I think your case needs many features that are currently experimental or under development and undocumented.
- Overset meshes: We don’t have any example, but I have seen from other users that defining a surface-coupled interface inside an overset region should work. I don’t know how to configure it, though.
- Two-phase flows for FSI: This should work, as for example in Adds breaking dam test cases by KyleDavisSA · Pull Request #279 · precice/tutorials · GitHub (currently in review, relatively low on my priority list).
Note that you are using a serial-explicit coupling scheme and nearest-neighbor mapping. These are the simplest and least accurate methods that preCICE offers. Better try serial-implicit with IQN, and an RBF mapping.
Important question: does the flap move outside the overset region? You wrote that it crashes in the beginning of the simulation, so maybe this question is not yet relevant.