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For many years, the flood zone determination (FZD) industry has offered a “life of loan” flood determination guarantee. Usually, this is in the form of a representation or warranty made by the FZD company in conjunction with the rendering of their initial determination. The FZD company will then purchase an E&O policy for damages resulting from any error or omission in the rendering of their services. Claims within the E&O insurance deductible are self-funded by the FZD company whereas claims in excess of the deductible are remanded to their E&O carrier. This creates several potential problems and issues for some lenders: · There is no guarantee that the FZD company will be around in 10, 20 or even 30 years. Is the lender regularly reviewing the FZD company’s financial condition? · Does the FZD company have the capitalization to fund such “warranty” claims? · E&O insurance is claims made coverage. Will it be one of the first expenses cancelled should the FZD company experience financial problems? · The primary mission of all E&O insurers is to defend against third party (i.e. lender) claims. What additional expense will the lender incur in battling an adversarial E&O carrier? Mapguard is an insurance policy, issued to either a lender or a flood zone determination company (FZD) that insures life of loan map tracking and reimburses the lender for loss as a result of tracking errors and map revisions. For more information, contact FIS. |