How I Almost Got Tricked into Buying Flood Insurance I Didn’t Need

I couple of months ago, I received an alarming letter in the mail. It was from my mortgage provider. The first sentence was:

Dear Customer,

Our records indicate that your flood insurance policy protecting certain structures located at the above property address has cancelled or expired on the date indicated above. Based on the location of your property, you’re required by Federal law to maintain flood insurance on this property…

You have 45 days from the date of this notification to obtain flood insurance at your own expense. If we do not receive proof of flood insurance coverage from you within 45 days from the date of this notification, we are required by federal law to obtain flood insurance on your behalf. You will be charged for expenses we incur in obtaining insurance for you and you will be responsible for any premiums for the insurance. Please be advised that the costs to you if we obtain it on your behalf may be higher than the costs of obtaining your own insurance.

I was reading this fairly quickly and applying it my situation. The property is in Massachusetts where floods are historically non-existent. That was until last year, where there was one and I heard about it all the way out here in California – not because it was big, but because it was so unusual. In reading this, I had a few thoughts:

1. I had never been required to buy flood insurance before. Clearly the section about “cancelled or expired” was erroneous.
2. Perhaps because of the flood last year, my property got rezoned as being in a higher risk area and hence requiring insurance where it didn’t before.
3. Oh crap, I really don’t want them buying flood insurance for me as it sounds like they’ve got a deal in place with someone who gouge me and perhaps give them a kickback for the Lazy people like myself.
4. Just what I need, another thing to add to my to-do list and something that’s going to cost me significant money too.
5. There’s no way out of this since it’s federal law as they mentioned a couple of times.
6. The letter was clearly official and not from some kind of third party telling me that I need to buy their insurance or anything like that.

So I did what any normal person would do. I stopped reading and put it in a pile to look at later. Why exhaust all the depressing information at once, when I can be repeated depressed multiple times, right? A week later, I was feeling happier, so I decided it was time to tackle it. I complained a bit to my friends over email and I called up my insurance company and told them that I need flood insurance. They quoted me an outrageous price of around $2,000 a year. Towards the end of the call, they realized it was a condo and that flood insurance was likely covered by the master policy. A check of my email showed my lawyer friend had already written back with the same advice.

Upon further review of the letter that I received, I missed the section that says:

If your property is a condominium and the flood insurance is purchased by your Condominium Association, please provide us with a copy of the current Condominium Association Master Policy showing evidence of flood coverage.

Let me start off by declaring the obvious. I’m an idiot for not reading the whole letter in detail. However, like everything negative that goes on in our household, I’m going to blame our dog for barking while I reading it. He almost never barks, but I’m sure that was the case at this point of time. I just took a look at him and he’s not trying to defend himself in any way. Clearly, it’s his fault.

With that out of the way, I have the following questions:

• Couldn’t my mortgage company looked up my property to find out that it was a condominium and lead off with that information instead of saying, “If your property is a condominium…”
• Couldn’t my mortgage company contact the condominium association and have one person representing the whole association send in the master policy for all 250 units rather than ask 250 people to send in the identical policy and deal with the same paperwork 250 times? PHH Mortgage seems to be pretty large as it handles both my and my wife’s condos (originally bought through different lenders).
• Does my condo association have the flood insurance on the master policy, saving me from having to buy more? If so, how did the flood insurance policy expire or get cancelled?

The first two questions are mostly rhetorical. I’m upset that there isn’t a better process in place. The last point was the big one. I did indeed have flood covered in the master policy. So I had to go through the work of getting that paperwork and sending it to my insurance company. The insurance company only takes submissions via mail or fax. I guess they can’t handle a digital upload or any of this new-fangled Internet technology stuff. With my phone lines being VOIP, fax machines don’t work well with them. So I mailed the policy to their office.

A month later, I got notice that they bought the insurance for me. I called them up and told them that I sent the master policy. They said that they don’t get it, but that it “often happens with our mail. You really should fax it to us. We’ll refund all the money for the new insurance if it turns out you are insured.” So after locating a working fax machine (not an easy process), I sent it in. A couple of weeks later I got a letter saying that they received my information that I no longer needed to have insurance bought on my behalf with the money refunded.

I did ask the mortgage company about why I never had to do this in the previous 7 years of ownership. It turns out it has nothing to do with the flood policy being “cancelled” or “expired” as the letter indicated. It’s simply that recently FEMA has been cracking the whip and making sure these mortgage companies have updated records. She said that I’ll likely have to send it in every year from here on out.

If so, I’ll add that to my long list of broken processes.