NATIONAL FLOOD INSURANCE PROGRAM GENERAL PROPERTY POLICY COVERAGE ANALYSIS

(January 2019)

Menu (click here to expand or to collapse)

This coverage is provided by the National Flood Insurance Program (NFIP) under the Federal Emergency Management Agency (FEMA). It protects residential and commercial property owners against loss from flooding. The authority to offer this coverage is drawn from the National Flood Insurance Act of 1968. The policy refers to this act and states that the coverage relies directly upon the Act and its amendments. The Act has been modified over the years but the fundamentals of the program remain the same.

Note: This analysis is based on the NFIP October 2015 edition form. ISO has recently introduced a flood insurance policy for use by the private market that can be an alternative to the NFIP.

Introduction

The General Property form opens with a statement that coverage is barred from applying to either a residential condominium building or an individual condo unit (an exception is made for personal property). The exclusion merely makes this form dovetail with the program's dwelling and residential condo policy forms.

I. Agreement

The insuring agreement obligates the policy to pay for direct flood losses that damage covered property. The coverage is contingent upon the policyholder having provided accurate underwriting (application and/or loss) information, compliance with applicable policy provisions and, naturally, payment of the policy premium. The policy is subject to review at any point of time and, if merited by such a review, the policy may be revised.

II. Definitions

The General Property Form defines the following terms in applying its coverages and provisions:

A. You and Your – the parties appearing in the policy’s declarations page. It also includes mortgagees and loss payees who appear on the application and declarations (). Mortgagees and loss payee who are not listed but can prove their financial interest in the covered property at the time of loss are also insureds.

We, Us, Our – refers to the insurer providing the flood coverage.

Flood – refers to:

1. Normally dry areas that have temporarily been covered in whole or in part by any of the following:

· Overflowing inland or tidal waters,

· An accumulation of water that is both rapid and unusual.

· Surface water runoff that comes from any source. (Heavy rains could be a source)

· Mudflows (a separately defined term)

However, the incident is a flood only if one or or both of the following occur:

· Two or more normally dry acres are inundated

· Two or more properties are inundated with at least one belonging to the named insured.

2. The collapse or subsidence of shores. However, the collapse or subsidence must be due to the action of flood-level water, such as erosion or be due to an waves or currents that exceeds anticipated levels due to overflow of inland or tidal waters

Example: The residents of Grunge Village Shops were dismayed by the sight of water crashing along their mall streets and into their businesses. They were even more dismayed when they found out that the water damage was not covered by their flood policies. The water was from Grunge Tide Bay and occurred because of a partial collapse of the shoreline. The collapse, however, was caused by the weight of the Grunge Tide Retail Outlet, which was built next to the man-made bay. The construction company ignored the warning of an engineer that this type of earth would support the bay, but not the large, cement-walled building. The collapse of the building also destroyed part of the shore, releasing half of the bay’s waters.

Related Court Case: "Flood" Definition Clarified

B. The following are additional terms used throughout the policy.

1. Act

The National Flood Insurance Act of 1968 as well as any and all changes made to the Act since its introduction.

2. Actual Cash Value

The full replacement cost of an item, minus the amount of physical depreciation that exists at the time a covered loss (flood) occurs.

3. Application

The written statement the insured person completed and signed (or which has been signed by an agent) for the purpose of getting a flood policy and which the insurer relied upon to issue the coverage and to determine the policy premium.

Note: The application is considered part of the policy, so any inaccurate statements may, if discovered, either alter the premium or, more seriously, void coverage.

4. Base flood

This is determined by community or area. The flood that becomes the standard of measurement for a covered occurrence. Specifically, the flood that has a probability of one percent of being either equaled or exceeded during a given calendar year.

5. Basement

ANY area of a covered building that has a floor that is below ground level (subgrade) on all sides.

Note: It is important to understand that absolutely any area that is subgrade on all sides is, by policy definition, a basement; this applies even if the area is a sunken portion of a ground level floor or even if the area is completely “finished.”

Example: The Ropers' home is a tri–level. The middle level, which holds the kitchen, living room and family room, is about 4 feet under the surrounding land's grade. The bottom level is even lower. The middle level and the bottom level are both, based on the flood policy definition, basements.

III. Property Covered

A. Coverage A – Building Property

This section describes the type of structural property that qualifies for coverage under the general property flood policy. Direct physical damage loss to the following items are covered but only if the damage is due to flood.

1. The building must be described in the policy's declarations and exist at the location described in the declarations. If the described building is a condominium and the named insured is the condominium association then all of the units within that building are covered but only those that are commonly owned. Improvements within the condominium units are also covered.

2. Building property that has been moved to another location in order to protect it from flood loss (as described in III.C.2.b) is covered at that location for a maximum of 45 days.

Example: Klamsdale Bakery is covered by a General Property Flood policy. On June 10^th, the business district where the bakery is located experiences flooding from an overflowing river. Klamsdale's owner moves a new, 14-Pan Proof Box out of the bakery to a friend's storage area. That equipment will remain eligible for coverage at the temporary location until July 24^th.

3. Additions and Extensions

Parts of an eligible building that have been added or that extend the property can be covered as part of the building to which they are attached or as a separate structure. This option is available only IF the addition or extension is connected by a rigid exterior wall, stairwell, roof, elevated walkway, or load-bearing interior wall. If the addition/extension is connected by a non-load bearing interior wall, it is part of the building to which it is connected and may not be separately covered. The ability to separately insure an extension could be important if the maximum coverage available is not enough to cover both the extension and the building to which it is attached.

4. Fixtures, Machinery and Equipment

This portion of Coverage A extends coverage to the following:

Awnings/Canopies	Central Air Conditioners	Furnaces	Antennas/aerials attached to buildings	Permanently installed mirrors
Blinds	Elevator Equipment	Freezers – Walk-in Type	Pumps and accessories	Permanently installed cabinets, bookcases, cupboards, paneling and wallpaper
Carpet (IF installed over unfinished flooring)	Fire Extinguishing Devices (including sprinklers)	Light Fixtures	Ventilating equipment

Other items eligible for coverage as building property are built-in dishwashers, microwave ovens, garbage disposals, water heaters, cabinets, plumbing, radiators, ranges, refrigerators, ands stoves IF they are installed in a unit that is located in a covered building.

5. Materials and Supplies

When such property is intended for building onto, or repairing the covered building, it also qualifies for protection against flood damage. However, the protection exists ONLY IF the material is stored in an enclosed building that MUST meet the flood policy’s definition of “building.” The materials must be in an eligible building that meets either of the following requirements:

· Located at the covered address

· At a location that’s next to the covered address.

6. A building in the course of construction before it is walled and roofed may qualify for coverage if the loss occurs during the time that work is being performed on the structure. This exception exists even when work is temporarily halted but that interruption can be for no more than 90 days.

This item does not apply to all structures. If the lowest floor in a non-elevated building or the lowest elevated floor of an elevated building does not meet the following criteria, the building is not covered until it is walled and roofed.

The criteria are determined by flood zone.

A	A1–30	A99	Must not be below the base flood elevation
AE	AH	AO	Must not be below the base flood elevation
AR	AR/A	AR/A1–30	Must not be below the adjusted wave action effect base flood elevation
AR/AE	AR/AH	AR/AO
V1–30	VE	V	Limitation does not apply

7. A manufactured home or travel trailer

Such property is eligible for coverage; however, special restrictions apply when the property is located in areas designated as especially vulnerable to flooding. The property must be anchored based on one of the following:

· Using over-the-op or frame ties to ground anchors

· According to the specifications of the manufacturer

· Based on the community’s floodplain management requirements. This item is waived if the building has been continuously covered under the NFIP since 9/30/82.

8. Property Located in Lower-Levels

a. Certain items that are located in basements or in the lowest level of an elevated post-FIRM building qualify for coverage. Eligibility depends on whether the property is installed where functionally intended and, if applicable, is connected to a proper power source. The eligible property includes:

Cisterns and sump pumps	Drywall for basement	Central Air Conditioners	Junction and breaker boxes
Electrical outlets/switches	Newer elevators, dumbwaiters and equipment	Fuel, fuel tanks	Furnaces, water heaters
Heat pumps	Nonflammable insulation	Solar energy system pumps/tanks	Attached stairwells/stairways
Water softeners, filters and faucets	Well water tanks/pumps	Utility connections	Foundation structures that support a covered building

Note: The limitation applies only if the elevated post-FIRM building is located in one of the following zones – A1-A30, AE, AH, AR, AR/A, AR/AE, AR/AH, AR/A1-30, V1-V30 or VE. It applies to all basements regardless of zone.

b. Coverage also extends to related clean-up costs involving the above items.

COVERAGE B – Personal Property

This section concerns personal property.

1. Personal property is eligible for coverage when either of the following apply:

a. It is owned by the named insured. If the named insured is a condominium association, personal property must be owned by the association and used solely for condo association activity

b. The unit-owners in a condo association own it in common.

Example: The Flufferville Condo Association has two personal property items listed among their flood damage property: a popcorn machine and a mahogany wardrobe. The popcorn machine is owned by the association. The wardrobe is jointly owned by all unit-owners. After a loss investigation, the damage to the popcorn machine is not paid, while the wardrobe loss is. As it turns out, the popcorn machine was rented out to local non-profits for their fundraisers. This was not considered condo association activity. The wardrobe was covered even though it was used to advertise a single condo member’s furniture store because there is no requirement that jointly owned property be used solely for condo association activity.

Eligible personal property that has been moved to another location in order to protect it from flood loss is covered at that location for a maximum of 45 days.

2. Selection of covered personal property

When the general property policy covers personal property, the insured must make a choice. The form may either protect household personal property or business personal property. The policy's protection is mutually exclusive. Further, in order to qualify for coverage, such property must be within a covered building.

a. If household property protection is selected, coverage applies to property belonging to the named insured, the named insured's family and, at the named insured's discretion, similar property that belongs to guests or domestic workers. Other eligible property includes items for which the named insured has a legal obligation to protect. The coverage maximum is controlled by the policy’s insurance limits.

b. If "other than household" property protection is selected, then coverage applies to furniture, fixtures, stock (as defined in the policy), machinery, equipment and other business-related property owned by the named insured.

Note: The other business-related property is subject to the policy’s Property Not Covered Section.

3. Property eligible for coverage under the General Property Policy includes:

Ovens, ranges, and similar appliances	Air Conditioners (installed within the covered building)	Washing Machines	Dryers	Cook-out Grills
Freezers (except walk–in freezers)	Outdoor Furniture and equipment - IF stored inside a covered building	Portable Dishwashers and Microwave ovens	Carpets-not Permanently Installed	Frozen Food

Example: Fiona's Health Togs is insured under a General Property Policy. She chose to protect her business personal property. During the policy period, flooding destroys most of her personal property. Specifically, she suffers the following losses:
Item	Located	Covered?
Fax/copier	Inside store	Yes– business personal property
Window Unit Air Conditioner	In window of exercise room that's attached to her store	No–doesn't qualify as business personal property
Warm up suits on a portable rack	On sidewalk outside of store	No–was not kept inside a covered building

4. Personal Property Located in Lower-Levels

Certain items that are located in basements or in the lowest level of an elevated post-FIRM building qualify for coverage. Eligibility depends on whether the property is installed where functionally intended and, if applicable, is connected to a proper power source. The eligible property includes air conditioners that are portable or window units, washers, dryers, food freezers that are not walk–in models and frozen food that is kept in a covered freezer.

Note: When not located in a basement, lowest level property is eligible only when located in buildings in zones A1-A30, AE, AH, AR, AR/A, AR/AE, ARAH, AR/A1-30, V1-V30 or VE.

5. Special Limits

The General Property Policy has a modest $2,500 limit for certain types of high-value, highly vulnerable personal property. The $2,500 amount is the maximum that will be paid for any flood damage involving artwork, rare books, autographed items, jewelry, watches, precious metals, any article in which fur is the principal value of the article, collectibles/memorabilia (sports cards, comic books, etc.)

Example: Andra Well-off suffers the following loss (and settlement):
Item	Value
A first edition of Moby Dick	$600
An ermine-trimmed belt	$300
A jade necklace	$1,900
A (miniature) self-portrait of Toulouse-Lautrec	$3,200
Total	$6,000
Total Settlement	$2,500

6. Antique Limitation

For all intents, antiques are treated the same as regular property. The General Property Policy pays losses involving such property according to its functional value.

Example: Jerry loses two file cabinets during a recent flood. Both were the same size. Cabinet one was bought last month from OfficeWorld for $85 and the other was handed down from his grandparents. It was built circa 1900 and was last appraised at $2,300. His policy paid him $80 apiece.

7, Improvements – Tenants

Tenants who make structural improvements to a covered building even though they will not be allowed to remove the improvements, may use a maximum of 10% of their personal property coverage limit to cover those improvements. Any amount used to protect an improvement reduces coverage available for other personal property.

8. Coverage Extension – Condo Unit Owners

Insureds who are single-unit condo owners can use a maximum of 10% of their personal property coverage limit to handle losses to interior walls, floors and ceilings. However, any amount used in this manner reduces the amount available on a given claim.

Note: This option is not available when the described property is protected by a condo building policy issued to a condo association.

9. Enclosed Property – Tenants

In order to qualify for coverage, tenant-owned property must be located within an enclosed building.

Example: In a recent flood loss to the apartment building when Lucy lives, she also lost a set of patio furniture worth nearly $400. Because this property was located on her first-floor apartment patio, it is not eligible for coverage.

Coverage C – Other Coverages

The General Property Flood Policy offers additional coverages.

1. Debris Removal

Losses normally include many instances of insured property being covered in debris. Coverage C’s coverage intent is to reimburse an insured for the expense of picking up and disposing of the debris. The coverage will pay for handling:

· Any foreign (not owned by the named insured) debris that is laying on the described premises

Example: 90% of a wall belonging to John’s neighbor’s home is now on John’s front lawn.

· Debris of insured property wherever it may be

· The labor cost of an insured or insured household who performs any debris removal. The payment is according to the applicable, federal minimum wage.

This is not additional insurance. Any payment made under Coverage C reduces amounts available to pay for losses under Coverages A and B.

2. Loss Avoidance Measures

This coverage reimburses the named insured for the following expenses related to mitigating or preventing a flood threat. These are not additional amounts of insurance but are sublimits that reduce the limit of liability available to pay for flood damage.

a. Sandbags, Supplies and Labor

A maximum of $1,000 if available for the cost of sand bags; fill materials to create a temporary levee; pumps; plastic sheeting, lumber and the related labor costs. The labor costs use the prevailing federal minimum wage in determining the value.

The policy requires that the insured building actually face possible flood damage. In order to be reimbursed, the local authorities must have issued an evacuation order or the area around the covered location and the location must have evidence of flood damage.

Editor's note: The additional requirements seem somewhat strict considering that its purpose is to encourage mitigation, the coverage amount is very modest and any reimbursement reduces the policy's available coverage limit.

b. Property Removed to Safety

The policy also provides a maximum reimbursement of $1,000 for expenses related to removing eligible property from a location that is threatened by flooding. The cost of moving a moveable home is included in this item. The property that has been removed is eligible for coverage away from the described location for up to 45 days from the removal date. However, the new property location must either be above-ground or out of any special flood hazard area (as defined by the policy).

3. Pollution Damage

This coverage has a limit of $10,000. However, any payment reduces the policy's coverage limit. It responds to loss caused by pollutants that are released from the described location due to flooding. It is a first party coverage, applying only to pollutant damage to covered property.

Example: Marvin's Mower and Lawn Equipment Repair Shop is covered by a General Property Policy. His limit under Coverage A is $162,000. A flood occurs and inundates his premises. Besides water damage to his shop and to the contents he wasn't able to move (before evacuating), the flood also caused several barrels of degreasing solvent to rupture. The $4,000 in damage that it causes to his shop is paid, but the $5,500 of damage the released degreaser inflicts on two neighboring businesses is not eligible for payment.

Note: This coverage does NOT extend to costs an insured faces to test for or monitor the presence of pollutants unless the insured must do so to comply with either a law or ordinance.

Related Court Case: Court Bars Suit For Damages To Contaminated Home – this is not a flooding event, but it does illustrate a how a polluting event can create a significant HO loss.

Coverage D – Increased Cost of Compliance

1. General

The General Property Flood Policy provides coverage to address some costs incurred to conform to state and local requirements involving repairing or rebuilding covered property that was damaged or destroyed by flood. Any payment is required to be related to qualified activities such as floodproofing, relocation and demolition. These activities are covered ONLY for residential structures that have acceptable basements as defined in the FEMA regulations and for nonresidential structures.

2. Limit of Liability

If and only if a flood policy includes protection under Coverage A, a total of $30,000 is provided under this provision to handle flood program compliance issues. The compliance costs must be associated with requirements under the flood act and the $30,000 maximum applies regardless how it may be provided under Coverage A and or Coverage D. No deductible applies for a Coverage D claim.

3. Eligibility

a. A qualifying structure must meet a number of NFIP program requirements.

(1) It must qualify as a repetitive loss structure. Besides being covered under a NFIP policy, it must have suffered covered flood losses a minimum of twice in the ten years immediately prior to the last reported claim. In addition, the following must be met:

· The previous loss amounts must have, at least, been equal to 25% of the covered structure's market value

· The community where the losses occurred must be enforcing a law that is equal to the cumulative or substantial damage provision that is encoded in its floodplain management law

(2) If not meeting the standards under a. (1), a structure that experienced flood damage equal to or greater than 50% of its market value. The market value used is based on the value of the structure at the time of the previous flood loss. Again, a state or community must be exercising its own cumulative or substantial damage provision against the structure.

b. Coverage D will also pay for compliance expenses to meet the NFIP’s minimum standards as stated in the Code of Federal Regulations. Payment may also be made for expenses to meet standards that are higher than those required by NFIP regulations if they exceed:

(1) The standards listed above in item 3.a. (1)

(2) The increase in cost of elevation or floodproofing that is needed to have a damaged home comply with FEMA base flood elevations in any risk zone. However, the cost has to be the result of a state or community adopting and enforcing the FEMA recommendations. This exception includes situations where elevations which are being increased in zones B, C, X or D, are being switched to base flood elevations UNLESS the elevations are derived by the state or community instead of elevations recommended by FEMA.

(3) The increase in costs of elevation or floodproofing that is needed to have a damaged home EXCEED FEMA base flood elevations IF it is done to comply with state or local “freeboard” (required height of construction above expected water level) requirements.

Coverage D will also pay the additional costs (subject to its insurance limits) when c. and/or d. below apply:

c. The increased cost is created in an unnumbered A zone where the elevation or floodproofing is done to comply with the base flood elevation recommended according to federal, state or local elevation data;

d. The incremental costs of elevating or floodproofing to meet state or local floodplain management laws after a covered structure has been demolished or relocated and the costs are incurred while the structure is being rebuilt either at the same site or at another site

Note: Item d. is subject to Exclusion D.5.g. below

e. Payment may also be made to help with compliance costs for rebuilding a structure at an elevation that meets the applicable community's base flood elevation. Payment is also made in instances where a damaged or destroyed home that previously received a variance (an exception or waiver) must now conform to local or State standards.

Example: The Oldenville Furniture Mill, built in 1973, was heavily damaged by a flood and must be rebuilt. Oldenville entered the regular NFIP program in 1990. Because of the age of the Mill and the fact that it had been maintained so well by its owners, the Oldenville Town Board granted the Mill a variance, so it didn't have to raise the level of its site. Now that the Mill has to be replaced, the board is requiring it to bring its site into compliance at an added expense of $23,000. The Mill's General Property Policy will respond to this additional cost.

Focus on Repetitive Loss Structures: In July 2003, Congress passed H.R. 253, titled “Two Floods and Your Losses Are Out of the Taxpayers’ Pocket Act.” The legislation was passed in response to the fact that, although repetitive loss structures are a small percentage of those that are vulnerable to flood loss, the class loss experience is disproportionate. Rather than take advantage of procedures meant to reduce the chance of future loss, such owners often just depend upon flood coverage to handle any damage. The Act provides an incentive to take mitigating action, such as elevating or moving the structure. If recommended action is not taken, property owners risk the chance or paying much higher flood insurance premiums or face the loss of flood insurance and/or federal disaster assistance.

Related Article: Repetitive Loss Properties

4. Conditions

This section contains a fairly straight-forward explanation of a couple of stipulations involving loss payments under Coverage D – Increased Cost of Compliance.

a. A covered structure must suffer direct damage from flooding. The flood loss must be accompanied by an increase in claim costs. The increased cost must be due to the enforcement of a law or regulation involving floodplain management. The items eligible for coverage include increased costs to:

· Elevate

· Floodproof

· Relocate

· Demolish (including clearing the site, discontinuing utilities and properly abandoning utilities located on the loss site), a covered structure including any combination of the above activities.

b. The building that is rebuilt or repaired must have the same use and occupancy as the building that was damaged or destroyed UNLESS a change is made because of an ordinance or law.

Example: Klara's Klericals, a small temp worker service housed in a three thousand square foot office, was substantially damaged by flooding. A town ordinance required her to tear down the remaining part of her office and rebuild. Klara did so and her new office was completed a few months after the flood loss. Klara's flood policy would have covered the additional cost caused by the demolition expense except that instead of rebuilding it for her prior occupancy she changed the layout so it could support her new business, Klara's Kiln, a pottery shop.

5. Exclusions

This section explicitly states that it refers to Coverage D – Increased Cost of Compliance. This may seem insignificant, but it certainly aids the understanding of the provision and should be used in the other provisions. Regardless, there is NO COVERAGE for costs created by authorities enforcing:

a. Community floodplain management laws or ordinances. This exclusion applies only to communities under the NFIP Emergency Program.

Since the flood coverage in such communities is limited, it is logical to restrict strained insurance resources to covering direct losses.

b. Pollution related regulations that mandate an insured to do any of the following related to the impact of pollutants:

· Test for

· Clean up

· Monitor

· Contain

· Treat

· Detoxify

· Neutralize

· Respond to

· Assess

Note: The general property flood policy uses the same description of pollutants that is found in standard ISO property and casualty insurance policies.

c. A loss in value to any covered structure or building when compliance with flood regulations creates the reduction.

Example: the Brendreds were in the midst of selling their coastal home when it is severely damaged by flooding. When repaired, they were required to adjust the elevation and install barriers. The changes improved their property’s ability to weather future floods but ruined their view. Their realtor estimates they lost roughly 40% of what they could have received when they finally were able to sell their home. The Brendreds, while suffering an additional loss related to the flood, will not be able to recover the loss of property value from their flood policy.

d. The loss of residual value of the undamaged portion of a covered structure that must be demolished or relocated because of complying with a flood regulation.

e. The Coverage D compliance costs will not be paid unless both the following conditions are met:

(1) Until the covered building actually undergoes the required elevation, floodproofing, demolition or relocation

(2) The required compliance activity takes place within a maximum of two years from the loss date.

Note: This is really more a condition than an exclusion.

This is quite a logical exclusion. The insurer is not obligated to pay for activity that either doesn’t actually take place AND doesn’t take place in a timely manner. This protects the insurer against paying for either unnecessary costs or, due to prolonged delay, for unnecessarily increased compliance costs.

f. Any code upgrade requirements that are not part of a state or local floodplain management law or ordinance.

This concerns updating a structure’s plumbing, electrical system, etc. that may be required in various ordinances or laws but that are not specifically flood related.

Example: Ned has just finished rebuilding his package storage business. He experienced some additional costs. Besides having to elevate the building to comply with his community's flood plan provisions, he also had to strip out the building’s ancient copper plumbing and install PVC pipes. This additional, non-flood compliance cost is not eligible for coverage.

g. If an improvement or addition is made following a flood loss, the costs needed to bring that improvement or addition into compliance with a state’s or local community’s floodplain management laws or ordinances is excluded.

h. Loss due to any ordinance or law that the insured was required to comply with before the current loss.

Example: Carl's pizza shop was flooded by Happytown's creek overflowing its banks due to winter ice/snow runoffs. The Write Your Own insurer that handled his flood coverage deducted several thousand from his settlement when it discovered (from Carl), that he was supposed to comply with some of those local flood ordinances the previous year but had not.

i. Any rebuilding activity that fails to pass NFIP minimum standards, including receipt by the insured of a state or community variance to rebuild flood damaged property at an elevation below the base flood elevation.

In other words, even when a policyholder suffers a serious loss which includes a requirement to improve the structure to meet local flood standards, but not the minimum standards set by the NFIP, the general property policy’s Coverage D will not cover the increased cost. This exclusion applies even when the policyholder has a variance from having to meet the higher standard.

It would appear that this exclusion would come into play under rare circumstances. However, there may be an instance such as the following.

Example: Lowlee Grocers suffered flood damage equal to 65% of the current market value of his store. Circle-land’s anti-flood regulations required him to elevate and floodproof his building according to Circle-land’s independently derived standards, which were below the NFIP standards. Lowlee’s flood policy has Coverage D limits of $10,000. The increased cost to comply is $8,000 to meet Circle-land’s standards and $12,000 to meet the NFIP standards. Lowlee decides to avoid out of pocket costs that would be created by meeting NFIP standards and rebuilds his store according to Circle-land requirements. Lowlee is shocked to discover that, since his compliance efforts do not meet NFIP standards, he’ll have to handle the entire $8,000 as out-of-pocket expenses.

j. Increased Cost of Compliance for garage or carport

There is no protection under Coverage D for increased costs to bring carports or garages in compliance with state or local ordinances.

k. Any instance involving property that is protected by a Group Flood Insurance Policy issued pursuant to 44 CFR 61.17.

Simply, any structure insured under the specified group policy is not eligible for protection because that would result in duplicate coverage.

l. Either condominium association or individual condominium unit-owners assessments that are made for handling additional costs of repairing post-flood damage to commonly owned buildings.

The exclusion applies to such costs related to having to conform to state or local floodplain management ordinances or laws.

Example: Jan Cubbihole was still in the process of getting her salon back in order after suffering a big flood loss when she got a notice from her Mall Association. Leekalot Shoppes is assessing all of the store unit owners for damages to the Leekalot Food Court in order to meet local floodplain ordinances. Jan is upset when she reads in her policy that the $2,345 assessment isn’t covered.

One might argue whether this is a fair exclusion, say in the instance where all of the condo association members have paid for an adequate amount of coverage under Coverage D – Increased Cost of Compliance. However, the exclusion is, at least, consistent with the policy’s approach to bar the ability of a condo association to get coverage via individual condo owner flood insurance policies.

6. Other Provisions

This item is a notice that all of the policy’s remaining conditions and provisions apply to Coverage D.

IV. Property Not Covered

This section clarifies some types of property and situations that are not eligible as covered property. The general property policy does NOT COVER:

1. Personal property that is in the open.

If the property is not in a building, it isn’t covered. This portion of the provision is pretty logical because such property is very vulnerable to loss and is also highly portable; an insured should be encouraged to protect such property by moving it into a fully enclosed building.

2. A building and personal property located in the building when the structure is either in, on, or over water is ineligible for coverage. Further, if a building is located seaward of mean high tide, it also fails to qualify for protection. IMPORTANT – this exclusion applies only to such buildings that were either newly constructed or substantially improved on or after October 1, 1982.

3. Damage to open structures and damage to personal property located in, on, or over water. Boat houses and structures in which floating boats are kept or stored are also ineligible.

4. Recreational vehicles are barred from coverage. Their ineligibility is not affected by whether they still have wheels or are a part of a permanent foundation. However, travel trailers that are within the definition of building in II.B.6.c, are covered.

5. Any self-propelled vehicle or machine and motor vehicle including their parts and equipment. There are two exceptions. When they are inside the building, motorized equipment pertaining to the service of the described unit or building or that are designed to assist handicapped persons are covered.

6. Land and its value is not covered. Living, growing property such as lawns, trees, shrubs, plants, and crops are ineligible. In addition, animals are not covered.

7. Valuable papers and currency such as manuscripts, accounts, bills, currency, deeds, evidences of debt, money, as well as medals, postage stamps, securities, bullion, and similar property including records.

8. Wells, septic tanks, septic systems, and all other underground structures and equipment are ineligible property

9. Surfaces that lie outside a covered property’s perimeter walls are not insured. Examples are walks, walkways, deck driveways, patios, and other surfaces) are not affected by their type of construction nor by whether they are covered.

Example: Fanny's apartment building was flooded along with the rest of her part of town. Unfortunately, this occurred a day after she just had a new cement sidewalk poured. The loss of $2,500 in cement work is not covered.

10. Any type of container and its related equipment. Examples of such containers are gas or liquid tanks.

11. Property below ground, meaning a building or unit and its contents, including personal property and machinery and equipment.

Underground homes or structures, including contents, are not covered by the general property policy if slightly half or more of the structure’s actual cash value is located below the base flood elevation or the adjacent ground level; this is depending upon whether the home is part of the Regular or Emergency Flood Program. This exclusion does not apply in instances where a building has used earth in an approved manner for insulation. An insured would have to have documentation to prove that the building and insulation installation met with building construction and energy conservation standards as well as with the NFIP’s applicable elevation requirements.

Note: This exclusion is an all-or-nothing premise. If the structure’s features cause it to fail to qualify for coverage, then ALL of the accompanying structures and contents are ineligible.

12. Other structural property that is ineligible for protection includes fences, retaining walls, seawalls, bulkheads, wharves, piers, bridges and docks.

13. Aircraft and watercraft are not covered and the exclusion extends to related furnishings and equipment.

14. Other ineligible property includes hot tubs, pools, spas and there plumbing. This does not apply to such items when a part of a bathroom.

15. No protection applies to property barred from coverage under the Coastal Barrier Improvement Act and the Coastal Barrier Resources Act.

16. No coverage is available for property that belongs to a condominium unit owner that falls outside of the types referenced under Coverage B – Personal Property.

17. A residential condominium that is located in a community covered by the NFIP Regular Program (as defined) is not eligible for coverage.

V. Exclusions

A. The General Property Policy will not compensate, reimburse an insured, nor provide an allowance for:

1. Lost revenue or profits

This is clearly an extension of the previous exclusions of coverage for indirect losses. The ultimate reward for any business activity is the portion of any income that exceeds the cost of generating the income. There is no opportunity under the flood policy to be reimbursed for potential profits that are lost because of a covered event.

2. Lost access to covered property or premises (described location)

This is rather similar to exclusion A.1. The difference is that this is an indirect source of loss that does not or may not involve any loss to any covered property.

Example: Jeri Stiltlover’s home is completely unharmed by the recent flooding of his neighborhood by a swollen creek. Jeri’s home is novel because it is built upon a set of thick, six-foot-tall posts. Unfortunately, several sewers collapsed, including the portion underneath his driveway and the public road in front of his home, so he must stay in a hotel until repairs are made. The extra meal and rooming expenses (averaging nearly $80 a day) are not covered by the flood policy.

3. The insured’s loss of use of the insured premises (described location) and/or the covered property

While an insured can suffer genuine economic harm from a flood that prevents an insured from using his property, such loss is indirect; so, it would not qualify as a recoverable loss.

4. Loss resulting from interruption of business, profession or manufacture

Another source of indirect loss is the loss caused by unrealized opportunities. Again, since this is not a direct loss of tangible, insured property, no claim for such losses can be filed under the flood policy. Actually, they can be submitted, they just won’t be honored.

5. Additional expenses that are incurred while the insured building is being repaired or is uninhabitable, regardless the reason

The flood policy is priced to handle direct damages to an insured residence or personal property from flood waters. The policy is NOT structured to pay for higher expenses suffered when a building cannot be used.

6. Any increased cost of repair or reconstruction as a result of any ordinance regulating reconstruction or repair, except as provided in Coverage D – Increased Cost of Compliance

The first thing to do is to review what protection is provided by Coverage D. Otherwise, any legal requirement that adds to the cost to repair or replace a damaged home is not covered. Why is there a need for such an exclusion? The rating for any insurance policy relies upon having solid information about the maximum exposure to loss. Laws or rules that substantially change an insurer’s exposure, without adjusting their premium for the increased exposure, are a threat to an insurer’s ability to provide coverage to all of its customers.

Example: Alex Bracelard’s restaurant is located in the Western Memories Business District and it was severely damaged by floods caused by days of torrential downpours. The city just sent him a notice that, since nearly three/fourths of the restaurant has to be replaced; the city is exercising its building requirement that the business be rebuilt to mimic the frontier town architecture used throughout the district. Alex’s flood policy has a limit of $130,000 and the original loss was estimated at $92,500. In order to comply with the city’s requirement, a builder estimates a total cost of $124,000. This additional cost is not covered in the policy, so Alex has to consider selling his business.

7. Any other situation that creates economic loss

It appears that this exclusion prevents an insured from filing a claim to recover for any type of financial loss that, while connected or related to a flood loss, is not eligible for coverage under the flood policy.

B. A loss which already exists at the time when the effective date of the flood policy first takes effect. The starting time for coverage is 12:01 A.M. of the first day of the policy period. This same stipulation exists concerning any increase in coverage that is requested. Neither coverage, NOR a higher limit of coverage, apply to a flood loss that has already occurred.

Example: Jim's Gymnastics has a new flood insurance policy with a limit of $115,000. Jim's business is experiencing severe flood damage due to wide-spread, storm-induced run-off. The flooding began on September 18, 2017. Jim’s new policy has effective dates of September 22, 2017 through September 22, 2018. The water subsides on September 28th. Unfortunately, because at the time the policy took effect the business was already flooded, the loss is not covered.

C. Losses involving earth movement. Examples of earth movement are the following:

· Earthquake

· Sinkholes

· Land destabilization or movement caused by underground water accumulation

· Gradual erosion

· Land subsidence

· Landslide

An exception is made for the limited types of earth movement which ARE covered. You must refer to the definition of flood in order to understand this exception.

Example: In certain instances, damage from mudflow is eligible for flood coverage.

D. Losses involving other causes, including:

1. Weight or the pressure of ice.

2. The effects of freezing and thawing

3. Rain, snow, sleet, hail or water spray

Policyholders under the flood program have to look elsewhere for damage caused to their property from these perils. The flood policy’s rating is designed for covering its definition of the flood hazard.

4. While the flood policy does provide coverage for damage caused by flooding, it does not cover losses involving any if the following:

· Water

· Moisture

· Mildew

· Mold

This is the case IF:

· The loss is a result of a condition that is confined to the described location. A flood that is only at the insured’s location is NOT covered. The definition of flood requires a more widespread water loss.

· The condition is under the insured’s control. Circumstances that may be considered to be under an insured’s control are: defects in design or structure, mechanical deficiencies, failure or stoppage; as well as broken water lines, pumps, sewer lines, drains, fixtures or equipment.

5. The flood policy does not cover damage from water or water-borne material seepage, sewer backup or sump pump backup. However, if flood that is in the area and is the proximate cause of such activities, it is covered.

6. The pressure or weight of water UNLESS such damage is due directly from flooding.

7. The flood policy normally excludes flood losses which are due to the failure of a covered property’s heating, cooling systems or of its loss of power. HOWEVER, such losses can qualify for coverage when it is an eligible flood physically damages power, heating, or cooling equipment on the described location. This means that no coverage is available when the flood at an off-site premises caused the failure.

Example: A businessowner suffers a serious loss to his equipment because a pump located in his office's basement fails over the weekend while his business is closed. The unpumped water reaches the first floor. At first the claim is denied. However, upon investigation, it’s discovered that the flood waters short-circuited the pump’s power supply, causing the water to accumulate. In this instance, the flood damage is covered.

8. Loss from theft, fire, explosion, wind or windstorm is not covered.

This is a logical exclusion because the flood coverage is meant to dovetail with other policies that respond to non-flood sources of loss to insured property.

9. A loss caused intentionally by the insured or any person on the insured’s behalf (agent).

This exclusion makes sense as it is based upon the very foundation of insurance coverage: that the loss be accidental in nature. Creating a loss on purpose is the ultimate slap in the “face” of an insurance policy and is, understandably, excluded.

10. A loss caused by the insured’s modification to the insured property which materially increases the risk of flooding.

Example: Prudy Mylawn’s passion is taking care of her garden and landscaping. Prudy and the subscribers to her dating club also love their privacy. An attraction that her customers like is the solid wood plank fencing around three sides of her dating club premises. She loves how the new fence contrasts with the gentle, downward slope of the land in the rear of her club. It was even worth ignoring the fence contractor’s suggestion to raise the fence several inches off the ground. After a particularly heavy spell of wet weather, Prudy is upset when, not only is there a lot of standing water in her yard, the water backed-up into her club, ruining carpeting and oaken flooring. Unfortunately, the damage was due to her fence trapping the rainfall, so the damage is not covered by her policy.

E. Finally, there is no coverage for flood damage to any property that is located on property that is leased from the Federal Government under the following circumstances:

· The property has been flooded by the Federal Government

· There is a hold harmless agreement that relieves the government from liability under the flood policy

Further, in the above situation, no claim can be made for any indirect losses or expenses related to the property being flooded.

VI. Deductibles

The method for applying deductibles under the general property policy is essentially as straightforward as what is found in most other types of policies. Any payment under the policy is net of the deductible amount that appears in the policy declarations. However, there are two notable differences between the general property deductible provisions and those of other forms.

A. The stated deductible increases substantially under a certain circumstance. If a loss occurs to a covered building that is in the course of construction, the applicable deductible may double. A doubled deductible applies if the covered structure does not have a minimum of two sturdy exterior walls and a secured roof when a loss occurs. The higher deductible appears fair. An insured should bear a greater amount of the flood loss exposure during the time that the property is in a much more vulnerable condition.

B. The stated deductible applies separately to a covered building and covered personal property.

Example: There is a flood loss with the following results:
Property Affected	Loss Amount
Building Damage	$12,000
Contents Damage	$9,500
Total Loss	$21,500
In this case, a $1,000 deductible applies. According to this provision, the deductible would apply as follows:
Property Affected	Loss Amount	Deductible
Building Damage	$12,000	$1,000
Contents Damage	$9,500	$1,000
Totals	$21,500	$2,000
In this case, the total settlement would be $19,500.

C. There are two instances when a deductible is not applied: when the loss involves either Loss Avoidance Measures and/or Increased Cost of Compliance.

Example: Again, we have a business suffering a flood loss with the following result:
Property Affected	Loss Amount	Deductible
Building Damage	$12,000	$1,000
Contents Damage	$9,500	$1,000
Loss Avoidance expense	$1,300	N/A
Increased compliance costs	$5,000	N/A
Totals	$27,800	$2,000
The change in loss circumstance, with a significantly higher loss amount, has no effect on the total deductible. The result is that, overall, the impact of the deductible decreases.

VII. General Conditions

This section contains items that, generally, affect the entire policy. For the most part, they concern either coverage or contractual issues.

A. Pair and Set Clause

If an article which is part of a pair or set is lost, the carrier has the option of paying an amount equal to the cost of replacing the lost article, less depreciation, or an amount which represents the fair proportion of the total value of the pair or set that the lost article bears to the pair or set.

This provision gives an insurer the flexibility of handling the loss of such an item as individual property. Yes, the insurer tries to settle the loss while considering the fact that a piece is part of a pair or set. However, the insurer is not obligated to automatically settle such losses as though the insured has lost the full value of the pair or set.

B. Concealment, Fraud and Policy Voidance

1. This policy is voided, will become ineligible for either renewal or replacement if any insured or its insurance agent has done any of the following regarding this particular policy or any other NFIP insurance:

· Lied about or concealed any material fact

· Committed any fraudulent act concerning this insurance

· Made a false statement

Insurance policies are contracts where the party providing the insurance protection is highly dependent upon an applicant for information concerning the insurance-worthiness of their property. The NFIP is so sensitive about this contractual issue that, unlike most property and casualty programs, the application is made into a legal part of the insurance contract. An applicant who decides to either hide or lie about information that would affect the insurer’s decision to accept or properly rate a flood policy faces the prospect of losing their coverage, even at the time of a loss.

Example: Ig Noble has just bought rental property from a friend who tells him that he needs to tear down the solid wood fence that borders the back and side yards. The seller/friend says that the fence doesn’t allow water to drain during very heavy rains and that his property was almost flooded several times from backed-up water. Ig decides to ignore the friend’s warning because he likes the fence and he thinks that the drainage situation will improve when he changes the landscaping. Ig doesn’t think he needs to mention the situation when he applies for a flood policy. Several months later, while investigating a flood loss (surprise… from backed-up water), Ig’s agent finds out about the fence and drainage problems and tells the insurer. The insurer voids the policy and denies coverage for the $9,500 loss.

2. If a policy is voided, the move takes place as of the wrongful act.

3. A party whose policy is voided also faces the punishment of not being eligible for reinstating, renewing or replacing the coverage. Further, proof of any fraud may also result in a guilty person being fined or even jailed.

4. Coverage may also be voided for other reasons such as the property being of a type that is not eligible for coverage under the NFIP. Another voidable reason? If, at the time the policy was written, it was part of a nonparticipating community and, subsequently, the community does not join or reenter the NFIP prior to a loss.

C. Other Insurance

1. If a loss that is covered by this policy is also covered by other insurance, whether collectible or not, the insurer is obligated to pay no more that would be covered under this policy. It is limited to the proportion of the loss that the limit of liability which applies under this policy bears to the total amount of insurance. However, this proportion amount applies only if neither of the following applies:

· If there is other insurance in the name of the insured covering the same property protected by this policy that states it is excess, then this policy is primary and the proportionate sharing does not apply.

· This policy is primary but the deductible amounts differ. After it meets is own deductible it alone pays until the deductible of the other insurance is satisfied. Once the other insurance’s deductible is met, all losses are then shared in the proportion the remaining limit on this policy bears to the amount of insurance that remains available from both policies.

This provision is similar to those found in other types of insurance policies. It is intended to take the existence of other sources of coverage into consideration when determining loss payments. This preserves the larger goal of not permitting individuals to “profit” from insurance and to protect the flood program’s capacity by restricting it to provide only its share of coverage to an eligible loss.

2. If this policy is issued to a condominium association and a covered loss occurs to a condominium unit owner who has separate flood coverage, this policy responds on a primary basis.

Note: This provision is triggered regardless of whether another source of coverage is collectible. On its face, this would mean that the amount of coverage under the flood policy would contribute on a proportional basis even if another source can’t be collected.

D. Amendments, Waivers, Assignment

This policy cannot be amended nor can any of its provisions be waived without the express written consent of the Federal Insurance Administrator. No action taken by the insurer under the terms of this policy can constitute a waiver of any of its rights.

The named insured has the right to transfer this policy to another if the transfer in done in writing. The transfer will take place at the same time as the transfer of title. This right is NOT permitted if the building is in the course of construction or if the policy applies only to contents.

This condition is unique in that a named insured can assign its policy to the entity purchasing the property insured under this policy without prior notice to the insurance company. Most insurance policies do not permit any assignment of coverage due to the need to specifically underwrite the named insured insured. However, problems can arise.

Example: Kleer Forsyte purchased a flood policy as soon as he started to build his new flower shop. However, even Kleer didn’t foresee his wife's sudden transfer from Soggyville to her company’s home office in Dryerplace. Kleer’s flower shop partner, Gona Stayputt, buys the “shop-in-progress.” Kleer believes he is permitted to have the flood policy assigned over to Gona. Much later in the year, after the shop has been built and Gona has begun business, there’s a flood loss. The adjuster says that the flood claim is denied because Kleer could not assign the policy to Gona because the building was in the course of construction at the time of the assignment.

E. Cancellation of Policy by You

An insured under the general property flood policy may choose any time to cancel his or her coverage. Any refund will be handled according to NFIP rules.

F. Nonrenewal of the Policy by Us

Coverage will not be renewed if the community where the covered property is located no longer participates in the National Flood Insurance Program or if the covered building is classified as ineligible.

G. Reduction and Reformation Coverage

1. Either before or after a loss occurs, the insurer may discover that they did not receive the correct premium due on the policy. The discovery may be obvious, such as the insured failing to send in the full premium; or it can be subtle, caused by an error or oversight in policy rating. In such instances, the policy coverage can be reduced to the level that coincides with the level of full-term coverage that could be purchased with the amount of money actually received.

2. Once the problem is discovered, the insured will get a notice to send in the additional premium. If the additional amount is received in time, coverage will be reformed to supply full–term coverage at the original amount requested or, if the discovery occurred after a loss, settlement will be made according to the full amount of initial coverage. If the additional amount is not received in time, coverage will continue at the reduced amount or, if applicable, the loss will be settled according to the reduced amount.

A notice of additional premium due is also sent to any mortgagee or trustee that appears on the policy. That party may take advantage of having the coverage reformed by making the payment. However, such a party only has 30 days from the time of receiving the notice to do so.

Note: If a mortgagee or trustee exercises this right, the benefit only applies to that party.

This item is a commendable feature of the policy. Traditionally, insurers that receive inadequate premium arrange to use the premium received as a paid–up amount and then terminate coverage. The flood policy treats such payments differently. Instead of terminating coverage, the coverage is kept in force, but according to the amount of coverage supported by the lower premium amount.

Example: Bea Shortpay bought a flood policy. The insurance limit on her store was $89,000. Bea’s premium payment was discovered to be inadequate to cover the full amount. Bea received notice that additional premium was due. If Bea doesn’t make an additional payment, her coverage is reduced to $81,000.

Note: Any coverage adjustment MUST conform to the minimum amount of coverage permitted by federal regulations. Again, it is worth mentioning that, since there are several references to the Code of Federal Regulations (CFR), it would be helpful if this information were included with the policy, if not in full, at least the pertinent excerpts.

Exactly what happens when an insured doesn’t pay the full premium? The following is the basic order of events:

1. The insurer discovers that the premium payment is insufficient

2. An additional billing is sent to the insured

3. The insured has 30 days from the date of the written additional premium notice to send payment

4. If payment is received in time, coverage is restored according to the amounts originally requested

5. The coverage restoration is effective either on the inception date of the policy term or, in the case of an endorsement form, the endorsement’s effective date.

If the insufficient premium is discovered before a loss, the additional premium billing is for the current policy term or, if applicable, the full endorsement term.

If the insufficient premium is discovered after a loss, the additional premium billing is for the current policy term as well as (when applicable) the PREVIOUS policy term or, if applicable, the full endorsement term.

Note that an additional financial interest in the flood policy, such as a mortgagee or trustee, ALSO receives a 30-day notice of the additional premium due. The right to reforming coverage for the additional interest is limited to increasing the coverage to meet the total amount of indebtedness rather than the original amount requested.

However, it is not clear whether this provision only applies in cases where the outstanding debt is LOWER than the amount of coverage requested and would be limited to the coverage amount originally requested if, by some circumstance, the mortgage or loan amount were the higher amount.

3. What happens if the insufficient premium was due to the insurer finding out a material misrepresentation or concealment that affects the policy coverage? In such instances, the policy is not subject to reformation and an additional billing notice, but rather voidance of coverage is triggered.

H. Policy Renewal

1. This condition tells an insured that he or she has to take the bulk of responsibility for keeping the flood insurance in force and to pay careful attention to the policy effective dates that appear on the policy declarations page. Coverage for a given policy term expires on 12:01 a.m. on the last day of the policy’s term.

2. In simplest terms, the insured has to pay the renewal premium within 30 days of the policy expiration date or coverage ends as of the policy’s expiration date. In the event that a payment is BOTH received and accepted by the insurer, a renewal policy will be sent to the insured.

3. If the insurer has either failed to send a renewal notice before the policy expiration or it used an errant address that delayed proper delivery prior to a renewal date, the following procedures will be followed:

· If, within a year from the policy’s expiration date an insured or his agent tells the insurer that they never received a renewal notice and the insurer is able to confirm that a notice was not received, the insurer will send a second billing notice.

· The second notice will have a separate 30-day grace period. If it is paid in time, the coverage will renew. If it is not paid, the policy remains expired.

4. Recertification – An insured may be required to confirm that all of their rating information is still correct. The insurer uses a Recertification Questionnaire for this purpose.

I. Conditions Suspending or Restricting Insurance

This is a harsh condition. It states that the flood policy will NOT pay for a loss that occurs after an insured either knows about or is responsible for an increase in the property’s vulnerability to flooding.

J. Requirements in Case of Loss

Should a flood loss occur to the insured property, the following actions must be taken by the named insured:

1. Notify the insurer in writing promptly

2. As soon as reasonably possible, separate the damaged and undamaged property, putting it in the best possible order so that the insurer may examine it

3. Prepare a complete inventory of the damaged property. The inventory has to describe all quantities, descriptions, loss amounts and ACV of each item, along with any documentation (i.e., receipts).

4. Within 60 days following the loss the proof of loss must be sent to the insurer. A valid proof of loss is a written statement about the amount being claimed under the policy. This document must be signed by the insured and it is a sworn statement which must include the following information:

a. The date and time of the loss

b. An explanation that can be brief about how the loss happened

c. The named insured’s (financial) interest in the property damaged and any other interests in the damaged property.;

d. Details about any other insurance covering the property. This means the named insured is required to fully disclose all information on any other source of coverage. The insurer wants to be in the position of deciding on whether other sources apply. The policyholder is not to make this decision.

e. Details of any changes in ownership, use, occupancy, location or possession of the insured property since the policy was issued

f. Building specifications and repair estimates

g. Names of mortgagees or all others who might have a lien, charge or claim against the property insured under this policy h. Details about whoever was occupying occupied any insured building at the time of loss. This should include the purpose for which it was being occupied.

i. The inventory of damaged property as explained in item J. 3 above.

5. Document the loss with all related bills, receipts, and similar documents for supporting the amount being claimed. The named insured is to use its own judgment in determining the amount of loss but then justify it.

6. The named insured is required to cooperate with the adjuster or representative as they investigate the claim.

Note: Under item 7. which follows, although the insurer supplies an adjuster to handle the loss, this person has very limited authority; this is especially true regarding questions about the eligibility of the loss for coverage under the policy.

7. The adjuster investigating the claim may provide a proof of loss form and may help in its completion. However, this is a matter of courtesy only, and the insured still has the responsibility to send the carrier a proof of loss within 60 days after the loss even if the adjuster does not furnish the form or help in its completion.

8. The adjuster is not authorized to approve or disapprove claims or guarantee whether the claim will be approved.

Example: Val and Mal Adjustid’s home was severely damaged by a recent flood. Soaked Soil Ins. Company sent Larry the adjuster to handle their claim. Val, Mal and Larry spent a couple of days looking at the damage around their home and studied the damage to their personal property. Larry gave the Adjustids a proof of loss statement. The statement was thorough and included receipts. The Adjustids mentioned in the statement that they relied totally upon Larry’s expertise in claiming a loss of $23,000 on their personal property and $52,300 on their home. Soaked Soil Ins. sent the Adjustids a polite, but firm denial of the claim until they send a proof of loss statement that reflects their own assessment of the loss amounts.

9. This item is the complete opposite of item 7. The insurer may choose to waive the requirement that the insured files a signed proof of loss statement. Instead, the insured may be required to sign and swear to an adjuster's report of the loss which includes information about the loss and the damages sustained. The company will rely on the adjuster’s report to handle the claim.

K. Our Options after a Loss

An insurer has a wide variety of options on the type of information they may request from an insured. The frequency and the complexity of the requests may be according to company policy or, more typically, are controlled by the loss circumstances. Such requests may involve the following:

1. Display the damaged property. The insurer reserves control over the manner and timing of such displays. The insurer also establishes a right to question an insured under oath about the loss circumstances and amounts. At its discretion, the insurer may request substantial amounts of documentation (financial records, bills, notices, receipts, vouchers, etc.) and also claims a right to copy materials that it decides are relevant to their investigation.

If a condo association is involved with a loss, the insurer may request any and all association documents, particularly rules and bylaws. Interest in this information is due to the fact that such agreements typically contain important references to insurance matters, such as who is responsible for what property, assessments, etc.

2. This provision also mandates the insured to furnish the insurer with a complete inventory of the damaged property, including the total loss claimed, the itemized costs involved, information on replacement and repairs, any quantities involved and applicable actual case value property values. 3. Options to Replace:

As long as it reacts within 30 days of getting an acceptable proof of loss, the insurer may elect among several options to respond to a flood loss. The insurer may replace, rebuild or repair the damaged property. It may then take possession of damaged property at the value both parties agree upon or that is established through an appraisal. The possession may either be in part or in whole.

Here, the insurer has re-asserted its right to find the least expensive option of reimbursing an insured for an eligible loss. While an insured may dispute this right, it is a valid method for an insurer to control its total obligation for settling claims.

L. No Benefit to Bailee

This merely states that the named insured is the only insurable interest protected by the general property policy.

M. Loss Payment

1. Once the named insured files a proof of loss and the insurer accepts it as valid, the insurer is obligated to pay for the loss within:

· 60 days if the named insured submitted the Proof of Loss

· 90 days if the signed adjuster’s report was used instead of the proof of loss

Note: This part of the policy can be misleading as there are administrative rules which decide such items as when the NFIP can make a final loss determination.

2. If the proof of loss (claim) is wholly or partially denied, the named insured has the following options:

· Accept the denial

· File an amended proof of loss but must do so within the time period allowed by the Administrator

· Exercise their other rights under this policy.

N. Abandonment

The named insured does not have the right to abandon any covered property to the insurer, even if it is damaged. This clause works in hand with the provision on salvage.

O. Salvage

If the insurer gives its permission, a named insured may be allowed to keep “salvaged” property. Never the less, the insurer will have to adjust any loss payment to reflect the fact that salvage property was kept by the insured.

Note: This would include future payments. In essence, salvage property could conceivably become ineligible property.

P. Appraisal

If the insurer and the named insured do not agree over the value of the covered property or the amount of the loss, each party has 20 days after receiving a written request from the other party to select an appraiser. The two appraisers will select an umpire.

If they do not agree on an umpire within 15 days, the two appraisers will ask a judge of a court of record of the state where the appraisal is pending to make the selection. Each appraiser will submit their own suggestions of value for each item of property, with any disputes submitted to the judge. The named insured and the insurer are bound by the written agreement of any two of these three persons. Each party will pay its appraiser and the two parties will share the cost of the umpire and related expenses equally.

Q. Mortgage Clause

This condition states that it applies only to the covered building and only when that building has a mortgage interest shown in the policy or if the insurer finds out about the mortgage interest before any loss is paid. A trustee is treated as a mortgagee. The rest of this condition, in essence, states the following:

· Any loss payment will be made to either a mortgagee or trustee, in accordance to how their interests appear

· The property interests are paid in order of precedence

· The maximum amount of payment is limited to the mortgagee/trustee’s actual financial interest

· No act of the borrower affects the insurer’s obligation to pay the lender or trustee’s financial interest in the policy except when the policy premium is not paid. In the Reduction and Reformation of Coverage the mortgagee is given a separate payment notice which can be paid in order to protect its financial interest.

· The mortgagee can maintain the policy even when there’s an increase in hazard or a change of title IF they notify the insurer of this change.

Note: The policy can be rendered void if the mortgagee doesn’t pay the additional premium necessary to cover the exposure to a higher hazard of loss.

· The mortgagee is entitled to a separate 30-day advanced notice of cancellation.

· The insurer may, under certain conditions, acquire the mortgagee’s right to recover against a party that damaged the covered property.

· The existence of subrogation doesn’t affect the mortgagee’s right to full payment under the policy.

R. Suits Against Us

While the insured may file suit against the insurer, the right is limited by the following:

· The suit has to be filed within one year after being notified that the claim is denied

· All other policy conditions, such as appraisal, must be satisfied

· The suit has to be filed in the District court where the covered property is located.

S. Subrogation

Often when a loss occurs, the damage may involve more than the force of nature. It could well involve another party that has some level of responsibility. This is a party that may be sued in order to recoup a loss payment. Recognizing this, the insurer, after making any valid loss payment, assumes the insured’s right to take legal action against other parties. This transfer of rights (subrogation) is automatic. This right is so important that, if an insured knowingly does anything to harm them, the insurer may possibly seek recoupment from the insured.

Should the named insured receive any payment from other parties, the insured must pay back to the insurance company what it paid on the loss. The remaining payment than belongs to the insured.

T. Continuous Lake Flooding

1. This describes a loss situation where a property covered under a flood policy becomes uninsurable through the NFIP. When a property is experiencing an extended and uninterrupted period of flooding (90 days or more), and which, in all likelihood, is eligible for the maximum payout provided by the policy, the named insured may request to receive payment without waiting for the waters to recede and going through the loss adjustment process.

The release mentioned above stipulates the following conditions, which must be accepted by an insured in order to receive payment under the continuous flooding provision:

a. No additional claim may be made under the policy

b. No attempt may be made for renewal policy coverage

c. Not to apply for any flood insurance under the Act for property at the location of the insured building and

d. The named insured may not attempt to be reimbursed from previous premium payments.

Note: This option does not have to occur within a single policy period in order to be exercised. It could start a month before the expiration of one policy term and then be exercised in the third month of the renewal policy term. The controlling condition is the length of the continuous inundation.

2. When the inundation of water if from a closed-basin lake, the insured has an option to claim based on T. 1 above or based on the information within this item. A closed basin lake is naturally occurred and has no water outflow so that water in the lake is is reduced only via evaporation. To qualify the area of the lake must be or has been in the past at least one square mile. .

a. A loss qualifies under this provision if lake waters either actually damage or are a certain threat to damage a covered structure. The policy will pay for loss on the presumption that the structure is a total loss.

b. Prior to approving a claim under this part of the policy, the named insured must meet several requirements including:

· Accepting payment that incorporates a salvage value of the affected property (the policy refers to a negotiated salvage)

· Cooperate in identifying and labeling their site as having special status within the applicable community's flood map including allowing an easement surrounding the property. The loss site then only becomes usable for certain purposes, such as agriculture or recreational, but not as permanent residential space. Further, if insurable property is placed on the location (which would be deemed an area of special consideration (ASC), it would not be eligible for coverage if flooding occurred due to any, authorized flood control activities.

· Comply fully with part 1. of the continuous lake flooding provision

c. Unless an extension is granted, the named insured must agree to relocate the covered building completely away from the ASC and this must occur no later than 90 days after having a claim payment approved

d. The named insured must secure both an elevation certificate and a floodplain development permit from the area’s floodplain administrator for the building’s new location. Final claim payment cannot not occur without this step’s completion

e. The authorities that have jurisdiction of the property’s new location has to accommodate the named insured’s use of the new location (via land ordinance or moratorium) which aligns with the easement granted for the payment agreement, must monitor and report to FEMA concerning any flood provision violations and must comply with the restricted land use of the vacated ASC, even if that area falls into ownership by a non-profit organization

f. No claim payment may be approved without the applicable State fully complying with FEMA’s policies established for closed basin lakes

g. Continuous flood coverage is required for the relocated property, but a 60-day period of non-coverage is granted in situations involving transfer of property

h. The T. 2 part of the condition is in effect only if applicable community receives documentation of the policy provision compliance from the applicable FEMA Regional Director.

Related Court Case: Flood In Progress Voided Policy

U. Duplicate Policies Not Allowed

The NFIP does not allow two policies covering the same property to co-exist. If the existence of the two was intentional of the named insured part, only the coverage on the earliest issued policy will be honored. No other coverage is in effect.

However, if the existence of duplicate coverage was unintentional by the named insured, when the insurer discovers it, a notice will be mailed to the named insured of the situation and asking which of the methods is to be used in solving the dilemma:

The earlier dated policy is to be maintained. The named insured can then choose to add coverage limits from the later issued policy. The limits are added as of the effective date of that later issued policy.
The later dated policy is to be maintained, The named insured can then choose to add coverage limits of the earlier policy as of the effective date of the later date policy.

If limit changes are made, any additional premium is charged on a pro rata premium. The insurer will make a refund for the policy that must be cancelled.

This condition may have been better handled as a sub-part of the policy's Other Insurance provision. This condition operates under numerous assumptions, including:

· It refers to more than one policy but only addresses a maximum of two policies. What if there are more than two?

· It assumes that the two policies have different effective dates

· It is designed to deal with policies having different policy limits

· The condition is written as though the different policy limits fall below the maximum value of the property or below the maximum permitted by the Act

· It assumes that the duplicate coverage is written under the same insured’s name

Perhaps this condition should be re-visited in order for it to deal with more situations or to deal with corrections more effectively. The procedure under the condition currently requires that one policy be amended, an additional billing being sent and, possibly paid. Application means the written statement the insured person completed and signed for the purpose of getting a flood policy sent for the amended coverage amount and a refund be processed for the other policy. Would it make more sense to see if the two policy premiums could be combined and then either refund or additionally bill under the remaining policy?

V. Loss Settlement

This merely states that the insurer is obligated (when making payment) to settling eligible losses according to the actual cash value of the damaged property, the cost to repair or replace the damaged property, or the available coverage limit that exists for the damaged property. The insurer has the option of using the least expensive option.

Example: Lou's Copystuff Shop is badly damaged by flooding. After his property was inspected, the following was determined:
Damages	ACV Cost	Building Policy Limit	Repair/Replacement Cost
Destroyed flooring and partially collapsed rear wall	$39,000	$176,000	$31,200
In this case, Lou's insurer issues a check (minus the deductible) to have the damage repaired since that's the cheapest option.

VIII. Liberalization Clause

Essentially, if the insurer makes a change in coverage under the flood program and that change represents a benefit to the named insured and does not require a premium payment, the named insured automatically receives the benefit. If applicable, the benefit would apply to any loss that occurs after the benefit has been introduced to the flood program.

This condition allows changes to be made to the flood program without having to immediately correct the wording of policies that are produced and distributed prior to any changes.

Because many policies are issued prior to their policy term, the liberalization clause applies to not only changes that happen during the policy term but also up to 60 days prior to the policy term.

Example: Jeremy’s flood policy renewed on June 10th. A month earlier, on May 10th, the flood program was changed to include an additional coverage of $500 for building material that is stored outside of the building. This additional coverage is added without an additional charge. In this instance, the new coverage applies to the insured’s policy, even though the older policy’s wording does not include the change.

IX. What Law Governs

This is another notification to remind the policyholder that the coverages and application of the policy are controlled by FEMA regulations and the National Flood Insurance Act, as well as Federal common law.

CLAIM GUIDELINES IN CASE OF A FLOOD

This is a helpful addition to the flood policy because it provides a central point of information in case of flood and also provides some very easy to follow steps to follow after a loss has occurred:

The 800 numbers for the NFIP are provided. In addition, a space if provided for the policyholder to enter the insurance agents name and phone number.

The following should occur after a loss occurs:

· The named insured must notify either the insurance company or the agent as soon as possible

· The claim is assigned to an adjuster that has been certified by the NFIP

· The named insured should be contacted by an adjuster within 24 hours of the claim notice. If such contact hasn’t been made, the named insured should identify who their claims adjuster is and to contact him or her. Unfortunately, it doesn’t say how to do that.

· Organize and preserve damaged property to assist the adjuster’s evaluation of the damage. The damaged and undamaged items must be separated.

· Take interior and exterior photographs which show damages and specifically shows the height of the water

· Verification records, such as account books, financial records, receipts should be placed in an easily accessible area for the adjuster’s review.

· Work closely with the adjuster, providing full loss information

· Ask the adjuster to properly explain flood claim procedures, especially concerning the required Proof of Loss statement

· Contact the NFIP directly to handle any claim payment problems.

Of course, since these are offered as guidelines, it is important to determine if there is any information or requirement that is not included in the ACTUAL policy provisions. Ambiguity would exist if some unique requirement was found among the guidelines which could harm an insured’s settlement or coverage if the applicable guideline was applied as a strict policy provision.

Special Flood Hazard area (zones)
A	A1–30	A99
AE	AH	AO
AR	AR/A	AR/A1–A30
AR/AE	AR/AH	AR/AO
V	VE	V1-V30