Cancellation Qualifying Reasons/RC 01
Reason Code: 01 - Building Sold, Removed, or Destroyed
This reason code applies when the policyholder no longer has an insurable interest in the building due to a sale, transfer, removal, or destruction of the insured structure. This includes situations such as a completed property sale, foreclosure, or physical removal of the building from its original location.
| Condition | Details |
|---|---|
| Eligibility for Cancellation | The policyholder had an insurable interest during the policy term but no longer does due to sale, removal, or destruction. |
| Effective Date of Cancellation | The date the policyholder ceased to have an insurable interest (e.g., closing date, demolition date, foreclosure date). |
| Policy Terms Eligible for Refund | The term in which the policyholder lost insurable interest and subsequent renewed terms, up to 5 years prior to the cancellation request. |
| Type of Refund | Pro-rata refund (excluding Federal Policy Fee and Probation Surcharge) for the canceled term. Full refund, including surcharges and fees, for eligible renewed terms. |
| Required Documentation | Evidence of sale, transfer, removal, or destruction, such as a bill of sale, settlement statement, closing disclosure, proof of demolition, or foreclosure court documents. |
This table can be seen on pages 6-2 and 6-3 of the FIM.
Additional Guidance
- If there was an open claim at the time of the sale or destruction, the policy cannot be canceled.
- If a policyholder sells the building but remains listed as a named insured under the new owner’s policy, the original policy may need to be adjusted rather than canceled.
- Cancellation requests missing adequate proof of sale, removal, or destruction may lead to processing delays.
Required Documents
This reason code is straightforward: if the insured no longer owns or has any financial interest in the building, the policy can be canceled. However, the effective date should align with the supporting documentation.
- If the policyholder sold or transferred ownership, the effective date should match the closing date on the settlement statement or deed transfer.
- If the structure was demolished or relocated, a government permit or contractor verification may be required.
- Foreclosure cases should have court documentation or confirmation from the lender.
- Sale/Transfer: Bill of Sale, Settlement Statement, Closing Disclosure
- Removal: Proof of Removal, Relocation Permit
- Destruction: Proof of Demolition, Contractor Statement, Fire Department Report
- Foreclosure: Court Documentation, Bank/Lender Confirmation
- Inheritance/Death: Legal Documents showing ownership transfer upon policyholder’s death
Scenarios for Context
- Scenario 1: A homeowner sells their house, and the new owner obtains their own flood insurance policy. The seller submits a cancellation request with a closing disclosure statement, and the policy is canceled effective the date of the sale.
- Scenario 2: A mobile home park removes an old unit from the premises. The policyholder provides proof of removal, and the underwriter processes a cancellation effective the date of removal.
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This page contains details about NFIP Cancellations. |