FLOOD INSURANCE

The National Flood Insurance Program (NFIP) was established by Congress under the National Flood Insurance Act of 1968. The Act was in response to Congressional findings that:

• Flooding disasters required unforeseen disaster relief

In addition to the relief, they placed an increased burden on the nation’s resources.

• Prior measures had been insufficient

The installation of flood preventive and protective measures and other public programs designed to reduce losses caused by flood damage had not been sufficient to adequately protect against the growing exposure to flood losses as a matter of national policy; a reasonable method of slowing the risk of flood losses would be through a program of flood insurance which could complement and encourage preventive and protective measures.

• Factors made private insurance uneconomical

Many varied factors made it impossible for private insurance industry carriers to make flood insurance available to those in need of such protection on reasonable terms and conditions.

• Federal Government insurance was practical, however

A program of flood insurance with large-scale participation of the Federal Government and the maximum extent practicable by the private industry was feasible and could be initiated.

Congress stated that the purpose in passing the Act was to:

• Authorize a flood insurance program

Over a period of time, this program could be made available on a nationwide basis through the cooperative effort of the Federal Government and the private insurance industry.

• Provide flexibility in the program

Thus, such flood insurance would be based on workable methods of pooling risks, minimizing costs, and distributing burdens equitably among the general public and those who would be protected by flood insurance.

• Encourage state/local governments to use lands wisely

Wise use of the lands under their jurisdictions would include considering the hazard of flood when rendering decisions on the future use of such land, thus minimizing damage caused by flooding.

In 1979, the Federal Emergency Management Act (FEMA) was established as a single point of contact within the Federal Government for emergency management activities. The Federal Insurance Administration (FIA), which directly administers the NFIP, became a part of FEMA, having been originally a part of the Department of Housing and Urban Development from 1968 to 1979.

The NFIP is a program in which communities formally agree, as evidenced by their adoption of codes and ordinances, to regulate the use of their flood-prone lands. In return, FIA makes flood insurance coverage available on buildings and their contents throughout the community.

FIA has traditionally identified these flood hazard areas on maps, which are provided to communities for carrying out their responsibilities. The maps are also used by insurance producers to determine rates and by lenders to determine requirements.

These take the form of the insurance policies, each covering different property in different fashions and at different rates. These are referred to as the “Standard Flood Insurance Policy, Dwelling and General Property”.

THE DWELLING FORM

This policy is for homeowners to insure the following:

• Single-family dwellings

This designation includes detached houses, townhouses/rowhouses, manufactured (mobile) homes and doublewide manufactured (mobile) homes, and/or their household contents.

• Two to four family residential buildings

This category includes condominiums and/or household contents.

• Residential condominium units and/or household contents
• One to four family buildings under construction
• Condominium Unit Owners’ Policy

THE GENERAL PROPERTY FORM

• Residential buildings of more than four units

This includes condominiums and/or their contents.

• Non-residential condominium buildings

Only building coverage is available.

• Non-residential condominium units

Only content coverage is available.

• Non-residential buildings

This category includes non-residential manufactured (mobile) homes and doublewide manufactured (mobile) homes, and/or their non-household contents.

• Appurtenant private structures, if separately insured

Contents may or may not be included in the coverage:

• Building under construction except 1-4 family buildings
• Non-household contents in a residential building
• Household contents in a non-residential building
• Condominium Master Policy

NOTE:
The same policy will not cover both household personal and non-household (commercial) contents.

TOLL-FREE TELEPHONE NUMBERS

Nationwide 1-800-638-6620
Maryland 1-800-492-6605
In Alaska, Hawaii, Puerto Rico, Guam, and the Virgin Islands
1-800-638-6831

REGIONAL OFFICES

The National Flood Insurance Program has ten regional offices and two regional satellite offices - eleven for the continental United States and one in Puerto Rico. The primary function of the regional office is lender and agent training through workshops and individual visits. Other services provided by the regional office are similar to those provided by an insurance company field person. To obtain the current address and telephone number of the office serving your area, call 800-638-6620.

The regional offices do not handle processing nor do they have policy files at their locations; however, the regional staff may be able to assist with problems of a general nature and are available to answer questions.

INTERNET ACCESS

The Internet website for NFIP can be found at www.fema.gov/nfip/ There you will find a wealth of flood information.

Sections include: Storm Watch; News and Updates; Information for Consumers; Information for Lenders; and Flood Insurance Library.

IMPORTANT ADDRESSES

Correspondence with the National Flood Insurance Program is directed to various post office boxes at their office in Lanham, Maryland.

General Inquiries NFIP
P. O. Box 619
Lanham, MD 20706

Rating and Underwriting P. O. Box 885

Applications P. O. Box 459

Notice of Loss P. O. Box 498

Renewal and Re-Issue NFIP
P. O. Box 105656
Atlanta, GA 30348-5656

Map Orders FEMA
Flood Map Dist. Center
6930 (A-F) San Tomas Road
San Antonio, TX

WHAT DOES THE POLICY INSURE AGAINST?

The policy only insures against the peril of flood, defined as a general and temporary condition of partial or complete inundation of normally dry land areas from:

• The overflow of inland or tidal waters
• Surface waters

This includes both unusual and rapid accumulation or run-off of surface water from any source.

• Mudslides (i.e., mudflows) proximately caused by flood

The term flood here is used as defined above.

The term “mudslide” is specifically defined in the policy contract and in the Federal Regulations. The definition may differ from the common understanding of the term. Please refer to the policy contract itself for details. It is particularly important to distinguish mudslide as defined (which is covered) from landslide (which is not covered.)

The collapse or subsidence of land along the shore of a lake or other body of water is a peril insured against to the extent that it is the erosion or undermining caused by waves or currents of water exceeding their cyclical level which result in flooding as defined above.

EROSION COVERAGE

The policy also insures against the demolition or relocation of insured buildings, which are subject to imminent danger of collapse, or subsidence as a result of erosion or undermining caused by a body of water, which exceeds its anticipated cyclical levels.

Coverage must have been in effect before June 1, 1988, or for two years or for the entire term of ownership, to be considered eligible for this erosion coverage. The language in the Dwelling and General Property policies has not yet been modified to reflect this change but the coverage will be provided if a loss is filed under the applicable conditions.

WHAT LOSSES WILL THE POLICY COVER?

The policy covers losses to insured property that are physical losses, meaning actual destruction of or damage to property evidence by physical changes;

• Direct result of contact with floodwater
• Direct from sewer back-up/seepage/hydrostatic pressure

This applies when these conditions are proximately caused by surface flooding, which at the same time, damages insured property.

• Direct result of freezing of floodwaters

This is covered when freezing directly damages insured property.

The policy also covers up to the amount of the minimum building or contents deductibles, certain reasonable expenses incurred to protect insured property from flood damage including:

• Labor of the named insured and members of the household (under the Dwelling Form only) and other reasonable expenses involved in the removal of the insured contents to a safe place away from the danger of imminent flood and the return of the moved contents to the insured premises

• Removal of a manufactured (mobile) home to a safe place away from the danger of an imminent flood and for the return and reinstallation, including the cost of utility connections

• Storage expenses incurred after removing contents or a manufactured home from the danger of an imminent flood for up to forty-five (45) days

• Expenses, other than labor, for sandbags, temporary levees, pumps, and wood (under building coverage only)

• The named insured's own labor and the labor of members of the household in connection with sandbagging and temporary levying, at the federal minimum wage rate (under the Dwelling Form only)

• Cleanup of the building, contents, and debris removal (including the named insured's own labor and the labor of members of the household under the Dwelling Form only) after a flood to facilitate returning the building to a safe and sanitary condition

• Expenses to remove damaged portions of the insured building from the property location following a flood (under the Dwelling Form only)

WHAT LOSSES ARE NOT COVERED BY THE POLICY?

The policy does not cover losses caused by other perils such as, but not limited to:

• Earth movement, rain, snow, hail, or water spray

• Sewer back-up, high water table, seepage, hydrostatic pressure, freezing or ice, unless the property has been, at the same time, damaged by a flood as defined; and

• Conditions substantially confined to the insured building or within the insured's control

The policy also does not cover the following losses:

• Loss to enclosures, contents, machinery, building components, equipment, and fixtures located at an elevation lower than the lowest elevated floor of a Post-FIRM (as well as Pre-FIRM until October 1, 1988) elevated building, except that required utility connections, footings, foundation, posts, piling, piers, or other foundation walls, and anchorage system necessary for the support of the elevated buildings are covered. See other exceptions below under question 5, “What Property Does the Policy Cover”

• Loss of access, loss of use, loss of profits, or loss resulting from interruption of business, profession, or manufacturing

• Additional living expenses

• Increased cost of repair or reconstruction resulting from any ordinance regulating reconstruction or repair

• Other economic loss

• A loss in progress at 12:01 a.m. on the first day of policy term. A loss is considered to be in progress when an insured building or insured contents first sustain damage by flood. This is when surface floodwaters first make contact with the insured building or contents not when floodwaters first enter the described premises. Damage to, or inundation of, the insured’s land does not itself create a loss in progress condition

• Damage intentionally caused by the insured or resulting from a modification to the property or premises which materially increases the risk of flooding; and

• Loss from a flood which is confined to the insured premises, unless the flood covers two acres or more of the premises

WHAT PROPERTY DOES THE POLICY COVER?

The policy covers eligible buildings and their contents, and buildings in the course of construction, subject to certain restrictions.

Building coverage extends to additions and extensions attached to the building; and to fixtures, machinery, and equipment forming a part of and servicing the building, while enclosed within the insured building. In addition, the Dwelling Form covers these items within any fully enclosed building on the premises. Building coverage extends also to materials and supplies intended for use in the construction, alteration, or repair of the insured building when these materials and supplies are within a fully enclosed building on the insured or adjacent premises.

With respect to buildings with basements, the policy covers only foundation elements, (including unfinished sheet rock and fiberglass insulation), sump pumps, well water tanks and pumps, oil tanks and the oil in them, cisterns and the water in them, natural gas tanks and the gas in them. Also, the policy covers pumps and/or tanks used in conjunction with solar energy systems, furnaces, water heaters, clothes washers and dryers, food freezers and the food in them, air conditioners, heat pumps, electrical junction and circuit breaker boxes, stairways, elevators and related equipment (unless installed below the Base Flood Elevation on or after October 1, 1987), and cleanup.

With respect to the area beneath the lowest elevated floor of a Post-FIRM elevated building, the policy covers only the structural elements (i.e., required utility connections, and the foundation and anchorage system required for the support of the elevated building), sump pumps, well water tanks and pumps, oil tanks and the oil in them, cisterns and the water in them, natural gas tanks and the gas in them, pumps and/or tanks used in conjunction with solar energy systems, furnaces, water heaters, clothes washers and dryers, food freezers and the food in them, air conditioners, heat pumps, electrical junction and circuit breaker boxes, and stairways attached to the building and not separated by elevated walkways, elevators and related equipment (unless installed on or after October 1, 1987, below the Base Flood Elevation), and cleanup.

The policy also provides coverage as follows:

• Buildings over water that were constructed prior to October 1, 1982, and not substantially improved since that date must be submitted for an underwriting decision and rating. Rates for these buildings may be very high, as the rates will be commensurate with the risk. No coverage is in effect until the NFIP approves the insurance application and the premium is received

• The Dwelling Form (but not the General Property Form) has an extension of coverage applicable to appurtenant private structures only (garages and carports). The extension may be up to 10 percent of the amount of building coverage purchased and is not an additional amount of insurance. This extension applies only to garages and carports that are used only for garaging a vehicle and storage. An appurtenant private structure is not covered by this extension if it is used, even partially, for dwelling, farming, personal or commercial manufacturing purposes, or as a boathouse

• When the SFIP insures household contents, the policy covers personal property of the insured and the insured’s family living in the insured dwelling. The policy also covers property of guests, servants, and others for whose property the insured is responsible under the Dwelling Form and under the General Property Form

CONTENTS LIMITS

Coverage for household contents is limited to $250 in the aggregate for such items as jewelry, works of art, precious metals, furs, etc. The functional value of antique items will be covered, but not the antique value itself.

• The policy covers stock, merchandise, supplies, and equipment of every description, except as otherwise specifically excluded, when the General Property Form is used to insure non-household contents

PARTS & EQUIPMENT RESTRICTIONS

The Federal Insurance Administration (FIA) has ruled that the policy will cover parts and equipment as open stock when such are not part of specific vehicles or motorized equipment excluded from coverage.

• Improvements, alterations, and additions are covered under the content coverage. A tenant may apply up to 10 percent of the coverage on household contents (Dwelling and General Property Forms) to any improvements and betterments (I&B). Under the General Property Form, coverage for non-household contents may be applied to the I&B up to the amount of insurance purchased. Coverage for I&B is not an additional amount of insurance

• A condominium unit owner may apply up to 10% of the content coverage to loss to interior walls, floors and ceilings not paid for under the building coverage of an individual unit policy or the association policy. This coverage is not an additional amount of insurance

WHAT PROPERTY DOES THE POLICY NOT COVER?

The policy does not cover buildings described as follows:

• Underground buildings including their machinery and equipment which are part of a building, where more than 49 percent of the actual cash value of a building is below ground - Unless the lowest level of a building is at or above the Base Flood Elevation (in the Regular Program), or the adjacent ground level (in the Emergency Program), by reason of earth having been used as an insulation material in conjunction with energy-efficient building techniques

• Buildings entirely in, on, or over water, or entirely seaward of mean high tide, which were constructed or substantially improved on or after October 1, 1982. The date of issue of the building permit will govern the application of this exclusion

• Buses, recreational vehicles, or travel trailers, even if they are anchored to a foundation with their wheels removed. This does not apply to a travel trailer that has been modified so as to qualify as a permanently constructed building in accordance with the community’s building permit requirements and other floodplain management ordinances relating to the construction of buildings

• Units that are primarily containers, such as gas and liquid tanks, chemical or reactor container tanks or enclosures, brick kilns, and similar units. (NOTE: The only exception to this is that silos and grain storage buildings including their contents are insurable)

• Open buildings located on or over water. That portion of a building which is over water and into which a boat is floated (although the non-boathouse portion of the building is eligible for coverage if it satisfies all the other requirements for eligibility under the NFIP)

• Buildings located on designated undeveloped coastal barriers and which are constructed or substantially improved on or after October 1, 1983. The date of issue of the building permit and the specific location of the building will govern the application of this exclusion

• Manufactured (Mobile) Homes in Special Flood Hazard Areas that are not anchored as required and which have not been continuously insured at the same site since September 30, 1982

With respect to eligible buildings that have basements, the policy does not cover improvements which finish a basement, nor machinery, fixtures or equipment contained in a basement except as specifically noted above as being covered.

The policy does not cover items, which are not a part of the building including (but not limited to) retaining walls, seawalls, bulkheads, and riprap.

The policy does not cover underground equipment including (but not limited to) sewer and septic systems.

The policy does not cover items that may be described as follows:

• Contents within any building ineligible for coverage
• Contents in the open
• Contents within a building not fully enclosed

The exception occurs if they are secured against flotation.

• Others’ property for which insured is acting as bailee
• Valuable papers, money, bullion, stamps, etc.
• Animals, birds, or fish
• Aircraft, watercraft, trailers, recreational vehicles

This includes their furnishings or equipment.

• Automobiles, motorcycles, and motorized equipment

The exception is unlicensed equipment which services the premises, assembled or not, including dealer’s open stock.

• Contents located in basement

This also includes an enclosure below the first elevated floor, except as noted above in “What Property Does the Policy Cover?”

The Dwelling Form does not cover business property of any kind. Furniture and other household contents furnished to a lessee of a residential building are not considered to be business property. When the General Property Form is used to insure household property, it also does not cover business property of any kind.

WHAT POLICY PROVISIONS AFFECT CLAIM PAYMENTS?
ACTUAL CASH VALUE

The SFIP is an actual cash value policy. Actual cash value is defined in the policy as replacement cost less physical depreciation.

REPLACEMENT COST COVERAGE

Replacement cost coverage applies only to a single-family dwelling or rowhouse-type condominium unit that is the insured’s principal residence. To qualify the dwelling as a principal residence, the insured or the insured’s spouse must have lived at that dwelling more than 80% of the year preceding the loss, or more than 80% of the period of ownership if less than a year. Replacement cost coverage does not apply to condominium units in a vertical building having one or more condominium units not contiguous to the ground (those that are not of a rowhouse type). Replacement cost coverage does not apply to manufactured homes less than 16 feet wide and with less than 600 square feet of area within the perimeter walls.

To receive the benefit of replacement cost coverage, the insured must carry either the maximum amount of insurance available to him under the program or 80% of the replacement cost of the dwelling at the time of loss.

Replacement cost coverage is available under the Preferred Risk Policy as long as all replacement cost provisions are met.

POLICY DEDUCTIBLE

Deductibles - The standard policy deductible, which applies separately to a building loss and to a content loss, is $500. Optional deductibles may be selected in multiples of $1,000 up to $5,000. Optional deductible selected for building coverage and content coverage need not be the same.

Sandbags, Temporary Levees, Pumps, etc. - Reasonable expenses incurred for these is available up to a maximum of the minimum building deductible to save the building from imminent danger of a flood loss. For reimbursement of these expenses, the following conditions must be met:

• Insured property in danger of sustaining flood damage
• Persons not mentally incapacitated must recognize danger

The threat of flood damage must be of such imminence as to lead a person of normal mental faculties to anticipate flood damage; and

• A general and temporary flooding in the area must occur

This flooding must occur, even if the flooding does not reach the insured property, or a legally authorized official must issue an evacuation order or other civil order for the community in which the insured property is located calling for measures to preserve life and property from the peril of flood.

REMOVAL EXPENSES

Reasonable expenses incurred for the removal away from the premises of an insured building or insured contents to protect them from an imminent flood, and the expenses to return them to the amount of the minimum building or content deductible. The policy deductible does not apply to these expenses.

SPECIAL LIMITATION

Under coverage for household contents the policy will not pay more than $250 in the aggregate for all loss to items such as: jewelry, works of art, precious metals, and furs. The functional value of antique items will be covered, but not the antique value itself.

OTHER INSURANCE

As long as the insured carries the maximum insurance available under the program phase in which the community is participating, the SFIP will be primary to any other flood insurance carried. If less than the maximum available coverage is carried, the SFIP will only pay that proportion of any loss which the amount of the SFIP coverage bears to the smaller of (a) the total amount of flood coverage carried, or (b) the maximum coverage available to the insured under the program. Purchasing a policy to cover a large deductible in any other policy exposes the insured to the risk of potentially large retained losses in the event that loss occurs.

VOIDANCE

The policy will be deemed void from its inception:

• If the property is discovered ineligible for coverage
• If there have been any false application statements

A fraudulent or willful concealment or misrepresentation of any material fact in connection with the application or renewal also applies.

• If the premium submitted is less than $50

In the case of the community in which the insured property is located has been suspended from participation, the voidance occurs at the end of the last day of the policy year (applicable to three-year policies only).

REDUCTION BY REFORMATION

Due to insufficient premium:

• If the insufficient premium, or other rating error, is discovered before a loss, coverage will be provided only up to the limit of the premium submitted. A notice of additional premium due is sent to the producer or other payor, who then may remit additional premium to bring coverage up to the desired limits. If additional premium is not received, coverage continues at the lower amounts for the rest of the policy term

• If the insufficient premium or rating error is discovered following a loss, coverage is provided as described above, unless willful misrepresentation can be demonstrated. If additional premium is received within thirty (30) days of an underpayment notice, the policy will be reformed from its inception date. If no additional premium is received, coverage continues at the lower amounts

Mortgagee - The policy will recognize the interest of any mortgagee, trustee or loss payee of whom the NFIP has actual notice prior to the payment of loss. Should the insured fail to file a Proof of Loss, the mortgagee will have sixty (60) days from notice of such failure within which to file a Proof of Loss for its interest in the loss. Should the policy lapse or be cancelled, coverage will continue for thirty (30) days from notice of such lapse or cancellation for the benefit of the mortgagee.

LOSS PAYABLE

Payment of any loss under this policy will not reduce the amount of insurance applicable to a subsequent covered loss during the policy term. The loss is payable within sixty (60) days of receipt of a proof of loss or within 90 days of receipt of a signed and certified adjuster’s report.

RIGHT OF THE INSURED

The insured has a right to appraisal as well as to suit, as detailed in the policy provisions.

RIGHTS TO THE INSURER

The NFIP has a right to subrogation as well as to repair, rebuild or replace damaged property with other of like kind and quality. The NFIP also has a right to appraisal.

SUMMARY

Should you purchase Flood Insurance if your home, business or investment property is located on a flood plain? Hindsight would clearly indicate that many persons should have purchased this protection. However, it is too late if your property is already inundated. Find out now what the coverage would cost.

The best place to go for this help is your general insurance agent. If he or she is not familiar with Flood Insurance, provide a copy of this article.

Your agent can help you in determining the rates and appraising the degree of risk.

YOUR BASIC QUESTIONS

1. What is the maximum damage that could occur to your property?

2. What are the premiums at different deductible amounts?

3. If you suffered a maximum loss and were uninsured, could you afford to pay for the damages?

4. Can you afford to purchase the full coverage with the lowest deductible, which would have the highest premium?

5. Can you afford to purchase the cheapest policy with the highest deductible?

6. Even if you really cannot afford the lower premium, would a loss be so devastating to you (such as wiping out your business or causing a bankruptcy) that you must purchase the insurance and curtail some other allocation of funds?