NATIONAL FLOOD INSURANCE PROGRAM STANDARD (DWELLING FORM) POLICY COVERAGE ANALYSIS

(December 2023)

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I. Agreement

II. Definitions

III. Property Covered

Coverage A – Building Property

Coverage B – Personal Property

Coverage C – Other Coverages

Coverage D – Increased Cost of Compliance

IV. Property Not Covered

V. Exclusions

VI. Deductibles

VII. General Conditions and Provisions

VIII. Liberalization Clause

IX. What Law Governs

Claim Guidelines in Case of a Flood

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This policy protects consumers against loss to their property from flooding. The policy is offered under the National Flood Insurance Program (NFIP), but specifically under the Federal Emergency Management Agency (FEMA). The authority to offer this coverage is drawn from the National Flood Insurance Act of 1968. The policy refers to this act and states that the coverage relies directly upon the Act and its amendments.

The standard policy makes several references to the National Flood Insurance Act, but their mention still permits a reader a fair chance of understanding how coverage applies. However, the policy also includes over a dozen specific references to Title 44 of the Code of Federal Regulations and the Coastal Barrier Resources Act. These latter references actually act as barriers to a fair understanding of how the specific policy wording should be applied or interpreted. We found that this information may be located by, first, logging onto the part of the FEMA website that hosts the National Flood Insurance Program; however, the information appears only to be available by accessing regulatory databases and pulling up the individual citations. The various users of the dwelling flood policy might be better served if they were provided with supplemental information concerning these regulations.

Note 1: This analysis is based on the NFIP October 2021 edition form. Differences between it and the 2015 edition form appear in bold face.

Related Article: National Flood Insurance Program Archive

Note 2: Throughout the policy, there are instances where items appear in a font that is larger and in boldface. In most instances, the wording/intent is the same but is added for emphasis. (2021 Change)

ISO offers a flood insurance policy for use by the private market that can be an alternative to the NFIP.

Related Article: ISO Personal Flood Policy Coverage Analysis

Related Article: National Flood Insurance Program General Property Policy Coverage Analysis

In previous editions, the policy began with an “Introduction.” It has been removed and now begins with an Agreement section. (2021 Change)

I. Agreement

A. The Dwelling Property form states that coverage applies to several instances:

1. It covers residential buildings that, by design, may accommodate up to four units for family occupancy (which are not a condominium building or individual condo unit).

2. Single units contained in condo buildings are also eligible under the dwelling property policy.

3. A final instance that is eligible for the dwelling property’s protection is personal property as long as it is contained inside a building.

This part of the agreement results in this form dovetailing with the program's general property form.

Related Article: National Flood Insurance Program General Property Policy Coverage Analysis

B. The provisions of the original National Flood Insurance Act (1968), its subsequent revisions, and Code of Federal Regulations under Title 44 apply to all protection against flood loss provided by this policy.

C. 1-3. The insuring agreement obligates the policy to pay for direct flood losses that damage covered property. The coverage is contingent upon the policyholder having provided accurate underwriting (application and/or loss) information, compliance with applicable policy provisions and, naturally, payment of the policy premium.

Example: An insured’s home is covered by a Standard Flood Dwelling policy. After several days of heavy rain, a creek overflows, and the waters reach the insured’s yard, which includes a very large, dead tree. The flood-soaked soil around the tree becomes too loose to support the tree. It falls over and destroys the home’s front porch. The flood waters never reach the house, and the damage to the home was INDIRECTLY caused by the flood, so there is no coverage under the flood policy.

D. The policy is subject to review at any point of time, and if merited by such a review, the policy may be revised.

E. The building described in the applicable flood insurance application is the only building eligible for coverage under this policy. No protection applies to any other buildings the insured owns. Therefore, separate policies are required.

F. This is the adverse situation that is covered in Item E. Only a single flood policy is applicable to a single, owned property. Regardless of how multiple polices may have been processed, just one flood policy’s Coverage A building limit is available to respond to flood loss.

G. This is an important exception to the situation described in item F. There is an instance where two flood policies can acceptably cover a single property. Both a Dwelling Policy and a Residential Condominium Building Association Policy may apply to an individual condominium unit owner.

This is a logical exception since the condominium property exposure can only be sufficiently covered by policies that protect the distinct unit owner and jointly owned property interests.

The Insuring Agreement consists of parts A through G. (2021 Edition Change)

II. Definitions

A. Under this policy:

“You,” or “your” means the Insured (including resident spouse and any described payee [loss payee, mortgagee]). Mortgagees and loss payee that are not described but are discovered after a loss are also insureds.

Example: Insured A’s home is covered for $125,000, and he has a $77,000 1st mortgage, a $35,000 2nd mortgage and an $18,000 secured loan from a remodeling company. A flood rolls through the area and completely destroys the home. The remodeler’s interest may not be fully recoverable because its interest would be acknowledged only AFTER the obligation to the first and second mortgagees are met.

Example: Larrimoh Curly’s home is covered by a Dwelling Policy for $95,000. The home has no mortgagee, but Larrimoh’s friend, Shemp, a skilled carpenter, has made several thousand dollars’ worth of improvements in the home. Larrimoh has an oral agreement to cover Shemp’s interest in the home. In this instance, Shemp’s interest in the home would be covered if evidence could be produced that would cause the insurer to determine he was a loss payee.

The Dwelling policy shares an important insight. It mentions that some terms may be more difficult to understand as they may have their origins in various court cases, laws, or regulations.

Note: Policy language such as this could be helpful in managing policyholder expectations. Attempts to gain greater understanding in insurance contracts should be a goal.

“We,” “our,” “us,” means the insurance company providing the coverage.

B. Flood – refers to:

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

· Overflowing inland or tidal waters,

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

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

· Mudflows (a separately defined term)

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

· Two or more normally dry acres are inundated

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

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

C. The following are also defined under this policy:

1. Act

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

2. Actual Cash Value

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

3. Application

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

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

4. Base flood

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

5. Basement

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

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

Example: M.C. Moper, the famous Utah rap artist, just had a new home built. The highlight of his home is the great room. The room is on the ground floor and combines the living and dining areas in one enormous room. However, the middle of the room, nearly 800 square feet, is three feet below the rest of the room. M.C. completely carpeted the area that holds his state-of-the-art recording studio and entertainment center. This beautifully finished and furnished sunken area is considered a basement by M.C.’s flood policy.

Related Court Case: "Basement" Definition Examined in Applying Exclusion to Insureds”

6. Building

As far as the flood policy is concerned, any of the following are considered buildings:

· A structure that has two or more rigid walls that are on the outside to which a roof is secured. It must be permanently attached to its site.

· A structure built on a chassis and transported to the site in one or more parts. When it arrives at its site it must be attached to a permanent foundation. This could be called either a mobile home or a manufactured home.

· A travel trailer on a chassis but attached to a permanent foundation. It cannot have wheels. It must be subject to an applicable community's floodplain and construction regulations.

It’s important to realize that gas or liquid storage tanks, recreational trailers as described above and recreational vehicles DO NOT qualify as buildings eligible for coverage under the flood policy.

7. Cancellation

Coverage that terminates before the policy’s ending date.

Example: A flood policy has a term of June 30, 2023, to June 30, 2024. The policy’s expiration date is June 30, 2024. Therefore, any date in which the policy coverage ends after June 30, 2023, and before June 30, 2024, qualifies as a cancellation date.

8. Condominium

Any multi-unit residential structure where the single units are individually owned and the group of owners share interest in the building’s outer structure and common property areas.

9. Condominium Association

An entity where all the members are individual unit owners who assume positions that make decisions regarding the operation and upkeep of:

a. its condo members’ jointly owned property with elements of a building (specifically, the building, halls, walls, rooms, etc.) that enclose the individual condo units.

b. other buildings that individual condo unit owners have the right to use due to their active status as association members.

10. Condominium Building

Refers to a building that consists of individually owned and occupied interior spaces combined with jointly owned (typically exterior) building elements.

The joint ownership in common elements is both equal and indivisible and applies to areas such as roofs, hallways, walls, lobbies, points of ingress and exits, etc. (2021 Ed. Added term).

11. Declarations Page

The policy coverage page that summarizes the coverage provided by the policy and includes the identifying information on the insured and the covered property as supplied by the policy application.

The definition states that the declarations must be computer–generated, which means that handwritten or typed declarations would not qualify as declaration pages.

Note: This is an important fraud prevention step. Often flood insurance is not desired until flooding is imminent so some individuals might be tempted to hand write or type declarations just before (or just after) a flood has occurred and back date it appropriately.

12. Deductible

This is the financial amount of any eligible loss that the insured is obligated to handle as an out-of-pocket expense. The obligation must be met before any payment obligations under the policy is due. (2021 Ed. Added term).

13. Described Location

The site that contains the structural or personal property that is covered by the flood policy. It must be shown on the declarations.

14. Direct Physical Loss by or From Flood

An insured property loss or damage that is caused directly by flooding. Physical changes to the property must be demonstrated.

15. Dwelling

A residence constructed with the intent to house up to four families. It also refers to a single condo-unit.

16. Elevated Building

Any building with its lowest floor existing above the ground. The lowest floor may be supported by walls (foundation or shear), posts, piers, or similar items. There can be no basement.

17. Emergency Program

The first phase for a community that has begun the process of joining the NFIP. Only limited flood coverage is available under the ACT during this (essentially a probationary) period.

Note: The term, “expense constant,” no longer appears among the policy’s definitions. (2021 Edition Change)

18. Federal Policy Fee

A fixed amount that is charged each policy term to pay for government flood program costs that are NOT covered by the expense constant. These are non-refundable.

19. Improvements

Any additional structural features that are part of either the covered dwelling or an apartment in which the named insured resides.

20. Mudflow

A liquefied flow of mud that is moving over normally dry areas, but it does not include other types of earth movement.

21. National Flood Insurance Program

The flood coverage and land management program was originally authorized and subsequently amended as the National Flood Insurance Act of 1968 and is currently administered based on Title 44 of the Code of Federal Regulations, Subchapter B.

22. Policy

The set of documents including the actual flood policy, declarations page and application, as well as any endorsements or renewal certificates. Only the one dwelling that is described in the application can be insured under a policy.

Note: This means that multiple policies are required, individually, for multiple buildings.

23. Pollutants

Any substance that is a solid, liquid, gaseous or thermal irritant or contaminant. Smoke, vapor, soot, fumes, acids, alkalis, chemicals, or waste are all examples of such irritants/contaminants. The term waste includes not only disposed material but also materials to be recycled, reconditioned, or reclaimed.

24. Post–FIRM building

A building that was started, built, or experienced substantial improvement after either 12/1/74 or the date that its community’s initial FIRM (Flood Insurance Rate Map) became effective. The later of the two dates apply.

25. Principal Residence

This appears to set parameters for determining, among various residencies, which would be the main location.

a. When a loss occurs, it is where the policyholder or spouse resided 80% or more in the 365 days before that loss date.

b. When a loss occurs, it is where the policyholder or spouse resided 80% or more in the time period before that loss date. This is applied only when the location has been owned less than a year by either the policyholder or spouse. (term added, 2021 Change)

26. Probation Surcharge

An additional flat charge that’s made every term for a policy when it is covering a property located in a community that has been placed under probation. In essence, it is a premium surcharge that results from any deficiency that created the probation action. In the previous edition, this was titled Probation Premium. (2021 Edition Change)

27. Regular Program Community

Any community that has a FIRM and has full flood coverage available at regular premiums.

28. Special Hazard Area

An area that is particularly vulnerable to flood damage AND which is designated with a special zoning code on either a FHBM or a FIRM.

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

29. Unit

A single unit that is part of a condominium building.

30. Valued policy

A policy that has a limit of insurance that was determined as a mutually agreed-upon amount to be paid if the insured suffers a total loss.

Under this definition the statement is made that “The Standard Flood Insurance Policy is not a valued policy.”

III. Property Covered

Coverage A – Building Property

The Standard Policy pays for direct damage (caused by flood) to the following types of property:

1. The building (dwelling) at the location appearing in the declaration.

It must be BOTH designed and used primarily as a residence. It is also limited to a maximum of four families. Further, the building does not qualify for coverage under the dwelling flood policy if it is a condominium.

Example: Jane and her family live in a small warehouse used exclusively as a residence. Joe and Emma live in a single-family home that has been converted, with the majority of its space now existing as a copier and printing shop. Neither of these situations qualifies as a covered dwelling under the NFIP.

The dwelling policy will also provide coverage (up to 45 days) for a qualified dwelling when it is at another location due to it being removed per the policy’s Property Removed to Safety provision.

2. Additions and Extensions.

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

3. Appurtenant structures, detached garages and carports that are located at the property address.

These structures have a limited amount of coverage against flood protection. HOWEVER, the protection is not automatic and a serious trade-off exists. The policyholder can elect to apply up to 10% of the dwelling insurance limit to cover losses to appurtenant structures. Whatever amount paid for damages to this property REDUCES the amount available for the dwelling.

Example: Teri Shortsyte’s home is protected by a flood policy with the following limits:
Dwelling	$72,000
Contents	$33,000
The day an adjuster comes to look over her flood loss, Teri says that she wants her detached garage covered. Teri is happy that her garage is repaired, but later, she is upset to discover that her home is estimated to need repairs in the amount of $72,000; only $65,200 is available because it costs $7,000 to pay for the garage.

Besides the need to balance the positive aspect of this option against the limitation illustrated in our example, consideration must also be given to some conditions. The option of applying part of the dwelling limit to other structures cannot be exercised when the structure is used or held to be used in any of the following ways:

· As dwelling space

· In business or farming

4. Materials and Supplies

When such property is intended for building onto or repairing the covered dwelling or an appurtenant (related to the premises) structure, it also qualifies for protection against flood damage. However, the protection exists ONLY IF the material is stored in an enclosed building that MUST meet the flood policy’s definition of “building.” There are several more conditions to qualify for coverage. The materials must be in an eligible building that is either of the following:

· Located at the covered dwelling’s address

· A location that’s next to the dwelling address.

5. A building that is in the course of construction (as well as one being modified or repaired) is subject to the following conditions:

a. The coverage that applies to buildings that haven’t been walled and roofed is only valid during the time that the dwelling is being actively built. There is a liberal exception. The coverage still exists for construction that is interrupted by a work stoppage of up to 90 days.

b. A building which is not yet walled and roofed may not be covered depending upon whether its lowest level is beneath the applicable base flood elevation. What is considered the lowest level depends upon whether the building is elevated or not, as well as its zone. The point of measurement is as follows:

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

Essentially, the lowest floor level is the bottom of the lowest horizontal structure in zones VE or V1-30 and is the top of the lowest floor for all the zones highlighted in green above. (2021 edition change).

Related Court Case: "Elevated Structure Exclusion" Application Determined by Construction Date

6. A manufactured (including mobile) home as defined in the section of terms.

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

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

· According to the specifications of the manufacturer

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

7. Fixtures eligible for coverage under Coverage A – Building Property.

This portion of Coverage A extends coverage to individually owned personal property that is NOT covered under Coverage B – Personal Property. The property involves items that, while not structures, are generally attached to structures, incorporated into structures, or share a sense of permanence that makes them stride the line between structures and personal property. Specifically, coverage may be available for:

· Furnaces

· Permanently attached/installed:

o Wall mirrors

o Paneling

o Corner cupboards

o Bookcases

o Wallpaper

· Carpet (IF installed over unfinished flooring)

· Venetian Blinds

· Central Air Conditioners

· Awning and Canopies

· Elevator Equipment

· Fire Sprinkler Systems

· Built-in Dishwashers

· Garbage Disposals

· Outdoor Antennas IF attached to buildings

· Pumps and Machinery

· Built-in Microwaves

· Water Heaters

· Ranges and Stoves

· Radiators

· Kitchen Cabinets

· Light Fixtures

· Plumbing Fixtures

· Refrigerators

8. Property Located in Lower-Levels

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

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

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

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

Coverage B – Personal Property

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

· Owned by a named insured

· Owned by family members who live in the same home as the named insured

The coverage intent of the standard flood policy can be considered as “minimalist.” Its concern is for owned property and on-premises exposures.

Example: Meg Multipul’s home is insured by a dwelling flood policy with a dwelling limit of $95,000 and a personal property limit of $40,000. A flood loss damages $21,000 worth of contents in her home, consisting of:
Item	Value
Appliances, digital recorders, TVs	$5,000
Clothing	$2,500
Sports equipment	$500
Office equipment and supplies	$3,000
Furniture	$6,000
Books	$4,000
Total	$21,000
The adjuster sent to inspect the loss has no problem with most of the claim except the office equipment and supplies. He informs Meg that because the equipment and supplies are related to her copier shop business (so are NOT incidental to her residence), they are not covered by her flood policy.

An insured can choose to have coverage under the policy extend to personal property that belongs to house guests or servants. The coverage maximum is controlled by the policy’s insurance limits.

2. Personal property subject to the Property Removed to Safety provision is covered while at that temporary location but only for 45 days from the date on which it was moved.

3. At the time of loss, the personal property is required to be within a fully enclosed building at the described address or within a temporary location. If the property is in an incomplete building, it must be secured against floating to qualify for coverage. If it floats away, it is considered not to have been secured against floating.

Example: Let’s use Meg’s $21,000 property loss again. This time, the loss consists of the following:
Item	Value
Appliances, DVD players, TVs, digital recorder	$5,000
Clothing	$2,500
Sports equipment	$500
Personal property belonging to a visiting friend	$3,000
Furniture	$6,000
Books	$4,000
Total	$21,000
However, in this situation, instead of a personal property limit of $40,000, her limit is only $20,000. The good news is that Meg can arrange for all of her friend’s loss to be covered. The bad news is that Meg will have to decide if she can afford to have $1,000 of her own loss go unpaid.

4. The protection provided by this coverage part extends to the following property as long as it is fully owned by the insured AND it is NOT protected under Coverage A:

· Clothes Washers

· Clothes Dryers

· Food Freezers

· Food that is in any type of freezer

· Air Conditioning Units

· Portable Dishwashers

· Carpeting

o Non-permanent wall-to-wall over unfinished flooring

o Any type over a finished floor

· Outdoor Equipment and Furniture

· Portable Microwaves

· Cook-out Grills, Ovens, and similar equipment

Note: Outdoor equipment and furniture are only covered when stored INSIDE a dwelling or a building at the same property address, as long as the building is fully enclosed.

Example: Tim and Jane Gullywashur are glad that they have a flood policy that protects their home and contents against flood. Having gotten plenty of warning, they are now staying with friends who live on higher ground in a neighboring town. The Gullywashurs were able to bring several suitcases full of clothing and small property with them. They also had time to lock their beautiful new walnut deck furniture in a large, fenced enclosure (including a solid cover) that the previous property owners used as a kennel. In this case, although the deck furniture is secured against floating away and the fence structure has four walls and a solid roof, no damage to this property is covered. The fencing is not an enclosed structure that helps to protect against water damage.

5. Personal Property Located in Lower-Levels

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

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

Related Article: NFIP Flood Zone Explanations

6. Tenants

If the insured is a tenant, any owned property, including a stove or refrigerator, that qualifies as personal property under the flood policy qualifies for coverage. Coverage also extends to improvements made by that insured. However, coverage for improvements is limited to a maximum of 10% of the applicable personal property limit. However, any payments made decrease the amount of coverage available for personal property loss.

7. Unit owner

If the insured is a condo unit owner, besides the personal property coverage, up to 10% of the personal property limit may be applied to cover interior structures that are deemed to belong to that unit owner.

Note to items 6. and 7: The 10% extensions may be used at the option of the insured. However, such use reduces the amount available for covering other property.

You may have noticed that the above property is very similar to the property listed as eligible for coverage under Coverage A – Building Property. The difference is that while Coverage A is designed to cover permanent property in the nature of structures, Coverage B is meant to cover property that is portable. This coverage part has some other limitations that restrict coverage.

8. Special Limits

The policy restricts total coverage to $2,500 for the following property:

· Rare books

· Furs and articles for which the fur represents the principal value

· Jewelry, gems, watches, valuable stones, and precious metals

· Memorabilia, photographs, and collectibles such as sports cards, porcelains, and similar items

· Any personal property when its use is connected to any commercial operation

· Artwork. Examples would be:

- paintings

- etchings

- pictures

- tapestries

- art glass windows

- statuary

- marbles bronzes

Example: Ms. Vera Tray Sheek is horrified to discover the following flood damage to her personal property
Item	Value
A first edition of The Old Man and the Sea	$2,600
A mink-trimmed stole	$3,300
A ruby necklace	$3,900
An antique print	$19,200
Total	$25,100
Vera cries when she reads about her policy limitation. She tells her insurance agent: “I can’t believe that each of my treasures is just insured for $2,500! I can’t replace them for $10,000!” Vera’s insurance agent goes to his medicine cabinet for some smelling salts before explaining to Vera that the total amount that she can recover for ALL four items is not $2,500 apiece but $2,500 total.

9. Antique Limitation

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

Example: One item destroyed when Tara's office was flooded was an antique typewriter, circa 1900, that she had on display. Though it was appraised at a value of $1,900, the insurer's adjuster included a payment of $38, the value of a routine, used modern typewriter.

Coverage C – Other Coverages

1. Debris Removal

In the policy, this item is displayed as brief parts a. through c. Losses normally include many instances of insured property being covered in debris. Coverage C’s coverage intent is to reimburse an insured for the expense of picking up and disposing of the debris. The coverage will pay for handling:

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

· Debris of insured property, wherever it may be

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

Example: Jim’s home collapses, and after the flood waters recede, he finds that his entire yard is covered in the remains of his home’s walls. Jim and his teen daughter spend about 15 hours cleaning and moving the debris. Their insurer reimburses them for their work.

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

2. Loss Avoidance Measures

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

a. Sandbags, Supplies and Labor

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

(2) The policy requires that the insured building actually face possible flood damage. To be reimbursed, the local authorities must have issued an evacuation order for the area around the covered location, and the location must have evidence of flood damage.

Editor's note: The additional requirements seem somewhat strict, considering they put significant restraints on mitigation measures. The coverage amount is very modest, and any reimbursement reduces the policy's available coverage limit.

b. Property Removed to Safety

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

3. Condominium Loss Assessments

The standard policy will also cover certain condominium arrangements.

a. When the applicable flood policy is written for a condominium unit owner, the policy’s entire Coverage A limit is available to respond to assessments that are issued by the condo association. However, the assessment must conform to what is permitted by the association’s bylaws and the unit owner’s deed. Naturally, the assessment must be due to covering damage to condo property that is owned in common, and the loss has to be due to flood activity.

b. Coverage is still unavailable if the damage assessment involves:

· Levying by any unit of government

· Finally, the assessment is disqualified for coverage if it is an attempt to make up for a loss to Condo Association property that was not paid because it was the portion that fell below the policy’s deductible.

· Personal property, even if the property is owned jointly by the association

· Any amounts that exceed the total amount of coverage available to condominium buildings under the Flood Act for a single, eligible flood loss. This applies to any unit where both the coverage of a dwelling policy and a Residential Condominium Building Association Policy (RCBAP) exists. (2021 Change)

· Any amounts paid for damage to property that was already reimbursed due to payment received under a Residential Condominium Building Association Policy (RCBAP) exists. (2021 Change)

c.1. Any amount paid under this coverage reduces the total available coverage for an eligible flood loss.

2: The recovery limitation regarding amounts available for a condominium building or a tenant applies to those provided by any combination of NFIP policies and NOT amounts received from other coverage sources.

Example: The Greater Mudhole Condo Association has just sent out assessments to help pay for the damage to the association’s Community House. The assessments involve recoupment for the following:

· Flood damage to the Community House entryway, door, oak flooring, and steps

· Flood damage to lounge furniture, televisions, appliances, and spoiled food

· The loss of one month’s income from three rentals of the Community House for wedding receptions, which were canceled because of the Community House’s unavailability.

The assessments were necessary because they were not covered by the condo association’s flood policy. The policy was issued in the name of Richard Mudhole, the condo’s builder. The policy had limits of $1,500,000. The value of the association’s common property equaled $2,750,000.

Note: The NFIP’s available association policy could have been written for up to $3,000,000.

There are 100 members in the condo association. The assessments were sent to the 40 members who joined the association in the latest and final phase of the condo development. Although the Community House is jointly owned by all 100 members, only the newest members were assessed because they weren’t around when the older members were assessed for damages that occurred four years ago, and Mr. Mudhole wanted to be fair.

In the above case, there are several reasons why the individual unit-owners’ assessments would not be eligible for coverage under their individual flood policies. The items that would disqualify the reimbursements include the following:

· The Condo Association Policy was written in the name of the condo builder, not the association

· The loss was not assessed to ALL of the association’s members

· The loss assessment included amounts loss to ineligible property (Community House Furnishings) and indirect damage (loss of rental income).

Example: Hal Oneplace’s Condo Association just sent him an assessment notice for flood damage to a utility shed that stores lawn maintenance equipment for the Condo grounds. The shed was built and is owned by Hal’s condo neighbor. The Association decided to assess everyone in order to help the member who built the shed for the good of the Association. In this case, coverage for the assessment would not be eligible for coverage under the dwelling flood policy. Although the shed suffered direct damage, it is property that belongs to another individual. While the property confers a joint benefit, it is not jointly owned. There is also the question of whether the association would have the authority to make an assessment under this circumstance.

Coverage D – Increased Cost of Compliance

1. General

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

2. Limit of Liability

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

Example: Greg Poorchoyse and Pam Gudsalect are next door neighbors with identical older homes. Greg owns flood policy A, and Pam owns flood policy B:
Coverage Part	Greg – Policy A	Pam – Policy B
Coverage A	$150,000	$130,000
Coverage B	$35,000	$35,000
Coverage C	Applies	Applies
Coverage D	NONE	$30,000
Both Greg’s and Pam’s homes suffered a near total loss of $125,000 (apiece) during a recent flood. They both find out that, according to flood readiness regulations, they cannot rebuild their homes unless they treat their foundation walls with waterproof materials, add draining tiles and add soil around their property in order to create a greater slope for drainage. The additional requirements bring the total expense to repair their homes to $138,000. Under Greg’s policy, this additional coverage is not covered, and he will have to come up with the additional dollars out of his own pocket. Under Policy B, Pam’s additional cost is handled in full under Coverage D.

3. Eligibility

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

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

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

Example:

Scenario 1: Ron Soggyplace’s home has had flood insurance since he bought his home twelve years earlier, and it has come in handy. Eight years ago, he had a $5,000 flood loss, which, at the time, equaled about 15% of his home’s market value. Last week Ron’s home suffered a much larger flood loss which is estimated at $25,000, about 40% of his home’s current market value. Ron gets the news that his town is enforcing a substantial damage provision, which will require him to add some floodproofing features (that will cost an additional $9,000) to his home. While the total $30,000 in losses he suffered in the last eight years does not equal 50% or more of his home’s current value, it DOES exceed, on average, 25% of the existing and current market value of his house, so, his home qualifies as a “repetitive loss structure.” Let’s look at the same situation but change one important feature.

Scenario 2: Ron Soggyplace’s home has had flood insurance since he bought his home twelve years earlier, and it has come in handy. Eight years ago, he had a $5,000 flood loss, which, at the time, equaled about 15% of his home’s market value. However, the loss did not qualify for coverage under his flood policy, so he had to take out a bank loan to make the repairs. Last week Ron’s home suffered a much larger flood loss which is estimated at $25,000, about 40% of his home’s current market value. Ron gets the news that his town is enforcing a cumulative, substantial damage provision which will require him to add some floodproofing features (that will cost an additional $9,000) to his home. In this case, while Ron’s loss situation triggers the town’s cumulative, substantial damage provision, it does not qualify for protection under Coverage D – Increased Cost of Compliance because the NFIP DID NOT PAY the first loss.

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

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

Example: Tonya Dri-Lot never thought she would need her flood insurance policy, but she’s glad her agent convinced her to buy it. Tonya’s home was inundated with floodwaters for a couple of weeks. The damage was very serious, estimated at $47,000, which equals nearly 65% of her home’s current market value. Because of her city’s substantial damage provision, it looks like she’ll have to count on another $7,500 in costs for her home to comply with city flood management standards. In this case, assuming Tonya has sufficient Coverage D limits, the additional costs are covered by her flood policy.

Again, a state or community must be exercising its own cumulative or substantial damage provision against the structure.

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

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

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

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

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

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

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

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

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

Related Article: NFIP Flood Zone Explanations

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

Related Article: Severe Repetitive Loss Properties

4. Conditions

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

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

· Elevate

· Floodproof

· Relocate

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

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

Example: Kevin Hektyk’s home was, in essence, destroyed by a flood. Kevin, an urban “graffiti” artist, used a couple of rooms in his old home as a studio and exhibition room. Being both bold and creative, Kevin got permission to rebuild his two-story home with the ground floor rebuilt as one, gigantic room, without the “superfluous” middle-class amenities such as a bathroom or a kitchen. The rebuilding costs were much higher in order to properly reinforce the foundation and floor joists so the bottom floor could support the conventional upper story. The adjuster denied the additional construction costs but did praise Kevin for his vision and said he’ll come to his next showing.

5. Exclusions

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

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

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

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

· Test for

· Clean up

· Monitor

· Contain

· Treat

· Detoxify

· Neutralize

· Respond to

· Assess

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

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

Note: Though a claim involving such an occurrence is possible, it is difficult to see how a party might expect coverage since the policy is restricted to covering direct flood damage and certain indirect, increased construction costs. Another consideration is this: If the policy states that this specific “loss” is excluded under Coverage D, can a claimant argue that it IS covered elsewhere under the policy?

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

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

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

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

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

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

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

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

Example: Lynn Skofflaw is rebuilding the home that was decimated by flooding. Her home is being rebuilt from the foundation. Besides having to elevate her home to comply with Floodville’s anti-flood provisions, she also has to use state-of-the art wiring and high-voltage capacity circuits, which are part of the Floodville 2005 upgrade ordinances. When Lynn asks that the additional $4,000 in costs be added to her flood claim, she’s told that it isn’t a direct cost of flood compliance, so it’s not covered.

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

Example: Let’s use Lynn Skofflaw again. This time, to make the most of a bad situation, Lynn decides to have an addition built onto the home (naturally, at Lynn’s expense). A Floodville inspector points out that the addition must also be modified to comply with anti-flooding ordinances. Lynn requests her insurer to pay for the additional $1,550 cost, but it is not eligible for reimbursement.

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

Example: Andy Sloff’s home was flooded by the overflow from Shallow Lake. Because it took several days for the water to subside, Andy’s home was substantially damaged. The insurance company estimated the loss to be about $52,000, or nearly 70% of the home’s current market value. It also included an estimate of $3,000 in work needed for the rebuilt home to comply with local flood ordinances. The day that an insurance company adjuster came by with a check, Andy said:

“I can’t believe it! When the town told me to have the work done to comply with the ordinances last year, the estimate I got was just for $1,700.” The adjuster took the check back and said he’ll issue a new one after deducting the portion meant to cover the compliance work.

i. Any rebuilding activity to standards that does not meet the NFIP’s minimum requirements.

This includes any situation where the insured has received from the state or community a variance in connection with the current flood loss to rebuild the property to an elevation below the base flood elevation.

In other words, even when a policyholder suffers a serious loss, which includes a requirement to improve the structure to meet local flood standards but not the minimum standards set by the NFIP, the dwelling policy’s Coverage D will not cover the increased cost even when the policyholder has a variance not requiring him or her to meet the higher standard.

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

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

j. Increased Cost of Compliance for garage or carport

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

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

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

l. Assessments made by a condominium association or individual condominium unit-owners to pay increased costs of repairing commonly owned buildings after a flood in compliance with state or local floodplain management ordinances or laws.

Example: Jan Cubbihole was still in the process of getting her condo back in order after suffering a big flood loss when she got a notice from her Condo Association. Leekalot Landings is assessing all of the condo owners for damages to the Leekalot Disco Lounge (the condo was built in the late ‘70s). Jan is in no mood to dance when she reads in her dwelling policy that the $2,345 assessment isn’t covered.

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

6. Other Provisions

There are two items under this part.

· This item tells the policyholder that any increase in cost of a serious loss does not affect any insurance-to-value calculation that is made to see if the insurance coverage qualifies for reimbursement on a replacement cost basis; nor for coverage as described under Article 8 concerning losses involving land subsidence, sewer backup or water seepage.

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

IV. Property Not Covered

This section explains the types of property and situations that are not eligible as covered property. The dwelling form standard policy does NOT COVER:

1. Personal property that is in the open.

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

Note: Depending upon circumstances, moving such property may qualify for expense reimbursement under the policy's "Property Moved" provision.

2. A building and personal property inside a building located entirely in, on, or over water or seaward of mean high tide if the building was newly constructed or substantially improved after September 30, 1982.

It appears beachfront housing may not qualify for coverage depending on when it was built or the tide. An ongoing problem with the flood program is responding to losses involving property located in areas that are practically guaranteed to suffer substantial flood damage. One goal of the NFIP is the attempt to discourage such building activity or, at least, to place the loss exposure in the property owner’s hands.

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

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

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

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

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

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

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

Hopefully, it’s evident that this provision continues the policy’s trend of narrowly defining the subject of insurance: the residence structure, selected other structures and certain classes of personal property.

Example: Ned Duz loves his first home, which he bought at a bargain since it was a “fixer-upper.” Ned made sure he got a flood policy, and he has been busy making the outside of his house look as good as his neighbors’ property. Unfortunately, the morning after he just had a new cement driveway poured, his neighborhood was flooded with standing water for an entire day. While Ned’s home just lost some old carpeting he was planning on removing, and it has to have a few panels of drywall replaced, his new $5,000 driveway was ruined. The damaged driveway is not eligible for coverage under his flood policy.

10. Containers

Another ineligible item is a tank for storing gas or other liquids.

Example: Tess and Durberval are converting their home from heated by a wood-burning stove to an oil-heated home. The excavating contractor leaves the oil tank next to their detached garage until they can dig a hole and install it. One night, a flash flood sweeps up the heavy tank and smashes it into one of the excavator’s trucks. The tank’s seam is ripped open and sinks, embedding itself in a neighbor’s front lawn. There would not be coverage for the tank.

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

Underground homes or structures, including contents, are not covered by the dwelling policy if slightly half or more of the structure’s actual cash value is located below the base flood elevation or the adjacent ground level; this depends upon whether the home is part of the Regular or Emergency Flood Program. This exclusion does not apply when a home has used earth in an approved manner for insulation. An insured would have to have documentation to prove that the home and insulation installation met with building construction and energy conservation standards as well as with the NFIP’s applicable elevation requirements. In other words, taking the world’s best built bi-level home and covering it with clay-packed soil would not qualify for coverage under the flood program even if the earth packing saved on air-conditioning costs.

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

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

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

14. Indoor and outdoor swimming pools. Similar, ineligible property includes recreational hot tubs and spas, included their related (plumbing) equipment. This does apply to such items when a part of a bathroom.

15. Buildings and their contents made ineligible for flood insurance pursuant to the provisions of the Coastal Barrier Resources Act, 16 U.S.C. 3501 et seq., and the Coastal Barrier Improvement Act of 1990, Pub. L. 101- 591, 16 U.S.C. 3501 et seq. Unless such property has stickers that identify it as being ineligible under these Acts, an insured would have to get her hands on a copy of this information. It’s unlikely that ignorance of these regulations would result in the property being covered.

16. Personal Property in which an insured has a joint ownership interest due to membership in a condominium association.

Example: Jan files a claim for a flood loss that included the destruction of a very expensive home entertainment system. Her insurer turns the claim down when it was discovered that she owned the system along with the other members of her condo association. She pitched in on the cost of the system located and used in the association's clubhouse.

V. Exclusions

A. The Dwelling Form Standard Flood Insurance Policy will not compensate, reimburse an insured, nor provide an allowance for:

1. Loss of revenue or profits

There is no opportunity under the flood policy to be reimbursed for potential profits that are lost because of a covered event.

2. Loss of access to the insured property or premises (described location)

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

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

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

4. Loss resulting from interruption of business

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

Example: Jill Rightkounter is a self-employed accountant living with out-of-town relatives until the flooding in her hometown recedes. Jill is unable to get to her home/office for three weeks. When she does get back into her office, she’s upset to find that several persons called in to request her services. She returns the calls, but since so much time has passed, they all found other accounting services. Jill estimates that she lost more than $6,000 in potential business. This indirect loss is not covered.

5. Additional living expenses incurred while the insured building is being repaired or is uninhabitable for any reason.

The flood policy is priced to handle direct damages to an insured residence or personal property from flood waters. The policy is NOT structured to pay for higher expenses suffered by a person whose home can’t be used because flooding has made it (temporarily) unusable as a residence.

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

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

7. Any other situation that creates economic loss

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

B. Flood in Progress

The starting time for coverage is 12:01 A.M. on the first day of the policy period. This same stipulation exists concerning any increase in coverage (that is requested). Neither coverage NOR a higher limit of coverage applies to a flood loss that has already occurred.

Example: Kerry’s claim for flood damage filed during a spring storm earlier in the year was denied. Her flood policy was duly issued and in force at the time of the damage, and Kerry wanted an explanation. She later received a letter that the effective date of her policy indicated that the flood damage resulted from area flooding that had begun several days before the policy’s inception. The denial was due to the damage being from a flood in progress.

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

· Earthquake

· Sinkholes

· Land destabilization or movement caused by underground water accumulation

· Gradual erosion

· Land subsidence

· Landslide

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

Related Court Case: “Water-Caused Soil Movement Held to Exclude Dwelling Flood Damage Claim”

D. Losses involving other causes, including:

1. Weight or the pressure of ice

2. The effects of freezing and thawing

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

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

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

· Water

· Moisture

· Mildew

· Mold

This is the case IF:

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

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

Example: Greg's rental home is covered by a standard flood policy. Greg is surprised that his claim is denied after a claims adjuster inspects the damage to the interior of his rental and his (landlord) furnishings. The adjuster tells him that since he didn't repair an instance of maintenance-related cracking in his foundation, it was insufficient to hold out the water, and the loss is not covered.

5. Water and Water-borne material

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

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

Related Court Case: “Collapse of Lakeshore Land Because High Water Level Was Flood Under FEMA Regulations”

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

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

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

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

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

Example: The Arguetons and their neighbors worked hard for hours and successfully protected their property with sandbags. The bags were put up in time to hold back flood waters created by a heavy snow thaw from the surrounding hillsides. Cliff Argueton, still angry with his parents for grounding him for missing several curfews, pulls down several bags from the wall in front of his parent's home. Although he regrets his actions while watching the water cascade into the front of his house, his bigger regret is that the damage is not covered.

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

Example: Tired of maintaining his home’s lawn, gardens and landscaping, Jim has everything ripped out, and he then paves over the entire area surrounding his home. His lawn and gardening days are done. However, he now has to invest in sandbags since rains result in serious amounts of water draining into his home. The several flood losses he has suffered since the “Big Pave” are ineligible for coverage.

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

· The property has been flooded by the Federal Government

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

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

Example: Bert and Kimmy Bravewoods have leased a cabin from the government in the heart of the Cooterland National Forest Preserve for the last two years. The preserve is near the Cooterland Reservoir, which overlooks the town of Drencherton. Without any notice, a couple of the preserve’s rangers evacuate the Bravewoods from their cabin with only time to grab the bare essentials. The rangers mention that the reservoir’s level has been rising and is threatening Drencherton. Shortly after arriving at a ranger’s post, which overlooks their area of the preserve, the Bravewoods witness their leased cabin and all of their belongings being deluged by a controlled flood caused by draining the reservoir in order to protect Drencherton. The Bravewoods are told that the preserve hasn’t had to be flooded in nearly ten years. The fact doesn’t console the Bravewoods, who know that they’ve signed a hold harmless agreement, so their flood loss isn’t covered.

F. Finally, there is no coverage for the expense of having to monitor or test for property that may have been contaminated. However, some coverage is permitted when the testing/monitoring is mandated by an ordinance or law.

VI. Deductibles

A. As is the case with most policies, the insured is responsible for sharing part of any eligible loss. The amount that appears in the declarations applies to eligible losses, and the policy begins payment above that amount. Double that amount applies to loss involving buildings under construction that have less than two exterior (rigid) walls in place.

Example: Carson’s home is destroyed by a flood. His policy declaration lists a deductible of $1,000:

Scenario: His home was two years old – Deductible Paid, $1,000

Scenario: He was building a new home, and prior to the flood, the construction had just completed one exterior wall – Deductible Paid, $2,000.

B. Unlike many other property policies, this policy applies its deductible separately to its structural and personal property coverages.

C. The policy’s deductible does not apply to the following provisions:

• Loss Avoidance Measures
• Condominium Loss Assessments
• Increased Cost of Compliance

Related Article: National Flood Insurance Program Limits

VII. General Conditions

This article’s contents concern either coverage or contractual issues.

A. Pair and Set Clause

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

This provision gives an insurer the flexibility of handling the loss of such an item as individual property. Yes, the insurer tries to settle the loss while considering the fact that a piece is part of a pair or set. However, the insurer is not obligated to automatically settle such losses as though the insured has lost the full value of the pair or set. Traditionally, earrings were seen as either having full value as a set or no value as single pieces, but fashion has changed this to the point that single earrings often retain full value because they can be worn individually.

Note: In previous editions, Item B. Concealment, Fraud and Policy Voidance appeared here. (2021 Edition Change)

B. Other Insurance

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

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

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

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

2. If this policy exists along with an NFIP policy issued to a condominium association, it affects the response to a loss. If a covered loss occurs to a condominium unit owner and both the flood dwelling and association policies apply to it, then the dwelling policy acts as an excess source of protection.

A different response results with a condo association assessment that is due to an unpaid loss involving an association policy. The dwelling policy acts on a primary basis if the assessment arises from the condo association not covering a loss because its limit did not meet the amount required of it by NFIP rules. Specifically, this applies if the association policy limit was less that the maximum amount of permitted coverage or at least 80% of the covered property’s replacement value (whichever amount is larger).

Note: This provision is triggered regardless of another source of coverage’s collectability. On its face, this would mean that the amount of coverage under the flood policy would contribute proportionally even if another source can’t be collected.

Example: Prissa Guile’s home is protected by a dwelling flood policy for $75,000. Prissa also bought a “Structures Insurance Contract” from Up ‘n’ Gone Insurance Collective with limits of $25,000. After a serious flood loss, estimated at $20,000, Prissa discovers that the collective is insolvent and no insurance protection will be paid. However, since the collective is still considered a separate source of protection, Prissa is only able to collect $15,000 under her flood policy. The reduced settlement represents the flood policy’s 75% contribution to the loss.

Note: The result illustrated in the example is theoretical. The Other Insurance provision also states that the flood policy will pay its share of the entire amount of insurance that applies to a loss. When another source of protection is uncollectible, then the flood insurance is the only protection available. So, it may be argued that full, rather than proportional, protection is the policy’s obligation.

3. If this policy and another NFIP policy contributes to an eligible loss, the amount of payment faces a cap. A maximum of $250,000 applies. That is the highest amount available for payment for a single unit within a condo. (2021 edition change).

Related Court Case: “Insured Receives Double Amount for Water Damage”

C. Amendments, Waivers, Assignment

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

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

D. Insufficient Premium or Rating Information

Note: In previous editions, this appeared as Item G. Reduction and Reformation Coverage. (2021 Edition Change) It appears to be formatted and labeled differently. It is likely an attempt to provide more clarity in the explanation of how the condition applies.

1. Applicability

In any instance and at any time, action will occur should it be discovered that the premium paid for a given policy is not enough to provide the amount of coverage as it was originally written. The procedures vary according to circumstances, but the appropriate measures will be applied, regardless of the cause of the inadequate payment. Exceptions are granted for situations involving flood program rate increases as well as those not covered under the provision’s applicability section.

2. Reforming the Policy with Reduced Coverage

Under this provision, subject to its parts, d.1. and d.4., when the premium received by the insurer is inadequate for the amount of coverage originally arranged, protection will be reduced to conform with the amount actually received.

a. The first step is to apply all fees and surcharges to the premium on hand. This will allow a calculation of what level and kind of coverage may be purchased by the remaining net amount.

b. The net payment on hand, net of charged costs, will be refunded if the amount is too low to purchase any coverage. This sub-part then mentions that the policy will be cancelled and is ineligible for any claims payment unless the policy’s coverage is raised to the amount the policyholder originally intended to arrange.

c. The resulting limits (after reformation occurs) will be according to the available premium. None of the (reformed) limits will be greater than the policyholder’s original request.

Note: In our opinion, the NFIP should reconsider this part’s language. It strikes us as inconsistent, considering it addresses the action of lower, reformed protection.

3. Discovery of Insufficient Premium or Rating Information

The insurer has the right to take appropriate action once it becomes aware that the premium it received was not enough to sustain the cost of the requested protection amount. The policy may, according to the amount actually received, be reformed so that the coverage amount and scope match. The insured has options that are discussed in the rest of the section.

a. Insufficient Premium

Once the problem is discovered, the insured will get a notice to send in the additional premium. A notice of additional premium due is also sent to any mortgagee or trustee that appears on the policy. The billing may be for the extra amount due for either the entire term or for the amount due for the time period after a premium-bearing endorsement that changes coverage has been processed. The billing will be adjusted according to any applicable errors in fees or surcharges.

(1) If payment is received in time, coverage is restored according to the amounts originally requested. The coverage restoration is effective either on the inception date of the policy term or, in the case of an endorsement form, the endorsement’s effective date.

(2) If the additional amount is not received in time, coverage will continue at the reduced amount, or, if applicable, the loss will be settled according to the reduced amount.

The amount of time granted to make payment under items (1) and (2) is 30 days from the date of the additional premium billing.

(3) Any additional premium may be paid out of any proceeds paid for a loss that is based on the policy’s originally requested coverage amount.

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

Example: Harlan received notice from his insurer. The premium he paid to secure coverage was not enough to pay for the $128,000 flood policy on his home. He is also told that if an additional premium is not received, the policy will be reformed to a limit of $109,000. A week after getting the notice, he sends an additional payment to preserve the $128,000 limit.

b. Insufficient Rating Information

The flood insurer may find that it didn’t have the information necessary to correctly rate the policy. In that case, the policyholder will be asked to send any needed information. It must be sent within 60 days of the insurer’s request.

(1) Receipt of the information within deadline

In this case, the correct additional premium will be calculated. The billing will be handled as outlined above in item D.3.a.

(2) Non-Receipt of the information within deadline

In the instance that the needed information fails to be received by the insurer in time (60 days from the date requested), protection will be reduced to that amount available according to the premium in hand. Further, non-payment of any additional premium will freeze any claim payments if any loss occurs.

4. Coverage Increases

This provision addresses requests for coverage increases when all authorized parties have failed to send in either required additional premium or additional rating-related information according to the policy’s stipulated time to do so.

In this instance, any desired increase in coverage can only occur:

• When the request is made by separate endorsement that is subject to a processing waiting period
• Any information that had been requested by the insurer prior to the endorsement request must first be sent in

5. Falsifying Information

This warns of the consequences of knowingly supplying or hiding significant information with regard to securing flood coverage. It references the policy’s provision 8.a.

This is a way to emphasize the point that policyholders must secure coverage in good faith. On the other hand, does it truly affect understanding? It merely points to a standalone provision that addresses situations that can result in loss of coverage. It’s best for insurance contracts to avoid, essentially, unnecessary provisions.

Note: In previous policy editions, items E. Cancellation of Policy by You and F. Nonrenewal of the Policy by Us followed. They were removed from this section. (2021 Edition Change)

E. Policy Renewal

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

2. In simplest terms, the insured has to pay the renewal premium within 30 days of the policy expiration date or coverage ends as of the policy’s expiration date.

In the event that a payment is BOTH received and accepted by the NFIP, a renewal policy will be sent to the insured.

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

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

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

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

F. Conditions Suspending or Restricting Insurance

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

Example: Jorda and Kylie were devasted when their flood claim was denied. Most of their home was damaged during a deluge. However, at the time of the loss, they were doing extensive landscaping and rebuilding a retaining wall that also significantly protected their home from high water. Their insurer’s position was that the wall’s condition contributed to the flood damage.

G. Requirements in Case of Loss

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

1. Notify the insurer in writing promptly

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

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

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

a. The date and time of the loss

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

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

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

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

f. Building specifications and repair estimates

g. Names of mortgagees or all others who might have a lien, charge, or claim against the property insured under this policy

h. Details about whoever was occupying any insured building at the time of loss. This should include the purpose for which it was being occupied.

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

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

Related Court Case: “Proof of Loss Not Submitted in Time, Flood Loss Not Covered”

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

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

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

Related Court Case: Loss Reported, But Not in Required Manner

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

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

H. Our Options after a Loss

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

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

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

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

3. Options to Replace:

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

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

I. No Benefit to Bailee

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

J. Loss Payment

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

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

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

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

Related Court Case: Valuation Less Subsequent Uncovered Damage Held Proper

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

· Accept the denial

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

· Exercise their other rights under this policy.

K. Abandonment

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

L. Salvage

If the insurer gives its permission, the named insured may be allowed to keep “salvaged” property. Nevertheless, the insurer will have to adjust any loss payment to reflect the fact that the salvage property was kept by the insured.

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

M. Appraisal

If the insurer and the named insured do not agree on the value of the covered property or the amount of the loss (as applicable on either an ACV or replacement cost basis), each party has 20 days (after receiving a written request from the other party) to select an appraiser. The two appraisers will select an umpire.

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

N. Mortgage Clause

This condition states that it applies only to the covered building and only when that building has a mortgage interest (a trustee’s interest also qualifies) shown in the policy or if the insurer finds out about the mortgage interest before any loss is paid. The rest of this condition is VERY long-winded, but it states, in essence:

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

· The property interests are paid in order of precedence.

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

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

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

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

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

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

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

Related Court Case: “Mortgagee Position After Nonrenewal of Policy Is Examined”

O. Suits Against Us

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

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

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

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

P. Subrogation

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

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

Related Court Case: Subrogation Upheld in Property-Liability Case (Classic)

Q. Continuous Lake Flooding

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

Example: Pam’s home is in a hopeless situation. Pam lives roughly a mile from Ol’ Flooduh Lake, which overflowed its banks in late March and flooded Pam’s home. It is now almost August, and the lake’s waters still flow through the upper story of her home. Pam decides that the house is ruined, and she elects to be paid the $72,000 limits of her flood policy. Before receiving settlement, Pam has to sign a special release.

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

1. To make no further claim under this policy.

2. Not to seek renewal of this policy; and

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

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

a. No additional claim may be made under the policy

b. No attempt may be made for renewal policy coverage

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Related Court Case: Flood in Progress Voided Policy

R. Loss Settlement

1. This provision concerns itself with the basis to be used after a loss occurs to eligible property. Settlement will occur according to:

· The cost to repair or replace the damaged property

· A special loss settlement basis that exists for damaged manufactured, mobile or travel trailer residences

· The actual cash value of the damaged property

a. The replacement cost basis applies to single-family residences but is contingent on two important items:

· The residence must be the named insured's principal residence

In order for a dwelling to be considered the principal residence, the named insured or spouse must have lived at that location 80% of the 365 days before a loss or, if the residence has been owned for less than 365 days, must have lived there the entire period since gaining ownership.

· The amount of insurance appearing on the limit portion of the declarations must represent at least 80% of the home's full replacement cost OR, if not, be the maximum amount of insurance that can be purchased under the NFIP rules.

Item 2. provides more detail on replacement cost.

b. Special Loss Settlement applies to manufactured or mobile homes and travel trailers. It is described in more detail in item 3 below.

c. An actual cash value provision is used for single-family homes that are NOT subject to either replacement cost or special loss settlement. This basis is described in item 4. below.

2. Replacement Cost

A loss under the replacement cost provision obligates payment for damage that is net of the applicable policy deductible. However, no consideration is made for value lost due to wear and tear and age (depreciation). Any payment is subject to the least of the total available amount of coverage written for the damage, replacing the damaged portion with similar property, or repairing the damaged property (for use as a dwelling).

Sometimes, it is necessary to rebuild the destroyed property at a different site. In such instances, the flood policy will act as though the original location was the site of construction. In other words, additional costs created by the use of a different site have to be handled by the insured.

Also, for any settlement payment that exceeds $1,000 or 5% of the covered structure, the payment is essentially frozen until rebuilding actually begins.

A policyholder can file for immediate payment based on the damaged property’s actual cash value and has up to 180 days after the loss date to advise the insurance company of an intent to make an additional claim based upon the replacement cost provision.

A unique situation may arise when the residence is in a community that is moved out of the Emergency Flood Program into the Regular Flood Program during that residence’s policy term. When this occurs, the maximum amount of protection available is based on what was available under the Emergency Flood Program at the beginning of the policy term and not available under the Regular Flood Program that was in effect at the time of the loss.

3. Special Loss Settlement

This settlement basis applies to manufactured or mobile homes and travel trailers. However, in order to qualify, the structure must be at least 16 feet wide, be used as a principal residence and have a total living area of at least 600 square feet. Principal residency is established in the same manner as it is for dwellings qualifying for replacement cost coverage.

When such property is severely damaged or destroyed, the insurer may choose the least expensive of three options:

· Pay the applicable policy limits

· Pay 1.5 times the property's actual cash value

· Pay its replacement cost

Example: Mindy's double-wide mobile home is destroyed by a flood. The home was swept off its concrete pad and smashed, then inundated by a mudflow. The home's actual cash value at the time of loss was $39,000. The limit on her flood policy was $45,000. The insurer pays Mindy $45,000 since that amount is considerably less than $58,500 ($39,000 multiplied by 1.5).

If the amount of damage is at the level where it makes economic sense to repair, the loss will be settled according to the policy’s replacement cost provisions in item 2. above.

4. Actual Cash Value (ACV)

The following types of property must be settled on actual cash value:

a. Dwellings

Residences that, when a loss occurs, have a written liability limit that represents less than 80% of its full replacement cost and does NOT at least meet the maximum coverage permitted under the NFIP are settled on an actual cash value basis. Payment (subject to the applicable policy’s limit that appears on the declarations) is based on the greater amount represented by the following:

· The damaged area’s actual cash value

· The calculated proportion of the repair/replacement cost for the damaged area – net of deductible, but without consideration of depreciation

The proportion calculation depends on the relationship of the dwelling’s 80% replacement cost value to the maximum amount of permitted NFIP coverage.

If 80% Of Applicable Dwelling’s Replacement Cost Value Is:
Less Than Permitted Maximum NFIP Coverage Proportion Is Calculated By:	More Than Permitted Maximum NFIP Coverage Proportion Is Calculated By:
Dwelling ACV ÷ (Dwelling Full RC X .80)	Dwelling ACV ÷ Amount of Maximum Coverage Permitted by NFIP

b. Dwellings that are 2, 3 or 4 family units

c. Any unit not used for only a single-family dwelling

d. Garages but only when detached

e. Carpets, their pads, and any appliances

f. Outdoor equipment such as awnings, antennas, and other items

g. Abandoned property that is considered debris on the described location

h. Any dwelling that is not the named insured’s principal residence.

5. Amount of Required Insurance

In developing the amount of needed coverage to be used in determining the 80% replacement rule, the following certain values are removed:

· Footings, foundations, piers

· Structural supports that are beneath the dwelling’s lowest floor or, if there is no basement, are contained within the foundation

· Excavations, underground drains, flues, pipes, and wiring

Note: No calculations should include consideration of any amount of coverage provided by the policy’s Increased Cost of Compliance provision.

VIII. Policy Nullification, Cancellation, And Non-Renewal

Note: In previous editions, this section appeared as item B. Concealment, Fraud and Policy Voidance under VII. General Conditions. (2021 Edition Change)

A. Policy Nullification for Fraud, Misrepresentation or Making False Statements

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

· Lied about or concealed any material fact

· Committed any fraudulent act concerning this insurance

· Made a false statement

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

Example: Chandler bought a home as well as a flood insurance policy. Months later, he files a claim to recover damages for a flood loss. His policy is voided when his insurer discovers that Chandler’s mortgage closing documents included an engineer’s report with a list of measures needed to correct some drainage problems that contributed to past flood loss severity. The voiding decision was due to his hiding the information.

2. If a policy is voided this provision, it is no longer eligible to be written or continued under either a new or a different, existing flood policy. (2021 Change)

3. If a policy is voided, the move takes place as of date of a given wrongful act.

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

B. Policy Nullification for Reasons Other Than Fraud

Part B. is a new sub-part. In previous editions, this appears, in much briefer form, as item 4. in B. Concealment, Fraud and Policy Voidance under VII. General Conditions. (2021 Edition Change)

1. Coverage may be revoked, meaning that it is as if no protection existed from the beginning of the policy period. Complete revocation, or voiding, may occur under various reasons:

a. Protection may be voidable if, at the time the policy was written, it was part of a nonparticipating community and, subsequently, the community does not join or reenter the NFIP prior to a loss.

b. If the policy was written on property being of a type that is not eligible for coverage under the NFIP is a reason that may trigger voidance.

c. Lack of holding an insurable (ownership or financial) interest in the covered property triggers voiding. (2021 Change)

d. Coverage is voided if any premium payment that is submitted along with a flood coverage application does not clear. (2021 Change.)

e. Voidance also occurs if notification, before the requested policy date, is made that the policy is not needed and there is no requirement or agreement that creates an obligation to secure flood coverage. (2021 Change.)

2. When a policy is voided according to the earlier part of this provision, the entire amount of premiums, fees and surcharges that were paid will be fully refunded. If a claim was paid under a policy that is later voided, the full amount paid out for the loss must be returned to the insurance company. (2021 Change.)

C. Cancellation of Policy by You

Note: In previous editions, this appeared as item E. under VII. General Conditions. (2021 Edition Change)

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

D. Cancellation of Policy by Us

1. Cancellation for Underpayment of Amounts Owed on Policy

This appears to be a restatement of any reference to the information that appears in the policy under VII.D.2. Coverage may be cancelled if the amount of premium paid is not enough to purchase any flood coverage and the policyholder (or other party with an insurable interest) fails to pay the additional amount that is necessary to secure the coverage amount originally requested.

2. Cancellation due to Lack of an Insurable Interest

a. If a policyholder loses his or her insurable interest in the covered property, the policy will be cancelled by the insurer. With regard to buildings, their sale, removal, or destruction equates to the loss of insurable interest. If contents are involved, it is their sale, removal or another party taking over ownership, which constitutes a loss of insurable interest.

b. If permissible under NFIP rules and regulations, a former policyholder may be granted a partial premium refund.

3. Cancellation of Duplicate Policies

In previous editions, this provision appeared as item U. Duplicate Policies Not Allowed under VII. General Conditions (2021 Change)

a. This is a restatement of an earlier part of the policy that prohibits flood coverage by more than a single policy on a given, covered property. Further, any payments for an eligible loss may only be made under a single policy.

b. Should a case arise where eligible property is insured under more than one policy, a single policy will be selected to continue, and the others will be canceled according to stipulations found under NFIP program applicable rules and guidelines.

c. Either a partial or full refund is made after policy cancellation. It may involve fees, premiums, and surcharges. This action is controlled by NFIP program applicable rules and guidelines.

4. Cancellation Due to Physical Alteration of Property

a. The NFIP is intended to issue policies to cover eligible structures and contents. With regard to the former, cancellation will occur if the property is modified to the point that it loses its eligibility.

b. Either a partial or full refund made after policy cancellation. It may involve fees, premiums, and surcharges. This action is controlled by NFIP program applicable rules and guidelines.

In previous editions, this provision appeared as item U. Duplicate Policies Not Allowed under VII. General Conditions (2021 Change)

E. Nonrenewal of the Policy by Us

This condition explains that coverage will not be renewed if the community where the covered property is located no longer participates in the National Flood Insurance Program or if the covered building is classified as ineligible. Another serious issue that triggers nonrenewal would be the insured’s refusal to supply any information the insurer has asked for in order to properly rate the policy’s premium. A failure to supply the information by the date the insurer sets qualifies as not supplying the information.

VIII. Liberalization Clause

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

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

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

IX. What Law Governs

This is another notification to remind the policyholder that the coverages and application of the policy are controlled by FEMA regulations and the National Flood Insurance Act, as well as Federal common law. The current edition of the Dwelling Policy was produced in 1998, reflecting the frequency in which revisions are made by FEMA. Of course, the Liberalization Clause does help to protect insureds against “negative” coverage developments that may occur.

In previous editions, this policy ended with “CLAIM GUIDELINES IN CASE OF A FLOOD,” which provided tips for dealing with a flood loss. That information has been removed. (2021 Change)