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Data is current as of June 21, 2012

Title 44:
Emergency Management and Assistance

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PART 62—SALE OF INSURANCE AND ADJUSTMENT OF CLAIMS

Section Contents

Subpart
A—Issuance of Policies
§ 62.1   Purpose
of part.
§ 62.2   Definitions.
§ 62.3   Servicing
agent.
§ 62.4   Limitations
on sale of policies.
§ 62.5   Premium
refund.
§ 62.6   Minimum
commissions.

Subpart
B—Claims Adjustment, Claims Appeals, and Judicial
Review
§ 62.20   Claims
appeals.
§ 62.21   Claims
adjustment.
§ 62.22   Judicial
review.

Subpart
C—Write-Your-Own (WYO) Companies
§ 62.23   WYO
Companies authorized.
§ 62.24   WYO
participation criteria.
Appendix
A to Part 62—Federal Emergency Management Agency, Federal Insurance
Administration, Financial Assistance/Subsidy
Arrangement
Appendix
B to Part 62—National Flood Insurance Program

Authority:   42 U.S.C. 4001 et seq,;
Reorganization Plan No. 3 of 1978, 43 FR 41943, 3 CFR, 1978 Comp., p.
329; E.O. 12127 of Mar. 31, 1979, 44 FR 19367, 3 CFR, 1979 Comp., p.
376.

Source:   43 FR 2573, Jan. 17, 1978,
unless otherwise noted. Redesignated at 44 FR 31177, May 31,
1979.

Subpart A—Issuance of Policies

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§ 62.1   Purpose of part.

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The purpose of this part is to set forth the manner in which flood
insurance under the Program is made available to the general public in
those communities designated as eligible for the sale of insurance under
part 64 of this subchapter, and to prescribe the general method by which
the Federal Insurance Administrator exercises his/her responsibility
regarding the manner in which claims for losses are paid.

§ 62.2   Definitions.

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The definitions set forth in part 59 of this subchapter are applicable
to this part.

§ 62.3   Servicing agent.

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(a) Pursuant to sections 1345 and 1346 of the Act, the Federal
Insurance Administrator has entered into the Agreement with a servicing
agent to authorize it to assist in issuing flood insurance policies under
the Program in communities designated by the Federal Insurance
Administrator and to accept responsibility for delivery of policies and
payment of claims for losses as prescribed by and at the discretion of the
Federal Insurance Administrator.

(b) National Con-Serv, Inc., whose offices are located in Rockville,
Maryland, is the servicing agent for the Federal Insurance
Administration.

(c) The servicing agent will arrange for the issuance of flood
insurance to any person qualifying for such coverage under parts 61 and 64
of this subchapter who submits an application to the servicing agent in
accordance with the terms and conditions of the contract between the
Agency and the servicing agent.

[43 FR 2573, Jan. 17, 1978. Redesignated at 44 FR 31177, May 31, 1979,
as amended at 48 FR 44544, Sept. 29, 1983; 49 FR 4751, Feb. 8, 1984; 58 FR
62447, Nov. 26, 1993]

§ 62.4   Limitations on sale of
policies.

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(a) The servicing agent shall be deemed to have agreed, as a condition
of its contract that it shall not offer flood insurance under any
authority or auspices in any amount within the maximum limits of coverage
specified in §61.6 of this subchapter, in any area the Federal Insurance
Administrator designates in part 64 of this subchapter as eligible for the
sale of flood insurance under the Program, other than in accordance with
this part, and the Standard Flood Insurance Policy.

(b) The agreement and all activities thereunder are subject to title VI
of the Civil Rights Act of 1964, 42 U.S.C. 2000d, and to the applicable
Federal regulations and requirements issued from time to time pursuant
thereto. No person shall be excluded from participation in, denied the
benefits of, or subjected to discrimination under the Program, on the
ground of race, color, sex, creed or national origin. Any complaint or
information concerning the existence of any such unlawful discrimination
in any matter within the purview of this part should be referred to the
Federal Insurance Administrator.

[43 FR 2573, Jan. 17, 1978. Redesignated at 44 FR 31177, May 31, 1979,
as amended at 48 FR 44544, Sept. 29, 1983; 49 FR 4751, Feb. 8, 1984]

§ 62.5   Premium refund.

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A Standard Flood Insurance Policyholder whose property has been
determined not to be in a special hazard area after the map revision or a
Letter of Map Amendment under part 70 of this subchapter may cancel the
policy within the current policy year provided (a) he was required to
purchase or to maintain flood insurance coverage, or both, as a condition
for financial assistance, and (b) his property was located in an
identified special hazard area as represented on an effective FHBM or FIRM
when the financial assistance was provided. If no claim under the policy
has been paid or is pending, the full premium shall be refunded for the
current policy year, and for an additional policy year where the insured
had been required to renew the policy during the period when a revised map
was being reprinted. A Standard Flood Insurance Policyholder may cancel a
policy having a term of three (3) years, on an anniversary date, where the
reason for the cancellation is that a policy of flood insurance has been
obtained or is being obtained in substitution for the NFIP policy and the
NFIP obtains a written concurrence in the cancellation from any mortgage
of which the NFIP has actual notice; or the policyholder has extinguishing
the insured mortgage debt and is no longer required by the mortgagee to
maintain the coverage. In such event, the premium refund shall be pro rata
but with retention of the expense constant.

[43 FR 2573, Jan. 17, 1978. Redesignated at 44 FR 31177, May 31, 1979,
as amended at 49 FR 33658, Aug. 24, 1984; 53 FR 16279, May 6, 1988]

§ 62.6   Minimum commissions.

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(a) The earned commission which shall be paid to any property or
casualty insurance agent or broker duly licensed by a state insurance
regulatory authority, with respect to each policy or renewal the agent
duly procures on behalf of the insured, in connection with policies of
flood insurance placed with the NFIP at the offices of its servicing
agent, but not with respect to policies of flood insurance issued pursuant
to Subpart C of this part, shall not be less than $10 and is computed as
follows:

(1) In the case of a new or renewal policy, the following commissions
shall apply based on the total premiums paid for the policy term:

Premium amount

Commissions (percent)

First $2,000 of
Premium

15

Excess of $2,000

5

(2) In the case of mid-term increases in amounts of insurance added by
endorsements, the following commissions shall apply based on the total
premiums paid for the increased amounts of insurance:

Premium amount

Commissions (percent)

First $2,000 of
Premium

15

Excess of $2,000

5

(b) Any refunds of premiums authorized under this subchapter shall not
affect a previously earned commission; and no agent shall be required to
return that earned commission, unless the refund is made to establish a
common policy term anniversary date with other insurance providing
coverage against loss by other perils in which case a return of commission
will be required by the agent on a pro rata basis. In such cases, the
policy shall be immediately rewritten for a new term with the same
amount(s) of coverage and with premium calculated at the then current rate
and, as to return premium, returned, pro rata, to the insured based on the
former policy's premium rate.

[46 FR 13515, Feb. 23, 1981, as amended at 53 FR 15221, Apr. 28, 1988;
57 FR 19541, May 7, 1992]

Subpart B—Claims Adjustment, Claims Appeals, and Judicial
Review

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§ 62.20   Claims appeals.

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(a) Definitions.

Appeal decision means the disposition of the appeal by the
Federal Insurance Administrator.

Decision means the insurer's final claim determination, which is
the insurer's written denial, in whole or in part, of the insured's
claim.

(b) Appeal. A National Flood Insurance Program (NFIP)
policyholder, whether insured by a participating Write-Your-Own (WYO)
Company or directly by the Federal Emergency Management Agency (FEMA), may
appeal a decision , including a determination of any insurance
agent, adjuster, insurance company, or any FEMA employee or contractor
with respect to a claim, proof of loss, and loss estimate. In order to
file an appeal, the insured must comply with all requirements set out in
the Standard Flood Insurance Policy (SFIP). This appeals process is
available after the issuance of the insurer's final claim determination,
which is the insurer's written denial, in whole or in part, of the
insured's claim. Once the final claim determination is issued, an insured
may appeal any action taken by the insurer, FEMA employee, FEMA
contractor, insurance adjuster, or insurance agent.

(c) Limitations on Appeals. The appeals process is intended to
resolve claim issues and is not intended to grant coverage or limits that
are not provided by the SFIP. Filing an appeal does not waive any of the
requirements for perfecting a claim under the SFIP or extend any of the
time limitations set forth in the SFIP.

(1) Disputes that are or have been subject to appraisal as provided for
in the SFIP cannot be appealed under this section.

(2) When a policyholder files an appeal on any issue, that issue is no
longer subject to resolution by appraisal or other pre-litigation
remedies.

(d) Litigation preclusion. An insured who files suit against an
insurer on the flood insurance claim issue is prohibited from filing an
appeal under this section. All appeals submitted for decision but not yet
resolved shall be terminated upon notice of the commencement of litigation
regarding the claim.

(e) Procedures. To pursue an appeal under this section a
policyholder must:

(1) Submit a written appeal to FEMA within 60 days from the date of the
decision. The appeal should be sent to: DHS/FEMA, Mitigation Directorate,
Federal Insurance Administrator, 1800 South Bell Street, Arlington, VA
20598–MS3010;

(2) Provide a copy of the insurer's written denial, in whole or in
part, of the claim;

(3) Identify relevant policy and claim information and state the basis
for the appeal; and

(4) Submit relevant documentation to support the appeal. The
policyholder should submit only the documentation that pertains to his or
her claim. The following are examples of the kinds of documentation which
FEMA will require to adjudicate the appeal: A copy of the proof of loss
submitted to the insurer as required in the policy; room by room itemized
estimates from the adjuster (includes contractors' estimates), detailing
unit cost and quantities for the items needing repair or replacement;
replacement cost proofs of loss; Preliminary Report; Final Report;
detailed damaged personal property inventories that include the
approximate age of the items; completed Mobile Home Worksheet; Mobile Home
Title, including Salvage Titles; real estate appraisals that exclude land
values; advance payment information; clear photographs (exterior and
interior) confirming damage resulted from direct physical loss by or from
flood; proof of prior repair; evidence of insurance and policy information
, i.e. declarations page; Elevation Certificate, if the risk is an
elevated building; the community's determination made concerning
substantial damage; information regarding substantial improvement; zone
determinations; pre-loss and post-loss inventories; financial statements;
tax records, lease agreements, sales contracts, settlement papers, deed,
etc. ; emergency (911) address change information; salvage
information (proceeds and sales); condominium association by-laws; proof
of other insurance, including homeowners or wind policies and any claim
information submitted to the other companies; Waiver, Letter of Map
Revision (LOMR) or Letter of Map Amendment (LOMA) information; paid
receipts and invoices including cancelled checks that support an insured's
out-of-pocket expenses pertaining to the claim; underwriting decisions;
architectural plans and drawings; death certificates; a copy of the will;
divorce decree, power of attorney; current lienholder information; current
loss payee information; paid receipts and invoices documenting damaged
stock; detailed engineering reports specifically addressing flood-related
damage and pre-existing damage; engineering surveys; market values;
documentation of Flood Insurance Rate Maps (FIRM) dates; documentation
reflecting date(s) of construction and substantial improvement; loan
documents including closings; evidence of insurability as a Residential
Condominium Association; Franchise Agreements; letters of representation,
i.e. attorneys and public adjusters; any assignment of interest in
a claim; and, any other pertinent information which FEMA may request in
processing a claim.

(f) Appeal resolution. (1) FEMA will acknowledge, in writing,
receipt of a policyholder's appeal and include in the acknowledgement
contact information for a FEMA point of contact who can advise the
policyholder as to the status of his or her claim.

(2) The Federal Insurance Administrator will review the appeal
documents and may notify the policyholder in writing of the need for
additional information. A request for the additional information will
include the date by which the information must be provided, and shall in
no case be less than 14 calendar days. Failure to provide the requested
information in full, or to request an extension by the due date, may
result in a dismissal of the appeal. A re-inspection of the policyholder's
property may be conducted at the discretion of the Federal Insurance
Administrator to gather more information. The Federal Insurance
Administrator will ensure that all information necessary to rule on
the appeal has been provided prior to making an appeal decision.

(3) The Federal Insurance Administrator will review the appeal
documents, including any reinspection report, if appropriate. The Federal
Insurance Administrator will provide specific information on what grounds
the claim was denied initially. The Federal Insurance Administrator will
provide an appeal decision in writing to the policyholder and
insurer within 90 days from the date that all information has been
submitted by the policyholder and include specific information for the
resolution of the appeal. No further administrative review will be
provided to the insured.

(4) A policyholder who does not agree with FEMA's appeal decision
should refer to the SFIP, for options for further action ( see Part
61, App. A(1) VII.R., Part 61, App. A(2) VII.R., and Part 61, App. A(3)
VIII.R.). The one-year period to file suit commences with the written
denial from the insurer and is not extended by the appeals process.

[71 FR 30298, May 26, 2006, as amended at 71 FR 60438, Oct. 13, 2006;
74 FR 56123, Oct. 30, 2009]

§ 62.21   Claims adjustment.

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(a) In accordance with the Agreement, the servicing agent shall arrange
for the prompt adjustment and settlement and payment of all claims arising
from policies of insurance issued under the program. Investigation of such
claims may be made through the facilities of its subcontractors or
insurance adjustment organizations, to the extent required and appropriate
for the expeditious processing of such claims.

(b) All adjustment of losses and settlements of claims shall be made in
accordance with the terms and conditions of the policy and parts 61 and 62
of this subchapter.

§ 62.22   Judicial review.

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(a) Upon the disallowance by the Federal Insurance Administration, a
participating Write-Your-Own Company, or the servicing agent of any claim
on grounds other than failure to file a proof of loss, or upon the refusal
of the claimant to accept the amount allowed upon any claim after
appraisal pursuant to policy provisions, the claimant within one year
after the date of mailing by the Federal Insurance Administration, the
participating Write-Your-Own Company, or the servicing agent of the notice
of disallowance or partial disallowance of the claim may, pursuant to 42
U.S.C. 4072, institute an action on such claim against the insurer only in
the U.S. District Court for the district in which the insured property or
the major portion thereof shall have been situated, without regard to the
amount in controversy.

(b) Service of process for all judicial proceedings where a claimant is
suing the Administrator of FEMA pursuant to 42 U.S.C. 4071 shall be made
upon the appropriate United States Attorney, the Attorney General of the
United States, and the Federal Insurance Administrator of the Federal
Emergency Management Agency.

[43 FR 2573, Jan. 17, 1978. Redesignated at 44 FR 31177, May 31, 1979,
as amended at 47 FR 43061 Sept. 30, 1982; 49 FR 33879, Aug. 27, 1984; 69
FR 45610, July 30, 2004]

Subpart C—Write-Your-Own (WYO) Companies

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§ 62.23   WYO Companies authorized.

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(a) Pursuant to section 1345 of the Act, the Federal Insurance
Administrator may enter into arrangements with individual private sector
property insurance companies or other insurers, such as public entity risk
sharing organizations. Under these arrangements, such companies or other
insurers may offer flood insurance coverage under the program to eligible
applicants. Such WYO companies may offer flood coverage to policyholders
insured by them under their own property business lines of insurance,
pursuant to their customary business practices, including their usual
arrangements with agents and producers. WYO companies may sell flood
insurance coverage in any State in which the WYO company is authorized to
engage in the business of property insurance. Other WYO insurers may offer
flood insurance coverage to their pool members insured by them under their
own property business lines of coverage, pursuant to their customary
business practices. These other WYO insurers may provide flood coverage in
any State that has authorized the other insurer to provide property
coverage to its members. Arrangements entered into by WYO Companies or
other insurers under this subpart must be in the form and substance of the
standard arrangement, titled “Financial Assistance/Subsidy Arrangement,” a
copy of which is included in appendix A of this part and made a part of
these regulations.

(b) Any duly authorized insurer so engaged in the Program shall be a
WYO Company. (The term “WYO Company” shall include the following kinds of
insurers: Public entity risk-sharing organizations, an association of
local governments, a State association of political subdivisions, a
State-sponsored municipal league, and other intergovernmental risk-sharing
pool for covering public entity structures.)

(c) A WYO Company is authorized to arrange for the issuance of flood
insurance in any amount within the maximum limits of coverage specified in
§61.6 of this subchapter, as Insurer, to any person qualifying for such
coverage under parts 61 and 64 of this subchapter who submits an
application to the WYO Company; coverage shall be issued under the
Standard Flood Insurance Policy.

(d) A WYO Company issuing flood insurance coverage shall arrange for
the adjustment, settlement, payment and defense of all claims arising from
policies of flood insurance it issues under the Program, based upon the
terms and conditions of the Standard Flood Insurance Policy.

(e) In carrying out its functions under this subpart, a WYO Company
shall use its own customary standards, staff and independent contractor
resources, as it would in the ordinary and necessary conduct of its own
business affairs, subject to the Act and regulations prescribed by the
Federal Insurance Administrator under the Act.

(f) To facilitate the marketing of flood insurance coverage under the
Program to policyholders of WYO Companies, the Federal Insurance
Administrator will enter into arrangements with such companies whereby the
Federal Government will be a guarantor in which the primary relationship
between the WYO Company and the Federal Government will be one of a
fiduciary nature, i.e., to assure that any taxpayer funds are accounted
for and appropriately expended. In furtherance of this end, the Federal
Insurance Administrator has established “A Plan to Maintain Financial
Control for Business Written Under the Write Your Own Program”, a copy of
which is included in appendix B of this part and made a part of these
regulations.

(g) A WYO Company shall act as a fiscal agent of the Federal
Government, but not as its general agent. WYO Companies are solely
responsible for their obligations to their insured under any flood
insurance policies issued under agreements entered into with the Federal
Insurance Administrator, such that the Federal Government is not a proper
party defendant in any lawsuit arising out of such policies.

(h) To facilitate the underwriting of flood insurance coverage by WYO
Companies, the following procedures will be used by WYO Companies:

(1) To expedite business growth, the WYO Company will encourage its
present property insurance policyholders to purchase flood insurance
through the NFIP WYO Program.

(2) To conform its underwriting practices to the underwriting rules and
rates in effect as to the NFIP, the WYO Company will establish procedures
to carry out the NFIP rating system and provide its policyholders with the
same coverage as is afforded under the NFIP.

(3) The WYO Company may follow its customary billing practices to meet
the Federal rules on the presentment of premium and net premium deposits
to a Letter of Credit bank account authorized by the Federal Insurance
Administrator and reduction of coverage when an underpayment is
discovered.

(4) The WYO Company is expected to meet the recording and reporting
requirements of the WYO Transaction Record Reporting and Processing Plan.
Transactions reported by the WYO Company under the WYO Transaction Record
Reporting and Processing Plan will be analyzed by the NFIP Bureau &
Statistical Agent. A monthly report will be submitted to the WYO Company
and the FIA. The analysis will cover the timeliness of WYO Company
submissions, the disposition of transactions that have not passed systems
edits and the reconciliation of the totals generated from transaction
reports with those submitted on the WYO Company's reconciliation
reports.

(5) If a WYO Company rejects an application from an agent or a
producer, the agent or producer shall be notified so that the business can
be placed through the NFIP Servicing Agent, or another WYO Company.

(6) Flood insurance coverage will be issued by the WYO Company on a
separate policy form and will not be added, by endorsement, to the
Company's other property insurance forms.

(7) Premium payment plans can be offered by the WYO Company so long as
the net premium depository requirements specified under the NFIP/WYO
Program accounting procedures are met. A cancellation by the WYO Company
for non-payment of premium will not produce a pro rata return of the net
premium deposit to the WYO Company.

(8) NFIP business will not be assumed by the WYO Companies at any time
other than at renewal time, at which time the insurance producer may
submit the business to the WYO Company as new business. However, it is
permissible to cancel and rewrite flood policies to obtain concurrent
expiration dates with other policies covering the property.

(i) To facilitate the adjustment of flood insurance claims by WYO
Companies, the following procedures will be used by WYO Companies.

(1) Under the terms of the Arrangement set forth at appendix A of this
part, WYO Companies will adjust claims in accordance with general Company
standards, guided by NFIP Claims manuals. The Arrangement also provides
that claim adjustments shall be binding upon the FIA. For example, the
entire responsibility for providing a proper adjustment for both combined
wind and water claims and flood-alone claims is the responsibility of the
WYO Company. The responsibility for providing a proper adjustment for
combined wind and water claims is to be conducted by listing in concert
with the Single Adjuster provisions listed in appendix A.

(2) The WYO Company may use its staff adjusters, independent adjusters,
or both. It is important that the Company's Claims Department verifies the
correctness of the coverage interpretations and reasonableness of the
payments recommended by the adjusters.

(3) An established loss adjustment Fee Schedule is part of the
Arrangement and cannot be changed during an Arrangement year. This is the
expense allowance to cover costs of independent or WYO Company
adjusters.

(4) The normal catastrophe claims procedure currently operated by a WYO
Company should be implemented in the event of a claim catastrophe
situation. Flood claims will be handled along with other catastrophe
claims.

(5) It will be the WYO Company's responsibility to try to detect fraud
(as it does in the case of property insurance) and coordinate its findings
with FIA.

(6) Pursuant to the Arrangement, the responsibility for defending
claims will be upon the Write Your Own Company and defense costs will be
part of the unallocated or allocated claim expense allowance, depending on
whether a staff counsel or an outside attorney handles the defense of the
matter. Claims in litigation will be reported by WYO Companies to FIA upon
joinder of issue and FIA may inquire and be advised of the disposition of
such litigation.

(7) The claim reserving procedures of the individual WYO Company can be
used.

(8) Regarding the handling of subrogation, if a WYO Company prefers to
forego pursuit of subrogation recovery, it may do so by referring the
matter, with a complete copy of the claim file, to FIA. Subrogation
initiatives may be truncated at any time before suit is commenced (after
commencing an action, special arrangement must bemade). FIA, after
consultation with FEMA's Office of the Chief Counsel (OCC), will forward
the cause of action to OCC or to the NFIP Bureau and Statistical Agent for
prosecution. Any funds received will be deposited, less expenses, in the
National Flood Insurance Fund.

(9) Special allocated loss adjustment expenses will include such items
as: nonstaff attorney fees, engineering fees and special investigation
fees over and above normal adjustment practices.

(10) The customary content of claim files will include coverage
verification, normal adjuster investigations, including statements where
necessary, police reports, building reports and investigations, damage
verification and other documentation relevant to the adjustment of claims
under the NFIP's and the WYO Company's traditional claim adjustment
practices and procedures. The WYO Company's claim examiners and managers
will supervise the adjustment of flood insurance claims by staff and
independent claims adjusters.

(11) The WYO Company will extend reasonable cooperation to FEMA's
Office of the Chief Counsel on matters pertaining to litigation and
subrogation, under paragraph (i)(8) of this section.

(j) To facilitate establishment of financial controls under the WYO
Program, the WYO Company will:

(1) Have a biennial audit of the flood insurance financial statements
conducted by an independent Certified Public Accountant (CPA) firm at the
Company's expense to ensure that the financial data reported to us
accurately represents the flood insurance activities of the Company. The
CPA firm must conduct its audits in accordance with the generally accepted
auditing standards (GAAS) and Government Auditing Standards issued by the
Comptroller General of the United States (commonly known as “yellow book”
requirements). The Company must file with us (the Federal Insurance
Administration) a report of the CPA firm's detailed biennial audit, and,
after our review of the audit report, we will convey our determination to
the Standards Committee.

(2) Participate in a WYO Company/FIA Operation review. We will conduct
a review of the WYO Company's flood insurance claims, underwriting,
customer service, marketing, and litigation activities at least once every
three (3) years. As part of these reviews, we will reconcile specific
files with a listing of transactions submitted by the Company under the
Transaction Record Reporting and Processing (TRPP) Plan (Part 5). We will
file a report of the Operation Review with the Standards Committee.

(3) Meet the recording and reporting requirements of the WYO
Transaction Record Reporting and Processing Plan and the WYO Accounting
Procedures Manual. Transactions reported to the National Flood Insurance
Program's (NFIP's) Bureau and Statistical Agent by the WYO Company under
the WYO Transaction Record Reporting and Processing Plan and the WYO
Accounting Procedures Manual will be analyzed by the Bureau and
Statistical Agent and a monthly report will be submitted to the WYO
Company and the FIA. The analysis will cover the timeliness of the WYO
Company submissions, the disposition of transactions which do not pass
systems edits and the reconciliation of the totals generated from
transaction reports with those submitted on WYO Company reconciliation
reports.

(4) Cooperate with FEMA's Chief Financial Officer on Letter of Credit
matters.

(5) Cooperate with FIA in the implementation of a claims reinspection
program.

(6) Cooperate with FIA in the verification of risk rating
information.

(7) Cooperate with DHS's Office of the Inspector General on matters
pertaining to fraud.

(k) To facilitate the operation of the WYO Program and in order that a
WYO Company can use its own customary standards, staff and independent
contractor resources, as it would in the ordinary and necessary conduct of
its own business affairs, subject to the Act, the Federal Insurance
Administrator, for good cause shown, may grant exceptions to and waivers
of the regulations contained in this title relative to the administration
of the NFIP.

(l)(1) WYO Companies may, on a voluntary basis, elect to participate in
the Mortgage Portfolio Protection Program (MPPP), under which they can
offer, as a last resort, flood insurance at special high rates, sufficient
to recover the full cost of this program in recognition of the uncertainty
as to the degree of risk a given building presents due to the limited
underwriting data required, to properties in a lending institution's
mortgage portfolio to achieve compliance with the flood insurance purchase
requirements of the Flood Disaster Protection Act of 1973. Flood insurance
policies under the MPPP may only be issued for those properties that:

(i) Are determined to be located within special flood hazard areas of
communities that are participating in the NFIP, and

(ii) Are not covered by a flood insurance policy even after a required
series of notices have been given to the property owner (mortgagor) by the
lending institution of the requirement for obtaining and maintaining such
coverage, but the mortgagor has failed to respond.

(2) WYO Companies participating in the MPPP must provide a detailed
implementation package to any lending institution that, on a voluntary
basis, chooses to participate in the MPPP to ensure the lending
institution has full knowledge of the criteria in that program and must
obtain a signed receipt for that package from the lending institution.
Participating WYO Companies must also maintain evidence of compliance with
paragraph (l)(3) of this section for review during the audits and reviews
required by the WYO Financial Control Plan contained in appendix B of this
part.

(3) The mortgagor must be protected against the lending institution's
arbitrary placing of flood insurance for which the mortgagor will be
billed by being sent three notification letters as described in paragraphs
(l)(4) through (6) of this section.

(4) The initial notification letter must:

(i) State the requirements of the Flood Disaster Protection Act of
1973, as amended;

(ii) Announce the determination that the mortgagor's property is in an
identified special flood hazard area as delineated on the appropriate FEMA
map, necessitating flood insurance coverage for the duration of the
loan;

(iii) Describe the procedure to follow should the mortgagor wish to
challenge the determination;

(iv) Request evidence of a valid flood insurance policy or, if there is
none, encourage the mortgagor to obtain a Standard Flood Insurance Policy
(SFIP) promptly from a local insurance agent (or WYO Company);

(v) Advise that the premium for a MPPP policy is significantly higher
than a conventional SFIP policy and advise as to the option for obtaining
less costly flood insurance; and

(vi) Advise that a MPPP policy will be purchased by the lender if
evidence of flood insurance coverage is not received by a date
certain.

(5) The second notification letter must remind the mortgagor of the
previous notice and provide essentially the same information.

(6) The final notification letter must:

(i) Enclose a copy of the flood insurance policy purchased under the
MPPP on the mortgagor's (insured's) behalf, together with the Declarations
Page,

(ii) Advise that the policy was purchased because of the failure to
respond to the previous notices, and

(iii) Remind the insured that similar coverage may be available at
significantly lower cost and advise that the policy can be cancelled at
any time during the policy year and a pro rata refund provided for the
unearned portion of the premium in the event the insured purchases another
policy that is acceptable to satisfy the requirements of the 1973 Act.

[61 FR 51219, Oct. 1, 1996, as amended at 64 FR 56176, Oct. 18, 1999;
67 FR 13549, Mar. 22, 2002; 69 FR 45610, July 30, 2004; 74 FR 15341, Apr.
3, 2009]

§ 62.24   WYO participation criteria.

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New companies or organizations eligible for the pilot project we
describe in paragraph (b) of this section that seek to participate in the
WYO program, as well as former WYO companies seeking to return to the WYO
program, must meet standards for financial capability and stability for
statistical and financial reporting and for commitment to program
objectives.

(a) To demonstrate the ability to meet the financial requirements, a
private insurance company wishing to enter or reenter the WYO program
must:

(1) Be a licensed property insurance company;

(2) Have a five (5) year history of writing property insurance;

(3) Disclose any legal proceedings, suspensions, judgments,
settlements, or agreements reached with any State insurance department,
State attorney general, State corporation commission, or the Federal
Government during the immediately prior five (5) years regarding the
company's business practices;

(4) Submit its most recent National Association of Insurance
Commissioners (NAIC) annual statement;

(5) Submit information, as data become available, to indicate that the
company meets or exceeds NAIC standards for risk-based capital and
surplus; and

(6) Submit its last State or regional audit, which should contain no
material negative findings.

(b) To demonstrate the ability to meet the financial requirements, a
public entity risk-sharing organization, an association of local
governments, a State association of political subdivisions, a
State-sponsored municipal league, and any other intergovernmental
risk-sharing pool for covering public entity structures, wishing to enter
the WYO program, which will end September 30, 2004, must:

(1) Have authority by a State to provide property coverage to its
members;

(2) Have a five (5) year history of writing property coverage;

(3) Disclose any legal proceedings, suspensions, judgments,
settlements, or agreements reached with any State insurance department,
State attorney general, State corporation commission, or the Federal
Government during the immediately prior five (5) years regarding the other
insurer's business practices; and

(4) Submit its most recent two annual audits from an independent
accounting firm performed in compliance with generally accepted accounting
principles that show no material negative findings; and submit, as data
become available, information to indicate that the other insurer meets or
exceeds standards comparable to those of the NAIC for risk-based capital
and surplus.

(c) An applicant for entry or reentry in the WYO program must also pass
a test to determine the applicant's ability to process flood insurance and
meet the Transaction Record Reporting and Processing (TRRP) Plan
requirements of the WYO Financial Control Plan. Unless the test
requirement is waived, e.g., where an already qualified performer will
fulfill the applicant's reporting requirements, the applicant must prepare
and submit test output monthly tape(s) and monthly financial statements
and reconciliations for processing by the NFIP Bureau and Statistical
Agent contractor. For test purposes, no error tolerance will be allowed.
If the applicant fails the initial test, a second test will be run, which
the applicant must pass to participate in the Program.

(d) To satisfy the requirement for commitment to Program goals,
including marketing of flood insurance policies, the applicant will submit
information concerning its plans for the WYO Program including plans for
the training and support of producers and staff, marketing plans and sales
targets, and claims handling and disaster response plans. Applicants must
also identify those aspects of their planned flood insurance operations to
be performed by another organization, managing agent, another WYO Company,
a WYO vendor, a service bureau or related organization. Applicants will
also name, in addition to a Principal Coordinator, a corporate officer
point of contact—an individual, e.g., at the level of Senior Executive
Vice President, who reports directly to the Chief Executive Officer or the
Chief Operating Officer. Each applicant shall furnish the latest available
information regarding the number of its fire, allied lines, farm-owners
multiple peril, homeowners multiple peril, and commercial multiple peril
policies or coverage documents in force, by line. A private insurance
company applying for participation in the WYO program shall also furnish
its Best's Financial Size Category for the purpose of setting marketing
goals.

[67 FR 13550, Mar. 22, 2002]

Appendix A to Part 62—Federal Emergency Management Agency, Federal
Insurance Administration, Financial Assistance/Subsidy
Arrangement

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Purpose: To assist the company in underwriting flood insurance
using the Standard Flood Insurance Policy.

Accounting Data: Pursuant to Section 1310 of the Act, a Letter
of Credit shall be issued for payment as provided for herein from the
National Flood Insurance Fund.

Effective Date: October 1, 2004.

Issued By: Federal Emergency Management Agency, Federal
Insurance Administration, Washington, DC 20472.

Article I—Findings, Purpose, and Authority

Whereas, the Congress in its “Finding and Declaration of Purpose” in
the National Flood Insurance Act of 1968, as amended, (“the Act” or “Act”)
recognized the benefit of having the National Flood Insurance Program (the
“Program” or “NFIP”) “carried out to the maximum extent practicable by the
private insurance industry”; and

Whereas the Federal Insurance Administration (FIA) within the
Mitigation Division recognizes this Arrangement as coming under the
provisions of Section 1345 of the Act (42 U.S.C. 4081); and

Whereas, the goal of the FIA is to develop a program with the insurance
industry where, over time, some risk-bearing role for the industry will
evolve as intended by the Congress (Section 1304 of the Act (42 U.S.C.
4011)); and

Whereas, the insurer (hereinafter the “Company”) under this Arrangement
shall charge rates established by the FIA; and

Whereas, FIA has promulgated regulations and guidance implementing the
Act and the Write-Your-Own Program whereby participating private insurance
companies act in a fiduciary capacity utilizing Federal funds to sell and
administer the Standard Flood Insurance Policies, and has extensively
regulated the participating companies' activities when selling or
administering the Standard Flood Insurance Policies; and

Whereas, any litigation resulting from, related to, or arising from the
Company's compliance with the written standards, procedures, and guidance
issued by FEMA or FIA arises under the Act, regulations, or FIA guidance,
and legal issues thereunder raise a federal question; and

Whereas, through this Arrangement, the Federal Treasury will back all
flood policy claim payments by the Company; and

Whereas, this Arrangement has been developed to enable any interested
qualified insurer to write flood insurance under its own name; and

Whereas, one of the primary objectives of the Program is to provide
coverage to the maximum number of structures at risk and because the
insurance industry has marketing access through its existing facilities
not directly available to the FIA, it has been concluded that coverage
will be extended to those who would not otherwise be insured under the
Program; and

Whereas, flood insurance policies issued subject to this Arrangement
shall be only that insurance written by the Company in its own name under
prescribed policy conditions and pursuant to this Arrangement and the Act;
and

Whereas, over time, the Program is designed to increase industry
participation, and accordingly, reduce or eliminate Government as the
principal vehicle for delivering flood insurance to the public; and

Whereas, the sole parties under this Arrangement are the WYO Companies
and the Federal Government.

Now, therefore, the parties hereto mutually undertake the
following:

Article II—Undertaking of the Company

A. Eligibility Requirements for Participation in the NFIP:

1. Policy Administration. All fund receipt, recording, control, timely
deposit requirements, and disbursement in connection with all Policy
Administration and any other related activities or correspondences, must
meet all requirements of the Financial Control Plan. The Company shall be
responsible for:

a. Compliance with the Community Eligibility/Rating Criteria

b. Making Policyholder Eligibility Determinations

c. Policy Issuance

d. Policy Endorsements

e. Policy Cancellations

f. Policy Correspondence

g. Payment of Agents' Commissions

2. Claims Processing. All claims processing must be processed in
accordance with the processing of all the companies' insurance policies
and with the Financial Control Plan. Companies will also be required to
comply with FIA Policy Issuances and other guidance authorized by FIA or
the Federal Emergency Management Agency (“FEMA”).

3. Reports.

a. Monthly Financial Reporting and Statistical Transaction reporting
requirements. All monthly financial reporting and statistical transaction
reporting shall be in accordance with the requirements of the NFIP
Transaction Record Reporting and Processing Plan for the Company Program
and the Financial Control Plan for business written under the WYO (Write
Your Own) Program. 44 CFR part 62, appendix B. These data shall be
validated/edited/audited in detail and shall be compared and balanced
against Company reports.

b. Monthly financial reporting procedure shall be in accordance with
the WYO Accounting Procedures.

B. Time Standards. Time will be measured from the date of receipt
through the date mailed out. All dates referenced are working days, not
calendar days. In addition to the standards set forth below, all functions
performed by the company shall be in accordance with the highest
reasonably attainable quality standards generally utilized in the
insurance and data processing field. Continual failure to meet these
requirements may result in limitations on the company's authority to write
new business or the removal of the Company from the program. Applicable
time standards are:

1. Application Processing—15 days (note: if the policy cannot be mailed
due to insufficient or erroneous information or insufficient funds, a
request for correction or added moneys shall be mailed within 10
days);

2. Renewal Processing—7 days.

3. Endorsement Processing—15 days.

4. Cancellation Processing—15 days.

5. Claims Draft Processing—7 days from completion of file
examination.

6. Claims Adjustment—45 days average from the receipt of Notice of Loss
(or equivalent) through completion of examination.

C. Single Adjuster Program. To ensure the maximum responsiveness to the
NFIP policy holders following a catastrophic event, e.g., a hurricane,
involving insured wind and flood damage to policyholders, the Company
shall agree to the adjustment of the combined flood and wind losses
utilizing one adjuster under an NFIP-approved Single Adjuster Program
using procedures issued by the Federal Insurance Administrator. The Single
Adjuster procedure shall be followed in the following cases:

1. Where the flood and wind coverage is provided by the Company;

2. Where the flood coverage is provided by the Company and the wind
coverage is provided by a participating State Property Insurance Plan,
Windpool Association, Beach Plan, Joint Underwriting Association, FAIR
Plan, or similar property insurance mechanism; and

3. Where the flood coverage is provided by the Company and the wind
coverage is provided by another property insurer and the State Insurance
Regulator has determined that such property insurer shall, in the interest
of consumers, facilitate the adjustment of its wind loss by the adjuster
engaged to adjust the flood loss of the Company.

D. Policy Issuance.

1. The flood insurance subject to this Arrangement shall be only that
insurance written by the Company in its own name pursuant to the Act.

2. The Company shall issue policies under the regulations prescribed by
the Federal Insurance Administrator in accordance with the Act.

3. All such policies of insurance shall conform to the regulations
prescribed by the Federal Insurance Administrator pursuant to the Act, and
be issued on a form approved by the Federal Insurance Administrator.

4. All policies shall be issued in consideration of such premiums and
upon such terms and conditions and in such States or areas or subdivisions
thereof as may be designated by the Federal Insurance Administrator and
only where the Company is licensed by State law to engage in the property
insurance business.

5. The Federal Insurance Administrator may require the Company to
discontinue issuing policies subject to this Arrangement immediately in
the event Congressional authorization or appropriation for the National
Flood Insurance Program is withdrawn.

E. The Company shall separate Federal flood insurance funds from all
other Company accounts, at a bank or banks of its choosing for the
collection, retention and disbursement of Federal funds relating to its
obligation under this Arrangement, less the Company's expenses as set
forth in Article III, and the operation of the Letter of Credit
established pursuant to Article IV. All funds not required to meet current
expenditures shall be remitted to the United States Treasury, in
accordance with the provisions of the WYO Accounting Procedures
Manual.

F. The Company shall investigate, adjust, settle and defend all claims
or losses arising from policies issued under this Arrangement. Payment of
flood insurance claims by the Company shall be binding upon the FIA.

G. Compliance with Agency Standard and Guidelines.

1. The Company shall comply with written standards, procedures, and
guidance issued by FEMA or FIA relating to the NFIP and applicable to the
Company.

2. The Company shall market flood insurance policies in a manner
consistent with marketing guidelines established by FIA.

3. The Company shall notify its agents of the requirement to comply
with State regulations regarding flood insurance agent education, notify
agents of flood insurance training opportunities, and assist FEMA in
periodic assessment of agent training needs.

Article III—Loss Costs, Expenses, Expense Reimbursement, and Premium
Refunds

A. The Company shall be liable for operating, administrative and
production expenses, including any State premium taxes, dividends, agents'
commissions or any other expense of whatever nature incurred by the
Company in the performance of its obligations under this Arrangement but
excluding other taxes or fees, such as surcharges on flood insurance
premium and guaranty fund assessments.

B. The Company may withhold as operating and administrative expenses,
other than agents' or brokers' commissions, an amount from the Company's
written premium on the policies covered by this Arrangement in
reimbursement of all of the Company's marketing, operating, and
administrative expenses, except for allocated and unallocated loss
adjustment expenses described in C. of this article. This amount will
equal the sum of the average of industry expense ratios for “Other Acq.”,
“Gen. Exp.”, and “Taxes” calculated by aggregating premiums and expense
amounts for each of five property coverages using direct premium and
expense information to derive weighted average expense ratios. For this
purpose, we (the Federal Insurance Administration) will use data for the
property/casualty industry published, as of March 15 of the prior
Arrangement year, in Part III of the Insurance Expense Exhibit in A.M.
Best Company's Aggregates and Averages for the following five
property coverages: Fire, Allied Lines, Farmowners Multiple Peril,
Homeowners Multiple Peril, and Commercial Multiple Peril (non-liability
portion). In addition, this amount will be increased by one percentage
point to reimburse expenses beyond regular property/casualty expenses.

The Company may retain fifteen percent (15%) of the Company's written
premium on the policies covered by this Arrangement as the commission
allowance to meet commissions or salaries of insurance agents, brokers, or
other entities producing qualified flood insurance applications and other
related expenses.

The amount of expense allowance retained by the Company may increase a
maximum of two percentage points, depending on the extent to which the
Company meets the marketing goals for the Arrangement year contained in
marketing guidelines established pursuant to Article II.G. We will pay the
company the amount of any increase after the end of the Arrangement
year.

The Company, with the consent of the Federal Insurance Administrator as
to terms and costs, may use the services of a national rating
organization, licensed under state law, to help us undertake and carry out
such studies and investigations on a community or individual risk basis,
and to determine equitable and accurate estimates of flood insurance risk
premium rates as authorized under the National Flood Insurance Act of
1968, as amended. We will reimburse the Company for the charges or fees
for such services under the provisions of the WYO Accounting Procedures
Manual.

C. Loss Adjustment Expenses shall be reimbursed as follows:

1. Unallocated loss adjustment expense shall be reimbursed to the
Company pursuant to a “ULAE Schedule” coordinated with the Company and
provided by the Federal Insurance Administrator.

2. Allocated loss adjustment expense shall be reimbursed to the Company
pursuant to a “Fee Schedule” coordinated with the Company and provided by
the Federal Insurance Administrator.

3. Special allocated loss expenses shall be reimbursed to the Company
in accordance with guidelines issued by the Federal Insurance
Administrator.

D. Loss Payments.

1. Loss payments under policies of flood insurance shall be made by the
Company from Federal funds retained in the bank account(s) established
under Article II, Section E and, if such funds are depleted, from Federal
funds derived by drawing against the Letter of Credit established pursuant
to Article IV.

2. Loss payments include payments as a result of litigation that arises
under the scope of this Arrangement, and the Authorities set forth herein.
All such loss payments and related expenses must meet the documentation
requirements of the Financial Control Plan and of this Arrangement, and
the Company must comply with the litigation documentation and notification
requirements established by FEMA. Failure to meet these requirements may
result in the Federal Insurance Administrator's decision not to provide
reimbursement.

3. Limitation on Litigation Costs.

a. Following receipt of notice of such litigation, the FEMA Office of
the Chief Counsel (“OCC”) shall review the information submitted. If the
FEMA OGC finds that the litigation is grounded in actions by the Company
that are significantly outside the scope of this Arrangement, and/or
involves issues of agent negligence, then the FEMA OCC shall make a
recommendation to the Federal Insurance Administrator regarding whether
all or part of the litigation is significantly outside the scope of the
Arrangement.

b. In the event the Federal Insurance Administrator agrees with the
determination of the FEMA OCC under Article III, Section D.3.a then the
Company will be notified in writing within thirty (30) days of the Federal
Insurance Administrator's decision that any award or judgment for damages
and any costs to defend such litigation will not be recognized under
Article III as a reimbursable loss cost, expense or expense
reimbursement.

c. In the event a question arises whether only part of a litigation is
reimbursable, the FEMA OCC shall make a recommendation to the Federal
Insurance Administrator about the appropriate division of responsibility,
if possible.

d. In the event that the Company wishes to petition for reconsideration
of the determination that it will not be reimbursed for any part of the
award or judgment or any part of the costs expended to defend such
litigation made under Article III, Section D.3.a-c, it may do so by
mailing, within thirty (30) days of the notice that reimbursement will not
be made, a written petition to the Federal Insurance Administrator, who
may request advice on other than legal matters of the WYO Standards
Committee established under the WYO Financial Control Plan. The WYO
Standards Committee will consider the request at its next regularly
scheduled meeting or at a special meeting called for that purpose by the
Chairman and issue a written recommendation to the Federal Insurance
Administrator. The Federal Insurance Administrator's final determination
will be made in writing within a reasonable time to the Company.

E. Premium refunds to applicants and policyholders required pursuant to
rules contained in the National Flood Insurance Program (NFIP) “Flood
Insurance Manual” shall be made by the Company from Federal flood
insurance funds referred to in Article II, Section E, and, if such funds
are depleted, from funds derived by drawing against the Letter of Credit
established pursuant to Article IV. As fiscal agent, the Company shall not
refund any premium to applicants or policyholders in any manner other than
as specified in the NFIP's “Flood Insurance Manual” since flood insurance
premiums are funds of the Federal Government.

Article IV—Undertakings of the Government

A. Letter(s) of Credit shall be established by the Federal Emergency
Management Agency (FEMA) against which the Company may withdraw funds
daily, if needed, pursuant to prescribed procedures implemented by FEMA.
The amounts of the authorizations will be increased as necessary to meet
the obligations of the Company under Article III, Sections C, D, and E.
Request for funds shall be made only when net premium income has been
depleted. The timing and amount of cash advances shall be as close as is
administratively feasible to the actual disbursements by the recipient
organization for allowable Letter of Credit expenses.

Request for payment on Letters of Credit shall not ordinarily be drawn
more frequently than daily nor in amounts less than $5,000, and in no case
more than $5,000,000 unless so stated on the Letter of Credit. This Letter
of Credit may be drawn by the Company for any of the following
reasons:

1. Payment of claim as described in Article III, Section D;

2. Refunds to applicants and policyholders for insurance premium
overpayment, or if the application for insurance is rejected or when
cancellation or endorsement of a policy results in a premium refund as
described in Article III, Section E; and

3. Allocated and unallocated Loss Adjustment Expenses as described in
Article III, Section C.

B. The FIA shall provide technical assistance to the Company as
follows:

1. The FIA's policy and history concerning underwriting and claims
handling.

2. A mechanism to assist in clarification of coverage and claims
questions.

3. Other assistance as needed.

Article V—Commencement and Termination

A. The initial period of this Arrangement is from October 1, 2004
through September 30, 2005. Thereafter the Arrangement will be effective
on an annual basis for the period October 1 through September 30. The FIA
shall provide financial assistance only for policy applications and
endorsements accepted by the Company during this period pursuant to the
Program's effective date, underwriting and eligibility rules.

B. Each year, the FIA shall publish in the  Federal Register  and make available to the Company
the terms for subscription or re-subscription to this Financial
Assistance/Subsidy Arrangement. The Company shall notify the FIA of its
intent to re-subscribe or not re-subscribe within thirty days of
publication.

C. In order to assure uninterrupted service to policyholders, the
Company shall promptly notify the FIA in the event the Company elects not
to participate in the Program during the Arrangement year. If so notified,
or if the FIA chooses not to renew the Company's participation, the FIA,
at its option, may require the continued performance of all or selected
elements of this Arrangement for the period required for orderly transfer
or cessation of business and settlement of accounts, not to exceed 18
months, and may either require Article V.C.1 or allow Article V.C.2:

1. The delivery to the FIA of:

a. A plan for the orderly transfer to the FIA of any continuing
responsibilities in administering the policies issued by the Company under
the Program including provisions for coordination assistance; and

b. All data received, produced, and maintained through the life of the
Company's participation in the Program, including certain data, as
determined by FIA, in a standard format and medium; and

c. All claims and policy files, including those pertaining to receipts
and disbursements that have occurred during the life of each policy. In
the event of a transfer of the services provided, the Company shall
provide the FIA with a report showing, on a policy basis, any amounts due
from or payable to insureds, agents, brokers, and others as of the
transition date; and

d. All funds in its possession with respect to any policies transferred
to FIA for administration and the unearned expenses retained by the
Company.

2. Submission of plans for the renewal of the business by another WYO
Company or Companies or the submission of detailed plans for another WYO
Company to assume responsibility for the Company's NFIP policies. Such
plans shall assure uninterrupted service to policyholders and shall be
accompanied by a formal request for FIA approval of such transfers.

D. Financial assistance under this Arrangement may be canceled by the
FIA in its entirety upon thirty (30) days written notice to the Company by
certified mail stating one of the following reasons for such cancellation:
(i) Fraud or misrepresentation by the Company subsequent to the inception
of the Arrangement; or (ii) Nonpayment to the FIA of any amount due the
FIA; or (iii) Material failure to comply with the requirements of this
Arrangement or with the written standards, procedures, or guidance issued
by FEMA or FIA relating to the NFIP and applicable to the Company. Under
these specific conditions, the FIA may require the transfer of
administrative responsibilities and the transfer of data and records as
provided in Article V, Section C.1.a through d. If transfer is required,
the unearned expenses retained by the Company shall be remitted to the
FIA. In such event, the Government will assume all obligations and
liabilities owed to policyholders under such policies, arising before and
after the date of transfer. As an alternative to transfer of the policies
to the Government, the FIA will consider a proposal, if it is made by the
Company, for the assumption of responsibilities by another WYO Company as
provided in Article V, Section C.2.

E. In the event that the Company is unable or otherwise fails to carry
out its obligations under this Arrangement by reason of any order or
directive duly issued by the Department of Insurance of any jurisdiction
to which the Company is subject, the Company agrees to transfer, and the
Government will accept, any and all WYO policies issued by the Company and
in force as of the date of such inability or failure to perform. In such
event the Government will assume all obligations and liabilities within
the scope of the Arrangement owed to policyholders arising before and
after the date of transfer, and the Company will immediately transfer to
the Government all needed records and data and all funds in its possession
with respect to all such policies transferred and the unearned expenses
retained by the Company. As an alternative to transfer of the policies to
the Government, the FIA will consider a proposal, if it is made by the
Company, for the assumption of responsibilities by another WYO Company as
provided by Article V, Section C.2.

F. In the event the Act is amended, or repealed, or expires, or if the
FIA is otherwise without authority to continue the Program, financial
assistance under this Arrangement may be canceled for any new or renewal
business, but the Arrangement shall continue for policies in force that
shall be allowed to run their term under the Arrangement.

Article VI—Information and Annual Statements

The Company shall furnish to FEMA such summaries and analyses of
information including claim file information, and property address,
location, and/or site information in its records as may be necessary to
carry out the purposes of the National Flood Insurance Act of 1968, as
amended, in such form as the FIA, in cooperation with the Company, shall
prescribe. The Company shall be a property/casualty insurer domiciled in a
State or territory of the United States. Upon request, the Company shall
file with the FIA a true and correct copy of the Company's Fire and
Casualty Annual Statement, and Insurance Expense Exhibit or amendments
thereof as filed with the State Insurance Authority of the Company's
domiciliary State.

Article VII—Cash Management and Accounting

A. FEMA shall make available to the Company during the entire term of
this Arrangement and any continuation period required by FIA pursuant to
Article V, Section C., the Letter of Credit provided for in Article IV
drawn on a repository bank within the Federal Reserve System upon which
the Company may draw for reimbursement of its expenses as set forth in
Article IV that exceed net written premiums collected by the Company from
the effective date of this Arrangement or continuation period to the date
of the draw. In the event that adequate Letter of Credit funding is not
available to meet current Company obligations for flood policy claim
payments issued, FIA shall direct the Company to immediately suspend the
issuance of loss payments until such time as adequate funds are available.
The Companies are not required to pay claims from their own funds in the
event of such suspension.

B. The Company shall remit all funds, including interest, not required
to meet current expenditures to the United States Treasury, in accordance
with the provisions of the WYO Accounting Procedures Manual or procedures
approved in writing by the FIA.

C. In the event the Company elects not to participate in the Program in
this or any subsequent fiscal year, or is otherwise unable or not
permitted to participate, the Company and FIA shall make a provisional
settlement of all amounts due or owing within three months of the
expiration or termination of this Arrangement. This settlement shall
include net premiums collected, funds drawn on the Letter of Credit, and
reserves for outstanding claims. The Company and FIA agree to make a final
settlement, subject to audit, of accounts for all obligations arising from
this Arrangement within 18 months of its expiration or termination, except
for contingent liabilities that shall be listed by the Company. At the
time of final settlement, the balance, if any, due the FIA or the Company
shall be remitted by the other immediately and the operating year under
this Arrangement shall be closed.

Article VIII—Arbitration

If any misunderstanding or dispute arises between the Company and the
FIA with reference to any factual issue under any provisions of this
Arrangement or with respect to the FIA's non-renewal of the Company's
participation, other than as to legal liability under or interpretation of
the standard flood insurance policy, such misunderstanding or dispute may
be submitted to arbitration for a determination that shall be binding upon
approval by the FIA. The Company and the FIA may agree on and appoint an
arbitrator who shall investigate the subject of the misunderstanding or
dispute and make a determination. If the Company and the FIA cannot agree
on the appointment of an arbitrator, then two arbitrators shall be
appointed, one to be chosen by the Company and one by the FIA.

The two arbitrators so chosen, if they are unable to reach an
agreement, shall select a third arbitrator who shall act as umpire, and
such umpire's determination shall become final only upon approval by the
FIA.

The Company and the FIA shall bear in equal shares all expenses of the
arbitration. Findings, proposed awards, and determinations resulting from
arbitration proceedings carried out under this section, upon objection by
FIA or the Company, shall be inadmissible as evidence in any subsequent
proceedings in any court of competent jurisdiction.

This Article shall indefinitely succeed the term of this
Arrangement.

Article IX—Errors and Omissions

In the event of negligence by the Company that has not resulted in
litigation but has resulted in a claim against the Company, FEMA will not
consider reimbursement of the Company for costs incurred due to that
negligence unless the Company takes all reasonable actions to rectify the
negligence and to mitigate any such costs as soon as possible after
discovery of the negligence. Further, (i) if the claim against the Company
is grounded in actions significantly outside the scope of this Arrangement
or (ii) if there is negligence by the agent, FEMA will not reimburse any
costs incurred due to that negligence. The Company will be notified in
writing within thirty (30) days of a decision not to reimburse. In the
event the Company wishes to petition for reconsideration of the decision
not to reimburse, the procedure in Article III, Section D.3.d shall
apply.

However, in the event that the Company has made a claim payment to an
insured without including a mortgagee (or trustee) of which the Company
had actual notice prior to making payment, and subsequently determines
that the mortgagee (or trustee) is also entitled to any part of said claim
payment, any additional payment shall not be paid by the Company from any
portion of the premium and any funds derived from any Federal Letter of
Credit deposited in the bank account described in Article II, section E.
In addition, the Company agrees to hold the Federal Government harmless
against any claim asserted against the Federal Government by any such
mortgagee (or Trustee), as described in the preceding sentence, by reason
of any claim payment made to any insured under the circumstances described
above.

Article X—Officials Not to Benefit

No Member or Delegate to Congress, or Resident Commissioner, shall be
admitted to any share or part of this Arrangement, or to any benefit that
may arise therefrom; but this provision shall not be construed to extend
to this Arrangement if made with a corporation for its general
benefit.

Article XI—Offset

At the settlement of accounts the Company and the FIA shall have, and
may exercise, the right to offset any balance or balances, whether on
account of premiums, commissions, losses, loss adjustment expenses,
salvage, or otherwise due one party to the other, its successors or
assigns, hereunder or under any other Arrangements heretofore or hereafter
entered into between the Company and the FIA. This right of offset shall
not be affected or diminished because of insolvency of the Company.

All debts or credits of the same class, whether liquidated or
unliquidated, in favor of or against either party to this Arrangement on
the date of entry, or any order of conservation, receivership, or
liquidation, shall be deemed to be mutual debts and credits and shall be
offset with the balance only to be allowed or paid. No offset shall be
allowed where a conservator, receiver, or liquidator has been appointed
and where an obligation was purchased by or transferred to a party
hereunder to be used as an offset.

Although a claim on the part of either party against the other may be
unliquidated or undetermined in amount on the date of the entry of the
order, such claim will be regarded as being in existence as of the date of
such order and any credits or claims of the same class then in existence
and held by the other party may be offset against it.

Article XII—Equal Opportunity

The Company shall not discriminate against any applicant for insurance
because of race, color, religion, sex, age, handicap, marital status, or
national origin.

Article XIII—Restriction on Other Flood Insurance

As a condition of entering into this Arrangement, the Company agrees
that in any area in which the Federal Insurance Administrator authorizes
the purchase of flood insurance pursuant to the Program, all flood
insurance offered and sold by the Company to persons eligible to buy
pursuant to the Program for coverages available under the Program shall be
written pursuant to this Arrangement.

However, this restriction applies solely to policies providing only
flood insurance. It does not apply to policies provided by the Company of
which flood is one of the several perils covered, or where the flood
insurance coverage amount is over and above the limits of liability
available to the insured under the Program.

Article XIV—Access to Books and Records

The FIA and the Comptroller General of The United States, or their duly
authorized representatives, for the purpose of investigation, audit, and
examination shall have access to any books, documents, papers and records
of the Company that are pertinent to this Arrangement. The Company shall
keep records that fully disclose all matters pertinent to this
Arrangement, including premiums and claims paid or payable under policies
issued pursuant to this Arrangement. Records of accounts and records
relating to financial assistance shall be retained and available for three
(3) years after final settlement of accounts, and to financial assistance,
three (3) years after final adjustment of such claims. The FIA shall have
access to policyholder and claim records at all times for purposes of the
review, defense, examination, adjustment, or investigation of any claim
under a flood insurance policy subject to this Arrangement.

Article XV—Compliance With Act and Regulations

This Arrangement and all policies of insurance issued pursuant thereto
shall be subject to the provisions of the National Flood Insurance Act of
1968, as amended, the Flood Disaster Protection Act of 1973, as amended,
the National Flood Insurance Reform Act of 1994, and Regulations issued
pursuant thereto and all Regulations affecting the work that are issued
pursuant thereto, during the term hereof.

Article XVI—Relationship Between the Parties (Federal Government and
Company) and the Insured

Inasmuch as the Federal Government is a guarantor hereunder, the
primary relationship between the Company and the Federal Government is one
of a fiduciary nature, i.e. , to assure that any taxpayer funds are
accounted for and appropriately expended. The Company is a fiscal agent of
the Federal Government, but is not a general agent of the Federal
Government. The Company is solely responsible for its obligations to its
insured under any policy issued pursuant hereto, such that the Federal
Government is not a proper party to any lawsuit arising out of such
policies.

Addendum to Appendix A to Part 62—Federal Emergency Management Agency,
Federal Insurance and Mitigation Administration, Financial
Assistance/Subsidy Arrangement

Note: This Addendum to Appendix A to Part 62 applies only
to a public entity risk-sharing organization, an association of local
governments, a State association of political subdivisions, a
State-sponsored municipal league, and any other intergovernmental
risk-sharing pool for covering public entity structures participating in
the pilot project established in §62.24(b) that permits intergovernmental
risk-sharing pools to provide flood insurance to public entities to cover
public buildings.

(1) “Company” in the preceding Arrangement includes “a public entity
risk-sharing organization, an association of local governments, a State
association of political subdivisions, a State-sponsored municipal league,
and any other intergovernmental risk-sharing pool for covering public
entity structures.”

(2) The references to “marketing guidelines” in Article II—Undertaking
of the Company and to “marketing goals” in Article III—Loss Costs,
Expenses, Expense Reimbursement, and Premium Refunds shall apply only to
the private insurance companies participating in the WYO program.

[62 FR 39910, July 24, 1997, as amended at 63 FR 32761, June 16, 1998;
64 FR 27709, May 21, 1999; 65 FR 36634, June 9, 2000; 66 FR 40917, Aug. 6,
2001; 67 FR 13550, Mar. 22, 2002; 67 FR 51769, Aug. 9, 2002; 68 FR 52701,
Sept. 5, 2003; 68 FR 75454, Dec. 31, 2003; 69 FR 23659, Apr. 30, 2004; 69
FR 45611, July 30, 2004; 73 FR 18187, 18188, Apr. 3, 2008]

Appendix B to Part 62—National Flood Insurance Program

top

A Plan to Maintain Financial Control for Business Written Under the
Write Your Own Program.

(a) In general. Under the Write Your Own (WYO) Program, we (the
Federal Insurance Administration (FIA), Federal Emergency Management
Agency (FEMA)) may enter into an arrangement with individual private
sector insurance companies licensed to engage in the business of property
insurance. The arrangement allows these companies—using their customary
business practices—to offer flood insurance coverage to eligible property
owners. To assist companies in marketing flood insurance coverage, the
Federal Government will be a guarantor of flood insurance coverage for WYO
policies issued under the WYO Arrangement. To account for and ensure
appropriate spending of any taxpayer funds, the WYO companies and we will
implement this Financial Control Plan (Plan). Only the Federal Insurance
Administrator may approve any departures from the requirements of this
Plan.

(b) Financial Control Plan. (1) The WYO Companies are subject to
audit, examination, and regulatory controls of the various States.
Additionally, the operating department of an insurance company is
customarily subject to examinations and audits performed by the company's
internal audit or quality control departments, or both, and independent
Certified Public Accountant (CPA) firms. This Plan will use to the extent
possible the findings of these examinations and audits as they pertain to
business written under the WYO Program.

(2) This Plan contains several checks and balances that can, if
properly implemented by the WYO Company, significantly reduce the need for
extensive on-site reviews of the Company's files by us or our designee.
Furthermore, we believe that this process is consistent with customary
reinsurance practices and avoids duplication of examinations performed
under the auspices of individual State Insurance Departments, NAIC Zone
examinations, and independent CPA firms.

(c) Standards Committee established. (1) We establish in this
Plan a Standards Committee for the WYO Program to oversee the performance
of WYO companies under this Plan and to recommend appropriate remedial
actions to the Federal Insurance Administrator. The Standards Committee
will review and recommend to the Federal Insurance Administrator remedies
for any adverse action arising from the implementation of the Financial
Control Plan. Adverse actions include, but are not limited to, not
renewing a particular company's WYO Arrangement.

(2) The Federal Insurance Administrator appoints the members of the
Standards Committee, which consists of five (5) members from FIA, one (1)
member from FEMA's Office of Chief Financial Officer, and one (1) member
from each of the six (6) designated WYO Companies, pools, or other
entities.

(3) A WYO company must—

(A) Have a biennial audit of the flood insurance financial statements
conducted by a CPA firm at the Company's expense to ensure that the
financial data reported to us accurately represents the flood insurance
activities of the Company. The CPA firm must conduct its audits in
accordance with generally accepted auditing standards (GAAS) and the
Government Auditing Standards issued by the Comptroller General of the
United States (commonly known as “yellow book” requirements). The Company
must file with us a report of the CPA firm's detailed biennial audit, and,
after our review of the audit report, we will convey our determination to
the Standards Committee.

(B) Participate in a WYO Company/FIA Operation review. We will conduct
a review of the WYO Company's flood insurance claims, underwriting,
customer service, marketing, and litigation activities at least once every
three (3) years. As part of these reviews, we will reconcile specific
files with a listing of transactions submitted by the Company under the
Transaction Record Reporting and Processing Plan (Part 5). We will file a
report of the Operation Review with the Standards Committee (Part 7).

(C) Meet the recording and reporting requirements of the WYO
Transaction Record Reporting and Processing (TRRP) Plan and the WYO
Accounting Procedures Manual. The National Flood Insurance Program's
(NFIP) Bureau and Statistical Agent will analyze the transactions reported
under the TRRP Plan and submit a monthly report to the WYO company and to
us. The analysis will cover the timeliness of the WYO submissions, the
disposition of transactions that do not pass systems edits, and the
reconciliation of the totals generated from transaction reports with those
submitted on the WYO Company's reports. (Parts 2 and 6).

(D) Cooperate with FEMA's Office of Financial Management on Letter of
Credit matters.

(E) Cooperate with us in the implementation of a claims reinspection
program (Part 3).

(F) Cooperate with us in the verification of risk rating
information.

(G) Cooperate with DHS's Office of Inspector General on matters
pertaining to fraud.

(d) This Plan incorporates by reference a separate document, “The Write
Your Own Program Financial Control Plan Requirements and Procedures,” that
contains the following parts, each of which is incorporated by reference
into and is applicable to the Financial Control Plan:

(1) Part 1—Financial Audits, Audits for Cause, and State Insurance
Department Audits;

(2) Part 2—Transaction Record Reporting and Processing Plan
Reconciliation Procedures;

(3) Part 3—Claims Reinspection Program;

(4) Part 4—Report Certifications and Signature Authorization;

(5) Part 5—Transaction Record Reporting and Processing Plan;

(6) Part 6—Write Your Own (WYO) Accounting Procedures Manual; and

(7) Part 7—Operation Review Procedures.

(e) Interested members of the public may obtain a copy of “The Write
Your Own Program Financial Control Plan Requirements and Procedures” by
contacting the FEMA Distribution Center, P.O. Box 2012, Jessup, MD
20794.”

[64 FR 56176, Oct. 18, 1999]

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