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pdfVI. INCREASED COST OF COMPLIANCE (ICC)
A. PRINCIPAL FEATURES OF ICC COVERAGE
The limit of liability for Increased Cost of Compliance (ICC) coverage was raised to $30,000
on May 1, 2003. Any flood loss prior to May 2003 will be adjusted according to the previous
limit of $20,000.
When a building covered by a Standard Flood Insurance Policy (SFIP) sustains “repetitive
losses” or “substantial damage” caused by a flood, the NFIP will pay up to $30,000 for losses
sustained on or after May 1, 2003, and up to $20,000 for losses sustained prior to May 1, 2003,
for the cost to elevate, floodproof (for nonresidential buildings only), demolish, or relocate the
building, or any combination thereof, when any of these actions are undertaken to comply with
the enforcement of state or local floodplain management laws or ordinances. ICC coverage is
available on residential and nonresidential buildings (this category includes public and
government buildings, such as schools, libraries, and municipal buildings) insured under
the SFIP.
The National Flood Insurance Reform Act of 1994 authorizes ICC coverage only for flooddamaged buildings. Therefore, ICC coverage does not pay for the increased cost of repairing or
altering buildings damaged by wind, fire, earthquake, or other perils.
ICC coverage was included as Coverage D in every SFIP written or renewed on and after
June 1, 1997. The premium charged for ICC coverage varies depending on the type of building,
whether the building is Pre-FIRM or Post-FIRM, the flood zone, and other factors.
The maximum amount collectible under the SFIP for both the ICC payment and the direct loss
payment for flood cannot be greater than the maximum limits of coverage for that class of
buildings authorized under the National Flood Insurance Act of 1968, as amended. The
maximum limit available of flood insurance building coverage are $250,000 for residential
buildings and $500,000 for nonresidential buildings. For a residential condominium building, the
maximum limit available of flood insurance building coverage is $250,000 times the number of
insured units.
B. COVERAGE QUESTIONS AND ANSWERS
1. Does ICC coverage extend beyond the building itself?
No. ICC coverage is provided only on the building covered by an SFIP. Under the SFIP, a
“building” is defined as a walled and roofed structure, other than a gas or liquid storage tank
that is principally above ground and affixed to a permanent site. Land, land values, lawns,
trees, shrubs, plants, and growing crops are not covered. In addition, items such as portions
of walks, walkways, decks, driveways, patios, and other surfaces located outside the
perimeter exterior walls of the insured building or units are not covered.
2. Is ICC coverage available for appurtenant (accessory) buildings?
Yes. ICC coverage is available for an appurtenant (accessory) building but only when a
separate flood insurance policy is written on the appurtenant building. An appurtenant
structure is one on the same parcel of property as the principal structure and the use of
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which is incidental to the use of the principal structure. The SFIP does not provide coverage
for direct physical loss from flood for an appurtenant structure except in the Dwelling Form.
The Dwelling Form extends coverage for direct physical loss from flood to a detached
garage located on the premises of a one- to four-family dwelling. However, ICC coverage
does not apply to these or any other appurtenant buildings indicated in the “Exclusions”
section of the ICC coverage. Therefore, a separate flood insurance policy must be written
on any appurtenant structure to obtain ICC coverage.
3. What buildings have ICC coverage?
All buildings in Regular Program communities have ICC coverage except the following:
a. Buildings insured under the Group Flood Insurance Policy, which covers recipients
awarded an Individual and Family Grant for flood damage under §411 of the Stafford
Act (42 U.S.C. § 5178) as a result of a Presidential major disaster declaration.
b. Units insured under a condominium unit owner policy.
Buildings located in communities participating in the Emergency Program do not have
ICC coverage.
C. ELIGIBILITY QUESTIONS AND ANSWERS
1. When is an insured building eligible for an ICC claim payment?
An insured building (note exceptions in 3, a, and b above) is eligible for an ICC claim
payment when a new SFIP is issued or upon the renewal of an SFIP on or after June 1,
1997. Canceling a policy to obtain ICC coverage is prohibited.
2. Will an ICC claim be paid on a building that is less than 50 percent damaged but must
comply with a state or community floodplain management law or ordinance that has
a substantial damage threshold below 50 percent of the market value of the building?
No. Buildings must be damaged by flood to at least 50 percent of market value in order to
be eligible for an ICC claim payment.
3. Once an ICC claim for demolition is paid, can the insured, at a later date and once
it is decided to rebuild on the same or at another site, make an additional ICC claim
for elevation?
Yes, but the total payment (demolition plus elevation) is limited to the ICC limit at the time of loss,
currently $30,000. Also, the elevation activity must be completed within 4 years of the
community’s original declaration of substantial damage (see below). The elevation activity may
be accomplished at the original lot or at another lot where there is a requirement to elevate.
4. What conditions must be met for a repetitively damaged building to be eligible for an
ICC claim payment?
A building is eligible for an ICC claim payment for repetitive damage if it is in an SFHA
(A and V zones), is a repetitive loss structure, and is subject to state or community
floodplain management laws or ordinances.
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There are two additional conditions that must be met in order for an ICC claim to be paid
under the SFIP for a repetitive loss structure.
a. The state or community must have adopted and be currently enforcing a repetitive
loss provision or a cumulative substantial damage provision requiring action by the
property owner to comply with the state or community floodplain management laws
or ordinances.
States and communities are not required to adopt a repetitive loss provision. Adoption of
a cumulative substantial damage provision or a repetitive loss provision is voluntary. In
the event that a state or community adopts a repetitive loss provision or a cumulative
substantial damage provision, this provision must be enforced on all buildings in the
community irrespective of whether the buildings are covered by flood insurance.
b. The building must have a history of NFIP claim payments that satisfies the National
Flood Insurance Reform Act of 1994 definition of a “repetitive loss structure”:
“a building covered by a contract for flood insurance that has incurred
flood-related damages on 2 occasions during a 10-year period ending on
the date of the event for which a second claim is made, in which the cost
of repairing the flood damage, on the average, equaled or exceeded 25%
of the market value of the building at the time of each such flood event.”
The date on which the first loss occurred, even if the loss occurred before June 1,
1997, is immaterial as to eligibility for an ICC claim payment, so long as the state or
community enforced a repetitive loss or cumulative substantial damage requirement
and the loss occurred within the 10-year period and the insured building satisfies the
definition of “repetitive loss structure” under the National Flood Insurance Reform
Act of 1994.
5. What conditions must be met for a substantially damaged building to be eligible for
an ICC claim payment?
A building is eligible for an ICC claim payment for substantial damage if the community
determines that it has been damaged by flood and the cost of restoring the building to its
before-damaged condition would equal or exceed 50 percent of the market value of the
building before damage occurred.
All states and communities participating in the NFIP must have a substantial damage
provision in their floodplain management laws or Substantial Damage is deemed to have
occurred when:
“damage of any origin is sustained by a building whereby the cost of
restoring the building to its before damaged condition would equal or
exceed 50 percent of the market value of the building before the
damage occurred.”
The NFIP substantial damage definition applies to building damage from any origin, such as
fire, wind, earthquake, etc. In cases where the damage is due to a combination of hazards,
such as wind and flood, an ICC claim is paid only when the flood component of the damage
equals or exceeds 50 percent of the market value of the building. In order for a payment to
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be made under ICC, the claim representative must verify that the damage was caused
solely by flood or that the cost to repair the flood component of the damage to the building
equals or exceeds 50 percent of the market value of the building.
6. How long does an insured have to complete the approved ICC mitigation measure(s)
and what is the correct date of loss for an ICC claim?
Note: FEMA Bulletin W-06019, March 14, 2006, waived the 2-year time limit for the
completion of ICC activities for all claims on or after June 1, 2005, and extended the time to
complete these activities to 4 years. The time limit found at paragraph 5.e. (2) will be
changed to 4 years.
The date of loss for an ICC claim is the same as the date of loss for the underlying flood
claim. However, the time limit for completing an ICC claim (4 years for claims on or after
June 1, 2005) begins on the date of the declaration by the local community official that the
insured structure has been substantially damaged by flood.
7. Will a handicapped insured’s ICC elevation claim that includes the cost of installing
an elevator or chair lift to access the now elevated building be paid when a covered
elevator or chairlift was not previously installed?
No. If these items existed at the time of loss coverage would be afforded in the underlying
direct physical damage claim subject to all SFIP policy limitations and exclusions that apply.
8. If a building is compliant at the time of loss, but after the loss the community adopts
a freeboard ordinance or the Advisory BFE, would the otherwise compliant building
be eligible for ICC benefits?
Yes, if the mitigation activity was taken after the community adopted and enforced the new
ordinance and height requirement(s).
D. CLAIMS ADJUSTMENT QUESTIONS AND ANSWERS
1. What is the process for adjusting a claim under ICC coverage?
When a flood event has occurred, an adjuster is assigned to adjust the direct physical
damages. The adjuster advises the policyholder of ICC coverage in the SFIP if it appears
that damages may exceed 50 percent or more of the value of the structure and the building
is in an SFHA.
Because ICC claims are paid only when the property owner is required to rebuild in
compliance with a community’s substantial damage or repetitive loss provision, a
determination must be made by the community whether the flood damages to the building
result in substantial damage or repetitive loss that requires compliance with state or
community floodplain management laws or ordinances. The adjuster must obtain the
substantial damage or repetitive loss determination in writing before adjusting the ICC
claim. The policyholder and the community should discuss the floodplain management
requirements and the mitigation options (elevation, floodproofing, demolition, or relocation
of the building, or any combination of these) once a determination by the community has
been made.
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Once a determination has been made by the community that the building has been
substantially or repetitively damaged by flooding, the policyholder notifies the insurer of the
determination. The adjuster advises the property owner that a signed construction contract,
one itemized cost breakdown of the work (see FEMA Bulletin W-04020, May 7, 2004,1.),
and a start and completion date for the work will be needed.
Once the policyholder has notified the insurer of the substantial damage or repetitive loss
determination, the insurer creates a claim file and assignment to an adjuster. The adjuster
must obtain information from the community regarding the community’s substantial damage
or repetitive loss determination. The adjuster uses this information to confirm that the floodrelated damage for the current building claim (and prior claim, if it is a repetitive loss
structure) supports the community’s substantial damage or repetitive loss determination. In
addition, the adjuster will verify whether the claim meets all other eligibility requirements for
payment under ICC coverage.
The adjuster confirms that the damage meets the requirements for making an ICC claim
payment and that the policyholder has provided a signed contract and one cost estimate for
the mitigation measure. The adjuster provides the policyholder with the ICC Proof of Loss
form. The adjuster also explains to the policyholder how payments will be made and advises
the policyholder that, if the mitigation measure is not completed within the required time
frame, any payments issued under the ICC claim must be returned to the insurer. In
addition, the adjuster advises the policyholder that a permit issued by the community to
undertake the work will be needed prior to making the initial ICC claim payment. For
buildings that are to be elevated or floodproofed in SFHAs, the permit must indicate the
level of protection to which the building is to be elevated or floodproofed.
After the ICC Proof of Loss form and a permit from the community have been returned to
the adjuster, the adjuster advises the property owner that the request for initial payment
toward the ICC claim will be submitted to the insurer for review and payment authorization.
When the mitigation measure is completed, the adjuster obtains an elevation certificate, (if
warranted), a copy of the certificate of occupancy, letter, or written official notice from the
community that the mitigation measure has been satisfactorily completed and that no
variance was granted. The claim representative issues the final ICC claim payment after all
documentation of satisfactory completion has been submitted.
2. Can partial payment be issued on an ICC claim?
Paragraph 5.e. of SFIP Coverage D – Increased Cost of Compliance provides that an ICC
claim cannot be paid (1) until the building is elevated, floodproofed, demolished, or
relocated on the same or to another premises, and (2) unless the building is elevated, flood
proofed, demolished, or relocated as soon as reasonably possible after the loss, not to
exceed 2 years. The question has arisen as to whether this provision precludes the
issuance of partial payments for ICC claims.
The two conditions in SFIP paragraph 5.e. refer to the total payment of an ICC claim, which
means partial payments are permitted. Partial payments may be issued in advance of
completion of the mitigation activity but cannot exceed 50 percent of the total estimated
reimbursable cost of the mitigation activity.
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3. Should mortgagee name(s) be included on the ICC partial and final payment checks?
No. The SFIP Dwelling Form - Mortgagee Clause, Section VII, General Conditions. Q.,
states that any loss payable under Coverage A. will be paid to any mortgagee of whom the
insurer has actual knowledge. ICC payments are subject to Coverage D and do not require
naming a mortgage.
4. What does “assignment of Coverage D” mean? What is the process involved?
If a community plans to pursue a FEMA-approved mitigation project, such as a project
under the Hazard Mitigation Grant Program, the policyholder can assign the eligible portion
of Coverage D (ICC) claim to the community. The insured must complete the Assignment of
Coverage D form and return it to the community official. The community official will submit a
copy of the completed form and a written Declaration of Substantial Damage to the NFIP
Bureau and Statistical Agent. The Bureau and Statistical Agent will enter the data into a
tracking system and send both documents to the insurer, with instructions.
Specific steps for assignment of the ICC claim benefit to the community are itemized below.
a. Policyholder consents to assignment of the ICC claim payment.
b. Community official provides the policyholder with an Assignment of Coverage D form.
c. Policyholder completes the form and returns it to the community official.
d. Community official sends a copy of the form, along with the community’s signed
Declaration of Substantial Damage, to the NFIP Bureau and Statistical Agent at the
following address:
NFIP Bureau and Statistical Agent
PO Box 310
Lanham MD 20706
Fax: (301) 577-3421
E-mail: [email protected]
e. Bureau and Statistical Agent enters the ICC information submitted by the community
into a database. The Bureau then sends the documents to the appropriate WYO
Company, with instructions. The company assigns an adjuster.
f.
Assigned adjuster contacts the policyholder to confirm receipt of the claim, and then
contacts the community official to help coordinate the claim.
g. Adjuster reviews the contract for demolition, elevation, relocation, or floodproofing to
determine the covered cost.
h. Adjuster has the community official sign the ICC Proof of Loss form once the claim
value has been determined.
i.
Adjuster sends the NFIP Final Report form and the Proof of Loss to the insurance
company for payment.
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j.
Insurance company issues the check to the community and advises the NFIP Bureau
and Statistical Agent of the amount of the claim payment.
E. OTHER FREQUENTLY ASKED QUESTIONS AND ANSWERS
1. When an estimate for demolition of a dwelling includes the cost to demolish the
garage, is coverage for the garage provided under ICC?
The cost to demolish the home is covered. If the garage is detached, then coverage will not
apply. The garage should have its own policy.
2. Is ICC coverage provided for the slab, walkway, and driveway?
Coverage is afforded for the slab. However, there is no coverage for the walkway
and driveway.
3. Fill dirt is required to stabilize the lot. Is this covered under ICC?
If the cost is to grade the lot, then coverage will apply. The Interim Guidance for ICC –
Part 4, Demolition, paragraph 2, states “Once the building is removed from the site,
steps should be taken to clear the site of any remaining materials such as the foundation,
remove any utility systems, and grade and stabilize the site in accordance with any State
or local regulations.”
4. If the lot is littered with trash such as tires, cans, etc., will this be considered
ICC-covered debris?
No coverage applies.
5. The SFIP excludes coverage for septic systems. If the building is demolished under
ICC, will the cost to remove the septic system be covered?
Yes. First, all applicable permits to demolish the building must be obtained. Once the
building is removed from the site, steps should be taken to clear the site of any remaining
materials such as the foundation, remove any utility systems, and grade and stabilize the
site in accordance with any State or local regulations.
6. Are well water plugs covered under ICC?
If the well water plug is part of the abandonment of on-site utilities, coverage will
be afforded.
7. What conditions must be met for a substantially damaged building to be eligible for
an ICC claim ?
A building is eligible for an ICC claim payment if it is in a Special Flood Hazard Area, and
the community determines that the building has been damaged by flood to such an extent
that the cost of restoring the building to its pre-damage condition would equal or exceed
50 percent of its pre-damage market value. At the time of loss, the building must be out of
compliance with the local floodplain management construction guidelines (typically, the
lowest floor for rating purposes is below the BFE).
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8. A flood claim was processed in accordance with the policy provisions. In the interim,
the policy expired and was not renewed. The community then declared the building
substantially damaged by flood. Will an ICC claim be honored even though the
policy expired?
Yes. The date of loss for the ICC claim is the date of loss for the underlying flood claim.
9. Is a CBRA property that has been declared substantially damaged by the community
eligible for ICC benefits?
Yes, but once substantially damaged, the property is no longer eligible for flood insurance
coverage in the CBRA and the policy must be cancelled.
10. Are Condominium Single-Family Detached Units eligible for ICC benefits under the
SFIP program?
Yes, ICC coverage is available on a Single-Family Detached Condominium Unit as long as
the ICC premium was charged and insured paid for ICC coverage.
11. Is the cost to fill in a sub-grade basement area to grade covered under ICC?
Yes, there is coverage for this type of mitigation if this activity is what is required by the
community enforcing their floodplain management ordinance as it relates to elevation.
12. The community has deemed the insured risk substantially damaged. The insured is
going to demolish the structure by burning it down. The cost incurred by the insured
for this is a donation to the Fire Department to stand by and make sure there is no
other damaged caused. Will the insured’s cost be considered covered demolition
cost under ICC?
Yes, the insured’s cost would be allowed as a covered mitigation expense, including
possibly other costs incurred to haul away the remaining debris and capping off utilities.
13. Is an Elevation Certificate relating to ICC required before and after elevating a
flood-damaged structure?
There is only the need to provide the elevation certificate after the building has been
elevated, unless the adjuster cannot determine that an existing elevated building is at or
above the BFE. When the elevated floor is visible and recognizable, some written
documentation from the local official stating that the elevation meets code is necessary to
enable the insured to receive the final 50 percent payment. The letter from the building
department should indicate that the elevation was completed in accordance with the local
building Floodplain Management guidelines.
14. If the insured property is not located in a SFHA, but the community is adopting
AFBE’s, is the insured risk eligible for ICC benefits?
Yes, coverage is available if the community is enforcing an elevation requirement based on
FEMA provided ABFEs.
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15. Can communities withdraw and reissue permits?
If a policyholder is provided a building permit, but does not start construction, and the
community withdraws the permit and reissues after the ABFE is adopted and enforced, ICC
benefits are allowable to comply with the new ABFE requirement.
16. Are historic building and buildings on the National Register eligible for ICC benefits?
Yes, historic structures can meet limited floodproofing guidelines established in their
ordinances. The file must be fully documented.
17. Are ICC benefits available for properties relocated from a location within a SFHA
to a non-SFHA?
Relocation expenses are covered under ICC to relocate a structure on the same site where
the risk of flooding is less; to another site in the SFHA where the risk of flooding is less; or
to a non SFHA.
18. What is considered covered incremental costs associated with elevating or
floodproofing of the replacement building at the same or another site within a SFHA?
Incremental costs would include any additional height requirement concerning pilings; even
if required to be driven deeper; plumbing, wiring, any additional charges for bracing and
other costs directly associated with the required elevation. However, the ICC payment will
be limited to the costs to mitigate the insured building as it was at the time of loss and there
is no coverage for any additional costs associated with structural modifications, upgrades,
or any change in size.
19. Would a policyholder have ICC coverage if their flood insurance policy was cancelled
and not renewed applying for other programs available to them? After two years the
policyholders decide they want to demolish the flood damaged structure using ICC
funds from the lapsed policy and rebuild a new home on the same site.
The structure must have been covered by an NFIP policy on the date of loss, no eligibility
for GFIP or Condo Unit Owner’s policies. If all other eligibility requirements under Coverage
D have been met, as long as the policy was in force on the date of the underlying flood
claim and the time limit- authorized by the SFIP- from the date of the declaration has not
expired, the claim can be made. If the time period for completing the mitigation measure
has expired, the insurer may request a review by FEMA based upon the individual merits of
the claim. These requests would be reviewed by FEMA on a case-by-case basis.
20. What ICC benefit is payable for a structure that is demolished and the property
owner chooses to build a replacement building outside the SFHA?
Demolition costs only. Since there would be no requirement to reduce the risk of flooding,
ICC would not be paid for the replacement building unless the community enforces
elevations in non-SFHA. A copy of the ordinance would need to be provided to document
the ICC claim.
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21. Is a claim eligible for ICC benefits if the substantial damage declaration from the
community does not state that the substantial damage was caused solely by flood?
If the letter from the local official is not sufficient, the carrier, through the adjuster, insured or
other reasonable means should contact the local official to determine the market value used
to determine the structure was substantially damaged; once obtained, the carrier can
compare the total flood damage to the market value and determine if the flood damage is
50 percent or more. If this is the case, they can proceed with the normal ICC claim
procedures. The claim file should ascertain damage from other perils.
If the structure has been washed off its foundation, the carrier can assume it is substantially
damaged by flood. (Refer to FEMA Bulletin W-06067, issued September 20, 2006).
22. Can an ICC claim be assigned?
The SFIP does not provide for the assignment of a claim but will allow for the assignment of
the policy when the title to the property is transferred to a new property owner. The only
time an ICC claim can be transferred is when it is conjunction with a FEMA project. (Refer
to FEMA Bulletin W-07003, issued January 16, 2007).
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VII. BASIC ADJUSTMENT ISSUES
A. ACTUAL CASH VALUE (ACV)
The NFIP defines ACV as the replacement cost of an insured item at the time of loss, less the
value of physical depreciation.
B. ADDITIONS AND EXTENSIONS
Buildings that are connected by a rigid exterior wall, a solid load-bearing interior wall, a
stairway, an elevated walkway, or a roof can be insured as part of the dwelling. The insured has
the option of obtaining separate coverage for these building items.
C. ADJUSTER PRELIMINARY DAMAGE ASSESSMENT (APDA)
Capturing claims data on buildings that will probably be substantially damaged has become
increasingly important to FEMA and to the officials of affected communities. Adjusters
should report as soon as possible after it appears that the building is substantially damaged
(50 percent of the building’s value). After the adjuster conducts the inspection of the risk, the
APDA form must be completed and faxed to iServices claims department at (301) 577-3421.
D. ADVANCE PAYMENTS
FEMA has always encouraged advance payments. Typically, such payments are made after the
physical inspection of the property reveals flood damage (less the amounts of estimated
depreciation and the deductible) is greater that the advance payment. Advance payments are
generally made against the Personal Property claim, but if the advance is to be made against
the Building Property claim, the mortgagee must be named on the advance payment check.
To the extent that any advance payment exceeds the payable flood damage (after depreciation
and policy deductible), it will not be reimbursed.
E. BASEMENTS
Exterior Windows and Doors – In “daylight” basements or basements with exterior windows
and/or doors, the windows and doors that are installed in exterior foundation walls are covered.
However, they can be painted or otherwise finished on the exterior surfaces only.
Baseboard Heaters – Baseboard heaters installed in basements are not covered. Only building
items listed in SFIP Section III.A.8.a. (1)- (17) are covered.
F. CONTENTS MANIPULATION
If the policyholder has not purchased Personal Property (Contents) Coverage, there is no
coverage for contents manipulation.
FEMA recognizes that in certain instances manipulation of undamaged insured contents may
be necessary to perform covered building repair. These charges are often included in the
contractor’s unit cost(s) for items being repaired or replaced and not as a separate charge to
the insured. FEMA also recognizes that, in some instances, a contractor may present a more
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detailed breakdown of their charges and bill contents manipulation as a separate line-item. In
these instances, an adjuster may allow for contents manipulation separately in the estimate
subject to the conditions below.
Adjusters may no longer make lump sum allowances or room-by- room allowances in the
estimate for contents manipulation without providing supporting documentation of these costs.
FEMA does not expect to see estimated allowances for contents manipulation. All reasonable
and necessary costs for contents manipulation will need to be supported by an invoice or
receipt clearly indicating the actual incurred expense.
These documented expenses may be included under the building coverage, even when
contents coverage is available when they are a function of the covered building repair.
This coverage does not include the removal and/or storage of the contents away from the
insured location.
When contents manipulation is allowed under Coverage A - Building Property, the insured must
also carry contents coverage on the policy and the contents items being manipulated must be
covered by the SFIP. Coverage for manipulation of tenant’s personal property and non-covered
personal property located in a post-FIRM elevated building enclosure or basement remains
unchanged and is not allowed under the building or contents coverage of the SFIP.
G. DEPRECIATION
To accurately determine the ACV of an item, the adjuster must consider the replacement cost
along with the depreciation, as well as the average useful life of the item. The condition of the
item prior to loss must also be considered. The NFIP will not accept lump-sum depreciation
figures. Replacement costs on contents items need to be validated with a reliable source when
they appear to be inaccurate.
1. Building Physical Depreciation
If an adjuster is removing and replacing a building item that is not new, appropriate
depreciation must be applied.
2. Contents Physical Depreciation
Contents depreciation must be line by line and item by item. Each item is considered on its
own merit. Things to consider include replacement cost of the item, age of the item, and
condition of the item prior to the flood, and anticipated useful life.
H. EVIDENCE OF LOSS
1. Insured’s Responsibilities
The insured’s responsibilities in the event of loss (which adjusters should remind the
policyholder of) are as follows:
a. Immediately notify the agent or the company of the flood loss.
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b. As soon as reasonably possible, separate the damaged and undamaged property,
putting it in the best possible order so that the adjuster can examine it and properly
substantiate the loss.
c. Place all account books, financial records, receipts, and other loss verification material
in a safe place for examination and evaluation by the adjuster.
d. Within 60 days after the loss, submit an NFIP Proof of Loss form to the WYO Company
or the NFIP Servicing Agent.
2. Adjuster’s Responsibilities
The adjuster’s responsibilities in the event of a loss are as follows:
a. Determine whether there was a general condition of flooding as defined by the policy.
b. Determine how the water entered the building.
c. Check for exterior and interior waterlines and provide the height of each in the report as
well as photographs.
d. Investigate and document all other evidence of loss.
e. Document that prior flood damage has been repaired in the event that previous flood
damage was sustained to the building.
I. FLOOD DEFINITION
Refer to the SFIP, II. Definitions A. The definition of a Flood requires that there be an
inundation of two or more acres or two or more properties (at least one of which is the
policyholder’s property). If flooding is limited to the policyholder’s property, and the
policyholder’s property is less than two acres, but includes within its property line two flood
damaged properties (structures), coverage applies. Coverage will apply only to insured
buildings, but the second affected structure (property) does not have to be insured nor does it
have to be a building as defined in the policy. The second structure need not be adjacent to the
insured property, but should be in reasonable proximity. Street flooding at the insured location
can be considered a second location.
J. IMPROVEMENTS AND BETTERMENTS
If the insured is a tenant and has personal property coverage (Coverage B) under the Dwelling
Form, the coverage extends to the insured’s cooking stove, range, and refrigerator. Also,
improvements made or acquired solely at the insured’s expense are covered for up to
10 percent of the limit of liability for personal property. Improvements do not include cooking
stoves, ranges, or refrigerators.
K. LEASE AGREEMENTS/INSURABLE INTEREST
If the policy holder is the tenant and is carrying building coverage under a General Property
Form for non-residential property, the adjuster must obtain the lease agreement. The
requirements of the lease agreement requires the tenant policy holder to:
1. Purchase the flood insurance (building)
2. Be financially responsible for any flood damage (building)
3. State that the property must be returned to the owner at the end of the lease with all
flood damage repaired
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These lease provisions can establish the tenant policyholder’s insurable interest in the building.
The building owner should be named as an additional payee on the building check. Only one
policy may be written on any one building in the maximum amount, in the aggregate of
$500,000 regardless of the number of interested parties.
L. NON-WAIVER AGREEMENT
When the adjuster identifies a problem that could affect coverage or result in denial, a nonwaiver agreement must be secured from the insured. Failure to secure a non-waiver agreement
might hinder the company from denial of claim when denial would be in order.
Examples of circumstances that require a non-waiver agreement include the following:
1. The policy has lapsed in coverage.
2. By action of the insured, the policy has become void.
3. More than one building is on a policy (except when scheduled), or there is more than one
building at the property address. (Blanket coverage is not provided under the SFIP.)
4. The address of the risk is different from that listed on the policy.
5. The insured has not complied with the policy requirements.
6. Possibility of fraud.
7. Late reporting.
8. Any other situation for which the adjuster believes that a non-waiver agreement is needed.
In the event a non-waiver cannot be obtained in a timely manner, a detailed Reservation of
Rights letter must be sent to the policyholder.
M. OTHER INSURANCE CLAUSE
1. Introduction
Where there is another insurance policy that covers flood damage and that is not an NFIP
SFIP, and the other policy has a provision stating that it is excess insurance, the SFIP will
be primary.
In all other cases where there is another insurance policy covering flood and an SFIP, the
SFIP will be primary (subject to its deductible) up to the deductible of the other policy
covering flood. Once the other deductible is reached, the NFIP policy will pay in the same
proportion that the amount of SFIP insurance covering the loss bears to the total amount of
insurance covering the loss. For large losses, when the SFIP’s prorata share equals or
exceeds the SFIP limit plus the deductible, the SFIP limit is paid.
Note: Duplicate NFIP policies are not allowed. Therefore, except in the case of an RCBAP
and a Building Property SFIP naming a condominium unit owner, the other insurance
should never be another SFIP. In the instance of commercial properties under the General
Property Policy, both the property owner and tenant may purchase building coverage,
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if the tenant can demonstrate insurable interest in the building, as may be required in the
lease agreement.
If the SFIP covers a condominium association and there is an insurance policy that covers
flood in the name of a unit owner and both policies cover the same loss, the policy naming
the condominium association will be primary.
2. Examples
a. Where there is another insurance policy in addition to the SFIP and the other policy has
a provision stating it is excess insurance, the SFIP will be primary.
Loss: $ 35,000
SFIP Coverage
$ 50,000
Deductible
$ 1,000
Other Insurance
$250,000
Deductible
$50,000
The SFIP is primary and the other insurance is excess. The NFIP will pay $35,000 loss
minus the $1,000 deductible.
Note: The above example could be a non-NFIP policy that covers flood and names the
condominium association, plus an NFIP SFIP that names a unit owner. If the other
policy is excess, the unit owner’s SFIP would be primary. In such cases, the
condominium association’s by-laws should be reviewed to determine what the unit
owner owns.
b. For any other flood insurance policy, the SFIP will be primary (subject to its own
deductible) up to the other flood policy’s deductible. When the other deductible amount
is reached, the SFIP will pro-rate for the remainder of the loss.
Loss: $480,000
SFIP Coverage
$250,000
Deductible $ 5,000
Other Insurance
$500,000
Deductible $15,000
The SFIP is primary up to $15,000 of the loss. The SFIP $5,000 deductible will be
deducted from the amount for which the SFIP is primary. In this case, the result of the
calculation is $10,000. We will pro-rate the loss that exceeds the amount for which the
SFIP is primary ($15,000). The other insurance equation will be used to pro-rate the
remainder of the loss (i.e., $480,000 - $15,000 = $465,000).
SFIP Coverage
$250,000/$750,000 = .3333 x $465,000 = $154,984.50
Other Insurance
$500,000/$750,000 = .6667 x $465,000 = $310,015.50
SFIP Pays
$154,984.50 + $10,000 =
Total
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$164,984.50
$475,000.00
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c. The limit of liability under the Residential Condominium Building Association Policy
(RCBAP) depends upon the coinsurance calculation..
Value of Building
$1,500,000
Other Insurance
$1,000,000
Deductible $200,000
SFIP Coverage
$ 500,000
Deductible $
Insurance Required
$1,200,000
(80% of $1,500,000)
Loss
$ 625,000
5,000
The RCBAP coinsurance calculation is as follows:
Insurance Carried x the amount of the loss = RCBAP available limit
Insurance Required
$500,000 = .4167 x $625,000 = $260,437.50
$1,200,000
$260,437.50 is the available RCBAP limit of liability.
The RCBAP will be primary (subject to its deductible) up to the deductible amount of the
other flood insurance, or: $200,000 - $5,000 (RCBAP deductible) = $195,000.
The remaining loss will be prorated
$500,000 = .3333 x $425,000 ($625,000 -$200,000) = $141,652.
$1,500,000
The RCBAP will not pay $336,652.50 ($195,000 + $141,652.50), but will pay up to
$260,437.50, which is its available limit of liability after the coinsurance calculation. If the loss
exceeds the combined policy limits, the RCBAP deductible will disappear.
N. OVERHEAD AND PROFIT
The overhead and profit percentage must be applied to the depreciation total and reflected in
the ACV loss figure. Overhead and profit is not applied to the following items:
1.
2.
3.
4.
Carpeting
Insured’s own labor
Outside service charges such as plumber, electrician, or appliance service calls
Repairs made by the insured (However, an allowance can be made for the insured’s time
and expense in purchasing materials, not to exceed 10 percent.)
Overhead and profit is warranted only if a general contractor has been hired to make repairs.
The adjuster must document the general contractor’s involvement. The NFIP Servicing Agent or
the WYO Company has the option of withholding the overhead and profit until the repairs are
completed or until a contract is signed.
In the event the policyholder functions as general contractor, a reasonable allowance may be
added for the policyholder’s time and effort in coordinating subcontracted repairs.
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O. POLLUTION DAMAGE
The SFIP covers direct physical loss by or from flood. Therefore, when flood waters contain
pollutants or cause release of pollutants that damage insured property, the cleanup, repair, and
mitigation costs associated with such pollutants are covered under the General Property Form
up to $10,000.
If vinyl tile containing asbestos is damaged by flood (the asbestos does not damage insured
property), the claim for removal and replacement of the flood-damaged tile is limited only by the
Building Property policy limit less the deductible.
See FEMA Bulletin W-10065a, June 7, 2010 regarding basic claims procedures with handling
claims involving oil in water.
P. PROOF OF LOSS REQUIREMENTS AND WAIVER
The NFIP Proof of Loss form is required on all advance payments, as well as on any paid claim.
However, the Proof of Loss may be waived on claims under $7,500. When a Proof of Loss is
waived, the insured’s signature must be obtained on the NFIP Final Report form after the loss
and the claim have been determined. A copy of the signed Final Report must be left with the
insured. In the absence of a local witness, the adjuster may witness the form. If the loss is over
$7,500, the Final Report must still be completed and a Proof of Loss must be obtained.
Two forms are used for documenting losses. The Proof of Loss form is used for actual cash
value claims. The Statement as to Full Cost of Repair or Replacement is used for replacement
cost claims.
All signatures obtained on a Proof of Loss or NFIP Final Report should be signed and sworn by
the insured.
Q. REPAIR VS. REPLACEMENT
This is an area where adjuster improvement is needed. Everything that becomes wet is not
necessarily a total loss. In these instances, the expertise of the adjuster is essential.
Consideration must be given to the type of floodwaters involved (clear, muddy, fresh, salt,
contaminated) and to the length of time the water remained in the building. Many buildings and
contents items will respond to cleaning and need not be replaced. Some examples of “repair vs.
replacement” are presented below.
1. Appliances
Always consider having the item checked and serviced rather than replaced. Even if a
service technician states that the appliance will break down in the future, do not total the
unit out if it is working. Advise the insured that a supplemental claim can be presented
within a reasonable period of time (30-60 days) if the insured can prove that the flood
caused the breakdown.
2. Furniture
Refinish, rather than replace, when possible.
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On reinspections conducted weeks and months after losses, NFIP General Adjusters have
discovered appliances and furniture that were still being used after they had been declared total
losses in the adjustment.
Remediation, drying, emergency service contractors
Water remediation, drying charges, emergency service charges should be reviewed to limit
their scope to repairing only direct loss from flooding. This would include charges to properly
dry the salvageable building materials. Particular care should be taken to exclude charges to
dry material that is non-salvageable. Charges not considered a direct loss from flood should not
be allowed.
Additionally, the effort put forth by the restoration company to salvage the flood-damaged items
should preclude the need to replace those salvageable items. If repair or restoration cost is
incurred for an item, an additional claim for replacement of that item will not be considered.
The SFIP provides up to three loss settlement methods, depending on the policy form under
which the risk is insured. See Dwelling Form and General Property Form VII.V. Loss Settlement
and RCBAP VIII.V. Loss Settlement.
R. REPLACEMENT COST COVERAGE (RCC) AND HOLD BACK
For single-family residences, including doublewide manufactured (mobile) homes, RCC is
applicable only to building coverage. Under the Residential Condominium Building Association
Policy, a coinsurance clause requires the condominium association to insure its building to at
least 80 percent of the replacement cost value, in order to avoid suffering uninsured losses and
charging assessments to members.
When insured property is eligible for replacement cost loss settlement, it is no longer required
to hold back the recoverable depreciation (see FEMA Bulletin W-04020, May 7, 2004). Any
amounts that would have currently been held back should be paid as part of the claim. The
Bulletin, however, does not preclude the need to support the allowable depreciation. While
RCC is paid up front, adjusters should continue to indicate line-by-line depreciation on all
estimates, and the ACV amount should continue to be referenced in reports and included in the
Proof of Loss. The allowable depreciation amount may continue to be reflected in the signed
Statement as to full cost of repair or replacement under the replacement cost coverage and the
signed Final Report; however, if you do not choose to utilize these methods, you may include
the allowable depreciation amount in the signed ACV Proof of Loss.
S. RESERVATION OF RIGHTS LETTER
A Reservation of Rights letter from the insurer to the insured is a notice that, even though the
company is investigating the claim, certain losses might not be covered by the SFIP. By means
of this letter, the company reserves its legal right to deny coverage later, as additional
information about the loss becomes available.
T. RESERVES
The reserving system mandates that reports must be timely and reflect true reserves. The initial
case loss reserve may be a system generated amount based on criteria established by the
WYO Company or it may be an individually set reserve based on the best knowledge of the loss
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at the time the reserve is set. A company may also set a bulk catastrophe reserve. The NFIP
Preliminary Report and each subsequent adjuster report should refine the case loss reserve
amount as the company becomes aware of additional facts, inspections, and estimates. The
goal is that this knowledge along with any reductions of partial or advance payments will result
a case loss reserve that closely reflects the value of all future payments and ultimately the value
of the final payment. See FEMA Bulletin W-08095, December 22, 2008.
U. SALVAGE
On residential and small mercantile losses, adequate salvage credit is taken when the insured
retains possession of totally damaged items. The contents inventory must specifically denote
those items that have been considered salvageable and left with the insured. A professional
salvor must be used to handle items of significant value.
Salvage on large commercial losses must be promptly identified and inventoried by an
approved professional salvor. Salvage agreements are executed in all cases where the stock
has been taken over by a salvage company.
Permission to secure the services of a salvor must be authorized by the WYO Company or
NFIP Servicing Agent.
V. SELF-PROPELLED VEHICLES
Coverage is provided for self-propelled vehicles that service the described location and for selfpropelled vehicles used to assist handicapped persons, so long as the vehicles are inside the
building at the described location. Such vehicles below the lowest elevated floor of a Post-FIRM
elevated building are not covered.
W. SPECIAL LOSS SETTLEMENT
Replacement cost applies to manufactured (mobile) homes or travel trailers if the dwelling is at
least 16 feet wide and has an area of at least 600 square feet within its walls. The structure must
also be the principal residence. If a single-family dwelling that is a manufactured (mobile) home or
travel trailer and that qualifies for replacement cost is a total loss or is not economically feasible to
repair, then the adjustment of the property will be the lesser of:
1. The replacement cost of the dwelling or 1.5 times the actual cash value, or
2. The building limit of liability.
Loss Settlement paragraph 1.a. (2) does not apply to manufactured (mobile) homes or travel
trailers under Special Loss Settlement.
Only manufactured (mobile) homes and travel trailers as described in paragraphs 3.a. (2) and (3)
qualify for Special Loss Settlement. All other manufactured (mobile) homes and travel trailers
require Actual Cash Value Loss Settlement.
If we determine that the building is repairable, the loss will be settled according to the replacement
cost conditions stated in Dwelling Form VII.V.2. and RCBAP VIII.V.2.
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REVISED JUNE 2010
X. SUBROGATION
The identification of subrogation lies initially with the adjuster assigned to the flood loss and,
ultimately, with the claims representative responsible for the file. The adjuster must identify on
the NFIP Preliminary Report, in the “Origin” section, the cause of loss, whether the loss was
associated with failure of a dam, pumps, storm drain system, or other flood control measure,
and whether a non-natural cause contributed to the loss. The Cause of Loss and Subrogation
Report then must be completed.
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VIII. SPECIAL ADJUSTMENT ISSUES
A. AIR CONDITIONING CONDENSERS AND SOLAR HEATING ELEMENTS
Building coverage extends to the insured building and additions and extensions attached to and
in contact with it by means of a common wall. Air conditioning condensers and solar heating
panels are considered building property even if they are located apart from the structure and are
not attached in accordance with the policy definition. Condensers are eligible for replacement
cost coverage if the structures they service are eligible for it.
Coverage does not apply to other equipment, such as generators, air compressors, and
substation transformers owned by the policyholder that may service the building, but are located
apart from the structure and are not attached. If a generator or other such equipment is attached
in accordance with the policy definition or are in a fully-enclosed structure, coverage would
apply. If generators and other such equipment not listed in the coverage are in a basement, they
are not covered.
B. BAILEE GOODS
Bailee Goods are the result of a bailment, which is the delivery of personal property by one
person (the bailor) to another (the bailee) who holds the property for a certain purpose under an
express or implied-in-fact contract.
Example: When the bailor takes a pair of shoes to the cobbler (the bailee) for repair, a bailment
is established while the bailee has the shoes. The shoes while in the possession of the bailee
are bailee goods. Note: a bailment involves a change in possession but not in title.
Real property, by definition can never be bailee goods. In addition, property that is sold (title
changes) cannot be bailee goods. Therefore, real property that is sold cannot be bailee goods
after the sale or before the sale.
C. BOATHOUSES: COVERAGE FOR NON-BOATHOUSE PARTS
OF BUILDING INTO WHICH BOATS ARE FLOATED
FEMA has determined that non-boathouse parts of a building into which boats are floated are
not excluded from coverage. This means that, with respect to a building, a part of which is used
for boathouse purposes and a part of which is used for other than boathouse purposes (e.g.,
residential, commercial, or municipal), non-covered items are limited to the following:
1. The ceiling and roof over the boathouse portion of the building into which boats are floated
(unless there is an area above the boathouse used for purposes unrelated to the boathouse
use, e.g., residential, in which case the upper area is covered, from the floor joists to and
including the upper area walls and roof)
2. Floors, walkways, etc., within the boathouse area, or outside the area but pertaining to the
boathouse use
3. Exterior walls and doors of the boathouse area not common to the rest of the building
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REVISED JUNE 2010
4. Interior walls and coverings within the boathouse area (although a common wall between
the boathouse area and the other part of the building is covered)
5. Contents located with the boathouse area, including furnishings and equipment, relating to
the operation and storage of boats and other boathouse uses.
However, when the building is entirely in, on, or over water, there is no coverage at all if it was
constructed or substantially improved after September 30, 1982.
D. CARPETING AND DRAPES
Carpeting is considered building property if it is installed over an unfinished floor surface.
Carpeting over finished floors is considered personal property (contents), even if it is wall to wall
or affixed to the floor. All carpet losses, whether building property coverage or personal
property coverage, are adjusted on an ACV basis. When a carpet loss is paid, overhead and
profit is not allowed, unless a general contractor is responsible for installation and such
responsibility is documented for the claim file.
Drapes are always treated as contents items, even if they are custom-made and fit only a
specific window. However, window blinds of all kinds are considered building property (See
Dwelling Form III.A.7.b.).
E. CISTERNS
In certain communities, especially in the Virgin Islands, cisterns are fundamental parts of
residential buildings. These are often the only source for storing water. Methods of construction
of cisterns include beneath the structure, on the roof, above ground and physically attached to a
side of a structure by a common wall or as a separate unit detached from the structure. The
SFIP provides coverage only if the cistern is an integral part of the insured building, such as
above ground and connected by a common wall, on the roof, or within the perimeter walls.
There is no coverage if the cistern is under ground unless it is contained in the basement. If the
cistern is covered by the SFIP, the water in it also is covered.
F. CLOSED BASIN LAKES AND CONTINUOUS LAKE FLOODING
1. Closed Basin Lakes
A closed basin lake is a natural lake from which water leaves primarily through evaporation
and whose surface area now exceeds or has exceeded 1 square mile at any time in the
past. If an insured building is subject to closed basin lake flooding, a total loss claim can be
paid if lake flood waters damage or imminently threaten to damage the building and an
eventual total loss appears likely.
2. Continuous Lake Flooding
In a few areas of the United States, lake waters have risen to long-term record levels. Devil’s
Lake, North Dakota, is a primary example of this condition. The insured building must be
inundated by rising lake waters continuously for 90 days or more, and it must appear
reasonably certain that the loss and damage will reach or exceed the policy building limits
including the deductible, or the maximum amount payable under the policy for any one
building loss.
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The current position of the National Flood Insurance Program (NFIP) is that occurrences
of long-term, continuous lake flooding, loss, and damage to property will be settled on a
one-time basis by paying the lesser of the two amounts mentioned above, if the insured
signs a release agreeing to the following:
a. To make no further claim under the SFIP
b. Not to seek renewal of the policy
c. Not to apply for any NFIP flood insurance for the property at the property location of the
insured building
G. COASTAL BARRIER RESOURCES SYSTEM (CBRS)
1. Introduction
To determine whether a building (the insurable property) is eligible for flood insurance
coverage when the building appears to be located in a Coastal Barrier Resources System
(CBRS) area, the adjuster should consult the community’s Flood Insurance Rate Map (FIRM)
panel or a community code office (for example, the Tax Assessor’s Office or the Building and
Zoning Office) to determine which coastal barriers act applies to the property in question. In
CBRS areas, eligibility for flood insurance coverage depends on this determination. (See
IV. Property Not Covered, 15. in the SFIP.)
When handling any claim that may be in a CBRS area, the adjuster should:
a.
b.
c.
d.
Identify the location of the risk on the FIRM;
Determine when the risk was constructed;
Comment on substantial improvement; and
Provide photographs of all sides of the risk.
If any building you are adjusting appears to be subject to one of the laws discussed below,
write a brief summary of your findings on the NFIP Narrative Report form and send it to the
NFIP Servicing Agent or the WYO company for the claims examiners to evaluate.
2. Coastal Barrier Resources Act
Congress passed the Coastal Barrier Resources Act (CBRA) on October 1, 1982. The act
became effective on October 1, 1983. Congress’s intent was to reduce or restrict the federal
government’s direct involvement in encouraging development of certain undeveloped
“coastal barriers.” The act defined a coastal barrier as “a naturally occurring island, sandbar,
or other strip of land, including coastal mainland that protects the coast from severe wave
wash.”
CBRA does not prohibit development of designated undeveloped coastal barrier islands; nor
does it affect private funding or investment for development of such areas. Instead, the act
attempts to eliminate the use of “federal funds” (specifically, loans) for such development.
Under the terms of the Act, FEMA is prohibited from providing NFIP flood insurance
protection for structures built or substantially improved after October 1, 1983, in any area
designated an undeveloped coastal barrier. However, structures in such areas that were
built (walled and roofed) before October 1, 1983, remain eligible for coverage until such time
as they are substantially damaged or substantially improved.
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3. Coastal Barrier Improvement Act
The Coastal Barrier Improvement Act (CBIA) was enacted and made effective on November
16, 1990. The CBIA greatly expanded the identified land in the Coastal Barrier Resources
System established pursuant to the CBRA of 1982.
4. Substantial Improvement: The 50 Percent Rule
Substantial improvement, as defined in public law (44 Code of Federal Regulations 59.1)
means:
“any reconstruction, rehabilitation, addition, or other improvement of a
structure, the cost of which requires or exceeds 50 percent of the market
value of the structure before the ‘start of construction’ of the improvement.
This term includes structures which have incurred ‘substantial damage,’
regardless of the value of or actual cost of repair work performed. The
term does not, however, include either (1) any project for improvement of
a structure to correct existing violations of state or local health, sanitary,
or safety code specifications which have been identified by the local code
enforcement official and which are the minimum necessary to assure safe
living conditions or (2) any alterations of a ‘historical structure,’ provided
that the alteration will not preclude the structure’s continued designation
as a historical structure.”
In other words, if the damage or improvement equals 50 percent of the market value of the
structure before damage, the insured building could be considered substantially damaged. If
any building you are adjusting appears to be subject to the 50 percent rule, write a brief
summary of your findings on the NFIP Narrative Report form and send it to the NFIP
Servicing Agent or the WYO company for the underwriters to evaluate. In your report, use
the replacement cost of the building less fair depreciation to obtain actual cash value
(market value). Land values and outside improvements are not considered in the
determination of market value.
The community that has jurisdiction over the area is the only authority that can make the final
determination as to substantial improvement or substantial damage.
H. COMMERCIAL LOSSES
When you encounter an unusual commodity or type of business, with which you are not familiar,
notify the examiner or claims management immediately for assistance and guidance.
On commercial stock losses, the quantity and insured’s cost must be established and
documented for the claim file. Adjusters should not assume that all stock and business property
on the premises is owned by the insured. The adjuster must verify ownership, especially for
manufacturing, repairing, and high-end sales businesses. The SFIP insures only property
owned solely by the insured. There is no bailee, consignment, or floor plan coverage. The SFIP
does not provide coverage for property of others in the care, custody, and control of the insured
under any policy form. The use of a CPA and/or other expert(s) is highly encouraged for large
and/or complex claims.
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I. CONDEMNATION OF PROPERTY
Communities may condemn flood-damaged properties as the result of ordinance enforcement
or for loss mitigation. The SFIP covers only direct physical damage caused by flood and not loss
of use or access. A flood claim for a structure with less than total damage but not repairable due
to a condemnation order or ordinance receives coverage only for the direct physical loss by or
from flood.
J. CONDOMINIUM UNIT OWNER – DWELLING FORM
Personal Property – If direct physical damage by or from flood is limited to the first floor of the
condominium building, and a unit owner’s insured personal property on an upper floor has
sustained no covered loss, the personal property is not covered even if access to the personal
property is denied by local officials or by damage to the first floor (see Section V. Exclusions.
A.2. &3.).
Assessment Coverage – Assessment coverage applies only to building property that is
covered by the SFIP. Assessments for swimming pools and their equipment, hot tubs and spas
that are not bathroom fixtures, parking lots, landscaping, etc. cannot be covered.
Association assessments to unit owners representing a co-insurance penalty made because the
association was not insured to at least 80% of the replacement cost of the RCBAP insured
building, cannot be covered. Assessments made because the association was not insured from
80% to 100% of the building’s replacement cost are covered, but only to the extent of that
underinsurance (for example, if insured to 90% of value, then only 10% is covered). If the
association has purchased insurance only to 50% of the building’s replacement cost and
assesses unit owners for the remaining 50%, only an amount equal to 20% (80%-100%) would
be covered. The statutory limit of $250,000 per unit would apply to the combination of RCBAP
and unit owner (Dwelling Form) payments.
Association assessments to unit owners made to recover the RCBAP deductible are
not covered.
K. CONSTRUCTIVE TOTAL LOSS
Sometimes, when a flood-damaged building is less than a total loss, the insured will ask to be
paid on the basis that a constructive total loss has occurred, so as to use the loss proceeds to
move the insured building away from the peril of flood. FEMA has concluded that the SFIP does
not and should not provide for such payments.
L. DECKS
Since 1994, the SFIP has specifically excluded coverage for decks. However, stairways and
staircases are still covered, if they are attached directly to the insured building. We also cover
stairways or staircases attached to decks or walkways for the purpose of ingress and egress. If
there are two staircases attached to the same deck or walkway, then there is coverage for only
one of the staircases. The SFIP allows for payment of steps and a landing. The maximum
allowable area is 16 square feet.
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M. ELEVATED BUILDINGS
1. Coverage Restrictions
An “elevated building” is defined as a non-basement building in which the lowest elevated
floor is raised above ground level by foundation walls, shear walls, posts, piers, pilings, or
columns. post-FIRM elevated buildings in certain SFHAs are subject to coverage restrictions
specified in the Standard Flood Insurance Policy. A manufactured (mobile) home may be an
elevated building.
Determination of the Lowest Elevated Floor – Full coverage for post-FIRM elevated
buildings begins at the lowest elevated floor. This is the lowest floor raised above the
ground, even if the pilings extend above it (see FEMA Bulletin W-04020, May 7, 2004,
page 2 included in Appendix 2).
Some confusion has been reported about the applicability of the elevated building coverage
restrictions to a non-elevated post-FIRM building located in an SFHA and constructed with
its lowest floor below the Base Flood Elevation. Such a building is not subject to the
elevated building coverage restrictions. The rating of any structure must be based on the
correct elevation difference between the lowest floor and the Base Flood Elevation.
Structures that are misrated should be reported to the company’s underwriting department
as soon as possible after the potential error is discovered.
The restrictions apply only to post-FIRM, Regular Program, elevated buildings in Zones
A1-A30, AE, AH, AR, AR/A, AR/AE, AR/AH, AR/A1-A30, V1-V30, or VE. “post-FIRM” means
that a building was constructed or substantially improved on or after the community’s initial
FIRM date or after December 31, 1974, whichever is later. The coverage restrictions apply
to any area of an elevated building that is lower than the lowest elevated floor.
Coverage will respond for the building and personal property items listed in the policy,
provided that these items are connected to a power source and installed in their functioning
locations and that the insured has purchased appropriate coverage.
Floor insulation and the underpinning material used to hold it in place against the underside
of the lowest elevated floor of a post-FIRM elevated building is covered. No finish of the
underpinning material is allowed.
2. Coverage for Garages and Contents
a. Attached Garage
If a post-FIRM elevated building located in zones A1-A30, AE, AH, AR, AR/A, AR/AE,
AR/AH, AR/A1-A30, V1-V30, or VE has an attached garage with a floor lower than the
lowest elevated floor, the coverage restrictions apply to that area. Any contents located
above the level of the lowest elevated floor (such as hanging from the ceiling or on the
garage walls) are covered.
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b. Detached Garage
If a dwelling is post-FIRM elevated and there is a detached garage present with a floor
lower than the lowest elevated floor of the insured dwelling, the garage is fully covered.
Also, contents inside the garage are covered, subject to all other policy provisions
(such as the requirement that they be secured against flotation if the structure is not
fully enclosed).
No coverage will apply to any detached garage used or held for use for residential (i.e.,
dwelling), business, or farming purposes. The ordinary dictionary meanings of the words
“residential” (e.g. suitable for or used as a residence or dwelling) and “dwelling” (e.g., a
place to live in, abode) when applying coverage to detached garages. These words
should no longer be broadly applied to limit coverage. However, for the purpose of this
limitation, kitchen facilities are not required for the space to qualify as residential use or a
place to live in. If any space is rented or held for rental, the contents owned by the
policyholder and related to the rental would be limited to the $2,500 contents used in any
business. Otherwise covered contents in such detached garages are covered.
The General Property Form and RCBAP do not provide coverage for appurtenant private
structures. Coverage for a detached garage responds only in the case of 1-4 family
residential buildings insured under the Dwelling Form. The insured may elect to apply up
to 10 percent of the building coverage limit for a detached garage. This is not an
additional amount of insurance.
As indicated in the “Exclusions” section of the ICC coverage (Coverage D), ICC
coverage does not apply to a garage. To obtain ICC coverage on an appurtenant
structure, a separate flood insurance policy must be written. For example, a detached
garage that has been converted for residential purposes, receives no ICC coverage
unless it is insured under a separate policy.
3. Coverage for Building Property in a Building Enclosure below the Lowest Elevated
Floor or in a Basement
Paragraph III.A.8. of the SFIP provides coverage for certain items of building property (and
related clean-up) in an enclosure below the lowest elevated floor of an elevated post-FIRM
building in any of Zones A1-A30, AE, AH, AR, AR/A, AR/AE, AR/AH, AR/A1-A30, V1-V30, or
VE, or in a basement regardless of zone. Coverage is limited to:
a. Clean-up expenses
b. Any of the following items, if installed in their functioning locations and, if necessary for
operation, connected to a power source:
•
Central air conditioners
•
Cisterns and the water in them
•
Drywall for walls and ceilings in a basement and the cost of labor to nail it, unfinished
and unfloated and not taped, to the framing
•
Electrical junction and circuit breaker boxes
•
Electrical outlets and switches
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•
Elevators, dumbwaiters, and related equipment, except for related equipment
installed below the Base Flood Elevation after September 30, 1987
•
Fuel tanks and the fuel in them
•
Furnaces and hot water heaters
•
Heat pumps
•
Nonflammable insulation in a basement
•
Pumps and tanks used in solar energy systems
•
Stairways and staircases attached to the building, not separated from it by
elevated walkways
•
Sump pumps
•
Water softeners and the chemicals in them, water filters, and faucets installed as an
integral part of the plumbing system
•
Well water tanks and pumps
•
Required utility connections for any item in this list
•
Footings, foundations, posts, pilings, piers, or other foundation walls and anchorage
systems required to support a building
If an area below grade on all sides is within a room, such as a living room, then coverage is
not provided for the “finished walls” of the area below grade. When the area extends above
grade, or if there are contents located in the sunken area, coverage limitations will apply.
When the entire room is below grade, even if the walls extend above grade, as in a daylight
basement, there is no coverage for contents on the floor or coverage for the walls except
those listed in the policy. The coverage limitations apply to the whole area, including the
“finished walls.”
If an elevated building, subject to the coverage limitations, has an attached garage with a
floor lower than the lowest elevated floor of the building, the coverage restrictions apply to
that area. Any contents located above the level of the lowest elevated floor (such as hanging
from the ceiling or on garage walls) are covered.
N. ELEVATORS
The SFIP provides coverage for elevators, dumbwaiters, and related equipment. When these
items are located in a basement or the enclosed area below an elevated building, there is no
coverage for the related equipment below the Base Flood Elevation unless it was installed on or
before September 30, 1987.
Elevators and chairlifts installed outside of the perimeter of the insured building are
not covered.
O. EROSION AND WAVE WASH
The SFIP states that loss and damage from wave action along a lake or other body of water is
considered direct physical loss by flood. Loss and damage from spray consequent to washover, whether wind driven or not, is not covered. Loss and damage to structures arising from
ongoing erosion is not covered under the SFIP. However, collapse or subsidence of land along
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the shore of a lake or other body of water as a result of erosion or undermining caused by
waves or currents of water exceeding cyclical levels which result in flooding is included in the
definition of “flood” (SFIP II.A.2.) and, thus, is covered.
Replacement of soil lost through erosion is covered only when the erosion results from an
overflow of inland or tidal waters and not from the unusual and rapid accumulation or runoff of
surface waters from any source. Soil replacement must be confined to within the perimeter of,
and related to the support of, the building. Soil replacement beyond this perimeter is not payable
under the SFIP. Rip-rap, armoring, and retaining walls are not covered.
P. FIBERBOARD SHEATHING/BLACKBOARD
When the flooding of buildings consisting of wood frame construction and brick veneer occurs,
complete demolition is not always required. There are alternative methods of repair or
replacement of fiberboard sheathing.
Q. FOOD IN FREEZERS
When food is located in a post-FIRM building enclosure below the lowest elevated floor or in a
basement and subject to restrictive coverage outlined in Section III.B.3. of the SFIP, coverage is
only provided for food located in food freezers. Damage to food in refrigerator/freezers is
excluded from coverage.
R. FOUNDATIONS
Floods can cause significant foundation damage, but so can settlement, improper construction,
earth movement, tree roots, and sinkholes. Many times an insured will claim normal settlement
cracks in slabs and foundations as flood related. The insured will indicate that he or she never
noticed the foundation and slab damage until after the flood. This neither proves nor disproves
that the damage resulted from flood.
Most slab and foundation damage occurs because of a lack of moisture in the ground. The soil
shrinks away from the foundation, allowing the grade beams to settle downward under the
supported weight. This results in a bowing effect and cracks. Excess water in the ground exerts
upward pressure on the slab floor and inward pressure on the subgrade foundation walls. This
also results in cracks and displacement. Damage of this kind is considered the result of
hydrostatic pressure and is not covered under the SFIP, unless there is a general condition of
flooding in the area.
Flooding with sufficient water movement to carry the subsoil away (scouring) from the slab or
foundation walls generally leaves visible signs. Claims for foundation damage without any
visible indication of scouring or land subsidence bear close scrutiny. Most foundation and slab
damage that occurs without any visible signs of soil displacement may have resulted from
causes other than flooding and is not covered by the SFIP. The adjuster must carefully check
the perimeter and underneath the building for soil washout from velocity water flow. When
finding no indication, the adjuster must resist a claim for foundation damage. The insured then
has the responsibility to prove that the damage was caused by flood. Use of structural
engineers must be limited to losses with visible indications of flood damage or of floodwaters’
having exacerbated preexisting damage.
There is limited coverage for slabs under post-FIRM elevated buildings. Coverage provided at
SFIP III. A.8.a. (17) is limited to “footings, foundations, posts, pilings, piers, or other foundation
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walls and anchorage systems required to support the building.” These slabs are covered only if
they are part of the foundation. To be part of the foundation, a slab must be at least 6” thick
containing rebar and tied into the posts, pilings, piers, or other foundation walls and anchorage
systems required to support the building (see FEMA Bulletin W-04091, November 19, 2004).
S. FREEZERS
Walk-in freezers attached to the building are considered part of the building.
T. GARAGES
If a garage is in contact with the insured dwelling (elevated or not) by means of rigid exterior
wall, a solid load-bearing interior wall, a stairway, an elevated walkway, or a roof, the
policyholder has the option of insuring the garage separately. However, if connected by a
common interior wall that is not a solid load-bearing wall; the addition is always considered part
of the building and cannot be separately insured. (See SFIP Dwelling Form III.A.2 and 3.)
Otherwise, the garage will be considered detached and subject to the 10% of Coverage A
(Dwelling) limit. The General Property Form and RCBAP do not cover detached garages or
other appurtenant structures, but do provide coverage for qualifying additions and extensions.
See, also, “M. Elevated Buildings” above.
U. HYDROSTATIC PRESSURE
The SFIP excludes damages resulting from hydrostatic pressure unless there is surface flooding
in the area and the flood is the proximate cause of the damage from the pressure of water
against the insured structure.
V. ICE AND DEBRIS IMPACT DAMAGE
Damage sustained from freezing or thawing of water, along with damage sustained from and by
the weight and pressure of ice, is not covered unless the property itself is under direct contact
by flood as defined in the SFIP. Damage to property elements by freeze or thaw after the
surface water has receded from the property is not covered.
W. LOMA AND LOMR
A Letter of Map Amendment (LOMA) or Letter of Map Revision (LOMR) effectively removes a
post-FIRM elevated building from the Special Flood Hazard Area (SFHA). If the LOMA or LOMR
is obtained after the loss, its effective date is as of the loss. This means that the coverage
limitations to areas beneath the lowest elevated floor do not apply.
A LOMA or LOMR may not be issued if the lowest adjacent grade of the property is below the
Base Flood Elevation (BFE). But, if such a property has its lowest floor (enclosure floor) above
the BFE, the property may comply with the NFIP Floodplain Management Regulations. Claims
involving such buildings should be sent to FEMA with a request for a waiver of the elevated
building coverage limitation (See FEMA Bulletin W-04091, November 19, 2004 2).
X. MANUFACTURED (MOBILE) HOMES AND TRAVEL TRAILERS
The replacement cost for a manufactured (mobile) home will not exceed 1.5 times its actual
cash value (see Special Loss Settlement – SFIP Dwelling Form, Section VII (VIII RCBAP) V.3.).
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Unless the manufactured home meets the requirement of this section, settlement is limited to its
Actual Cash Value.
Only community-compliant travel trailers without wheels are covered, even if the community
ordinance allows wheels to be installed (see Section II. Definitions 6. c.). For the purpose of
coverage determination, “without wheels” means with no wheels.
Y. MUDFLOW
Mudflow is the only form of earth movement covered by the SFIP. (The word “mudslide” no
longer is used in the SFIP.) A mudflow is a “river of liquid and flowing mud on the surfaces of
normally dry land areas, as when earth is carried by a current of water.”
Mudflow is unforeseeable, is less common than earth movement from landslide or erosion, and
has characteristics markedly similar to those of a flood. Landslide and slope failure are not
covered under the policy. However, coverage is provided for subsidence of land along the shore
of a lake or similar body of water which results from the erosion or undermining of the shoreline
caused by waves or currents of water which results in a flood.
Z. PROPERTY REMOVED TO SAFETY
If coverage has been purchased both for personal property (contents) and for the building, the
SFIP covers direct physical loss by flood to each while the property is located at the property
address shown on the application or endorsement. Coverage is available for 45 days at another
place above ground or outside of a Special Flood Hazard Area to which any insured property
(including a moveable building) is removed in order to protect and preserve it from a flood or
from the imminent danger of flood. Personal property that has been removed must be placed in
a fully enclosed building or otherwise reasonably protected from the elements to be insured
against loss. The reasonable expense incurred by the insured, including the value of the
insured’s own labor at prevailing federal minimum wage in moving the insured property away
from the peril of flood and storing the property at the temporary location, will be reimbursed to
the insured, up to $1,000.
AA. REFORMATION OF COVERAGE
If at the time of loss it is discovered that the premium collected is insufficient to provide the
coverage originally purchased because the policy was misrated, after May 19,2005,
retrospective (looking back) collection of additional premium will no longer be required.
Prospective (looking forward) additional premium will be required to be paid, but the time
required to collect information to calculate the additional premium will not delay the claims
process (see FEMA Bulletin W-05021, May 23, 2006, that includes FEMA Policy Issuance 12005, May 19,2005).
BB.
REPETITIVE LOSS STRUCTURES AND PREVIOUS CLAIMS
1. Repetitive Loss Structures
A repetitive loss structure is one that has sustained flood damage on two occasions during
a 10-year period ending on the date of the event for which a second claim is made, and for
which the cost of repairing the flood damage, on the average, equaled or exceeded 25
percent of the market value of the structure at the time of each such flood event. Repetitive
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losses are a major challenge to the NFIP. Since 1980, $1.2 billion has been paid on risks with
a repetitive loss history.
2. Previous Claims
It is imperative for the adjuster to be alert to the possibility that any loss property may have
been involved in previous claim activity. Where there is evidence of repetitive flood loss, the
adjuster must request the prior loss file from the WYO company or the NFIP Servicing
Agent. To identify the previous carrier, the adjuster should call the NFIP Bureau and
Statistical Agent.
In such cases, analyze prior loss file photographs and compare previous data to current
conditions. Photographs from different dates of loss that show the same paneling,
appliances, fixtures, machinery, and equipment indicating non-replacement for the prior
flood event should be brought to the attention of the claims examiner. When investigating
possible repetitive loss, always:
a. Look for similarities in furniture color and style.
b. Look for the same design, pattern, and texture in paneling.
c. Check appliances and mechanical apparatuses for manufacturer names, model
classifications, and serial numbers. (The same serial numbers between two events show
non-replacement of these items after a previous flood.)
CC.
SCRIP AND STORED VALUE CARDS
Coverage is specifically excluded for these items.
DD.
SEEPAGE AND HIGH WATER TABLE
The SFIP does not provide coverage for losses related to high water tables or seepage unless
there was a general condition of flooding in the area.
EE.
STOCK (PERSONAL PROPERTY) LOSSES – GENERAL PROPERTY FORM
Once the insured declares personal property as “other than household personal property,”
Stock, which is defined in the General Property Form at II. 27, is covered. However, Stock is
subject to the Special Limits at III.B.5. a.-d. This means that jewelry and other listed items
qualifying as Stock are covered only up to the special limit of $2,500. Dealers of such items
typically have separate property coverage for stock that includes flood as a covered peril.
Similarly, bait intended to be sold alive (i.e., worms, crickets, minnows, etc.) by bait and tackle
shops and others is not covered as stock since animals are excluded (see SFIP General
Property Form IV.6.). However, bait that is to be sold frozen, preserved, or otherwise not alive
may be covered as stock.
FF.
SWIMMING POOLS, HOT TUBS, AND SPAS
Coverage for swimming pools, hot tubs, spas, and their equipment is excluded, except that spas
and hot tubs are covered if they are bathroom fixtures. Spas and hot tubs are covered under the
General Property Form if they are bathroom fixtures or stock and inventory held for sale.
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GG. TRAVEL TRAILERS
Travel trailers without wheels, built on a chassis, affixed to a permanent foundation, and
regulated under the community’s floodplain management and building ordinances or laws
are covered.
HH.
BLINDS
The SFIP covers all types of window blinds. Blinds are covered under SFIP Coverage A. only.
II. WATER, MOISTURE, MILDEW, OR MOLD DAMAGE
The SFIP covers reasonable costs for remediation of mold damage except when the damage
results from a condition “confined to the insured building” or “within [the insured’s] control,” such
as “failure to inspect and maintain the property after a flood recedes.” Four examples of SFIP
coverage are provided below. If such damage is caused by “wicking,” it is covered.
1. If a building was inundated but not evacuated, the SFIP will pay reasonable expenses for
water extraction, dehumidifier and fan rental, and mildicide and anti-microbial application.
2. If, after the insured has taken the mitigation measures in example 1 above, mold reappears
and causes damage to the upper portions of walls, ceilings, etc., the NFIP will honor such
claims if the insured can show that mitigation attempts were made.
3. If a local official requires testing for mold, and has legal authority to do so, the SFIP will pay
reasonable costs for the test. No other testing is necessary because the SFIP pays for
reasonable remediation of mold damage (except as noted above). Therefore, the cost of
other testing, except as described here and in example 4 below, will not be covered.
4. If, during inspection of a claim for mold damage, the adjuster believes that such damage is
not the result of the recent flood but is a long-term, recurring problem, it may be necessary
to obtain a testing report from a Certified or Licensed Hygienist or Microbiologist. The
report must be specific as to whether the mold is a recent problem or a long-term,
recurring problem.
Obviously, there can be other scenarios: situations where waist-deep water has inundated the
building and remained for several days or situations where the insured was not allowed to return
to the building for an extended period of time. In such cases, apply common sense and good
adjusting principles. Use these examples as a guide in the handling of the more complex cases.
JJ. WATER SOFTENERS
If the water softener is installed at the described location and connected to a power source,
coverage is provided for the water softener and the chemicals in it.
KK.
WELL WATER PUMPS
The Dwelling Form provides coverage for well pumps located below the lowest elevated floor of
an elevated building and in basements. Well pumps are described as building items and
therefore cannot be construed as content items. If the well pump is located in an unattached
shed or building, then there is no coverage.
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IX. WIND VS. FLOOD ISSUES
Hurricanes and other severe storms may result in damage caused by both wind and flood.
When handling these claims, adjusters should use proven investigative methods.
The NFIP provides adjuster specific guidance in the form of wind or water investigative tips as a
tool to help determine the damage was caused by wind or water or a combination of both. The
adjuster should use the proven methods to document windstorm damage to buildings or
contents. See FEMA Bulletin W-08008, dated February 25, 2008, for a discussion of
Wind/Water Investigative Tips; this document can be obtained at www.nfipiservice.com.
In those instances where wind is coupled with the flood loss, the adjuster typically has little
difficulty when scoping the loss in separating the flood from the wind damage. A flood leaves a
clearly visible watermark and/or debris line on the exterior and in the interior of buildings.
Damage at and below that watermark is attributable to flood. Damage above that watermark is
attributable to wind, in this example.
As the line of separation between the losses caused by wind and flood narrows, and particularly
when they overlap, it becomes increasingly challenging for the adjuster to estimate the flood
damage at the margins. In these cases, expert engineers are often hired by the insurer and at
times by the policyholder to make the determination. In the extreme, such as in coastal
Mississippi, all that may be left of a policyholder’s home or business is a slab or other
foundation elements. The flood adjuster is trained in recognizing signs of flood versus wind
damage. When, like in coastal Mississippi, the storm surge depth and its intensity is sufficient to
cause the observed damage and there is no evidence of pre-surge wind damage, the flood
adjuster will determine the pre-loss value of the building and recommend payment as a total
loss limited by this value and the flood policy limit.
The NFIP requires the WYO Companies and the NFIP Servicing Agent to investigate and adjust
each claim by hiring flood certified independent adjusters. WYO Companies may use their staff
adjusters, but due to the specialized nature of both the flood claims and also Federal
requirements, this is not widely practiced.
The adjuster should contact the policyholder within 24 hours after receiving the assignment from
the insurer and set a date to meet with the policyholder to “scope” the loss or to discuss the
claims process with the policyholder, take photographs, measurements, and note the type and
severity of the damage caused by flood.
Once the estimate is prepared it is delivered to the policyholder with the required Proof of Loss.
As a courtesy, the adjuster may assist the policyholder in preparing the Proof of Loss; the
policyholder should submit their statement of the amount they are claiming. The adjuster has no
authority to indicate to the policyholder what will and won’t be covered or what will be paid. The
adjuster’s recommendation is reviewed by the insurer and when the agreed upon Proof of Loss
is received, payment is made.
The NFIP only pays for direct physical loss by or from flood as defined in the Standard Flood
Insurance Policy (SFIP). The scoping process described, records the information needed to
prepare a line-by-line and room-by-room detailed estimate using unit costs to value the damage,
for instance, in a typical room so many square feet of drywall may be removed and replaced at
a unit cost per square foot. This unit-cost includes the cost of labor and materials, as well as any
applicable taxes.
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X. MAINTAINING THE INTEGRITY OF THE NFIP
A. QUALITY ASSURANCE REINSPECTIONS
The purpose of reinspections is to maintain the high quality of claims processing in the WYO
program. There are two types of reinspections:
•
•
Routine
Special Assist
1. Routine Reinspections
Routine reinspections are conducted principally on open claim files. During a flooding event,
the NFIP Bureau and Statistical Agent will select a WYO Company for reinspections,
determine the number of claims, and select the claims to be reinspected.
The General Adjuster uses the three-part Reinspection Report form. The form is completed
in full and signed by both the WYO Company representative and the General Adjuster. If
the WYO Company representative disagrees with the reinspection results, the
representative must indicate the reasons for disagreement at the bottom of the form.
The General Adjuster then forwards copies of the Reinspection Report for review by
FEMA’s Government Technical Monitor in the offices of the NFIP Bureau and Statistical
Agent. If overpayments are noted, the Monitor will correspond with the WYO Company for
collection. If, over time, patterns of adjustment errors or oversights are noted, Bureau and
Statistical Agent staff will determine what additional training is needed.
2. Special Assist Reinspections
Special assist reinspections are precipitated by a written request from the WYO Company
claim coordinator or direction (oral or written) from FIMA. These involve specific claim
situations that require a General Adjuster’s intervention.
B. FRAUD PREVENTION
Fraud or misrepresentation is a continuing problem in the National Flood Insurance Program.
Any case where it is reasonably believed that there is the possibility of fraud, the adjuster is
responsible for immediately reporting fraud to NFIP Servicing Agent or WYO Company.
1. Detecting Possible Fraud
The following are common indications of possible fraud:
a. Changes of dates or amounts on receipts
b. Dated receipts or invoices that have their printed serial numbers out of sequence
c. Recent, multiple changes of ownership of real property (Check for relationship of
parties involved.)
d. Repeated changing of policies by insured
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e. Multiple waterlines in a building (This possible indicator of previous flooding may
demonstrate that the insured is trying to collect for repairs not completed from a
prior flood.)
f.
Bringing in damaged property not owned by the insured to be submitted in the claim
g. Fraudulent cause of loss
h. Deliberate misrating
i.
Photocopied receipts
j.
Price quotes rather than receipts of purchase
2. Reporting Possible Fraud
As noted above, all instances of possible fraud must immediately be reported to the NFIP
Servicing Agent or the WYO Company.
Other improper or wasteful practices should be reported to FEMA’s Waste and Abuse Hotline at
1-800-323-8603.
C. FLOOD INSURANCE REFORM ACT OF 2004 (FIRA)
The FIRA provisions inform policyholders about the claims process and what to expect from
adjusters. In addition, the Flood Insurance Claims Handbook outlines the FEMA Claims Appeal
Process and instructs the policyholder on the 4 steps required to appeal their claim after the
WYO Company has made the final determination and the insured refutes their decision. In
addition, policyholders will receive the Summary of Coverage that provides assistance for
policyholders in determining what will be covered and what will not be covered by the SFIP.
Since Adjusters may receive questions from policyholders regarding these documents, they
should be familiar with their provisions. The Flood Insurance Claims Handbook can be obtained
via the FEMA web at: http://www.fema.gov/library/viewRecord.do?id=2184
D. AUDITS
WYO Companies and the NFIP Servicing Agent are responsible for handling and processing
NFIP claims. Since the NFIP is a Federal program, it is subject to the scrutiny of the
Department of Homeland Security (DHS) and other Federal agencies, including the
Government Accountability Office (GAO), the DHS Office of Inspector General (OIG), and the
Office of Management and Budget (OMB). In addition, FEMA conducts claims and underwriting
Operation Reviews and claims reinspections. WYO Companies engage CPA firms to perform
biennial audits that include a claims section.
It is in the interest of the all stakeholders including adjusters to be aware of findings from the
following audits: DHS Improper Payment Information Act (IPIA) Audit, DHS Financial Audit,
various GAO studies and reports, as well as the Operation Reviews, reinspections and
biennial audits.
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Many of the findings can be avoided simply by adherence to good claims handling practices
and knowing the terms and provisions of the Standard Flood Insurance Policy (SFIP). Best
practice tips will be included with the findings.
The following will identify findings and best practices when indicated:
1. Incorrect Estimate/Worksheet Calculation
• Estimates are line-by-line, room-by-room using unit costs
•
Depreciation to both building and contents are taken on a line-by-line basis
•
Rooms should be described and identified and the adjuster should verify that the
estimate/worksheet and the building diagram match.
•
Typically overhead and profit is not applied unless there is a general contractor
supervising at least three trades. Exceptions to this general rule should be fully explained
by the adjuster.
•
The adjuster should be careful to include only building items on the building
estimate/worksheet; for instance, clothes washers and dryers are always contents and
should not be included as building items.
•
Qualifications for Replacement Cost Loss Settlement should be clearly documented,
including single family residence, principal residence, insurance to at least 80% of full
replacement cost or maximum available.
2. Insufficient Damage documentation
• Invoices may be needed to adequately support a commercial inventory or other complicated
claim. A salvor or CPA may be required and must be approved by the WYO Company or
the NFIP Servicing Agent.
•
Photographs should adequately document the claimed damage – photographs of
undamaged building elements and contents are also important.
3. Payment Processing Errors
The adjuster should make all payment recommendations clear. Other claim documents
including the estimate/worksheet, Final Report, and the Proof of Loss should support the
recommendations.
4. Covered loss exceeded the value of certain items
• Care is taken when items with Special Limits are claimed, not to exceed the amount of
special limits in the aggregate.
•
Loss Avoidance Measures should be supported with invoices or other documentation.
•
Property Removed to Safety claims should be supported with invoices or
other documentation.
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5. Case Loss Reserving
The reserving system mandates that reports must be timely and reflect true reserves. The
initial case loss reserve may be a system generated amount based on criteria established
by the Company or it may be an individually set reserve based on the best knowledge of the
loss at the time the reserve is established. A company may also set a bulk catastrophe
reserve. The NFIP Preliminary Report and each subsequent adjuster report should refine
the case loss reserve amount as the company becomes aware of additional facts,
inspections, and estimates. The goal is that this knowledge along with any reductions of
partial or advance payments will result in a case loss reserve that closely reflects the value
of all future payments and ultimately the value of the final payment. See FEMA Bulletin
W-08095, December 22, 2008 included on page B-29.
MAINTAINING THE INTEGRITY OF THE NFIP
X-4
REVISED JUNE 2010
| File Type | application/pdf |
| File Title | Item. |
| Author | Valued Gateway 2000 Customer |
| File Modified | 2011-04-25 |
| File Created | 2010-06-30 |