Coverage under a standard flood insurance policy, issued under the National Flood Insurance Program, was amended in 1988 to include the cost of relocating or demolishing dwellings "subject to imminent collapse or subsidence as a result of erosion or undermining caused by waves or currents of water exceeding anticipated cyclical levels . . . . "

A dwelling, for which a NFIP policy was in force, was certified by the Michigan land use authority to be subject to imminent collapse because of conditions covered by the policy amendment. The owners of the house made claim under their policy and a Federal Emergency Management Agency (FEMA) adjuster made an estimate of the loss. Winter intervened and small animals (including raccoons and squirrels) entered the dwelling and damaged walls, ceilings and furnishings.

A second adjuster examined the property in the spring for a final determination of the loss. He noted the damage done by animals and substantially reduced the value of the structure. The final determination of the loss was a figure far below the original estimate.

The insureds sued FEMA in federal court for breach of contract by not adjusting their loss at a figure based on the original valuation of their property. FEMA responded with a motion for summary judgment affirming that its final determination of loss was proper. The issue for the court was " . . . whether the amount of loss incurred by demolishing or relocating a house is calculated based upon the condition of the structure when the claim is filed or may be determined at some date after the claim is filed, thus not compensating for losses which occur after the claim is filed but before a final evaluation."

The court noted that the amendment expanding NFIP policy to embrace "imminent collapse" was silent with regard to the date on which a house should be valued. It cited Nida v. Federal Emergency Management Agency, 817 F.Supp. 597 (E.D.N.C. 1992), in noting that an NFIP policy payment is not made until a "final determination by the Director that the claim is in compliance with regulations . . . "

The Nida court said that NFIP regulations make clear that insureds are compensated "only for damage which is directly attributed to flood." It reduced a settlement to the extent of vandalism damage that occurred between a preliminary valuation and final determination of loss.

The federal court in the case at hand said that FEMA was not required to value property as of the date of claim. If it were, such a requirement " . . . would make the flood insurance program insure all possible loss which occur(s) after the claim is filed, in essence turning the flood insurance program into a general insurance program."

The court concluded that FEMA did not breach the contract with its insureds and that there was not a negligent delay in making a final determination. FEMA's motion for summary judgment was granted.

SMIETANKA ET UX, Plaintiffs v. FEMA, Defendant. United States District Court for the Western District of Michigan, Southern Division. No. 1:92-CV-719. August 31, 1993. CCH 1994 Fire and Casualty Cases, Paragraph 4665.