If a borrower’s flood insurance policy expires, are there any concerns if there is a gap between the expiration date of their previous policy and the effective date of their new policy? Are there any concerns if we force place flood insurance after sending a 45-day notice on the policy’s expiration date, which results in a gap between the expiration date of the previous policy and the effective date of the force-placed policy?

Yes, we believe it is a violation of the flood insurance rules if at any time during the term of a designated loan, the property securing the loan is not covered by flood insurance, regardless of whether the new policy following the gap in coverage is obtained by the borrower or force-placed by your bank.

The OCC’s flood insurance rules state that a national bank shall not make, increase, extend, or renew a designated loan unless the property securing the loan is covered by flood insurance for the term of the loan. If a bank determines at any time during the term of the loan that the property securing the loan is not covered, the bank must notify the borrower that they should obtain insurance for the remaining term of the loan. If the borrower fails to obtain insurance within 45 days after notification, the bank must purchase insurance on the borrower’s behalf and may charge the borrower for the cost of premiums and fees incurred in purchasing the insurance, including premiums or fees incurred for coverage beginning on the date on which flood insurance coverage lapsed.

Regarding the gap in coverage that may occur during the 45-day notice period, the 2009 Interagency Q&As Regarding Flood Insurance provide that “private insurance policies providing portfolio-wide blanket coverage . . . may be useful protection for the lender for a gap in coverage in the period of time before a force placed policy takes effect.” However, a lender still must force place adequate coverage in a timely manner and may not rely on such policies on an ongoing basis.

Additionally, note that if you receive confirmation of a borrower’s existing flood insurance coverage, you must terminate any force-placed insurance within 30 days of receipt of confirmation and refund all premiums and fees the borrower paid for force-placed insurance during any period of overlap between the borrower’s policy and the force-placed policy.

For resources related to our guidance, please see:

OCC Flood Insurance Rules, 12 CFR 22.3(a) (“A national bank or Federal savings association shall not make, increase, extend, or renew any designated loan unless the building or mobile home and any personal property securing the loan is covered by flood insurance for the term of the loan. The amount of insurance must be at least equal to the lesser of the outstanding principal balance of the designated loan or the maximum limit of coverage available for the particular type of property under the Act.”)

OCC Flood Insurance Rules, 12 CFR 22.7(a) (“If a national bank or Federal savings association, or a servicer acting on behalf of the bank or savings association, determines at any time during the term of a designated loan, that the building or mobile home and any personal property securing the designated loan is not covered by flood insurance or is covered by flood insurance in an amount less than the amount required under § 22.3, then the national bank or Federal savings association, or a servicer acting on its behalf, shall notify the borrower that the borrower should obtain flood insurance, at the borrower’s expense, in an amount at least equal to the amount required under § 22.3, for the remaining term of the loan. If the borrower fails to obtain flood insurance within 45 days after notification, then the national bank or Federal savings association, or its servicer, shall purchase insurance on the borrower’s behalf. The national bank or Federal savings association, or its servicer, may charge the borrower for the cost of premiums and fees incurred in purchasing the insurance, including premiums or fees incurred for coverage beginning on the date on which flood insurance coverage lapsed or did not provide a sufficient coverage amount.”)

Interagency Questions and Answers Regarding Flood Insurance, 74 Fed. Reg. 35913, 35944, Question 64 (July 21, 2009) (“When may a lender rely on a private insurance policy that does not meet the criteria set forth by FEMA? A lender may rely on a private insurance policy that does not meet the criteria set forth by FEMA only in limited circumstances. For example, when a flood insurance policy has expired and the borrower has failed to renew coverage, private insurance policies that do not meet the criteria set forth by FEMA, such as private insurance policies providing portfolio-wide blanket coverage, may be useful protection for the lender for a gap in coverage in the period of time before a force placed policy takes effect. However, the lender must still force place adequate coverage in a timely manner, as required, and may not rely on a private insurance policy that does not meet the criteria set forth by FEMA on an ongoing basis.”)

OCC Flood Insurance Rules, 12 CFR 22.7(b)(1) (“Within 30 days of receipt by a national bank or Federal savings association, or by a servicer acting on its behalf, of a confirmation of a borrower’s existing flood insurance coverage, the national bank or Federal savings association, or its servicer, shall:

(i) Notify the insurance provider to terminate any insurance purchased by the national bank or Federal savings association, or its servicer, under paragraph (a) of this section; and

(ii) Refund to the borrower all premiums paid by the borrower for any insurance purchased by the national bank or Federal savings association, or by its servicer, under paragraph (a) of this section during any period during which the borrower’s flood insurance coverage and the insurance coverage purchased by the national bank or Federal savings association, or its servicer, were each in effect, and any related fees charged to the borrower with respect to the insurance purchased by the national bank or Federal savings association, or its servicer, during such period.”)