner may purchase a Dwelling Form policy with building coverage in addition to the RCBAP coverage for the entire building. However, the combined building coverage cannot exceed $250,000 for the unit.
  • Mixed-Use Buildings: In cases where buildings have multiple ownership types, insurers may write multiple policies, provided detailed records are maintained to avoid exceeding statutory coverage limits.

Cancellation of Duplicate Policies

When duplicate coverage is identified, one of the policies must be canceled. This process is managed through specific cancellation codes, which outline the reasons and procedures for cancellation:

• Reason Code 04: Duplicate NFIP Policies
  • Applies when two NFIP policies exist for the same building.
  • Effective Date: The later policy’s effective date.
  • Refunds: A refund may be issued for the canceled policy, subject to NFIP refund rules.

• Reason Code 26: Duplicate Policy from Another Source
  • Applies when the policyholder has a duplicate policy issued by a non-NFIP insurer.
  • Effective Date: The NFIP policy’s effective date is nullified.
  • Refunds: The policyholder may be entitled to a refund for the canceled NFIP policy.

Identification and Resolution of Duplicate Policies

Insurers must follow these steps to identify and resolve duplicate policy issues:

1. Notification: The insurer must notify the policyholder(s) in writing upon discovering duplicate coverage. The notice must:
   • Advise the policyholder(s) of the duplication.
   • Explain the need for cancellation and the steps involved.
2. Policyholder Choice: If two policies have the same effective date, the policyholder may choose which policy remains active.
3. Documentation: Insurers must maintain detailed records to document the cancellation process and avoid disputes.

Implications of Duplicate Coverage

• Claims Handling: NFIP rules prohibit claiming the same damages under multiple policies. Only one policy may be used to cover a loss.
• Coverage Limits: For RCBAP and unit-owner policies, the total building coverage for a condominium unit cannot exceed $250,000.
• Statutory Compliance: Duplicate policies complicate compliance with NFIP’s statutory coverage limits and increase administrative costs.

Key Considerations for Insurers and Policyholders

• Avoiding Duplication: Agents and policyholders must carefully review existing coverage before purchasing a new policy.
• Cancellation Process: Use appropriate cancellation reason codes to ensure policy changes comply with NFIP guidelines.
• Refunds: Refunds for duplicate coverage depend on the timing and terms of cancellation.

Summary

The NFIP’s prohibition on duplicate policies ensures clear and efficient management of flood insurance coverage. By adhering to these rules, policyholders, agents, and insurers can avoid coverage overlaps, administrative errors, and claims disputes. Familiarity with cancellation codes and exceptions is critical for maintaining compliance with NFIP standards.

This page contains information about the NFIP. Find more NFIP Resources.