National Flood Insurance Program (NFIP): Conforming Changes To Reflect the Biggert-Waters Flood Insurance Reform Act of 2012 (BW-12) and the Homeowners Flood Insurance Affordability Act of 2014 (HFIAA), and Additional Clarifications for Plain Language, 32956-33015 [2018-13292]

Download as PDF 32956 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules Street SW, Washington, DC 20472, (202) 557–9488. SUPPLEMENTARY INFORMATION: DEPARTMENT OF HOMELAND SECURITY Federal Emergency Management Agency 44 CFR Parts 59, 61, and 62 [Docket ID FEMA–2018–0026] RIN 1660–AA95 National Flood Insurance Program (NFIP): Conforming Changes To Reflect the Biggert-Waters Flood Insurance Reform Act of 2012 (BW–12) and the Homeowners Flood Insurance Affordability Act of 2014 (HFIAA), and Additional Clarifications for Plain Language Federal Emergency Management Agency, DHS. ACTION: Notice of proposed rulemaking. AGENCY: The National Flood Insurance Program (NFIP), established pursuant to the National Flood Insurance Act of 1968, as amended, is a voluntary program in which participating communities adopt and enforce a set of minimum floodplain management requirements to reduce future flood damages. This proposed rule would revise the NFIP’s implementing regulations to codify certain provisions of the Biggert-Waters Flood Insurance Reform Act of 2012 and the Homeowner Flood Insurance Affordability Act of 2014 that FEMA has already implemented and to clarify certain existing NFIP rules relating to NFIP operations and the Standard Flood Insurance Policy. DATES: Submit comments on or before September 14, 2018. ADDRESSES: You may submit comments, identified by Docket ID: FEMA–2018– 0026, by one of the following methods: Federal eRulemaking Portal: https:// www.regulations.gov. Follow the instructions for submitting comments. Mail/Hand Delivery/Courier: Regulatory Affairs Division, Office of Chief Counsel, Federal Emergency Management Agency, Room 8NE, 500 C Street SW, Washington, DC 20472–3100. To avoid duplication, please use only one of these methods. FEMA will post all comments received without change to https://www.regulations.gov, including any personal information provided. For instructions on submitting comments, see the Public Participation portion of the SUPPLEMENTARY INFORMATION section. FOR FURTHER INFORMATION CONTACT: Kelly Bronowicz, Director, Policyholder Services Division, Federal Insurance and Mitigation Administration, Federal Emergency Management Agency, 400 C sradovich on DSK3GMQ082PROD with PROPOSALS2 SUMMARY: VerDate Sep<11>2014 18:34 Jul 13, 2018 Jkt 244001 I. Public Participation The Federal Emergency Management Agency encourages the public to participate in this rulemaking by submitting comments and related materials. The Agency will consider all comments and material received during the comment period. When submitting a comment, identify the agency name and the docket ID for this rulemaking, indicate the specific section of this document to which each comment applies and give the reason for each comment. The public may submit comments and materials by electronic means, mail, or delivery to the address under the ADDRESSES section. Please submit comments and material by only one means. Regardless of the method used for submitting comments or material, all submissions will be posted without change to the Federal e-Rulemaking Portal at https:// www.regulations.gov and will include any personal information the commenter provides. Therefore, submitting this information makes it public. Those considering commenting may wish to read the Privacy and Security notice that is available via a link on the homepage of https:// www.regulations.gov. Viewing comments and documents: For access to the docket to read background documents or comments received, go to the Federal eRulemaking Portal at https:// www.regulations.gov. Background documents and submitted comments may also be inspected at FEMA, Office of Chief Counsel, Room 8NE, 500 C Street SW, Washington, DC 20472–3100. Public Meeting: We do not plan to hold a public meeting, but you may submit a request for one at the address under the ADDRESSSES section explaining why one would be beneficial. If FEMA determines that a public meeting would aid this rulemaking, it will hold one at a time and place announced by a notice in the Federal Register. II. Background and Authorities A. National Flood Insurance Program Congress created the National Flood Insurance Program (NFIP) through enactment of the National Flood Insurance Act of 1968 (NFIA) (Title XIII of Pub. L. 90–448, 82 Stat. 476), found at 42 U.S.C. 4001 et seq. The NFIP is a Federal program enabling property owners in participating communities to PO 00000 Frm 00002 Fmt 4701 Sfmt 4702 purchase insurance as a protection against flood losses in exchange for State and community floodplain management requirements that reduce the risk of future flood damages. Communities participate in the NFIP based on an agreement between the community and FEMA. If a community adopts and enforces a floodplain management ordinance to reduce future flood risk to new construction in floodplains, FEMA will make flood insurance available within the community as a financial protection against flood losses. Accordingly, the NFIP is comprised of three key activities: Flood insurance, floodplain management, and flood hazard mapping. 1. Flood Insurance The NFIP makes flood insurance available to property owners or lessees in communities that participate in the NFIP through the adoption and enforcement of community-wide floodplain management requirements. If a community adopts and enforces a floodplain management ordinance that meets certain minimum floodplain management requirements to reduce future flood risks within an area known as the Special Flood Hazard Area (SFHA) the Federal Government will make flood insurance available to property owners in that community. NFIP flood insurance indemnifies property owners from flood losses, reducing the need for Federal disaster assistance. NFIP floodplain management requirements reduce future flood damages, thus further reducing the need for Federal disaster assistance. In addition to providing flood insurance and reducing flood damages through floodplain management, the NFIP identifies and maps the nation’s floodplains. FEMA disseminates maps depicting flood hazard information to create broad-based awareness of flood hazards, to provide data for rating flood insurance policies, and to apply the appropriate minimum floodplain management requirements for floodprone areas. Prior to enactment of the BiggertWaters Flood Insurance Reform Act of 2012 (BW–12), the NFIA made federally subsidized flood insurance available to property owners or lessees of buildings in NFIP-participating communities.1 Subsidized flood insurance rates were available for policies covering existing buildings or buildings built prior to the community’s adoption of its initial Flood Insurance Rate Maps (FIRMs), 1 Flood insurance is also available to cover the contents owned by tenants in a rental property. E:\FR\FM\16JYP2.SGM 16JYP2 sradovich on DSK3GMQ082PROD with PROPOSALS2 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules generally referred to as ‘‘pre-FIRM buildings.’’ Subject to certain short-term statutory exceptions, FEMA offers only actuarial rates to all buildings constructed, or substantially damaged or improved, on or after the effective date of the initial FIRM for the community or after December 31, 1974, whichever is later, generally referred to as ‘‘postFIRM buildings.’’ See 42 U.S.C. 4014(a)(1), 4015(b). In addition, building owners must purchase flood insurance as a condition of receiving federally-backed or federally-regulated loans and Federal assistance in SFHAs of participating communities. See Flood Disaster Protection Act of 1973, sec. 103 (Pub. L. 93–234, 87 Stat. 975 (codified as amended at 42 U.S.C. 4001 et seq.)). As discussed in more detail below, with the passage of BW–12, Congress mandated that FEMA phase out subsidies for certain pre-FIRM properties. These pre-FIRM properties include non-primary residences, business properties, severe repetitive loss properties, substantially damaged properties, substantially improved properties, and properties for which the cumulative claims payments exceed the fair market value of the property. The Homeowner Flood Insurance Affordability Act of 2014 (Pub. L. 113– 89, 128 Stat. 1020) (HFIAA) requires a phase-out of subsidies on all pre-FIRM properties at a rate of no less than 5 percent and no more than 15 percent premium increases per year, subject to certain exceptions established by statute (such as the BW–12 provisions) requiring a quicker phase-out for certain types of pre-FIRM properties. Accordingly, FEMA will likely phase out subsidies on all pre-FIRM properties within the next 12 to 17 years. A prospective policyholder may purchase an NFIP flood insurance policy either: (1) Directly from the Federal Government through a direct servicing agent (referred to as ‘‘NFIP Direct’’), or (2) from a participating private insurance company through the Write Your Own (WYO) Program. The Standard Flood Insurance Policy (SFIP) sets out the terms and conditions of insurance. See 44 CFR part 61, Appendix A. FEMA establishes terms, rate structures, and premium costs of SFIPs. The terms, coverage limits, and flood insurance premiums are the same whether purchased from the NFIP Direct or the WYO Program. See 44 CFR 62.23(a). The SFIP is a single-peril (flood) policy that pays for direct physical damage to insured property. There are three forms of the SFIP: The Dwelling Form, the General Property Form, and the Residential Condominium Building VerDate Sep<11>2014 18:34 Jul 13, 2018 Jkt 244001 Association Policy (RCBAP) Form. The Dwelling Form insures a one to four family residential building or a singlefamily dwelling unit in a condominium building. See 44 CFR part 61, Appendix A(1). Policies under the Dwelling Form offer coverage for building property, up to $250,000, and personal property up to $100,000. The General Property Form insures a five or more family residential building or a non-residential building. See 44 CFR part 61, Appendix A(2). The General Property Form offers coverage for building and contents up to $500,000 each. The RCBAP Form insures residential condominium association buildings and offers building coverage up to $250,000 multiplied by the number of units and contents coverage up to $100,000 per building. See 44 CFR part 61, Appendix A(3). RCBAP contents coverage insures property owned by the insured condominium association. Individual unit owners must purchase their own Dwelling Form policy in order to insure their own contents. In addition to coverage for building or contents losses, most NFIP policies also include Increased Cost of Compliance (ICC) coverage. ICC coverage applies when flood damages are so severe that the local government declares the building ‘‘substantially damaged,’’ thus requiring the building owner to bring the building up to current community standards. If a community has a repetitive loss ordinance, ICC coverage will also cover compliance requirements for a repetitive loss structure. ICC coverage provides up to $30,000 of the cost to elevate, demolish, floodproof, or relocate an insured building or any combination thereof. FEMA publishes a Flood Insurance Manual with detailed explanations of the terms and conditions of the SFIP and relevant program policies and procedures. The Flood Insurance Manual is primarily used by insurers and agents selling and servicing Federal flood insurance. FEMA normally publishes the Flood Insurance Manual twice a year and 6 months prior to a new manual version becoming effective. The current version became effective on October 1, 2017. The current flood insurance manual, as well as previous versions, is available at https:// www.fema.gov/flood-insurance-manual. Page numbering restarts for each section of the Flood Insurance Manual, so FEMA cites to both the section and page number. For the purposes of this notice, all citations to the Flood Insurance Manual are to the version that became effective on October 1, 2017, which is available at https://www.fema.gov/ PO 00000 Frm 00003 Fmt 4701 Sfmt 4702 32957 media-library/assets/documents/ 133846. Additionally, FEMA publishes policy statements and underwriting bulletins to further explain and clarify the coverage under the SFIP. These are available at www.fema.gov/library and www.nfipservice.com. 2. Floodplain Management A local community with land use authority may elect to participate in the NFIP. Communities participate under a voluntary agreement with FEMA. In order to participate in the NFIP, a community must adopt and enforce floodplain management requirements that incorporate the NFIP minimum floodplain management requirements. See 44 CFR 59.2(b), 59.22(a)(3), 60.1(d). The intent of these standards is to reduce flood risk and prevent loss of life and property. Communities incorporate these requirements into their zoning codes, subdivision ordinances, and building codes, or they adopt special purpose floodplain management ordinances. These NFIP requirements apply to areas mapped as SFHAs. The community ordinances must also include effective enforcement provisions. 44 CFR 59.2(b). The NFIP will suspend a participating community from theNFIP if the community fails to adopt the minimum NFIP floodplain management requirements within 6 months from the date the NFIP provides the flood map. 44 CFR 59.24(a), 60.13. Moreover, the NFIP may suspend or put on probation any participating community that does not adequately enforce its floodplain management ordinance. 44 CFR 59.24(b)–(c). 3. Flood Hazard Mapping Through its Flood Hazard Mapping Program, FEMA identifies flood hazards, assesses flood risks, and collaborates with States and communities to provide accurate flood hazard and risk data to guide them to mitigation actions. Congress requires FEMA to identify flood-prone areas and then subdivide them into flood risk zones. 42 U.S.C. 4101(a). FEMA then uses this data to support community floodplain management requirements and rate flood insurance policies. Mapping of flood hazards also promotes public awareness of the degree of hazard within such areas and provides for the expeditious identification and dissemination of flood hazard information. FEMA maintains and updates data through FIRMs and Flood Insurance Studies (FISs). E:\FR\FM\16JYP2.SGM 16JYP2 32958 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules B. Recent Legislative Changes sradovich on DSK3GMQ082PROD with PROPOSALS2 1. Biggert-Waters Flood Insurance Reform Act of 2012 Congress enacted BW–12 (Title II, Subtitle A of Pub. L. 112–141, 126 Stat. 405) to extend the NFIP’s authorities through September 30, 2017, and to adopt significant program reform. The law requires changes to all major components of the program, including flood insurance, flood hazard mapping, and the management of floodplains. The provisions of BW–12 relevant to this rulemaking include the following. First, BW–12 requires FEMA to increase the maximum coverage amount for multi-family properties to the same amount as that allowed for commercial properties. Second, BW–12 establishes a minimum deductible amount for NFIP polices. Third, BW–12 prohibits FEMA from denying payment to policyholders for damage or loss to a condominium unit under the Dwelling Form based solely on the fact that the condominium association has inadequate flood insurance coverage on the entire condominium. Fourth, BW–12 requires FEMA to review, among other things, the processes and procedures for making flood in progress determinations. See SFIP Article V.B. FEMA implemented these requirements by updating the Flood Insurance Manual after BW–12’s enactment. The NFIP described these program changes in WYO Bulletin W–13070 (Dec. 16, 2013). FEMA also issued WYO Bulletin W–12045 (July 10, 2012), which implemented BW–12 section 100241’s waiver of the standard 30-day waiting period for coverage of flood damage due to flood on Federal land caused, or exacerbated, by post-wildfire conditions. FEMA now proposes to codify these changes in the NFIP regulations. 2. Homeowner Flood Insurance Affordability Act of 2014 Congress enacted HFIAA to address flood insurance affordability concerns related to BW–12. Accordingly, HFIAA repealed some provisions of BW–12, mostly related to establishing premium rates. HFIAA also made a number of new program changes. The provisions of HFIAA relevant to this rulemaking include a requirement in Section 8 of HFIAA that FEMA offer a high deductible option of $10,000, which FEMA discusses below. III. Discussion of Proposed Rule FEMA proposes to amend parts 59, 61, and 62 of 44 CFR. These parts contain regulations implementing the NFIP. In addition, FEMA proposes to VerDate Sep<11>2014 18:34 Jul 13, 2018 Jkt 244001 amend Appendices A(1)–A(3) of part 61, containing the three forms of the SFIP: The Dwelling Policy Form, the General Property Form, and the Residential Condominium Building Association Form. These forms are used in NFIP polices. FEMA proposes this rulemaking for three purposes. First, it intends to make several non-substantive changes designed to improve the readability, uniformity, and clarity of the NFIP regulations. Second, FEMA proposes to make several non-substantive updates to regulations to align with the requirements of BW–12 and HFIAA. Third, FEMA proposes two substantive, albeit miniminally so, changes to its regulations codifying the requirements of BW–12 and HFIAA. A. Part 59: General Provisions 1. Part 59 Authority Citation FEMA proposes to update the authority citation for Part 59 to reflect changes to FEMA’s source of authority. Currently, the authority citation is 42 U.S.C. 4001 et seq.; Reorganization Plan No. 3 of 1978, 43 FR 41943, 3 CFR, 1978 Comp., p. 329; E.O. 12127 of Mar. 31, 1979, 44 FR 19367, 3 CFR 1979 Comp., p. 376. FEMA proposes to replace the citations to Reorganization Plan No. 3 and Executive Order 12127 with a citation to the current codification of the Homeland Security Act of 2002, 6 U.S.C. 101 et seq. The authority citation would therefore read, ‘‘42 U.S.C. 4001 et seq.; 6 U.S.C. 101 et seq.’’ FEMA proposes this change because Reorganization Plan No. 3 and Executive Order 12127 originally created FEMA as an executive agency and provided the legal basis for FEMA’s existence until the passage of the PostKatrina Emergency Management Reform Act of 2006, Public Law 109–295, 120 Stat. 1394 (PKEMRA). PKEMRA amended the Homeland Security Act of 2002, Public Law 107–296, 116 Stat. 2135, to establish FEMA in statute and define the Agency’s authorities and responsibilities. A citation to the codification of the Homeland Security Act after the citation to the NFIA is therefore more appropriate. 2. Section 59.1 Definitions 44 CFR part 59 contains general provisions applicable to the NFIP’s regulations. Section 59.1 contains a list of definitions generally applicable throughout the NFIP regulations. FEMA proposes to add 13 new definitions and modify three definitions in this section to make this section consistent with its proposed rule changes to parts 61 and 62. PO 00000 Frm 00004 Fmt 4701 Sfmt 4702 First, FEMA proposes to revise the definition of ‘‘act.’’ Currently, the regulation defines ‘‘act’’ to mean ‘‘statutes authorizing the National Flood Insurance Program that are incorporated in 42 U.S.C. 4001–4128.’’ However, the NFIA now extends to section 4131. Rather than revise the citation to ‘‘42 U.S.C. 4001–4131,’’ FEMA proposes to change the citation to ‘‘42 U.S.C. 4001 et seq.’’ As the NFIA is amended often, it makes more sense to use ‘‘et seq.’’ so that the citation stays current and FEMA will not have to revise it every time sections are added. Second, FEMA proposes to revise the definition of ‘‘deductible.’’ Currently, ‘‘deductible’’ is defined as ‘‘the fixed amount or percentage of any loss covered by insurance which is borne by the insured prior to the insurer’s liability.’’ FEMA proposes to revise the definition of ‘‘deductible’’ to mean ‘‘the amount of an insured loss that is the responsibility of the insured and that is incurred before any amounts are paid for the insured loss under the insurance policy.’’ While there is no substantive difference between the two definitions, FEMA believes the proposed definition is clearer and more consistent with the language in Article VI.A of the SFIP, as well as the language in proposed section 61.5, which would provide guidance on deductibles available for NFIP policies (discussed in further detail below). Third, FEMA proposes to revise the definition of ‘‘Emergency Flood Insurance Program or emergency program.’’ Currently, ‘‘Emergency Flood Insurance Program or emergency program’’ is defined as ‘‘the Program as implemented on an emergency basis in accordance with section 1336 of the Act. It is intended as a program to provide a first layer amount of insurance on all insurable structures before the effective date of the initial FIRM.’’ FEMA proposes to remove ‘‘Emergency Flood Insurance Program’’ so the term only reads ‘‘Emergency Program,’’ and revise the definition to mean ‘‘the initial phase of a community’s participation in the National Flood Insurance Program, as prescribed by Section 1306 of the Act.’’ FEMA proposes this change because although the new definition is substantively the same as the current definition, it is clearer and more consistent with the definition of this term in the SFIP. FEMA also proposes to add definitions for several terms. These terms are: ‘‘condominium building,’’ ‘‘mixed use building,’’ ‘‘multifamily building,’’ ‘‘non-residential building,’’ ‘‘non-residential property,’’ ‘‘other residential building,’’ ‘‘other residential property’’ ‘‘residential building,’’ E:\FR\FM\16JYP2.SGM 16JYP2 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules ‘‘residential property,’’ ‘‘single family dwelling,’’ and ‘‘two to four family building.’’ The NFIP already uses these terms when describing the program to the public because they align with the terminology used in the private insurance industry and addresses important nuances not adequately addressed in statute and regulation. FEMA proposes defining these terms in regulation because they support the consistent interpretation and application of the NFIA and its regulations. Accordingly, codifying them in regulation will support greater uniformity and clarity for the public. FEMA provides further explanation of these definitions elsewhere in this preamble, under discussion of the relevant sections where these terms appear. B. Part 61: Insurance Coverage and Rates sradovich on DSK3GMQ082PROD with PROPOSALS2 1. Part 61 Authority Citation The current authority citation for part 61 is 42 U.S.C. 4001 et seq.; Reorganization Plan No. 3 of 1978, 43 FR 41943, 3 CFR, 1978 Comp., p. 329; E.O. 12127 of Mar. 31, 1979, 44 FR 19367, 3 CFR, 1979 Comp., p. 376. FEMA proposes to replace the citations to Reorganization Plan No. 3 and Executive Order 12127 with a citation to the current codification of the Homeland Security Act of 2002, 6 U.S.C. 101 et seq. The authority citation would therefore read 42 U.S.C. 4001 et seq.; 6 U.S.C. 101 et seq. FEMA proposes this change because while Reorganization Plan No. 3 and Executive Order 12127 originally created FEMA as an executive agency, PKEMRA amended the Homeland Security Act of 2002, Public Law 107– 296, by establishing the Agency in statute and defining the Agency’s authorities and responsibilities. Accordingly, a citation to the codification of the Homeland Security Act is more appropriate. 2. Section 61.1 Purpose of Part Section 61.1 describes the overall purpose of part 61. It states that part 61 describes the types of properties eligible for flood insurance coverage under the NFIP, the limits of such coverage, and the premium rates actually to be paid by insureds. It states that the specific communities eligible for coverage are designated by the Federal Insurance Administrator from time to time as applications are approved under the Emergency Program and as ratemaking studies of communities are completed prior to the regular program. Finally, it states that lists of such communities are VerDate Sep<11>2014 18:34 Jul 13, 2018 Jkt 244001 periodically published under part 64 of this subchapter. FEMA proposes to remove the last two sentences of Section 61.1 addressing the specific communities eligible for coverage and publication of the list of communities because they provide information relevant to part 64, not part 61. Removing these sentences would therefore avoid possible confusion regarding the subjects covered in part 61. 3. Section 61.3 Types of Coverage Section 61.3 states that insurance coverage under the NFIP is available for structures and their contents, and that coverage for each may be purchased separately. FEMA proposes to change the title of this section from ‘‘Types of coverage’’ to ‘‘Coverage and benefits provided under the Standard Flood Insurance Policy’’ because this new title provides a more accurate description of the proposed revisions to this section. FEMA proposes to replace ‘‘structure’’ with ‘‘building’’ because in current practice the program uses the term ‘‘building’’ rather than ‘‘structure’’ throughout its guidance documents and other communications. The term ‘‘building’’ is a more precise and accurate term, because the SFIP insures buildings, not structures. While the term ‘‘structure’’ encompasses the term ‘‘building,’’ it also includes things that are not buildings, such as carports and gas or liquid storage tanks, and thus not insurable under the terms and conditions of the SFIP. Consistent use of this terminology will improve the overall clarity and accuracy of the regulation when viewed within the larger context of FEMA’s communications and guidance documents regarding the NFIP, as ‘‘building’’ rather than ‘‘structure’’ is more commonly used outside of the CFR. FEMA proposes to add two new provisions to this section to provide a more accurate depiction of the coverages and benefits available under the SFIP and to improve the Section’s overall clarity. First, FEMA proposes to add paragraph (b) stating that in addition to building and contents coverage, each form of the SFIP provides coverage for other flood-related expenses. The Dwelling Form of the SFIP covers debris removal, loss avoidance measures, and condominium loss assessments. The General Property Form of the SFIP covers debris removal, loss avoidance measures, and pollution damage. The Residential Condominium Policy Form of the SFIP covers debris removal and loss avoidance measures. PO 00000 Frm 00005 Fmt 4701 Sfmt 4702 32959 Second, FEMA proposes to add paragraph (c) stating that with the purchase of building coverage, the SFIP also covers costs associated with bringing the building into compliance with local floodplain ordinances. FEMA believes this information may be useful to a reader of the CFR. 4. Section 61.4 Limitations on Coverage Section 61.4 provides that coverage obtained through the NFIP is subject to the NFIA, relevant regulations, the SFIP, and each individual policy’s declaration page, and the maximum limits of coverage. FEMA proposes to remove this section because it duplicates the provisions of current section 61.5(e), which provide that the SFIP ‘‘is authorized only under terms and conditions established by Federal statute, the program’s regulations, the Administrator’s interpretations and the express terms of the policy itself.’’ As section 61.5(e) conveys the same information as section 61.4, FEMA finds that section 61.4 is not necessary. (Note that FEMA proposes to move 61.5(e) to proposed 61.13, discussed below.) 5. Section 61.5 Special Terms and Conditions Paragraph (a) of section 61.5 states that no new flood insurance or renewal of flood insurance policies shall be written for properties declared by a duly constituted State or local zoning or other authority to be in violation of any flood plain, mudslide (i.e., mudflow), or flood-related erosion area management or control law, regulation, or ordinance. FEMA proposes to change ‘‘shall’’ to ‘‘will’’ to avoid ambiguity. Paragraph (b) of section 61.5 states that to reduce the administrative costs of the NFIP, of which the Federal Government pays a major share, payment of the full policyholder premium must be made at the time of application. FEMA proposes to reword ‘‘payment of the full policyholder premium’’ to state ‘‘applicants must pay the full policy premium’’ because premiums are associated with policies, not policyholders. No substantive change is intended. FEMA proposes to retain the substance of paragraphs (a) and (b), but proposes to move them to their own section (proposed 61.4) but retaining the current title of the section (‘‘Special terms and conditions’’). Paragraph (c) of section 61.5 states that because of the seasonal nature of flooding, refunds of premiums upon cancellation of coverage by the insured are permitted only if the insurer ceases to have an ownership interest in the E:\FR\FM\16JYP2.SGM 16JYP2 32960 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules sradovich on DSK3GMQ082PROD with PROPOSALS2 covered property at the location described in the policy. It further states that refunds of premiums for any other reason are subject to the conditions set forth in 62.5 of this subchapter. FEMA proposes to remove paragraph (c) and add the substance of it to paragraph (b) of proposed 62.5 (the proposed changes to which are discussed more fully later in this preamble). Section 62.5 addresses policy cancellations and nullifications, and thus the substance of current section 61.5(c) is more appropriate for section 62.5. Similar to current section 61.4, paragraph (e) of section 61.5 states that the SFIP is authorized only under terms and conditions established by Federal statute, the program’s regulations, the Administrator’s interpretations and the express terms of the policy itself. Section 61.5 also states that representations regarding the extent and scope of coverage which are not consistent with the NFIA or with NFIP regulations are void, and the duly licensed property or casualty agent acts for the insured and does not act as agent for the Federal Government, the Federal Emergency Management Agency, or the servicing agent. As noted above, FEMA proposes to move 61.5(e) to proposed 61.13. The provisions appear in proposed paragraph (e) of section 61.13 (‘‘Authorized only under terms and conditions established by the Act and Regulation’’) and paragraph (f) (‘‘Agent acts only for policyholder’’). These provisions are more appropriate for proposed section 61.13 because the section contains general provisions about the SFIP, and 61.5(e) also constitutes general provisions concerning the SFIP. These changes would improve the overall organization and cohesiveness of part 61. FEMA does not intend any substantive changes with these proposed revisions. 6. Proposed Section 61.5 Deductibles (Formerly Paragraph (d) of Current Section 61.5) Current paragraph (d) of section 61.5 states that optional deductibles are available in all zones for four categories of properties, and presents those categories as four tables. The Category One table lists some of the deductible options for one to four family building and contents coverage policies. The Category Two table lists some of the deductible options for one to four family building coverage only or contents coverage only policies. The Category Three table lists some of the deductible options for ‘‘other residential’’ (residential buildings with five or more units) and nonresidential policies. The Category Four table lists some of the VerDate Sep<11>2014 18:34 Jul 13, 2018 Jkt 244001 deductible options for residential condominium building policies. A note to these tables indicates that policyholders may submit any other deductible combination for rating to the NFIP. This note allows FEMA to offer deductibles listed in the deductible tables in the Rating Section of Flood Insurance Manual, pages 17–18. FEMA proposes several revisions to paragraph (d). First, FEMA proposes to remove the number for the paragraph because, as noted above, paragraphs (a) and (b) would be moved to a new section 61.4 and paragraph (c) would be incorporated into section 62.5. As a result, paragraph (d) would be the only paragraph in the section, thus making the paragraph number unnecessary. FEMA proposes to replace the current contents of paragraph (d) (proposed unnumbered paragraph) with a requirement that FEMA must provide policyholders with deductible options in various amounts, up to and including $10,000, subject to certain minimum deductibles. FEMA proposes this change because the current regulation’s listing of deductible options may give readers the impression that the list is exhaustive even though the note following the Category Four table allows for FEMA to offer deductible options not listed in the table. The proposed text would make clear that FEMA may offer various options, subject to other restrictions. The proposed text would require FEMA to offer deductible options up to and including $10,000 to comply with the requirements of Section 1306(d) of the NFIA, as amended by section 12 of HFIAA (42 U.S.C. 4013(d)), which requires FEMA to offer deductibles up to $10,000 for residential properties. As previously explained, current regulations allow policyholders to request deductible amounts not currently listed in regulation (including the $10,000 deductible option required under HFIAA). Thus, this proposed change would clarify the regulatory text consistent with statutory requirements, but not expand or contract the deductible options offered by the NFIP under current regulations. FEMA also proposes to limit deductible options in accordance with section 1312(b) of the NFIA, as added by section 100210 of BW–12 (42 U.S.C. 4019(b)). Per this provision, FEMA proposes to establish minimum deductibles as follows: (1) $1,500 for policies covering pre-FIRM buildings charged less than full-risk rates with building coverage amounts less than or equal to $100,000; (2) $2,000 for policies covering pre-FIRM buildings charged less than full risk rates with building PO 00000 Frm 00006 Fmt 4701 Sfmt 4702 coverage amounts greater than $100,000; (3) $1,000 for policies covering postFIRM buildings and pre-FIRM buildings charged full risk rates with building coverage amounts equal to or less than $100,000; and (4) $1,250 for policies covering post-FIRM buildings and preFIRM buildings charged full risk rates with building coverage amounts greater than $100,000. Overall, the proposed deductible section would provide readers with a clear understanding of available deductible options, including minimum deductibles required under Section 1312(b) of the NFIA, as added by Section 100210 of BW–12 (42 U.S.C. 4019(b)) and the $10,000 deductible option required by Section 1306(d) of the NFIA, as amended by Section 12 of HFIAA (42 U.S.C. 4013(d)). However, it would not expand or contract the deductibles available to policyholders under current law. FEMA also proposes to rename the section heading of 61.5 to ‘‘Deductibles’’ because section 61.5 would only address deductible amounts. 7. Section 61.6 Maximum Amounts of Coverage Available Current section 61.6 details the maximum amounts of coverage available under the NFIA. See 42 U.S.C. 4013(b). The current table shows varying coverage amounts available, depending on whether a policy is under the Emergency Program or the Regular Program, the use and occupancy of the building, and the building’s location. As provided under the NFIA, for residential occupancies, the table lists coverage limits of $250,000 for buildings and $100,000 for contents. See id. For nonresidential occupancies, the table lists coverage limits of $500,000 for buildings and $500,000 for contents. See id. FEMA proposes to revise the table to more closely conform it to the one currently in the Rating Section of the Flood Insurance Manual, page 1. The Manual more clearly describes the different coverage limits based on occupancy by using terminology that more accurately conveys relevant statutory requirements. In comparison, the current table in the CFR includes terminology and distinctions that are no longer programmatically relevant. i. Title of Table The current table does not have a title. FEMA proposes to entitle the table ‘‘Maximum Amounts of Coverage Available.’’ While the Flood Insurance Manual uses the title ‘‘Amount of insurance available,’’ FEMA proposes to use ‘‘coverage’’ instead of ‘‘insurance’’ to conform to the current section title of E:\FR\FM\16JYP2.SGM 16JYP2 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules sradovich on DSK3GMQ082PROD with PROPOSALS2 section 61.6. There is no substantive difference between the two titles in this context. ii. Vertical Axis of Maximum Coverage Table The current table has one vertical axis that lists the different categories of occupancy applicable to both building and contents coverages. These categories are, in order: ‘‘Single Family Residential,’’ ‘‘Other Residential,’’ ‘‘Nonresidential,’’ and ‘‘Contents.’’ Although the table provides a ‘‘contents’’ heading on this axis, there is no corresponding label for the building coverages. FEMA proposes to add ‘‘Building Coverage’’ to the vertical axis to distinguish between ‘‘building coverage’’ and ‘‘contents coverage.’’ This ‘‘Building Coverage’’ category would encompass ‘‘Single Family Residential,’’ ‘‘Other Residential,’’ and ‘‘Nonresidential.’’ FEMA believes this change would prevent confusion by improving the table’s overall clarity and internal consistency. As noted above, the current table lists the different categories of occupancy applicable to each coverage—‘‘Single Family Residential,’’ ‘‘Other Residential,’’ and ‘‘Nonresidential.’’ The current table further divides the ‘‘Single Family Residential’’ and ‘‘Other Residential’’ categories by whether or not a subject property is located within Hawaii, Alaska, Guam, or the U.S. Virgin Islands. It divides the ‘‘Nonresidential’’ category into either ‘‘Small business’’ or ‘‘Churches and other properties.’’ Similarly, the ‘‘Contents’’ coverage category only distinguishes between ‘‘Residential,’’ Small business,’’ and ‘‘Churches, other properties.’’ The proposed table would make several changes to the categorization to use standardized terminology, improve the overall design and readability of the table, and use occupancy categories that more accurately reflect statutory and program differences in available coverages. FEMA proposes to substitute the current use of ‘‘Single Family Residential’’ with ‘‘Single Family Dwelling’’ to describe a property. FEMA proposes this change because although the two terms (‘‘dwelling’’ and ‘‘residential’’) are interchangeable within the NFIP, ‘‘Single Family Dwelling’’ is the term used most often in the NFIP, as reflected in the Rating section of the Flood Insurance Manual. The Flood Insurance Manual has used this term for many years. See Flood Insurance Manual (May 1, 2005).2 2 https://www.fema.gov/txt/nfip/ manual200505.txt. VerDate Sep<11>2014 18:34 Jul 13, 2018 Jkt 244001 Because ‘‘single family dwelling’’ is not currently defined, FEMA proposes to define ‘‘single family dwelling’’ in section 59.1 to mean ‘‘either (a) a residential single-family building in which the total floor area devoted to non-residential uses is less than 50 percent of the building’s total floor area, or (b) a single-family residential unit within a two to four family building, other residential building, business, or non-residential building, in which commercial uses within the unit are limited to less than 50 percent of the unit’s total floor area.’’ FEMA adopted this definition in the Flood Insurance Manual as early as 1978 to align with common industry practices in non-flood property insurance policies and it is the same definition found in the Definitions Section of the Flood Insurance Manual. This proposed definition reflects current NFIP practice and will not result in any substantive changes to the program. FEMA proposes to add a new occupancy category, ‘‘two to four family building.’’ (The table would list the same maximum coverage amounts as those for a Single Family Dwelling, $35,000 for Emergency Program and $250,000 for the Regular Program.) FEMA proposes to include this category because it would be clearer to provide the public with a complete spectrum of occupancy categories so that the coverage limits for all occupancy types are more transparent. This does not reflect a substantive change to the program. Because ‘‘two to four family building’’ is not currently defined, FEMA proposes to define it in section 59.1 to mean ‘‘a residential building, including an apartment building, containing two to four residential spaces and in which commercial uses are limited to less than 25 percent of the building’s total floor area.’’ FEMA proposes to define ‘‘two to four family building’’ in this manner because it is the same definition used in the Flood Insurance Manual. This definition supports the NFIA’s distinctions between residential and non-residential properties. While FEMA proposes to maintain the ‘‘Other Residential’’ occupancy category that is in the current table, FEMA proposes to revise the category to read, ‘‘Other Residential Building (including Multifamily Building).’’ FEMA proposes to do this to make clear to the reader that ‘‘Other Residential Building’’ encompasses ‘‘Multifamily Buildings,’’ a term used in section 1305 of the NFIA, as added by section 100204 of BW–12 (42 U.S.C 4012(d)). Because neither ‘‘other residential building’’ nor ‘‘multifamily building’’ is defined, FEMA proposes to define these PO 00000 Frm 00007 Fmt 4701 Sfmt 4702 32961 in section 59.1. It proposes to define ‘‘other residential building’’ to mean ‘‘a residential building that is designed for use as a residential space for 5 or more families or a mixed use building in which the total floor area devoted to non-residential uses is less than 25 percent of the total floor area within the building.’’ It proposes to define ‘‘multifamily building’’ to mean ‘‘an Other Residential Building that is not a condominium building.’’ FEMA proposes to define these terms in this manner because the program currently defines them as such; these definitions appear in the Definitions Section of the Flood Insurance Manual. FEMA believes this definition of ‘‘Other Residential Building’’ fairly distinguishes the term from the ‘‘single family dwelling’’ and ‘‘two to four family building’’ occupancy categories, in terms of either residential spaces or square-footage. Defining ‘‘multifamily building’’ this way enables easier reference to condominium-building specific policies that will be discussed below. FEMA proposes to add the ‘‘Condominium Building’’ occupancy category to the table (with maximum coverage amounts of ‘‘$250,000 times the number of units in the building’’ under the Regular Program, and nothing available under the Emergency Program). FEMA proposes this addition to integrate into the table information contained in current section 61.6(b). Section 61.6(b) states that ‘‘[i]n the insuring of a residential condominium building in a regular program community, the maximum limit of building coverage is $250,000 times the number of units in the building (not to exceed the building’s replacement cost).’’ By adding the ‘‘Condominium Building’’ occupancy category to the table, FEMA plans to incorporate all the information in section 61.6(b) except the language in parentheses, ‘‘not to exceed the building’s replacement cost.’’ FEMA proposes to omit this language because Article V of the RCBAP form (44 CFR 61, Appendix A(3)) already provides that FEMA will not pay beyond the replacement cost of the building. While FEMA proposes to maintain the ‘‘Nonresidential’’ occupancy category, FEMA proposes to revise the category to read ‘‘Non-Residential Building.’’ This category would continue to have building limits of $100,000 in the Emergency Program and $500,000 in the Regular Program. In order to provide greater clarity, FEMA proposes to incorporate the existing definition of ‘‘non-residential building’’ into regulation. Current regulations and statute do not define the E:\FR\FM\16JYP2.SGM 16JYP2 sradovich on DSK3GMQ082PROD with PROPOSALS2 32962 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules extent of the term ‘‘nonresidential’’ used in maximum coverage limits found at NFIA 1306(b)(4) (42 U.S.C. 4013(b)(4)) and 44 CFR 61.6(a). However, 42 U.S.C. 4013(b)(3) does make clear that ‘‘nonresidential building’’ includes churches. Accordingly, FEMA has previously defined the term ‘‘nonresidential building’’ as ‘‘a commercial or mixed-use building where the primary use is commercial or nonhabitational.’’ Definitions Section of Flood Insurance Manual, page 7. FEMA proposes to incorporate this definition into regulation because it aligns with the common understanding of the term and encompasses churches and other houses of worship. FEMA proposes to adjust the occupancy categories under the ‘‘Contents Coverage’’ portion of the coverage limits table. Currently, the table at section 61.6(a) divides the contents coverage portion amongst three categories: ‘‘Residential,’’ ‘‘Small business,’’ and ‘‘Churches, other properties.’’ FEMA proposes to remove the distinction between ‘‘Small business’’ and ‘‘Churches, and other properties,’’ and divide contents coverage into just two categories: ‘‘Residential Property’’ and ‘‘NonResidential Property.’’ FEMA proposes this change to reflect the current practice of the program. Although NFIA section 1306(b)(1)(B) (42 U.S.C. 4013(b)(1)) provides a specific method for determining the maximum coverage available to small businesses, FEMA has opted to provide all other nonresidential properties with the same coverage limits available to small businesses. Accordingly, while the statute may still distinguish small businesses from all other properties, current NFIP practice does not. In addition to the adjustments to the categories of occupancy described above, FEMA proposes two changes to the footnotes. In the current table, there are two footnotes. Footnote 1 appends ‘‘Emergency program’’ in ‘‘Emergency Program first layer’’ and provides that ‘‘[o]nly [the] first layer [is] available under the emergency program.’’ Footnote 2 appends the ‘‘Contents’’ label and reads, ‘‘Per unit.’’ FEMA proposes to revise footnote 1 by appending it to the title of the table, ‘‘Maximum Amount of Coverage Available,’’ to describe the table generally. It would read, ‘‘This Table provides the maximum coverage amounts available under the Emergency Program and the Regular Program, and the columns cannot be aggregated to exceed the limits in the Regular Program, which are established by statute. The aggregate limits for building VerDate Sep<11>2014 18:34 Jul 13, 2018 Jkt 244001 coverage are the maximum coverage amounts allowed by statute for each building included in the relevant Occupancy Category.’’ FEMA proposes this revision because, as described in greater detail below in subsection iv., Horizontal Axis of Maximum Coverage Table, the current footnote 1 is associated with the ‘‘layer’’ language FEMA proposes to remove, and the revised footnote’s language more accurately reflects the NFIP’s intent. FEMA proposes to leave footnote 2 in the same place (after ‘‘Contents Coverage’’—the term replacing ‘‘Contents’’ in the current table), but expand it from ‘‘Per unit’’ to instead read, ‘‘The policy limits for contents coverage are not per building. Although a single insured may not have more than one policy covering contents in a building, several insureds may have separate policies of up to the policy limits.’’ FEMA proposes this revision to footnote 2 to more clearly reflect the restriction that the current footnote 2 attempts to convey, which is that the coverage limits apply to each unit of the building. For instance, the tenants of a building with two independent living units may obtain separate contents policies for each unit. Each policy could have limits up to $100,000 and a contents claim for one unit would not affect the contents claim of the other unit. However, the existing NFIP rule—not reflected in the current footnote—is that the owner of the building cannot obtain two separate contents policies themselves. Instead, they could only obtain one contents policy with coverage up to $100,000. FEMA’s proposed language in footnote 2 seeks to more clearly explain NFIP statutory authority that even though the contents coverage limits are per unit rather than per building, an insured cannot have more than one policy in a building. FEMA proposes to append a new footnote—footnote 3—to the ‘‘Residential Property’’ occupancy category under ‘‘Contents Coverage.’’ Footnote 3 would explain that ‘‘[t]he Residential Property occupancy category includes the Single Family Dwelling, Two to Four Family Building, Other Residential Building, and Condominium Building occupancies categories.’’ FEMA proposes appending this new footnote to help improve the overall clarity of the table by linking the building coverage occupancy categories with the contents coverage occupancy categories. PO 00000 Frm 00008 Fmt 4701 Sfmt 4702 iii. Special Provisions for Property in Hawaii, Alaska, Guam, and the U.S. Virgin Islands The current maximum coverage table in section 61.6(a) lists separate increased limits in the Emergency Program within the ‘‘Single Family Residential’’ and ‘‘Other Residential’’ occupancy categories for residential structures located in Hawaii, Alaska, Guam, and the U.S. Virgin Islands. This is because the NFIP provides increased building coverage to these structures pursuant to 42 U.S.C. 4013(b)(1)(A)(iii). FEMA proposes to remove these lines referencing Hawaii, Alaska, Guam, and the U.S. Virgin Islands and place them instead in asterisked footnotes. FEMA does not intend any substantive change in these limits, but believes this design will improve the overall readability of the table. iv. Horizontal Axis of Maximum Coverage Table FEMA also proposes to make several clarifying, nonsubstantive changes to the horizontal axis of the table in section 61.6(a). The current table’s horizontal axis is one label, ‘‘Regular program.’’ Under that label are three sub-labels: ‘‘Emergency program first layer,’’ ‘‘Second layer,’’ and ‘‘Total amount available.’’ As noted above, ‘‘Emergency program first layer’’ has a footnote (footnote 1) that reads, ‘‘Only first layer available under emergency program.’’ FEMA’s proposed replacement table would dispense with the ‘‘layer’’ language and use only two columns, ‘‘Emergency Program’’ and ‘‘Regular Program.’’ Each column would list the applicable coverage limit for each occupancy type under each type of program. (The values under ‘‘Emergency Program’’ and ‘‘Regular Program’’ would be independent of each other and not subject to aggregation). FEMA proposes these simpler horizontal axis labels for two reasons. The first reason is to improve overall clarity, as the ‘‘layer’’ language is unclear and inaccessible to the reader. The second reason is to more accurately reflect the NFIP’s intent. This is because the current table reflects a previous approach for describing the NFIP’s coverage limits. The idea was that the NFIP divided the Regular Program’s coverage limits into two layers. The first layer was available for all NFIP policies, whether under the Emergency Program or the Regular Program. The NFIP only made the second layer of coverage available through the Regular Program. The current table attempts to capture this by placing the ‘‘Emergency program E:\FR\FM\16JYP2.SGM 16JYP2 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules first layer’’ and ‘‘Second layer’’ under the ‘‘Regular program’’ label. However, the table also combines the two layers under the ‘‘Total amount available’’ column, which is also under the ‘‘Regular program’’ label. A person could read this formulation as indicating that the three sub-headings combined provided the maximum amount of coverage under the ‘‘Regular program.’’ This is not FEMA’s intent. The proposed replacement table conveys the same limits described in the current table, but it in a much clearer and concise way. Moreover, it is for this reason that FEMA proposes to revise footnote 1, as described above, to clarify that the maximum coverage amounts listed for the Emergency Program and the Regular Program are not cumulative. Rather, the maximum amounts listed under the Regular Program are the maximum amounts authorized under the NFIA and include the amounts for the Emergency Program. (In other words, the amounts for the Emergency Program are not in addition to the amounts for the Regular Program). sradovich on DSK3GMQ082PROD with PROPOSALS2 v. Paragraph (b): Application of Limits to Additional Coverages As noted above, current paragraph (b) is being removed and its contents are being incorporated into the proposed table. FEMA proposes to add a new paragraph (b) that would state, ‘‘[c]overage and benefits payable under the SFIP pursuant to sections 61.3(b) and 61.3(c) are included in, not in addition to, the coverage limits provided by the Act or stated in paragraph (a) of this section.’’ The purpose of this new paragraph is to explain that the coverage limits described in the table in section 61.6(a) apply to all coverages payable under the SFIP, including mitigation, and debris removal coverage described in proposed section 61.3(b) and ICC coverage described in proposed section 61.3(c). This revision would not make any substantive change to NFIP policy, but rather would provide a clarifying link to the coverage and benefits listed in proposed section 61.3 and how coverage limits relate to those coverages and benefits. Overall, FEMA intends for the proposed changes to section 61.6 to improve the clarity of the Section and ensure that it uses terminology consistent with that currently used by the NFIP. The Agency does not intend for the proposed changes to 61.6 to modify the substance of the NFIP flood insurance policies or the maximum coverage limits available for buildings VerDate Sep<11>2014 18:34 Jul 13, 2018 Jkt 244001 and contents covered under such policies. 8. Section 61.10 Requirements for Issuance or Renewal of Flood Insurance Coverage FEMA proposes to add a new section, 61.10, entitled ‘‘Requirements for Issuance or Renewal of Flood Insurance Coverage.’’ The proposed section would state that FEMA will not issue or renew flood insurance unless FEMA receives: (1) The full amount due (including applicable premiums, surcharges, and fees); and (2) a complete application, including the information necessary to establish a premium rate for the policy, or submission of corrected or additional information necessary to calculate the premium for the renewal of the policy. FEMA proposes this new section because these requirements are already implicitly indicated in current sections 61.5(b) and 61.11(b), but are nowhere explicitly stated. Pursuant to section 61.5(b), ‘‘payment of the full policyholder premium must be made at the time of application.’’ Section 61.11(b) provides that coverage is effective at the time of loan closing, ‘‘provided the written request for the coverage is received by the NFIP and flood insurance policy is applied for and the presentment of payment of premium is made at or prior to the loan closing.’’ Further, the statutory 30-day waiting period begins on the ‘‘date that all obligations for [flood insurance] coverage (including completion of the application and payment of any initial premiums owed) are satisfactorily completed.’’ NFIA 1306(c)(1) (42 U.S.C. 4013(c)(1)). FEMA believes that explicitly stating the requirements for issuance or renewal of a policy will provide policyholders with clearer descriptions of these requirements. 9. Section 61.11 Effective Date and Time of Coverage Under the Standard Flood Insurance Policy—New Business Applications and Endorsements Section 61.11 describes the methods for calculating the effective dates of new policies. In general, under current paragraph (c), the effective date and time of any new policy or added coverage is ‘‘12:01 a.m. (local time) on the 30th calendar day after the application date and the presentment of payment of premium.’’ Current paragraphs (a) and (b) provide two exceptions to this 30-day waiting period. Section 61.11(a) provides for an effective date of 12:01 a.m. on the first calendar day after application and payment for the initial purchase of flood insurance pursuant to a revision or update of floodplain areas or flood risk PO 00000 Frm 00009 Fmt 4701 Sfmt 4702 32963 zones under section 1360(f) of the NFIA, if such purchase took place within 1 year of the notice of such revision or updating under section 1360(h). See also 42 U.S.C. 4013(c)(2). Section 61.11(b) provides that for the initial purchase of flood insurance in connection with the making, increasing, extension, or renewal of a loan, coverage is effective as of the date of the loan closing as long as application and payment were made prior to that. See also 42 U.S.C. 4013(c)(2)(A). FEMA does not propose any changes to these exceptions in current paragraphs (a) and (b), as neither BW–12 nor HFIAA made any changes to these exceptions. FEMA proposes to add a third exception to the 30-day waiting period relating to flooding linked to postwildfire conditions in proposed paragraph (c), and proposes to redesignate current paragraph (c) as paragraph (d). The proposed provision would allow for a next-day effective date where (1) the FEMA Administrator determines that the property was affected by flooding on Federal land as a ‘‘result of, or is exacerbated by, postwildfire conditions,’’ and (2) that coverage was purchased no later than 60 calendar days after the fire containment date of the wildfire relating to the postwildfire conditions described in clause (1). FEMA proposes adding this exception pursuant to BW–12. See NFIA section 1306 (42 U.S.C. 4013), as amended by BW–12 section 100241. FEMA has already implemented this provision, see the General Rules Section of the Flood Insurance Manual, and now proposes to codify the exception into regulation to provide a comprehensive list of effective date exceptions. As stated above, FEMA proposes to redesignate current paragraph (c) as paragraph (d). FEMA also proposes to make two minor changes to current paragraph (c). First, FEMA proposes to add a reference to new paragraph (c) to indicate that in addition to paragraphs (a) and (b), paragraph (c) is one of the exceptions to the 30-day waiting period. Second, FEMA proposes to change ‘‘shall’’ to ‘‘will.’’ FEMA proposes this change to incorporate plainer language. This change would not change the substantive meaning of the provision. Current paragraph (d) allows policyholders to add new coverage or increase the amount of coverage in force during the term of any policy. FEMA proposes to redesignate current paragraph (d) as paragraph (e), and proposes to add the language ‘‘subject to any applicable waiting periods.’’ FEMA proposes adding this language to make it clear that unless the policy change qualifies under one of the exceptions in E:\FR\FM\16JYP2.SGM 16JYP2 sradovich on DSK3GMQ082PROD with PROPOSALS2 32964 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules sections 61.11(a)–(c), such changes would be subject to the 30-day waiting period. This ensures that policyholders cannot suddenly expand their coverage immediately before needing it, for instance before a hurricane strikes. This requirement is already stated in current 61.11(c) (proposed 61.11(d)), but its inclusion in proposed 61.11(e) would add additional clarity to this provision and ensure that 61.11(e) will not be mistakenly read without the limitations imposed by proposed 61.11(d). FEMA also proposes to change ‘‘shall’’ to ‘‘will.’’ FEMA proposes this change to incorporate plainer language. Current paragraph (e) states that with respect to any submission of an application in connection with new business, the payment of the premium by an insured to an agent or the issuance of premium payment by the agent does not constitute payment to the NFIP. It further states that it is important that an application for flood insurance and its premium be mailed to the NFIP promptly to have the effective date of coverage based on the application date plus the waiting period. It states that if the application and the appropriate premium payment are received at the office of the NFIP within ten (10) calendar days from the date of application, the waiting period will be calculated from the date of application. FEMA proposes to revise this paragraph slightly to state that it is important that an application for flood insurance and the ‘‘full amount due’’ be mailed to the NFIP promptly. FEMA proposes to change ‘‘premium’’ to ‘‘full amount due’’ in the sentence following it as well. Making this change would make clear that the policyholder must pay the full amount due at that time (including any surcharges and fees), not just a portion thereof. FEMA proposes to redesignate current paragraph (e) as paragraph (f). Current paragraph (f) describes the method for determining the effective date when a WYO company receives a proper application, but decides to refer the application to the NFIP’s Direct Servicing Agent rather than write the policy itself. FEMA proposes to remove this paragraph because it describes the business model of a WYO company that is no longer participating in the WYO Program. FEMA is not aware of any other WYO company that is using this model, and therefore the provision is unnecessary. Any new companies entering the WYO Program would need to conform their practices to the resulting regulation. Accordingly, FEMA proposes to remove these provisions to avoid confusion. Because VerDate Sep<11>2014 18:34 Jul 13, 2018 Jkt 244001 FEMA proposes to remove this paragraph, FEMA also proposes to remove the last two clauses of the first sentence of current paragraph (e) (proposed paragraph (f)) that addresses the application of applicable waiting periods for this model, as it too would no longer be necessary. Finally, FEMA proposes to make minor revisions to current paragraph (g) to reflect the removal of current paragraph (f). 10. Section 61.13 Standard Flood Insurance Policy Section 61.13 describes the applicable sources of terms and conditions associated with polices issued through the NFIP, including the SFIP forms, endorsements, and applications. FEMA proposes to add new paragraphs (e) and (f), and redesignate current paragraphs (e) and (f) as (g) and (h). FEMA’s proposed new paragraph (e) would explain that flood insurance policies issued through the NFIP are subject to the NFIA, its regulations, and the terms and conditions of the SFIP. As discussed previously, similar language is in current sections 61.4(a) and (b), which FEMA proposes to remove. Moving this language into section 61.13 provides a more logical organization. Further, FEMA proposes to add additional language that any representations not consistent with these sources are void. While implicit in the current regulations, this explicit language would make clear the sources of law applicable to NFIP policies. FEMA’s proposed new paragraph (f) would specify that the property or casualty agent acts on the behalf of the policyholder and never on behalf of the Federal Government, FEMA, or the WYO company. This language is similar to that which FEMA proposes to remove from 61.5(e), but would cover WYO companies as well. FEMA intends that the proposed provision would ensure that policyholders know that the representations of agents involved in the program do not bind the NFIP. Also, while current 61.5(e) uses the word ‘‘insured,’’ FEMA proposes to substitute the word with ‘‘policyholder’’ in proposed section 61.13(f). ‘‘Policyholder’’ refers specifically to the individual or business named in the policy itself, whereas the word ‘‘insured’’ can refer to the policyholder as well as anyone who submits payment on behalf of the policyholder and/or who has the right to a claim payment under the policy (e.g., the mortgagee). ‘‘Policyholder’’ is the more appropriate term in this context because FEMA is only referring to an agent’s relationship with the policyholder specifically, not any other party who may be submitting PO 00000 Frm 00010 Fmt 4701 Sfmt 4702 payment on behalf of the policyholder and/or who has a right to claims payments under the policy. Current paragraph (f) (proposed paragraph (h)), provides that private sector WYO property insurance companies may issue SFIPs. FEMA proposes to revise proposed paragraph (h) to provide that WYO companies will issue NFIP policies in their own name, rather than the current language providing that WYO companies may issue NFIP policies in their own name. This change would conform to the current FEMA–WYO company relationship described in Article I of Appendix A of 44 CFR part 62. Further, FEMA proposes to add language at the end of the paragraph stating that the risk of loss is borne by the NFIP, rather than the WYO company. This language would further clarify the existing relationship between FEMA and WYO companies. Overall, the proposed changes to 61.13 would provide greater clarity to the public regarding the existing relationship between FEMA, policyholders, and WYO companies. C. Appendix A(1) to Part 61: Standard Flood Insurance Policy Dwelling Form Appendix A(1) to part 61 contains the Dwelling Form of the SFIP. This form, as well as the other two SFIP policy forms (the General Property Form and the RCBAP), defines the relationship between FEMA or the WYO company, as the insurers, and the insured. Throughout Appendix A(1), FEMA proposes to replace the word ‘‘covered’’ with the word ‘‘insured’’ because ‘‘covered’’ is a generic and undefined term that does not conform to common industry or Agency usage. The use of ‘‘insured’’ better conveys the application of the SFIP to property. 1. Prefatory Paragraph and Article I ‘‘Agreement’’ The prefatory paragraph states that the policy insures (1) a noncondominium residential building designed for principal use as a dwelling place of one to four families, or (2) a single-family dwelling unit in a condominium building. FEMA proposes to revise (1) to read ‘‘a one to four family residential building, not under a condominium form of ownership’’ because this language is clearer and more consistent with the wording used in the Definitions section for condominium buildings. FEMA proposes to add (3) ‘‘personal property in a building’’ to clarify that personal property is also insured under this policy. FEMA has always insured personal property under this policy, but E:\FR\FM\16JYP2.SGM 16JYP2 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules sradovich on DSK3GMQ082PROD with PROPOSALS2 proposes to make this fact more explicit in this initial coverage statement. In the current policy, Article I ‘‘Agreement’’ begins after the prefatory paragraph. It states in the first paragraph that FEMA provides flood insurance under the terms of the NFIA, its amendments, and 44 CFR. It states in the second paragraph that FEMA will pay for direct physical loss by or from flood to the insured property if the insured has paid the correct premium, complied with all terms and conditions of the policy, and furnished accurate information and statements. It states in the last paragraph that FEMA has the right to review the information provided by the insured at any time and to revise the policy based on this review. FEMA proposes to begin Article I before the prefatory paragraph, and to relabel the prefatory paragraph as Section A, current Article I’s first paragraph as Section B, the second paragraph as Section C, and the third paragraph as Section D. This is to clarify that the prefatory paragraph, which is actually an initial coverage statement, is part of the policy and not just an introduction to the policy. FEMA also proposes to modify proposed Section C (currently the second paragraph in Article I) and add three new sections to Article I (proposed sections E, F, and G) to clarify existing rules and limitations under the SFIP. i. Proposed Section C As previously described, FEMA proposes to renumber the second paragraph in Article I as Section C of Article I. This provision currently states that FEMA will pay for direct physical loss by or from flood to the insured property if (1) the insured has paid the correct premium; (2) complied with all terms and conditions of the policy; (3) and furnished accurate information and statements. FEMA proposes to modify the first prong of this statement by stating that coverage is contigent on the policyholder paying the ‘‘full amount due (including applicable premiums, surcharges, and fees)’’ instead of ‘‘the correct premium.’’ FEMA proposes this change to make clear that policyholders must pay any applicable surcharges, such as the one required under 42 U.S.C 4015a, in addition to applicable premiums. ii. Proposed Section E Proposed Section E would state that the policy insures only one building. If the insured owns more than one building, coverage will apply to the single building specifically described in the Flood Insurance Application. While the SFIP’s limitation on coverage to one VerDate Sep<11>2014 18:34 Jul 13, 2018 Jkt 244001 dwelling is already implied by current Article III.A, FEMA proposes to clarify this limitation here to allow policyholders to better understand the extent of coverage, particularly where an insured may own more than one building on the same land. iii. Proposed Section F Proposed Section F would state that multiple policies with building coverage cannot be issued to insure a single building to one insured or to different insureds, even if separate policies were issued through different NFIP insurers. It would also state that payment for damages may only be made under a single policy for building damages under Coverage A—Building Property. This proposed section would incorporate current Article VII.U’s general language stating that there may not be more than one NFIP policy on a property. Proposed section F would be subject to the exception in proposed Section G involving condominiums, which provides that a condominium unit may be covered by an RCBAP policy and a dwelling policy. FEMA proposes this clarification because there have been several instances where multiple persons have taken out multiple, overlapping building policies. This in turn may leave policyholders to believe they have more coverage than is allowed by the NFIA. This is most common in instances where both a building owner and a tenant obtain building policies. As described in WYO Bulletin W–15001 (Jan. 13, 2015),3 FEMA has taken steps to identify such instances and inform policyholders as needed. FEMA believes that the language in proposed Section F would help avoid such situations. iv. Proposed Section G FEMA proposes to add Section G, which would define the relationship between a Dwelling Form policy and an RCBAP policy that insures the same condominium unit. Section G would state that a Dwelling Form policy with building coverage may be issued to a unit owner in a condominium building that is also insured under an RCBAP. However, no more than $250,000 may be paid in combined benefits for a single unit under the Dwelling Form policy and the RCBAP. This would explicitly state FEMA’s application of the statutory maximum coverage limits for one to four family residential buildings, found at 42 U.S.C. 4013(b)(2), as applied to condominium units. 3 Available at https://bsa.nfipstat.fema.gov/ wyobull/2015/w-15001.pdf. PO 00000 Frm 00011 Fmt 4701 Sfmt 4702 32965 FEMA proposes this section to clarify instances where a condominium unit is covered by both a Dwelling Form policy and an RCBAP policy, and to codify its current practice (pursuant to BW–12) of waiving the requirement found in current regulation to limit payments to affected policyholders. Current Article VII (‘‘Coinsurance’’) of the RCBAP policy (Appendix A(3) to Part 61) restricts payments for damage to condominium associations that insure less than 80 percent of the full replacement cost of the RCBAP insured condominium building, or less than the maximum amount of insurance available. In turn, current Article III.C.3.b.4 of the Dwelling Form policy precludes payment for a loss assessment if the reason for the shortage is application of the RCBAP’s coinsurance penalty provision. Current Article VII.C.2 of the Dwelling Form policy provides that where a condominium unit is covered by both the Dwelling Form policy and an RCBAP (or other flood insurance coverage purchased by the condominium association), the Dwelling Form policy will be in excess over the RCBAP (or other insurance). Since 2007, FEMA has issued individual waivers of these provisions’ requirements to limit payments to affected policyholders. Section 100214 of BW–12 (42 U.S.C. 4019(c)) validated this policy by prohibiting FEMA from limiting payments pursuant to Article III.C.3.b.4. FEMA implemented this prohibition through a general waiver. See WYO Bulletin W–16024 (April 7, 2016).4 Accordingly, FEMA now seeks to codify this change in the SFIP by adding Section G. Proposed Section G would also state that FEMA will only pay for damage once, and items of damage paid for under an RCBAP cannot also be claimed under the Dwelling Form policy. FEMA proposes to add this language to clarify the existing rule under current Article VII.C.2 that if a single property is insured by both policies forms, the Dwelling Form will only pay what is not covered under the RCBAP policy. 2. Article II Definitions i. General Changes FEMA proposes to remove the last sentence of the second paragraph in Article II.A which states, ‘‘The precise definitions are intended to protect you.’’ FEMA proposes removal of this sentence because it is an incorrect statement of the purpose of providing the definitions. The definitions are to provide clarity to the language of the 4 Available at https://bsa.nfipstat.fema.gov/ wyobull/2016/w-16024.pdf. E:\FR\FM\16JYP2.SGM 16JYP2 32966 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules Dwelling Form policy so that both FEMA and the policyholder will know the terms and conditions under which payments will be made under the policy. FEMA also proposes to move the definition of ‘‘flood,’’ which is currently in the third paragraph of Article II.A, to a separate Section B. Accordingly, FEMA also proposes to redesignate current Section B as Section C. ii. Proposed Removal of Definition FEMA proposes to remove one definition, ‘‘expense constant,’’ from the Dwelling Form. The term describes a flat charge assessed on all policies to defray expenses to the Federal Government related to flood insurance. FEMA proposes to remove this definition because FEMA no longer charges an expense constant and FEMA does not use this term in the Dwelling Form. sradovich on DSK3GMQ082PROD with PROPOSALS2 iii. Proposed Addition of Definitions FEMA proposes to add a definition of ‘‘condominium building’’ to mean a type of building for which the form of ownership is one in which each unit owner has an undivided interest in common elements of the building. FEMA intends for this addition to conform with the addition of the definition to 44 CFR 59.1. FEMA proposes to add this definition because it is used throughout the Dwelling Form. FEMA also proposes to define the term ‘‘deductible’’ as ‘‘the fixed amount of an insured loss that is your responsibility and that is incurred by you before any amounts are paid for the insured loss under this policy.’’ This definition aligns with the definition of ‘‘deductible’’ currently proposed for 44 CFR 59.1. FEMA proposes to include this definition in the SFIP to support related provisions in Article VI. iv. Proposed Changes to Existing Definitions FEMA proposes to modify several definitions currently in the Dwelling Form. First, FEMA proposes to revise the definition of ‘‘application’’ by striking the last sentence. FEMA proposes this change because the last sentence is not a definition, but rather a separate requirement. Further, the sentence does not align with proposed Article I.C, which states that policyholders must submit ‘‘the full amount due’’ which includes applicable premiums, surcharges, and fees. FEMA proposes to revise the definition of the term ‘‘basement.’’ Currently, ‘‘basement’’ is defined as ‘‘any area of the building, including any VerDate Sep<11>2014 18:34 Jul 13, 2018 Jkt 244001 sunken room or sunken portion of a room, having its floor below ground level (subgrade) on all sides.’’ FEMA proposes to replace the word ‘‘the’’ before the word ‘‘building’’ with the word ‘‘a’’ to correct a grammar error in the current Dwelling Form SFIP. FEMA also proposes to remove the word ‘‘subgrade’’ because, due to the many and varying definitions of this word, its use is causing confusion. Removal of the term ‘‘subgrade’’ is not intended to have any substantive effect. FEMA proposes to revise the term ‘‘condominium.’’ Currently, ‘‘condominium’’ is defined as ‘‘that form of ownership of real property in which each unit owner has an undivided interest in common elements.’’ FEMA proposes to replace the term ‘‘real property’’ with the phrase ‘‘one or more buildings’’ because FEMA believes that this nonsubstantive change uses plainer language that the public can more easily understand. Similarly, FEMA proposes to adjust the definition of ‘‘condominium association.’’ Currently, this term is defined as the entity made up of the unit owners responsible for the maintenance and operation of (a) common elements owned in undivided shares by unit owners; and (b) other real property in which the unit owners have use rights; where membership in the entity is a required condition of unit ownership. FEMA proposes to replace the term ‘‘real property’’ with ‘‘buildings’’ because FEMA believes that this change uses plainer language that the public can more easily understand while maintaining the substantive meaning of the definition. FEMA proposes to revise the definition of ‘‘dwelling.’’ Currently, ‘‘dwelling’’ is defined as ‘‘a building designed for use as a residence for no more than four families or a singlefamily unit in a building under a condominium form of ownership.’’ FEMA proposes to replace the phrase ‘‘building under a condominium form of ownership’’ with ‘‘condominium building’’ to integrate the defined term ‘‘condominium building’’ while maintaining the substance of the current definition. FEMA proposes to revise the definition of ‘‘emergency program.’’ Currently, ‘‘emergency program’’ is defined as the initial phase of a community’s participation in the National Flood Insurance Program. The definition also states that during this phase, only limited amounts of insurance are available under the NFIA. FEMA proposes to retain this definition but add at the end the phrase ‘‘and the regulations prescribed pursuant to the PO 00000 Frm 00012 Fmt 4701 Sfmt 4702 Act.’’ FEMA proposes to add this phrase to align the SFIP definition of this term with its definition at 44 CFR 59.1. FEMA proposes minor revisions to the definition of ‘‘improvements.’’ Currently, this term is defined as ‘‘fixtures, alterations, installations, or additions comprising a part of the insured dwelling or the apartment in which you reside.’’ FEMA proposes to remove the word ‘‘insured’’ because it is not necessary. It proposes to remove the word ‘‘the’’ from before the word ‘‘apartment’’ for readability. FEMA proposes to move the definition of ‘‘principal residence’’ from Art. VII.V.1.a.1 (‘‘Loss Settlement’’) of the Dwelling Form to the Definitions Section (Article II). Currently, under Article VII.V.1 a principal residence means the single-family dwelling where the policyholder or the policyholder’s spouse has lived for at least 80 percent of (a) the 365 days immediately preceding the time of loss; or (b) the period of ownership, if either the policyholder or policyholder’s spouse owned the dwelling for less than 365 days immediately preceding the time of loss. FEMA proposes to move the substantively unchanged definition to the Definitions Section of Article II because that is the more appropriate place to define terms used in the Dwelling Form. FEMA proposes to revise the definition for ‘‘probation premium’’ by replacing the defined term ‘‘probation premium’’ with the term ‘‘probation surcharge.’’ ‘‘Probation surcharge’’ would retain the same definition as the current definition for ‘‘probation premium,’’ which is a flat charge the policyholder must pay on each new or renewal policy issued covering property in a community the NFIP has placed on probation under the provisions of 44 CFR 59.24. FEMA proposes this revision because there is no such thing as a ‘‘probation premium;’’ this incorrect term was intended to reference the probation surcharge that is applied to policies in NFIP communities that have been placed on suspension from the NFIP. FEMA proposes to amend the definition of ‘‘regular program.’’ Currently, ‘‘regular program’’ is defined as the final phase of a community’s participation in the National Flood Insurance Program. In this phase, a Flood Insurance Rate Map is in effect and full limits of coverage are available under the NFIA. FEMA proposes to add the phrase ‘‘and the regulations prescribed pursuant to the Act’’ at the end to clarify, without changing the substance of the definition, that the coverage amounts for NFIP policies are E:\FR\FM\16JYP2.SGM 16JYP2 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules subject to the rules established in both statute and regulation, not just statute. FEMA also proposes to modify the definition of ‘‘Special Flood Hazard Area’’ to include the appropriate acronym, ‘‘SFHA.’’ FEMA proposes to revise the term ‘‘unit.’’ Currently, ‘‘unit’’ is defined as ‘‘a single-family unit you own in a condominium building.’’ FEMA proposes to replace the word ‘‘unit’’ with ‘‘residential space’’ so that the word ‘‘unit’’ would not be used to define itself. 3. Article III Property Covered Article III of the Dwelling Form (‘‘Property Covered’’) is divided into four sections, each addressing different types of property: Section A, ‘‘Coverage A—Building Property,’’ Section B, ‘‘Coverage B—Personal Property,’’ Section C, ‘‘Coverage C—Other Coverages,’’ and Section D, ‘‘Coverage D—Increased Cost of Compliance.’’ sradovich on DSK3GMQ082PROD with PROPOSALS2 i. Coverage A—Building Property Article III.A.5.b.2 describes the zones above which the lowest floor of a nonwalled or roofed building under construction, alteration, or repair must be to be covered. FEMA proposes to replace ‘‘levels are’’ with ‘‘level is’’ to improve readability. FEMA also proposes to replace ‘‘and’’ with ‘‘or,’’ also to improve readability. No substantive changes are intended. In Article III.A.6, FEMA proposes to replace the reference to ‘‘II.B.6.b and II.B.6.c’’ with a reference to ‘‘II.C.6’’ to reflect the renumbering proposed for Article II. Article III.A.7 provides a list of items of property covered under Coverage A only. FEMA proposes to replace ‘‘covered’’ with ‘‘insured’’ because ‘‘covered’’ is a generic and undefined term that does not conform to common industry or Agency usage. The use of ‘‘insured’’ better conveys the application of the SFIP to property. Article III.A.8 limits coverage on items of property in a building enclosure below the lowest elevated floor of an elevated post-FIRM building in specified zones. FEMA proposes to remove the phrase ‘‘in a building enclosure’’ to clarify that the section only insures items of property that are below the lowest elevated floor, not the building enclosure itself. This has always been the case, but removing this language would make this clearer. Removing the language would also clarify that FEMA insures any property identified in Article III.A.8 that is below the lowest elevated floor within the footprint of the building, regardless of VerDate Sep<11>2014 18:34 Jul 13, 2018 Jkt 244001 whether such property is located in a building enclosure. ii. Coverage B—Personal Property Article III.B.1 describes the conditions under which the policy covers personal property inside a building. Current Article III.B.1.b contains two unnumbered paragraphs. FEMA proposes to number these two unnumbered paragraphs as ‘‘1.’’ and ‘‘2.’’ respectively, and to renumber subsequent paragraphs accordingly, to improve readability and organization. Article III.B.3 (renumbered B.5.in the proposed text) limits coverage for items of property in a building enclosure below the lowest elevated floor of an elevated post-FIRM building located in specified zones or a basement. FEMA proposes to remove the phrase ‘‘in a building enclosure’’ to clarify that the section only insures items of property that are below the lowest elevated floor, not the building enclosure itself. While FEMA has always interpreted this provision this way, removing this language would make this clearer to policyholders. In addition, this proposed change would also clarify that FEMA insures certain property identified in Article III.B.3 (proposed B.5) that is below the lowest elevated floor within the footprint of the building, regardless of whether such property is located in a building enclosure. iii. Coverage C—Other Coverages Article III.C describes other coverages under the SFIP, including for debris removal, property relocation, and condominium loss assessments. In III.C.2.b, FEMA proposes to number the currently unnumbered paragraphs immedietly following III.C.2.b.2 as III.C.2.b.3 and III.C.2.b.4, respectively, to improve organization and readability. Article III.C.3.a describes the terms of coverage for condominium loss assessments. FEMA proposes to revise the first sentence of Article III.C.3.a to add the phrase ‘‘Subject to III.C.3.b below’’ to the beginning of the sentence to clarify that the general statement in III.C.3.a that FEMA would pay for condominium loss assessments would be limited by the restrictions established in III.C.3.b. FEMA also proposes to add ‘‘condominium’’ before ‘‘unit’’ in that sentence, for the sake of clarity. The second sentence in Article III.C.3.a states that the assessment must be made as a result of direct physical loss by or from flood during the policy term, to the building’s common elements. FEMA proposes to replace ‘‘as a result of’’ with ‘‘because of’’ and ‘‘to the building’s common elements’’ with ‘‘to the unit or PO 00000 Frm 00013 Fmt 4701 Sfmt 4702 32967 to the common elements of the NFIP insured condominium building in which this unit is located.’’ FEMA proposes to revise this language for greater clarity and consistency with the ‘‘condominium building’’ definition added in Article II. Article III.C.3.b describes scenarios where FEMA will not pay any loss assessment charged against the policyholder. Article III.C.3.b.1 provides that FEMA will not pay any loss assessment charged against the policyholder ‘‘and the condominium association by any governmental body.’’ FEMA proposes to relocate the phrase ‘‘charged against you’’ from III.C.3.b to III.C.3.b.1 to improve the sentence structure of the provision. Article III.C.3.b.4 states that the NFIP would not insure any loss assessments on units in a condominium building that were underinsured as described in this paragraph. FEMA proposes to remove this paragraph, as these restrictions were superseded by section 100214 of BW–12, which prohibits FEMA from denying coverage for a condominium unit under a Dwelling Form policy based solely, or in part, on the flood insurance coverage of the condominium association or others on the overall property insured by the condominium association. Accordingly, to implement this requirement, FEMA proposes to remove Article III.C.3.b.4 as it prevents unit owners from recovering under the Dwelling Form policy for loss assessments charged against them because the condominium building in which the unit is located is underinsured. FEMA has waived this provision in current practice for affected individual policies. The proposed change would conform the language of the Dwelling Form to FEMA’s current practice and allow FEMA to discontinue use of the individual waiver process. Current Article III.C.3.b.5 provides that FEMA will not pay for loss assessments to the extent that payment under this policy for a condominium loss, in combination with payments under any other NFIP policies for the same building loss, exceeds the maximum amount of insurance permitted under the NFIA for that kind of building. Similarly, current section III.C.3.b.6 provides that FEMA will not pay for loss assessments to the extent that payment under this policy, in combination with any recovery available to the tenant in common under any NFIP condominium association policies for the same building loss, exceeds the amount of insurance permitted under the NFIA for a single family dwelling. FEMA proposes to renumber these subsections as (4) and E:\FR\FM\16JYP2.SGM 16JYP2 32968 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules sradovich on DSK3GMQ082PROD with PROPOSALS2 (5) respectively due to FEMA’s proposed removal of current subsection (4). In addition, FEMA proposes to revise current subsection (5) (proposed subsection (4)) to state ‘‘[i]n which the total payment combined under all policies exceeds the maximum amount of coverage available under the Act for a single unit in a condominium building where the unit is insured under both a Dwelling Policy and a RCBAP.’’ FEMA also proposes to revise current subsection (6) (proposed subsection (5)) to state ‘‘[o]n any item of damage that has already been paid under a RCBAP where a single unit in a condominium building is insured by both a Dwelling Policy and a RCBAP.’’ FEMA proposes this revised language to streamline these provisions and to make the same points more clearly. The last sentence of current III.C.3.b.6 states that ‘‘[l]oss assessment coverage does not increase the Coverage A Limit of Liability.’’ FEMA proposes to renumber this sentence as III.C.3.c. FEMA also proposes to revise the language so that it reads ‘‘Condominium Loss Assessment coverage does not increase the Coverage A Limit of Liability and is subject to the maximum coverage limits available for a single family dwelling under the Act, payable between all policies issued and covering the unit, under the Act.’’ This would clarify that the combined payments under the Dwelling Form and the RCBAP, or any other payment issued under the Dwelling Form to a unit owner where there is also an RCBAP that covers the property, are subject to the $250,000 coverage limit on the combined payments under both policies. Congress only authorized a maximum coverage of $250,000 on a single dwelling, and both the RCBAP and Dwelling Forms rely upon that single authority for establishing the available policy limits. As such, the unit owner and the condominium association each filing separate claims under their separate policies cannot circumvent the limit imposed by Congress. FEMA proposes to add this language to emphasize the point that even though a condominium unit may be insured by both a Dwelling Form policy and an RCBAP, this fact does not alter the statutory coverage limits. iv. Coverage D—Increased Cost of Compliance Article III.D (‘‘Increased Cost of Compliance’’) describes the terms of coverage for costs associated with complying with State or local floodplain management laws or ordinances affecting repair or reconstruction of a structure suffering flood damage. FEMA VerDate Sep<11>2014 18:34 Jul 13, 2018 Jkt 244001 proposes to revise the language in this section so that the word ‘‘structure’’ is replaced by the word ‘‘building’’ throughout the section. The reason for this change is the NFIP insures SFIP defined ‘‘buildings,’’ not structures. FEMA also proposes to replace the phrase ‘‘this coverage’’ with the phrase ‘‘Coverage D in III.D.3.d and III.D.3.e’’ to clarify that the coverage referred to in these provisions is Coverage D. 4. Article V Exclusions Article V of the Dwelling Form (‘‘Exclusions’’) provides the terms and conditions of the SFIP relating to what losses are excluded from coverage under the SFIP. Article V.B excludes coverage for losses resulting from a flood that began prior to the effective date of a policy; this is referred to as the ‘‘flood in progress’’ exclusion. If the SFIP covered losses for policies obtained after a flood became imminent, people could avoid paying for insurance during the times they did not need to make a claim. FEMA would then have to increase rates to compensate for the lost premiums and higher losses. This would in turn drive more people out of the program, which would require higher rates. Currently, the exclusion specifies that FEMA will not pay for a loss that was ‘‘directly or indirectly caused by a flood that is already in progress’’ prior to the effective date of the policy. FEMA is proposing changes to Article V because the current language does not describe how a policyholder could determine when a flood was in progress. This ambiguous provision has historically caused significant confusion among the public. As a result, FEMA made several attempts to clarify the provision and apply it to the specific attributes of certain floods. See WYO Bulletin W– 11030 (May 17, 2011); WYO Bulletin W–11034 (June 6, 2011); WYO Bulletin W–11045 (June 30, 2011); Definitions Section of the Flood Insurance Manual, page 4. While these clarifications provided workable guidance on the issue, BW–12 directed the FEMA Administrator to review ‘‘the processes and procedures for determining that a flood event has commenced or is in progress for purposes of flood insurance coverage made available under the National Flood Insurance Program.’’ BW–12 section 10227(a)(1)(A) (42 U.S.C. 4011 note). Accordingly, FEMA now proposes to modify the Flood in Progress Exclusion to maintain its practical impact, but to provide clearer terms for its application. FEMA proposes to revise the language of Article V.B to allow for two separate exclusions for floods in progress, PO 00000 Frm 00014 Fmt 4701 Sfmt 4702 depending on how the policyholder applied for the policy. If the policy became effective at the time of a loan closing, as provided by 44 CFR 61.11(b), then FEMA would not pay for losses caused by a flood that is a continuation of a flood that existed prior to coverage becoming effective. In all other circumstances, FEMA would not pay for a loss caused by a flood that is a continuation of a flood that existed on or before the day the policyholder submitted the application for coverage and paid the full amount due. This exclusion would apply to new policies subject to the 30-day waiting period, as well as those for which the overnight waiting period is applied, as provided by 42 U.S.C. 4013(c)(2)(b). FEMA believes the proposed formulation provides a more thorough understanding of what constitutes a flood in progress, providing greater clarity to policyholders, without altering the actual effect of the provision because the proposed language captures the principles underlying the previous agency guidance. FEMA also believes the proposed language would successfully prevent a policyholder from waiting until flooding becomes imminent to apply for coverage, as well as prevent a person facing imminent flooding from obtaining a small mortgage to avoid the otherwise 30-day effective date waiting period required by 42 U.S.C. 4013(c)(1). In article V.C.6, regarding gradual erosion, FEMA proposes to replace ‘‘insured’’ with ‘‘covered’’ because ‘‘covered’’ is a generic and undefined term that does not conform to common industry or Agency usage. The use of ‘‘insured’’ better conveys the application of the SFIP to property. Also in article V.C.6, FEMA proposes to update the reference to the definition of flood to articles II.B.1.c and II.B.2. 5. Article VII General Conditions Article VII (‘‘General Conditions’’) provides the general terms and conditions of the Dwelling Form SFIP, such as provisions related to other insurance; amendments, waivers, and assignments; policy reformation; policy renewal; requirements if there is a loss; and loss payments. i. Section B—Concealment or Fraud and Policy Avoidance Article VII.B (‘‘Concealment or Fraud and Policy Avoidance’’) provides the general terms and conditions of the Dwelling Form SFIP related to concealment or fraud and policy avoidance. FEMA proposes to move Article VII.B to a new Article VIII.A (‘‘Policy Nullification for Fraud, E:\FR\FM\16JYP2.SGM 16JYP2 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules sradovich on DSK3GMQ082PROD with PROPOSALS2 Misrepresentation, or Making False Statements’’) and make some revisions, which are explained in the discussion of new Article VIII below. ii. Section C—Other Insurance Article VII.C (‘‘Other Insurance’’) discusses terms related to instances where property is covered by more than one insurance policy with flood coverage. FEMA proposes to redesignate Article VII.C as Article VII.B due to FEMA’s proposed removal of VII.B. Current Article VII.C.2 (proposed VII.B.2) states that where there is other insurance in the name of the policyholder’s condominium association covering the same property covered by this policy, then this policy will be in excess over the other insurance. FEMA proposes to replace the word ‘‘covered’’ with ‘‘insured.’’ FEMA proposes to replace the word ‘‘covered’’ with the word ‘‘insured’’ because ‘‘covered’’ is a generic and undefined term that does not conform to common industry or Agency usage. The use of ‘‘insured’’ better conveys the application of the SFIP to property. FEMA also proposes to add the phrase ‘‘issued under the Act’’ directly following the phrase ‘‘other insurance’’ to clarify that the language referring to other insurance is referring to other NFIP insurance, not other non-NFIP insurance. FEMA proposes to add language to Article VII.C.2 (proposed VII.B.2) to provide that the section does not apply where a condominium loss assessment to the unit owner results from a loss sustained by the condominium association that was not reimbursed under an RCBAP because the building was not insured for an amount equal to the lesser of: (a) 80 percent or more of its full replacement cost; or (b) the maximum amount of insurance permitted under the NFIA. FEMA proposes to add this exception to codify the existing implemention of section 100214 of BW–12. Under the terms and conditions of the Dwelling Form policy and the RCBAP, the RCBAP is primary, and the Dwelling Form policy acts as an excess flood insurance policy. In order to allow the Dwelling Form to respond as if the RCBAP coverage has in fact been exhausted, FEMA must revise Article VII.C.2 (proposed VII.B.2) so that it does not apply in those situations in which the coinsurance provision of the RCBAP has been triggered. FEMA also proposes to add language to proposed Article VII.B.2 clarifying that even when a condominium unit is insured by two policies, the maximum statutory coverage limit available under the NFIA of $250,000 still applies. VerDate Sep<11>2014 18:34 Jul 13, 2018 Jkt 244001 FEMA proposes to add this language to emphasize that the fact that a condominium unit is insured by both a Dwelling Form policy and an RCBAP does not alter or permit payments to exceed the statutory coverage limits. iii. Section D—Amendments, Waivers, Assignment Article VII.D (’’ Amendments, Waivers, Assignment’’) provides that any amendments or waivers to the policy require express written consent of the Federal Insurance Administrator. It allows a policyholder to assign this policy when transferring title of his or her property except when the policy (1) covers only personal property, or (2) covers a structure during the course of construction. FEMA proposes to redesignate Article VII.D as Article VII.C due to the proposed removal of VII.B and subsequent renumbering discussed above. FEMA proposes to replace the phrase ‘‘structure during the course of construction’’ with ‘‘building under construction’’ both to correspond with the replacement of the word ‘‘structure’’ with ‘‘building’’ throughout Article V of the policy, and also because ‘‘building under construction’’ is the proper term of art, as used in Article III.A.5.a and Article VI.A. Also, FEMA proposes to replace ‘‘covers’’ with ‘‘insures’’ because ‘‘covered’’ is a generic and undefined term that does not conform to common industry or Agency usage. The use of ‘‘insured’’ better conveys the application of the SFIP to property. iv. Section E—Cancellation of the Policy by You Article VII.E (‘‘Cancellation of the Policy by You’’) authorizes a policyholder to cancel the policy in accordance with the applicable rules and regulations of the NFIP and provides that a policyholder who cancels may be entitled to a full or partial refund of premium. FEMA proposes to move Article VII.E to a new Article VIII discussing policy nullifications, cancellations, and nonrenewals. The new Article VIII is discussed below. v. Section F—Non-Renewal of the Policy by Us Article VII.F (‘‘Non-Renewal of the Policy by Us’’) states that a policy will not be renewed if the community where the covered property is located stops participating in the NFIP, or the building has been declared ineligible under section 1316 of the NFIA. FEMA proposes to move Article VII.F to a new Article VIII discussing policy nullifications, cancellations, and non- PO 00000 Frm 00015 Fmt 4701 Sfmt 4702 32969 renewals. The new Article VIII is discussed below. vi. Section G—Reduction and Reformation of Coverage Article VII.G (‘‘Reduction and Reformation of Coverage’’) describes the terms and conditions of the policy related to situations in which it is discovered that the premium paid on an annual policy, or the information used to rate the policy, is insufficient. Specifically, this section details how coverage under the policy would be reformed in such situations and the policyholder’s options upon reformation. FEMA proposes to redesignate Article VII.G as Article VII.D to conform to the relocation and redesignation of preceding sections described above. FEMA proposes to change the title of the section from ‘‘Reduction and Reformation of Coverage’’ to ‘‘Insufficient Premium or Rating Information.’’ FEMA proposes this change to the title because it is clearer than the current section title. Additionally, FEMA proposes to add the term ‘‘insufficient’’ before ‘‘rating information’’ to make it clear that this provision applies to both cases: Where the information needed to rate the policy is incomplete and where it is incorrect. With respect to the premium, the term ‘‘insufficient’’ applies to situations in which the premium paid is incorrect. With respect to the rating information, the term ‘‘insufficient’’ applies to situations in which the rating information provided for determining the premium rate is incomplete, such as when an elevation certificate is not provided or is incorrect. FEMA proposes to make corresponding language changes throughout this section to ensure that the provisions of this section are applied in both of these situations. FEMA proposes to add a new Article VII.D.1, entitled ‘‘Applicability.’’ The proposed Article would state that the provisions in proposed Article VII.D, Insufficient Premium or Rating Information, apply to all instances where the premium paid on a policy is insufficient or where the rating information is insufficient, such as where an Elevation Certificate is not provided. This change reflects FEMA’s current policies and would not substativently impact the NFIP. Current Article VII.G.1 provides that if the premium received was not enough to buy the kind and amount of coverage requested, FEMA will provide only the amount of coverage that can be purchased for the premium payment received. FEMA proposes to redesignate E:\FR\FM\16JYP2.SGM 16JYP2 sradovich on DSK3GMQ082PROD with PROPOSALS2 32970 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules this section as Article VII.D.2 to correspond to the redesignations described above, and add a title, ‘‘Reforming the Policy with Reduced Coverage,’’ for improved clarity. FEMA proposes to add the phrase ‘‘Except as otherwise provided in VII.D.1’’ at the beginning of the paragraph. FEMA proposes this change to correspond to the exception established in the new proposed language at VII.D.1. FEMA also proposes to replace the phrase ‘‘not enough’’ with the phrase ‘‘not sufficient,’’ the word ‘‘amount’’ to ‘‘amounts,’’ and replace ‘‘only the amount of coverage’’ with ‘‘only the kinds and amounts of coverage.’’ FEMA believes that these non-substative changes would improve readability. FEMA proposes to add three paragraphs to this section. Proposed paragraph D.2.a clarifies that, for determining whether the premium is sufficient to buy the kinds and amounts of coverage requested, FEMA will first deduct all applicable fees and surcharges. Proposed paragraph D.2.b clarifies that if the amount paid, after deducting the costs of all applicable fees and surcharges, is not sufficient to buy any amount of coverage, the Program will refund the policyholder’s payment and there will be no coverage under the policy. FEMA proposes to add these clarifications because they are not explicitly stated in the current regulations, although FEMA has previously interpreted regulations to require this. Thus this is not a substantive change but merely reflects existing practice. Proposed paragraph D.2.c states that ‘‘[c]overage limits on the reformed policy will be based upon the amount of premium submitted per type of coverage, but will not exceed the amount originally requested.’’ FEMA proposes this paragraph to codify its current practice. When FEMA calculates the total policy cost, it knows how much of the total cost will be allocated to premium, surcharges, fees, etc. Under FEMA’s current practice, it tries to preserve the ratio of building coverage to contents coverage, regardless of how much premium the policyholder intended to allocate to each type of coverage. For example, if a policyholder originally requested $200,000 in building coverage and $100,000 in contents, FEMA would try to preserve the 2 to 1 ratio when reducing the coverage through reformation. The proposed rule seeks to clarify that FEMA’s practice is to reflect the policyholder’s intent by considering the amount of premium the policyholder intended to allocate to each type of coverage. Using the example above, VerDate Sep<11>2014 18:34 Jul 13, 2018 Jkt 244001 therefore, if the policyholder paid a total of $600 premium, wishing to allocate $500 for the $200,000 in building coverage and $100 for the $100,000 in contents, FEMA would provide the amount of building coverage that $500 would purchase under the reformed rate, and the amount of contents coverage that $100 would purchase under the reformed rate. Current Article VII.G.2 discusses how a policy can be reformed to increase the amount of coverage where insufficient premium or incomplete rating information is discovered before a loss (current paragraph (a)), and where insufficient premium or incomplete rating information is discovered after a loss (current paragraph (b)). FEMA proposes to redesignate current Article VII.G.2 as VII.D.3 and to restructure it to improve organization and readability. Specifically, FEMA proposes to combine the provisions on discovery of insufficient premium or rating information before a loss and discovery of insufficient premium or rating information after a loss. To that end, the Agency proposes to title proposed Article VII.D.3 as ‘‘Discovery of Insufficient Premium or Rating Information.’’ The proposed subsection would state that if the Program discovers that the premium or rating information is insufficient, the Program would reform the policy as described in proposed Article VII.D.2. The proposed subsection also gives policyholders the option of increasing the amount of coverage resulting from the reformation to the amount he or she requests in accordance with the rest of the section. This does not constitute a substantive change from the current regulations and procedure; rather, it is a streamlining of the current regulations without altering the substance. Proposed Article VII.D.3.a would be entitled ‘‘Insufficient Premium’’ and would address situations where FEMA discovers that the premium is insufficient. This section would retain the first sentence in current VII.G.2.a.1 providing that where FEMA discovers the policyholder has not paid enough premium, the policyholder, and any mortgagee or trustee of which the insurer has written notice, will be sent a bill for the required additional premium for the current policy term (or that portion of the current policy term following any endorsement changing the amount of coverage). From the current language, FEMA proposes to replace ‘‘enough’’ with ‘‘sufficient’’ to align with current program usage and proposes to add commas after ‘‘you’’ and ‘‘us’’ to improve readability. PO 00000 Frm 00016 Fmt 4701 Sfmt 4702 The last sentence in current VII.G.2.a.1 provides that where the policyholder pays the additional premium within 30 days from the date the bill is sent, the Program will reform the policy to the originally requested amount of coverage. FEMA proposes to relocate this last sentence to its own separate subsection (proposed VII.D.3.a.1) and replace it with language stating that if it is discovered that the initial amount charged for any fees or surcharges is incorrect, the difference will be added or deducted, as applicable, to the total amount in this bill. FEMA proposes this sentence because in addition to the premium, policyholders must pay additional fees and surcharges, which can vary based on the characteristics of the property and its use; this language reflects its existing practice that FEMA adjusts the total bill for overpayment or underpayment of fees and surcharges. As mentioned above, FEMA proposes to relocate the last sentence in current Article VII.G.2.a.1 to its own separate subsection (proposed VII.D.3.a.1). Because this language only addresses what happens if the policyholder pays the additional premium within 30 days from the date the bill is sent, FEMA proposes to add additional language (proposed VII.D.3.a.2) clarifying that if the policyholder does not pay the premium within 30 days from the date of the bill, the Program would settle any flood insurance claim based on the reduced amount of coverage (as reduced pursuant to Article VII.D.2). This is already implicitly in the current regulation and FEMA’s current practice, but FEMA proposes to add it to improve the clarity of the regulation. FEMA proposes to add a third subsection (proposed VII.D.3.a.3) allowing the policyholder the option of paying all or part of the amount due out of a claim payment based on the originally requested amount of coverage. Though not explicitly anticipated in the SFIP, FEMA currently provides this option to policyholders through coordination of disbursement of claim proceeds and additional premium collections with the insurer. FEMA proposes to incorporate this option into the SFIP to provide policyholders with a comprehensive understanding of their options after FEMA discovers a misrating after a loss. Proposed Article VII.D.3.b would be entitled ‘‘Insufficient Rating Information’’ and would address situations where it is discovered that the rating information is insufficient. This section would retain the substance of the first sentence in VII.G.2.a. stating that if it is determined that the rating E:\FR\FM\16JYP2.SGM 16JYP2 sradovich on DSK3GMQ082PROD with PROPOSALS2 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules information for the policy is insufficient and prevents the insurer from calculating the additional premium, the policyholder would be required to provide this information within 60 days of a request by the insurer. The last sentence in current VII.G.2.a.2 provides that once the amount of additional premium for the current policy term is determined, the procedures outlined in G.2.a.1 will be followed. FEMA proposes to relocate this sentence to its own subsection (proposed VII.D.3.b.1) and revise it to state that where information is received within 60 days, the amount of additional premium for the current policy term would be determined and the procedures in VII.D.3.a would be followed. Current VII.G.2.a.3 and G.2.b.3 address situations where the additional premium or information is not received by the date it is due. FEMA proposes to replace these sections with proposed VII.D.3.b.2 to state that where information is not received within 60 days of the request, no claims would be paid until the requested information is provided. Coverage would be limited to the amount of coverage that could be purchased for the payments received, as determined when the requested information is provided. The proposed provision reflects FEMA’s existing interpretation of the SFIP, as reflected in the General Rules Section of the Flood Insurance Manual, page 13. FEMA proposes this provision to clearly reflect FEMA’s policy. FEMA proposes to add a new Article VII.D.4, entitled ‘‘Coverage Increases,’’ which would incorporate the language in current Articles VII.G.2.a.3 and VII.G.2.b.3. The proposed language states that if the policyholder does not submit the amounts requested in Article VII.D.3.a or the additional information requested in Article VII.D.3.b by the date it is due, the amount of coverage could only be increased by endorsement subject to the appropriate waiting period. However, no coverage increases would be allowed until the information requested in Article VII.D.3.b is provided. FEMA proposes this additional language to explicitly state the currently implied consequence of not providing the necessary payment or information. Finally, FEMA proposes to redesignate current Article VII.G.3 as Article VII.D.5, which would be entitled ‘‘Falsifying Information.’’ Currently, this paragraph states that if the policyholder or their agent intentionally did not tell FEMA about, or falsified, any important fact or circumstance or did anything fraudulent relating to this insurance, the provisions allowing policy cancellations VerDate Sep<11>2014 18:34 Jul 13, 2018 Jkt 244001 for fraud will apply. FEMA proposes to update the references to other policy provisions to align with the citations as revised under this proposed rule. In section J (proposed section G) (‘‘Requirements in Case of Loss’’), section L (proposed section I) (‘‘No Benefit to Bailee’’), and section T (propsed section Q) (‘‘Continious Lake Flooding’’), FEMA proposes to replace ‘‘covers’’ with ‘‘insures’’ because ‘‘covered’’ is a generic and undefined term that does not conform to common industry or Agency usage. The use of ‘‘insured’’ better conveys the application of the SFIP to property. As a consequence of the changes proposed above, FEMA also proposes to renumber sections H through T as sections E through Q. No other changes were made to these sections other than conforming cross-references. vii. Section U—Duplicate Policies Not Allowed Article VII.U (‘‘Duplicate Policies Not Allowed’’) currently describes restrictions on insuring property with more than one NFIP policy. FEMA proposes to remove the Section and incorporate the language into the new language at Articles I.F and VIII.D (discussed in III.C.1.ii and III.C.6.iv of this document, respectively). FEMA further proposes to redesignate all subsequent sections in Article VII, starting with section ‘‘VII.V’’ as ‘‘VII.R.’’ viii. Section V—Loss Settlement Current Article VII.V (‘‘Loss Settlement’’) (proposed VII.R) describes the three methods for settling losses under the SFIP: Replacement cost loss settlement, special loss settlement, and actual cash value loss settlement. Article VII.V.1.a.1 (proposed VII.R.1.a.1) provides that replacement cost loss settlement applies to a single-family dwelling provided that it is the policyholder’s principal residence within the meaning described further in the paragraph. As discussed in III.C.2, FEMA proposes to remove the definition of ‘‘principal residence’’ currently embedded in this provision and move it to the Definitions article of the SFIP. This change would improve readability of the provision without substantive impact. Throughout proposed section VII.R, FEMA proposes to update internal references to this section (i.e., replacing ‘‘V’’ with ‘‘R’’). ix. Internal Citation Updates Within Article VII FEMA proposes to redesignate the letter identifiers for the following sections due to the resdesignation of PO 00000 Frm 00017 Fmt 4701 Sfmt 4702 32971 earlier sections of Article VII. The changes are as follows: Current Article VII.J (proposed VII.G), Requirements in Case of Loss; current Article VII.M (proposed VII.J), Loss Payment; current Article VII.T (proposed VII.Q), Continuous Lake Flooding; and current Article VII.V (proposed VII.R), Loss Settlement. 6. Article VIII Policy Nullification, Cancellation, and Non-Renewal As discussed above, FEMA proposes to add a new Article VIII (‘‘Policy Nullification, Cancellation, and NonRenewal’’), which would address in one place all the current reasons for which a policy may be nullified, cancelled, or non-renewed. This would consolidate the policy nullification, cancellation, and non-renewal reasons currently in the Dwelling Form at Article VII.B (‘‘Concealment or Fraud and Policy Voidance’’), VII.E (‘‘Cancellation of the Policy by You’’), and VII.F (‘‘NonRenewal of the Policy by Us’’), and VII.U (‘‘Duplicate Policies Not Allowed’’). It would also incorporate the reasons that are being codified into regulation at 44 CFR 62.5 (discussed below). This consolidation would improve the organization and structure of the document. This new article would also improve transparency to the policyholder regarding the reasons for which a policy may be nullified, cancelled, or non-renewed. i. Section A—Policy Nullification for Fraud, Misrepresentation, or Making False Statements Current Article VII.B.1–3 provides that a policy is void, has no legal force or effect, cannot be renewed, and cannot be replaced by a new NFIP policy if the policyholder (or another insured or agent) has intentionally concealed or misrepresented any material fact or circumstance, engaged in fraudulent conduct, or made false statements related to this or any other NFIP policy. It also provides that the policy would be void as of the date the wrongful acts were committed, and that fines, civil penalties, and imprisonment may also apply. FEMA proposes to move these sections to Article VIII.A, rename it ‘‘Policy Nullification for Fraud, Misrepresentation, or Making False Statements,’’ and reorganize it without substantive change for greater clarity. ii. Section B—Policy Nullification for Reasons Other Than Fraud Current Article VII.B.4 provides that the policy is void and has no legal force where the property is located in a community not participating in the NFIP on the policy’s inception date and E:\FR\FM\16JYP2.SGM 16JYP2 32972 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules sradovich on DSK3GMQ082PROD with PROPOSALS2 did not join or reenter the program during the policy term and before the loss occurred, or if the property is not otherwise eligible for NFIP coverage. FEMA proposes to establish a new Article VIII.B, entitled ‘‘Policy Nullification for Reasons Other Than Fraud’’ which would incorporate the provisions of current VII.B.4 but add additional reasons that a policy may be void. These are: (1) The applicant or policyholder never had an insurable interest (proposed VIII.B.1.c); (2) the policyholder provided an agent with an application and payment, but the payment did not clear (proposed VIII.B.1.d); and (3) the insurer received notice from the policyholder, prior to the policy effective date, that the policyholder has decided not to take the policy and the policyholder is not subject to a requirement to obtain and maintain flood insurance pursuant to any statute, regulation, or contract. These added reasons for policy voidance reflect current agency interpretations and practices, as reflected in the Cancellation/ Nullification Section of the Flood Insurance Manual. FEMA proposes to add Article VIII.B to state that the applicant or policyholder would be entitled to a full refund of all premium, fees, and surcharges received, but if a claim was paid for a policy that is void, the claim payment must be returned to FEMA or offset from the premiums to be refunded before the refund will be processed. This reflects current agency interpretations and procedures, as reflected in the Cancellation/ Nullification Section of the Flood Insurance Manual. iii. Section C—Cancellation of the Policy by You Current Article VII.E (‘‘Cancellation of the Policy by You’’) provides that a policyholder may cancel the policy in accordance with the NFIP’s rules and regulations, in which event they may be entitled to a full or partial refund of premium under those same rules and regulations. FEMA proposes to incorporate the provisions of current Article VII.E into a new Article VIII.C, entitled ‘‘Cancellation of the Policy by You.’’ The proposed section C would retain the same language except for two changes. First, instead of stating ‘‘in accordance with the applicable rules and regulations of the NFIP,’’ it would state ‘‘in accordance with the terms and conditions of this policy and the applicable rules and regulations of the NFIP.’’ Second, it would replace the phrase ‘‘premium also under the applicable rules and regulations of the VerDate Sep<11>2014 18:34 Jul 13, 2018 Jkt 244001 NFIP’’ with ‘‘premium, surcharges, or fees under the terms and conditions of this policy and the applicable rules and regulations of the NFIP.’’ No substantive change is intended. iv. Section D—Cancellation of the Policy by Us FEMA proposes to establish a new Article VIII.D, entitled ‘‘Cancellation of the Policy by Us,’’ which would state four reasons for which a policy may be cancelled by the insurer: 1. Cancellation for underpayment of amounts owed on the policy, 2. cancellation due to lack of an insurable interest, 3. cancellation of duplicate policies, and 4. cancellation due to physical alteration of property. The first reason for which the insurer may cancel a policy is in proposed Article VIII.D.1, entitled ‘‘Cancellation for Underpayment of Amounts Owed on Policy.’’ This provision would state that the insurer may cancel the policy if, pursuant to VII.D.2, it is determined that the amounts paid by the policyholder were not sufficient to buy any amount of coverage, and the policyholder did not pay the additional amount of premium owed to increase the coverage to the originally requested amount within the required time period. FEMA proposes to add this cancellation reason to align with current practice, as reflected in proposed VII.D.2, that FEMA will cancel a policy where the policyholder has paid a premium that is insufficient to buy a policy with the lowest available coverage limits. FEMA proposes to add the second reason for which the insurer may cancel a policy in proposed Article VIII.D.2, entitled ‘‘Cancellation Due to Lack of an Insurable Interest.’’ Proposed Article VIII.D.2.a would state that if the policyholder no longer has an insurable interest in the insured property, the insurer will cancel the policy, and that the policyholder would cease to have an insurable interest if (1) for building coverage, the building was sold, destroyed, or removed, and (2) for contents coverage, the contents were sold or transferred ownership, or the contents were completely removed from the described location. Proposed Article III.D.2.b would state that if a policy is cancelled for these reasons, the policyholder may be entitled to a partial refund of premium under the applicable rules and regulations of the NFIP. This reflects FEMA’s current practice and interpretations, as shown in the Cancellation/Nullification section of the Flood Insurance Manual, pages 1–2 (‘‘1. Building Sold or Removed, Destroyed or Physically Altered to no Longer Meet the Definition of an Eligible Building’’). PO 00000 Frm 00018 Fmt 4701 Sfmt 4702 FEMA proposes to add the third reason for which the insurer may cancel a policy in proposed Article VIII.D.3, entitled ‘‘Cancellation of Duplicate Policies.’’ Article VIII.D.3 would have three subsections. Subsection (a) would state that except as allowed under Article I.G (i.e., for a Dwelling Form policy on a condominium unit that is also insured by an RCBAP policy), property may not be insured by more than one NFIP policy. This would incorporate the language in the current Article VII.U, stating that duplicate policies are not allowed under the NFIP, as well as the exception to that rule created in Article I.G. FEMA also proposes to add that payment for damages will only be made under one policy. This would align with current Article VII.U, which prevents coverage under more than one NFIP policy and VII.U.2, which states which one policy will pay for a loss in the case of duplicate policies. This proposed language would improve the clarity of the policy by explicitly stating what is currently strongly implied in the SFIP. Subsection (b) would state that except as allowed under Article I.G, if the property is insured by more than one NFIP policy, all but one of the policies will be cancelled, and that the policy, or policies, will be selected for cancellation in accordance with 44 CFR 62.5 and the applicable rules and guidance of the NFIP. FEMA proposes to add this provision in conjunction with its proposed revisions to the cancellation provisions at 44 CFR 62.5 (discussed below). Subsection (c) would state that if a policy is cancelled pursuant to VIII.D.4.b, the policyholder may be entitled to a full or partial refund of premium, surcharges, or fees. FEMA proposes to add the third subsection in conjunction with the refund rules proposed at 44 CFR 62.5. FEMA proposes to add the fourth reason for which the insurer may cancel a policy in proposed Article VIII.D.4, entitled ‘‘Cancellation Due to Physical Alteration of Property.’’ The proposed provision states that the insurer may cancel the policy if the insured building has been physically altered in such a manner that it is no longer eligible for flood insurance coverage, and that if the policy is cancelled for this reason, the policyholder may be entitled to a partial refund of premium under the terms and conditions of the policy and the applicable regulations of the NFIP. This reflects current agency practice and interpretations, as shown in the Cancellation/Nullification section of the Flood Insurance Manual, pages 1–2. E:\FR\FM\16JYP2.SGM 16JYP2 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules v. Section E—Non-Renewal of the Policy by Us governed solely by the Act, the NFIP’s regulations, and Federal common law. Current Article VII.F (‘‘Non-Renewal of the Policy by Us’’) provides that a policy will not be renewed if the community where the covered property is located stops participating in the NFIP, or if the building has been declared ineligible under the section 1316 of the NFIA. FEMA proposes to incorporate these provisions into proposed Article VIII.E, entitled ‘‘NonRenewal of the Policy by Us.’’ FEMA proposes to retain both provisions stating that the property is located in a suspended or non-participating community and the building is ineligible for NFIP coverage, but proposes to move the words ‘‘if’’ from the beginning of each subsection and instead put the word ‘‘if’’ directly after the phrase ‘‘will not be renewed’’; to replace the word ‘‘covered’’ with ‘‘insured,’’ and replace the phrase ‘‘has been declared’’ with the phrase ‘‘is otherwise.’’ FEMA proposes these revisions to improve the language. FEMA also proposes to add a new provision stating that the policy will not be renewed if the policyholder has not provided the information necessary to rate the policy within the required deadline. FEMA proposes to add this third reason for which a policy will not be renewed to clarify that a policyholder has an obligation to provide the information needed to rate the policy and that failure to provide this information within the required deadline will result in that policy not being renewed. This is implicit in the language of Article I of the SFIP and reflects FEMA’s current practices, but the proposed language is a more explicit statement needed to increase the transparency and clarity of the policy. FEMA further proposes to renumber current Articles VIII and IX as IX and X, respectively, due to the renumbering of prior articles. 8. Signing Statement The Dwelling Form of the Standard Flood Insurance Policy concludes with a signing statement that references the ‘‘Federal Insurance Administration.’’ FEMA proposes to changes this to the ‘‘Federal Insurance and Mitigation Administration’’ to align with the current organizational title. sradovich on DSK3GMQ082PROD with PROPOSALS2 7. Article IX What Law Governs Current Article IX (‘‘What Law Governs’’) describes which law applies to the SFIP. FEMA proposes to redesignate current Article IX as Article X and to add ‘‘the insurer’s policy issuance’’ and ‘‘policy administration’’ to the list of insurer activities taken under the NFIP that must be governed exclusively by the National Flood Insurance Act of 1968, the regulations prescribed pursuant to the Act, and Federal common law. FEMA proposes this change to clarify that the NFIP insurer’s policy issuance and policy administration operations are also VerDate Sep<11>2014 18:34 Jul 13, 2018 Jkt 244001 D. Appendix A(2) to Part 61: General Property Form FEMA proposes to revise the General Property Form of the SFIP in a manner consistent with the revisions to the Dwelling Form of the SFIP described above. Except as indicated in the sections below, the changes FEMA is proposing to the General Property Form are identical to those in the Dwelling Form. 1. Article I Agreement In the current General Property Form, the first paragraph is a prefatory statement regarding what the policy does not cover, and it is outside of Article I. As FEMA proposed above in Article I of the Dwelling Form of the SFIP, FEMA proposes to move this statement so that it is included in Article I and labeled section ‘‘A.’’ FEMA proposes to further revise this section in the General Property Form to include a statement about what the General Property Form does cover. FEMA proposes to add language stating that except as provided in Article I.A.2 (the current language stating what the policy does not cover), ‘‘this policy provides coverage for multifamily buildings (residential buildings designed for use by 5 or more families that is not a condominium building), non-residential buildings, and their contents.’’ This clear statement would help differentiate the General Property Form from the other SFIP policy forms. In addition, the proposed General Property Form would not include the proposed Dwelling Form’s Art. I.G, which provides that a building may be covered under both a Dwelling Form policy and a RCBAP. General Property Form policies may only insure nonresidential buildings, while RCBAP may only insure residential condominium buildings. Accordingly, Art. I.G would not apply similarly in the General Property Form. 2. Article II Definitions The definitions FEMA proposes to add, delete, or revise in Article II of the General Property Form of the SFIP, ‘‘Definitions,’’ would be the same as PO 00000 Frm 00019 Fmt 4701 Sfmt 4702 32973 those in the Dwelling Form of the SFIP, insofar as those terms are also defined in the General Property Form, with one exception. FEMA proposes to revise the definition of ‘‘unit’’ in the General Property form to mean ‘‘a single-family residential or non-residential space you own in a condominium building.’’ Although this is different from the definition used in the Dwelling Form (the Dwelling Form covers only residential properties, whereas the General Property Form covers both residential and non-residential properties), the reason for this proposed revision is the same—to remove the word ‘‘unit’’ within the definition of ‘‘unit.’’ 3. Article III Property Covered Article III.A. describes the conditions under which the policy covers building property. Article III.A.2 provides that the policy covers building property at a location other than the one described on the Declarations Page according to certain conditions. FEMA proposes to replace the phrase ‘‘We also insure building property . . .’’ with ‘‘Building property located at another location . . .’’ to reduce redundancy and improve readability with the first sentence of the paragraph, which states ‘‘We insure against direct physical loss by or from flood to:’’. Article III.A.6.a provides the conditions for coverage where the structure is not yet walled or roofed as described in the definition for ‘‘building.’’ The subsection erroneously cites to ‘‘II. 6.a.’’ rather than to ‘‘II.B.6.a.’’ as the location for the definition of ‘‘building.’’ FEMA proposes to add ‘‘B’’ to the citation to correct the typographical error. Article III.B.1 describes the conditions under which the policy covers personal property inside a building. Current Article III.B.1.b contains an unnumbered paragraph after paragraph B.1.b. FEMA proposes to number this unnumbered paragraphs as ‘‘2’’, and to renumber subsequent paragraphs accordingly, to improve readability and organization. E. Appendix A(3) to Part 61: Residential Condominium Building Association Policy FEMA proposes to amend the Residential Condominium Building Association Policy (RCBAP) Form of the SFIP in a manner consistent with the revisions to the Dwelling Form of the SFIP. The changes made to the RCBAP Form would be identical to those in the Dwelling Form for all provisions that these two forms have in common. Additionally, FEMA proposes to replace reference to the ‘‘FEMA Regional E:\FR\FM\16JYP2.SGM 16JYP2 32974 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules Director’’ with ‘‘FEMA Regional Administrator’’ in current VIII.T.2.h (proposed VIII.Q.2.h) to align with the current organizational title. F. Part 62: Sale of Insurance and Adjustment of Claims Part 62 sets forth the manner in which NFIP flood insurance is made available to the public in participating communities, prescribes the general method by which FEMA exercises its responsibility regarding the manner in which claims for losses are paid, and states reasons for which a policy may be nullified or cancelled and the associated refunds. sradovich on DSK3GMQ082PROD with PROPOSALS2 1. Part 62 Authority Citation The current authority citation for part 62 is 42 U.S.C. 4001 et seq.; Reorganization Plan No. 3 of 1978, 43 FR 41943, 3 CFR, 1978 Comp., p. 329; E.O. 12127 of Mar. 31, 1979, 44 FR 19367, 3 CFR, 1979 Comp., p. 376. FEMA proposes to replace the citations to Reorganization Plan No. 3 and Executive Order 12127 with a citation to the codification of the Homeland Security Act of 2002, 6 U.S.C. 101 et seq. The authority citation would therefore read 42 U.S.C. 4001 et seq.; 6 U.S.C. 101 et seq. FEMA proposes this change because while Reorganization Plan No. 3 and Executive Order 12127 originally created FEMA as an executive agency, PKEMRA amended the Homeland Security Act of 2002, Public Law 107–296, by establishing the Agency in statute and defining the Agency’s authorities and responsibilities. Accordingly, a citation to the codification of the Homeland Security Act is more appropriate. 2. Section 62.3 Servicing Agent Section 62.3 currently describes the Flood Insurance Administrator’s authority to enter into an agreement with a servicing agent that can service policies and claims on behalf of the Agency. Paragraph (a) currently states that the Federal Insurance Administrator ‘‘has entered into the Agreement’’ with a servicing agent. Section 62.3(b) currently names National Con-Serv, Inc. (NCSI) as FEMA’s servicing agent for its direct side policies. FEMA proposes to make a change to paragraphs (a), remove paragraph (b), and renumber paragraph (c) as paragraph (b) to better describe the present status of the direct servicing agent. In section 62.3(a), FEMA proposes to replace the words ‘‘has entered into the Agreement’’ with the words ‘‘may enter into an agreement.’’ The current formulation states a current fact, rather VerDate Sep<11>2014 18:34 Jul 13, 2018 Jkt 244001 than defining the Agency’s powers and duties, which is a traditional role of a rule. Further, the use of ‘‘the Agreement’’ seems to imply that a particular agreement must be entered into with the servicing agent. However, no such standard agreement exists in regards to contracting with a direct servicing agent. FEMA contracts with servicing agents in accord with the Federal Acquisition Regulations.5 This adjustment better describes the Administrator’s authority to decide whether or not to use the services of a servicing agent, and if choosing to do so, the terms of the agreement. FEMA proposes to remove section 62.3(b) because the current regulation lists NCSI as the NFIP Direct Servicing Agent even though this is not accurate and it is uncessary to name a government contractor in the Code of Federal Regulations. Contact information for the Direct Servicing Agent is provided to each policyholder sold NFIP flood insurance through the Direct Servicing Agent. FEMA also provides this information on its website.6 Removing this from regulation would reduce the burden on FEMA to undertake a rulemaking each time the Direct Servicing Agent changes, while not materially impacting the public. After removing current paragraph (b), FEMA proposes to renumber current paragraph (c) as paragraph (b). With respect to section 62.3(b), FEMA proposes to remove the paragraph because the named servicing agent is no longer accurate—NCSI is no longer FEMA’s direct servicing agent. FEMA proposes to add a new paragraph (b) stating that FEMA will provide public notice of the name of the servicing agent in the Federal Register. This change will allow the agency greater flexibility in providing public notice of the identity of its direct servicing agent without having to undertake a full rulemaking to do so. 3. Section 62.5 Premium Refund Section 62.5 describes reasons for which FEMA will allow cancellation of a policy. Section 62.5 currently allows a policyholder to cancel a policy for two reasons. First, the policyholder may cancel a policy that covers property for which the policyholder is no longer required to maintain flood insurance because a Letter of Map Amendment issued under part 70 has determined that the property is not located in an SFHA. Second, the policyholder may cancel a policy that is a three-year policy where the policyholder has either obtained a replacement flood insurance PO 00000 5 See 48 CFR part 37. Frm 00020 Fmt 4701 Sfmt 4702 policy or the lender has provided the NFIP with actual notice that the mortgage has been paid off and/or the lender no longer requires the policyholder to maintain flood insurance. In addition to section 62.5, section 61.5(c) and certain sections of the SFIP also describe the reasons for which FEMA will allow cancellation of a policy. FEMA proposes to remove current section 62.5 and replace these various regulatory provisions with a comprehensive new section 62.5 codifying all the reasons for which FEMA allows a policyholder to cancel or nullify a policy, as well as the handling of associated premium refunds. FEMA proposes to entitle section 62.5 ‘‘Nullifications, Cancellations, and Premium Refunds.’’ In this new section 62.5, FEMA proposes to incorporate the first policy cancellation reason (e.g., the property is no longer in a SFHA), discussed in more detail below. FEMA proposes to remove the second reason because it refers to a three-year insurance policy the NFIP no longer uses. FEMA proposes to consolidate the remaining reasons for which the NFIP may nullify or cancel a policy in section 62.5. i. Paragraph (a): Nullification Paragraph (a) of this new section, entitled ‘‘Nullification,’’ would describe all the reasons for which FEMA may terminate a policy. Subparagraph (1), entitled ‘‘Property Ineligible at Time of Application,’’ would state that a policy for a property that was not eligible for coverage at the time of the initial application will be considered void from commencement. This paragraph would also provide the rules and limitations governing the applicability of this nullification reason, as well as the associated premium refunds. FEMA has previously handled situations where property was ineligible for flood insurance at the time of application via NFIP procedures. FEMA proposes to codify existing practice, found at Reason Code 6 from the Nullification/ Cancellation section of the Flood Insurance Manual, into regulation to ensure consistent application of the procedures and to provide a comprehensive nullification section in regulation. Subparagraph (2), entitled ‘‘Property Later Becomes Ineligible,’’ would state that a policy for a property that was eligible for coverage at the time of the initial application, but later became ineligible for coverage, may not be renewed and will be void from the first renewal date after the property became ineligible. This paragraph would also E:\FR\FM\16JYP2.SGM 16JYP2 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules sradovich on DSK3GMQ082PROD with PROPOSALS2 provide the rules and limitations governing the applicability of this nullification reason, as well as the associated premium refunds. This would further codify Reason Codes 1 and 6 from the Nullification/ Cancellation section of the Flood Insurance Manual into regulation. Paragraph (3), entitled ‘‘Nullification Prior to Policy Effective Date,’’ would clarify that in cases where a policy is nullified before it becomes effective, the NFIP will void the policy from the beginning of the policy term. Such a situation may arise where a policyholder’s premium payment check is returned for insufficient balance or where a policyholder cancels his or her policy before it becomes effective. The provision would also clarify that in the rare instance where the NFIP pays a claim for a policy that was actually nullified before the policy’s effective date, the policyholder would have to either return the claim payment or pay the premium using the claim payment. This paragraph would also provide the rules and limitations governing the applicability of this nullification reason, as well as the associated premium refunds. Overall, this provision will codify existing Reason Codes 5, 7, and 13 from the Nullification/Cancellation section of the Flood Insurance Manual into regulation. These reason codes are based on basic principles of insurance that the program has applied with regulatory instruction. FEMA proposes to codify these cancelation/nullification reasons in regulation to provide stakeholders with a comprehensive regulatory basis for nullification. ii. Section 62.5(b): Cancellation Due to Lack of an Insurable Interest Section (b), entitled ‘‘Cancellation Due to Lack of an Insurable Interest,’’ would be taken from the current 61.5(c) and would allow policy cancellations when a policyholder ceases to have an insurable interest in the insured property (i.e., because the property was sold, destroyed, or removed). This subsection would state that for building coverage, a policyholder ceases to have an insurable interest if the building has been sold, destroyed, or removed. This subsection would further state that for contents coverage, a policyholder ceases to have an insurable interest if the contents were sold, transferred ownership, or have been removed from the described location. This paragraph would also provide the rules and limitations governing the applicability of this cancellation reason, as well as the associated premium refunds. This will codify Reason Codes 1 and 2 from the Nullification/Cancellation section of VerDate Sep<11>2014 18:34 Jul 13, 2018 Jkt 244001 the Flood Insurance Manual into regulation. Reason Codes 1 and 2 are necessitated by basic principles of insurance that prevent an insurer from insuring property in which the policyholder does not have an insurable interest. FEMA proposes to codify these cancelation/nullification reasons in regulation to provide stakeholders with a comprehensive regulatory basis for nullification. iii. Section 62.5(c): No Insurance Coverage Requirement Paragraph (c), entitled ‘‘No Insurance Coverage Requirement,’’ would allow cancellation in cases where the policyholder is no longer required to maintain flood insurance on the property. The new paragraph would state that a policyholder may cancel a policy if there was a requirement by a lender, loss payee, or other Federal agency to obtain and maintain flood insurance pursuant to statute, regulation, or contract, but there no longer is such a requirement. Such situatons would include where (i) the policyholder has paid off his or her mortgage, (ii) the policy was required by the mortgagee in error, or (iii) the property has been removed from the SFHA, and accordingly from the mandatory purchase requirement, through a revision or amendment to the FIRM, including the issuance of a Letter of Map Amendment (LOMA) removing a property from an SFHA. The paragraph will further state that in such instances, FEMA would only provide a pro rata refund of the premium for the current policy year, as calculated from the date of the cancellation request. Surcharges or other fees would not be refunded. This will codify into regulation FEMA’s interpretation of 44 CFR 62.5, which is currently found in Reason Codes 9, 12, 15, 18, and 19 from the Nullification/ Cancellation section of the Flood Insurance Manual. iv. Subsection 62.5(d): Establishment of a Common Expiration Date Subsection (d), entitled ‘‘Establishment of a Common Expiration Date,’’ would codify parts of current Article VII.U of the SFIP. The provision would allow policyholders to create duplicate policies, and then cancel the policy with the earlier effective date, to establish common expiration dates with other coverage. This paragraph would also provide the rules and limitations governing the applicability of this nullification reason, as well as the associated premium refunds. This would codify into regulation the NFIP’s existing cancellation reason found PO 00000 Frm 00021 Fmt 4701 Sfmt 4702 32975 under Reason Code 3 in the Nullification/Cancellation section of the Flood Insurance Manual. v. Subsection 62.5(e): Cancellation or Nullification of Duplicate NFIP Policies Subsection (e) would be entitled ‘‘Cancellation or Nullification of Duplicate NFIP Policies.’’ The subsection would incorporate provisions of current Article VII.U, which allow for cancellation of duplicate NFIP policies. The proposed subsection would include two paragraphs. Paragraph (1), entitled ‘‘Generally,’’ would have two paragraphs. Paragraph (i) would state that if more than one policy covers the same building not in accordance with applicable regulation and SFIP terms and conditions, FEMA must nullify the policy with the later effective date. This paragraph would also provide the rules and limitations governing the applicability of this nullification reason, as well as the associated premium refunds. Paragraph (ii) would state that if both policies have the same effective date, the policyholder may choose which policy will remain in effect, at which point the same refund rules laid out in paragraph (i) apply. This paragraph would also provide the rules and limitations governing the applicability of this nullification reason. Paragraph (2), entitled ‘‘Exceptions,’’ would establish the exceptions to Paragraph (1) and would state that in certain cases, the policy with the earlier effective date may be cancelled instead of the policy with the later effective date. The first exception, contained in paragraph (i) and entitled ‘‘Earlier Policy Expired’’ would allow the policy with the earlier effective date to be cancelled where that policy has expired for more than 30 days. The second exception, in paragraph (ii) entitled ‘‘Group Flood Insurance Policy (GFIP)’’ would provide that the policy with the earlier effective date may be cancelled if that policy is a GFIP. The third exception, in paragraph (iii) entitled ‘‘Cancellations to Establish a Common Expiration Date’’ would provide that the policy with the earlier effective date may be cancelled pursuant to paragraph (d) of this proposed section (i.e., to establish a common expiration date). The fourth exception, in paragraph (iv) entitled ‘‘Force-Placed Policy’’ would allow the policy with the earlier effective date to be cancelled if the the mortgagee buys a flood insurance policy through the Mortgage Portfolio Protection Program after the property owner fails to obtain a flood insurance policy on their own. This is often E:\FR\FM\16JYP2.SGM 16JYP2 32976 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules sradovich on DSK3GMQ082PROD with PROPOSALS2 refered to as ‘‘force placing’’ a policy. The last exception, in paragraph (v) entitled ‘‘Condominium Unit Covered by a Dwelling Form Policy and an RCBAP’’ would provide that if the policy with the earlier effective date is a Dwelling Form policy with building coverage on a condominium unit that is also covered by an RCBAP with coverage that equals the statutory maximum building coverage limit, the Dwelling Form Policy may be cancelled. Each paragraph establishing an exception would also provide the premium refunds associated with cancellations falling under the exception. This proposed section would clarify, in regulation, how FEMA has interpreted Article VII.U of the SFIP in practice. This cancellation reason is currently found in Reason Code 4 in the Nullification/Cancellation section of the Flood Insurance Manual. vi. Subsection 62.5(f): Other Cancellations and Nullifications Subsection (f) would be entitled ‘‘Other Cancellations and Nullifications,’’ and clarify the other current reasons for which a policy may be cancelled. This section would also state that the policyholder will not receive a refund of any premium, fees, or surcharges for policies cancelled pursuant to this section. Paragraph (1), entitled ‘‘Fraud,’’ would state that FEMA will cancel a policy for fraud committed by the policyholder or agent and may cancel a policy for misrepresentation of a material fact by the policyholder or agent. In either case, the cancellation would take effect as of the date of the fraudulent act or material misrepresentation of fact. This is taken from current Article VII.B of the SFIP, which states that fraud by the agent or the insured voids a policy. This nullification reason may be found under Reason Code 23 in the Nullification/ Cancellation section of the Flood Insurance Manual. Paragraph (2), entitled ‘‘Administrative Cancellation,’’ would allow a policy to be cancelled and rewritten to correct an administrative error, such as when the policy is written with the wrong effective date, and any excess premium, fees, or surcharges would be refunded. This cancellation reason may be found under Reason Code 20 in the Nullification/ Cancellation section of the Flood Insurance Manual. Paragraph (3), entitled ‘‘Nullification for Properties Ineligible Due to Physical Alteration of Property,’’ would state that a policy insuring a building or its contents, or both, may be cancelled if the building has been physically altered VerDate Sep<11>2014 18:34 Jul 13, 2018 Jkt 244001 so that the building and its contents are no longer eligible for flood insurance coverage. This paragraph would also provide the rules and limitations governing the applicability of this nullification reason, as well as the associated premium refunds. This nullification may be found under Reason Codes 1 and 2 in the Nullification/Cancellation section of the Flood Insurance Manual. 4. Section 62.6 Commissions Minimum IV. Regulatory and Economic Analysis Current section 62.6 contains provisions applicable to insurance agents and brokers writing NFIP policies through the NFIP Direct Services Agent. It does not apply to agents or brokers associated with WYO companies. FEMA proposes several nonsubstantive changes designed to clarify the existing section. i. Section Heading Currently, section 62.6 is titled, ‘‘Minimum Commissions.’’ FEMA proposes to revise the title of section 62.6 to ‘‘Brokers and Agents Writing NFIP Policies through the NFIP Direct Servicing Agent’’ because the section covers more than just commissions. FEMA believes the proposed title better reflects the contents of the section. ii. Paragraph (a): Agent and Broker Licensing Requirements Currently, section 62.6(a) defines the commissions paid to agents and brokers participating in the Direct Servicing Agent (DSA) portion of the NFIP. However, it also includes a requirement that such agents and brokers are ‘‘duly licensed by a state insurance regulatory authority.’’ FEMA proposes to move this important requirement from within the minimum commission provision and set it out in its own paragraph. Accordingly, FEMA proposes to add a new paragraph (a) that only includes the requirement and to redesignate current paragraphs (a) and (b) as paragraphs (b) and (c), respectively. Accordingly, FEMA also proposes to make corresponding changes to proposed paragraph (b) by removing the existing references to state licensing requirements. FEMA does not intend to substantively change the licensing requirements of DSA agents, but rather intends to separate this requirement from other subject matter to improve overall clarity of the section. FEMA also proposes to change the uses of ‘‘shall’’ to ‘‘will’’ to incorporate plainer language without making substantive change. PO 00000 Frm 00022 Fmt 4701 5. Section 62.22 Judicial Review Section 62.22 provides that actions for disallowed claims must be instituted in the U.S. District Court for the district in which the insured property was situated and describes service of process requirements. FEMA proposes to revise section 62.22 to replace references to the ‘‘Federal Insurance Administration’’ with the current organizational title, ‘‘Federal Insurance and Mitigation Administration.’’ Sfmt 4702 A. Executive Order 12866, Regulatory Planning and Review & Executive Order 13563, Improving Regulation and Regulatory Review Executive Orders 13563 (‘‘Improving Regulation and Regulatory Review’’) and 12866 (‘‘Regulatory Planning and Review’’) direct agencies to assess the costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. Executive Order 13771 (‘‘Reducing Regulation and Controlling Regulatory Costs’’) directs agencies to reduce regulation and control regulatory costs and provides that ‘‘for every one new regulation issued, at least two prior regulations be identified for elimination, and that the cost of planned regulations be prudently managed and controlled through a budgeting process.’’ The Office of Management and Budget (OMB) has not designated this rule a ‘‘significant regulatory action’’ under section 3(f) of Executive Order 12866. Accordingly, OMB has not reviewed it. As this rule is not a significant regulatory action, this rule is exempt from the requirements of Executive Order 13771. See OMB’s Memorandum ‘‘Guidance Implementing Executive Order 13771, titled ‘Reducing Regulation and Controlling Regulatory Costs’ ’’ (April 5, 2017). In this rule, FEMA proposes to make several nonsubstantive changes to the National Flood Insurance Program’s (NFIP) regulations at Parts 59, 61, and 62, as well as the Appendices to Part 61. FEMA proposes to codify in regulation certain provisions of the Biggert Waters Flood Insurance Reform Act of 2012 (BW–12) and the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA) that have already been E:\FR\FM\16JYP2.SGM 16JYP2 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules implemented. FEMA implemented these changes via the Flood Insurance Manual or other related guidance documents as they were unambiguous changes that left no discretion on the part of the agency to implement. Now FEMA proposes to update the regulations accordingly. FEMA also proposes to clarify certain existing NFIP regulations relating to NFIP operations and the Standard Flood Insurance Policy unrelated to recent legislation by consolidating and stylistically updating the regulatory text and standardizing key terminology. Overall, there are 34 identified proposed regulatory changes in this rule (itemized in Table 1 below). The vast majority of these changes are limited to nonsubtantive clarifications. The remaining provisions are considered ‘‘Codifications,’’ that codify in regulation either an existing practice or policy, or a process heretofore requiring special waiver by FEMA. Following guidance in OMB Circular A–4, FEMA assesses the impacts of this rule against the no-action baseline as well as a pre-statutory baseline. The no action baseline is an assessment against what the world would be like if the proposed rule is not adopted. The prestatutory baseline is an assessment against what the world would be like if the relevant statute(s) had not been adopted. By considering both baselines we are able to consider full costs of the action. Under a no-action baseline, this proposed rule would carry no transfers or quantifiable costs. The proposed rulemaking would make material improvements to the language and organization of the NFIP’s regulations, but such clarifications and codifications would not result in any quantifiable burden or benefit. The proposed rule also would codify certain changes 32977 pursuant to BW–12 and HFIAA that FEMA has already implemented via the Flood Insurance Manual or other related guidance documents. WYO companies would, however, incur opportunity costs as they spend time becoming familiar with the proposed changes. The proposed rule would result in cost savings associated with no longer requiring individual waivers for condominium loss assessment restrictions. The below analysis adopts a consistent pre-statutory baseline of 2012 in order to capture the effects of the proposed rule, including those of modifications already implemented through interim actions. The summary table below (Table 1) presents the proposed rule’s components based on the two categorizations above, including the related statutory mandates (BW–12, HFIAA or both), a description of their effects and their likely impact. TABLE 1—SUMMARY OF PROPOSED CHANGES Current section No./ subject matter Mandatory or discretionary action Proposed change Impact Nonsubstantive Clarifications & Consolidations 1. § 59 Definitions ........... 2. § 61.1 Purpose of part 3. § 61.3 Coverage and benefits provided under the SFIP. 4. § 61.5 Deductibles ...... sradovich on DSK3GMQ082PROD with PROPOSALS2 5. § 61.6 Maximum amounts of coverage available. 6. § 61.10 Requirements for Issuance or Renewal of Flood Insurance Coverage. VerDate Sep<11>2014 FEMA proposes to add and revise definitions to support clarifications and codificatons described below. This is a nonsubstantive change that clarifies existing definitions and does not alter the administration of the program. FEMA proposes to remove irrelevant second sentence that does not relate to the substantive content of part 61. This is a nonsubstantive change that does not alter the administration of the program but rather provides greater clarity for the reader. FEMA proposes to clarify language to provide a more complete statement of coverage and benefits provided by the SFIP. The coverage and benefits provided under the SFIP are already stated in regulations; this is just a consolidated, unified statement of coverage and benefits under the SFIP. This is a nonsubstantive change that does not alter the administration of the program but rather provides greater clarity for the reader. An application of BW–12 section 100210 and HFIAA section 12, that would clarify existing policy/practice by moving content of 61.5 to new unified cancellation/nullification section in 44 CFR 62.5 (discussed below). FEMA also proposes to replace the current deductible tables with provisions describing the minimum deductibles required by BW–12 section 100210 and the $10,000 deductible option required by HFIAA section 12. This is a nonsubstantive change because FEMA has always had this authority and has always made these deductible options available to policyholders despite not being explicitly provided for in the CFR. FEMA proposes to clarify the maximum coverage limit tables in section 61.6 with nonsubstantive changes to improve readability and conformance with standard program terminology and terminology introduced by BW–12. This is a nonsubstantive change that does not alter the administration of the program but rather provides greater clarity for the reader. FEMA proposes to clarify/consolide existing regulation language. This new provision would clarify that no flood insurance coverage will be issued unless there is (a) receipt of full amount due and (b) submission of a complete application with all the required rating information. Although this has always been the case, and these concepts are covered in sections 61.5 and 61.11, FEMA believes that increased clarity is needed by adding a consolidated statement in the regulations. This is a nonsubstantive change that does not alter the administration of the program but rather provides greater clarity for the reader. 18:34 Jul 13, 2018 Jkt 244001 PO 00000 Frm 00023 Fmt 4701 Sfmt 4702 E:\FR\FM\16JYP2.SGM Discretionary ..... No change in compliance burden. Discretionary ..... No change in compliance burden. Discretionary ..... No change in compliance burden. Mandatory ......... No change in compliance burden. Discretionary ..... No change in compliance burden. Discretionary ..... No change in compliance burden. 16JYP2 32978 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules TABLE 1—SUMMARY OF PROPOSED CHANGES—Continued sradovich on DSK3GMQ082PROD with PROPOSALS2 Current section No./ subject matter Mandatory or discretionary action Proposed change 7. § 61.13 Standard This provision would clarify that SFIP is authorized only under terms and Flood Insurance Policy. conditions established by Act, regulations, SFIP, and Administrator interpretations. FEMA also proposes to clarify that the agent acts only for policyholder and that the risk of loss is borne by the National Flood Insurance Fund, not the WYO company. This does not represent a substantive change in policy or terms and conditions of the SFIP, but instead would make terms clearer. 8. § 62.5 Policy Nullifica- FEMA proposes to make changes that would clarify and consolidate the extion and Cancellation. isting reasons for which a policy may be cancelled or nullified. The current reasons for which a policy may be cancelled or nullified are spread throughout the regulations and FEMA’s interpretations of those regulations in the Flood Insurance Manual. This would consolidate those reasons into one section for greater clarity and transparency to the public. This is a nonsubstantive change that does not alter the administration of the program but rather provides greater clarity for the reader. 9. § 62.6 Broker and This provision would clarify FEMA’s existing policy by adding it to regulation Agents for Servicing that a broker or agent selling NFIP policies must be licensed in the state Agent. in which the property is located. This is a nonsubstantive change that does not alter the administration of the program but rather provides greater clarity for the reader. 10. SFIP Article I ............ FEMA proposes changes to SFIP Article I that would clarify the types of property covered by the SFIP. Proposed clarifications are about coverage limits and multiple policies covering one building. This is a nonsubstantive change that does not alter the administration of the program but rather provides greater clarity for the reader. 11. SFIP Article II-Defini- FEMA proposes to revise and add some definitions for clarity. In particular, tions. the proposed changes would clarify that the named insured must also include the building owner if building coverage is purchased. This is a nonsubstantive change that does not alter the administration of the program but rather provides greater clarity for the reader. 12. SFIP Article III .......... FEMA proposes to clarify that references to insured property do not extend coverage to any type or item of property not otherwise insured in accordance with the terms and conditions of SFIP. This is a nonsubstantive change that does not alter the administration of the program but rather provides greater clarity for the reader. 13. SFIP Article III.A ...... FEMA proposes minor nonsubstantive changes to Article III.A.5.b.2 to improve the grammar of the section; revise Article III.A.8 to remove the phrase ‘‘in a building enclosure.’’ This is a nonsubstantive change that does not alter the administration of the program but rather provides greater clarity for the reader. 14. SFIP Article III.B ...... FEMA proposes to revise the numbering in this section to improve readability and organization; revise Article III.B.3 by removing the phrase ‘‘in a building enclosure.’’ This is a nonsubstantive change that does not alter the administration of the program but rather provides greater clarity for the reader. 15. SFIP Article III.D ...... FEMA proposes to revise the language in this section so that the word ‘‘structure’’ is replaced by the word ‘‘building’’ throughout the section except at III.D.5.c. The reason for this change is the NFIP insures SFIP defined ‘‘buildings,’’ not any structure that does not meet the definition of ‘‘building’’ as defined in the SFIP. FEMA also proposes to improve the language in III.D.3.d and III.D.3.e by replacing the phrase ‘‘this coverage’’ with the phrase ‘‘Coverage D’’ to clarify that the coverage referred to in these provisions is Coverage D. This is a nonsubstantive change that does not alter the administration of the program but rather provides greater clarity for the reader. 16. SFIP Article V.B ....... FEMA proposes a nonsubstantive, clarifying adjustment to the Flood in Progress Exclusion at SFIP Art. V.B to align with reports required by BW– 12 section 100227. This change does not impact the application of the exclusion, but will help support more consistent reading of the provison. 17. SFIP Article VII.B ..... FEMA proposes to move the provision on concealment of fraud and policy voidance for consolidation into unified section on policy cancellations and nullifications (discussed below). This is a nonsubstantive change that does not alter the administration of the program but rather provides greater clarity for the reader. 18. SFIP Article VII.E ..... FEMA proposes to remove Article VII.E, Cancellation of the Policy by You, and incorporate the language into a new consolidated section on policy nullifications, cancellations, and non-renewals. This is a nonsubstantive change that does not alter the administration of the program but rather provides greater clarity for the reader. VerDate Sep<11>2014 18:34 Jul 13, 2018 Jkt 244001 PO 00000 Frm 00024 Fmt 4701 Sfmt 4702 E:\FR\FM\16JYP2.SGM Impact Discretionary ..... No change in compliance burden. Discretionary ..... No change in compliance burden. Discretionary ..... No change in compliance burden. Discretionary ..... No change in compliance burden. Discretionary ..... No change in compliance burden. Discretionary ..... No change in compliance burden. Discretionary ..... No change in compliance burden. Discretionary ..... No change in compliance burden. Discretionary ..... No change in compliance burden. Discretionary ..... No change in compliance burden. Discretionary ..... No change in compliance burden. Discretionary ..... No change in compliance burden. 16JYP2 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules 32979 TABLE 1—SUMMARY OF PROPOSED CHANGES—Continued Mandatory or discretionary action Current section No./ subject matter Proposed change 19. SFIP Article VII.F ..... FEMA proposes to remove Article VII.F, Non-Renewal of the Policy by Us, and incorporate the language into a new Article VIII discussing policy nullifications, cancellations, and non-renewals. This is a nonsubstantive change that does not alter the administration of the program but rather provides greater clarity for the reader. This provision would revise the reformation section for clarity/readability. This is a nonsubstantive change that does not alter the administration of the program but rather provides greater clarity for the reader. FEMA proposes to move the provision on duplicate policies for consolidation into unified section on policy cancellations and nullifications (discussed below). This is a nonsubstantive change that does not alter the administration of the program but rather provides greater clarity for the reader. FEMA proposes to revise Article VII.V.1.a.1 of the current policy to remove all the language after ‘‘It is your principal residence.’’ The reason for this proposed change is that this language, which is essentially a definition of the term ‘‘principal residence,’’ has been incorporated into the new definition of ‘‘principal residence’’ being added to Definitions section in Article II. This is a nonsubstantive change that does not alter the administration of the program but rather provides greater clarity for the reader. FEMA proposes to clarify the existing reasons for which a policy may be cancelled, nullified, or not renewed. This would mirror similar section being established at 44 CFR 62.5 (discussed above). This is a nonsubstantive change that does not alter the administration of the program but rather provides greater clarity for the reader. FEMA proposes to clarify that the SFIP and all disputes arising from the insurer’s policy issuance, policy administration, or the handling of any claim under the SFIP are governed by the National Flood Insurance Act and the regulations. This is a nonsubstantive change that does not alter the administration of the program but rather provides greater clarity for the reader. FEMA proposes to replace the word ‘‘covered’’ with the word ‘‘insured’’ because the word ‘‘covered’’ does not conform to common industry or Agency usage. This is a nonsubstantive change that does not alter the administration of the program but rather provides greater clarity for the reader. FEMA proposes to replace references to the ‘‘Federal Insurance Administration’’ with the current organizational title, ‘‘Federal Insurance and Mitigation Administration.’’ This is a nonsubstantive change that does not alter the administration of the program but rather provides greater clarity for the reader. FEMA proposes to redesignate Article VII.D as Article VII.C. Replaces the phrase ‘‘structure during the course of construction’’ in Article VII.D.2 of the current rule with ‘‘building under construction,’’ which is the proper term of art, as used in Article III.A.5.a and Article VI.A. This is a nonsubstantive change that does not alter the administration of the program but rather provides greater clarity for the reader. FEMA proposes to delete this provision because some of the language is duplicative with language in other sections, and the rest of the language is more appropriately moved to other sections of the regulation. Move 61.5(a) and (b) to become a new 44 CFR 61.4. This is a nonsubstantive change that does not alter the administration of the program but rather provides greater clarity for the reader. FEMA proposes to remove the name of specific direct servicing agent. This is a nonsubstantive change that codifies current practices that began more than a decade before the baseline regarding the public announcement of the direct servicing agent. FEMA proposes to replace the citations to Reorganization Plan No. 3 and Executive Order 12127 with a citation to the codification of the Homeland Security Act of 2002, 6 U.S.C. 101 et seq. This is a nonsubstantive change that does not alter the administration of the program but rather provides greater clarity for the reader. FEMA proposes to update authority citations to reflect changes to FEMA’s source of authority from Executive orders to statute. This is a nonsubstantive change that does not alter the administration of the program but rather provides greater clarity for the reader. FEMA propose to update authority citations to reflect changes to FEMA’s source of authority from Executive orders to statute. This is a nonsubstantive change that does not alter the administration of the program but rather provides greater clarity for the reader. 20. SFIP Article VII.G ..... 21. SFIP Article VII.U ..... 22. SFIP Article VII.V ..... 23. SFIP Article VIII ....... 24. SFIP Article IX ......... 25. Entire SFIP—Global Language Replacements. 26. 62.22 Judicial Review (preamble sec. III.F.5). 27. SFIP Article VII.D ..... 28. § 61.4 Limitations on Coverage. 29. § 62.3 Servicing agent. sradovich on DSK3GMQ082PROD with PROPOSALS2 30. Part 59 Authority Citation. 31. Part 61 Authority Citation. 32. Part 62 Authority Citation. VerDate Sep<11>2014 18:34 Jul 13, 2018 Jkt 244001 PO 00000 Frm 00025 Fmt 4701 Sfmt 4702 E:\FR\FM\16JYP2.SGM Impact Discretionary ..... No change in compliance burden. Discretionary ..... No change in compliance burden. Discretionary ..... No change in compliance burden. Discretionary ..... No change in compliance burden. Discretionary ..... No change in compliance burden. Discretionary ..... No change in compliance burden. Discretionary ..... No change in compliance burden. Discretionary ..... No change in compliance burden. Discretionary ..... No change in compliance burden. Discretionary ..... No change in compliance burden. Discretionary ..... No change in compliance burden. Discretionary ..... No change in compliance burden. Discretionary ..... No change in compliance burden. Discretionary ..... No change in compliance burden. 16JYP2 32980 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules TABLE 1—SUMMARY OF PROPOSED CHANGES—Continued Current section No./ subject matter Mandatory or discretionary action Proposed change Impact Codification of Existing Policy and Practice 33. § 61.11 Effective date and time of coverage under the Standard Flood Insurance Policy—New Business Applications and Endorsements. 34. SFIP Article III.C ...... FEMA proposes to codify BW–12’s addition of the Post-Wildfire Exception to the 30-day waiting period required by 42 U.S.C. 4013(c). This change does not alter the current administration of the program because FEMA immediately complied with the law. FEMA also proposes a clarification by removing the second clause of the first sentence of 61.11(e) and 61.11(f) because thse clauses accommodate a business model that the WYO companies no longer use. This change does not alter the current administration of the program but rather provides greater clarity for the reader. FEMA proposes to codify BW–12 section 100214, which prohibits the application of SFIP Article III.C.3.b.4 (disallowing the payment of a condominium loss assessment on a unit policy if the condominium building is underinsured). Prior to BW–12, FEMA issued individual waivers of this provision as the need arose. The proposed changes would delete Article III.C.3.b.4, thus no longer requiring FEMA to issue individual waivers. sradovich on DSK3GMQ082PROD with PROPOSALS2 1. Costs of Rulemaking While the proposed rulemaking would make material improvements to the language and organization of the NFIP’s regulations, such changes would not result in any quantifiable burden or benefit. WYO companies would, however, incur opportunity costs as they spend time becoming familiar with the proposed changes. FEMA proposes to revise section 61.11 to codify an additional exception to the 30-day waiting period before coverage on a flood insurance policy takes effect. Prior to BW–12, there were only two exceptions to this 30-day waiting period. The first exception was for the initial purchase of flood insurance in connection with the making, increasing, extension, or renewal of a loan. The second exception was for the initial purchase of flood insurance pursuant to a revision or updating of floodplain areas or flood risk zones, if such purchase took place within one year of the notice of such revision. The proposed rule would codify in regulation Section 100241 of BW–12, which amended Section 1306(c) of the NFIA (42 U.S.C. 4013(c)), by placing a third exception to the 30-day new policy waiting period in regulation. This new exception applies to situations where the flooding to an insured privately owned property is the result of flooding on Federal land that was caused or exacerbated by post-wildfire conditions, also on Federal land. FEMA implemented this new exception via bulletin. See WYO Bulletin W–12045 (July 10, 2012) (announcing the implementation of Section 100241), see also, WYO Bulletin W–18001 (Jan. 16, VerDate Sep<11>2014 18:34 Jul 13, 2018 Jkt 244001 2018) (replacing WYO Bulletin W– 12045). To date, circumstances have not existed requiring FEMA to apply this exception. The proposed change updates the regulations to reflect the revised statutory language and existing Agency practice. When looking at the NFIP claim data from FEMA, since implementation of this exception in July 2012, no parties have made claims that would apply to this provision. Additionally, due to both the brief window of applicability (the 30-day waiting period after initial enrollment in the NFIP) and the narrow circumstances to which this exception applies (flood damage due to flood on Federal land caused, or exacerbated, by post-wildfire conditions), FEMA believes the exception would continue to be rarely invoked. This provision serves as an added enticement to potential enrollees of the NFIP to join the NFIP if they believe that a wildfire on Federal land may cause, or exacerbate, flooding on their property. This provision serves mostly as an added comfort to potential enrollees of the NFIP. In accordance with the data examined, there has not been and FEMA estimates that there would continue to be no additional burden on any party. This provision would ensure that FEMA’s regulation concerning the application of the 30-day waiting period includes all statutory exceptions. FEMA requests comments regarding this assumption and estimated frequency of applicable occurrence. 2. Benefits of Rulemaking The vast majority of provisions represent clarifications to the regulation or program documents, or remove PO 00000 Frm 00026 Fmt 4701 Sfmt 4702 Mandatory ........ No change in compliance burden. Mandatory ........ Cost savings of $2,048 over 10 years ($1,799 at 3 percent and $1,539 at 7 percent discount rates). regulations that are no longer applicable. The few non-clarifying provisions reflect in regulations certain provisions that have already been implemented through policy that streamline operations, or meet greater potential needs of policyholders (codifications). It is only with codifications where any quantifiable impacts appear. This analysis considers the following as possible benefits of this rule: i. Clarification of NFIP Terms and Conditions This analysis looks at the many efficiencies of the proposed rule, however, the bulk of these benefits are unquantifiable. Although they have not been quantified, they are essential to the justification of the proposed rule and should be considered as they provide significant benefits that will be seen for all stakeholders involved. Under current conditions, the NFIPrelated sections of the CFR contain inconsistencies or vague language that may cause confusion to stakeholders. The following are selected examples of proposed changes presented in Table 1 that would be introduced by the rule: a. Making Explicit the Implicit The NFIP deductible charts currently in the regulations at 44 CFR 61.5(d) show several possible deductible options, but not all the deductible options available under the program. A note to these tables indicates that policyholders may submit any other other deductible amounts not currently listed in this chart (including the $10,000 deductible option required under HFIAA). Notwithstanding this note, the current regulation’s listing of E:\FR\FM\16JYP2.SGM 16JYP2 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules deductible options may give readers the impression that the list is exhaustive. FEMA proposes to remove the deductible charts and replace them with a requirement that FEMA must provide policyholders with deductible options in various amounts, up to and including $10,000, subject to certain minimum deductibles. This change would not expand or contract the deductible options offered by the NFIP under current regulations; rather, it would clarify that FEMA offers various options, including the $10,000 deductible, subject to other restrictions. FEMA also proposes to change the language in Appendix A(1) of Part 61 to clarify that personal property is also insured under this policy. FEMA has always insured personal property under this policy, but the proposed change will make this more explicit in the initial coverage statement. Also under Appendix A(2) to Part 61, FEMA would state that the policy will only cover one building and that the building covered is the one specifically described in the Flood Insurance Application. Coverage under the SFIP has always been limited to one building, but FEMA is proposing that this language be clearly stated at the very beginning of the SFIP. b. Modifying, Adding or Removing Definitions sradovich on DSK3GMQ082PROD with PROPOSALS2 FEMA proposes to revise definitions such as ‘‘deductible,’’ ‘‘emergency program,’’ ‘‘act,’’ or ‘‘basement.’’ FEMA believes these non-substantive changes will be clearer and more consistent with the language in the Articles of the SFIP. The same can be said of the proposed changes to add acronyms for ease of repetitive use (such as that for the Special Flood Hazard Area as ‘‘SFHA’’) or to remove a term or definition that is no longer used (e.g., ‘‘Expense Constant’’ which no longer applies, or ‘‘Probation Premium’’ which is better changed to ‘‘Probation Surcharge’’). FEMA believes that this increased precision and consistent use of terms would increase clarity of FEMA’s NFIP regulations for the insurance companies, flood insurance policyholders, academic researchers, and private citizens. This improved accuracy will help to minimize confusion. VerDate Sep<11>2014 18:34 Jul 13, 2018 Jkt 244001 ii. Codification of Dwelling Policy Underinsurance Exception Presently, Article III.C.3.b.4 of the SFIP, found in Appendix A(1) to Part 61, prevents payment of condominium loss assessments on a unit policy if the condominium building itself is underinsured. The SFIP also requires the coverage limits of the RCBAP policy (the primary policy) to be exhausted before the Dwelling Policy (the secondary policy). This poses a challenge in the event the primary policy was disallowed in the above circumstance. Since 2007, policyholders facing such a predicament were required to obtain a waiver from FEMA to process such claims. As directed by Section 100214 of BW– 12, the proposed changes would delete Article III.C.3.b.4 of the SFIP, which would otherwise prohibit such claim payments and necessitate the submission and processing of waivers. As a result, waivers for this prohibition would no longer be required. To estimate the cost savings that would result from omitting this process, FEMA considered the frequency these specific circumstances have occurred. Between 2007, when FEMA began issuing the waivers, and 2013 when FEMA terminated the waiver process (following the passage and FEMA’s provisional implementation of BW–12), there have been four occurrences of the aforementioned conditions. The applicable cases were reported twice in Illinois, once in Texas and once in Tennessee. Four occurrences over six years equate to an estimated frequency of 0.667 instances each year, assuming that the rate remains consistent in the future. The reported time required for FEMA to process the resulting waiver requests is around three hours per wavier. This process is undertaken by two General Schedule (GS) Federal employees in the National Capital Region, at the GS–14 and GS–15 levels, in equal proportion. Obtaining 2018 GS scale 7 published 7 GS Scale based on 2018 OPM tables, hourly basic wage rates by grade and step for the locality pay area of Washington-Baltimore-Arlington, DCMD-VA-WV-PA Accessed March 1st, 2018. https:// www.opm.gov/policy-data-oversight/pay-leave/ salaries-wages/salary-tables/18Tables/html/DCB_ h.aspx. PO 00000 Frm 00027 Fmt 4701 Sfmt 4702 32981 hourly wage rates from the Office of Personnel Management (OPM) for the midpoint (step 5) of these grade levels produces fully loaded 8 wage rates of $90.85 and $106.87 per hour, respectively. At approximately 90 minutes per officer for each expected waiver, the subtotal is $136.28 9 and $160.30,10 respectively. The waivers also require concurrence, cleared by the appropriate Assistant Administrator. This review and approval takes approximately five minutes at the estimated midpoint in the Senior Executive Service (SES).11 FEMA estimates that a fully loaded SES hourly rate is $126.66 per hour.12 The subtotal of the SES time is $10.56.13 The total opportunity cost of FEMA processing each wavier is $307.16.14 8 Bureau of Labor Statistics, Employer Cost for Employee Compensation News Release, Table 1. Employer costs per hour worked for employee compensation and costs as a percent of total compensation; civilian workers, by major occupational and industry group, December 2017. https://www.bls.gov/news.release/archives/ecec_ 03202018.htm. The per hour benefits multiplier is calculated by dividing total compensation for all workers ($35.87) by wages and salaries for all workers ($24.49), which yields a per hour benefits multiplier of 1.46. ($35.87 ÷ $24.49 = 1.46468). Fully-loaded wage rates are calculated by multiplying the per hour benefits multiplier by the applicable wage rate. GS– 14: $62.23 × 1.46 = $90.85 and GS–15: $73.20 × 1.46 = $106.87. 9 $90.85 (hourly wage rate of $62.23 × 1.46) * 1.5 hours = $136.28. 10 $106.87 (hourly wage rate of $73.20 × 1.46) * 1.5 hours = $160.30. 11 FEMA bases SES salary estimates on OPM’s Senior Executive Service Report. The latest report available is for 2016. Across all agencies the median SES pay is $173,882 (see table 13 at the following link) https://www.opm.gov/policy-data-oversight/ data-analysis-documentation/federal-employmentreports/reports-publications/ses-summary-2016.pdf. Accessed June 4, 2018. 12 $173,882 annual wage/2087 annual hours = $83.32 hourly wage rate × 1.46 benefits multiplier = $121.65 fully loaded hourly wage × 1.04115 inflation adjustment = $126.66 fully loaded $2018 hourly wage. We calculated the inflation adjustment by subtracting the July 2016 CPI–U (240.6) from the April 2018 CPI–U (250.5). We divided the result (9.9) by the July 2016 CPI–U (240.0). Calculation: (250.5¥240.6)/240.6 = 0.04115. BLS CPI–U data is available at https://data.bls.gov/cgi-bin/ surveymost?bls. Select CPI for All Urban Consumers (CPI–U) 1982¥84 = 100 (Unadjusted) ¥ CUUR0000SA0 and click the Retrieve data button. Accessed June 8, 2018. 13 $126.96 * 5 minutes = $10.56. 14 $136.28 + $160.30 + $10.56 = $307.14. E:\FR\FM\16JYP2.SGM 16JYP2 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules Applying this cost to the estimated frequency of occurrence of 0.67 waivers per year and extending the avoided costs over a ten-year period would project a total undiscounted cost savings of $2,048. The ten-year total would equate to $1,799 and $1,539, when discounted at three percent and seven percent respectively. sradovich on DSK3GMQ082PROD with PROPOSALS2 3. Alternatives Considered Given that this rule has no direct compliance costs, no less burdensome alternatives to the proposed rule are available. In the absence of this proposed rule, stakeholders would continue to experience the negative repercussions of inconsistences between the statutes, regulations, and agency policy documents. FEMA invites all interested parties to submit data and information regarding the potential economic impact that would result from adoption of the proposals in this NPRM. FEMA will consider all comments received in the public comment process. 4. Summary For the 10-year period analyzed, FEMA does not anticipate any costs resulting from the selected provisions of BW–12 and HFIAA that the rule is implementing. During that same period analyzed, the estimated quantified benefits total $2,048. The present value, discounted at 7 percent, of the estimated quantified benefits is approximately $1,539 and $1,799 discounted at 3 percent. FEMA’s ability to administer the NFIP in a more streamlined manner, and the public’s enhanced understanding of the terms and conditions of the program would justify the proposed rule, compliant with the respective Congressional mandates. B. Regulatory Flexibility Act The Regulatory Flexibility Act of 1980 (5 U.S.C. 601 et seq.) requires agency review of proposed and final rules to VerDate Sep<11>2014 18:34 Jul 13, 2018 Jkt 244001 assess their impact on small entities. When an agency is required by 5 U.S.C. 553, or any other law, to publish a general notice of proposed rulemaking for any proposed rule, the agency must prepare an initial regulatory flexibility analysis (IRFA) or have the head of the agency certify pursuant to 5 U.S.C. 605(b) that the rule will not, if promulgated, have a significant economic impact on a substantial number of small entities. FEMA believes this proposed rule, if promulgated, will not have a significant economic impact on a substantial number of small entities. However, FEMA is publishing this IRFA to aid the public in commenting on the potential impacts of the proposed requirements in this NPRM on small entities. FEMA invites all interested parties to submit data and information regarding the potential economic impact on small entities that would result from the adoption of this NPRM. FEMA will consider all comments received in the public comment process when making a final determination. In accordance with the Regulatory Flexibility Act, an IFRA must contain: (1) A description of the reasons why the action by the agency is being considered; (2) A succinct statement of the objectives of, and legal basis for, the proposed rule; (3) A description—and, where feasible, an estimate of the number—of small entities to which the proposed rule will apply; (4) A description of the projected reporting, recordkeeping, and other compliance requirements of the proposed rule, including an estimate of the classes of small entities that will be subject to the requirements and the types of professional skills necessary for preparation of the report or record; (5) An identification, to the extent practicable, of all relevant Federal rules that may duplicate, overlap, or conflict with the proposed rule; and (6) A PO 00000 Frm 00028 Fmt 4701 Sfmt 4702 description of significant alternatives to the rule. 1. A Description of the Reasons Why Action by the Agency Is Being Considered The proposed rule would revise the NFIP implementing regulations at parts 59, 61, and 62, as well as the Appendices to part 61, to codify in regulation certain provisions of the Biggert-Waters Flood Insurance Reform Act of 2012 and the Homeowner Flood Insurance Affordability Act of 2014 that FEMA has already implemented and to clarify certain existing NFIP rules relating to NFIP operations and the SFIP. 2. A Succinct Statement of the Objectives of, and Legal Basis for, the Proposed Rule The proposed changes to the regulation would codify FEMA’s implementation of the legislative requirements of the Biggert-Waters Flood Insurance Reform Act of 2012 and the Homeowner Flood Insurance Affordability Act of 2014, and clarify existing rules. These required changes have already been implemented and this rule would conform NFIP regulations with existing policies and practices. FEMA anticipates that this rulemaking will result in a more streamlined operation of the NFIP and enhance customer service because of greater information and clarity for policyholders and all stakeholders. The NFIA authorizes FEMA to ‘‘enter into any contracts, agreements, or other arrangements’’ with private insurance companies to utilize their facilities and services in administering the NFIP, and on such terms and conditions as may be agreed upon. See 42 U.S.C. 4081. Pursuant to this authority, FEMA enters into a standard Financial Assistance/ Subsidy Arrangement with private sector property insurers, also known as the WYO companies. Under this E:\FR\FM\16JYP2.SGM 16JYP2 EP16JY18.000</GPH> 32982 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules arrangement, WYO companies sell NFIP flood insurance policies under their own names and adjust and pay claims arising under the policy. It is in reference to these specific authorities to administer the NFIP, and the WYO program that is encompassed within it, that FEMA is proposing to continue to streamline operations and remove confusing obsolete or redundant language that may confuse stakeholders, including its policyholders, the WYO companies, and FEMA. sradovich on DSK3GMQ082PROD with PROPOSALS2 3. A Description of and, Where Feasible, an Estimate of the Number of Small Entities to Which the Proposed Rule Will Apply ‘‘Small entity’’ is defined in 5 U.S.C. 601. The term ‘‘small entity’’ can have the same meaning as the terms ‘‘small business,’’ ‘‘small organization’’ and ‘‘small governmental jurisdiction.’’ Section 601(3) defines a ‘‘small business’’ as having the same meaning as ‘‘small business concern’’ under Section 3 of the Small Business Act. This includes any small business concern that is independently owned and operated, and is not dominant in its field of operation. Section 601(4) defines a ‘‘small organization’’ as any not-for-profit enterprises that are independently owned and operated, and are not dominant in their field of operation. Section 601(5) defines ‘‘small governmental jurisdictions’’ as governments of cities, counties, towns, townships, villages, school districts, or special districts with a population of less than 50,000. No small organization or governmental jurisdiction is a party to the WYO program and therefore would be affected. The SBA stipulates in its size standards the largest business may be and still be classified as a ‘‘small entity.’’ 15 The small business size standard for North American Industry Classification System (NAICS) code 524126 (direct property and casualty insurance carriers) is 1,500 employees. The size standard for 524210 (Insurance Agencies and Brokerages) is $7.5 million, and $32.5 million for 524292 (Third Party Administration of Insurance and Pension Funds). For the two remaining applicable codes of 524113 (Direct Life Insurance Carriers), and 524128 (Other Direct Insurance), the threshold is $38.5 million in 15 U.S. Small Business Administration Table of Small Business Size Standards Matched to North American Industry Classification System Codes effective October 1, 2017. Available at https:// www.sba.gov/content/small-business-sizestandards. VerDate Sep<11>2014 18:34 Jul 13, 2018 Jkt 244001 revenue as modified by the SBA, effective October 1, 2017. There are currently 67 companies 16 participating in the WYO Program. These 67 companies are subject to the terms of the Arrangement and the standards and requirements in the Financial Control Plan. FEMA researched each WYO company to determine the NAICS code, number of employees, and revenue for the individual companies. FEMA used the open-access database, www.manta.com, as well as www.cortera.com to find this information for the size determination. The database was used to help determine the metric of company size, compliant with the SBA thresholds based on the assigned NAICS code. Of the 67 WYO companies, we found a majority of 46 firms were under code 524210 (Insurance Agencies and Brokerages), of which 17 firms, or 37 percent, were small (with only one lacking full data but presumed to be small). The second largest contingent of 16 firms were under 524126 (direct property and casualty insurance carriers), of which 10 firms, or 63 percent, were small (with only one missing data points but presumed to be small). Of the other three aforementioned industry codes, 524113, 524292 and 524128, there was one firm under each and none were small. Finally, two firms were missing industry classifications, and FEMA assumes these are small firms. In total, we found that 29 of the 67 companies are below this maximum, and therefore would be considered small entities. Consequently, small entities comprise 43 percent of participating companies. 4. A Description of the Projected Reporting, Recordkeeping, and Other Compliance Requirements of the Proposed Rule, Including an Estimate of the Classes of Small Entities Which Will Be Subject to the Requirement and the Types of Professional Skills Necessary for Preparation of the Report or Record FEMA believes that the rule would impose no burdens on any participating company because it does not consist of any substantive policy changes, but instead would make changes for clarity and to accurately reflect current FEMA policies and practices. There may be familiarization costs incurred by WYO companies as they review these changes, despite the lack of any substantive changes that would ultimately affect them. Therefore, FEMA anticipates that the rule would not have 16 Number of firms participating in the WYO Program as of May 2018. https://www.fema.gov/ wyo_company. PO 00000 Frm 00029 Fmt 4701 Sfmt 4702 32983 a significant economic impact on a substantial number of small entities. 5. An Identification, to the Extent Practicable, of All Relevant Federal Rules Which May Duplicate, Overlap, or Conflict With the Proposed Rule There are no relevant Federal rules that may duplicate, overlap, or conflict with the proposed rule. 6. A Description of Any Significant Alternatives to the Proposed Rule Which Accomplish the Stated Objectives of Applicable Statutes and Which Minimize Any Significant Economic Impact of the Proposed Rule on Small Entities Given that this rule has no direct compliance costs, no less burdensome alternatives to the proposed rule are available. In the absence of this proposed rule, small entities would continue to experience the negative repercussions of inconsistences between the statutes, regulations and agency policy documents. FEMA invites all interested parties to submit data and information regarding the potential economic impact that would result from adoption of the proposals in this NPRM. FEMA will consider all comments received in the public comment process. C. Unfunded Mandates Reform Act Pursuant to section 201 of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104–4, 2 U.S.C. 1531), each Federal agency ‘‘shall, unless otherwise prohibited by law, assess the effects of Federal regulatory actions on State, local, and Tribal governments, and the private sector (other than to the extent that such regulations incorporate requirements specifically set forth in law).’’ Section 202 of the Act (2 U.S.C. 1532) further requires that ‘‘before promulgating any general notice of proposed rulemaking that is likely to result in the promulgation of any rule that includes any Federal mandate that may result in expenditure by State, local, and Tribal governments, in the aggregate, or by the private sector, of $100 million or more (adjusted annually for inflation) in any one year, and before promulgating any final rule for which a general notice of proposed rulemaking was published, the agency shall prepare a written statement’’ detailing the effect on State, local, and Tribal governments and the private sector. The proposed rule would not result in such an expenditure, and thus preparation of such a statement is not required. E:\FR\FM\16JYP2.SGM 16JYP2 32984 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules D. National Environmental Policy Act of 1969 (NEPA) sradovich on DSK3GMQ082PROD with PROPOSALS2 Section 102 of the National Environmental Policy Act of 1969 (NEPA), 83 Stat. 852 (Jan. 1, 1970) (42 U.S.C. 4321 et seq.) requires agencies to consider the impacts of their proposed actions on the quality of the human environment. The Council on Environmental Quality’s procedures for implementing NEPA, 40 CFR 1500 et seq., require Federal agencies to prepare Environmental Impact Statements (EIS) for major Federal actions significantly affecting the quality of the human environment. Each agency can develop categorical exclusions to cover actions that have been demonstrated to not typically trigger significant impacts to the human environment individually or cumulatively. Agencies develop environmental assessments (EA) to evaluate those actions that do not fit an agency’s categorical exclusion and for which the need for an EIS is not readily apparent. At the end of the EA process, the agency will determine whether to make a Finding of No Significant Impact (FONSI) or whether to initiate the EIS process. Rulemaking is a major Federal action subject to NEPA. The List of exclusion categories at DHS Instruction Manual 023–01–001–01, Appendix A excludes the promulgation of rules that are of a strictly administrative or procedural nature and rules that implement, without substantive change, statutory or regulatory requirements from the preparation of an EA or EIS. (Catex A3(a) and (b)). The purpose of this rule is to implement some statutory requirements of BW–12 and HFIAA, along with making non-substantive clarifications designed to improve overall clarity and readability. These changes are administrative-related changes that are categorically excluded under Catex A3(a) and (b) of DHS Instruction Manual 023–01–001–01, Appendix A. No extraordinary circumstances exist that will trigger the need to develop an EA or EIS. See DHS Instruction Manual 023–01–001–01 V(B)(2). An EA will not be prepared because a categorical exclusion applies to this rulemaking action and no extraordinary circumstances exist. E. Privacy Act/E-Government Act Under the Privacy Act of 1974, 5 U.S.C. 552a, an agency must determine whether implementation of a proposed regulation will result in a system of records. A ‘‘record’’ is any item, collection, or grouping of information about an individual that is maintained by an agency, including, but not limited VerDate Sep<11>2014 18:34 Jul 13, 2018 Jkt 244001 to, his/her education, financial transactions, medical history, and criminal or employment history and that contains his/her name, or the identifying number, symbol, or other identifying particular assigned to the individual, such as a finger or voice print or a photograph. See 5 U.S.C. 552a(a)(4). A ‘‘system of records’’ is a group of records under the control of an agency from which information is retrieved by the name of the individual or by some identifying number, symbols, or other identifying particular assigned to the individual. An agency cannot disclose any record that is contained in a system of records except by following specific procedures. The EGovernment Act of 2002, 44 U.S.C. 3501 note, also requires specific procedures when an agency takes action to develop or procure information technology that collects, maintains, or disseminates information that is in an identifiable form. This Act also applies when an agency initiates a new collection of information that will be collected, maintained, or disseminated using information technology if it includes any information in an identifiable form permitting the physical or online contacting of a specific individual. In accordance with DHS policy, FEMA has completed a Privacy Threshold Analysis (PTA) for this proposed rule. DHS/FEMA has determined that this proposed rulemaking does not affect the 1660– 0006 OMB Control Number’s current compliance with the E-Government Act of 2002 or the Privacy Ac of 1974, as amended. As a result, DHS/FEMA has concluded that the 1660–0006 OMB Control Number is covered by the DHS/ FEMA/PIA–011—National Flood Insurance Program Information Technology Systems (NFIP ITS) Privacy Impact Assessment (PIA). Additionally, DHS/FEMA has decided that the 1660– 0006 OMB Control Number is covered by the DHS/FEMA–003 National Flood Insurance Program Files, 79 FR 28747, May 19, 2014 System of Records Notice (SORN). F. Paperwork Reduction Act of 1995 Under the Paperwork Reduction Act of 1995 (PRA), as amended, 44 U.S.C. 3501–3520, an agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the agency obtains approval from the Office of Management and Budget (OMB) for the collection and the collection displays a valid OMB control number. See 44 U.S.C. 3506, 3507. This proposed rulemaking does not call for a new collection of information under the PRA. There is an PO 00000 Frm 00030 Fmt 4701 Sfmt 4702 existing collection of information, 1660– 0006, the National Flood Insurance Program Policy Forms, Public Law 90– 448 (1968) (expanded by Pub. L. 93–234 (1973)) included in this rulemaking. BW–12 and HFIAA require modifications to the NFIP. Program changes resulting from BW–12 and HFIAA necessitated revision of the NFIP Policy Forms to assure proper classification of properties for rating purposes and to rate and issue the policies in accordance with the provisions of BW–12 and HFIAA. However, this proposed rule will not impact this collection because the forms have already been updated as needed. G. Executive Order 13175 Consultation and Coordination With Indian Tribal Governments Executive Order 13175, ‘‘Consultation and Coordination with Indian Tribal Governments,’’ 65 FR 67249 (Nov. 9, 2000), applies to agency regulations that have Tribal implications, that is, regulations that have substantial direct effects on one or more Indian Tribes, on the relationship between the Federal Government and Indian Tribes, or on the distribution of power and responsibilities between the Federal Government and Indian Tribes. Under this Executive Order, to the extent practicable and permitted by law, no agency shall promulgate any regulation that has Tribal implications, that imposes substantial direct compliance costs on Indian Tribal governments, and that is not required by statute, unless funds necessary to pay the direct costs incurred by the Indian Tribal government in complying with the regulation are provided by the Federal Government or the agency consults with Tribal officials. Nor, to the extent practicable by law, may an agency promulgate a regulation that has Tribal implications and preempts Tribal law, unless the agency consults with Tribal officials. This proposed rule involves no policies that have Tribal implications under Executive Order 13175. This rulemaking makes limited changes to the comprehensive, longstanding National Flood Insurance Program regulations applicable to communities, including participating Indian Tribal governments and Tribes, which voluntarily choose to participate in the program. Because these program updates are limited, they will not have substantial direct effects on Indian Tribes, on the relationship between the national government and Indian Tribes, or the distribution of power between the Federal Government and Indian Tribes. E:\FR\FM\16JYP2.SGM 16JYP2 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules sradovich on DSK3GMQ082PROD with PROPOSALS2 H. Executive Order 13132 Federalism Executive Order 13132, ‘‘Federalism,’’ 64 FR 43255 (Aug. 10, 1999), sets forth principles and criteria that agencies must adhere to in formulating and implementing policies that have federalism implications, that is, regulations that have ‘‘substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.’’ For the purposes of this Executive Order, the term States also includes local governments or other subdivisions established by the States. Under this Executive Order, Federal agencies must closely examine the statutory authority supporting any action that would limit the policymaking discretion of the States. Further, to the extent practicable and permitted by law, no agency shall promulgate any regulation that has federalism implications, that imposes substantial direct compliance costs on State and local governments, and that is not required by statute, unless the Federal Government provides funds necessary to pay the direct costs incurred by the State and local governments in complying with the regulation, or the agency consults with State and local officials. Nor, to the extent practicable by law, may an agency promulgate a regulation that has federalism implications and preempts State law, unless the agency consults with State and local officials. FEMA has reviewed this proposed rule under Executive Order 13132 and has determined that does not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government, and therefore does not have federalism implications as defined by the Executive Order. This rulemaking makes limited changes to the comprehensive, longstanding National Flood Insurance Program regulations governing the communities’ participation in the program. Because these program updates are limited, they will not have substantial direct effects on the States or participating communities, on the relationship between the national government and the States or participating communities, or the distribution of power among the various levels of government. I. Executive Order 11988 Management Floodplain Pursuant to Executive Order 11988, ‘‘Floodplain Management,’’ 42 FR 26951 VerDate Sep<11>2014 18:34 Jul 13, 2018 Jkt 244001 (May 24, 1977), each agency must provide leadership and take action to reduce the risk of flood loss, to minimize the impact of floods on human safety, health and welfare, and to restore and preserve the natural and beneficial values served by floodplains in carrying out its responsibilities for (1) acquiring, managing, and disposing of Federal lands and facilities; (2) providing Federally undertaken, financed, or assisted construction and improvements; and (3) conducting Federal activities and programs affecting land use, including but not limited to water and related land resources planning, regulating, and licensing activities. In carrying out these responsibilities, each agency must evaluate the potential effects of any actions it may take in a floodplain; ensure that its planning programs and budget requests reflect consideration of flood hazards and floodplain management; and prescribe procedures to implement the policies and requirements of the Executive Order. Before promulgating any regulation, an agency must determine whether the proposed regulations will affect a floodplain(s), and if so, the agency must consider alternatives to avoid adverse effects and incompatible development in the floodplain(s). If the head of the agency finds that the only practicable alternative consistent with the law and with the policy set forth in Executive Order 11988 is to promulgate a regulation that affects a floodplain(s), the agency must, prior to promulgating the regulation, design or modify the regulation in order to minimize potential harm to or within the floodplain, consistent with the agency’s floodplain management regulations. It must also prepare and circulate a notice containing an explanation of why the action is proposed to be located in the floodplain. The purpose of this proposed rule is to implement insurance-related administrative changes to clarify coverage, rates, and terms and conditions. The changes proposed in this rule would not have an effect on land use, floodplain management, or wetlands. J. Executive Order 11990 Protection of Wetlands Executive Order 11990, ‘‘Protection of Wetlands,’’ 42 FR 26961 (May 24, 1977) sets forth that each agency must provide leadership and take action to minimize the destruction, loss or degradation of wetlands, and to preserve and enhance the natural and beneficial values of wetlands in carrying out the agency’s responsibilities. These responsibilities PO 00000 Frm 00031 Fmt 4701 Sfmt 4702 32985 include (1) acquiring, managing, and disposing of Federal lands and facilities; and (2) providing Federally undertaken, financed, or assisted construction and improvements; and (3) conducting Federal activities and programs affecting land use, including but not limited to water and related land resources planning, regulating, and licensing activities. Each agency, to the extent permitted by law, must avoid undertaking or providing assistance for new construction located in wetlands unless the head of the agency finds (1) that there is no practicable alternative to such construction, and (2) that the proposed action includes all practicable measures to minimize harm to wetlands which may result from such use. In making this finding, the head of the agency may take into account economic, environmental and other pertinent factors. In carrying out the activities described in Executive Order 11990, each agency must consider factors relevant to a proposal’s effect on the survival and quality of the wetlands. These include public health, safety, and welfare, including water supply, quality, recharge and discharge; pollution; flood and storm hazards; sediment and erosion; maintenance of natural systems, including conservation and long term productivity of existing flora and fauna, species and habitat diversity and stability, hydrologic utility, fish, wildlife, timber, and food and fiber resources. They also include other uses of wetlands in the public interest, including recreational, scientific, and cultural uses. The purpose of this proposed rule is to implement insurance-related administrative changes to clarify coverage, rates, and terms and conditions. The changes proposed in this rule would not have an effect on land use, floodplain management, or wetlands. K. Executive Order 12898 Environmental Justice Under Executive Order 12898, ‘‘Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations,’’ 59 FR 7629 (Feb. 16, 1994), as amended by Executive Order 12948, 60 FR 6381, (Feb. 1, 1995), FEMA incorporates environmental justice into its policies and programs. The Executive Order requires each Federal agency to conduct its programs, policies, and activities that substantially affect human health or the environment in a manner that ensures that those programs, policies, and activities do not have the effect of excluding persons from participation in programs, denying E:\FR\FM\16JYP2.SGM 16JYP2 32986 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules persons the benefits of programs, or subjecting persons to discrimination because of race, color, or national origin. This rulemaking will not have a disproportionately high or adverse effect on human health or the environment, nor will it exclude persons from participation in FEMA programs, deny persons the benefits of FEMA programs, or subject persons to discrimination because of race, color, or national origin. L. Congressional Review of Agency Rulemaking Before a rule can take effect, the Congressional Review of Agency Rulemaking Act (CRA), 5 U.S.C. 801– 808, requires the Federal agency promulgating the rule to submit to Congress and to the Government Accountability Office (GAO) a copy of the rule, a concise general statement relating to the rule, including whether it is a major rule, the proposed effective date of the rule, a copy of any costbenefit analysis, descriptions of the agency’s actions under the Regulatory Flexibility Act and the Unfunded Mandates Reform Act, and any other information or statements required by relevant Executive orders. FEMA will send this rule to the Congress and to GAO pursuant to the CRA if the rule is finalized. This proposed rule is not a ‘‘major rule’’ within the meaning of the CRA. It will not have an annual effect on the economy of $100,000,000 or more or result in a major increase in costs or prices for consumers, individual industries, Federal, State, or local government agencies, or geographic regions. Nor will it have significant adverse effects on competition, employment, investment, productivity, innovation, or on the ability of United States-based enterprises to compete with foreign-based enterprises in domestic and export markets. List of Subjects 44 CFR Parts 59 and 61 Flood insurance, Reporting and recordkeeping requirements. sradovich on DSK3GMQ082PROD with PROPOSALS2 44 CFR Part 62 Claims, Flood insurance, Reporting and recordkeeping requirements. For the reasons stated in the preamble, FEMA proposes to amend 44 CFR Chapter I as follows: PART 59—GENERAL PROVISIONS 1. Revise authority citation for part 59 to read as follows: ■ Authority: 42 U.S.C. 4001 et seq.; 6 U.S.C. 101 et seq. VerDate Sep<11>2014 18:34 Jul 13, 2018 Jkt 244001 2. In section 59.1, add definitions, in alphabetical order, for ‘‘Condominium Building,’’ ‘‘Mixed Use Building,’’ ‘‘Multifamily Building,’’ ‘‘NonResidential Building,’’ ‘‘Non-Residential Property,’’ ‘‘Other Residential Building,’’ ‘‘Other Residential Property,’’ ‘‘Residential Building,’’ ‘‘Residential Property,’’ ‘‘Single Family Dwelling,’’ and ‘‘Two to Four Family Building’’ and revise the definitions for ‘‘Act,’’ ‘‘Deductible,’’ and ‘‘Emergency Program’’ to read as follows: ■ § 59.1 Definitions. * * * * * Act means the statutes authorizing the National Flood Insurance Program that are incorporated in 42 U.S.C. 4001—et seq. * * * * * Condominium Building means a type of building in the form of ownership in which each unit owner has an undivided interest in common elements of the building. * * * * * Deductible means the amount of an insured loss that is the responsibility of the insured and that is incurred before any amounts are paid for the insured loss under the insurance policy. * * * * * Emergency Program means the initial phase of a community’s participation in the National Flood Insurance Program, as prescribed by Section 1306 of the Act. * * * * * Mixed Use Building means a building that has both residential and nonresidential uses. * * * * * Multifamily Building means an other residential building that is not a condominium building. * * * * * Non-Residential Building means a commercial or mixed-use building where the primary use is commercial or non-habitational. Non-Residential Property means either a non-residential building, the contents within a non-residential building, or both. * * * * * Other Residential Building means a residential building that is designed for use as a residential space for 5 or more families or a mixed use building in which the total floor area devoted to non-residential uses is less than 25 percent of the total floor area within the building. Other Residential Property means either an other residential building, the PO 00000 Frm 00032 Fmt 4701 Sfmt 4702 contents within an other residential building, or both. * * * * * Residential Building means a noncommercial building designed for habitation by one or more families or a mixed use building that qualifies as a single-family, two to four family, or other residential building. Residential Property means either a residential building or the contents within a residential building, or both. * * * * * Single Family Dwelling means either (a) a residential single-family building in which the total floor area devoted to non-residential uses is less than 50 percent of the building’s total floor area, or (b) a single-family residential unit within a two to four family building, other-residential building, business, or non-residential building, in which commercial uses within the unit are limited to less than 50 percent of the unit’s total floor area. * * * * * Two to Four Family Building means a residential building, including an apartment building, containing two to four residential spaces and in which commercial uses are limited to less than 25 percent of the building’s total floor area. * * * * * PART 61—INSURANCE COVERAGE AND RATES 3. Revise the authority citation for part 61 to read as follows: ■ Authority: 42 U.S.C. 4001 et seq.; 6 U.S.C. 101 et seq. ■ 4. Revise § 61.1 to read as follows: § 61.1 Purpose of part. This part describes the types of properties eligible for flood insurance coverage under the Program, the limits of such coverage, and the premium rates actually to be paid by insureds. ■ 5. Revise § 61.3 to read as follows: § 61.3 Coverage and benefits provided under the Standard Flood Insurance Policy. (a) Insurance coverage under the Program is available for buildings and their contents. Coverage for each may be purchased separately. (b) In addition to building and contents coverage, the Dwelling Form of the Standard Flood Insurance Policy (SFIP) covers debris removal, loss avoidance measures, and condominium loss assessments. The General Property Form of the SFIP covers debris removal, loss avoidance measures, and pollution damage. The Residential Condominium Policy Form of the SFIP covers debris removal and loss avoidance measures. E:\FR\FM\16JYP2.SGM 16JYP2 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules (c) With the purchase of building coverage, the Standard Flood Insurance Policy covers the costs associated with bringing the building into compliance with local floodplain ordinances. ■ 6. Revise § 61.4 to read as follows: § 61.4 Special terms and conditions. (a) No new flood insurance or renewal of flood insurance policies will be written for properties declared by a duly constituted State or local zoning or other authority to be in violation of any flood plain, mudslide (i.e., mudflow), or flood-related erosion area management or control law, regulation, or ordinance. (b) In order to reduce the administrative costs of the Program, of which the Federal Government pays a major share, applicants must pay the (c) The minimum deductible for policies covering post-FIRM buildings and pre-FIRM buildings charged full risk rates, with building coverage amounts equal to or less than $100,000 is $1,000. (d) The minimum deductible for policies covering post-FIRM buildings and pre-FIRM buildings charged full risk rates, with building coverage amounts greater than $100,000 is $1,250 ■ 8. Revise § 61.6 to read as follows: full policy premium at the time of application. ■ 7. Revise § 61.5 to read as follows: § 61.5 32987 Deductibles. FEMA must provide policyholders with deductible options in various amounts, up to and including $10,000, subject to the following minimum deductible amounts: (a) The minimum deductible for policies covering pre-FIRM buildings charged less than full-risk rates with building coverage amounts less than or equal to $100,000 is $1,500. (b) The minimum deductible for policies covering pre-FIRM buildings charged less than full-risk rates with building coverage amounts greater than $100,000 is $2,000. § 61.6 Maximum amounts of coverage available. (a) Pursuant to section 1306 of the Act, the following are the limits of coverage available under the emergency program and under the regular program. MAXIMUM AMOUNTS OF COVERAGE AVAILABLE 1 Emergency program Regular program Amount Amount Occupancy Building Coverage: Single Family Dwelling ............................................................ Two to Four Family Building ................................................... Other Residential Building (including Multifamily Building) ..... Condominium Building ............................................................. Non-Residential Building ......................................................... * $35,000 * 35,000 ** 100,000 N/A ** 100,000 Contents Coverage: 2 Residential Property 3 .............................................................. Non-Residential Property ........................................................ 10,000 $100,000 $250,000. $250,000. $500,000. $250,000 times the number of units in the building. $500,000. 100,000. $500,000. 1 This Table provides the maximum coverage amounts available under the Emergency Program and the Regular Program, and the columns cannot be aggregated to exceed the limits in the Regular Program, which are established by statute. The aggregate limits for building coverage are the maximum coverage amounts allowed by statute for each building included in the relevant Occupancy Category. 2 The policy limits for contents coverage are not per building. Although a single insured may not have more than one policy covering contents in a building, several insureds may have separate policies of up to the policy limits. 3 The Residential Property occupancy category includes the Single Family Dwelling, Two to Four Family Building, Other Residential Building, and Condominium Building occupancies categories. * In Alaska, Guam, Hawaii, and U.S. Virgin Islands, the amount available is $50,000. ** In Alaska, Guam, Hawaii, and U.S. Virgin Islands, the amount available is $150,000. (b) Coverage and benefits payable under the SFIP pursuant to § 61.3(b) and § 61.3(c) are included in, not in addition to, the coverage limits provided by the Act or stated in paragraph (a) of this section. ■ 9. Add § 61.10 to read as follows: sradovich on DSK3GMQ082PROD with PROPOSALS2 § 61.10 Requirements for issuance or renewal of flood insurance coverage. FEMA will not issue or renew flood insurance unless FEMA receives: (a) The full amount due (including applicable premiums, surcharges, and fees); and (b) A complete application, including the information necessary to establish a premium rate for the policy, or submission of corrected or additional information necessary to calculate the premium for the renewal of the policy. VerDate Sep<11>2014 19:07 Jul 13, 2018 Jkt 244001 § 61.11 Effective date and time of coverage under the Standard Flood Insurance Policy—New Business Applications and Endorsements. 10. Amend § 61.11 by revising paragraphs (c) through (g) to read as follows: * * * * * (c) Where the following conditions are met, the effective date and time of any initial purchase of flood insurance coverage for any privately-owned property will be 12:01 a.m. (local time) on the first calendar day after the application date and the presentment of payment of premium or initial installment payment: (1) The Administrator has determined that the property is affected by flooding on Federal land that is a result of, or is exacerbated by, post-wildfire conditions, after consultation with an authorized employee of the Federal agency that has jurisdiction of the land ■ PO 00000 Frm 00033 Fmt 4701 Sfmt 4702 on which the wildfire that caused the post-wildfire conditions occurred; and (2) The flood insurance coverage was purchased not later than 60 calendar days after the fire containment date, as determined by the appropriate Federal employee, relating to the wildfire that caused the post-wildfire conditions described in clause (1). (d) Except as provided by paragraphs (a), (b), and (c) of this section, the effective date and time of any new policy or added coverage or increase in the amount of coverage will be 12:01 a.m. (local time) on the 30th calendar day after the application date and the presentment of payment of premium; for example, a flood insurance policy applied for with the payment of the premium on May 1 will become effective at 12:01 a.m. on May 31. (e) Adding new coverage or increasing the amount of coverage in force is permitted during the term of any policy, E:\FR\FM\16JYP2.SGM 16JYP2 32988 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules subject to any applicable waiting periods. The additional premium for any new coverage or increase in the amount of coverage will be calculated pro rata in accordance with the rates currently in force. (f) With respect to any submission of an application in connection with new business, the payment by an insured to an agent or the issuance of premium payment by the agent does not constitute payment to the NFIP. Therefore, it is important that an application for flood insurance, as well as the full amount due, be mailed to the NFIP promptly in order to have the effective date of the coverage based on the application date plus the waiting period. If the application and the full amount due are received at the office of the NFIP within ten (10) calendar days from the date of application, the waiting period will be calculated from the date of application. Also, as an alternative, in those cases where the application and premium payment are mailed by certified mail within four (4) calendar days from the date of application, the waiting period will be calculated from the date of application even though the application and full amount due are received at the office of the NFIP after ten (10) calendar days following the date of application. Thus, if the application and premium payment are received after ten (10) calendar days from the date of the application or are not mailed by certified mail within four (4) calendar days from the date of application, the waiting period will be calculated from the date of receipt at the office of the NFIP. To determine the effective date of any coverage added by endorsement to a flood insurance policy already in effect, substitute the term endorsement for the term application in this paragraph (f). (g) The rules set forth in paragraphs (a) through (f) of this section apply to Write Your Own (WYO) companies, except that agents must mail the premium payments and accompanying applications and endorsements to the WYO company and the WYO company must receive the applications and endorsements, rather than the NFIP. Administrator’s interpretations, and the express terms of the policy itself. Accordingly, representations regarding the extent and scope of coverage that are not consistent with Federal statute, the program’s regulations, the Federal Insurance Administrator’s interpretations, and the express terms of the policy itself, are void. (f) Agent acts only for policyholder. The duly licensed property or casualty agent acts for the policyholder and does not act as agent for the Federal Government, the Federal Emergency Management Agency, the Write Your Own (WYO) program participating insurance company authorized by part 62 of this chapter, or the NFIP servicing agent. (g) Oral and written binders. No oral binder or contract will be effective. No written binder will be effective unless issued with express authorization of the Federal Insurance Administrator. (h) The Standard Flood Insurance Policy and endorsements may be issued by private sector Write Your Own (WYO) property insurance companies, based upon flood insurance applications and renewal forms, all of which instruments of flood insurance may bear the name, as Insurer, of the issuing WYO company. In the case of any Standard Flood Insurance Policy, and its related forms, issued by a WYO company, wherever the names ‘‘Federal Emergency Management Agency’’ and ‘‘Federal Insurance and Mitigation Administration’’ appear, a WYO company must substitute its own name therefor. Standard Flood Insurance Policies issued by WYO companies may be executed by the issuing WYO company as Insurer, in the place and stead of the Federal Insurance Administrator, but the risk of loss is borne by the National Flood Insurance Fund, not the WYO company. ■ 12. Revise Appendix A(1) to part 61 to read as follows: § 61.13 Dwelling Form Please read the policy carefully. The flood insurance provided is subject to limitations, restrictions, and exclusions. Standard Flood Insurance Policy. 11. Amend § 61.13 by revising paragraphs (e) and (f) and adding paragraphs (g) and (h) to read as follows: * * * * * (e) Authorized only under terms and conditions established by the Act and Regulation. The Standard Flood Insurance Policy is authorized only under terms and conditions established by Federal statute, the program’s regulations, the Federal Insurance sradovich on DSK3GMQ082PROD with PROPOSALS2 ■ VerDate Sep<11>2014 18:34 Jul 13, 2018 Jkt 244001 Appendix A(1) to Part 61 Federal Emergency Management Agency, Federal Insurance and Mitigation Administration Standard Flood Insurance Policy I. Agreement A. This policy covers the following types of property only: 1. A one to four family residential building, not under a condominium form of ownership; 2. A single family dwelling unit in a condominium building; and PO 00000 Frm 00034 Fmt 4701 Sfmt 4702 3. Personal property in a building. B. The Federal Emergency Management Agency (FEMA) provides flood insurance under the terms of the National Flood Insurance Act of 1968 and its amendments, and Title 44 of the Code of Federal Regulations. C. We will pay you for direct physical loss by or from flood to your insured property if you: 1. Have paid the full amount due (including applicable premiums, surcharges, and fees); 2. Comply with all terms and conditions of this policy; and 3. Have furnished accurate information and statements. D. We have the right to review the information you give us at any time and revise your policy based on our review. E. This policy insures only one building. If you own more than one building, coverage will apply to the single building specifically described in the Flood Insurance Application. F. Subject to the exception in I.G below, multiple policies with building coverage cannot be issued to insure a single building to one insured or to different insureds, even if separate policies were issued through different NFIP insurers. Payment for damages may only be made under a single policy for building damages under Coverage A— Building Property. G. A Dwelling Form policy with building coverage may be issued to a unit owner in a condominium building that is also insured under a Residential Condominium Building Association Policy (RCBAP). However, no more than $250,000 may be paid in combined benefits for a single unit under the Dwelling Form policy and the RCBAP. We will only pay for damage once. Items of damage paid for under an RCBAP cannot also be claimed under the Dwelling Form policy. II. Definitions A. In this policy, ‘‘you’’ and ‘‘your’’ refer to the named insured(s) shown on the Declarations Page of this policy and the spouse of the named insured, if a resident of the same household. Insured(s) also includes: Any mortgagee and loss payee named in the Application and Declarations Page, as well as any other mortgagee or loss payee determined to exist at the time of loss, in the order of precedence. ‘‘We,’’ ‘‘us,’’ and ‘‘our’’ refer to the insurer. Some definitions are complex because they are provided as they appear in the law or regulations, or result from court cases. B. Flood, as used in this flood insurance policy, means: 1. A general and temporary condition of partial or complete inundation of two or more acres of normally dry land area or of two or more properties (one of which is your property) from: a. Overflow of inland or tidal waters, b. Unusual and rapid accumulation or runoff of surface waters from any source, c. Mudflow. 2. Collapse or subsidence of land along the shore of a lake or similar body of water as a result of erosion or undermining caused by waves or currents of water exceeding E:\FR\FM\16JYP2.SGM 16JYP2 sradovich on DSK3GMQ082PROD with PROPOSALS2 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules anticipated cyclical levels that result in a flood as defined in B.1.a above. C. The following are the other key definitions we use in this policy: 1. Act. The National Flood Insurance Act of 1968 and any amendments to it. 2. Actual Cash Value. The cost to replace an insured item of property at the time of loss, less the value of its physical depreciation. 3. Application. The statement made and signed by you or your agent in applying for this policy. The application gives information we use to determine the eligibility of the risk, the kind of policy to be issued, and the correct premium payment. The application is part of this flood insurance policy. 4. Base Flood. A flood having a one percent chance of being equaled or exceeded in any given year. 5. Basement. Any area of a building, including any sunken room or sunken portion of a room, having its floor below ground level on all sides. 6. Building. a. A structure with two or more outside rigid walls and a fully secured roof that is affixed to a permanent site; b. A manufactured home, also known as a mobile home, is a structure: built on a permanent chassis, transported to its site in one or more sections, and affixed to a permanent foundation); or c. A travel trailer without wheels, built on a chassis and affixed to a permanent foundation, that is regulated under the community’s floodplain management and building ordinances or laws. Building does not mean a gas or liquid storage tank, shipping container, or a recreational vehicle, park trailer, or other similar vehicle, except as described in C.6.c above. 7. Cancellation. The ending of the insurance coverage provided by this policy before the expiration date. 8. Condominium. That form of ownership of one or more buildings in which each unit owner has an undivided interest in common elements. 9. Condominium Association. The entity made up of the unit owners responsible for the maintenance and operation of: a. Common elements owned in undivided shares by unit owners; and b. Other buildings in which the unit owners have use rights; where membership in the entity is a required condition of ownership. 10. Condominium Building. A type of building for which the form of ownership is one in which each unit owner has an undivided interest in common elements of the building. 11. Declarations Page. A computergenerated summary of information you provided in your application for insurance. The Declarations Page also describes the term of the policy, limits of coverage, and displays the premium and our name. The Declarations Page is a part of this flood insurance policy. 12. Deductible. The amount of an insured loss that is your responsibility and that is incurred by you before any amounts are paid for the insured loss under this policy. VerDate Sep<11>2014 18:34 Jul 13, 2018 Jkt 244001 13. Described Location. The location where the insured building(s) or personal property are found. The described location is shown on the Declarations Page. 14. Direct Physical Loss By or From Flood. Loss or damage to insured property, directly caused by a flood. There must be evidence of physical changes to the property. 15. Dwelling. A building designed for use as a residence for no more than four families or a single-family unit in a condominium building. 16. Elevated Building. A building that has no basement and that has its lowest elevated floor raised above ground level by foundation walls, shear walls, posts, piers, pilings, or columns. 17. Emergency Program. The initial phase of a community’s participation in the National Flood Insurance Program. During this phase, only limited amounts of insurance are available under the Act and the regulations prescribed pursuant to the Act. 18. Federal Policy Fee. A flat rate charge you must pay on each new or renewal policy to defray certain administrative expenses incurred in carrying out the National Flood Insurance Program. 19. Improvements. Fixtures, alterations, installations, or additions comprising a part of the dwelling or apartment in which you reside. 20. Mudflow. A river of liquid and flowing mud on the surface of normally dry land areas, as when earth is carried by a current of water. Other earth movements, such as landslide, slope failure, or a saturated soil mass moving by liquidity down a slope, are not mudflows. 21. National Flood Insurance Program (NFIP). The program of flood insurance coverage and floodplain management administered under the Act and applicable Federal regulations in Title 44 of the Code of Federal Regulations, Subchapter B. 22. Policy. The entire written contract between you and us. It includes: a. This printed form; b. The application and Declarations Page; c. Any endorsement(s) that may be issued; and d. Any renewal certificate indicating that coverage has been instituted for a new policy and new policy term. Only one dwelling, which you specifically described in the application, may be insured under this policy. 23. Pollutants. Substances that include, but are not limited to, any solid, liquid, gaseous, or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste. ‘‘Waste’’ includes, but is not limited to, materials to be recycled, reconditioned, or reclaimed. 24. Post-FIRM Building. A building for which construction or substantial improvement occurred after December 31, 1974, or on or after the effective date of an initial Flood Insurance Rate Map (FIRM), whichever is later. 25. Principal Residence. The dwelling in which you or your spouse have lived for at least 80 percent of (a) the 365 days immediately preceding the time of loss; or (b) the period of ownership of you or your spouse, if either you or your spouse owned PO 00000 Frm 00035 Fmt 4701 Sfmt 4702 32989 the dwelling for less than 365 days immediately preceding the time of loss. 26. Probation Surcharge. A flat charge you must pay on each new or renewal policy issued covering property in a community the NFIP has placed on probation under the provisions of 44 CFR 59.24. 27. Regular Program. The final phase of a community’s participation in the National Flood Insurance Program. In this phase, a Flood Insurance Rate Map is in effect and full limits of coverage are available under the Act and the regulations prescribed pursuant to the Act. 28. Special Flood Hazard Area (SFHA). An area having special flood or mudflow, and/ or flood-related erosion hazards, and shown on a Flood Hazard Boundary Map or Flood Insurance Rate Map as Zone A, AO, A1–A30, AE, A99, AH, AR, AR/A, AR/AE, AR/AH, AR/AO, AR/A1–A30, V1–V30, VE, or V. 29. Unit. A single-family residential space you own in a condominium building. 30. Valued Policy. A policy in which the insured and the insurer agree on the value of the property insured, that value being payable in the event of a total loss. The Standard Flood Insurance Policy is not a valued policy. III. Property Covered A. Coverage A—Building Property We insure against direct physical loss by or from flood to: 1. The dwelling at the described location, or for a period of 45 days at another location as set forth in III.C.2.b, Property Removed to Safety. 2. Additions and extensions attached to and in contact with the dwelling by means of a rigid exterior wall, a solid load-bearing interior wall, a stairway, an elevated walkway, or a roof. At your option, additions and extensions connected by any of these methods may be separately insured. Additions and extensions attached to and in contact with the building by means of a common interior wall that is not a solid loadbearing wall are always considered part of the dwelling and cannot be separately insured. 3. A detached garage at the described location. Coverage is limited to no more than 10 percent of the limit of liability on the dwelling. Use of this insurance is at your option but reduces the building limit of liability. We do not cover any detached garage used or held for use for residential (i.e., dwelling), business, or farming purposes. 4. Materials and supplies to be used for construction, alteration, or repair of the dwelling or a detached garage while the materials and supplies are stored in a fully enclosed building at the described location or on an adjacent property. 5. A building under construction, alteration, or repair at the described location. a. If the structure is not yet walled or roofed as described in the definition for building (see II.B.6.a) then coverage applies: (1) Only while such work is in progress; or (2) If such work is halted, only for a period of up to 90 continuous days thereafter. b. However, coverage does not apply until the building is walled and roofed if the E:\FR\FM\16JYP2.SGM 16JYP2 sradovich on DSK3GMQ082PROD with PROPOSALS2 32990 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules lowest floor, including the basement floor, of a non-elevated building or the lowest elevated floor of an elevated building is: (1) Below the base flood elevation in Zones AH, AE, A1–A30, AR, AR/AE, AR/AH, AR/ A1–A30, AR/A, AR/AO; or (2) Below the base flood elevation adjusted to include the effect of wave action in Zones VE or V1–V30. The lowest floor level is based on the bottom of the lowest horizontal structural member of the floor in Zones VE or V1–V30 or the top of the floor in Zones AH, AE, A1–A30, AR, AR/AE, AR/AH, AR/A1–A30, AR/A, and AR/AO. 6. A manufactured home or a travel trailer, as described in the II.C.6. If the manufactured home or travel trailer is in a special flood hazard area, it must be anchored in the following manner at the time of the loss: a. By over-the-top or frame ties to ground anchors; or b. In accordance with the manufacturer’s specifications; or c. In compliance with the community’s floodplain management requirements unless it has been continuously insured by the NFIP at the same described location since September 30, 1982. 7. The following items of property which are insured under Coverage A only: a. Awnings and canopies; b. Blinds; c. Built-in dishwashers; d. Built-in microwave ovens; e. Carpet permanently installed over unfinished flooring; f. Central air conditioners; g. Elevator equipment; h. Fire sprinkler systems; i. Walk-in freezers; j. Furnaces and radiators; k. Garbage disposal units; l. Hot water heaters, including solar water heaters; m. Light fixtures; n. Outdoor antennas and aerials fastened to buildings; o. Permanently installed cupboards, bookcases, cabinets, paneling, and wallpaper; p. Plumbing fixtures; q. Pumps and machinery for operating pumps; r. Ranges, cooking stoves, and ovens; s. Refrigerators; and t. Wall mirrors, permanently installed. 8. Items of property below the lowest elevated floor of an elevated post-FIRM building located in Zones A1–A30, AE, AH, AR, AR/A, AR/AE, AR/AH, AR/A1–A30, V1– V30, or VE, or in a basement, regardless of the zone. Coverage is limited to the following: a. Any of the following items, if installed in their functioning locations and, if necessary for operation, connected to a power source: (1) Central air conditioners; (2) Cisterns and the water in them; (3) Drywall for walls and ceilings in a basement and the cost of labor to nail it, unfinished and unfloated and not taped, to the framing; (4) Electrical junction and circuit breaker boxes; (5) Electrical outlets and switches; VerDate Sep<11>2014 18:34 Jul 13, 2018 Jkt 244001 (6) Elevators, dumbwaiters and related equipment, except for related equipment installed below the base flood elevation after September 30, 1987; (7) Fuel tanks and the fuel in them; (8) Furnaces and hot water heaters; (9) Heat pumps; (10) Nonflammable insulation in a basement; (11) Pumps and tanks used in solar energy systems; (12) Stairways and staircases attached to the building, not separated from it by elevated walkways; (13) Sump pumps; (14) Water softeners and the chemicals in them, water filters, and faucets installed as an integral part of the plumbing system; (15) Well water tanks and pumps; (16) Required utility connections for any item in this list; and (17) Footings, foundations, posts, pilings, piers, or other foundation walls and anchorage systems required to support a building. b. Clean-up. B. Coverage B—Personal Property 1. If you have purchased personal property coverage, we insure against direct physical loss by or from flood to personal property inside a building at the described location, if: a. The property is owned by you or your household family members; and b. At your option, the property is owned by guests or servants. 2. Personal property is also insured for a period of 45 days at another location as set forth in III.C.2.b, Property Removed to Safety. 3. Personal property in a building that is not fully enclosed must be secured to prevent flotation out of the building. If the personal property does float out during a flood, it will be conclusively presumed that it was not reasonably secured. In that case, there is no coverage for such property. 4. Coverage for personal property includes the following property, subject to B.1 above, which is insured under Coverage B only: a. Air conditioning units, portable or window type; b. Carpets, not permanently installed, over unfinished flooring; c. Carpets over finished flooring; d. Clothes washers and dryers; e. ‘‘Cook-out’’ grills; f. Food freezers, other than walk-in, and food in any freezer; and g. Portable microwave ovens and portable dishwashers. 5. Coverage for items of property below the lowest elevated floor of an elevated postFIRM building located in Zones A1–A30, AE, AH, AR, AR/A, AR/AE, AR/AH, AR/A1–A30, V1–V30, or VE, or in a basement, regardless of the zone, is limited to the following items, if installed in their functioning locations and, if necessary for operation, connected to a power source: a. Air conditioning units, portable or window type; b. Clothes washers and dryers; and c. Food freezers, other than walk-in, and food in any freezer. 6. If you are a tenant and have insured personal property under Coverage B in this PO 00000 Frm 00036 Fmt 4701 Sfmt 4702 policy, we will cover such property, including your cooking stove or range and refrigerator. The policy will also cover improvements made or acquired solely at your expense in the dwelling or apartment in which you reside, but for not more than 10 percent of the limit of liability shown for personal property on the Declarations Page. Use of this insurance is at your option but reduces the personal property limit of liability. 7. If you are the owner of a unit and have insured personal property under Coverage B in this policy, we will also cover your interior walls, floor, and ceiling (not otherwise insured under a flood insurance policy purchased by your condominium association) for not more than 10 percent of the limit of liability shown for personal property on the Declarations Page. Use of this insurance is at your option but reduces the personal property limit of liability. 8. Special Limits. We will pay no more than $2,500 for any one loss to one or more of the following kinds of personal property: a. Artwork, photographs, collectibles, or memorabilia, including but not limited to, porcelain or other figures, and sports cards; b. Rare books or autographed items; c. Jewelry, watches, precious and semiprecious stones, or articles of gold, silver, or platinum; d. Furs or any article containing fur that represents its principal value; or e. Personal property used in any business. 9. We will pay only for the functional value of antiques. C. Coverage C—Other Coverages 1. Debris Removal. a. We will pay the expense to remove nonowned debris that is on or in insured property and debris of insured property anywhere. b. If you or a member of your household perform the removal work, the value of your work will be based on the Federal minimum wage. c. This coverage does not increase the Coverage A or Coverage B limit of liability. 2. Loss Avoidance Measures. a. Sandbags, Supplies, and Labor. (1) We will pay up to $1,000 for costs you incur to protect the insured building from a flood or imminent danger of flood, for the following: (a) Your reasonable expenses to buy: (i) Sandbags, including sand to fill them; (ii) Fill for temporary levees; (iii) Pumps; and (iv) Plastic sheeting and lumber used in connection with these items. (b) The value of work, at the Federal minimum wage, that you or a member of your household perform. (2) This coverage for Sandbags, Supplies and Labor only applies if damage to insured property by or from flood is imminent and the threat of flood damage is apparent enough to lead a person of common prudence to anticipate flood damage. One of the following must also occur: (a) A general and temporary condition of flooding in the area near the described location must occur, even if the flood does not reach the building; or E:\FR\FM\16JYP2.SGM 16JYP2 sradovich on DSK3GMQ082PROD with PROPOSALS2 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules (b) A legally authorized official must issue an evacuation order or other civil order for the community in which the building is located calling for measures to preserve life and property from the peril of flood. This coverage does not increase the Coverage A or Coverage B limit of liability. b. Property Removed to Safety. (1) We will pay up to $1,000 for the reasonable expenses you incur to move insured property to a place other than the described location that contains the property in order to protect it from flood or the imminent danger of flood. Reasonable expenses include the value of work, at the Federal minimum wage, you or a member of your household perform. (2) If you move insured property to a location other than the described location that contains the property, in order to protect it from flood or the imminent danger of flood, we will cover such property while at that location for a period of 45 consecutive days from the date you begin to move it there. The personal property that is moved must be placed in a fully enclosed building or otherwise reasonably protected from the elements. (3) Any property removed, including a moveable home described in II.6.b and c, must be placed above ground level or outside of the special flood hazard area. (4) This coverage does not increase the Coverage A or Coverage B limit of liability. 3. Condominium Loss Assessments. a. Subject to III.C.3.b below, if this policy insures a condominium unit, we will pay, up to the Coverage A limit of liability, your share of loss assessments charged against you by the condominium association in accordance with the condominium association’s articles of association, declarations and your deed. The assessment must be made because of direct physical loss by or from flood during the policy term, to the unit or to the common elements of the NFIP insured condominium building in which this unit is located. b. We will not pay any loss assessment: (1) Charged against you and the condominium association by any governmental body; (2) That results from a deductible under the insurance purchased by the condominium association insuring common elements; (3) That results from a loss to personal property, including contents of a condominium building, (4) In which the total payment combined under all policies exceeds the maximum amount of coverage available under the Act for a single unit in a condominium building where the unit is insured under both a Dwelling Policy and a RCBAP. (5) On any item of damage that has already been paid under a RCBAP where a single unit in a condominium building is insured by both a Dwelling Policy and a RCBAP. c. Condominium Loss Assessment coverage does not increase the Coverage A Limit of Liability and is subject to the maximum coverage limits available for a single family dwelling under the Act, payable between all policies issued and covering the unit, under the Act. VerDate Sep<11>2014 18:34 Jul 13, 2018 Jkt 244001 D. Coverage D—Increased Cost of Compliance 1. General. This policy pays you to comply with a State or local floodplain management law or ordinance affecting repair or reconstruction of a building suffering flood damage. Compliance activities eligible for payment are: Elevation, floodproofing, relocation, or demolition (or any combination of these activities) of your building. Eligible floodproofing activities are limited to: a. Non-residential buildings. b. Residential buildings with basements that satisfy FEMA’s standards published in the Code of Federal Regulations [44 CFR 60.6(b) or (c)]. 2. Limit of Liability. We will pay you up to $30,000 under this Coverage D—Increased Cost of Compliance, which only applies to policies with building coverage (Coverage A). Our payment of claims under Coverage D is in addition to the amount of coverage which you selected on the application and which appears on the Declarations Page. But the maximum you can collect under this policy for both Coverage A—Building Property and Coverage D— Increased Cost of Compliance cannot exceed the maximum permitted under the Act. We do not charge a separate deductible for a claim under Coverage D. 3. Eligibility. a. A building covered under Coverage A— Building Property sustaining a loss caused by a flood as defined by this policy must: (1) Be a ‘‘repetitive loss building.’’ A repetitive loss building is one that meets the following conditions: (a) The building is insured by a contract of flood insurance issued under the NFIP. (b) The building has suffered flood damage on two occasions during a 10-year period which ends on the date of the second loss. (c) The cost to repair the flood damage, on average, equaled or exceeded 25 percent of the market value of the building at the time of each flood loss. (d) In addition to the current claim, the NFIP must have paid the previous qualifying claim, and the State or community must have a cumulative, substantial damage provision or repetitive loss provision in its floodplain management law or ordinance being enforced against the building; or (2) Be a building that has had flood damage in which the cost to repair equals or exceeds 50 percent of the market value of the building at the time of the flood. The State or community must have a substantial damage provision in its floodplain management law or ordinance being enforced against the building. b. This Coverage D pays you to comply with State or local floodplain management laws or ordinances that meet the minimum standards of the National Flood Insurance Program found in the Code of Federal Regulations at 44 CFR 60.3. We pay for compliance activities that exceed those standards under these conditions: (1) 3.a.1 above. (2) Elevation or floodproofing in any risk zone to preliminary or advisory base flood elevations provided by FEMA which the State or local government has adopted and is PO 00000 Frm 00037 Fmt 4701 Sfmt 4702 32991 enforcing for flood-damaged buildings in such areas. (This includes compliance activities in B, C, X, or D zones which are being changed to zones with base flood elevations. This also includes compliance activities in zones where base flood elevations are being increased, and a flooddamaged building must comply with the higher advisory base flood elevation.) Increased Cost of Compliance coverage does not apply to situations in B, C, X, or D zones where the community has derived its own elevations and is enforcing elevation or floodproofing requirements for flooddamaged buildings to elevations derived solely by the community. (3) Elevation or floodproofing above the base flood elevation to meet State or local ‘‘free-board’’ requirements, i.e., that a building must be elevated above the base flood elevation. c. Under the minimum NFIP criteria at 44 CFR 60.3(b)(4), States and communities must require the elevation or floodproofing of buildings in unnumbered A zones to the base flood elevation where elevation data is obtained from a Federal, State, or other source. Such compliance activities are eligible for Coverage D. d. Coverage D will pay for the incremental cost, after demolition or relocation, of elevating or floodproofing a building during its rebuilding at the same or another site to meet State or local floodplain management laws or ordinances, subject to Coverage D Exclusion 5.g below. e. Coverage D will pay to bring a flooddamaged building into compliance with State or local floodplain management laws or ordinances even if the building had received a variance before the present loss from the applicable floodplain management requirements. 4. Conditions. a. When a building insured under Coverage A—Building Property sustains a loss caused by a flood, our payment for the loss under this Coverage D will be for the increased cost to elevate, floodproof, relocate, or demolish (or any combination of these activities) caused by the enforcement of current State or local floodplain management ordinances or laws. Our payment for eligible demolition activities will be for the cost to demolish and clear the site of the building debris or a portion thereof caused by the enforcement of current State or local floodplain management ordinances or laws. Eligible activities for the cost of clearing the site will include those necessary to discontinue utility service to the site and ensure proper abandonment of onsite utilities. b. When the building is repaired or rebuilt, it must be intended for the same occupancy as the present building unless otherwise required by current floodplain management ordinances or laws. 5. Exclusions. Under this Coverage D (Increased Cost of Compliance), we will not pay for: a. The cost to comply with any floodplain management law or ordinance in communities participating in the Emergency Program. b. The cost associated with enforcement of any ordinance or law that requires any E:\FR\FM\16JYP2.SGM 16JYP2 32992 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules sradovich on DSK3GMQ082PROD with PROPOSALS2 insured or others to test for, monitor, clean up, remove, contain, treat, detoxify or neutralize, or in any way respond to, or assess the effects of pollutants. c. The loss in value to any insured building due to the requirements of any ordinance or law. d. The loss in residual value of the undamaged portion of a building demolished as a consequence of enforcement of any State or local floodplain management law or ordinance. e. Any Increased Cost of Compliance under this Coverage D: (1) Until the building is elevated, floodproofed, demolished, or relocated on the same or to another premises; and (2) Unless the building is elevated, floodproofed, demolished, or relocated as soon as reasonably possible after the loss, not to exceed two years. f. Any code upgrade requirements, e.g., plumbing or electrical wiring, not specifically related to the State or local floodplain management law or ordinance. g. Any compliance activities needed to bring additions or improvements made after the loss occurred into compliance with State or local floodplain management laws or ordinances. h. Loss due to any ordinance or law that you were required to comply with before the current loss. i. Any rebuilding activity to standards that do 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. j. Increased Cost of Compliance for a garage or carport. k. Any building insured under an NFIP Group Flood Insurance Policy. l. Assessments made by a condominium association on 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. 6. Other Provisions. a. Increased Cost of Compliance coverage will not be included in the calculation to determine whether coverage meets the 80 percent insurance-to-value requirement for replacement cost coverage as set forth in Art. VII.R (‘‘Loss Settlement’’) of this policy. b. All other conditions and provisions of this policy apply. IV. Property Not Covered We do not insure any of the following: 1. Personal property not inside a building; 2. A building, and personal property in it, located entirely in, on, or over water or seaward of mean high tide if it was constructed or substantially improved after September 30, 1982; 3. Open structures, including a building used as a boathouse or any structure or building into which boats are floated, and personal property located in, on, or over water; 4. Recreational vehicles other than travel trailers described in the Definitions section VerDate Sep<11>2014 18:34 Jul 13, 2018 Jkt 244001 (see II.B.6.c) whether affixed to a permanent foundation or on wheels; 5. Self-propelled vehicles or machines, including their parts and equipment. However, we do cover self-propelled vehicles or machines not licensed for use on public roads that are: a. Used mainly to service the described location or b. Designed and used to assist handicapped persons, while the vehicles or machines are inside a building at the described location; 6. Land, land values, lawns, trees, shrubs, plants, growing crops, or animals; 7. Accounts, bills, coins, currency, deeds, evidences of debt, medals, money, scrip, stored value cards, postage stamps, securities, bullion, manuscripts, or other valuable papers; 8. Underground structures and equipment, including wells, septic tanks, and septic systems; 9. Those portions of walks, walkways, decks, driveways, patios and other surfaces, all whether protected by a roof or not, located outside the perimeter, exterior walls of the insured building or the building in which the insured unit is located; 10. Containers, including related equipment, such as, but not limited to, tanks containing gases or liquids; 11. Buildings or units and all their contents if more than 49 percent of the actual cash value of the building is below ground, unless the lowest level is at or above the base flood elevation and is below ground by reason of earth having been used as insulation material in conjunction with energy efficient building techniques; 12. Fences, retaining walls, seawalls, bulkheads, wharves, piers, bridges, and docks; 13. Aircraft or watercraft, or their furnishings and equipment; 14. Hot tubs and spas that are not bathroom fixtures, and swimming pools, and their equipment, such as, but not limited to, heaters, filters, pumps, and pipes, wherever located; 15. Property not eligible for flood insurance pursuant to the provisions of the Coastal Barrier Resources Act and the Coastal Barrier Improvement Act and amendments to these Acts; 16. Personal property you own in common with other unit owners comprising the membership of a condominium association. V. Exclusions A. We only pay for direct physical loss by or from flood, which means that we do not pay you for: 1. Loss of revenue or profits; 2. Loss of access to the insured property or described location; 3. Loss of use of the insured property or described location; 4. Loss from interruption of business or production; 5. Any additional living expenses incurred while the insured building is being repaired or is unable to be occupied for any reason; 6. The cost of complying with any ordinance or law requiring or regulating the construction, demolition, remodeling, renovation, or repair of property, including PO 00000 Frm 00038 Fmt 4701 Sfmt 4702 removal of any resulting debris. This exclusion does not apply to any eligible activities we describe in Coverage D— Increased Cost of Compliance; or 7. Any other economic loss you suffer. B. Flood in Progress. If this policy became effective as of the time of a loan closing, as provided by 44 CFR 61.11(b), we will not pay for a loss caused by a flood that is a continuation of a flood that existed prior to coverage becoming effective. In all other circumstances, we will not pay for a loss caused by a flood that is a continuation of a flood that existed on or before the day you submitted the application for coverage under this policy and the full amount due. We will determine the date of application using 44 CFR 61.11(f). C. We do not insure for loss to property caused directly by earth movement even if the earth movement is caused by flood. Some examples of earth movement that we do not cover are: 1. Earthquake; 2. Landslide; 3. Land subsidence; 4. Sinkholes; 5. Destabilization or movement of land that results from accumulation of water in subsurface land area; or 6. Gradual erosion. We do, however, pay for losses from mudflow and land subsidence as a result of erosion that are specifically insured under our definition of flood (see II.B.1.c and II.B.2). D. We do not insure for direct physical loss caused directly or indirectly by any of the following: 1. The pressure or weight of ice; 2. Freezing or thawing; 3. Rain, snow, sleet, hail, or water spray; 4. Water, moisture, mildew, or mold damage that results primarily from any condition: a. Substantially confined to the dwelling; or b. That is within your control, including but not limited to: (1) Design, structural, or mechanical defects; (2) Failure, stoppage, or breakage of water or sewer lines, drains, pumps, fixtures, or equipment; or (3) Failure to inspect and maintain the property after a flood recedes; 5. Water or water-borne material that: a. Backs up through sewers or drains; b. Discharges or overflows from a sump, sump pump or related equipment; or c. Seeps or leaks on or through the insured property; unless there is a flood in the area and the flood is the proximate cause of the sewer or drain backup, sump pump discharge or overflow, or the seepage of water; 6. The pressure or weight of water unless there is a flood in the area and the flood is the proximate cause of the damage from the pressure or weight of water; 7. Power, heating, or cooling failure unless the failure results from direct physical loss by or from flood to power, heating, or cooling equipment on the described location; 8. Theft, fire, explosion, wind, or windstorm; E:\FR\FM\16JYP2.SGM 16JYP2 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules 9. Anything you or any member of your household do or conspire to do to deliberately cause loss by flood; or 10. Alteration of the insured property that significantly increases the risk of flooding. E. We do not insure for loss to any building or personal property located on land leased from the Federal Government, arising from or incident to the flooding of the land by the Federal Government, where the lease expressly holds the Federal Government harmless under flood insurance issued under any Federal Government program. F. We do not pay for the testing for or monitoring of pollutants unless required by law or ordinance. VI. Deductibles A. When a loss is insured under this policy, we will pay only that part of the loss that exceeds your deductible amount, subject to the limit of liability that applies. The deductible amount is shown on the Declarations Page. However, when a building under construction, alteration, or repair does not have at least two rigid exterior walls and a fully secured roof at the time of loss, your deductible amount will be two times the deductible that would otherwise apply to a completed building. B. In each loss from flood, separate deductibles apply to the building and personal property insured by this policy. C. The deductible does NOT apply to: 1. III.C.2. Loss Avoidance Measures; 2. III.C.3. Condominium Loss Assessments; or 3. III.D. Increased Cost of Compliance. VII. General Conditions sradovich on DSK3GMQ082PROD with PROPOSALS2 A. Pair and Set Clause In case of loss to an article that is part of a pair or set, we will have the option of paying you: 1. An amount equal to the cost of replacing the lost, damaged, or destroyed article, minus its depreciation, or 2. The amount that represents the fair proportion of the total value of the pair or set that the lost, damaged, or destroyed article bears to the pair or set. B. Other Insurance 1. If a loss insured by this policy is also insured by other insurance that includes flood coverage not issued under the Act, we will not pay more than the amount of insurance you are entitled to for lost, damaged, or destroyed property insured under this policy subject to the following: a. We will pay only the proportion of the loss that the amount of insurance that applies under this policy bears to the total amount of insurance covering the loss, unless VII.B.1.b or c immediately below applies. b. If the other policy has a provision stating that it is excess insurance, this policy will be primary. c. This policy will be primary (but subject to its own deductible) up to the deductible in the other flood policy (except another policy as described in VII.B.1.b above). When the other deductible amount is reached, this policy will participate in the same proportion that the amount of insurance under this VerDate Sep<11>2014 18:34 Jul 13, 2018 Jkt 244001 policy bears to the total amount of both policies, for the remainder of the loss. 2. If there is other insurance issued under the Act in the name of your condominium association covering the same property insured by this policy, then this policy will be in excess over the other insurance, except where a condominium loss assessment to the unit owner results from a loss sustained by the condominium association that was not reimbursed under a flood insurance policy written in the name of the association under the Act because the building was not, at the time of loss, insured for an amount equal to the lesser of: a. 80 percent or more of its full replacement cost; or b. The maximum amount of insurance permitted under the Act; The combined coverage payment under the other NFIP insurance and this policy cannot exceed the maximum coverage available under the Act, of $250,000 per single unit. C. Amendments, Waivers, Assignment This policy cannot be changed, nor can any of its provisions be waived, without the express written consent of the Federal Insurance Administrator. No action we take under the terms of this policy constitutes a waiver of any of our rights. You may assign this policy in writing when you transfer title of your property to someone else except under these conditions: a. When this policy insures only personal property; or b. When this policy insures a building under construction. D. Insufficient Premium or Rating Information 1. Applicability. The following provisions apply to all instances where the premium paid on this policy is insufficient or where the rating information is insufficient, such as where an Elevation Certificate is not provided. 2. Reforming the Policy with Reduced Coverage. Except as otherwise provided in VII.D.1, if the premium we received from you was not sufficient to buy the kinds and amounts of coverage you requested, we will provide only the kinds and amounts of coverage that can be purchased for the premium payment we received. a. For the purpose of determining whether your premium payment is sufficient to buy the kinds and amounts of coverage you requested, we will first deduct the costs of all applicable fees and surcharges. b. If the amount paid, after deducting the costs of all applicable fees and surcharges, is not sufficient to buy any amount of coverage, your payment will be refunded. Unless the policy is reformed to increase the coverage amount to the amount originally requested pursuant to VII.D.3, this policy will be cancelled, and no claims will be paid under this policy. c. Coverage limits on the reformed policy will be based upon the amount of premium submitted per type of coverage, but will not exceed the amount originally requested. 3. Discovery of Insufficient Premium or Rating Information. If we discover that your premium payment was not sufficient to buy PO 00000 Frm 00039 Fmt 4701 Sfmt 4702 32993 the requested amount of coverage, the policy will be reformed as described in VII.D.2. You have the option of increasing the amount of coverage resulting from this reformation to the amount you requested as follows: a. Insufficient Premium. If we discover that your premium payment was not sufficient to buy the requested amount of coverage, we will send you, and any mortgagee or trustee known to us, a bill for the required additional premium for the current policy term (or that portion of the current policy term following any endorsement changing the amount of coverage). If it is discovered that the initial amount charged to you for any fees or surcharges is incorrect, the difference will be added or deducted, as applicable, to the total amount in this bill. (1) If you or the mortgagee or trustee pays the additional premium amount due within 30 days from the date of our bill, we will reform the policy to increase the amount of coverage to the originally requested amount, effective to the beginning of the current policy term (or subsequent date of any endorsement changing the amount of coverage). (2) If you or the mortgagee or trustee do not pay the additional amount due within 30 days of the date of our bill, any flood insurance claim will be settled based on the reduced amount of coverage. (3) As applicable, you have the option of paying all or part of the amount due out of a claim payment based on the originally requested amount of coverage. b. Insufficient Rating Information. If we determine that the rating information we have is insufficient and prevents us from calculating the additional premium, we will ask you to send the required information. You must submit the information within 60 days of our request. (1) If we receive the information within 60 days of our request, we will determine the amount of additional premium for the current policy term, and follow the procedure in VII.D.3.a above. (2) If we do not receive the information within 60 days of our request, no claims will be paid until the requested information is provided. Coverage will be limited to the amount of coverage that can be purchased for the payments we received, as determined when the requested information is provided. 4. Coverage Increases. If we do not receive the amounts requested in VII.D.3.a or the additional information requested in VII.D.3.b by the date it is due, the amount of coverage under this policy can only be increased by endorsement subject to the appropriate waiting period. However, no coverage increases will be allowed until you have provided the information requested in VII.D.3.b. 5. Falsifying Information. However, if we find that you or your agent intentionally did not tell us, or falsified any important fact or circumstance or did anything fraudulent relating to this insurance, the provisions of VIII.A apply. E. Policy Renewal 1. This policy will expire at 12:01 a.m. on the last day of the policy term. E:\FR\FM\16JYP2.SGM 16JYP2 32994 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules 2. We must receive the payment of the appropriate renewal premium within 30 days of the expiration date. 3. If we find, however, that we did not place your renewal notice into the U.S. Postal Service, or if we did mail it, we made a mistake, e.g., we used an incorrect, incomplete, or illegible address, which delayed its delivery to you before the due date for the renewal premium, then we will follow these procedures: a. If you or your agent notified us, not later than one year after the date on which the payment of the renewal premium was due, of non-receipt of a renewal notice before the due date for the renewal premium, and we determine that the circumstances in the preceding paragraph apply, we will mail a second bill providing a revised due date, which will be 30 days after the date on which the bill is mailed. b. If we do not receive the premium requested in the second bill by the revised due date, then we will not renew the policy. In that case, the policy will remain an expired policy as of the expiration date shown on the Declarations Page. 4. In connection with the renewal of this policy, we may ask you during the policy term to recertify, on a Recertification Questionnaire we will provide to you, the rating information used to rate your most recent application for or renewal of insurance. sradovich on DSK3GMQ082PROD with PROPOSALS2 F. Conditions Suspending or Restricting Insurance We are not liable for loss that occurs while there is a hazard that is increased by any means within your control or knowledge. G. Requirements in Case of Loss In case of a flood loss to insured property, you must: 1. Give prompt written notice to us; 2. As soon as reasonably possible, separate the damaged and undamaged property, putting it in the best possible order so that we may examine it; 3. Prepare an inventory of damaged property showing the quantity, description, actual cash value, and amount of loss. Attach all bills, receipts, and related documents; 4. Within 60 days after the loss, send us a proof of loss, which is your statement of the amount you are claiming under the policy signed and sworn to by you, and which furnishes us with the following information: a. The date and time of loss; b. A brief explanation of how the loss happened; c. Your interest (for example, ‘‘owner’’) and the interest, if any, of others in the damaged property; d. Details of any other insurance that may cover the loss; e. Changes in title or occupancy of the insured property during the term of the policy; f. Specifications of damaged buildings and detailed repair estimates; g. Names of mortgagees or anyone else having a lien, charge, or claim against the insured property; h. Details about who occupied any insured building at the time of loss and for what purpose; and VerDate Sep<11>2014 18:34 Jul 13, 2018 Jkt 244001 i. The inventory of damaged personal property described in G.3 above. 5. In completing the proof of loss, you must use your own judgment concerning the amount of loss and justify that amount. 6. You must cooperate with the adjuster or representative in the investigation of the claim. 7. The insurance adjuster whom we hire to investigate your claim may furnish you with a proof of loss form, and she or he may help you complete it. However, this is a matter of courtesy only, and you must still send us a proof of loss within 60 days after the loss even if the adjuster does not furnish the form or help you complete it. 8. We have not authorized the adjuster to approve or disapprove claims or to tell you whether we will approve your claim. 9. At our option, we may accept the adjuster’s report of the loss instead of your proof of loss. The adjuster’s report will include information about your loss and the damages you sustained. You must sign the adjuster’s report. At our option, we may require you to swear to the report. I. No Benefit to Bailee No person or organization, other than you, having custody of insured property will benefit from this insurance. H. Our Options After a Loss Options we may, in our sole discretion, exercise after loss include the following: 1. At such reasonable times and places that we may designate, you must: a. Show us or our representative the damaged property; b. Submit to examination under oath, while not in the presence of another insured, and sign the same; and c. Permit us to examine and make extracts and copies of: (1) Any policies of property insurance insuring you against loss and the deed establishing your ownership of the insured real property; (2) Condominium association documents including the Declarations of the condominium, its Articles of Association or Incorporation, Bylaws, rules and regulations, and other relevant documents if you are a unit owner in a condominium building; and (3) All books of accounts, bills, invoices and other vouchers, or certified copies pertaining to the damaged property if the originals are lost. 2. We may request, in writing, that you furnish us with a complete inventory of the lost, damaged or destroyed property, including: a. Quantities and costs; b. Actual cash values or replacement cost (whichever is appropriate); c. Amounts of loss claimed; d. Any written plans and specifications for repair of the damaged property that you can reasonably make available to us; and e. Evidence that prior flood damage has been repaired. 3. If we give you written notice within 30 days after we receive your signed, sworn proof of loss, we may: a. Repair, rebuild, or replace any part of the lost, damaged, or destroyed property with material or property of like kind and quality or its functional equivalent; and b. Take all or any part of the damaged property at the value that we agree upon or its appraised value. K. Abandonment You may not abandon to us damaged or undamaged property insured under this policy. PO 00000 Frm 00040 Fmt 4701 Sfmt 4702 J. Loss Payment 1. We will adjust all losses with you. We will pay you unless some other person or entity is named in the policy or is legally entitled to receive payment. Loss will be payable 60 days after we receive your proof of loss (or within 90 days after the insurance adjuster files the adjuster’s report signed and sworn to by you in lieu of a proof of loss) and: a. We reach an agreement with you; b. There is an entry of a final judgment; or c. There is a filing of an appraisal award with us, as provided in VII.M. 2. If we reject your proof of loss in whole or in part you may: a. Accept our denial of your claim; b. Exercise your rights under this policy; or c. File an amended proof of loss as long as it is filed within 60 days of the date of the loss. L. Salvage We may permit you to keep damaged property insured under this policy after a loss, and we will reduce the amount of the loss proceeds payable to you under the policy by the value of the salvage. M. Appraisal If you and we fail to agree on the actual cash value or, if applicable, replacement cost of your damaged property to settle upon the amount of loss, then either may demand an appraisal of the loss. In this event, you and we will each choose a competent and impartial appraiser within 20 days after receiving a written request from the other. The two appraisers will choose an umpire. If they cannot agree upon an umpire within 15 days, you or we may request that the choice be made by a judge of a court of record in the state where the insured property is located. The appraisers will separately state the actual cash value, the replacement cost, and the amount of loss to each item. If the appraisers submit a written report of an agreement to us, the amount agreed upon will be the amount of loss. If they fail to agree, they will submit their differences to the umpire. A decision agreed to by any two will set the amount of actual cash value and loss, or if it applies, the replacement cost and loss. Each party will: 1. Pay its own appraiser; and 2. Bear the other expenses of the appraisal and umpire equally. N. Mortgage Clause 1. The word ‘‘mortgagee’’ includes trustee. 2. Any loss payable under Coverage A— Building Property will be paid to any mortgagee of whom we have actual notice, as well as any other mortgagee or loss payee determined to exist at the time of loss, and E:\FR\FM\16JYP2.SGM 16JYP2 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules you, as interests appear. If more than one mortgagee is named, the order of payment will be the same as the order of precedence of the mortgages. 3. If we deny your claim, that denial will not apply to a valid claim of the mortgagee, if the mortgagee: a. Notifies us of any change in the ownership or occupancy, or substantial change in risk of which the mortgagee is aware; b. Pays any premium due under this policy on demand if you have neglected to pay the premium; and c. Submits a signed, sworn proof of loss within 60 days after receiving notice from us of your failure to do so. 4. All of the terms of this policy apply to the mortgagee. 5. The mortgagee has the right to receive loss payment even if the mortgagee has started foreclosure or similar action on the building. 6. If we decide to cancel or not renew this policy, it will continue in effect for the benefit of the mortgagee only for 30 days after we notify the mortgagee of the cancellation or non-renewal. 7. If we pay the mortgagee for any loss and deny payment to you, we are subrogated to all the rights of the mortgagee granted under the mortgage on the property. Subrogation will not impair the right of the mortgagee to recover the full amount of the mortgagee’s claim. sradovich on DSK3GMQ082PROD with PROPOSALS2 O. Suit Against Us You may not sue us to recover money under this policy unless you have complied with all the requirements of the policy. If you do sue, you must start the suit within one year after the date of the written denial of all or part of the claim, and you must file the suit in the United States District Court of the district in which the insured property was located at the time of loss. This requirement applies to any claim that you may have under this policy and to any dispute that you may have arising out of the handling of any claim under the policy. P. Subrogation Whenever we make a payment for a loss under this policy, we are subrogated to your right to recover for that loss from any other person. That means that your right to recover for a loss that was partly or totally caused by someone else is automatically transferred to us, to the extent that we have paid you for the loss. We may require you to acknowledge this transfer in writing. After the loss, you may not give up our right to recover this money or do anything that would prevent us from recovering it. If you make any claim against any person who caused your loss and recover any money, you must pay us back first before you may keep any of that money. Q. Continuous Lake Flooding 1. If an insured building has been flooded by rising lake waters continuously for 90 days or more and it appears reasonably certain that a continuation of this flooding will result in an insured loss to the insured building equal to or greater than the building policy limits plus the deductible or the maximum payable under the policy for any VerDate Sep<11>2014 18:34 Jul 13, 2018 Jkt 244001 one building loss, we will pay you the lesser of these two amounts without waiting for the further damage to occur if you sign a release agreeing: a. To make no further claim under this policy; b. Not to seek renewal of this policy; c. Not to apply for any flood insurance under the Act for property at the described location; d. Not to seek a premium refund for current or prior terms. If the policy term ends before the insured building has been flooded continuously for 90 days, the provisions of this paragraph Q.1 will apply when the insured building suffers a covered loss before the policy term ends. 2. If your insured building is subject to continuous lake flooding from a closed basin lake, you may elect to file a claim under either paragraph Q.1 above or Q.2 (A ‘‘closed basin lake’’ is a natural lake from which water leaves primarily through evaporation and whose surface area now exceeds or has exceeded one square mile at any time in the recorded past. Most of the nation’s closed basin lakes are in the western half of the United States where annual evaporation exceeds annual precipitation and where lake levels and surface areas are subject to considerable fluctuation due to wide variations in the climate. These lakes may overtop their basins on rare occasions.) Under this paragraph Q.2, we will pay your claim as if the building is a total loss even though it has not been continuously inundated for 90 days, subject to the following conditions: a. Lake floodwaters must damage or imminently threaten to damage your building. b. Before approval of your claim, you must: (1) Agree to a claim payment that reflects your buying back the salvage on a negotiated basis; and (2) Grant the conservation easement described in FEMA’s ‘‘Policy Guidance for Closed Basin Lakes’’ to be recorded in the office of the local recorder of deeds. FEMA, in consultation with the community in which the property is located, will identify on a map an area or areas of special consideration (ASC) in which there is a potential for flood damage from continuous lake flooding. FEMA will give the community the agreedupon map showing the ASC. This easement will only apply to that portion of the property in the ASC. It will allow certain agricultural and recreational uses of the land. The only structures it will allow on any portion of the property within the ASC are certain simple agricultural and recreational structures. If any of these allowable structures are insurable buildings under the NFIP and are insured under the NFIP, they will not be eligible for the benefits of this paragraph Q.2. If a U.S. Army Corps of Engineers certified flood control project or otherwise certified flood control project later protects the property, FEMA will, upon request, amend the ASC to remove areas protected by those projects. The restrictions of the easement will then no longer apply to any portion of the property removed from the ASC; and (3) Comply with paragraphs Q.1.a through Q.1.d above. PO 00000 Frm 00041 Fmt 4701 Sfmt 4702 32995 c. Within 90 days of approval of your claim, you must move your building to a new location outside the ASC. FEMA will give you an additional 30 days to move if you show there is sufficient reason to extend the time. d. Before the final payment of your claim, you must acquire an elevation certificate and a floodplain development permit from the local floodplain administrator for the new location of your building. e. Before the approval of your claim, the community having jurisdiction over your building must: (1) Adopt a permanent land use ordinance, or a temporary moratorium for a period not to exceed 6 months to be followed immediately by a permanent land use ordinance that is consistent with the provisions specified in the easement required in paragraph Q.2.b above. (2) Agree to declare and report any violations of this ordinance to FEMA so that under Section 1316 of the National Flood Insurance Act of 1968, as amended, flood insurance to the building can be denied; and (3) Agree to maintain as deed-restricted, for purposes compatible with open space or agricultural or recreational use only, any affected property the community acquires an interest in. These deed restrictions must be consistent with the provisions of paragraph Q.2.b above, except that, even if a certified project protects the property, the land use restrictions continue to apply if the property was acquired under the Hazard Mitigation Grant Program or the Flood Mitigation Assistance Program. If a non-profit land trust organization receives the property as a donation, that organization must maintain the property as deed-restricted, consistent with the provisions of paragraph Q2.b above. f. Before the approval of your claim, the affected State must take all action set forth in FEMA’s ‘‘Policy Guidance for Closed Basin Lakes.’’ g. You must have NFIP flood insurance coverage continuously in effect from a date established by FEMA until you file a claim under paragraph Q.2. If a subsequent owner buys NFIP insurance that goes into effect within 60 days of the date of transfer of title, any gap in coverage during that 60-day period will not be a violation of this continuous coverage requirement. For the purpose of honoring a claim under this paragraph Q.2, we will not consider to be in effect any increased coverage that became effective after the date established by FEMA. The exception to this is any in-creased coverage in the amount suggested by your insurer as an inflation adjustment. h. This paragraph Q.2 will be in effect for a community when the FEMA Regional Administrator for the affected region provides to the community, in writing, the following: (1) Confirmation that the community and the State are in compliance with the conditions in paragraphs Q.2.e and Q.2.f above, and (2) The date by which you must have flood insurance in effect. E:\FR\FM\16JYP2.SGM 16JYP2 sradovich on DSK3GMQ082PROD with PROPOSALS2 32996 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules R. Loss Settlement 1. Introduction This policy provides three methods of settling losses: Replacement Cost, Special Loss Settlement, and Actual Cash Value. Each method is used for a different type of property, as explained in paragraphs a-c below. a. Replacement Cost Loss Settlement, described in R.2 below, applies to a single family dwelling provided: (1) It is your principal residence and (2) At the time of loss, the amount of insurance in this policy that applies to the dwelling is 80 percent or more of its full replacement cost immediately before the loss, or is the maximum amount of insurance available under the NFIP. b. Special Loss Settlement, described in R.3 below, applies to a single family dwelling that is a manufactured or mobile home or a travel trailer. c. Actual Cash Value loss settlement applies to a single family dwelling not subject to replacement cost or special loss settlement, and to the property listed in R.4 below. 2. Replacement Cost Loss Settlement The following loss settlement conditions apply to a single-family dwelling described in R.1.a above: a. We will pay to repair or replace the damaged dwelling after application of the deductible and without deduction for depreciation, but not more than the least of the following amounts: (1) The building limit of liability shown on your Declarations Page; (2) The replacement cost of that part of the dwelling damaged, with materials of like kind and quality and for like use; or (3) The necessary amount actually spent to repair or replace the damaged part of the dwelling for like use. b. If the dwelling is rebuilt at a new location, the cost described above is limited to the cost that would have been incurred if the dwelling had been rebuilt at its former location. c. When the full cost of repair or replacement is more than $1,000, or more than 5 percent of the whole amount of insurance that applies to the dwelling, we will not be liable for any loss under R.2.a above or R.4.a.2 below unless and until actual repair or replacement is completed. d. You may disregard the replacement cost conditions above and make claim under this policy for loss to dwellings on an actual cash value basis. You may then make claim for any additional liability according to R.2.a, b, and c above, provided you notify us of your intent to do so within 180 days after the date of loss. e. If the community in which your dwelling is located has been converted from the Emergency Program to the Regular Program during the current policy term, then we will consider the maximum amount of available NFIP insurance to be the amount that was available at the beginning of the current policy term. 3. Special Loss Settlement a. The following loss settlement conditions apply to a single family dwelling that: VerDate Sep<11>2014 18:34 Jul 13, 2018 Jkt 244001 (1) is a manufactured or mobile home or a travel trailer, as defined in II.C.6.b and c, (2) is at least 16 feet wide when fully assembled and has an area of at least 600 square feet within its perimeter walls when fully assembled, and (3) is your principal residence as specified in R.1.a.1 above. b. If such a dwelling is totally destroyed or damaged to such an extent that, in our judgment, it is not economically feasible to repair, at least to its pre-damage condition, we will, at our discretion pay the least of the following amounts: (1) The lesser of the replacement cost of the dwelling or 1.5 times the actual cash value, or (2) The building limit of liability shown on your Declarations Page. c. If such a dwelling is partially damaged and, in our judgment, it is economically feasible to repair it to its pre-damage condition, we will settle the loss according to the Replacement Cost conditions in R.2 above. 4. Actual Cash Value Loss Settlement The types of property noted below are subject to actual cash value (or in the case of R.4.a.2., below, proportional) loss settlement. a. A dwelling, at the time of loss, when the amount of insurance on the dwelling is both less than 80 percent of its full replacement cost immediately before the loss and less than the maximum amount of insurance available under the NFIP. In that case, we will pay the greater of the following amounts, but not more than the amount of insurance that applies to that dwelling: (1) The actual cash value, as defined in II.C.2, of the damaged part of the dwelling; or (2) A proportion of the cost to repair or replace the damaged part of the dwelling, without deduction for physical depreciation and after application of the deductible. This proportion is determined as follows: If 80 percent of the full replacement cost of the dwelling is less than the maximum amount of insurance available under the NFIP, then the proportion is determined by dividing the actual amount of insurance on the dwelling by the amount of insurance that represents 80 percent of its full replacement cost. But if 80 percent of the full replacement cost of the dwelling is greater than the maximum amount of insurance available under the NFIP, then the proportion is determined by dividing the actual amount of insurance on the dwelling by the maximum amount of insurance available under the NFIP. b. A two-, three-, or four-family dwelling. c. A unit that is not used exclusively for single-family dwelling purposes. d. Detached garages. e. Personal property. f. Appliances, carpets, and carpet pads. g. Outdoor awnings, outdoor antennas or aerials of any type, and other outdoor equipment. h. Any property insured under this policy that is abandoned after a loss and remains as debris anywhere on the described location. i. A dwelling that is not your principal residence. PO 00000 Frm 00042 Fmt 4701 Sfmt 4702 5. Amount of Insurance Required To determine the amount of insurance required for a dwelling immediately before the loss, we do not include the value of: a. Footings, foundations, piers, or any other structures or devices that are below the undersurface of the lowest basement floor and support all or part of the dwelling; b. Those supports listed in R.5.a above, that are below the surface of the ground inside the foundation walls if there is no basement; and c. Excavations and underground flues, pipes, wiring, and drains. Note: The Coverage D—Increased Cost of Compliance limit of liability is not included in the determination of the amount of insurance required. VIII. Policy Nullification, Cancellation, and Non-Renewal A. Policy Nullification for Fraud, Misrepresentation, or Making False Statements 1. With respect to all insureds under this policy, this policy is void and has no legal force and effect if at any time, before or after a loss, you or any other insured or your agent have, with respect to this policy or any other NFIP insurance: a. Concealed or misrepresented any material fact or circumstance; b. Engaged in fraudulent conduct; or c. Made false statements. 2. Policies voided under A.1 cannot be renewed or replaced by a new NFIP policy. 3. Policies are void as of the date the acts described in A.1 above were committed. 4. Fines, civil penalties, and imprisonment under applicable Federal laws may also apply to the acts of fraud or concealment described above. B. Policy Nullification for Reasons Other Than Fraud 1. This policy is void from its inception, and has no legal force or effect, if: a. The property listed on the application is located in a community that was not participating in the NFIP on this policy’s inception date and did not join or reenter the program during the policy term and before the loss occurred; b. The property listed on the application is otherwise not eligible for coverage under the NFIP at the time of the initial application; c. You never had an insurable interest in the property listed on the application; d. You provided an agent with an application and payment, but the payment did not clear; or e. We receive notice from you, prior to the policy effective date, that you have determined not to take the policy and you are not subject a requirement to obtain and maintain flood insurance pursuant to any statute, regulation, or contract. 2. In such cases, you will be entitled to a full refund of all premium, fees, and surcharges received. However, if a claim was paid for a policy that is void, the claim payment must be returned to FEMA or offset from the premiums to be refunded before the refund will be processed. E:\FR\FM\16JYP2.SGM 16JYP2 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules sradovich on DSK3GMQ082PROD with PROPOSALS2 C. Cancellation of the Policy by You 1. You may cancel this policy in accordance with the terms and conditions of this policy and the applicable rules and regulations of the NFIP. 2. If you cancel this policy, you may be entitled to a full or partial refund of premium, surcharges, or fees under the terms and conditions of this policy and the applicable rules and regulations of the NFIP. D. Cancellation of the Policy by Us 1. Cancellation for Underpayment of Amounts Owed on Policy. This policy will be cancelled, pursuant to VII.D.2, if it is determined that the premium amount you paid is not sufficient to buy any amount of coverage, and you do not pay the additional amount of premium owed to increase the coverage to the originally requested amount within the required time period. 2. Cancellation Due to Lack of an Insurable Interest. a. If you no longer have an insurable interest in the insured property, we will cancel this policy. You will cease to have an insurable interest if: (1) For building coverage, the building was sold, destroyed, or removed. (2) For contents coverage, the contents were sold or transferred ownership, or the contents were completely removed from the described location. b. If your policy is cancelled for this reason, you may be entitled to a partial refund of premium under the applicable rules and regulations of the NFIP. 3. Cancellation of Duplicate Policies. a. Except as allowed under Article I.G, your property may not be insured by more than one NFIP policy, and payment for damages to your property will only be made under one policy. b. Except as allowed under Article I.G, if the property is insured by more than one NFIP policy, we will cancel all but one of the policies. The policy, or policies, will be selected for cancellation in accordance with 44 CFR 62.5 and the applicable rules and guidance of the NFIP. c. If this policy is cancelled pursuant to VIII.D.4.b, you may be entitled to a full or partial refund of premium, surcharges, or fees under the terms and conditions of this policy and the applicable rules and regulations of the NFIP. 4. Cancellation Due to Physical Alteration of Property. a. If the insured building has been physically altered in such a manner that it is no longer eligible for flood insurance coverage, we will cancel this policy. b. If your policy is cancelled for this reason, you may be entitled to a partial refund of premium under the terms and conditions of this policy and the applicable rules and regulations of the NFIP. E. Non-Renewal of the Policy by Us Your policy will not be renewed if: 1. The community where your insured property is located is suspended or stops participating in the NFIP; 2. Your building is otherwise ineligible for flood insurance under the Act; 3. You have failed to provide the information we requested for the purpose of VerDate Sep<11>2014 18:34 Jul 13, 2018 Jkt 244001 rating the policy within the required deadline. IX. Liberalization Clause If we make a change that broadens your coverage under this edition of our policy, but does not re-quire any additional premium, then that change will automatically apply to your insurance as of the date we implement the change, provided that this implementation date falls within 60 days before or during the policy term stated on the Declarations Page. X. What Law Governs This policy and all disputes arising from the insurer’s policy issuance, policy administration, or the handling of any claim under the policy are governed exclusively by the flood insurance regulations issued by FEMA, the National Flood Insurance Act of 1968, as amended (42 U.S.C. 4001, et seq.), and Federal common law. In Witness Whereof, we have signed this policy below and hereby enter into this Insurance Agreement. Administrator, Federal Insurance and Mitigation Administration 13. Revise Appendix A(2) to Part 61 to read as follows: ■ Appendix A(2) to Part 61 Federal Emergency Management Agency, Federal Insurance and Mitigation Administration Standard Flood Insurance Policy GENERAL PROPERTY FORM Please read the policy carefully. The flood insurance provided is subject to limitations, restrictions, and exclusions. I. Agreement A. Coverage Under This Policy. 1. Except as provided in I.A.2, this policy provides coverage for multifamily buildings (residential buildings designed for use by 5 or more families that are not condominmum buildings), non-residential buildings, and their contents. 2. There is no coverage for a residential condominium building in a regular program community, except for personal property coverage for a unit in a condominium building. B. The Federal Emergency Management Agency (FEMA) provides flood insurance under the terms of the National Flood Insurance Act of 1968 and its amendments, and Title 44 of the Code of Federal Regulations. C. We will pay you for direct physical loss by or from flood to your insured property if you: 1. Have paid the full amount due (including applicable premiums, surcharges, and fees); 2. Comply with all terms and conditions of this policy; and 3. Have furnished accurate information and statements. D. We have the right to review the information you give us at any time and revise your policy based on our review. E. This policy insures only one building. If you own more than one building, coverage PO 00000 Frm 00043 Fmt 4701 Sfmt 4702 32997 will apply to the single building specifically described in the Flood Insurance Application. F. Multiple policies with building coverage cannot be issued to insure a single building to one insured or to different insureds, even if issued through different NFIP insurers. Payment for damages may only be made under a single policy for building damages under Coverage A—Building Property. II. Definitions A. In this policy, ‘‘you’’ and ‘‘your’’ refer to the named insured(s) shown on the Declarations Page of this policy and the spouse of the named insured, if a resident of the same household. Insured(s) also includes: Any mortgagee and loss payee named in the Application and Declarations Page, as well as any other mortgagee or loss payee determined to exist at the time of loss, in the order of precedence. ‘‘We,’’ ‘‘us,’’ and ‘‘our’’ refer to the insurer. Some definitions are complex because they are provided as they appear in the law or regulations, or result from court cases. B. Flood, as used in this flood insurance policy, means: 1. A general and temporary condition of partial or complete inundation of two or more acres of normally dry land area or of two or more properties (one of which is your property) from: a. Overflow of inland or tidal waters, b. Unusual and rapid accumulation or runoff of surface waters from any source, c. Mudflow 2. Collapse or subsidence of land along the shore of a lake or similar body of water as a result of erosion or undermining caused by waves or currents of water exceeding anticipated cyclical levels that result in a flood as defined in B.1.a above. C. The following are the other key definitions we use in this policy: 1. Act. The National Flood Insurance Act of 1968 and any amendments to it. 2. Actual Cash Value. The cost to replace an insured item of property at the time of loss, less the value of its physical depreciation. 3. Application. The statement made and signed by you or your agent in applying for this policy. The application gives information we use to determine the eligibility of the risk, the kind of policy to be issued, and the correct premium payment. The application is part of this flood insurance policy. 4. Base Flood. A flood having a one percent chance of being equaled or exceeded in any given year. 5. Basement. Any area of a building, including any sunken room or sunken portion of a room, having its floor below ground level on all sides. 6. Building. a. A structure with two or more outside rigid walls and a fully secured roof, that is affixed to a permanent site; b. A manufactured home, also known as a mobile home, is a structure built on a permanent chassis, transported to its site in one or more sections, and affixed to a permanent foundation); or c. A travel trailer without wheels, built on a chassis and affixed to a permanent E:\FR\FM\16JYP2.SGM 16JYP2 sradovich on DSK3GMQ082PROD with PROPOSALS2 32998 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules foundation, that is regulated under the community’s floodplain management and building ordinances or laws. Building does not mean a gas or liquid storage tank, shipping container, or a recreational vehicle, park trailer, or other similar vehicle, except as described in C.6.c above. 7. Cancellation. The ending of the insurance coverage provided by this policy before the expiration date. 8. Condominium. That form of ownership of one or more buildings in which each unit owner has an undivided interest in common elements. 9. Condominium Association. The entity made up of the unit owners responsible for the maintenance and operation of: a. Common elements owned in undivided shares by unit owners; and b. Other buildings in which the unit owners have use rights where membership in the entity is a required condition of unit ownership. 10. Condominium Building. A type of building for which the form of ownership is one in which each unit owner has an undivided interest in common elements of the building. 11. Declarations Page. A computergenerated summary of information you provided in your application for insurance. The Declarations Page also describes the term of the policy, limits of coverage, and displays the premium and our name. The Declarations Page is a part of this flood insurance policy. 12. Deductible. The fixed amount of an insured loss that is your responsibility and that is incurred by you before any amounts are paid for the insured loss under this policy. 13. Described Location. The location where the insured building(s) or personal property are found. The described location is shown on the Declarations Page. 14. Direct Physical Loss By or From Flood. Loss or damage to insured property, directly caused by a flood. There must be evidence of physical changes to the property. 15. Elevated Building. A building that has no basement and that has its lowest elevated floor raised above ground level by foundation walls, shear walls, posts, piers, pilings, or columns. 16. Emergency Program. The initial phase of a community’s participation in the National Flood Insurance Program. During this phase, only limited amounts of insurance are available under the Act and the regulations prescribed pursuant to the Act. 17. Federal Policy Fee. A flat rate charge you must pay on each new or renewal policy to defray certain administrative expenses incurred in carrying out the National Flood Insurance Program. 18. Improvements. Fixtures, alterations, installations, or additions comprising a part of the dwelling or apartment in which you reside. 19. Mudflow. A river of liquid and flowing mud on the surface of normally dry land areas, as when earth is carried by a current of water. Other earth movements, such as landslide, slope failure, or a saturated soil mass moving by liquidity down a slope, are not mudflows. VerDate Sep<11>2014 18:34 Jul 13, 2018 Jkt 244001 20. National Flood Insurance Program (NFIP). The program of flood insurance coverage and floodplain management administered under the Act and applicable Federal regulations in Title 44 of the Code of Federal Regulations, Subchapter B. 21. Policy. The entire written contract between you and us. It includes: a. This printed form; b. The application and Declarations Page; c. Any endorsement(s) that may be issued; and d. Any renewal certificate indicating that coverage has been instituted for a new policy and new policy term. Only one building, which you specifically described in the application, may be insured under this policy. 22. Pollutants. Substances that include, but are not limited to, any solid, liquid, gaseous, or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste. ‘‘Waste’’ includes, but is not limited to, materials to be recycled, reconditioned, or reclaimed. 23. Post-FIRM Building. A building for which construction or substantial improvement occurred after December 31, 1974, or on or after the effective date of an initial Flood Insurance Rate Map (FIRM), whichever is later. 24. Probation Surcharge. A flat charge you must pay on each new or renewal policy issued covering property in a community the NFIP has placed on probation under the provisions of 44 CFR 59.24. 25. Regular Program. The final phase of a community’s participation in the National Flood Insurance Program. In this phase, a Flood Insurance Rate Map is in effect and full limits of coverage are available under the Act and the regulations prescribed pursuant to the Act. 26. Residential Condominium Building. A condominium building, containing one or more family units and in which at least 75 percent of the floor area is residential. 27. Special Flood Hazard Area (SFHA). An area having special flood or mudflow, and/ or flood-related erosion hazards, and shown on a Flood Hazard Boundary Map or Flood Insurance Rate Map as Zone A, AO, A1–A30, AE, A99, AH, AR, AR/A, AR/AE, AR/AH, AR/AO, AR/A1–A30, V1–V30, VE, or V. 28. Stock means merchandise held in storage or for sale, raw materials, and inprocess or finished goods, including supplies used in their packing or shipping. Stock does not include any property not covered under Section IV. Property Not Covered, except the following: a. Parts and equipment for self-propelled vehicles; b. Furnishings and equipment for watercraft; c. Spas and hot-tubs, including their equipment; and d. Swimming pool equipment. 29. Unit. A single-family residential or non-residential space you own in a condominium building. 30. Valued Policy. A policy in which the insured and the insurer agree on the value of the property insured, that value being payable in the event of a total loss. The Standard Flood Insurance Policy is not a valued policy. PO 00000 Frm 00044 Fmt 4701 Sfmt 4702 III. Property Covered A. Coverage A—Building Property We insure against direct physical loss by or from flood to: 1. The building described on the Declarations Page at the described location. If the building is a condominium building and the named insured is the condominium association, Coverage A includes all units within the building and the improvements within the units, provided the units are owned in common by all unit owners. 2. Building property located at another location for a period of 45 days at another location, as set forth in III.C.2.b, Property Removed to Safety. 3. Additions and extensions attached to and in contact with the building by means of a rigid exterior wall, a solid load-bearing interior wall, a stairway, an elevated walkway, or a roof. At your option, additions and extensions connected by any of these methods may be separately insured. Additions and extensions attached to and in contact with the building by means of a common interior wall that is not a solid loadbearing wall are always considered part of the building and cannot be separately insured. 4. The following fixtures, machinery, and equipment, which are insured under Coverage A only: a. Awnings and canopies; b. Blinds; c. Carpet permanently installed over unfinished flooring; d. Central air conditioners; e. Elevator equipment; f. Fire extinguishing apparatus; g. Fire sprinkler systems; h. Walk-in freezers; i. Furnaces; j. Light fixtures; k. Outdoor antennas and aerials attached to buildings; l. Permanently installed cupboards, bookcases, paneling, and wallpaper; m. Pumps and machinery for operating pumps; n. Ventilating equipment; and o. Wall mirrors, permanently installed; p. In the units within the building, installed: (1) Built-in dishwashers; (2) Built-in microwave ovens; (3) Garbage disposal units; (4) Hot water heaters, including solar water heaters; (5) Kitchen cabinets; (6) Plumbing fixtures; (7) Radiators; (8) Ranges; (9) Refrigerators; and (10) Stoves. 5. Materials and supplies to be used for construction, alteration, or repair of the insured building while the materials and supplies are stored in a fully enclosed building at the described location or on an adjacent property. 6. A building under construction, alteration, or repair at the described location. a. If the structure is not yet walled or roofed as described in the definition for building (see II.B.6.a.) then coverage applies: E:\FR\FM\16JYP2.SGM 16JYP2 sradovich on DSK3GMQ082PROD with PROPOSALS2 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules (1) Only while such work is in progress; or (2) If such work is halted, only for a period of up to 90 continuous days thereafter. b. However, coverage does not apply until the building is walled and roofed if the lowest floor, including the basement floor, of a non-elevated building or the lowest elevated floor of an elevated building is: (1) Below the base flood elevation in Zones AH, AE, A1–A30, AR, AR/AE, AR/AH, AR/ A1–A30, AR/A, AR/AO; or (2) Below the base flood elevation adjusted to include the effect of wave action in Zones VE or V1–V30. The lowest floor level is based on the bottom of the lowest horizontal structural member of the floor in Zones VE or V1–V30 or the top of the floor in Zones AH, AE, A1– A30, AR, AR/AE, AR/AH, AR/A1–A30, AR/ A, and AR/AO. 7. A manufactured home or a travel trailer, as described in the II.C.6. If the manufactured home or travel trailer is in a special flood hazard area, it must be anchored in the following manner at the time of the loss: a. By over-the-top or frame ties to ground anchors; or b. In accordance with the manufacturer’s specifications; or c. In compliance with the community’s floodplain management requirements unless it has been continuously insured by the NFIP at the same described location since September 30, 1982. 8. Items of property below the lowest elevated floor of an elevated post-FIRM building located in zones A1–A30, AE, AH, AR, AR/A, AR/AE, AR/AH, AR/A1–A30, V1– V30, or VE, or in a basement, regardless of the zone. Coverage is limited to the following: a. Any of the following items, if installed in their functioning locations and, if necessary for operation, connected to a power source: (1) Central air conditioners; (2) Cisterns and the water in them; (3) Drywall for walls and ceilings in a basement and the cost of labor to nail it, unfinished and unfloated and not taped, to the framing; (4) Electrical junction and circuit breaker boxes; (5) Electrical outlets and switches; (6) Elevators, dumbwaiters, and related equipment, except for related equipment installed below the base flood elevation after September 30, 1987; (7) Fuel tanks and the fuel in them; (8) Furnaces and hot water heaters; (9) Heat pumps; (10) Nonflammable insulation in a basement; (11) Pumps and tanks used in solar energy systems; (12) Stairways and staircases attached to the building, not separated from it by elevated walkways; (13) Sump pumps; (14) Water softeners and the chemicals in them, water filters, and faucets installed as an integral part of the plumbing system; (15) Well water tanks and pumps; (16) Required utility connections for any item in this list; and (17) Footings, foundations, posts, pilings, piers, or other foundation walls and VerDate Sep<11>2014 18:34 Jul 13, 2018 Jkt 244001 anchorage systems required to support a building. b. Clean-up. B. Coverage B—Personal Property 1. If you have purchased personal property coverage, we insure, subject to B.2–4 below, against direct physical loss by or from flood to personal property inside the fully enclosed insured building: a. Owned solely by you, or in the case of a condominium, owned solely by the condominium association and used exclusively in the conduct of the business affairs of the condominium association; or b. Owned in common by the unit owners of the condominium association. 2. We also insure such personal property for 45 days while stored at a temporary location, as set forth in III.C.2.b, Property Removed to Safety. 3. When this policy covers personal property, coverage will be either for household personal property or other than household personal property, while within the insured building, but not both. a. If this policy covers household personal property, it will insure household personal property usual to a living quarters, that: (1) Belongs to you, or a member of your household, or at your option: (a) Your domestic worker; (b) Your guest; or (2) You may be legally liable for. b. If this policy covers other than household personal property, it will insure your: (1) Furniture and fixtures; (2) Machinery and equipment; (3) Stock; and (4) Other personal property owned by you and used in your business, subject to IV, Property Not Covered. 4. Coverage for personal property includes the following property, subject to B.1.a and B.1.b above, which is insured under Coverage B, only: a. Air conditioning units, portable or window type; b. Carpets, not permanently installed, over unfinished flooring; c. Carpets over finished flooring; d. Clothes washers and dryers; e. ‘‘Cook-out’’ grills; f. Food freezers, other than walk-in, and food in any freezer; g. Outdoor equipment and furniture stored inside the insured building; h. Ovens and the like; and i. Portable microwave ovens and portable dishwashers. 5. Coverage for items of property below the lowest elevated floor of an elevated postFIRM building located in Zones A1–A30, AE, AH, AR, AR/A, AR/AE, AR/AH, AR/A1–A30, V1–V30, or VE, or in a basement, regardless of the zone, is limited to the following items, if installed in their functioning locations and, if necessary for operation, connected to a power source: a. Air conditioning units, portable or window type; b. Clothes washers and dryers; and c. Food freezers, other than walk-in, and food in any freezer. PO 00000 Frm 00045 Fmt 4701 Sfmt 4702 32999 6. Special Limits. We will pay no more than $2,500 for any loss to one or more of the following kinds of personal property: a. Artwork, photographs, collectibles, or memorabilia, including but not limited to, porcelain or other figures, and sports cards; b. Rare books or autographed items; c. Jewelry, watches, precious and semiprecious stones, or articles of gold, silver, or platinum; d. Furs or any article containing fur that represents its principal value. 7. We will pay only for the functional value of antiques. 8. If you are a tenant, you may apply up to 10 percent of the Coverage B limit to improvements: a. Made a part of the building you occupy; and b. You acquired, or made at your expense, even though you cannot legally remove. This coverage does not increase the amount of insurance that applies to insured personal property. 9. If you are a condominium unit owner, you may apply up to 10 percent of the Coverage B limit to cover loss to interior: a. Walls, b. floors, and c. ceilings, that are not covered under a policy issued to the condominium association insuring the condominium building. This coverage does not increase the amount of insurance that applies to insured personal property. 10. If you are a tenant, personal property must be inside the fully enclosed building. C. Coverage C—Other Coverages 1. Debris Removal a. We will pay the expense to remove nonowned debris that is on or in insured property and debris of insured property anywhere. b. If you or a member of your household perform the removal work, the value of your work will be based on the Federal minimum wage. c. This coverage does not increase the Coverage A or Coverage B limit of liability. 2. Loss Avoidance Measures a. Sandbags, Supplies, and Labor (1) We will pay up to $1,000 for costs you incur to protect the insured building from a flood or imminent danger of flood, for the following: (a) Your reasonable expenses to buy: (i) Sandbags, including sand to fill them; (ii) Fill for temporary levees; (iii) Pumps; and (iv) Plastic sheeting and lumber used in connection with these items. (b) The value of work, at the Federal minimum wage, that you perform. (2) This coverage for Sandbags, Supplies and Labor only applies if damage to insured property by or from flood is imminent and the threat of flood damage is apparent enough to lead a person of common prudence to anticipate flood damage. One of the following must also occur: (a) A general and temporary condition of flooding in the area near the described E:\FR\FM\16JYP2.SGM 16JYP2 33000 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules sradovich on DSK3GMQ082PROD with PROPOSALS2 location must occur, even if the flood does not reach the building; or (b) A legally authorized official must issue an evacuation order or other civil order for the community in which the building is located calling for measures to preserve life and property from the peril of flood. This coverage does not increase the Coverage A or Coverage B limit of liability. b. Property Removed to Safety (1) We will pay up to $1,000 for the reasonable expenses you incur to move insured property to a place other than the described location that contains the property in order to protect it from flood or the imminent danger of flood. Reasonable expenses include the value of work, at the Federal minimum wage, you or a member of your household perform. (2) If you move insured property to a location other than the described location that contains the property, in order to protect it from flood or the imminent danger of flood, we will cover such property while at that location for a period of 45 consecutive days from the date you begin to move it there. The personal property that is moved must be placed in a fully enclosed building or otherwise reasonably protected from the elements. (3) Any property removed, including a moveable home described in II.6, must be placed above ground level or outside of the special flood hazard area. (4) This coverage does not increase the Coverage A or Coverage B limit of liability. 3. Pollution Damage We will pay for damage caused by pollutants to covered property if the discharge, seepage, migration, release, or escape of the pollutants is caused by or results from flood. The most we will pay under this coverage is $10,000. This coverage does not increase the Coverage A or Coverage B limits of liability. Any payment under this provision when combined with all other payments for the same loss cannot exceed the replacement cost or actual cash value, as appropriate, of the covered property. This coverage does not include the testing for or monitoring of pollutants unless required by law or ordinance. D. Coverage D—Increased Cost of Compliance 1. General. This policy pays you to comply with a State or local floodplain management law or ordinance affecting repair or reconstruction of a building suffering flood damage. Compliance activities eligible for payment are: Elevation, floodproofing, relocation, or demolition (or any combination of these activities) of your building. Eligible floodproofing activities are limited to: a. Non-residential buildings. b. Residential buildings with basements that satisfy FEMA’s standards published in the Code of Federal Regulations [44 CFR 60.6(b) or (c)]. 2. Limits of Liability. We will pay you up to $30,000 under this Coverage D (Increased Cost of Compliance), which only applies to policies with building coverage (Coverage A). Our payment of VerDate Sep<11>2014 18:34 Jul 13, 2018 Jkt 244001 claims under Coverage D is in addition to the amount of coverage which you selected on the application and which appears on the Declarations Page. However, the maximum you can collect under this policy for both Coverage A (Building Property) and Coverage D (Increased Cost of Compliance) cannot exceed the maximum permitted under the Act. We do NOT charge a separate deductible for a claim under Coverage D. 3. Eligibility. a. A building covered under Coverage A (Building Property) sustaining a loss caused by a flood as defined by this policy must: (1) Be a ‘‘repetitive loss building.’’ A repetitive loss building is one that meets the following conditions: (a) The building is insured by a contract of flood insurance issued under the NFIP. (b) The building has suffered flood damage on two occasions during a 10-year period which ends on the date of the second loss. (c) The cost to repair the flood damage, on average, equaled or exceeded 25 percent of the market value of the building at the time of each flood loss. (d) In addition to the current claim, the NFIP must have paid the previous qualifying claim, and the State or community must have a cumulative, substantial damage provision or repetitive loss provision in its floodplain management law or ordinance being enforced against the building; or (2) Be a building that has had flood damage in which the cost to repair equals or exceeds 50 percent of the market value of the building at the time of the flood. The State or community must have a substantial damage provision in its floodplain management law or ordinance being enforced against the building. b. This Coverage D pays you to comply with State or local floodplain management laws or ordinances that meet the minimum standards of the National Flood Insurance Program found in the Code of Federal Regulations at 44 CFR 60.3. We pay for compliance activities that exceed those standards under these conditions: (1) 3.a.1 above. (2) Elevation or floodproofing in any risk zone to preliminary or advisory base flood elevations provided by FEMA which the State or local government has adopted and is enforcing for flood-damaged buildings in such areas. (This includes compliance activities in B, C, X, or D zones which are being changed to zones with base flood elevations. This also includes compliance activities in zones where base flood elevations are being increased, and a flooddamaged building must comply with the higher advisory base flood elevation.) Increased Cost of Compliance coverage does not apply to situations in B, C, X, or D zones where the community has derived its own elevations and is enforcing elevation or floodproofing requirements for flooddamaged buildings to elevations derived solely by the community. (3) Elevation or floodproofing above the base flood elevation to meet State or local ‘‘free-board’’ requirements, i.e., that a building must be elevated above the base flood elevation. c. Under the minimum NFIP criteria at 44 CFR 60.3(b)(4), States and communities must PO 00000 Frm 00046 Fmt 4701 Sfmt 4702 require the elevation or floodproofing of buildings in unnumbered A zones to the base flood elevation where elevation data is obtained from a Federal, State, or other source. Such compliance activities are also eligible for Coverage D. d. This coverage will pay for the incremental cost, after demolition or relocation, of elevating or floodproofing a building during its rebuilding at the same or another site to meet State or local floodplain management laws or ordinances, subject to the exclusion at III.D.5.g. e. This coverage will pay to bring a flooddamaged building into compliance with State or local floodplain management laws or ordinances even if the building had received a variance before the present loss from the applicable floodplain management requirements. 4. Conditions. a. When a building insured under Coverage A—Building Property sustains a loss caused by a flood, our payment for the loss under this Coverage D will be for the increased cost to elevate, floodproof, relocate, or demolish (or any combination of these activities) caused by the enforcement of current State or local floodplain management ordinances or laws. Our payment for eligible demolition activities will be for the cost to demolish and clear the site of the building debris or a portion thereof caused by the enforcement of current State or local floodplain management ordinances or laws. Eligible activities for the cost of clearing the site will include those necessary to discontinue utility service to the site and ensure proper abandonment of onsite utilities. b. When the building is repaired or rebuilt, it must be intended for the same occupancy as the present building unless otherwise required by current floodplain management ordinances or laws. 5. Exclusions. Under this Coverage D (Increased Cost of Compliance), we will not pay for: a. The cost to comply with any floodplain management law or ordinance in communities participating in the Emergency Program. b. The cost associated with enforcement of any ordinance or law that requires any insured or others to test for, monitor, clean up, remove, contain, treat, detoxify or neutralize, or in any way respond to, or assess the effects of pollutants. c. The loss in value to any insured building due to the requirements of any ordinance or law. d. The loss in residual value of the undamaged portion of a building demolished as a consequence of enforcement of any State or local floodplain management law or ordinance. e. Any Increased Cost of Compliance under this Coverage D: (1) Until the building is elevated, floodproofed, demolished, or relocated on the same or to another premises; and (2) Unless the building is elevated, floodproofed, demolished, or relocated as soon as reasonably possible after the loss, not to exceed two years. f. Any code upgrade requirements, e.g., plumbing or electrical wiring, not E:\FR\FM\16JYP2.SGM 16JYP2 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules sradovich on DSK3GMQ082PROD with PROPOSALS2 specifically related to the State or local floodplain management law or ordinance. g. Any compliance activities needed to bring additions or improvements made after the loss occurred into compliance with State or local floodplain management laws or ordinances. h. Loss due to any ordinance or law that you were required to comply with before the current loss. i. Any rebuilding activity to standards that do 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. j. Increased Cost of Compliance for a garage or carport. k. Any building insured under an NFIP Group Flood Insurance Policy. l. Assessments made by a condominium association on 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. 6. Other Provisions. All other conditions and provisions of the policy apply. IV. Property not Covered We do not insure any of the following property: 1. Personal property not inside the fully enclosed building; 2. A building, and personal property in it, located entirely in, on, or over water or seaward of mean high tide if it was constructed or substantially improved after September 30, 1982; 3. Open structures, including a building used as a boathouse or any structure or building into which boats are floated, and personal property located in, on, or over water; 4. Recreational vehicles other than travel trailers described in the II.C.6.c, whether affixed to a permanent foundation or on wheels; 5. Self-propelled vehicles or machines, including their parts and equipment. However, we do cover self-propelled vehicles or machines not licensed for use on public roads and are: a. Used mainly to service the described location; or b. Designed and used to assist handicapped persons, while the vehicles or machines are inside a building at the described location; 6. Land, land values, lawns, trees, shrubs, plants, growing crops, or animals; 7. Accounts, bills, coins, currency, deeds, evidences of debt, medals, money, scrip, stored value cards, postage stamps, securities, bullion, manuscripts, or other valuable papers; 8. Underground structures and equipment, including wells, septic tanks, and septic systems; 9. Those portions of walks, walkways, decks, driveways, patios, and other surfaces, all whether protected by a roof or not, located outside the perimeter, exterior walls of the insured building; VerDate Sep<11>2014 18:34 Jul 13, 2018 Jkt 244001 10. Containers, including related equipment, such as, but not limited to, tanks containing gases or liquids; 11. Buildings or units and all their contents if more than 49 percent of the actual cash value of the building is below ground, unless the lowest level is at or above the base flood elevation and is be-low ground by reason of earth having been used as insulation material in conjunction with energy efficient building techniques; 12. Fences, retaining walls, seawalls, bulkheads, wharves, piers, bridges, and docks; 13. Aircraft or watercraft, or their furnishings and equipment; 14. Hot tubs and spas that are not bathroom fixtures, and swimming pools, and their equipment, such as, but not limited to, heaters, filters, pumps, and pipes, wherever located; 15. Property not eligible for flood insurance pursuant to the provisions of the Coastal Barrier Resources Act and the Coastal Barrier Improvement Act and amendments to these Acts; 16. Personal property owned by or in the care, custody or control of a unit owner, except for property of the type and under the circumstances set forth under III. Coverage B—Personal Property of this policy; 17. A residential condominium building located in a Regular Program community. V. Exclusions A. We only pay for ‘‘direct physical loss by or from flood,’’ which means that we do not pay you for: 1. Loss of revenue or profits; 2. Loss of access to the insured property or described location; 3. Loss of use of the insured property or described location; 4. Loss from interruption of business or production; 5. Any additional living expenses incurred while the insured building is being repaired or is unable to be occupied for any reason; 6. The cost of complying with any ordinance or law requiring or regulating the construction, demolition, remodeling, renovation, or repair of property, including removal of any resulting debris. This exclusion does not apply to any eligible activities we describe in Coverage D— Increased Cost of Compliance; or 7. Any other economic loss you suffer. B. Flood in Progress. If this policy became effective as of the time of a loan closing, as provided by 44 CFR 61.11(b), we will not pay for a loss caused by a flood that is a continuation of a flood that existed prior to coverage becoming effective. In all other circumstances, we will not pay for a loss caused by a flood that is a continuation of a flood that existed on or before the day you submitted the application for coverage under this policy and the correct premium. We will determine the date of application using 44 CFR 611.11(f). C. We do not insure for loss to property caused directly by earth movement even if the earth movement is caused by flood. Some examples of earth movement that we do not cover are: 1. Earthquake; PO 00000 Frm 00047 Fmt 4701 Sfmt 4702 33001 2. Landslide; 3. Land subsidence; 4. Sinkholes; 5. Destabilization or movement of land that results from accumulation of water in subsurface land areas; or 6. Gradual erosion. We do, however, pay for losses from mudflow and land subsidence as a result of erosion that are specifically insured under our definition of flood (see II.B.1.c and II.B.2). D. We do not insure for direct physical loss caused directly or indirectly by: 1. The pressure or weight of ice; 2. Freezing or thawing; 3. Rain, snow, sleet, hail, or water spray; 4. Water, moisture, mildew, or mold damage that results primarily from any condition: a. Substantially confined to the insured building; or b. That is within your control including, but not limited to: (1) Design, structural, or mechanical defects; (2) Failures, stoppages, or breakage of water or sewer lines, drains, pumps, fixtures, or equipment; or (3) Failure to inspect and maintain the property after a flood recedes; 5. Water or water-borne material that: a. Backs up through sewers or drains; b. Discharges or overflows from a sump, sump pump or related equipment; or c. Seeps or leaks on or through the insured property; unless there is a flood in the area and the flood is the proximate cause of the sewer or drain backup, sump pump discharge or overflow, or the seepage of water; 6. The pressure or weight of water unless there is a flood in the area and the flood is the proximate cause of the damage from the pressure or weight of water; 7. Power, heating, or cooling failure unless the failure results from direct physical loss by or from flood to power, heating, or cooling equipment on the described location; 8. Theft, fire, explosion, wind, or windstorm; 9. Anything you or any member of your household do or conspires to do to deliberately cause loss by flood; or 10. Alteration of the insured property that significantly increases the risk of flooding. E. We do not insure for loss to any building or personal property located on land leased from the Federal Government, arising from or incident to the flooding of the land by the Federal Government, where the lease expressly holds the Federal Government harmless under flood insurance issued under any Federal Government program. VI. Deductibles A. When a loss is insured under this policy, we will pay only that part of the loss that exceeds your deductible amount, subject to the limit of liability that applies. The deductible amount is shown on the Declarations Page. However, when a building under construction, alteration, or repair does not have at least two rigid exterior walls and a fully secured roof at the time of loss, your deductible amount will be two times the E:\FR\FM\16JYP2.SGM 16JYP2 33002 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules deductible that would otherwise apply to a completed building. B. In each loss from flood, separate deductibles apply to the building and personal property insured by this policy. C. The deductible does NOT apply to: 1. III.C.2. Loss Avoidance Measures; or 2. III.D. Increased Cost of Compliance. VII. General Conditions A. Pair and Set Clause In case of loss to an article that is part of a pair or set, we will have the option of paying you: 1. An amount equal to the cost of replacing the lost, damaged, or destroyed article, minus its depreciation, or 2. The amount that represents the fair proportion of the total value of the pair or set that the lost, damaged, or destroyed article bears to the pair or set. sradovich on DSK3GMQ082PROD with PROPOSALS2 B. Other Insurance 1. If a loss insured by this policy is also insured by other insurance that includes flood coverage not issued under the Act, we will not pay more than the amount of insurance that you are entitled to for lost, damaged, or destroyed property insured under this policy subject to the following: a. We will pay only the proportion of the loss that the amount of insurance that applies under this policy bears to the total amount of insurance covering the loss, unless VII.B.1.b or c below applies. b. If the other policy has a provision stating that it is excess insurance, this policy will be primary. c. This policy will be primary (but subject to its own deductible) up to the deductible in the other flood policy (except another policy as described in VII.B.1.b above). When the other deductible amount is reached, this policy will participate in the same proportion that the amount of insurance under this policy bears to the total amount of both policies, for the remainder of the loss. 2. Where this policy covers a condominium association and there is a National Flood Insurance Program flood insurance policy in the name of a unit owner that insures the same loss as this policy, then this policy will be primary. C. Amendments, Waivers, Assignment This policy cannot be changed, nor can any of its provisions be waived, without the express written consent of the Federal Insurance Administrator. No action that we take under the terms of this policy can constitute a waiver of any of our rights. You may assign this policy in writing when you transfer title of your property to someone else except under these conditions: 1. When this policy covers only personal property; or 2. When this policy covers a building under construction. D. Insufficient Premium or Rating Information 1. Applicability. The following provisions apply to all instances where the premium paid on this policy is insufficient or where the rating information is insufficient, such as where an Elevation Certificate is not provided. VerDate Sep<11>2014 18:34 Jul 13, 2018 Jkt 244001 2. Reforming the Policy with Reduced Coverage. Except as otherwise provided in VII.D.1 and VII.D.4, if the premium we received from you was not sufficient to buy the kinds and amounts of coverage you requested, we will provide only the kinds and amounts of coverage that can be purchased for the premium payment we received. a. For the purpose of determining whether your premium payment is sufficient to buy the kinds and amounts of coverage you requested, we will first deduct the costs of all applicable fees and surcharges. b. If the amount paid, after deducting the costs of all applicable fees and surcharges, is not sufficient to buy any amount of coverage, your payment will be refunded. Unless the policy is reformed to increase the coverage amount to the amount originally requested pursuant to VII.D.3, this policy will be cancelled, and no claims will be paid under this policy. c. Coverage limits on the reformed policy will be based upon the amount of premium submitted per type of coverage, but will not exceed the amount originally requested. 3. Discovery of Insufficient Premium or Rating Information. If we discover that your premium payment was not sufficient to buy the requested amount of coverage, the policy will be reformed as described in VII.D.2. You have the option of increasing the amount of coverage resulting from this reformation to the amount you requested as follows: a. Insufficient Premium. If we discover that your premium payment was not sufficient to buy the requested amount of coverage, we will send you, and any mortgagee or trustee known to us, a bill for the required additional premium for the current policy term (or that portion of the current policy term following any endorsement changing the amount of coverage). If it is discovered that the initial amount charged to you for any fees or surcharges is incorrect, the difference will be added or deducted, as applicable, to the total amount in this bill. (1) If you or the mortgagee or trustee pay the additional amount due within 30 days from the date of our bill, we will reform the policy to increase the amount of coverage to the originally requested amount, effective to the beginning of the current policy term (or subsequent date of any endorsement changing the amount of coverage). (2) If you or the mortgagee or trustee do not pay the additional amount due within 30 days of the date of our bill, any flood insurance claim will be settled based on the reduced amount of coverage. (3) As applicable, you have the option of paying all or part of the amount due out of a claim payment based on the originally requested amount of coverage. b. Insufficient Rating Information. If we determine that the rating information we have is insufficient and prevents us from calculating the additional premium, we will ask you to send the required information. You must submit the information within 60 days of our request. (1) If we receive the information within 60 days of our request, we will determine the amount of additional premium for the current policy term and follow the procedure in VII.D.3.a above. PO 00000 Frm 00048 Fmt 4701 Sfmt 4702 (2) If we do not receive the information within 60 days of our request, no claims will be paid until the requested information is provided. Coverage will be limited to the amount of coverage that can be purchased for the payments we received, as determined when the requested information is provided. 4. Coverage Increases. If we do not receive the amounts requested in VII.D.3.a or the additional information requested in VII.D.3.b by the date it is due, the amount of coverage under this policy can only be increased by endorsement subject to the appropriate waiting period. However, no coverage increases will be allowed until you have provided the information requested in VII.D.3.b is provided. 5. Falsifying Information. However, if we find that you or your agent intentionally did not tell us, or falsified, any important fact or circumstance or did anything fraudulent relating to this insurance, the provisions of VIII.A apply. E. Policy Renewal 1. This policy will expire at 12:01 a.m. on the last day of the policy term. 2. We must receive the payment of the appropriate renewal premium within 30 days of the expiration date. 3. If we find, however, that we did not place your renewal notice into the U.S. Postal Service, or if we did mail it, we made a mistake, e.g., we used an incorrect, incomplete, or illegible address, which delayed its delivery to you before the due date for the renewal premium, then we will follow these procedures: a. If you or your agent notified us, not later than one year after the date on which the payment of the renewal premium was due, of non-receipt of a renewal notice before the due date for the renewal premium, and we determine that the circumstances in the preceding paragraph apply, we will mail a second bill providing a revised due date, which will be 30 days after the date on which the bill is mailed. b. If we do not receive the premium requested in the second bill by the revised due date, then we will not renew the policy. In that case, the policy will remain as an expired policy as of the expiration date shown on the Declarations Page. 4. In connection with the renewal of this policy, we may ask you during the policy term to recertify, on a Recertification Questionnaire that we will provide to you, the rating information used to rate your most recent application for or renewal of insurance. F. Conditions Suspending or Restricting Insurance We are not liable for loss that occurs while there is a hazard that is increased by any means within your control or knowledge. G. Requirements in Case of Loss In case of a flood loss to insured property, you must: 1. Give prompt written notice to us; 2. As soon as reasonably possible, separate the damaged and undamaged property, putting it in the best possible order so that we may examine it; E:\FR\FM\16JYP2.SGM 16JYP2 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules sradovich on DSK3GMQ082PROD with PROPOSALS2 3. Prepare an inventory of damaged property showing the quantity, description, actual cash value, and amount of loss. Attach all bills, receipts, and related documents; 4. Within 60 days after the loss, send us a proof of loss, which is your statement of the amount you are claiming under the policy signed and sworn to by you, and which furnishes us with the following information: a. The date and time of loss; b. A brief explanation of how the loss happened; c. Your interest (for example, ‘‘owner’’) and the interest, if any, of others in the damaged property; d. Details of any other insurance that may cover the loss; e. Changes in title or occupancy of the insured property during the term of the policy; f. Specifications of damaged buildings and detailed repair estimates; g. Names of mortgagees or anyone else having a lien, charge, or claim against the insured property; h. Details about who occupied any insured building at the time of loss and for what purpose; and i. The inventory of damaged personal property described in G.3 above. 5. In completing the proof of loss, you must use your own judgment concerning the amount of loss and justify that amount. 6. You must cooperate with the adjuster or representative in the investigation of the claim. 7. The insurance adjuster whom we hire to investigate your claim may furnish you with a proof of loss form, and she or he may help you complete it. However, this is a matter of courtesy only, and you must still send us a proof of loss within 60 days after the loss even if the adjuster does not furnish the form or help you complete it. 8. We have not authorized the adjuster to approve or disapprove claims or to tell you whether we will approve your claim. 9. At our option, we may accept the adjuster’s report of the loss instead of your proof of loss. The adjuster’s report will include information about your loss and the damages you sustained. You must sign the adjuster’s report. At our option, we may require you to swear to the report. (3) All books of accounts, bills, invoices and other vouchers, or certified copies pertaining to the damaged property if the originals are lost. 2. We may request, in writing, that you furnish us with a complete inventory of the lost, damaged or destroyed property, including: a. Quantities and costs; b. Actual cash values or replacement cost (whichever is appropriate); c. Amounts of loss claimed; d. Any written plans and specifications for repair of the damaged property that you can reasonably make available to us; and e. Evidence that prior flood damage has been repaired. 3. If we give you written notice within 30 days after we receive your signed, sworn proof of loss, we may: a. Repair, rebuild, or replace any part of the lost, damaged, or destroyed property with material or property of like kind and quality or its functional equivalent; and b. Take all or any part of the damaged property at the value that we agree upon or its appraised value. H. Our Options After a Loss Options we may, in our sole discretion, exercise after loss include the following: 1. At such reasonable times and places that we may designate, you must: a. Show us or our representative the damaged property; b. Submit to examination under oath, while not in the presence of another insured, and sign the same; and c. Permit us to examine and make extracts and copies of: (1) Any policies of property insurance insuring you against loss and the deed establishing your ownership of the insured real property; (2) Condominium association documents including the Declarations of the condominium, its Articles of Association or Incorporation, Bylaws, rules and regulations, and other relevant documents if you are a unit owner in a condominium building; and K. Abandonment You may not abandon damaged or undamaged insured property to us. VerDate Sep<11>2014 18:34 Jul 13, 2018 Jkt 244001 I. No Benefit to Bailee No person or organization, other than you, having custody of insured property will benefit from this insurance. J. Loss Payment 1. We will adjust all losses with you. We will pay you unless some other person or entity is named in the policy or is legally entitled to receive payment. Loss will be payable 60 days after we receive your proof of loss (or within 90 days after the insurance adjuster files the adjuster’s report signed and sworn to by you in lieu of a proof of loss) and: a. We reach an agreement with you; b. There is an entry of a final judgment; or c. There is a filing of an appraisal award with us, as provided in VII.M. 2. If we reject your proof of loss in whole or in part you may: a. Accept our denial of your claim; b. Exercise your rights under this policy; or c. File an amended proof of loss as long as it is filed within 60 days of the date of the loss. L. Salvage We may permit you to keep damaged insured property after a loss, and we will reduce the amount of the loss proceeds payable to you under the policy by the value of the salvage. M. Appraisal If you and we fail to agree on the actual cash value of the damaged property so as to determine the amount of loss, either may demand an appraisal of the loss. In this event, you and we will each choose a competent and impartial appraiser within 20 days after receiving a written request from the other. The two appraisers will choose an umpire. If they cannot agree upon an umpire within 15 days, you or we may request that PO 00000 Frm 00049 Fmt 4701 Sfmt 4702 33003 the choice be made by a judge of a court of record in the state where the insured property is located. The appraisers will separately state the actual cash value and the amount of loss to each item. If the appraisers submit a written report of an agreement to us, the amount agreed upon will be the amount of loss. If they fail to agree, they will submit their differences to the umpire. A decision agreed to by any two will set the amount of actual cash value and loss. Each party will: 1. Pay its own appraiser; and 2. Bear the other expenses of the appraisal and umpire equally. N. Mortgage Clause 1. The word ‘‘mortgagee’’ includes trustee. 2. Any loss payable under Coverage A— Building Property will be paid to any mortgagee of whom we have actual notice, as well as any other mortgagee or loss payee determined to exist at the time of loss, and you, as interests appear. If more than one mortgagee is named, the order of payment will be the same as the order of precedence of the mortgages. 3. If we deny your claim, that denial will not apply to a valid claim of the mortgagee, if the mortgagee: a. Notifies us of any change in the ownership or occupancy, or substantial change in risk of which the mortgagee is aware; b. Pays any premium due under this policy on demand if you have neglected to pay the premium; and c. Submits a signed, sworn proof of loss within 60 days after receiving notice from us of your failure to do so. 4. All terms of this policy apply to the mortgagee. 5. The mortgagee has the right to receive loss payment even if the mortgagee has started foreclosure or similar action on the building. 6. If we decide to cancel or not renew this policy, it will continue in effect for the benefit of the mortgagee only for 30 days after we notify the mortgagee of the cancellation or non-renewal. 7. If we pay the mortgagee for any loss and deny payment to you, we are subrogated to all the rights of the mortgagee granted under the mortgage on the property. Subrogation will not impair the right of the mortgagee to recover the full amount of the mortgagee’s claim. O. Suit Against Us You may not sue us to recover money under this policy unless you have complied with all the requirements of the policy. If you do sue, you must start the suit within one year of the date of the written denial of all or part of the claim, and you must file the suit in the United States District Court of the district in which the insured property was located at the time of loss. This requirement applies to any claim that you may have under this policy and to any dispute that you may have arising out of the handling of any claim under the policy. P. Subrogation Whenever we make a payment for a loss under this policy, we are subrogated to your E:\FR\FM\16JYP2.SGM 16JYP2 33004 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules sradovich on DSK3GMQ082PROD with PROPOSALS2 right to re-cover for that loss from any other person. That means that your right to recover for a loss that was partly or totally caused by someone else is automatically transferred to us, to the extent that we have paid you for the loss. We may require you to acknowledge this transfer in writing. After the loss, you may not give up our right to recover this money or do anything that would prevent us from recovering it. If you make any claim against any person who caused your loss and recover any money, you must pay us back first before you may keep any of that money. Q. Continuous Lake Flood 1. If an insured building has been flooded by rising lake waters continuously for 90 days or more and it appears reasonably certain that a continuation of this flooding will result in an insured loss to the insured building equal to or greater than the building policy limits plus the deductible or the maximum payable under the policy for any one building loss, we will pay you the lesser of these two amounts without waiting for the further damage to occur if you sign a release agreeing: a. To make no further claim under this policy; b. Not to seek renewal of this policy; c. Not to apply for any flood insurance under the Act for property at the described location; d. Not to seek a premium refund for current or prior terms. If the policy term ends before the insured building has been flooded continuously for 90 days, the provisions of this paragraph Q.1 will apply when the insured building suffers a covered loss before the policy term ends. 2. If your insured building is subject to continuous lake flooding from a closed basin lake, you may elect to file a claim under either paragraph Q.1 above or Q.2 (A ‘‘closed basin lake’’ is a natural lake from which water leaves primarily through evaporation and whose surface area now exceeds or has exceeded one square mile at any time in the recorded past. Most of the nation’s closed basin lakes are in the western half of the United States where annual evaporation exceeds annual precipitation and where lake levels and surface areas are subject to considerable fluctuation due to wide variations in the climate. These lakes may overtop their basins on rare occasions.) Under this paragraph Q.2, we will pay your claim as if the building is a total loss even though it has not been continuously inundated for 90 days, subject to the following conditions: a. Lake floodwaters must damage or imminently threaten to damage your building. b. Before approval of your claim, you must: (1) Agree to a claim payment that reflects your buying back the salvage on a negotiated basis; and (2) Grant the conservation easement described in FEMA’s ‘‘Policy Guidance for Closed Basin Lakes’’ to be recorded in the office of the local recorder of deeds. FEMA, in consultation with the community in which the property is located, will identify on a map an area or areas of special consideration (ASC) in which there is a potential for flood VerDate Sep<11>2014 18:34 Jul 13, 2018 Jkt 244001 damage from continuous lake flooding. FEMA will give the community the agreedupon map showing the ASC. This easement will only apply to that portion of the property in the ASC. It will allow certain agricultural and recreational uses of the land. The only structures it will allow on any portion of the property within the ASC are certain simple agricultural and recreational structures. If any of these allowable structures are insurable buildings under the NFIP and are insured under the NFIP, they will not be eligible for the benefits of this paragraph Q.2. If a U.S. Army Corps of Engineers certified flood control project or otherwise certified flood control project later protects the property, FEMA will, upon request, amend the ASC to remove areas protected by those projects. The restrictions of the easement will then no longer apply to any portion of the property removed from the ASC; and (3) Comply with paragraphs Q.1.a through Q.1.d above. c. Within 90 days of approval of your claim, you must move your building to a new location outside the ASC. FEMA will give you an additional 30 days to move if you show there is sufficient reason to extend the time. d. Before the final payment of your claim, you must acquire an elevation certificate and a floodplain development permit from the local floodplain administrator for the new location of your building. e. Before the approval of your claim, the community having jurisdiction over your building must: (1) Adopt a permanent land use ordinance, or a temporary moratorium for a period not to exceed 6 months to be followed immediately by a permanent land use ordinance that is consistent with the provisions specified in the easement required in paragraph Q.2.b above. (2) Agree to declare and report any violations of this ordinance to FEMA so that under Section 1316 of the National Flood Insurance Act of 1968, as amended, flood insurance to the building can be denied; and (3) Agree to maintain as deed-restricted, for purposes compatible with open space or agricultural or recreational use only, any affected property the community acquires an interest in. These deed restrictions must be consistent with the provisions of paragraph Q.2.b above, except that, even if a certified project protects the property, the land use restrictions continue to apply if the property was acquired under the Hazard Mitigation Grant Program or the Flood Mitigation Assistance Program. If a non-profit land trust organization receives the property as a donation, that organization must maintain the property as deed-restricted, consistent with the provisions of paragraph Q2.b. above. f. Before the approval of your claim, the affected State must take all action set forth in FEMA’s ‘‘Policy Guidance for Closed Basin Lakes.’’ g. You must have NFIP flood insurance coverage continuously in effect from a date established by FEMA until you file a claim under paragraph Q.2. If a subsequent owner buys NFIP insurance that goes into effect within 60 days of the date of transfer of title, PO 00000 Frm 00050 Fmt 4701 Sfmt 4702 any gap in coverage during that 60-day period will not be a violation of this continuous coverage requirement. For the purpose of honoring a claim under this paragraph Q.2, we will not consider to be in effect any increased coverage that became effective after the date established by FEMA. The exception to this is any in-creased coverage in the amount suggested by your insurer as an inflation adjustment. h. This paragraph Q.2 will be in effect for a community when the FEMA Regional Administrator for the affected region provides to the community, in writing, the following: (1) Confirmation that the community and the State are in compliance with the conditions in paragraphs Q.2.e and Q.2.f above, and (2) The date by which you must have flood insurance in effect. R. Loss Settlement We will pay the least of the following amounts after application of the deductible: 1. The applicable amount of insurance under this policy; 2. The actual cash value; or 3. The amount it would cost to repair or replace the property with material of like kind and quality within a reasonable time after the loss. VIII. Policy Nullification, Cancellation, and Non-Renewal A. Policy Nullification for Fraud, Misrepresentation, or Making False Statements 1. With respect to all insureds under this policy, this policy is void and has no legal force and effect if at any time, before or after a loss, you or any other insured or your agent have, with respect to this policy or any other NFIP insurance: a. Concealed or misrepresented any material fact or circumstance; b. Engaged in fraudulent conduct; or c. Made false statements. 2. Policies voided under A.1 cannot be renewed or replaced by a new NFIP policy. 3. Policies are void as of the date the acts described in A.1 above were committed. 4. Fines, civil penalties, and imprisonment under applicable Federal laws may also apply to the acts of fraud or concealment described above. B. Policy Nullification for Reasons Other Than Fraud 1. This policy is void from its inception, and has no legal force or effect, if: a. The property listed on the application is located in a community that was not participating in the NFIP on this policy’s inception date and did not join or reenter the program during the policy term and before the loss occurred; b. The property listed on the application is otherwise not eligible for coverage under the NFIP at the time of the initial application; c. You never had an insurable interest in the property listed on the application; d. You provided an agent with an application and payment, but the payment did not clear; or e. We receive notice from you, prior to the policy effective date, that you have E:\FR\FM\16JYP2.SGM 16JYP2 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules E. Non-Renewal of the Policy by Us Your policy will not be renewed if: 1. The community where your insured property is located is suspended or stops participating in the NFIP; 2. Your building is otherwise ineligible for flood insurance under the Act; 3. You have failed to provide the information we requested for the purpose of rating the policy within the required deadline. C. Cancellation of the Policy by You 1. You may cancel this policy in accordance with the terms and conditions of this policy and the applicable rules and regulations of the NFIP. 2. If you cancel this policy, you may be entitled to a full or partial refund of premium, surcharges, or fees under the terms and conditions of this policy and the applicable rules and regulations of the NFIP. sradovich on DSK3GMQ082PROD with PROPOSALS2 determined not to take the policy and you are not subject a requirement to obtain and maintain flood insurance pursuant to any statute, regulation, or contract. 2. In such cases, you will be entitled to a full refund of all premium, fees, and surcharges received. However, if a claim was paid for a policy that is void, the claim payment must be returned to FEMA or offset from the premiums to be refunded before the refund will be processed. IX. Liberalization Clause If we make a change that broadens your coverage under this edition of our policy, but does not re-quire any additional premium, then that change will automatically apply to your insurance as of the date we implement the change, provided that this implementation date falls within 60 days before or during the policy term stated on the Declarations Page. D. Cancellation of the Policy by Us 1. Cancellation for Underpayment of Amounts Owed on Policy. This policy will be cancelled, pursuant to VII.D.2, if it is determined that the premium amount you paid is not sufficient to buy any amount of coverage, and you do not pay the additional amount of premium owed to increase the coverage to the originally requested amount within the required time period. 2. Cancellation Due to Lack of an Insurable Interest. a. If you no longer have an insurable interest in the insured property, we will cancel this policy. You will cease to have an insurable interest if: (1) For building coverage, the building was sold, destroyed, or removed. (2) For contents coverage, the contents were sold or transferred ownership, or the contents were completely removed from the described location. b. If your policy is cancelled for this reason, you may be entitled to a partial refund of premium under the applicable rules and regulations of the NFIP. 3. Cancellation of Duplicate Policies. a. Your property may not be insured by more than one NFIP policy, and payment for damages to your property will only be made under one policy. b. If the property is insured by more than one NFIP policy, we will cancel all but one of the policies. The policy, or policies, will be selected for cancellation in accordance with 44 CFR 62.5 and the applicable rules and guidance of the NFIP. c. If this policy is cancelled pursuant to VIII.D.4.b, you may be entitled to a full or partial refund of premium, surcharges, or fees under the terms and conditions of this policy and the applicable rules and regulations of the NFIP. 4. Cancellation Due to Physical Alteration of Property. a. If the insured building has been physically altered in such a manner that it is no longer eligible for flood insurance coverage, we will cancel this policy. b. If your policy is cancelled for this reason, you may be entitled to a partial refund of premium under the terms and conditions of this policy and the applicable rules and regulations of the NFIP. X. What Law Governs This policy and all disputes arising from the insurer’s policy issuance, policy administration, or the handling of any claim under the policy are governed exclusively by the flood insurance regulations issued by FEMA, the National Flood Insurance Act of 1968, as amended (42 U.S.C. 4001, et seq.), and Federal common law. In Witness Whereof, we have signed this policy below and hereby enter into this Insurance Agreement. Administrator, Federal Insurance and Mitigation Administration VerDate Sep<11>2014 18:34 Jul 13, 2018 Jkt 244001 14. Revise Appendix A(3) to Part 61 to read as follows: ■ Appendix A(3) to Part 61 Federal Emergency Management Agency, Federal Insurance and Mitigation Administration Standard Flood Insurance Policy RESIDENTIAL CONDOMINIUM BUILDING ASSOCIATION POLICY Please read the policy carefully. The flood insurance provided is subject to limitations, restrictions, and exclusions. I. Agreement A. This policy covers only a residential condominium building in a regular program community. If the community reverts to emergency program status during the policy term and remains as an emergency program community at time of renewal, this policy cannot be renewed. B. The Federal Emergency Management Agency (FEMA) provides flood insurance under the terms of the National Flood Insurance Act of 1968 and its amendments, and Title 44 of the Code of Federal Regulations. C. We will pay you for direct physical loss by or from flood to your insured property if you: 1. Have paid the full amount due (including applicable premiums, surcharges, and fees); 2. Comply with all terms and conditions of this policy; and 3. Have furnished accurate information and statements. PO 00000 Frm 00051 Fmt 4701 Sfmt 4702 33005 D. We have the right to review the information you give us at any time and revise your policy based on our review. E. This policy insures only one building. If you own more than one building, coverage will apply to the single building specifically described in the Flood Insurance Application. F. Subject to the exception in Section I.G below, multiple policies with building coverage cannot be issued to insure a single building to one insured or to different insureds, even if issued through different NFIP insurers. Payment for damages may only be made under a single policy for building damages under Coverage A— Building Property. G. A Dwelling Form policy with building coverage may be issued to a unit owner in a condominium building that is also insured under a Residential Condominium Building Association Policy (RCBAP). However, no more than $250,000 may be paid in combined benefits for a single unit under the Dwelling Form and the RCBAP. We will only pay for damage once. Items of damage paid for under a RCBAP cannot also be claimed under the Dwelling Form policy. II. Definitions A. In this policy, ‘‘you’’ and ‘‘your’’ refer to the named insured(s) shown on the Declarations Page of this policy. The named insured must also include the building owner if building coverage is purchased. Insured(s) includes: Any mortgagee and loss payee named in the Application and Declarations Page, as well as any other mortgagee or loss payee determined to have an existing interest at the time of loss, in the order of precedence. ‘‘We,’’ ‘‘us,’’ and ‘‘our’’ refer to the insurer. Some definitions are complex because they are provided as they appear in the law or regulations, or result from court cases. B. Flood, as used in this flood insurance policy, means: 1. A general and temporary condition of partial or complete inundation of two or more acres of normally dry land area or of two or more properties (one of which is your property) from: a. Overflow of inland or tidal waters, b. Unusual and rapid accumulation or runoff of surface waters from any source, c. Mudflow. 2. Collapse or subsidence of land along the shore of a lake or similar body of water as a result of erosion or undermining caused by waves or currents of water exceeding anticipated cyclical levels which result in a flood as defined in B.1.a above. C. The following are the other key definitions we use in this policy: 1. Act. The National Flood Insurance Act of 1968 and any amendments to it. 2. Actual Cash Value. The cost to replace an insured item of property at the time of loss, less the value of its physical depreciation. 3. Application. The statement made and signed by you or your agent in applying for this policy. The application gives information we use to determine the eligibility of the risk, the kind of policy to be issued, and the correct premium payment. The application is part of this flood insurance policy. E:\FR\FM\16JYP2.SGM 16JYP2 sradovich on DSK3GMQ082PROD with PROPOSALS2 33006 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules 4. Base Flood. A flood having a one percent chance of being equaled or exceeded in any given year. 5. Basement. Any area of a building, including any sunken room or sunken portion of a room, having its floor below ground level on all sides. 6. Building. a. A structure with two or more outside rigid walls and a fully secured roof that is affixed to a permanent site; b. A manufactured home, also known as a mobile home, is a structure built on a permanent chassis, transported to its site in one or more sections, and affixed to a permanent foundation); or c. A travel trailer without wheels, built on a chassis and affixed to a permanent foundation, that is regulated under the community’s floodplain management and building ordinances or laws. Building does not mean a gas or liquid storage tank, shipping container, or a recreational vehicle, park trailer, or other similar vehicle, except as described in C.6.c above. 7. Cancellation. The ending of the insurance coverage provided by this policy before the expiration date. 8. Condominium. That form of ownership of one or more buildings in which each unit owner has an undivided interest in common elements. 9. Condominium Association. The entity made up of the unit owners responsible for the maintenance and operation of: a. Common elements owned in undivided shares by unit owners; and b. Other buildings in which the unit owners have use rights; where membership in the entity is a required condition of ownership. 10. Condominium Building. A type of building for which the form of ownership is one in which each unit owner has an undivided interest in common elements of the building. 11. Declarations Page. A computergenerated summary of information you provided in your application for insurance. The Declarations Page also describes the term of the policy, limits of coverage, and displays the premium and our name. The Declarations Page is a part of this flood insurance policy. 12. Deductible. The fixed amount of an insured loss that is your responsibility and that is incurred by you before any amounts are paid for the insured loss under this policy. 13. Described Location. The location where the insured building or personal property are found. The described location is shown on the Declarations Page. 14. Direct Physical Loss By or From Flood. Loss or damage to insured property, directly caused by a flood. There must be evidence of physical changes to the property. 15. Elevated Building. A building that has no basement and that has its lowest elevated floor raised above ground level by foundation walls, shear walls, posts, piers, pilings, or columns. 16. Emergency Program. The initial phase of a community’s participation in the National Flood Insurance Program. During this phase, only limited amounts of VerDate Sep<11>2014 18:34 Jul 13, 2018 Jkt 244001 insurance are available under the Act and the regulations prescribed pursuant to the Act. 17. Federal Policy Fee. A flat rate charge you must pay on each new or renewal policy to defray certain administrative expenses incurred in carrying out the National Flood Insurance Program. 18. Improvements. Fixtures, alterations, installations, or additions comprising a part of the residential condominium building, including improvements in the units. 19. Mudflow. A river of liquid and flowing mud on the surface of normally dry land areas, as when earth is carried by a current of water. Other earth movements, such as landslide, slope failure, or a saturated soil mass moving by liquidity down a slope, are not mudflows. 20. National Flood Insurance Program (NFIP). The program of flood insurance coverage and floodplain management administered under the Act and applicable Federal regulations in Title 44 of the Code of Federal Regulations, Subchapter B. 21. Policy. The entire written contract between you and us. It includes: a. This printed form; b. The application and Declarations Page; c. Any endorsement(s) that may be issued; and d. Any renewal certificate indicating that coverage has been instituted for a new policy and new policy term. Only one building, which you specifically described in the application, may be insured under this policy. 22. Pollutants. Substances that include, but are not limited to, any solid, liquid, gaseous, or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste. ‘‘Waste’’ includes, but is not limited to, materials to be recycled, reconditioned, or reclaimed. 23. Post-FIRM Building. A building for which construction or substantial improvement occurred after December 31, 1974, or on or after the effective date of an initial Flood Insurance Rate Map (FIRM), whichever is later. 24. Probation Surcharge. A flat charge you must pay on each new or renewal policy issued covering property in a community the NFIP has placed on probation under the provisions of 44 CFR 59.24. 25. Regular Program. The final phase of a community’s participation in the National Flood Insurance Program. In this phase, a Flood Insurance Rate Map is in effect and full limits of coverage are available under the Act and the regulations prescribed pursuant to the Act. 26. Residential Condominium Building. A building, condominium, containing one or more family units and in which at least 75 percent of the floor area is residential. 27. Special Flood Hazard Area (SFHA). An area having special flood or mudflow, and/ or flood-related erosion hazards, and shown on a Flood Hazard Boundary Map or Flood Insurance Rate Map as Zone A, AO, A1–A30, AE, A99, AH, AR, AR/A, AR/AE, AR/AH, AR/AO, AR/A1–A30, V1–V30, VE, or V. 28. Unit. A single-family residential space in a residential condominium building. 29. Valued Policy. A policy in which the insured and the insurer agree on the value of PO 00000 Frm 00052 Fmt 4701 Sfmt 4702 the property insured, that value being payable in the event of a total loss. The Standard Flood Insurance Policy is not a valued policy. III. Property Covered A. Coverage A—Building Property We insure against direct physical loss by or from flood to: 1. The residential condominium building described on the Declarations Page at the described location, including all units within the building and the improvements within the units. 2. We also insure such building property for a period of 45 days at another location, as set forth in III.C.2.b, Property Removed to Safety. 3. Additions and extensions attached to and in contact with the building by means of a rigid exterior wall, a solid load-bearing interior wall, a stairway, an elevated walkway, or a roof. At your option, additions and extensions connected by any of these methods may be separately insured. Additions and extensions attached to and in contact with the building by means of a common interior wall that is not a solid loadbearing wall are always considered part of the building and cannot be separately insured. 4. The following fixtures, machinery and equipment, including its units, which are insured under Coverage A only: a. Awnings and canopies; b. Blinds; c. Carpet permanently installed over unfinished flooring; d. Central air conditioners; e. Elevator equipment; f. Fire extinguishing apparatus; g. Fire sprinkler systems; h. Walk-in freezers; i. Furnaces; j. Light fixtures; k. Outdoor antennas and aerials fastened to buildings; l. Permanently installed cupboards, bookcases, paneling, and wallpaper; m. Pumps and machinery for operating pumps; n. Ventilating equipment; o. Wall mirrors, permanently installed; and p. In the units within the building, installed: (1) Built-in dishwashers; (2) Built-in microwave ovens; (3) Garbage disposal units; (4) Hot water heaters, including solar water heaters; (5) Kitchen cabinets; (6) Plumbing fixtures; (7) Radiators; (8) Ranges; (9) Refrigerators; and (10) Stoves. 5. Materials and supplies to be used for construction, alteration or repair of the insured building while the materials and supplies are stored in a fully enclosed building at the described location or on an adjacent property. 6. A building under construction, alteration, or repair at the described location. a. If the structure is not yet walled or roofed as described in the definition for building (see II.B.6.a.) then coverage applies: E:\FR\FM\16JYP2.SGM 16JYP2 sradovich on DSK3GMQ082PROD with PROPOSALS2 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules (1) Only while such work is in progress; or (2) If such work is halted, only for a period of up to 90 continuous days thereafter. b. However, coverage does not apply until the building is walled and roofed if the lowest floor, including the basement floor, of a non-elevated building or the lowest elevated floor of an elevated building is: (1) Below the base flood elevation in Zones AH, AE, A1–30, AR, AR/AE, AR/AH, AR/ A1–30, AR/A, AR/AO; or (2) Below the base flood elevation adjusted to include the effect of wave action in Zones VE or V1–30. The lowest floor level is based on the bottom of the lowest horizontal structural member of the floor in Zones VE or V1–V30 or top of the floor in Zones AH, AE, A1–A30, AR, AR/AE, AR/AH, AR/A1–A30, AR/A, and AR/AO. 7. A manufactured home or a travel trailer, as described in the II.C.6. If the manufactured home is in a special flood hazard area, it must be anchored in the following manner at the time of the loss: a. By over-the-top or frame ties to ground anchors; or b. In accordance with the manufacturer’s specifications; or c. In compliance with the community’s floodplain management requirements unless it has been continuously insured by the NFIP at the same described location since September 30, 1982. 8. Items of property below the lowest elevated floor of an elevated post-FIRM building located in zones A1–A30, AE, AH, AR, AR/A, AR/AE, AR/AH, AR/A1–A30, V1– V30, or VE, or in a basement, regardless of the zone. Coverage is limited to the following: a. Any of the following items, if installed in their functioning locations and, if necessary for operation, connected to a power source: (1) Central air conditioners; (2) Cisterns and the water in them; (3) Drywall for walls and ceilings in a basement and the cost of labor to nail it, unfinished and unfloated and not taped, to the framing; (4) Electrical junction and circuit breaker boxes; (5) Electrical outlets and switches; (6) Elevators, dumbwaiters, and related equipment, except for related equipment installed below the base flood elevation after September 30, 1987; (7) Fuel tanks and the fuel in them; (8) Furnaces and hot water heaters; (9) Heat pumps; (10) Nonflammable insulation in a basement; (11) Pumps and tanks used in solar energy systems; (12) Stairways and staircases attached to the building, not separated from it by elevated walkways; (13) Sump pumps; (14) Water softeners and the chemicals in them, water filters, and faucets installed as an integral part of the plumbing system; (15) Well water tanks and pumps; (16) Required utility connections for any item in this list; and (17) Footings, foundations, posts, pilings, piers, or other foundation walls and VerDate Sep<11>2014 18:34 Jul 13, 2018 Jkt 244001 anchorage systems required to support a building. b. Clean-up. B. Coverage B—Personal Property 1. If you have purchased personal property coverage, we insure, subject to B.2 and B.3 below, against direct physical loss by or from flood to personal property that is inside the fully enclosed insured building and is: a. Owned by the unit owners of the condominium association in common, meaning property in which each unit owner has an undivided ownership interest; or b. Owned solely by the condominium association and used exclusively in the conduct of the business affairs of the condominium association. 2. We also insure such personal property for 45 days while stored at a temporary location, as set forth in III.C.2.b, Property Removed to Safety. 3. Coverage for personal property includes the following property, subject to B.1. above, which is covered under Coverage B only: a. Air conditioning units, portable or window type; b. Carpets, not permanently installed, over unfinished flooring; c. Carpets over finished flooring; d. Clothes washers and dryers; e. ‘‘Cook-out’’ grills; f. Food freezers, other than walk-in, and food in any freezer; g. Outdoor equipment and furniture stored inside the insured building; h. Ovens and the like; and i. Portable microwave ovens and portable dishwashers. 4. Coverage for items of property in a building enclosure below the lowest elevated floor of an elevated post-FIRM building located in zones A1–A30, AE, AH, AR, AR/ A, AR/AE, AR/AH, AR/A1–A30, V1–V30, or VE, or in a basement, regardless of the zone, is limited to the following items, if installed in their functioning locations and, if necessary for operation, connected to a power source: a. Air conditioning units, portable or window type; b. Clothes washers and dryers; and c. Food freezers, other than walk-in, and food in any freezer. 5. Special Limits. We will pay no more than $2,500 for any one loss to one or more of the following kinds of personal property: a. Artwork, photographs, collectibles, or memorabilia, including but not limited to, porcelain or other figures, and sports cards; b. Rare books or autographed items; c. Jewelry, watches, precious and semiprecious stones, or articles of gold, silver, or platinum; d. Furs or any article containing fur which represents its principal value. 6. We will pay only for the functional value of antiques. C. Coverage C—Other Coverages 1. Debris Removal. a. We will pay the expense to remove nonowned debris that is on or in insured property and debris of insured property anywhere. b. If you or a member of your household perform the removal work, the value of your PO 00000 Frm 00053 Fmt 4701 Sfmt 4702 33007 work will be based on the Federal minimum wage. c. This coverage does not increase the Coverage A or Coverage B limit of liability. 2. Loss Avoidance Measures. a. Sandbags, Supplies, and Labor. (1) We will pay up to $1,000 for costs you incur to protect the insured building from a flood or imminent danger of flood, for the following: (a) Your reasonable expenses to buy: (i) Sandbags, including sand to fill them; (ii) Fill for temporary levees; (iii) Pumps; and (iv) Plastic sheeting and lumber used in connection with these items. (b) The value of work, at the Federal minimum wage, that you perform. (2) This coverage for Sandbags, Supplies and Labor only applies if damage to insured property by or from flood is imminent and the threat of flood damage is apparent enough to lead a person of common prudence to anticipate flood damage. One of the following must also occur: (a) A general and temporary condition of flooding in the area near the described location must occur, even if the flood does not reach the building; or (b) A legally authorized official must issue an evacuation order or other civil order for the community in which the building is located calling for measures to preserve life and property from the peril of flood. b. Property Removed to Safety. (1) We will pay up to $1,000 for the reasonable expenses you incur to move insured property to a place other than the described location that contains the property in order to protect it from flood or the imminent danger of flood. Reasonable expenses include the value of work, at the Federal minimum wage, you or a member of your household perform. (2) If you move insured property to a location other than the described location that contains the property, in order to protect it from flood or the imminent danger of flood, we will cover such property while at that location for a period of 45 consecutive days from the date you begin to move it there. (3) The personal property that is moved must be placed in a fully enclosed building or otherwise reasonably protected from the elements. Any property removed, including a moveable home described in II.6.b and c, must be placed above ground level or outside of the special flood hazard area (4) This coverage does not increase the Coverage A or Coverage B limit of liability. D. Coverage D—Increased Cost of Compliance 1. General. This policy pays you to comply with a State or local floodplain management law or ordinance affecting repair or reconstruction of a building suffering flood damage. Compliance activities eligible for payment are: elevation, floodproofing, relocation, or demolition (or any combination of these activities) of your building. Eligible floodproofing activities are limited to: a. Non-residential buildings. b. Residential buildings with basements that satisfy FEMA’s standards published in E:\FR\FM\16JYP2.SGM 16JYP2 sradovich on DSK3GMQ082PROD with PROPOSALS2 33008 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules the Code of Federal Regulations [44 CFR 60.6 (b) or (c)]. 2. Limit of Liability. We will pay you up to $30,000 under this Coverage D (Increased Cost of Compliance), which only applies to policies with building coverage (Coverage A). Our payment of claims under Coverage D is in addition to the amount of coverage which you selected on the application and which appears on the Declarations Page. But, the maximum you can collect under this policy for both Coverage A—Building Property and Coverage D—Increased Cost of Compliance cannot exceed the maximum permitted under the Act. We do not charge a separate deductible for a claim under Coverage D. 3. Eligibility. a. A building covered under Coverage A (Building Property) sustaining a loss caused by a flood as defined by this policy must: (1) Be a ‘‘repetitive loss building.’’ A repetitive loss building is one that meets the following conditions: (a) The building is insured by a contract of flood insurance issued under the NFIP. (b) The building has suffered flood damage on two occasions during a 10-year period which ends on the date of the second loss. (c) The cost to repair the flood damage, on average, equaled or exceeded 25 percent of the market value of the building at the time of each flood loss. (d) In addition to the current claim, the NFIP must have paid the previous qualifying claim, and the State or community must have a cumulative, substantial damage provision or repetitive loss provision in its floodplain management law or ordinance being enforced against the building; or (2) Be a building that has had flood damage in which the cost to repair equals or exceeds 50 percent of the market value of the building at the time of the flood. The State or community must have a substantial damage provision in its floodplain management law or ordinance being enforced against the building. b. This Coverage D pays you to comply with State or local floodplain management laws or ordinances that meet the minimum standards of the National Flood Insurance Program found in the Code of Federal Regulations at 44 CFR 60.3. We pay for compliance activities that exceed those standards under these conditions: (1) 3.a.1 above. (2) Elevation or floodproofing in any risk zone to preliminary or advisory base flood elevations provided by FEMA which the State or local government has adopted and is enforcing for flood-damaged buildings in such areas. (This includes compliance activities in B, C, X, or D zones which are being changed to zones with base flood elevations. This also includes compliance activities in zones where base flood elevations are being increased, and a flooddamaged building must comply with the higher advisory base flood elevation.) Increased Cost of Compliance coverage does not apply to situations in B, C, X, or D zones where the community has derived its own elevations and is enforcing elevation or floodproofing requirements for flooddamaged buildings to elevations derived solely by the community. VerDate Sep<11>2014 18:34 Jul 13, 2018 Jkt 244001 (3) Elevation or floodproofing above the base flood elevation to meet State or local ‘‘freeboard’’ requirements, i.e., that a building must be elevated above the base flood elevation. c. Under the minimum NFIP criteria at 44 CFR 60.3(b)(4), States and communities must require the elevation or floodproofing of buildings in unnumbered A zones to the base flood elevation where elevation data is obtained from a Federal, State, or other source. Such compliance activities are also eligible for Coverage D. d. Coverage D will pay for the incremental cost, after demolition or relocation, of elevating or floodproofing a building during its rebuilding at the same or another site to meet State or local floodplain management laws or ordinances, subject to Exclusion D.5.g below relating to improvements. e. Coverage D will pay to bring a flooddamaged building into compliance with State or local floodplain management laws or ordinances even if the building had received a variance before the present loss from the applicable floodplain management requirements. 4. Conditions. a. When a building covered under Coverage A—Building Property sustains a loss caused by a flood, our payment for the loss under this Coverage D will be for the increased cost to elevate, floodproof, relocate, or demolish (or any combination of these activities) caused by the enforcement of current State or local floodplain management ordinances or laws. Our payment for eligible demolition activities will be for the cost to demolish and clear the site of the building debris or a portion thereof caused by the enforcement of current State or local floodplain management ordinances or laws. Eligible activities for the cost of clearing the site will include those necessary to discontinue utility service to the site and ensure proper abandonment of on-site utilities. b. When the building is repaired or rebuilt, it must be intended for the same occupancy as the present building unless otherwise required by current floodplain management ordinances or laws. 5. Exclusions. Under this Coverage D (Increased Cost of Compliance) we will not pay for: a. The cost to comply with any floodplain management law or ordinance in communities participating in the Emergency Program. b. The cost associated with enforcement of any ordinance or law that requires any insured or others to test for, monitor, clean up, remove, contain, treat, detoxify or neutralize, or in any way respond to, or assess the effects of pollutants. c. The loss in value to any insured building due to the requirements of any ordinance or law. d. The loss in residual value of the undamaged portion of a building demolished as a consequence of enforcement of any State or local floodplain management law or ordinance. e. Any Increased Cost of Compliance under this Coverage D: PO 00000 Frm 00054 Fmt 4701 Sfmt 4702 (1) Until the building is elevated, floodproofed, demolished, or relocated on the same or to another premises; and (2) Unless the building is elevated, floodproofed, demolished, or relocated as soon as reasonably possible after the loss, not to exceed two years. f. Any code upgrade requirements, e.g., plumbing or electrical wiring, not specifically related to the State or local floodplain management law or ordinance. g. Any compliance activities needed to bring additions or improvements made after the loss occurred into compliance with State or local floodplain management laws or ordinances. h. Loss due to any ordinance or law that you were required to comply with before the current loss. i. Any rebuilding activity to standards that do 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. j. Increased Cost of Compliance for a garage or carport. k. Any building insured under an NFIP Group Flood Insurance Policy. l. Assessments made by a condominium association on 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. 6. Other Provisions. a. Increased Cost of Compliance coverage will not be included in the calculation to determine whether coverage meets the coinsurance requirement for replacement cost coverage under Art. VIII.R. (‘‘Loss Settlement’’). b. All other conditions and provisions of this policy apply. IV. Property Not Covered We do not insure any of the following: 1. Personal property not inside a building; 2. A building, and personal property in it, located entirely in, on, or over water or seaward of mean high tide if it was constructed or substantially improved after September 30, 1982; 3. Open structures, including a building used as a boathouse or any structure or building into which boats are floated, and personal property located in, on, or over water; 4. Recreational vehicles other than travel trailers described in the Definitions section (see II.C.6.c) whether affixed to a permanent foundation or on wheels; 5. Self-propelled vehicles or machines, including their parts and equipment. However, we do cover self-propelled vehicles or machines not licensed for use on public roads that are: a. Used mainly to service the described location or b. Designed and used to assist handicapped persons, while the vehicles or machines are inside a building at the described location; 6. Land, land values, lawns, trees, shrubs, plants, growing crops, or animals; E:\FR\FM\16JYP2.SGM 16JYP2 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules sradovich on DSK3GMQ082PROD with PROPOSALS2 7. Accounts, bills, coins, currency, deeds, evidences of debt, medals, money, scrip, stored value cards, postage stamps, securities, bullion, manuscripts, or other valuable papers; 8. Underground structures and equipment, including wells, septic tanks, and septic systems; 9. Those portions of walks, walkways, decks, driveways, patios, and other surfaces, all whether protected by a roof or not, located outside the perimeter, exterior walls of the insured building; 10. Containers, including related equipment, such as, but not limited to, tanks containing gases or liquids; 11. Buildings and all their contents if more than 49 percent of the actual cash value of the building is below ground, unless the lowest level is at or above the base flood elevation and is below ground by reason of earth having been used as insulation material in conjunction with energy efficient building techniques; 12. Fences, retaining walls, seawalls, bulkheads, wharves, piers, bridges, and docks; 13. Aircraft or watercraft, or their furnishings and equipment; 14. Hot tubs and spas that are not bathroom fixtures, and swimming pools, and their equipment such as, but not limited to, heaters, filters, pumps, and pipes, wherever located; 15. Property not eligible for flood insurance pursuant to the provisions of the Coastal Barrier Resources Act and the Coastal Barrier Improvements Act of 1990 and amendments to these Acts; 16. Personal property used in connection with any incidental commercial occupancy or use of the building. V. Exclusions A. We only pay for ‘‘direct physical loss by or from flood,’’ which means that we do not pay you for: 1. Loss of revenue or profits; 2. Loss of access to the insured property or described location; 3. Loss of use of the insured property or described location; 4. Loss from interruption of business or production; 5. Any additional living expenses incurred while the insured building is being repaired or is unable to be occupied for any reason; 6. The cost of complying with any ordinance or law requiring or regulating the construction, demolition, remodeling, renovation, or repair of property, including removal of any resulting debris. This exclusion does not apply to any eligible activities we describe in Coverage D— Increased Cost of Compliance; or 7. Any other economic loss you suffer. B. Flood in Progress. If this policy became effective as of the time of a loan closing, as provided by 44 CFR 61.11(b), we will not pay for a loss caused by a flood that is a continuation of a flood that existed prior to coverage becoming effective. In all other circumstances, we will not pay for a loss caused by a flood that is a continuation of a flood that existed on or before the day you submitted the application for coverage under VerDate Sep<11>2014 18:34 Jul 13, 2018 Jkt 244001 this policy and the correct premium. We will determine the date of application using 44 CFR 611.11(f). C. We do not insure for loss to property caused directly by earth movement even if the earth movement is caused by flood. Some examples of earth movement that we do not cover are: 1. Earthquake; 2. Landslide; 3. Land subsidence; 4. Sinkholes; 5. Destabilization or movement of land that results from accumulation of water in subsurface land areas; or 6. Gradual erosion. We do, however, pay for losses from mudflow and land subsidence as a result of erosion that are specifically covered under our definition of flood (see II.B.1.c and II.B.2). D. We do not insure for direct physical loss caused directly or indirectly by: 1. The pressure or weight of ice; 2. Freezing or thawing; 3. Rain, snow, sleet, hail, or water spray; 4. Water, moisture, mildew, or mold damage that results primarily from any condition: a. Substantially confined to the insured building; or b. That is within your control including, but not limited to: (1) Design, structural, or mechanical defects; (2) Failures, stoppages, or breakage of water or sewer lines, drains, pumps, fixtures, or equipment; or (3) Failure to inspect and maintain the property after a flood recedes; 5. Water or water-borne material that: a. Backs up through sewers or drains; b. Discharges or overflows from a sump, sump pump or related equipment; or c. Seeps or leaks on or through the insured property; unless there is a flood in the area and the flood is the proximate cause of the sewer or drain backup, sump pump discharge or overflow, or the seepage of water; 6. The pressure or weight of water unless there is a flood in the area and the flood is the proximate cause of the damage from the pressure or weight of water; 7. Power, heating, or cooling failure unless the failure results from direct physical loss by or from flood to power, heating, or cooling equipment on the described location; 8. Theft, fire, explosion, wind, or windstorm; 9. Anything you or your agents do or conspire to do to cause loss by flood deliberately; or 10. Alteration of the insured property that significantly increases the risk of flooding. E. We do not insure for loss to any building or personal property located on land leased from the Federal Government, arising from or incident to the flooding of the land by the Federal Government, where the lease expressly holds the Federal Government harmless under flood insurance issued under any Federal Government program. F. We do not pay for the testing for or monitoring of pollutants unless required by law or ordinance. PO 00000 Frm 00055 Fmt 4701 Sfmt 4702 33009 VI. Deductibles A. When a loss is insured under this policy, we will pay only that part of the loss that exceeds your deductible amount, subject to the limit of liability that applies. The deductible amount is shown on the Declarations Page. However, when a building under construction, alteration, or repair does not have at least two rigid exterior walls and a fully secured roof at the time of loss, your deductible amount will be two times the deductible that would otherwise apply to a completed building. B. In each loss from flood, separate deductibles apply to the building and personal property insured by this policy. C. No deductible applies to: 1. III.C.2. Loss Avoidance Measures; or 2. III.D. Increased Cost of Compliance. VII. Coinsurance A. This Coinsurance Section applies only to coverage on the building. B. We will impose a penalty on loss payment unless the amount of insurance applicable to the damaged building is: 1. At least 80 percent of its replacement cost; or 2. The maximum amount of insurance available for that building under the NFIP, whichever is less. C. If the actual amount of insurance on the building is less than the required amount in accordance with the terms of VII.B above, then loss payment is determined as follows (subject to all other relevant conditions in this policy, including those pertaining to valuation, adjustment, settlement, and payment of loss): 1. Divide the actual amount of insurance carried on the building by the required amount of insurance. 2. Multiply the amount of loss, before application of the deductible, by the figure determined in C.1 above. 3. Subtract the deductible from the figure determined in C.2 above. We will pay the amount determined in C.3 above, or the amount of insurance carried, whichever is less. The amount of insurance carried, if in excess of the applicable maximum amount of insurance available under the NFIP, is reduced accordingly. Examples Example #1 (Inadequate Insurance) Replacement value of the building—$250,000 Required amount of insurance—$200,000 (80 percent of replacement value of $250,000) Actual amount of insurance carried— $180,000 Amount of the loss—$150,000 Deductible—$500 Step 1: 180,000/200,000 = .90 (90 percent of what should be carried.) Step 2: 150,000 × .90 = 135,000 Step 3: 135,000 500 = 134,500 We will pay no more than $134,500. The remaining $15,500 is not covered due to the coinsurance penalty ($15,000) and application of the deductible ($500). Example #2 (Adequate Insurance) Replacement value of the building—$500,000 Required amount of insurance—$400,000 (80 percent of replacement value of $500,000) E:\FR\FM\16JYP2.SGM 16JYP2 33010 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules Actual amount of insurance carried— $400,000 Amount of the loss—$200,000 Deductible—$500 In this example there is no coinsurance penalty, because the actual amount of insurance carried meets the required amount. We will pay no more than $199,500 ($200,000 amount of loss minus the $500 deductible). D. In calculating the full replacement cost of a building: 1. The replacement cost value of any covered building property will be included; 2. The replacement cost value of any building property not covered under this policy will not be included; and 3. Only the replacement cost value of improvements installed by the condominium association will be included. VIII. General Conditions A. Pair and Set Clause In case of loss to an article that is part of a pair or set, we will have the option of paying you: 1. An amount equal to the cost of replacing the lost, damaged, or destroyed article, minus its depreciation, or 2. The amount that represents the fair proportion of the total value of the pair or set that the lost, damaged, or destroyed article bears to the pair or set. sradovich on DSK3GMQ082PROD with PROPOSALS2 B. Other Insurance 1. If a loss insured by this policy is also insured by other insurance that includes flood coverage not issued under the Act, we will not pay more than the amount of insurance that you are entitled to for lost, damaged, or destroyed property insured under this policy subject to the following: a. We will pay only the proportion of the loss that the amount of insurance that applies under this policy bears to the total amount of insurance covering the loss, unless VIII.B.1.b or c immediately below applies. b. If the other policy has a provision stating that it is excess insurance, this policy will be primary. c. This policy will be primary (but subject to its own deductible) up to the deductible in the other flood policy (except another policy as described in VIII.B.1.b. above). When the other deductible amount is reached, this policy will participate in the same proportion that the amount of insurance under this policy bears to the total amount of both policies, for the remainder of the loss. 2. If there is a National Flood Insurance Program flood insurance policy in the name of a unit owner that covers the same loss as this policy, then this policy will be primary. C. Amendments, Waivers, Assignment This policy cannot be changed, nor can any of its provisions be waived, without the express written consent of the Federal Insurance Administrator. No action we take under the terms of this policy constitutes a waiver of any of our rights. You may assign this policy in writing when you transfer title of your property to someone else except under these conditions: VerDate Sep<11>2014 18:34 Jul 13, 2018 Jkt 244001 1. When this policy insures only personal property; or 2. When this policy insures a building under construction. D. Insufficient Premium or Rating Information 1. Applicability. The following provisions apply to all instances where the premium paid on this policy is insufficient or where the rating information is insufficient, such as where an Elevation Certificate is not provided. 2. Reforming the Policy with Reduced Coverage. Except as otherwise provided in VIII.D.1 and VIII.D.4, if the premium we received from you was not sufficient to buy the kinds and amounts of coverage you requested, we will provide only the kinds and amounts of coverage that can be purchased for the premium payment we received. a. For the purpose of determining whether your premium payment is sufficient to buy the kinds and amounts of coverage you requested, we will first deduct the costs of all applicable fees and surcharges. b. If the amount paid, after deducting the costs of all applicable fees and surcharges, is not sufficient to buy any amount of coverage, your payment will be refunded. Unless the policy is reformed to increase the coverage amount to the amount originally requested pursuant to VIII.E.3, this policy will be cancelled, and no claims will be paid under this policy. c. Coverage limits on the reformed policy will be based upon the amount of premium submitted per type of coverage, but will not exceed the amount originally requested. 3. Discovery of Insufficient Premium or Rating Information. If we discover that your premium payment was not sufficient to buy the requested amount of coverage, the policy will be reformed as described in VIII.D.2. You have the option of increasing the amount of coverage resulting from this reformation to the amount you requested as follows: a. Insufficient Premium. If we discover that your premium payment was not sufficient to buy the requested amount of coverage, we will send you, and any mortgagee or trustee known to us, a bill for the required additional premium for the current policy term (or that portion of the current policy term following any endorsement changing the amount of coverage). If it is discovered that the initial amount charged to you for any fees or surcharges is incorrect, the difference will be added or deducted, as applicable, to the total amount in this bill. (1) If you or the mortgagee or trustee pay the additional amount due within 30 days from the date of our bill, we will reform the policy to increase the amount of coverage to the originally requested amount, effective to the beginning of the current policy term (or subsequent date of any endorsement changing the amount of coverage). (2) If you or the mortgagee or trustee do not pay the additional amount due within 30 days of the date of our bill, any flood insurance claim will be settled based on the reduced amount of coverage. (3) As applicable, you have the option of paying all or part of the amount due out of PO 00000 Frm 00056 Fmt 4701 Sfmt 4702 a claim payment based on the originally requested amount of coverage. b. Insufficient Rating Information. If we determine that the rating information we have is insufficient and prevents us from calculating the additional premium, we will ask you to send the required information. You must submit the information within 60 days of our request. (1) If we receive the information within 60 days of our request, we will determine the amount of additional premium for the current policy term and follow the procedure in VIII.D.3.a above. (2) If we do not receive the information within 60 days of our request, no claims will be paid until the requested information is provided. Coverage will be limited to the amount of coverage that can be purchased for the payments we received, as determined when the requested information is provided. 4. Coverage Increases. If we do not receive the amount requested in VIII.D.3.a or VIII.D.4.a, or the additional information requested in VIII.D.3.b or VIII.D.4.b by the date it is due, the amount of coverage under this policy can only be increased by endorsement subject to the appropriate waiting period. However, no coverage increases will be allowed until you have provided the information requested in VIII.D.3.b or VIII.D.4.b. 5. Falsifying Information. However, if we find that you or your agent intentionally did not tell us, or falsified, any important fact or circumstance or did anything fraudulent relating to this insurance, the provisions of IX.A apply. E. Policy Renewal 1. This policy will expire at 12:01 a.m. on the last day of the policy term. 2. We must receive the payment of the appropriate renewal premium within 30 days of the expiration date. 3. If we find, however, that we did not place your renewal notice into the U.S. Postal Service, or if we did mail it, we made a mistake, e.g., we used an incorrect, incomplete, or illegible address, which delayed its delivery to you before the due date for the renewal premium, then we will follow these procedures: a. If you or your agent notified us, not later than one year after the date on which the payment of the renewal premium was due, of non-receipt of a renewal notice before the due date for the renewal premium, and we determine that the circumstances in the preceding paragraph apply, we will mail a second bill providing a revised due date, which will be 30 days after the date on which the bill is mailed. b. If we do not receive the premium requested in the second bill by the revised due date, then we will not renew the policy. In that case, the policy will remain as an expired policy as of the expiration date shown on the Declarations Page. c. In connection with the renewal of this policy, we may ask you during the policy term to recertify, on a Recertification Questionnaire that we will provide you, the rating information used to rate your most recent application for or renewal of insurance. E:\FR\FM\16JYP2.SGM 16JYP2 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules sradovich on DSK3GMQ082PROD with PROPOSALS2 F. Conditions Suspending or Restricting Insurance We are not liable for loss that occurs while there is a hazard that is increased by any means within your control or knowledge. G. Requirements in Case of Loss In case of a flood loss to insured property, you must: 1. Give prompt written notice to us; 2. As soon as reasonably possible, separate the damaged and undamaged property, putting it in the best possible order so that we may examine it; 3. Prepare an inventory of damaged property showing the quantity, description, actual cash value, and amount of loss. Attach all bills, receipts, and related documents; 4. Within 60 days after the loss, send us a proof of loss, which is your statement of the amount you are claiming under the policy signed and sworn to by you, and which furnishes us with the following information: a. The date and time of loss; b. A brief explanation of how the loss happened; c. Your interest (for example, ‘‘owner’’) and the interest, if any, of others in the damaged property; d. Details of any other insurance that may cover the loss; e. Changes in title or occupancy of the insured property during the term of the policy; f. Specifications of damaged buildings and detailed repair estimates; g. Names of mortgagees or anyone else having a lien, charge, or claim against the insured property; h. Details about who occupied any insured building at the time of loss and for what purpose; and i. The inventory of damaged personal property described in G.3 above. 5. In completing the proof of loss, you must use your own judgment concerning the amount of loss and justify that amount. 6. You must cooperate with the adjuster or representative in the investigation of the claim. 7. The insurance adjuster whom we hire to investigate your claim may furnish you with a proof of loss form, and she or he may help you complete it. However, this is a matter of courtesy only, and you must still send us a proof of loss within 60 days after the loss even if the adjuster does not furnish the form or help you complete it. 8. We have not authorized the adjuster to approve or disapprove claims or to tell you whether we will approve your claim. 9. At our option, we may accept the adjuster’s report of the loss instead of your proof of loss. The adjuster’s report will include information about your loss and the damages you sustained. You must sign the adjuster’s report. At our option, we may require you to swear to the report. H. Our Options After a Loss Options we may, in our sole discretion, exercise after loss include the following: 1. At such reasonable times and places that we may designate, you must: a. Show us or our representative the damaged property; VerDate Sep<11>2014 18:34 Jul 13, 2018 Jkt 244001 b. Submit to examination under oath, while not in the presence of another insured, and sign the same; and c. Permit us to examine and make extracts and copies of: (1) Any policies of property insurance insuring you against loss and the deed establishing your ownership of the insured real property; (2) Condominium association documents including the Declarations of the condominium, its Articles of Association or Incorporation, Bylaws, and rules and regulations; and (3) All books of accounts, bills, invoices and other vouchers, or certified copies pertaining to the damaged property if the originals are lost. 2. We may request, in writing, that you furnish us with a complete inventory of the lost, damaged, or destroyed property, including: a. Quantities and costs; b. Actual cash values or replacement cost (whichever is appropriate); c. Amounts of loss claimed; d. Any written plans and specifications for repair of the damaged property that you can reasonably make available to us; and e. Evidence that prior flood damage has been repaired. 3. If we give you written notice within 30 days after we receive your signed, sworn proof of loss, we may: a. Repair, rebuild, or replace any part of the lost, damaged, or destroyed property with material or property of like kind and quality or its functional equivalent; and b. Take all or any part of the damaged property at the value that we agree upon or its appraised value. I. No Benefit to Bailee No person or organization, other than you, having custody of insured property will benefit from this insurance. J. Loss Payment 1. We will adjust all losses with you. We will pay you unless some other person or entity is named in the policy or is legally entitled to receive payment. Loss will be payable 60 days after we receive your proof of loss (or within 90 days after the insurance adjuster files the adjuster’s report signed and sworn to by you in lieu of a proof of loss) and: a. We reach an agreement with you; b. There is an entry of a final judgment; or c. There is a filing of an appraisal award with us, as provided in VIII.M. 2. If we reject your proof of loss in whole or in part you may: a. Accept our denial of your claim; b. Exercise your rights under this policy; or c. File an amended proof of loss as long as it is filed within 60 days of the date of the loss. K. Abandonment You may not abandon damaged or undamaged insured property to us. L. Salvage We may permit you to keep damaged insured property after a loss, and we will reduce the amount of the loss proceeds PO 00000 Frm 00057 Fmt 4701 Sfmt 4702 33011 payable to you under the policy by the value of the salvage. M. Appraisal If you and we fail to agree on the actual cash value or, if applicable, replacement cost of the damaged property so as to determine the amount of loss, then either may demand an appraisal of the loss. In this event, you and we will each choose a competent and impartial appraiser within 20 days after receiving a written request from the other. The two appraisers will choose an umpire. If they cannot agree upon an umpire within 15 days, you or we may request that the choice be made by a judge of a court of record in the state where the insured property is located. The appraisers will separately state the actual cash value, the replacement cost, and the amount of loss to each item. If the appraisers submit a written report of an agreement to us, the amount agreed upon will be the amount of loss. If they fail to agree, they will submit their differences to the umpire. A decision agreed to by any two will set the amount of actual cash value and loss, or if it applies, the replacement cost and loss. Each party will: 1. Pay its own appraiser; and 2. Bear the other expenses of the appraisal and umpire equally. N. Mortgage Clause 1. The word ‘‘mortgagee’’ includes trustee. 2. Any loss payable under Coverage A— Building Property will be paid to any mortgagee of whom we have actual notice, as well as any other mortgagee or loss payee determined to exist at the time of loss, and you, as interests appear. If more than one mortgagee is named, the order of payment will be the same as the order of precedence of the mortgages. 3. If we deny your claim, that denial will not apply to a valid claim of the mortgagee, if the mortgagee: a. Notifies us of any change in the ownership or occupancy, or substantial change in risk of which the mortgagee is aware; b. Pays any premium due under this policy on demand if you have neglected to pay the premium; and c. Submits a signed, sworn proof of loss within 60 days after receiving notice from us of your failure to do so. 4. All terms of this policy apply to the mortgagee. 5. The mortgagee has the right to receive loss payment even if the mortgagee has started foreclosure or similar action on the building. 6. If we decide to cancel or not renew this policy, it will continue in effect for the benefit of the mortgagee only for 30 days after we notify the mortgagee of the cancellation or non-renewal. 7. If we pay the mortgagee for any loss and deny payment to you, we are subrogated to all the rights of the mortgagee granted under the mortgage on the property. Subrogation will not impair the right of the mortgagee to recover the full amount of the mortgagee’s claim. E:\FR\FM\16JYP2.SGM 16JYP2 33012 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules O. Suit Against Us You may not sue us to recover money under this policy unless you have complied with all the requirements of the policy. If you do sue, you must start the suit within one year of the date of the written denial of all or part of the claim, and you must file the suit in the United States District Court of the district in which the insured property was located at the time of loss. This requirement applies to any claim that you may have under this policy and to any dispute that you may have arising out of the handling of any claim under the policy. sradovich on DSK3GMQ082PROD with PROPOSALS2 P. Subrogation Whenever we make a payment for a loss under this policy, we are subrogated to your right to recover for that loss from any other person. That means that your right to recover for a loss that was partly or totally caused by someone else is automatically transferred to us, to the extent that we have paid you for the loss. We may require you to acknowledge this transfer in writing. After the loss, you may not give up our right to recover this money or do anything that would prevent us from recovering it. If you make any claim against any person who caused your loss and recover any money, you must pay us back first before you may keep any of that money. Q. Continuous Lake Flood 1. If an insured building has been flooded by rising lake waters continuously for 90 days or more and it appears reasonably certain that a continuation of this flooding will result in an insured loss to the insured building equal to or greater than the building policy limits plus the deductible or the maximum payable under the policy for any one building loss, we will pay you the lesser of these two amounts without waiting for the further damage to occur if you sign a release agreeing: a. To make no further claim under this policy; b. Not to seek renewal of this policy; c. Not to apply for any flood insurance under the Act for property at the described location; d. Not to seek a premium refund for current or prior terms. If the policy term ends before the insured building has been flooded continuously for 90 days, the provisions of this paragraph Q.1 will apply when the insured building suffers a covered loss before the policy term ends. 2. If your insured building is subject to continuous lake flooding from a closed basin lake, you may elect to file a claim under either paragraph Q.1 above or this paragraph Q.2 (A ‘‘closed basin lake’’ is a natural lake from which water leaves primarily through evaporation and whose surface area now exceeds or has exceeded one square mile at any time in the recorded past. Most of the nation’s closed basin lakes are in the western half of the United States where annual evaporation exceeds annual precipitation and where lake levels and surface areas are subject to considerable fluctuation due to wide variations in the climate. These lakes may overtop their basins on rare occasions.) Under this paragraph Q.2, we will pay your claim as if the building is a total loss even VerDate Sep<11>2014 18:34 Jul 13, 2018 Jkt 244001 though it has not been continuously inundated for 90 days, subject to the following conditions: a. Lake floodwaters must damage or imminently threaten to damage your building. b. Before approval of your claim, you must: (1) Agree to a claim payment that reflects your buying back the salvage on a negotiated basis; and (2) Grant the conservation easement contained in FEMA’s ‘‘Policy Guidance for Closed Basin Lakes,’’ to be recorded in the office of the local recorder of deeds. FEMA, in consultation with the community in which the property is located, will identify on a map an area or areas of special consideration (ASC) in which there is a potential for flood damage from continuous lake flooding. FEMA will give the community the agreedupon map showing the ASC. This easement will only apply to that portion of the property in the ASC. It will allow certain agricultural and recreational uses of the land. The only structures that it will allow on any portion of the property within the ASC are certain simple agricultural and recreational structures. If any of these allowable structures are insurable buildings under the NFIP and are insured under the NFIP, they will not be eligible for the benefits of this paragraph Q.2. If a U.S. Army Corps of Engineers certified flood control project or otherwise certified flood control project later protects the property, FEMA will, upon request, amend the ASC to remove areas protected by those projects. The restrictions of the easement will then no longer apply to any portion of the property removed from the ASC; and (3) Comply with paragraphs Q.1.a through Q.1.d above. c. Within 90 days of approval of your claim, you must move your building to a new location outside the ASC. FEMA will give you an additional 30 days to move if you show there is sufficient reason to extend the time. d. Before the final payment of your claim, you must acquire an elevation certificate and a floodplain development permit from the local floodplain administrator for the new location of your building. e. Before the approval of your claim, the community having jurisdiction over your building must: (1) Adopt a permanent land use ordinance, or a temporary moratorium for a period not to exceed 6 months to be followed immediately by a permanent land use ordinance, that is consistent with the provisions specified in the easement required in paragraph Q.2.b above; (2) Agree to declare and report any violations of this ordinance to FEMA so that under Section 1316 of the National Flood Insurance Act of 1968, as amended, flood insurance to the building can be denied; and (3) Agree to maintain as deed-restricted, for purposes compatible with open space or agricultural or recreational use only, any affected property the community acquires an interest in. These deed restrictions must be consistent with the provisions of paragraph Q.2.b above, except that even if a certified project protects the property, the land use PO 00000 Frm 00058 Fmt 4701 Sfmt 4702 restrictions continue to apply if the property was acquired under the Hazard Mitigation Grant Program or the Flood Mitigation Assistance Program. If a non-profit land trust organization receives the property as a donation, that organization must maintain the property as deed-restricted, consistent with the provisions of paragraph Q.2.b above. f. Before the approval of your claim, the affected State must take all action set forth in FEMA’s ‘‘Policy Guidance for Closed Basin Lakes.’’ g. You must have NFIP flood insurance coverage continuously in effect from a date established by FEMA until you file a claim under this paragraph Q.2. If a subsequent owner buys NFIP insurance that goes into effect within 60 days of the date of transfer of title, any gap in coverage during that 60day period will not be a violation of this continuous coverage requirement. For the purpose of honoring a claim under this paragraph Q.2, we will not consider to be in effect any increased coverage that became effective after the date established by FEMA. The exception to this is any increased coverage in the amount suggested by your insurer as an inflation adjustment. h. This paragraph Q.2 will be in effect for a community when the FEMA Regional Administrator for the affected region provides to the community, in writing, the following: (1) Confirmation that the community and the State are in compliance with the conditions in paragraphs Q2.e and Q.2.f above, and (2) The date by which you must have flood insurance in effect. R. Loss Settlement 1. Introduction This policy provides three methods of settling losses: Replacement Cost, Special Loss Settlement, and Actual Cash Value. Each method is used for a different type of property, as explained in a–c below. a. Replacement Cost Loss, Settlement described in R.2 below applies to buildings other than manufactured homes or travel trailers. b. Special Loss Settlement, described in R.3 below applies to a residential condominium building that is a travel trailer or a manufactured home. c. Actual Cash Value loss settlement applies to all other property covered under this policy, as outlined in R.4. below. 2. Replacement Cost Loss Settlement a. We will pay to repair or replace a damaged or destroyed building, after application of the deductible and without deduction for depreciation, but not more than the least of the following amounts: (1) The amount of insurance in this policy that applies to the building; (2) The replacement cost of that part of the building damaged, with materials of like kind and quality, and for like occupancy and use; or (3) The necessary amount actually spent to repair or replace the damaged part of the building for like occupancy and use. b. We will not be liable for any loss on a Replacement Cost Coverage basis unless and E:\FR\FM\16JYP2.SGM 16JYP2 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules until actual repair or replacement of the damaged building or parts thereof, is completed. c. If a building is rebuilt at a location other than the described location, we will pay no more than it would have cost to repair or rebuild at the described location, subject to all other terms of Replacement Cost Loss Settlement. 3. Special Loss Settlement a. The following loss settlement conditions apply to a residential condominium building that is: (1) A manufactured home or travel trailer, as defined in II.C.6.b and c, and (2) at least 16 feet wide when fully assembled and has at least 600 square feet within its perimeter walls when fully assembled. b. If such a building is totally destroyed or damaged to such an extent that, in our judgment, it is not economically feasible to repair, at least to its pre-damaged condition, we will, at our discretion, pay the least of the following amounts: (1) The lesser of the replacement cost of the manufactured home or travel trailer or 1.5 times the actual cash value; or (2) The Building Limit of liability shown on your Declarations Page. c. If such a manufactured home or travel trailer is partially damaged and, in our judgment, it is economically feasible to repair it to its pre-damaged condition, we will settle the loss according to the Replacement Cost Loss Settlement conditions in R.2 above. 4. Actual Cash Value Loss Settlement a. The types of property noted below are subject to actual cash value loss settlement: (1) Personal property; (2) Insured property abandoned after a loss and that remains as debris at the described location; (3) Outside antennas and aerials, awning, and other outdoor equipment; (4) Carpeting and pads; (5) Appliances; and (6) A manufactured home or mobile home or a travel trailer as defined in II.C.6.b or c that does not meet the conditions for special loss settlement in R.3 above. b. We will pay the least of the following amounts: (1) The applicable amount of insurance under this policy; (2) The actual cash value, as defined in II.C.2; or (3) The amount it would cost to repair or replace the property with material of like kind and quality within a reasonable time after the loss. sradovich on DSK3GMQ082PROD with PROPOSALS2 IX. Policy Nullification, Cancellation, and Non-Renewal A. Policy Nullification for Fraud, Misrepresentation, or Making False Statements 1. With respect to all insureds under this policy, this policy is void and has no legal force and effect if at any time, before or after a loss, you or any other insured or your agent have, with respect to this policy or any other NFIP insurance: a. Concealed or misrepresented any material fact or circumstance; VerDate Sep<11>2014 18:34 Jul 13, 2018 Jkt 244001 b. Engaged in fraudulent conduct; or c. Made false statements. 2. Policies voided under A.1 cannot be renewed or replaced by a new NFIP policy. 3. Policies are void as of the date the acts described in A.1.above were committed. 4. Fines, civil penalties, and imprisonment under applicable Federal laws may also apply to the acts of fraud or concealment described above. B. Policy Nullification for Reasons Other Than Fraud 1. This policy is void from its inception, and has no legal force or effect, if: a. The property listed on the application is located in a community that was not participating in the NFIP on this policy’s inception date and did not join or reenter the program during the policy term and before the loss occurred; b. The property listed on the application is otherwise not eligible for coverage under the NFIP at the time of the initial application; c. You never had an insurable interest in the property listed on the application; d. You provided an agent with an application and payment, but the payment did not clear; or e. We receive notice from you, prior to the policy effective date, that you have determined not to take the policy and you are not subject a requirement to obtain and maintain flood insurance pursuant to any statute, regulation, or contract. 2. In such cases, you will be entitled to a full refund of all premium, fees, and surcharges received. However, if a claim was paid for a policy that is void, the claim payment must be returned to FEMA or offset from the premiums to be refunded before the refund will be processed. C. Cancellation of the Policy by You 1. You may cancel this policy in accordance with the terms and conditions of this policy and the applicable rules and regulations of the NFIP. 2. If you cancel this policy, you may be entitled to a full or partial refund of premium, surcharges, or fees under the terms and conditions of this policy and the applicable rules and regulations of the NFIP. D. Cancellation of the Policy by Us 1. Cancellation for Underpayment of Amounts Owed on This Policy. This policy will be cancelled, pursuant to VIII.D.2, if it is determined that the premium amount you paid is not sufficient to buy any amount of coverage, and you do not pay the additional amount of premium owed to increase the coverage to the originally requested amount within the required time period. 2. Cancellation Due to Lack of an Insurable Interest. a. If you no longer have an insurable interest in the insured property, we will cancel this policy. You will cease to have an insurable interest if: (1) For building coverage, the building was sold, destroyed, or removed. (2) For contents coverage, the contents were sold or transferred ownership, or the contents were completely removed from the described location. PO 00000 Frm 00059 Fmt 4701 Sfmt 4702 33013 b. If your policy is cancelled for this reason, you may be entitled to a partial refund of premium under the applicable rules and regulations of the NFIP. 3. Cancellation of Duplicate Policies. a. Except as allowed under Article I.F, your property may not be insured by more than one NFIP policy, and payment for damages to your property will only be made under one policy. b. Except as allowed under Article I.G, if the property is insured by more than one NFIP policy, we will cancel all but one of the policies. The policy, or policies, will be selected for cancellation in accordance with 44 CFR 62.5 and the applicable rules and guidance of the NFIP. c. If this policy is cancelled pursuant to VIII.D.3.a, you may be entitled to a full or partial refund of premium, surcharges, or fees under the terms and conditions of this policy and the applicable rules and regulations of the NFIP. 4. Cancellation Due to Physical Alteration of Property. a. If the insured building has been physically altered in such a manner that it is no longer eligible for flood insurance coverage, we will cancel this policy. b. If your policy is cancelled for this reason, you may be entitled to a partial refund of premium under the terms and conditions of this policy and the applicable rules and regulations of the NFIP. E. Non-Renewal of the Policy by Us Your policy will not be renewed if: 1. The community where your insured property is located is suspended or stops participating in the NFIP; 2. Your building is otherwise ineligible for flood insurance under the Act; 3. You have failed to provide the information we requested for the purpose of rating the policy within the required deadline. X. Liberalization Clause If we make a change that broadens your coverage under this edition of our policy, but does not require any additional premium, then that change will automatically apply to your insurance as of the date we implement the change, provided that this implementation date falls within 60 days before or during the policy term stated on the Declarations Page. XI. What Law Governs This policy and all disputes arising from the insurer’s policy issuance, policy administration, or the handling of any claim under the policy are governed exclusively by the flood insurance regulations issued by FEMA, the National Flood Insurance Act of 1968, as amended (42 U.S.C. 4001, et seq.), and Federal common law. In Witness Whereof, we have signed this policy below and hereby enter into this Insurance Agreement. Administrator, Federal Insurance and Mitigation Administration E:\FR\FM\16JYP2.SGM 16JYP2 33014 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules PART 62—SALE OF INSURANCE AND ADJUSTMENT OF CLAIMS 15. Revise the authority citation for Part 62 to read as follows: ■ Authority: 42 U.S.C. 4001 et seq.; 6 U.S.C. 101 et seq. ■ 16. Revise § 62.3 to read as follows: § 62.3 Servicing Agent. (a) Pursuant to sections 1345 and 1346 of the Act, the Federal Insurance Administrator may enter into an agreement with a servicing agent to authorize it to assist in issuing flood insurance policies under the Program in communities designated by the Federal Insurance Administrator and to accept responsibility for delivery of policies and payment of claims for losses as prescribed by and at the discretion of the Federal Insurance Administrator. (b) The servicing agent will arrange for the issuance of flood insurance to any person qualifying for such coverage under parts 61 and 64 of this subchapter who submits an application to the servicing agent in accordance with the terms and conditions of the contract between the Agency and the servicing agent. ■ 17. Revise § 62.5 to read as follows: sradovich on DSK3GMQ082PROD with PROPOSALS2 § 62.5 Nullifications, Cancellations, and Premium Refunds. (a) Nullification. (1) Property Ineligible at Time of Application. FEMA will void a policy for a property that was not eligible for coverage at the time of the initial application from the commencement of the policy. FEMA must pay the policyholder a refund of all premium, fees, and surcharges paid from the date of commencement of the policy, but no more than 5 years prior to the date of date of receipt of verifiable evidence that the property was ineligible for coverage at the time of the initial application. If FEMA paid a claim for an ineligible property, the policyholder must return the claim payment to FEMA, or offset the payment from the premiums to be refunded, before FEMA will process the refund. (2) Property Later Becomes Ineligible. FEMA may not renew a policy for a property that was eligible for coverage at the time of the initial application, but later became ineligible for coverage. In such instances, the FEMA must nullify the policy from the first renewal date after the property became ineligible. FEMA must refund all premium, fees, and surcharges paid from the first renewal date after the property became ineligible, but no more than 5 years prior to the date of receipt of verifiable evidence that the property was eligible VerDate Sep<11>2014 18:34 Jul 13, 2018 Jkt 244001 for coverage at the time of the initial application, but later became ineligible for coverage. If FEMA paid a claim for a property after it became ineligible for coverage, the policyholder must return the claim payment to FEMA or FEMA must offset the amount of claim payment from the premiums to be refunded before FEMA may process the refund. (3) Nullification Prior to Policy Effective Date. If FEMA nullifies a policy prior to the policy effective date, that policy will be void from the commencement of the nullified policy term. In such case, FEMA will refund all premium, fees, and surcharges paid for the current policy term only. If FEMA paid a claim for a policy that was improperly issued, the policyholder must return the claim payment to FEMA or FEMA must offset the amount of claim payment from the premiums to be refunded before the NFIP may process the refund. (b) Cancellation Due to Lack of an Insurable Interest. If the policyholder had an insurable interest, but no longer has an insurable interest, in the insured property, FEMA must cancel the policy on the insured property. If FEMA cancels a policy for this reason, FEMA must refund the policyholder a pro rata share of the premium from the date the policyholder lost an insurable interest in the property, but no more than 5 years prior to the date of the cancellation request. FEMA must pay the policyholder a refund of all fees or surcharges for any full policy term during which the policyholder had no insurable interest in the insured property, but no more than 5 years prior to the date of the cancellation request. A policyholder ceases to have an insurable interest if: (1) For building coverage, the building was sold, destroyed, or removed. (2) For contents coverage, the contents were sold or transferred ownership, or the contents were completely removed from the described location. (c) No Insurance Coverage Requirement. A policyholder may cancel a policy if the policyholder was subject to a requirement by a lender, loss payee, or other Federal agency to obtain and maintain flood insurance pursuant to statute, regulation, or contract, but there is no longer such a requirement. The policyholder will receive a refund of a pro rata share of the premium for the current policy term only, calculated from the date of the cancellation request, but will not receive a refund of any fees or surcharges. (d) Establishment of a Common Expiration Date. A policyholder may PO 00000 Frm 00060 Fmt 4701 Sfmt 4702 purchase a new policy and cancel an existing policy in order to establish a common expiration date between flood insurance coverage and other coverage. The policyholder will receive a refund of a pro rata share of the premium calculated from the effective date of the new policy to the end date of the previous policy. The policyholder will not receive a refund of any fees or surcharges. In order to rewrite and cancel the policy, the following conditions must apply: (1) The new policy must be written with the same company for the same or higher amount of coverage. If the policy is written for a higher amount or different type of coverage, the waiting period in § 61.11 will apply. (2) The other insurance coverage for which the common expiration date is being established must be for coverage on the same building that is insured by the flood policy being cancelled and rewritten. (3) The coverage for the new policy must be effective prior to the cancelling the existing policy. (e) Cancelation or Nullification of Duplicate NFIP Policies. (1) Generally. (i) Except as described in 44 CFR 62.5(e)(2), if an insured property is covered by more than one NFIP policy not in accordance with applicable regulations and the Standard Flood Insurance Policy, FEMA must nullify the policy with the later effective date. The policy with the earlier effective date will continue. The policyholder will receive a pro rata refund of all premium for the nullified policy from the effective date of the nullified policy, but no more than 5 years prior to the date of receipt of verifiable evidence that the insured property is covered by more than one NFIP policy. The policyholder will receive a refund of all fees or surcharges for any full policy term during which the policyholder was covered by more than one policy, but no more than 5 years prior to the date of receipt of verifiable evidence that the insured property is covered by more than one NFIP policy. (ii) If both polices have the same policy effective date, the policyholder may choose which policy will remain in effect, and the policyholder will receive a refund of all premium, fees, and surcharges for the cancelled policy from the effective date of the cancelled policy, but no more than 5 years prior to the date of receipt of verifiable evidence that the insured property is covered by more than one NFIP policy. (2) Exceptions. In the following cases, the policyholder may maintain the policy with the later policy effective E:\FR\FM\16JYP2.SGM 16JYP2 Federal Register / Vol. 83, No. 136 / Monday, July 16, 2018 / Proposed Rules sradovich on DSK3GMQ082PROD with PROPOSALS2 date while cancelling the policy with the earlier policy effective date: (i) Earlier Policy Expired—The policy with the earlier effective date has expired for more than 30 days. In such cases, the policyholder will receive a refund of a pro rata share of the premium, calculated from the effective date of the policy with the later effective date to the end date of the policy with the earlier effective date, but no more than 5 years prior to the date of cancellation. The policyholder will also receive a refund of all fees and surcharges for any full policy terms during which the insured property is covered by both policies, but no more than 5 years prior to the date of the cancellation request. (ii) Group Flood Insurance Policy (GFIP)—The policy with the earlier policy effective date is a Group Flood Insurance Policy. In such cases, there will be no refund of any premium, fees, or surcharges. (iii) Cancellations to Establish a Common Expiration Date—The policy with the earlier effective date is cancelled to establish a common policy expiration date pursuant to paragraph (d) of this section. In such cases, refunds will be provided in accordance with paragraph (d) of this section. (iv) Force-Placed Policy—The policy with the earlier effective date was force placed pursuant to 42 U.S.C. 4012a using the NFIP’s Mortgage Portfolio Protection Program. In such cases, the policyholder will receive a refund of the pro rata share of the premium calculated from the policy effective date of the new policy to the expiration date of the cancelled policy. There will be no refund of any fees or surcharges. (v) Condominium Unit Covered by a Dwelling Form Policy and an RCBAP— The policy with the earlier effective date is a Dwelling Form Policy with building coverage on a condominium unit that is VerDate Sep<11>2014 18:34 Jul 13, 2018 Jkt 244001 also covered by a Residential Condominium Building Association Policy (RCBAP) that is issued at the statutory maximum coverage limit for buildings. In such cases, the policyholder will receive a refund of a pro rata share of the premium for the building coverage issued under the Dwelling Form policy, as calculated from the effective date of the RCBAP policy to the end date of the Dwelling Form policy. The policyholder will also receive a refund of all fees and surcharges for any full policy terms during which the condominium unit is covered by both a Dwelling Form policy and an RCBAP in which the coverage equals the statutory maximum coverage limits for buildings, but no more than 5 years prior to the date of the cancellation request. (f) Other Cancellations and Nullifications. Except as indicated below, FEMA will not refund premiums, assessments, fees, or surcharges if FEMA cancels a policy for any of the following reasons: (1) Fraud. FEMA will cancel a policy for fraud committed by the policyholder or the agent. FEMA may cancel a policy for misrepresentation of a material fact by the policyholder or agent. Such cancellations will take effect as of the date of the fraudulent act or material misrepresentation of fact. (2) Administrative Cancellation. FEMA may cancel and rewrite a policy to correct an administrative error, such as when the policy is written with the wrong policy effective date. In such cases, FEMA will apply any premium, assessments, fees, or surcharges to the new policy. FEMA will refund any excess premium, fees, surcharges, or assessments paid. (3) Nullification for Properties Ineligible Due to Physical Alteration of Property. A policy insuring a building PO 00000 Frm 00061 Fmt 4701 Sfmt 9990 33015 or its contents, or both, may be cancelled if the building has been physically altered in such a manner that the building and its contents are no longer eligible for flood insurance coverage. The policyholder will receive a refund of a pro rata share of the premium for the current policy term only, but the policyholder will not receive a refund of any fees or surcharges. ■ 18. Revise § 62.6 to read as follows: § 62.6 Brokers and Agents Writing NFIP Policies through the NFIP Direct Servicing Agent. (a) A broker or agent selling policies of flood insurance placed with the NFIP at the offices of its servicing agent must be duly licensed by the state insurance regulatory authority in the state in which the property is located. (b) The earned commission which will be paid to any property or casualty insurance agent or broker, with respect to each policy or renewal the agent duly procures on behalf of the insured, in connection with policies of flood insurance placed with the NFIP at the offices of its servicing agent, but not with respect to policies of flood insurance issued pursuant to Subpart C of this Part, will not be less than $10 and is computed as follows: * * * * * § 62.22 [Amended] 19. In § 62.22, amend paragraph (a) by removing the two instances of the words ‘‘Federal Insurance Administration’’ and replacing them with ‘‘Federal Insurance and Mitigation Administration.’’ ■ Brock Long, Administrator, Federal Emergency Management Agency. [FR Doc. 2018–13292 Filed 7–13–18; 8:45 am] BILLING CODE 9111–52–P E:\FR\FM\16JYP2.SGM 16JYP2

Agencies

[Federal Register Volume 83, Number 136 (Monday, July 16, 2018)]
[Proposed Rules]
[Pages 32956-33015]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-13292]

[[Page 32955]]

Vol. 83

Monday,

No. 136

July 16, 2018

Part II

Department of Homeland Security

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Federal Emergency Management Agency

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44 CFR Parts 59, 61, and 62

National Flood Insurance Program (NFIP): Conforming Changes To Reflect
the Biggert-Waters Flood Insurance Reform Act of 2012 (BW-12) and the
Homeowners Flood Insurance Affordability Act of 2014 (HFIAA), and
Additional Clarifications for Plain Language; Proposed Rules

Federal Register / Vol. 83 , No. 136 / Monday, July 16, 2018 /
Proposed Rules

[[Page 32956]]

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DEPARTMENT OF HOMELAND SECURITY

Federal Emergency Management Agency

44 CFR Parts 59, 61, and 62

[Docket ID FEMA-2018-0026]
RIN 1660-AA95

National Flood Insurance Program (NFIP): Conforming Changes To
Reflect the Biggert-Waters Flood Insurance Reform Act of 2012 (BW-12)
and the Homeowners Flood Insurance Affordability Act of 2014 (HFIAA),
and Additional Clarifications for Plain Language

AGENCY: Federal Emergency Management Agency, DHS.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The National Flood Insurance Program (NFIP), established
pursuant to the National Flood Insurance Act of 1968, as amended, is a
voluntary program in which participating communities adopt and enforce
a set of minimum floodplain management requirements to reduce future
flood damages. This proposed rule would revise the NFIP's implementing
regulations to codify certain provisions of the Biggert-Waters Flood
Insurance Reform Act of 2012 and the Homeowner Flood Insurance
Affordability Act of 2014 that FEMA has already implemented and to
clarify certain existing NFIP rules relating to NFIP operations and the
Standard Flood Insurance Policy.

DATES: Submit comments on or before September 14, 2018.

ADDRESSES: You may submit comments, identified by Docket ID: FEMA-2018-
0026, by one of the following methods:
Federal eRulemaking Portal: https://www.regulations.gov. Follow the
instructions for submitting comments.
Mail/Hand Delivery/Courier: Regulatory Affairs Division, Office of
Chief Counsel, Federal Emergency Management Agency, Room 8NE, 500 C
Street SW, Washington, DC 20472-3100.
To avoid duplication, please use only one of these methods. FEMA
will post all comments received without change to https://www.regulations.gov, including any personal information provided. For
instructions on submitting comments, see the Public Participation
portion of the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Kelly Bronowicz, Director,
Policyholder Services Division, Federal Insurance and Mitigation
Administration, Federal Emergency Management Agency, 400 C Street SW,
Washington, DC 20472, (202) 557-9488.

SUPPLEMENTARY INFORMATION:

I. Public Participation

The Federal Emergency Management Agency encourages the public to
participate in this rulemaking by submitting comments and related
materials. The Agency will consider all comments and material received
during the comment period.
When submitting a comment, identify the agency name and the docket
ID for this rulemaking, indicate the specific section of this document
to which each comment applies and give the reason for each comment. The
public may submit comments and materials by electronic means, mail, or
delivery to the address under the ADDRESSES section. Please submit
comments and material by only one means.
Regardless of the method used for submitting comments or material,
all submissions will be posted without change to the Federal e-
Rulemaking Portal at https://www.regulations.gov and will include any
personal information the commenter provides. Therefore, submitting this
information makes it public. Those considering commenting may wish to
read the Privacy and Security notice that is available via a link on
the homepage of https://www.regulations.gov.
Viewing comments and documents: For access to the docket to read
background documents or comments received, go to the Federal e-
Rulemaking Portal at https://www.regulations.gov. Background documents
and submitted comments may also be inspected at FEMA, Office of Chief
Counsel, Room 8NE, 500 C Street SW, Washington, DC 20472-3100.
Public Meeting: We do not plan to hold a public meeting, but you
may submit a request for one at the address under the ADDRESSSES
section explaining why one would be beneficial. If FEMA determines that
a public meeting would aid this rulemaking, it will hold one at a time
and place announced by a notice in the Federal Register.

II. Background and Authorities

A. National Flood Insurance Program

Congress created the National Flood Insurance Program (NFIP)
through enactment of the National Flood Insurance Act of 1968 (NFIA)
(Title XIII of Pub. L. 90-448, 82 Stat. 476), found at 42 U.S.C. 4001
et seq. The NFIP is a Federal program enabling property owners in
participating communities to purchase insurance as a protection against
flood losses in exchange for State and community floodplain management
requirements that reduce the risk of future flood damages. Communities
participate in the NFIP based on an agreement between the community and
FEMA. If a community adopts and enforces a floodplain management
ordinance to reduce future flood risk to new construction in
floodplains, FEMA will make flood insurance available within the
community as a financial protection against flood losses. Accordingly,
the NFIP is comprised of three key activities: Flood insurance,
floodplain management, and flood hazard mapping.
1. Flood Insurance
The NFIP makes flood insurance available to property owners or
lessees in communities that participate in the NFIP through the
adoption and enforcement of community-wide floodplain management
requirements. If a community adopts and enforces a floodplain
management ordinance that meets certain minimum floodplain management
requirements to reduce future flood risks within an area known as the
Special Flood Hazard Area (SFHA) the Federal Government will make flood
insurance available to property owners in that community. NFIP flood
insurance indemnifies property owners from flood losses, reducing the
need for Federal disaster assistance. NFIP floodplain management
requirements reduce future flood damages, thus further reducing the
need for Federal disaster assistance. In addition to providing flood
insurance and reducing flood damages through floodplain management, the
NFIP identifies and maps the nation's floodplains. FEMA disseminates
maps depicting flood hazard information to create broad-based awareness
of flood hazards, to provide data for rating flood insurance policies,
and to apply the appropriate minimum floodplain management requirements
for flood-prone areas.
Prior to enactment of the Biggert-Waters Flood Insurance Reform Act
of 2012 (BW-12), the NFIA made federally subsidized flood insurance
available to property owners or lessees of buildings in NFIP-
participating communities.\1\ Subsidized flood insurance rates were
available for policies covering existing buildings or buildings built
prior to the community's adoption of its initial Flood Insurance Rate
Maps (FIRMs),

[[Page 32957]]

generally referred to as ``pre-FIRM buildings.'' Subject to certain
short-term statutory exceptions, FEMA offers only actuarial rates to
all buildings constructed, or substantially damaged or improved, on or
after the effective date of the initial FIRM for the community or after
December 31, 1974, whichever is later, generally referred to as ``post-
FIRM buildings.'' See 42 U.S.C. 4014(a)(1), 4015(b). In addition,
building owners must purchase flood insurance as a condition of
receiving federally-backed or federally-regulated loans and Federal
assistance in SFHAs of participating communities. See Flood Disaster
Protection Act of 1973, sec. 103 (Pub. L. 93-234, 87 Stat. 975
(codified as amended at 42 U.S.C. 4001 et seq.)).
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\1\ Flood insurance is also available to cover the contents
owned by tenants in a rental property.
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As discussed in more detail below, with the passage of BW-12,
Congress mandated that FEMA phase out subsidies for certain pre-FIRM
properties. These pre-FIRM properties include non-primary residences,
business properties, severe repetitive loss properties, substantially
damaged properties, substantially improved properties, and properties
for which the cumulative claims payments exceed the fair market value
of the property.
The Homeowner Flood Insurance Affordability Act of 2014 (Pub. L.
113-89, 128 Stat. 1020) (HFIAA) requires a phase-out of subsidies on
all pre-FIRM properties at a rate of no less than 5 percent and no more
than 15 percent premium increases per year, subject to certain
exceptions established by statute (such as the BW-12 provisions)
requiring a quicker phase-out for certain types of pre-FIRM properties.
Accordingly, FEMA will likely phase out subsidies on all pre-FIRM
properties within the next 12 to 17 years.
A prospective policyholder may purchase an NFIP flood insurance
policy either: (1) Directly from the Federal Government through a
direct servicing agent (referred to as ``NFIP Direct''), or (2) from a
participating private insurance company through the Write Your Own
(WYO) Program. The Standard Flood Insurance Policy (SFIP) sets out the
terms and conditions of insurance. See 44 CFR part 61, Appendix A. FEMA
establishes terms, rate structures, and premium costs of SFIPs. The
terms, coverage limits, and flood insurance premiums are the same
whether purchased from the NFIP Direct or the WYO Program. See 44 CFR
62.23(a).
The SFIP is a single-peril (flood) policy that pays for direct
physical damage to insured property. There are three forms of the SFIP:
The Dwelling Form, the General Property Form, and the Residential
Condominium Building Association Policy (RCBAP) Form. The Dwelling Form
insures a one to four family residential building or a single-family
dwelling unit in a condominium building. See 44 CFR part 61, Appendix
A(1). Policies under the Dwelling Form offer coverage for building
property, up to $250,000, and personal property up to $100,000. The
General Property Form insures a five or more family residential
building or a non-residential building. See 44 CFR part 61, Appendix
A(2). The General Property Form offers coverage for building and
contents up to $500,000 each. The RCBAP Form insures residential
condominium association buildings and offers building coverage up to
$250,000 multiplied by the number of units and contents coverage up to
$100,000 per building. See 44 CFR part 61, Appendix A(3). RCBAP
contents coverage insures property owned by the insured condominium
association. Individual unit owners must purchase their own Dwelling
Form policy in order to insure their own contents.
In addition to coverage for building or contents losses, most NFIP
policies also include Increased Cost of Compliance (ICC) coverage. ICC
coverage applies when flood damages are so severe that the local
government declares the building ``substantially damaged,'' thus
requiring the building owner to bring the building up to current
community standards. If a community has a repetitive loss ordinance,
ICC coverage will also cover compliance requirements for a repetitive
loss structure. ICC coverage provides up to $30,000 of the cost to
elevate, demolish, floodproof, or relocate an insured building or any
combination thereof.
FEMA publishes a Flood Insurance Manual with detailed explanations
of the terms and conditions of the SFIP and relevant program policies
and procedures. The Flood Insurance Manual is primarily used by
insurers and agents selling and servicing Federal flood insurance. FEMA
normally publishes the Flood Insurance Manual twice a year and 6 months
prior to a new manual version becoming effective. The current version
became effective on October 1, 2017. The current flood insurance
manual, as well as previous versions, is available at https://www.fema.gov/flood-insurance-manual. Page numbering restarts for each
section of the Flood Insurance Manual, so FEMA cites to both the
section and page number. For the purposes of this notice, all citations
to the Flood Insurance Manual are to the version that became effective
on October 1, 2017, which is available at https://www.fema.gov/media-library/assets/documents/133846.
Additionally, FEMA publishes policy statements and underwriting
bulletins to further explain and clarify the coverage under the SFIP.
These are available at www.fema.gov/library and www.nfipservice.com.
2. Floodplain Management
A local community with land use authority may elect to participate
in the NFIP. Communities participate under a voluntary agreement with
FEMA. In order to participate in the NFIP, a community must adopt and
enforce floodplain management requirements that incorporate the NFIP
minimum floodplain management requirements. See 44 CFR 59.2(b),
59.22(a)(3), 60.1(d). The intent of these standards is to reduce flood
risk and prevent loss of life and property. Communities incorporate
these requirements into their zoning codes, subdivision ordinances, and
building codes, or they adopt special purpose floodplain management
ordinances. These NFIP requirements apply to areas mapped as SFHAs. The
community ordinances must also include effective enforcement
provisions. 44 CFR 59.2(b). The NFIP will suspend a participating
community from theNFIP if the community fails to adopt the minimum NFIP
floodplain management requirements within 6 months from the date the
NFIP provides the flood map. 44 CFR 59.24(a), 60.13. Moreover, the NFIP
may suspend or put on probation any participating community that does
not adequately enforce its floodplain management ordinance. 44 CFR
59.24(b)-(c).
3. Flood Hazard Mapping
Through its Flood Hazard Mapping Program, FEMA identifies flood
hazards, assesses flood risks, and collaborates with States and
communities to provide accurate flood hazard and risk data to guide
them to mitigation actions. Congress requires FEMA to identify flood-
prone areas and then subdivide them into flood risk zones. 42 U.S.C.
4101(a). FEMA then uses this data to support community floodplain
management requirements and rate flood insurance policies. Mapping of
flood hazards also promotes public awareness of the degree of hazard
within such areas and provides for the expeditious identification and
dissemination of flood hazard information. FEMA maintains and updates
data through FIRMs and Flood Insurance Studies (FISs).

[[Page 32958]]

B. Recent Legislative Changes

1. Biggert-Waters Flood Insurance Reform Act of 2012
Congress enacted BW-12 (Title II, Subtitle A of Pub. L. 112-141,
126 Stat. 405) to extend the NFIP's authorities through September 30,
2017, and to adopt significant program reform. The law requires changes
to all major components of the program, including flood insurance,
flood hazard mapping, and the management of floodplains.
The provisions of BW-12 relevant to this rulemaking include the
following. First, BW-12 requires FEMA to increase the maximum coverage
amount for multi-family properties to the same amount as that allowed
for commercial properties. Second, BW-12 establishes a minimum
deductible amount for NFIP polices. Third, BW-12 prohibits FEMA from
denying payment to policyholders for damage or loss to a condominium
unit under the Dwelling Form based solely on the fact that the
condominium association has inadequate flood insurance coverage on the
entire condominium. Fourth, BW-12 requires FEMA to review, among other
things, the processes and procedures for making flood in progress
determinations. See SFIP Article V.B. FEMA implemented these
requirements by updating the Flood Insurance Manual after BW-12's
enactment. The NFIP described these program changes in WYO Bulletin W-
13070 (Dec. 16, 2013). FEMA also issued WYO Bulletin W-12045 (July 10,
2012), which implemented BW-12 section 100241's waiver of the standard
30-day waiting period for coverage of flood damage due to flood on
Federal land caused, or exacerbated, by post-wildfire conditions. FEMA
now proposes to codify these changes in the NFIP regulations.
2. Homeowner Flood Insurance Affordability Act of 2014
Congress enacted HFIAA to address flood insurance affordability
concerns related to BW-12. Accordingly, HFIAA repealed some provisions
of BW-12, mostly related to establishing premium rates. HFIAA also made
a number of new program changes. The provisions of HFIAA relevant to
this rulemaking include a requirement in Section 8 of HFIAA that FEMA
offer a high deductible option of $10,000, which FEMA discusses below.

III. Discussion of Proposed Rule

FEMA proposes to amend parts 59, 61, and 62 of 44 CFR. These parts
contain regulations implementing the NFIP. In addition, FEMA proposes
to amend Appendices A(1)-A(3) of part 61, containing the three forms of
the SFIP: The Dwelling Policy Form, the General Property Form, and the
Residential Condominium Building Association Form. These forms are used
in NFIP polices.
FEMA proposes this rulemaking for three purposes. First, it intends
to make several non-substantive changes designed to improve the
readability, uniformity, and clarity of the NFIP regulations. Second,
FEMA proposes to make several non-substantive updates to regulations to
align with the requirements of BW-12 and HFIAA. Third, FEMA proposes
two substantive, albeit miniminally so, changes to its regulations
codifying the requirements of BW-12 and HFIAA.

A. Part 59: General Provisions

1. Part 59 Authority Citation
FEMA proposes to update the authority citation for Part 59 to
reflect changes to FEMA's source of authority. Currently, the authority
citation is 42 U.S.C. 4001 et seq.; Reorganization Plan No. 3 of 1978,
43 FR 41943, 3 CFR, 1978 Comp., p. 329; E.O. 12127 of Mar. 31, 1979, 44
FR 19367, 3 CFR 1979 Comp., p. 376. FEMA proposes to replace the
citations to Reorganization Plan No. 3 and Executive Order 12127 with a
citation to the current codification of the Homeland Security Act of
2002, 6 U.S.C. 101 et seq. The authority citation would therefore read,
``42 U.S.C. 4001 et seq.; 6 U.S.C. 101 et seq.'' FEMA proposes this
change because Reorganization Plan No. 3 and Executive Order 12127
originally created FEMA as an executive agency and provided the legal
basis for FEMA's existence until the passage of the Post-Katrina
Emergency Management Reform Act of 2006, Public Law 109-295, 120 Stat.
1394 (PKEMRA). PKEMRA amended the Homeland Security Act of 2002, Public
Law 107-296, 116 Stat. 2135, to establish FEMA in statute and define
the Agency's authorities and responsibilities. A citation to the
codification of the Homeland Security Act after the citation to the
NFIA is therefore more appropriate.
2. Section 59.1 Definitions
44 CFR part 59 contains general provisions applicable to the NFIP's
regulations. Section 59.1 contains a list of definitions generally
applicable throughout the NFIP regulations. FEMA proposes to add 13 new
definitions and modify three definitions in this section to make this
section consistent with its proposed rule changes to parts 61 and 62.
First, FEMA proposes to revise the definition of ``act.''
Currently, the regulation defines ``act'' to mean ``statutes
authorizing the National Flood Insurance Program that are incorporated
in 42 U.S.C. 4001-4128.'' However, the NFIA now extends to section
4131. Rather than revise the citation to ``42 U.S.C. 4001-4131,'' FEMA
proposes to change the citation to ``42 U.S.C. 4001 et seq.'' As the
NFIA is amended often, it makes more sense to use ``et seq.'' so that
the citation stays current and FEMA will not have to revise it every
time sections are added.
Second, FEMA proposes to revise the definition of ``deductible.''
Currently, ``deductible'' is defined as ``the fixed amount or
percentage of any loss covered by insurance which is borne by the
insured prior to the insurer's liability.'' FEMA proposes to revise the
definition of ``deductible'' to mean ``the amount of an insured loss
that is the responsibility of the insured and that is incurred before
any amounts are paid for the insured loss under the insurance policy.''
While there is no substantive difference between the two definitions,
FEMA believes the proposed definition is clearer and more consistent
with the language in Article VI.A of the SFIP, as well as the language
in proposed section 61.5, which would provide guidance on deductibles
available for NFIP policies (discussed in further detail below).
Third, FEMA proposes to revise the definition of ``Emergency Flood
Insurance Program or emergency program.'' Currently, ``Emergency Flood
Insurance Program or emergency program'' is defined as ``the Program as
implemented on an emergency basis in accordance with section 1336 of
the Act. It is intended as a program to provide a first layer amount of
insurance on all insurable structures before the effective date of the
initial FIRM.'' FEMA proposes to remove ``Emergency Flood Insurance
Program'' so the term only reads ``Emergency Program,'' and revise the
definition to mean ``the initial phase of a community's participation
in the National Flood Insurance Program, as prescribed by Section 1306
of the Act.'' FEMA proposes this change because although the new
definition is substantively the same as the current definition, it is
clearer and more consistent with the definition of this term in the
SFIP.
FEMA also proposes to add definitions for several terms. These
terms are: ``condominium building,'' ``mixed use building,''
``multifamily building,'' ``non-residential building,'' ``non-
residential property,'' ``other residential building,'' ``other
residential property'' ``residential building,''

[[Page 32959]]

``residential property,'' ``single family dwelling,'' and ``two to four
family building.'' The NFIP already uses these terms when describing
the program to the public because they align with the terminology used
in the private insurance industry and addresses important nuances not
adequately addressed in statute and regulation. FEMA proposes defining
these terms in regulation because they support the consistent
interpretation and application of the NFIA and its regulations.
Accordingly, codifying them in regulation will support greater
uniformity and clarity for the public. FEMA provides further
explanation of these definitions elsewhere in this preamble, under
discussion of the relevant sections where these terms appear.

B. Part 61: Insurance Coverage and Rates

1. Part 61 Authority Citation
The current authority citation for part 61 is 42 U.S.C. 4001 et
seq.; Reorganization Plan No. 3 of 1978, 43 FR 41943, 3 CFR, 1978
Comp., p. 329; E.O. 12127 of Mar. 31, 1979, 44 FR 19367, 3 CFR, 1979
Comp., p. 376. FEMA proposes to replace the citations to Reorganization
Plan No. 3 and Executive Order 12127 with a citation to the current
codification of the Homeland Security Act of 2002, 6 U.S.C. 101 et seq.
The authority citation would therefore read 42 U.S.C. 4001 et seq.; 6
U.S.C. 101 et seq. FEMA proposes this change because while
Reorganization Plan No. 3 and Executive Order 12127 originally created
FEMA as an executive agency, PKEMRA amended the Homeland Security Act
of 2002, Public Law 107-296, by establishing the Agency in statute and
defining the Agency's authorities and responsibilities. Accordingly, a
citation to the codification of the Homeland Security Act is more
appropriate.
2. Section 61.1 Purpose of Part
Section 61.1 describes the overall purpose of part 61. It states
that part 61 describes the types of properties eligible for flood
insurance coverage under the NFIP, the limits of such coverage, and the
premium rates actually to be paid by insureds. It states that the
specific communities eligible for coverage are designated by the
Federal Insurance Administrator from time to time as applications are
approved under the Emergency Program and as ratemaking studies of
communities are completed prior to the regular program. Finally, it
states that lists of such communities are periodically published under
part 64 of this subchapter. FEMA proposes to remove the last two
sentences of Section 61.1 addressing the specific communities eligible
for coverage and publication of the list of communities because they
provide information relevant to part 64, not part 61. Removing these
sentences would therefore avoid possible confusion regarding the
subjects covered in part 61.
3. Section 61.3 Types of Coverage
Section 61.3 states that insurance coverage under the NFIP is
available for structures and their contents, and that coverage for each
may be purchased separately.
FEMA proposes to change the title of this section from ``Types of
coverage'' to ``Coverage and benefits provided under the Standard Flood
Insurance Policy'' because this new title provides a more accurate
description of the proposed revisions to this section.
FEMA proposes to replace ``structure'' with ``building'' because in
current practice the program uses the term ``building'' rather than
``structure'' throughout its guidance documents and other
communications. The term ``building'' is a more precise and accurate
term, because the SFIP insures buildings, not structures. While the
term ``structure'' encompasses the term ``building,'' it also includes
things that are not buildings, such as carports and gas or liquid
storage tanks, and thus not insurable under the terms and conditions of
the SFIP. Consistent use of this terminology will improve the overall
clarity and accuracy of the regulation when viewed within the larger
context of FEMA's communications and guidance documents regarding the
NFIP, as ``building'' rather than ``structure'' is more commonly used
outside of the CFR.
FEMA proposes to add two new provisions to this section to provide
a more accurate depiction of the coverages and benefits available under
the SFIP and to improve the Section's overall clarity. First, FEMA
proposes to add paragraph (b) stating that in addition to building and
contents coverage, each form of the SFIP provides coverage for other
flood-related expenses. The Dwelling Form of the SFIP covers debris
removal, loss avoidance measures, and condominium loss assessments. The
General Property Form of the SFIP covers debris removal, loss avoidance
measures, and pollution damage. The Residential Condominium Policy Form
of the SFIP covers debris removal and loss avoidance measures. Second,
FEMA proposes to add paragraph (c) stating that with the purchase of
building coverage, the SFIP also covers costs associated with bringing
the building into compliance with local floodplain ordinances. FEMA
believes this information may be useful to a reader of the CFR.
4. Section 61.4 Limitations on Coverage
Section 61.4 provides that coverage obtained through the NFIP is
subject to the NFIA, relevant regulations, the SFIP, and each
individual policy's declaration page, and the maximum limits of
coverage. FEMA proposes to remove this section because it duplicates
the provisions of current section 61.5(e), which provide that the SFIP
``is authorized only under terms and conditions established by Federal
statute, the program's regulations, the Administrator's interpretations
and the express terms of the policy itself.'' As section 61.5(e)
conveys the same information as section 61.4, FEMA finds that section
61.4 is not necessary. (Note that FEMA proposes to move 61.5(e) to
proposed 61.13, discussed below.)
5. Section 61.5 Special Terms and Conditions
Paragraph (a) of section 61.5 states that no new flood insurance or
renewal of flood insurance policies shall be written for properties
declared by a duly constituted State or local zoning or other authority
to be in violation of any flood plain, mudslide (i.e., mudflow), or
flood-related erosion area management or control law, regulation, or
ordinance. FEMA proposes to change ``shall'' to ``will'' to avoid
ambiguity.
Paragraph (b) of section 61.5 states that to reduce the
administrative costs of the NFIP, of which the Federal Government pays
a major share, payment of the full policyholder premium must be made at
the time of application. FEMA proposes to reword ``payment of the full
policyholder premium'' to state ``applicants must pay the full policy
premium'' because premiums are associated with policies, not
policyholders. No substantive change is intended.
FEMA proposes to retain the substance of paragraphs (a) and (b),
but proposes to move them to their own section (proposed 61.4) but
retaining the current title of the section (``Special terms and
conditions'').
Paragraph (c) of section 61.5 states that because of the seasonal
nature of flooding, refunds of premiums upon cancellation of coverage
by the insured are permitted only if the insurer ceases to have an
ownership interest in the

[[Page 32960]]

covered property at the location described in the policy. It further
states that refunds of premiums for any other reason are subject to the
conditions set forth in 62.5 of this subchapter. FEMA proposes to
remove paragraph (c) and add the substance of it to paragraph (b) of
proposed 62.5 (the proposed changes to which are discussed more fully
later in this preamble). Section 62.5 addresses policy cancellations
and nullifications, and thus the substance of current section 61.5(c)
is more appropriate for section 62.5.
Similar to current section 61.4, paragraph (e) of section 61.5
states that the SFIP is authorized only under terms and conditions
established by Federal statute, the program's regulations, the
Administrator's interpretations and the express terms of the policy
itself. Section 61.5 also states that representations regarding the
extent and scope of coverage which are not consistent with the NFIA or
with NFIP regulations are void, and the duly licensed property or
casualty agent acts for the insured and does not act as agent for the
Federal Government, the Federal Emergency Management Agency, or the
servicing agent. As noted above, FEMA proposes to move 61.5(e) to
proposed 61.13. The provisions appear in proposed paragraph (e) of
section 61.13 (``Authorized only under terms and conditions established
by the Act and Regulation'') and paragraph (f) (``Agent acts only for
policyholder''). These provisions are more appropriate for proposed
section 61.13 because the section contains general provisions about the
SFIP, and 61.5(e) also constitutes general provisions concerning the
SFIP. These changes would improve the overall organization and
cohesiveness of part 61. FEMA does not intend any substantive changes
with these proposed revisions.
6. Proposed Section 61.5 Deductibles (Formerly Paragraph (d) of Current
Section 61.5)
Current paragraph (d) of section 61.5 states that optional
deductibles are available in all zones for four categories of
properties, and presents those categories as four tables. The Category
One table lists some of the deductible options for one to four family
building and contents coverage policies. The Category Two table lists
some of the deductible options for one to four family building coverage
only or contents coverage only policies. The Category Three table lists
some of the deductible options for ``other residential'' (residential
buildings with five or more units) and nonresidential policies. The
Category Four table lists some of the deductible options for
residential condominium building policies. A note to these tables
indicates that policyholders may submit any other deductible
combination for rating to the NFIP. This note allows FEMA to offer
deductibles listed in the deductible tables in the Rating Section of
Flood Insurance Manual, pages 17-18.
FEMA proposes several revisions to paragraph (d). First, FEMA
proposes to remove the number for the paragraph because, as noted
above, paragraphs (a) and (b) would be moved to a new section 61.4 and
paragraph (c) would be incorporated into section 62.5. As a result,
paragraph (d) would be the only paragraph in the section, thus making
the paragraph number unnecessary.
FEMA proposes to replace the current contents of paragraph (d)
(proposed unnumbered paragraph) with a requirement that FEMA must
provide policyholders with deductible options in various amounts, up to
and including $10,000, subject to certain minimum deductibles. FEMA
proposes this change because the current regulation's listing of
deductible options may give readers the impression that the list is
exhaustive even though the note following the Category Four table
allows for FEMA to offer deductible options not listed in the table.
The proposed text would make clear that FEMA may offer various options,
subject to other restrictions.
The proposed text would require FEMA to offer deductible options up
to and including $10,000 to comply with the requirements of Section
1306(d) of the NFIA, as amended by section 12 of HFIAA (42 U.S.C.
4013(d)), which requires FEMA to offer deductibles up to $10,000 for
residential properties. As previously explained, current regulations
allow policyholders to request deductible amounts not currently listed
in regulation (including the $10,000 deductible option required under
HFIAA). Thus, this proposed change would clarify the regulatory text
consistent with statutory requirements, but not expand or contract the
deductible options offered by the NFIP under current regulations.
FEMA also proposes to limit deductible options in accordance with
section 1312(b) of the NFIA, as added by section 100210 of BW-12 (42
U.S.C. 4019(b)). Per this provision, FEMA proposes to establish minimum
deductibles as follows: (1) $1,500 for policies covering pre-FIRM
buildings charged less than full-risk rates with building coverage
amounts less than or equal to $100,000; (2) $2,000 for policies
covering pre-FIRM buildings charged less than full risk rates with
building coverage amounts greater than $100,000; (3) $1,000 for
policies covering post-FIRM buildings and pre-FIRM buildings charged
full risk rates with building coverage amounts equal to or less than
$100,000; and (4) $1,250 for policies covering post-FIRM buildings and
pre-FIRM buildings charged full risk rates with building coverage
amounts greater than $100,000.
Overall, the proposed deductible section would provide readers with
a clear understanding of available deductible options, including
minimum deductibles required under Section 1312(b) of the NFIA, as
added by Section 100210 of BW-12 (42 U.S.C. 4019(b)) and the $10,000
deductible option required by Section 1306(d) of the NFIA, as amended
by Section 12 of HFIAA (42 U.S.C. 4013(d)). However, it would not
expand or contract the deductibles available to policyholders under
current law.
FEMA also proposes to rename the section heading of 61.5 to
``Deductibles'' because section 61.5 would only address deductible
amounts.
7. Section 61.6 Maximum Amounts of Coverage Available
Current section 61.6 details the maximum amounts of coverage
available under the NFIA. See 42 U.S.C. 4013(b). The current table
shows varying coverage amounts available, depending on whether a policy
is under the Emergency Program or the Regular Program, the use and
occupancy of the building, and the building's location. As provided
under the NFIA, for residential occupancies, the table lists coverage
limits of $250,000 for buildings and $100,000 for contents. See id. For
nonresidential occupancies, the table lists coverage limits of $500,000
for buildings and $500,000 for contents. See id. FEMA proposes to
revise the table to more closely conform it to the one currently in the
Rating Section of the Flood Insurance Manual, page 1. The Manual more
clearly describes the different coverage limits based on occupancy by
using terminology that more accurately conveys relevant statutory
requirements. In comparison, the current table in the CFR includes
terminology and distinctions that are no longer programmatically
relevant.
i. Title of Table
The current table does not have a title. FEMA proposes to entitle
the table ``Maximum Amounts of Coverage Available.'' While the Flood
Insurance Manual uses the title ``Amount of insurance available,'' FEMA
proposes to use ``coverage'' instead of ``insurance'' to conform to the
current section title of

[[Page 32961]]

section 61.6. There is no substantive difference between the two titles
in this context.
ii. Vertical Axis of Maximum Coverage Table
The current table has one vertical axis that lists the different
categories of occupancy applicable to both building and contents
coverages. These categories are, in order: ``Single Family
Residential,'' ``Other Residential,'' ``Nonresidential,'' and
``Contents.'' Although the table provides a ``contents'' heading on
this axis, there is no corresponding label for the building coverages.
FEMA proposes to add ``Building Coverage'' to the vertical axis to
distinguish between ``building coverage'' and ``contents coverage.''
This ``Building Coverage'' category would encompass ``Single Family
Residential,'' ``Other Residential,'' and ``Nonresidential.'' FEMA
believes this change would prevent confusion by improving the table's
overall clarity and internal consistency.
As noted above, the current table lists the different categories of
occupancy applicable to each coverage--``Single Family Residential,''
``Other Residential,'' and ``Nonresidential.'' The current table
further divides the ``Single Family Residential'' and ``Other
Residential'' categories by whether or not a subject property is
located within Hawaii, Alaska, Guam, or the U.S. Virgin Islands. It
divides the ``Nonresidential'' category into either ``Small business''
or ``Churches and other properties.'' Similarly, the ``Contents''
coverage category only distinguishes between ``Residential,'' Small
business,'' and ``Churches, other properties.'' The proposed table
would make several changes to the categorization to use standardized
terminology, improve the overall design and readability of the table,
and use occupancy categories that more accurately reflect statutory and
program differences in available coverages.
FEMA proposes to substitute the current use of ``Single Family
Residential'' with ``Single Family Dwelling'' to describe a property.
FEMA proposes this change because although the two terms (``dwelling''
and ``residential'') are interchangeable within the NFIP, ``Single
Family Dwelling'' is the term used most often in the NFIP, as reflected
in the Rating section of the Flood Insurance Manual. The Flood
Insurance Manual has used this term for many years. See Flood Insurance
Manual (May 1, 2005).\2\
---------------------------------------------------------------------------

\2\ https://www.fema.gov/txt/nfip/manual200505.txt.
---------------------------------------------------------------------------

Because ``single family dwelling'' is not currently defined, FEMA
proposes to define ``single family dwelling'' in section 59.1 to mean
``either (a) a residential single-family building in which the total
floor area devoted to non-residential uses is less than 50 percent of
the building's total floor area, or (b) a single-family residential
unit within a two to four family building, other residential building,
business, or non-residential building, in which commercial uses within
the unit are limited to less than 50 percent of the unit's total floor
area.'' FEMA adopted this definition in the Flood Insurance Manual as
early as 1978 to align with common industry practices in non-flood
property insurance policies and it is the same definition found in the
Definitions Section of the Flood Insurance Manual. This proposed
definition reflects current NFIP practice and will not result in any
substantive changes to the program.
FEMA proposes to add a new occupancy category, ``two to four family
building.'' (The table would list the same maximum coverage amounts as
those for a Single Family Dwelling, $35,000 for Emergency Program and
$250,000 for the Regular Program.) FEMA proposes to include this
category because it would be clearer to provide the public with a
complete spectrum of occupancy categories so that the coverage limits
for all occupancy types are more transparent. This does not reflect a
substantive change to the program.
Because ``two to four family building'' is not currently defined,
FEMA proposes to define it in section 59.1 to mean ``a residential
building, including an apartment building, containing two to four
residential spaces and in which commercial uses are limited to less
than 25 percent of the building's total floor area.'' FEMA proposes to
define ``two to four family building'' in this manner because it is the
same definition used in the Flood Insurance Manual. This definition
supports the NFIA's distinctions between residential and non-
residential properties.
While FEMA proposes to maintain the ``Other Residential'' occupancy
category that is in the current table, FEMA proposes to revise the
category to read, ``Other Residential Building (including Multifamily
Building).'' FEMA proposes to do this to make clear to the reader that
``Other Residential Building'' encompasses ``Multifamily Buildings,'' a
term used in section 1305 of the NFIA, as added by section 100204 of
BW-12 (42 U.S.C 4012(d)).
Because neither ``other residential building'' nor ``multifamily
building'' is defined, FEMA proposes to define these in section 59.1.
It proposes to define ``other residential building'' to mean ``a
residential building that is designed for use as a residential space
for 5 or more families or a mixed use building in which the total floor
area devoted to non-residential uses is less than 25 percent of the
total floor area within the building.'' It proposes to define
``multifamily building'' to mean ``an Other Residential Building that
is not a condominium building.'' FEMA proposes to define these terms in
this manner because the program currently defines them as such; these
definitions appear in the Definitions Section of the Flood Insurance
Manual. FEMA believes this definition of ``Other Residential Building''
fairly distinguishes the term from the ``single family dwelling'' and
``two to four family building'' occupancy categories, in terms of
either residential spaces or square-footage. Defining ``multifamily
building'' this way enables easier reference to condominium-building
specific policies that will be discussed below.
FEMA proposes to add the ``Condominium Building'' occupancy
category to the table (with maximum coverage amounts of ``$250,000
times the number of units in the building'' under the Regular Program,
and nothing available under the Emergency Program). FEMA proposes this
addition to integrate into the table information contained in current
section 61.6(b). Section 61.6(b) states that ``[i]n the insuring of a
residential condominium building in a regular program community, the
maximum limit of building coverage is $250,000 times the number of
units in the building (not to exceed the building's replacement
cost).'' By adding the ``Condominium Building'' occupancy category to
the table, FEMA plans to incorporate all the information in section
61.6(b) except the language in parentheses, ``not to exceed the
building's replacement cost.'' FEMA proposes to omit this language
because Article V of the RCBAP form (44 CFR 61, Appendix A(3)) already
provides that FEMA will not pay beyond the replacement cost of the
building.
While FEMA proposes to maintain the ``Nonresidential'' occupancy
category, FEMA proposes to revise the category to read ``Non-
Residential Building.'' This category would continue to have building
limits of $100,000 in the Emergency Program and $500,000 in the Regular
Program.
In order to provide greater clarity, FEMA proposes to incorporate
the existing definition of ``non-residential building'' into
regulation. Current regulations and statute do not define the

[[Page 32962]]

extent of the term ``nonresidential'' used in maximum coverage limits
found at NFIA 1306(b)(4) (42 U.S.C. 4013(b)(4)) and 44 CFR 61.6(a).
However, 42 U.S.C. 4013(b)(3) does make clear that ``nonresidential
building'' includes churches. Accordingly, FEMA has previously defined
the term ``non-residential building'' as ``a commercial or mixed-use
building where the primary use is commercial or non-habitational.''
Definitions Section of Flood Insurance Manual, page 7. FEMA proposes to
incorporate this definition into regulation because it aligns with the
common understanding of the term and encompasses churches and other
houses of worship.
FEMA proposes to adjust the occupancy categories under the
``Contents Coverage'' portion of the coverage limits table. Currently,
the table at section 61.6(a) divides the contents coverage portion
amongst three categories: ``Residential,'' ``Small business,'' and
``Churches, other properties.'' FEMA proposes to remove the distinction
between ``Small business'' and ``Churches, and other properties,'' and
divide contents coverage into just two categories: ``Residential
Property'' and ``Non-Residential Property.'' FEMA proposes this change
to reflect the current practice of the program. Although NFIA section
1306(b)(1)(B) (42 U.S.C. 4013(b)(1)) provides a specific method for
determining the maximum coverage available to small businesses, FEMA
has opted to provide all other non-residential properties with the same
coverage limits available to small businesses. Accordingly, while the
statute may still distinguish small businesses from all other
properties, current NFIP practice does not.
In addition to the adjustments to the categories of occupancy
described above, FEMA proposes two changes to the footnotes. In the
current table, there are two footnotes. Footnote 1 appends ``Emergency
program'' in ``Emergency Program first layer'' and provides that
``[o]nly [the] first layer [is] available under the emergency
program.'' Footnote 2 appends the ``Contents'' label and reads, ``Per
unit.''
FEMA proposes to revise footnote 1 by appending it to the title of
the table, ``Maximum Amount of Coverage Available,'' to describe the
table generally. It would read, ``This Table provides the maximum
coverage amounts available under the Emergency Program and the Regular
Program, and the columns cannot be aggregated to exceed the limits in
the Regular Program, which are established by statute. The aggregate
limits for building coverage are the maximum coverage amounts allowed
by statute for each building included in the relevant Occupancy
Category.'' FEMA proposes this revision because, as described in
greater detail below in subsection iv., Horizontal Axis of Maximum
Coverage Table, the current footnote 1 is associated with the ``layer''
language FEMA proposes to remove, and the revised footnote's language
more accurately reflects the NFIP's intent.
FEMA proposes to leave footnote 2 in the same place (after
``Contents Coverage''--the term replacing ``Contents'' in the current
table), but expand it from ``Per unit'' to instead read, ``The policy
limits for contents coverage are not per building. Although a single
insured may not have more than one policy covering contents in a
building, several insureds may have separate policies of up to the
policy limits.'' FEMA proposes this revision to footnote 2 to more
clearly reflect the restriction that the current footnote 2 attempts to
convey, which is that the coverage limits apply to each unit of the
building.
For instance, the tenants of a building with two independent living
units may obtain separate contents policies for each unit. Each policy
could have limits up to $100,000 and a contents claim for one unit
would not affect the contents claim of the other unit. However, the
existing NFIP rule--not reflected in the current footnote--is that the
owner of the building cannot obtain two separate contents policies
themselves. Instead, they could only obtain one contents policy with
coverage up to $100,000. FEMA's proposed language in footnote 2 seeks
to more clearly explain NFIP statutory authority that even though the
contents coverage limits are per unit rather than per building, an
insured cannot have more than one policy in a building.
FEMA proposes to append a new footnote--footnote 3--to the
``Residential Property'' occupancy category under ``Contents
Coverage.'' Footnote 3 would explain that ``[t]he Residential Property
occupancy category includes the Single Family Dwelling, Two to Four
Family Building, Other Residential Building, and Condominium Building
occupancies categories.'' FEMA proposes appending this new footnote to
help improve the overall clarity of the table by linking the building
coverage occupancy categories with the contents coverage occupancy
categories.
iii. Special Provisions for Property in Hawaii, Alaska, Guam, and the
U.S. Virgin Islands
The current maximum coverage table in section 61.6(a) lists
separate increased limits in the Emergency Program within the ``Single
Family Residential'' and ``Other Residential'' occupancy categories for
residential structures located in Hawaii, Alaska, Guam, and the U.S.
Virgin Islands. This is because the NFIP provides increased building
coverage to these structures pursuant to 42 U.S.C. 4013(b)(1)(A)(iii).
FEMA proposes to remove these lines referencing Hawaii, Alaska, Guam,
and the U.S. Virgin Islands and place them instead in asterisked
footnotes. FEMA does not intend any substantive change in these limits,
but believes this design will improve the overall readability of the
table.
iv. Horizontal Axis of Maximum Coverage Table
FEMA also proposes to make several clarifying, nonsubstantive
changes to the horizontal axis of the table in section 61.6(a). The
current table's horizontal axis is one label, ``Regular program.''
Under that label are three sub-labels: ``Emergency program first
layer,'' ``Second layer,'' and ``Total amount available.'' As noted
above, ``Emergency program first layer'' has a footnote (footnote 1)
that reads, ``Only first layer available under emergency program.''
FEMA's proposed replacement table would dispense with the ``layer''
language and use only two columns, ``Emergency Program'' and ``Regular
Program.'' Each column would list the applicable coverage limit for
each occupancy type under each type of program. (The values under
``Emergency Program'' and ``Regular Program'' would be independent of
each other and not subject to aggregation).
FEMA proposes these simpler horizontal axis labels for two reasons.
The first reason is to improve overall clarity, as the ``layer''
language is unclear and inaccessible to the reader. The second reason
is to more accurately reflect the NFIP's intent. This is because the
current table reflects a previous approach for describing the NFIP's
coverage limits. The idea was that the NFIP divided the Regular
Program's coverage limits into two layers. The first layer was
available for all NFIP policies, whether under the Emergency Program or
the Regular Program. The NFIP only made the second layer of coverage
available through the Regular Program. The current table attempts to
capture this by placing the ``Emergency program

[[Page 32963]]

first layer'' and ``Second layer'' under the ``Regular program'' label.
However, the table also combines the two layers under the ``Total
amount available'' column, which is also under the ``Regular program''
label. A person could read this formulation as indicating that the
three sub-headings combined provided the maximum amount of coverage
under the ``Regular program.'' This is not FEMA's intent. The proposed
replacement table conveys the same limits described in the current
table, but it in a much clearer and concise way.
Moreover, it is for this reason that FEMA proposes to revise
footnote 1, as described above, to clarify that the maximum coverage
amounts listed for the Emergency Program and the Regular Program are
not cumulative. Rather, the maximum amounts listed under the Regular
Program are the maximum amounts authorized under the NFIA and include
the amounts for the Emergency Program. (In other words, the amounts for
the Emergency Program are not in addition to the amounts for the
Regular Program).
v. Paragraph (b): Application of Limits to Additional Coverages
As noted above, current paragraph (b) is being removed and its
contents are being incorporated into the proposed table. FEMA proposes
to add a new paragraph (b) that would state, ``[c]overage and benefits
payable under the SFIP pursuant to sections 61.3(b) and 61.3(c) are
included in, not in addition to, the coverage limits provided by the
Act or stated in paragraph (a) of this section.'' The purpose of this
new paragraph is to explain that the coverage limits described in the
table in section 61.6(a) apply to all coverages payable under the SFIP,
including mitigation, and debris removal coverage described in proposed
section 61.3(b) and ICC coverage described in proposed section 61.3(c).
This revision would not make any substantive change to NFIP policy,
but rather would provide a clarifying link to the coverage and benefits
listed in proposed section 61.3 and how coverage limits relate to those
coverages and benefits.
Overall, FEMA intends for the proposed changes to section 61.6 to
improve the clarity of the Section and ensure that it uses terminology
consistent with that currently used by the NFIP. The Agency does not
intend for the proposed changes to 61.6 to modify the substance of the
NFIP flood insurance policies or the maximum coverage limits available
for buildings and contents covered under such policies.
8. Section 61.10 Requirements for Issuance or Renewal of Flood
Insurance Coverage
FEMA proposes to add a new section, 61.10, entitled ``Requirements
for Issuance or Renewal of Flood Insurance Coverage.'' The proposed
section would state that FEMA will not issue or renew flood insurance
unless FEMA receives: (1) The full amount due (including applicable
premiums, surcharges, and fees); and (2) a complete application,
including the information necessary to establish a premium rate for the
policy, or submission of corrected or additional information necessary
to calculate the premium for the renewal of the policy. FEMA proposes
this new section because these requirements are already implicitly
indicated in current sections 61.5(b) and 61.11(b), but are nowhere
explicitly stated. Pursuant to section 61.5(b), ``payment of the full
policyholder premium must be made at the time of application.'' Section
61.11(b) provides that coverage is effective at the time of loan
closing, ``provided the written request for the coverage is received by
the NFIP and flood insurance policy is applied for and the presentment
of payment of premium is made at or prior to the loan closing.''
Further, the statutory 30-day waiting period begins on the ``date that
all obligations for [flood insurance] coverage (including completion of
the application and payment of any initial premiums owed) are
satisfactorily completed.'' NFIA 1306(c)(1) (42 U.S.C. 4013(c)(1)).
FEMA believes that explicitly stating the requirements for issuance or
renewal of a policy will provide policyholders with clearer
descriptions of these requirements.
9. Section 61.11 Effective Date and Time of Coverage Under the Standard
Flood Insurance Policy--New Business Applications and Endorsements
Section 61.11 describes the methods for calculating the effective
dates of new policies. In general, under current paragraph (c), the
effective date and time of any new policy or added coverage is ``12:01
a.m. (local time) on the 30th calendar day after the application date
and the presentment of payment of premium.'' Current paragraphs (a) and
(b) provide two exceptions to this 30-day waiting period. Section
61.11(a) provides for an effective date of 12:01 a.m. on the first
calendar day after application and payment for the initial purchase of
flood insurance pursuant to a revision or update of floodplain areas or
flood risk zones under section 1360(f) of the NFIA, if such purchase
took place within 1 year of the notice of such revision or updating
under section 1360(h). See also 42 U.S.C. 4013(c)(2). Section 61.11(b)
provides that for the initial purchase of flood insurance in connection
with the making, increasing, extension, or renewal of a loan, coverage
is effective as of the date of the loan closing as long as application
and payment were made prior to that. See also 42 U.S.C. 4013(c)(2)(A).
FEMA does not propose any changes to these exceptions in current
paragraphs (a) and (b), as neither BW-12 nor HFIAA made any changes to
these exceptions.
FEMA proposes to add a third exception to the 30-day waiting period
relating to flooding linked to post-wildfire conditions in proposed
paragraph (c), and proposes to redesignate current paragraph (c) as
paragraph (d). The proposed provision would allow for a next-day
effective date where (1) the FEMA Administrator determines that the
property was affected by flooding on Federal land as a ``result of, or
is exacerbated by, post-wildfire conditions,'' and (2) that coverage
was purchased no later than 60 calendar days after the fire containment
date of the wildfire relating to the post-wildfire conditions described
in clause (1). FEMA proposes adding this exception pursuant to BW-12.
See NFIA section 1306 (42 U.S.C. 4013), as amended by BW-12 section
100241. FEMA has already implemented this provision, see the General
Rules Section of the Flood Insurance Manual, and now proposes to codify
the exception into regulation to provide a comprehensive list of
effective date exceptions.
As stated above, FEMA proposes to redesignate current paragraph (c)
as paragraph (d). FEMA also proposes to make two minor changes to
current paragraph (c). First, FEMA proposes to add a reference to new
paragraph (c) to indicate that in addition to paragraphs (a) and (b),
paragraph (c) is one of the exceptions to the 30-day waiting period.
Second, FEMA proposes to change ``shall'' to ``will.'' FEMA proposes
this change to incorporate plainer language. This change would not
change the substantive meaning of the provision.
Current paragraph (d) allows policyholders to add new coverage or
increase the amount of coverage in force during the term of any policy.
FEMA proposes to redesignate current paragraph (d) as paragraph (e),
and proposes to add the language ``subject to any applicable waiting
periods.'' FEMA proposes adding this language to make it clear that
unless the policy change qualifies under one of the exceptions in

[[Page 32964]]

sections 61.11(a)-(c), such changes would be subject to the 30-day
waiting period. This ensures that policyholders cannot suddenly expand
their coverage immediately before needing it, for instance before a
hurricane strikes. This requirement is already stated in current
61.11(c) (proposed 61.11(d)), but its inclusion in proposed 61.11(e)
would add additional clarity to this provision and ensure that 61.11(e)
will not be mistakenly read without the limitations imposed by proposed
61.11(d). FEMA also proposes to change ``shall'' to ``will.'' FEMA
proposes this change to incorporate plainer language.
Current paragraph (e) states that with respect to any submission of
an application in connection with new business, the payment of the
premium by an insured to an agent or the issuance of premium payment by
the agent does not constitute payment to the NFIP. It further states
that it is important that an application for flood insurance and its
premium be mailed to the NFIP promptly to have the effective date of
coverage based on the application date plus the waiting period.
It states that if the application and the appropriate premium
payment are received at the office of the NFIP within ten (10) calendar
days from the date of application, the waiting period will be
calculated from the date of application. FEMA proposes to revise this
paragraph slightly to state that it is important that an application
for flood insurance and the ``full amount due'' be mailed to the NFIP
promptly. FEMA proposes to change ``premium'' to ``full amount due'' in
the sentence following it as well. Making this change would make clear
that the policyholder must pay the full amount due at that time
(including any surcharges and fees), not just a portion thereof.
FEMA proposes to redesignate current paragraph (e) as paragraph
(f). Current paragraph (f) describes the method for determining the
effective date when a WYO company receives a proper application, but
decides to refer the application to the NFIP's Direct Servicing Agent
rather than write the policy itself. FEMA proposes to remove this
paragraph because it describes the business model of a WYO company that
is no longer participating in the WYO Program. FEMA is not aware of any
other WYO company that is using this model, and therefore the provision
is unnecessary. Any new companies entering the WYO Program would need
to conform their practices to the resulting regulation. Accordingly,
FEMA proposes to remove these provisions to avoid confusion. Because
FEMA proposes to remove this paragraph, FEMA also proposes to remove
the last two clauses of the first sentence of current paragraph (e)
(proposed paragraph (f)) that addresses the application of applicable
waiting periods for this model, as it too would no longer be necessary.
Finally, FEMA proposes to make minor revisions to current paragraph (g)
to reflect the removal of current paragraph (f).
10. Section 61.13 Standard Flood Insurance Policy
Section 61.13 describes the applicable sources of terms and
conditions associated with polices issued through the NFIP, including
the SFIP forms, endorsements, and applications.
FEMA proposes to add new paragraphs (e) and (f), and redesignate
current paragraphs (e) and (f) as (g) and (h). FEMA's proposed new
paragraph (e) would explain that flood insurance policies issued
through the NFIP are subject to the NFIA, its regulations, and the
terms and conditions of the SFIP. As discussed previously, similar
language is in current sections 61.4(a) and (b), which FEMA proposes to
remove. Moving this language into section 61.13 provides a more logical
organization. Further, FEMA proposes to add additional language that
any representations not consistent with these sources are void. While
implicit in the current regulations, this explicit language would make
clear the sources of law applicable to NFIP policies.
FEMA's proposed new paragraph (f) would specify that the property
or casualty agent acts on the behalf of the policyholder and never on
behalf of the Federal Government, FEMA, or the WYO company. This
language is similar to that which FEMA proposes to remove from 61.5(e),
but would cover WYO companies as well. FEMA intends that the proposed
provision would ensure that policyholders know that the representations
of agents involved in the program do not bind the NFIP. Also, while
current 61.5(e) uses the word ``insured,'' FEMA proposes to substitute
the word with ``policyholder'' in proposed section 61.13(f).
``Policyholder'' refers specifically to the individual or business
named in the policy itself, whereas the word ``insured'' can refer to
the policyholder as well as anyone who submits payment on behalf of the
policyholder and/or who has the right to a claim payment under the
policy (e.g., the mortgagee). ``Policyholder'' is the more appropriate
term in this context because FEMA is only referring to an agent's
relationship with the policyholder specifically, not any other party
who may be submitting payment on behalf of the policyholder and/or who
has a right to claims payments under the policy.
Current paragraph (f) (proposed paragraph (h)), provides that
private sector WYO property insurance companies may issue SFIPs. FEMA
proposes to revise proposed paragraph (h) to provide that WYO companies
will issue NFIP policies in their own name, rather than the current
language providing that WYO companies may issue NFIP policies in their
own name. This change would conform to the current FEMA-WYO company
relationship described in Article I of Appendix A of 44 CFR part 62.
Further, FEMA proposes to add language at the end of the paragraph
stating that the risk of loss is borne by the NFIP, rather than the WYO
company. This language would further clarify the existing relationship
between FEMA and WYO companies.
Overall, the proposed changes to 61.13 would provide greater
clarity to the public regarding the existing relationship between FEMA,
policyholders, and WYO companies.

C. Appendix A(1) to Part 61: Standard Flood Insurance Policy Dwelling
Form

Appendix A(1) to part 61 contains the Dwelling Form of the SFIP.
This form, as well as the other two SFIP policy forms (the General
Property Form and the RCBAP), defines the relationship between FEMA or
the WYO company, as the insurers, and the insured.
Throughout Appendix A(1), FEMA proposes to replace the word
``covered'' with the word ``insured'' because ``covered'' is a generic
and undefined term that does not conform to common industry or Agency
usage. The use of ``insured'' better conveys the application of the
SFIP to property.
1. Prefatory Paragraph and Article I ``Agreement''
The prefatory paragraph states that the policy insures (1) a non-
condominium residential building designed for principal use as a
dwelling place of one to four families, or (2) a single-family dwelling
unit in a condominium building. FEMA proposes to revise (1) to read ``a
one to four family residential building, not under a condominium form
of ownership'' because this language is clearer and more consistent
with the wording used in the Definitions section for condominium
buildings. FEMA proposes to add (3) ``personal property in a building''
to clarify that personal property is also insured under this policy.
FEMA has always insured personal property under this policy, but

[[Page 32965]]

proposes to make this fact more explicit in this initial coverage
statement.
In the current policy, Article I ``Agreement'' begins after the
prefatory paragraph. It states in the first paragraph that FEMA
provides flood insurance under the terms of the NFIA, its amendments,
and 44 CFR. It states in the second paragraph that FEMA will pay for
direct physical loss by or from flood to the insured property if the
insured has paid the correct premium, complied with all terms and
conditions of the policy, and furnished accurate information and
statements. It states in the last paragraph that FEMA has the right to
review the information provided by the insured at any time and to
revise the policy based on this review.
FEMA proposes to begin Article I before the prefatory paragraph,
and to relabel the prefatory paragraph as Section A, current Article
I's first paragraph as Section B, the second paragraph as Section C,
and the third paragraph as Section D. This is to clarify that the
prefatory paragraph, which is actually an initial coverage statement,
is part of the policy and not just an introduction to the policy.
FEMA also proposes to modify proposed Section C (currently the
second paragraph in Article I) and add three new sections to Article I
(proposed sections E, F, and G) to clarify existing rules and
limitations under the SFIP.
i. Proposed Section C
As previously described, FEMA proposes to renumber the second
paragraph in Article I as Section C of Article I. This provision
currently states that FEMA will pay for direct physical loss by or from
flood to the insured property if (1) the insured has paid the correct
premium; (2) complied with all terms and conditions of the policy; (3)
and furnished accurate information and statements. FEMA proposes to
modify the first prong of this statement by stating that coverage is
contigent on the policyholder paying the ``full amount due (including
applicable premiums, surcharges, and fees)'' instead of ``the correct
premium.'' FEMA proposes this change to make clear that policyholders
must pay any applicable surcharges, such as the one required under 42
U.S.C 4015a, in addition to applicable premiums.
ii. Proposed Section E
Proposed Section E would state that the policy insures only one
building. If the insured owns more than one building, coverage will
apply to the single building specifically described in the Flood
Insurance Application. While the SFIP's limitation on coverage to one
dwelling is already implied by current Article III.A, FEMA proposes to
clarify this limitation here to allow policyholders to better
understand the extent of coverage, particularly where an insured may
own more than one building on the same land.
iii. Proposed Section F
Proposed Section F would state that multiple policies with building
coverage cannot be issued to insure a single building to one insured or
to different insureds, even if separate policies were issued through
different NFIP insurers. It would also state that payment for damages
may only be made under a single policy for building damages under
Coverage A--Building Property. This proposed section would incorporate
current Article VII.U's general language stating that there may not be
more than one NFIP policy on a property. Proposed section F would be
subject to the exception in proposed Section G involving condominiums,
which provides that a condominium unit may be covered by an RCBAP
policy and a dwelling policy.
FEMA proposes this clarification because there have been several
instances where multiple persons have taken out multiple, overlapping
building policies. This in turn may leave policyholders to believe they
have more coverage than is allowed by the NFIA. This is most common in
instances where both a building owner and a tenant obtain building
policies. As described in WYO Bulletin W-15001 (Jan. 13, 2015),\3\ FEMA
has taken steps to identify such instances and inform policyholders as
needed. FEMA believes that the language in proposed Section F would
help avoid such situations.
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\3\ Available at https://bsa.nfipstat.fema.gov/wyobull/2015/w-15001.pdf.
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iv. Proposed Section G
FEMA proposes to add Section G, which would define the relationship
between a Dwelling Form policy and an RCBAP policy that insures the
same condominium unit. Section G would state that a Dwelling Form
policy with building coverage may be issued to a unit owner in a
condominium building that is also insured under an RCBAP. However, no
more than $250,000 may be paid in combined benefits for a single unit
under the Dwelling Form policy and the RCBAP. This would explicitly
state FEMA's application of the statutory maximum coverage limits for
one to four family residential buildings, found at 42 U.S.C.
4013(b)(2), as applied to condominium units.
FEMA proposes this section to clarify instances where a condominium
unit is covered by both a Dwelling Form policy and an RCBAP policy, and
to codify its current practice (pursuant to BW-12) of waiving the
requirement found in current regulation to limit payments to affected
policyholders. Current Article VII (``Coinsurance'') of the RCBAP
policy (Appendix A(3) to Part 61) restricts payments for damage to
condominium associations that insure less than 80 percent of the full
replacement cost of the RCBAP insured condominium building, or less
than the maximum amount of insurance available. In turn, current
Article III.C.3.b.4 of the Dwelling Form policy precludes payment for a
loss assessment if the reason for the shortage is application of the
RCBAP's coinsurance penalty provision. Current Article VII.C.2 of the
Dwelling Form policy provides that where a condominium unit is covered
by both the Dwelling Form policy and an RCBAP (or other flood insurance
coverage purchased by the condominium association), the Dwelling Form
policy will be in excess over the RCBAP (or other insurance).
Since 2007, FEMA has issued individual waivers of these provisions'
requirements to limit payments to affected policyholders. Section
100214 of BW-12 (42 U.S.C. 4019(c)) validated this policy by
prohibiting FEMA from limiting payments pursuant to Article
III.C.3.b.4. FEMA implemented this prohibition through a general
waiver. See WYO Bulletin W-16024 (April 7, 2016).\4\ Accordingly, FEMA
now seeks to codify this change in the SFIP by adding Section G.
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\4\ Available at https://bsa.nfipstat.fema.gov/wyobull/2016/w-16024.pdf.
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Proposed Section G would also state that FEMA will only pay for
damage once, and items of damage paid for under an RCBAP cannot also be
claimed under the Dwelling Form policy. FEMA proposes to add this
language to clarify the existing rule under current Article VII.C.2
that if a single property is insured by both policies forms, the
Dwelling Form will only pay what is not covered under the RCBAP policy.
2. Article II Definitions
i. General Changes
FEMA proposes to remove the last sentence of the second paragraph
in Article II.A which states, ``The precise definitions are intended to
protect you.'' FEMA proposes removal of this sentence because it is an
incorrect statement of the purpose of providing the definitions. The
definitions are to provide clarity to the language of the

[[Page 32966]]

Dwelling Form policy so that both FEMA and the policyholder will know
the terms and conditions under which payments will be made under the
policy.
FEMA also proposes to move the definition of ``flood,'' which is
currently in the third paragraph of Article II.A, to a separate Section
B. Accordingly, FEMA also proposes to redesignate current Section B as
Section C.
ii. Proposed Removal of Definition
FEMA proposes to remove one definition, ``expense constant,'' from
the Dwelling Form. The term describes a flat charge assessed on all
policies to defray expenses to the Federal Government related to flood
insurance. FEMA proposes to remove this definition because FEMA no
longer charges an expense constant and FEMA does not use this term in
the Dwelling Form.
iii. Proposed Addition of Definitions
FEMA proposes to add a definition of ``condominium building'' to
mean a type of building for which the form of ownership is one in which
each unit owner has an undivided interest in common elements of the
building. FEMA intends for this addition to conform with the addition
of the definition to 44 CFR 59.1. FEMA proposes to add this definition
because it is used throughout the Dwelling Form.
FEMA also proposes to define the term ``deductible'' as ``the fixed
amount of an insured loss that is your responsibility and that is
incurred by you before any amounts are paid for the insured loss under
this policy.'' This definition aligns with the definition of
``deductible'' currently proposed for 44 CFR 59.1. FEMA proposes to
include this definition in the SFIP to support related provisions in
Article VI.
iv. Proposed Changes to Existing Definitions
FEMA proposes to modify several definitions currently in the
Dwelling Form. First, FEMA proposes to revise the definition of
``application'' by striking the last sentence. FEMA proposes this
change because the last sentence is not a definition, but rather a
separate requirement. Further, the sentence does not align with
proposed Article I.C, which states that policyholders must submit ``the
full amount due'' which includes applicable premiums, surcharges, and
fees.
FEMA proposes to revise the definition of the term ``basement.''
Currently, ``basement'' is defined as ``any area of the building,
including any sunken room or sunken portion of a room, having its floor
below ground level (subgrade) on all sides.'' FEMA proposes to replace
the word ``the'' before the word ``building'' with the word ``a'' to
correct a grammar error in the current Dwelling Form SFIP. FEMA also
proposes to remove the word ``subgrade'' because, due to the many and
varying definitions of this word, its use is causing confusion. Removal
of the term ``subgrade'' is not intended to have any substantive
effect.
FEMA proposes to revise the term ``condominium.'' Currently,
``condominium'' is defined as ``that form of ownership of real property
in which each unit owner has an undivided interest in common
elements.'' FEMA proposes to replace the term ``real property'' with
the phrase ``one or more buildings'' because FEMA believes that this
nonsubstantive change uses plainer language that the public can more
easily understand.
Similarly, FEMA proposes to adjust the definition of ``condominium
association.'' Currently, this term is defined as the entity made up of
the unit owners responsible for the maintenance and operation of (a)
common elements owned in undivided shares by unit owners; and (b) other
real property in which the unit owners have use rights; where
membership in the entity is a required condition of unit ownership.
FEMA proposes to replace the term ``real property'' with ``buildings''
because FEMA believes that this change uses plainer language that the
public can more easily understand while maintaining the substantive
meaning of the definition.
FEMA proposes to revise the definition of ``dwelling.'' Currently,
``dwelling'' is defined as ``a building designed for use as a residence
for no more than four families or a single-family unit in a building
under a condominium form of ownership.'' FEMA proposes to replace the
phrase ``building under a condominium form of ownership'' with
``condominium building'' to integrate the defined term ``condominium
building'' while maintaining the substance of the current definition.
FEMA proposes to revise the definition of ``emergency program.''
Currently, ``emergency program'' is defined as the initial phase of a
community's participation in the National Flood Insurance Program. The
definition also states that during this phase, only limited amounts of
insurance are available under the NFIA. FEMA proposes to retain this
definition but add at the end the phrase ``and the regulations
prescribed pursuant to the Act.'' FEMA proposes to add this phrase to
align the SFIP definition of this term with its definition at 44 CFR
59.1.
FEMA proposes minor revisions to the definition of
``improvements.'' Currently, this term is defined as ``fixtures,
alterations, installations, or additions comprising a part of the
insured dwelling or the apartment in which you reside.'' FEMA proposes
to remove the word ``insured'' because it is not necessary. It proposes
to remove the word ``the'' from before the word ``apartment'' for
readability.
FEMA proposes to move the definition of ``principal residence''
from Art. VII.V.1.a.1 (``Loss Settlement'') of the Dwelling Form to the
Definitions Section (Article II). Currently, under Article VII.V.1 a
principal residence means the single-family dwelling where the
policyholder or the policyholder's spouse has lived for at least 80
percent of (a) the 365 days immediately preceding the time of loss; or
(b) the period of ownership, if either the policyholder or
policyholder's spouse owned the dwelling for less than 365 days
immediately preceding the time of loss. FEMA proposes to move the
substantively unchanged definition to the Definitions Section of
Article II because that is the more appropriate place to define terms
used in the Dwelling Form.
FEMA proposes to revise the definition for ``probation premium'' by
replacing the defined term ``probation premium'' with the term
``probation surcharge.'' ``Probation surcharge'' would retain the same
definition as the current definition for ``probation premium,'' which
is a flat charge the policyholder must pay on each new or renewal
policy issued covering property in a community the NFIP has placed on
probation under the provisions of 44 CFR 59.24. FEMA proposes this
revision because there is no such thing as a ``probation premium;''
this incorrect term was intended to reference the probation surcharge
that is applied to policies in NFIP communities that have been placed
on suspension from the NFIP.
FEMA proposes to amend the definition of ``regular program.''
Currently, ``regular program'' is defined as the final phase of a
community's participation in the National Flood Insurance Program. In
this phase, a Flood Insurance Rate Map is in effect and full limits of
coverage are available under the NFIA. FEMA proposes to add the phrase
``and the regulations prescribed pursuant to the Act'' at the end to
clarify, without changing the substance of the definition, that the
coverage amounts for NFIP policies are

[[Page 32967]]

subject to the rules established in both statute and regulation, not
just statute.
FEMA also proposes to modify the definition of ``Special Flood
Hazard Area'' to include the appropriate acronym, ``SFHA.''
FEMA proposes to revise the term ``unit.'' Currently, ``unit'' is
defined as ``a single-family unit you own in a condominium building.''
FEMA proposes to replace the word ``unit'' with ``residential space''
so that the word ``unit'' would not be used to define itself.
3. Article III Property Covered
Article III of the Dwelling Form (``Property Covered'') is divided
into four sections, each addressing different types of property:
Section A, ``Coverage A--Building Property,'' Section B, ``Coverage B--
Personal Property,'' Section C, ``Coverage C--Other Coverages,'' and
Section D, ``Coverage D--Increased Cost of Compliance.''
i. Coverage A--Building Property
Article III.A.5.b.2 describes the zones above which the lowest
floor of a non-walled or roofed building under construction,
alteration, or repair must be to be covered. FEMA proposes to replace
``levels are'' with ``level is'' to improve readability. FEMA also
proposes to replace ``and'' with ``or,'' also to improve readability.
No substantive changes are intended.
In Article III.A.6, FEMA proposes to replace the reference to
``II.B.6.b and II.B.6.c'' with a reference to ``II.C.6'' to reflect the
renumbering proposed for Article II.
Article III.A.7 provides a list of items of property covered under
Coverage A only. FEMA proposes to replace ``covered'' with ``insured''
because ``covered'' is a generic and undefined term that does not
conform to common industry or Agency usage. The use of ``insured''
better conveys the application of the SFIP to property.
Article III.A.8 limits coverage on items of property in a building
enclosure below the lowest elevated floor of an elevated post-FIRM
building in specified zones. FEMA proposes to remove the phrase ``in a
building enclosure'' to clarify that the section only insures items of
property that are below the lowest elevated floor, not the building
enclosure itself. This has always been the case, but removing this
language would make this clearer. Removing the language would also
clarify that FEMA insures any property identified in Article III.A.8
that is below the lowest elevated floor within the footprint of the
building, regardless of whether such property is located in a building
enclosure.
ii. Coverage B--Personal Property
Article III.B.1 describes the conditions under which the policy
covers personal property inside a building. Current Article III.B.1.b
contains two unnumbered paragraphs. FEMA proposes to number these two
unnumbered paragraphs as ``1.'' and ``2.'' respectively, and to
renumber subsequent paragraphs accordingly, to improve readability and
organization.
Article III.B.3 (renumbered B.5.in the proposed text) limits
coverage for items of property in a building enclosure below the lowest
elevated floor of an elevated post-FIRM building located in specified
zones or a basement. FEMA proposes to remove the phrase ``in a building
enclosure'' to clarify that the section only insures items of property
that are below the lowest elevated floor, not the building enclosure
itself. While FEMA has always interpreted this provision this way,
removing this language would make this clearer to policyholders. In
addition, this proposed change would also clarify that FEMA insures
certain property identified in Article III.B.3 (proposed B.5) that is
below the lowest elevated floor within the footprint of the building,
regardless of whether such property is located in a building enclosure.
iii. Coverage C--Other Coverages
Article III.C describes other coverages under the SFIP, including
for debris removal, property relocation, and condominium loss
assessments. In III.C.2.b, FEMA proposes to number the currently
unnumbered paragraphs immedietly following III.C.2.b.2 as III.C.2.b.3
and III.C.2.b.4, respectively, to improve organization and readability.
Article III.C.3.a describes the terms of coverage for condominium
loss assessments. FEMA proposes to revise the first sentence of Article
III.C.3.a to add the phrase ``Subject to III.C.3.b below'' to the
beginning of the sentence to clarify that the general statement in
III.C.3.a that FEMA would pay for condominium loss assessments would be
limited by the restrictions established in III.C.3.b. FEMA also
proposes to add ``condominium'' before ``unit'' in that sentence, for
the sake of clarity. The second sentence in Article III.C.3.a states
that the assessment must be made as a result of direct physical loss by
or from flood during the policy term, to the building's common
elements. FEMA proposes to replace ``as a result of'' with ``because
of'' and ``to the building's common elements'' with ``to the unit or to
the common elements of the NFIP insured condominium building in which
this unit is located.'' FEMA proposes to revise this language for
greater clarity and consistency with the ``condominium building''
definition added in Article II.
Article III.C.3.b describes scenarios where FEMA will not pay any
loss assessment charged against the policyholder. Article III.C.3.b.1
provides that FEMA will not pay any loss assessment charged against the
policyholder ``and the condominium association by any governmental
body.'' FEMA proposes to relocate the phrase ``charged against you''
from III.C.3.b to III.C.3.b.1 to improve the sentence structure of the
provision.
Article III.C.3.b.4 states that the NFIP would not insure any loss
assessments on units in a condominium building that were underinsured
as described in this paragraph. FEMA proposes to remove this paragraph,
as these restrictions were superseded by section 100214 of BW-12, which
prohibits FEMA from denying coverage for a condominium unit under a
Dwelling Form policy based solely, or in part, on the flood insurance
coverage of the condominium association or others on the overall
property insured by the condominium association. Accordingly, to
implement this requirement, FEMA proposes to remove Article III.C.3.b.4
as it prevents unit owners from recovering under the Dwelling Form
policy for loss assessments charged against them because the
condominium building in which the unit is located is underinsured. FEMA
has waived this provision in current practice for affected individual
policies. The proposed change would conform the language of the
Dwelling Form to FEMA's current practice and allow FEMA to discontinue
use of the individual waiver process.
Current Article III.C.3.b.5 provides that FEMA will not pay for
loss assessments to the extent that payment under this policy for a
condominium loss, in combination with payments under any other NFIP
policies for the same building loss, exceeds the maximum amount of
insurance permitted under the NFIA for that kind of building.
Similarly, current section III.C.3.b.6 provides that FEMA will not pay
for loss assessments to the extent that payment under this policy, in
combination with any recovery available to the tenant in common under
any NFIP condominium association policies for the same building loss,
exceeds the amount of insurance permitted under the NFIA for a single
family dwelling. FEMA proposes to renumber these subsections as (4) and

[[Page 32968]]

(5) respectively due to FEMA's proposed removal of current subsection
(4). In addition, FEMA proposes to revise current subsection (5)
(proposed subsection (4)) to state ``[i]n which the total payment
combined under all policies exceeds the maximum amount of coverage
available under the Act for a single unit in a condominium building
where the unit is insured under both a Dwelling Policy and a RCBAP.''
FEMA also proposes to revise current subsection (6) (proposed
subsection (5)) to state ``[o]n any item of damage that has already
been paid under a RCBAP where a single unit in a condominium building
is insured by both a Dwelling Policy and a RCBAP.'' FEMA proposes this
revised language to streamline these provisions and to make the same
points more clearly.
The last sentence of current III.C.3.b.6 states that ``[l]oss
assessment coverage does not increase the Coverage A Limit of
Liability.'' FEMA proposes to renumber this sentence as III.C.3.c. FEMA
also proposes to revise the language so that it reads ``Condominium
Loss Assessment coverage does not increase the Coverage A Limit of
Liability and is subject to the maximum coverage limits available for a
single family dwelling under the Act, payable between all policies
issued and covering the unit, under the Act.'' This would clarify that
the combined payments under the Dwelling Form and the RCBAP, or any
other payment issued under the Dwelling Form to a unit owner where
there is also an RCBAP that covers the property, are subject to the
$250,000 coverage limit on the combined payments under both policies.
Congress only authorized a maximum coverage of $250,000 on a single
dwelling, and both the RCBAP and Dwelling Forms rely upon that single
authority for establishing the available policy limits. As such, the
unit owner and the condominium association each filing separate claims
under their separate policies cannot circumvent the limit imposed by
Congress. FEMA proposes to add this language to emphasize the point
that even though a condominium unit may be insured by both a Dwelling
Form policy and an RCBAP, this fact does not alter the statutory
coverage limits.
iv. Coverage D--Increased Cost of Compliance
Article III.D (``Increased Cost of Compliance'') describes the
terms of coverage for costs associated with complying with State or
local floodplain management laws or ordinances affecting repair or
reconstruction of a structure suffering flood damage. FEMA proposes to
revise the language in this section so that the word ``structure'' is
replaced by the word ``building'' throughout the section. The reason
for this change is the NFIP insures SFIP defined ``buildings,'' not
structures. FEMA also proposes to replace the phrase ``this coverage''
with the phrase ``Coverage D in III.D.3.d and III.D.3.e'' to clarify
that the coverage referred to in these provisions is Coverage D.
4. Article V Exclusions
Article V of the Dwelling Form (``Exclusions'') provides the terms
and conditions of the SFIP relating to what losses are excluded from
coverage under the SFIP. Article V.B excludes coverage for losses
resulting from a flood that began prior to the effective date of a
policy; this is referred to as the ``flood in progress'' exclusion. If
the SFIP covered losses for policies obtained after a flood became
imminent, people could avoid paying for insurance during the times they
did not need to make a claim. FEMA would then have to increase rates to
compensate for the lost premiums and higher losses. This would in turn
drive more people out of the program, which would require higher rates.
Currently, the exclusion specifies that FEMA will not pay for a
loss that was ``directly or indirectly caused by a flood that is
already in progress'' prior to the effective date of the policy. FEMA
is proposing changes to Article V because the current language does not
describe how a policyholder could determine when a flood was in
progress. This ambiguous provision has historically caused significant
confusion among the public. As a result, FEMA made several attempts to
clarify the provision and apply it to the specific attributes of
certain floods. See WYO Bulletin W-11030 (May 17, 2011); WYO Bulletin
W-11034 (June 6, 2011); WYO Bulletin W-11045 (June 30, 2011);
Definitions Section of the Flood Insurance Manual, page 4.
While these clarifications provided workable guidance on the issue,
BW-12 directed the FEMA Administrator to review ``the processes and
procedures for determining that a flood event has commenced or is in
progress for purposes of flood insurance coverage made available under
the National Flood Insurance Program.'' BW-12 section 10227(a)(1)(A)
(42 U.S.C. 4011 note). Accordingly, FEMA now proposes to modify the
Flood in Progress Exclusion to maintain its practical impact, but to
provide clearer terms for its application.
FEMA proposes to revise the language of Article V.B to allow for
two separate exclusions for floods in progress, depending on how the
policyholder applied for the policy. If the policy became effective at
the time of a loan closing, as provided by 44 CFR 61.11(b), then FEMA
would not pay for losses caused by a flood that is a continuation of a
flood that existed prior to coverage becoming effective. In all other
circumstances, FEMA would not pay for a loss caused by a flood that is
a continuation of a flood that existed on or before the day the
policyholder submitted the application for coverage and paid the full
amount due. This exclusion would apply to new policies subject to the
30-day waiting period, as well as those for which the overnight waiting
period is applied, as provided by 42 U.S.C. 4013(c)(2)(b).
FEMA believes the proposed formulation provides a more thorough
understanding of what constitutes a flood in progress, providing
greater clarity to policyholders, without altering the actual effect of
the provision because the proposed language captures the principles
underlying the previous agency guidance. FEMA also believes the
proposed language would successfully prevent a policyholder from
waiting until flooding becomes imminent to apply for coverage, as well
as prevent a person facing imminent flooding from obtaining a small
mortgage to avoid the otherwise 30-day effective date waiting period
required by 42 U.S.C. 4013(c)(1).
In article V.C.6, regarding gradual erosion, FEMA proposes to
replace ``insured'' with ``covered'' because ``covered'' is a generic
and undefined term that does not conform to common industry or Agency
usage. The use of ``insured'' better conveys the application of the
SFIP to property. Also in article V.C.6, FEMA proposes to update the
reference to the definition of flood to articles II.B.1.c and II.B.2.
5. Article VII General Conditions
Article VII (``General Conditions'') provides the general terms and
conditions of the Dwelling Form SFIP, such as provisions related to
other insurance; amendments, waivers, and assignments; policy
reformation; policy renewal; requirements if there is a loss; and loss
payments.
i. Section B--Concealment or Fraud and Policy Avoidance
Article VII.B (``Concealment or Fraud and Policy Avoidance'')
provides the general terms and conditions of the Dwelling Form SFIP
related to concealment or fraud and policy avoidance. FEMA proposes to
move Article VII.B to a new Article VIII.A (``Policy Nullification for
Fraud,

[[Page 32969]]

Misrepresentation, or Making False Statements'') and make some
revisions, which are explained in the discussion of new Article VIII
below.
ii. Section C--Other Insurance
Article VII.C (``Other Insurance'') discusses terms related to
instances where property is covered by more than one insurance policy
with flood coverage. FEMA proposes to redesignate Article VII.C as
Article VII.B due to FEMA's proposed removal of VII.B. Current Article
VII.C.2 (proposed VII.B.2) states that where there is other insurance
in the name of the policyholder's condominium association covering the
same property covered by this policy, then this policy will be in
excess over the other insurance. FEMA proposes to replace the word
``covered'' with ``insured.'' FEMA proposes to replace the word
``covered'' with the word ``insured'' because ``covered'' is a generic
and undefined term that does not conform to common industry or Agency
usage. The use of ``insured'' better conveys the application of the
SFIP to property. FEMA also proposes to add the phrase ``issued under
the Act'' directly following the phrase ``other insurance'' to clarify
that the language referring to other insurance is referring to other
NFIP insurance, not other non-NFIP insurance.
FEMA proposes to add language to Article VII.C.2 (proposed VII.B.2)
to provide that the section does not apply where a condominium loss
assessment to the unit owner results from a loss sustained by the
condominium association that was not reimbursed under an RCBAP because
the building was not insured for an amount equal to the lesser of: (a)
80 percent or more of its full replacement cost; or (b) the maximum
amount of insurance permitted under the NFIA. FEMA proposes to add this
exception to codify the existing implemention of section 100214 of BW-
12. Under the terms and conditions of the Dwelling Form policy and the
RCBAP, the RCBAP is primary, and the Dwelling Form policy acts as an
excess flood insurance policy. In order to allow the Dwelling Form to
respond as if the RCBAP coverage has in fact been exhausted, FEMA must
revise Article VII.C.2 (proposed VII.B.2) so that it does not apply in
those situations in which the coinsurance provision of the RCBAP has
been triggered.
FEMA also proposes to add language to proposed Article VII.B.2
clarifying that even when a condominium unit is insured by two
policies, the maximum statutory coverage limit available under the NFIA
of $250,000 still applies. FEMA proposes to add this language to
emphasize that the fact that a condominium unit is insured by both a
Dwelling Form policy and an RCBAP does not alter or permit payments to
exceed the statutory coverage limits.
iii. Section D--Amendments, Waivers, Assignment
Article VII.D ('' Amendments, Waivers, Assignment'') provides that
any amendments or waivers to the policy require express written consent
of the Federal Insurance Administrator. It allows a policyholder to
assign this policy when transferring title of his or her property
except when the policy (1) covers only personal property, or (2) covers
a structure during the course of construction. FEMA proposes to
redesignate Article VII.D as Article VII.C due to the proposed removal
of VII.B and subsequent renumbering discussed above. FEMA proposes to
replace the phrase ``structure during the course of construction'' with
``building under construction'' both to correspond with the replacement
of the word ``structure'' with ``building'' throughout Article V of the
policy, and also because ``building under construction'' is the proper
term of art, as used in Article III.A.5.a and Article VI.A. Also, FEMA
proposes to replace ``covers'' with ``insures'' because ``covered'' is
a generic and undefined term that does not conform to common industry
or Agency usage. The use of ``insured'' better conveys the application
of the SFIP to property.
iv. Section E--Cancellation of the Policy by You
Article VII.E (``Cancellation of the Policy by You'') authorizes a
policyholder to cancel the policy in accordance with the applicable
rules and regulations of the NFIP and provides that a policyholder who
cancels may be entitled to a full or partial refund of premium. FEMA
proposes to move Article VII.E to a new Article VIII discussing policy
nullifications, cancellations, and non-renewals. The new Article VIII
is discussed below.
v. Section F--Non-Renewal of the Policy by Us
Article VII.F (``Non-Renewal of the Policy by Us'') states that a
policy will not be renewed if the community where the covered property
is located stops participating in the NFIP, or the building has been
declared ineligible under section 1316 of the NFIA. FEMA proposes to
move Article VII.F to a new Article VIII discussing policy
nullifications, cancellations, and non-renewals. The new Article VIII
is discussed below.
vi. Section G--Reduction and Reformation of Coverage
Article VII.G (``Reduction and Reformation of Coverage'') describes
the terms and conditions of the policy related to situations in which
it is discovered that the premium paid on an annual policy, or the
information used to rate the policy, is insufficient. Specifically,
this section details how coverage under the policy would be reformed in
such situations and the policyholder's options upon reformation.
FEMA proposes to redesignate Article VII.G as Article VII.D to
conform to the relocation and redesignation of preceding sections
described above. FEMA proposes to change the title of the section from
``Reduction and Reformation of Coverage'' to ``Insufficient Premium or
Rating Information.'' FEMA proposes this change to the title because it
is clearer than the current section title. Additionally, FEMA proposes
to add the term ``insufficient'' before ``rating information'' to make
it clear that this provision applies to both cases: Where the
information needed to rate the policy is incomplete and where it is
incorrect. With respect to the premium, the term ``insufficient''
applies to situations in which the premium paid is incorrect. With
respect to the rating information, the term ``insufficient'' applies to
situations in which the rating information provided for determining the
premium rate is incomplete, such as when an elevation certificate is
not provided or is incorrect. FEMA proposes to make corresponding
language changes throughout this section to ensure that the provisions
of this section are applied in both of these situations.
FEMA proposes to add a new Article VII.D.1, entitled
``Applicability.'' The proposed Article would state that the provisions
in proposed Article VII.D, Insufficient Premium or Rating Information,
apply to all instances where the premium paid on a policy is
insufficient or where the rating information is insufficient, such as
where an Elevation Certificate is not provided. This change reflects
FEMA's current policies and would not substativently impact the NFIP.
Current Article VII.G.1 provides that if the premium received was
not enough to buy the kind and amount of coverage requested, FEMA will
provide only the amount of coverage that can be purchased for the
premium payment received. FEMA proposes to redesignate

[[Page 32970]]

this section as Article VII.D.2 to correspond to the redesignations
described above, and add a title, ``Reforming the Policy with Reduced
Coverage,'' for improved clarity. FEMA proposes to add the phrase
``Except as otherwise provided in VII.D.1'' at the beginning of the
paragraph. FEMA proposes this change to correspond to the exception
established in the new proposed language at VII.D.1. FEMA also proposes
to replace the phrase ``not enough'' with the phrase ``not
sufficient,'' the word ``amount'' to ``amounts,'' and replace ``only
the amount of coverage'' with ``only the kinds and amounts of
coverage.'' FEMA believes that these non-substative changes would
improve readability.
FEMA proposes to add three paragraphs to this section. Proposed
paragraph D.2.a clarifies that, for determining whether the premium is
sufficient to buy the kinds and amounts of coverage requested, FEMA
will first deduct all applicable fees and surcharges. Proposed
paragraph D.2.b clarifies that if the amount paid, after deducting the
costs of all applicable fees and surcharges, is not sufficient to buy
any amount of coverage, the Program will refund the policyholder's
payment and there will be no coverage under the policy. FEMA proposes
to add these clarifications because they are not explicitly stated in
the current regulations, although FEMA has previously interpreted
regulations to require this. Thus this is not a substantive change but
merely reflects existing practice. Proposed paragraph D.2.c states that
``[c]overage limits on the reformed policy will be based upon the
amount of premium submitted per type of coverage, but will not exceed
the amount originally requested.'' FEMA proposes this paragraph to
codify its current practice. When FEMA calculates the total policy
cost, it knows how much of the total cost will be allocated to premium,
surcharges, fees, etc. Under FEMA's current practice, it tries to
preserve the ratio of building coverage to contents coverage,
regardless of how much premium the policyholder intended to allocate to
each type of coverage. For example, if a policyholder originally
requested $200,000 in building coverage and $100,000 in contents, FEMA
would try to preserve the 2 to 1 ratio when reducing the coverage
through reformation. The proposed rule seeks to clarify that FEMA's
practice is to reflect the policyholder's intent by considering the
amount of premium the policyholder intended to allocate to each type of
coverage. Using the example above, therefore, if the policyholder paid
a total of $600 premium, wishing to allocate $500 for the $200,000 in
building coverage and $100 for the $100,000 in contents, FEMA would
provide the amount of building coverage that $500 would purchase under
the reformed rate, and the amount of contents coverage that $100 would
purchase under the reformed rate.
Current Article VII.G.2 discusses how a policy can be reformed to
increase the amount of coverage where insufficient premium or
incomplete rating information is discovered before a loss (current
paragraph (a)), and where insufficient premium or incomplete rating
information is discovered after a loss (current paragraph (b)). FEMA
proposes to redesignate current Article VII.G.2 as VII.D.3 and to
restructure it to improve organization and readability. Specifically,
FEMA proposes to combine the provisions on discovery of insufficient
premium or rating information before a loss and discovery of
insufficient premium or rating information after a loss. To that end,
the Agency proposes to title proposed Article VII.D.3 as ``Discovery of
Insufficient Premium or Rating Information.'' The proposed subsection
would state that if the Program discovers that the premium or rating
information is insufficient, the Program would reform the policy as
described in proposed Article VII.D.2. The proposed subsection also
gives policyholders the option of increasing the amount of coverage
resulting from the reformation to the amount he or she requests in
accordance with the rest of the section. This does not constitute a
substantive change from the current regulations and procedure; rather,
it is a streamlining of the current regulations without altering the
substance.
Proposed Article VII.D.3.a would be entitled ``Insufficient
Premium'' and would address situations where FEMA discovers that the
premium is insufficient. This section would retain the first sentence
in current VII.G.2.a.1 providing that where FEMA discovers the
policyholder has not paid enough premium, the policyholder, and any
mortgagee or trustee of which the insurer has written notice, will be
sent a bill for the required additional premium for the current policy
term (or that portion of the current policy term following any
endorsement changing the amount of coverage). From the current
language, FEMA proposes to replace ``enough'' with ``sufficient'' to
align with current program usage and proposes to add commas after
``you'' and ``us'' to improve readability.
The last sentence in current VII.G.2.a.1 provides that where the
policyholder pays the additional premium within 30 days from the date
the bill is sent, the Program will reform the policy to the originally
requested amount of coverage. FEMA proposes to relocate this last
sentence to its own separate subsection (proposed VII.D.3.a.1) and
replace it with language stating that if it is discovered that the
initial amount charged for any fees or surcharges is incorrect, the
difference will be added or deducted, as applicable, to the total
amount in this bill. FEMA proposes this sentence because in addition to
the premium, policyholders must pay additional fees and surcharges,
which can vary based on the characteristics of the property and its
use; this language reflects its existing practice that FEMA adjusts the
total bill for overpayment or underpayment of fees and surcharges.
As mentioned above, FEMA proposes to relocate the last sentence in
current Article VII.G.2.a.1 to its own separate subsection (proposed
VII.D.3.a.1). Because this language only addresses what happens if the
policyholder pays the additional premium within 30 days from the date
the bill is sent, FEMA proposes to add additional language (proposed
VII.D.3.a.2) clarifying that if the policyholder does not pay the
premium within 30 days from the date of the bill, the Program would
settle any flood insurance claim based on the reduced amount of
coverage (as reduced pursuant to Article VII.D.2). This is already
implicitly in the current regulation and FEMA's current practice, but
FEMA proposes to add it to improve the clarity of the regulation.
FEMA proposes to add a third subsection (proposed VII.D.3.a.3)
allowing the policyholder the option of paying all or part of the
amount due out of a claim payment based on the originally requested
amount of coverage. Though not explicitly anticipated in the SFIP, FEMA
currently provides this option to policyholders through coordination of
disbursement of claim proceeds and additional premium collections with
the insurer. FEMA proposes to incorporate this option into the SFIP to
provide policyholders with a comprehensive understanding of their
options after FEMA discovers a misrating after a loss.
Proposed Article VII.D.3.b would be entitled ``Insufficient Rating
Information'' and would address situations where it is discovered that
the rating information is insufficient. This section would retain the
substance of the first sentence in VII.G.2.a. stating that if it is
determined that the rating

[[Page 32971]]

information for the policy is insufficient and prevents the insurer
from calculating the additional premium, the policyholder would be
required to provide this information within 60 days of a request by the
insurer. The last sentence in current VII.G.2.a.2 provides that once
the amount of additional premium for the current policy term is
determined, the procedures outlined in G.2.a.1 will be followed. FEMA
proposes to relocate this sentence to its own subsection (proposed
VII.D.3.b.1) and revise it to state that where information is received
within 60 days, the amount of additional premium for the current policy
term would be determined and the procedures in VII.D.3.a would be
followed.
Current VII.G.2.a.3 and G.2.b.3 address situations where the
additional premium or information is not received by the date it is
due. FEMA proposes to replace these sections with proposed VII.D.3.b.2
to state that where information is not received within 60 days of the
request, no claims would be paid until the requested information is
provided. Coverage would be limited to the amount of coverage that
could be purchased for the payments received, as determined when the
requested information is provided. The proposed provision reflects
FEMA's existing interpretation of the SFIP, as reflected in the General
Rules Section of the Flood Insurance Manual, page 13. FEMA proposes
this provision to clearly reflect FEMA's policy.
FEMA proposes to add a new Article VII.D.4, entitled ``Coverage
Increases,'' which would incorporate the language in current Articles
VII.G.2.a.3 and VII.G.2.b.3. The proposed language states that if the
policyholder does not submit the amounts requested in Article VII.D.3.a
or the additional information requested in Article VII.D.3.b by the
date it is due, the amount of coverage could only be increased by
endorsement subject to the appropriate waiting period. However, no
coverage increases would be allowed until the information requested in
Article VII.D.3.b is provided. FEMA proposes this additional language
to explicitly state the currently implied consequence of not providing
the necessary payment or information.
Finally, FEMA proposes to redesignate current Article VII.G.3 as
Article VII.D.5, which would be entitled ``Falsifying Information.''
Currently, this paragraph states that if the policyholder or their
agent intentionally did not tell FEMA about, or falsified, any
important fact or circumstance or did anything fraudulent relating to
this insurance, the provisions allowing policy cancellations for fraud
will apply. FEMA proposes to update the references to other policy
provisions to align with the citations as revised under this proposed
rule.
In section J (proposed section G) (``Requirements in Case of
Loss''), section L (proposed section I) (``No Benefit to Bailee''), and
section T (propsed section Q) (``Continious Lake Flooding''), FEMA
proposes to replace ``covers'' with ``insures'' because ``covered'' is
a generic and undefined term that does not conform to common industry
or Agency usage. The use of ``insured'' better conveys the application
of the SFIP to property.
As a consequence of the changes proposed above, FEMA also proposes
to renumber sections H through T as sections E through Q. No other
changes were made to these sections other than conforming cross-
references.
vii. Section U--Duplicate Policies Not Allowed
Article VII.U (``Duplicate Policies Not Allowed'') currently
describes restrictions on insuring property with more than one NFIP
policy. FEMA proposes to remove the Section and incorporate the
language into the new language at Articles I.F and VIII.D (discussed in
III.C.1.ii and III.C.6.iv of this document, respectively). FEMA further
proposes to redesignate all subsequent sections in Article VII,
starting with section ``VII.V'' as ``VII.R.''
viii. Section V--Loss Settlement
Current Article VII.V (``Loss Settlement'') (proposed VII.R)
describes the three methods for settling losses under the SFIP:
Replacement cost loss settlement, special loss settlement, and actual
cash value loss settlement. Article VII.V.1.a.1 (proposed VII.R.1.a.1)
provides that replacement cost loss settlement applies to a single-
family dwelling provided that it is the policyholder's principal
residence within the meaning described further in the paragraph. As
discussed in III.C.2, FEMA proposes to remove the definition of
``principal residence'' currently embedded in this provision and move
it to the Definitions article of the SFIP. This change would improve
readability of the provision without substantive impact.
Throughout proposed section VII.R, FEMA proposes to update internal
references to this section (i.e., replacing ``V'' with ``R'').
ix. Internal Citation Updates Within Article VII
FEMA proposes to redesignate the letter identifiers for the
following sections due to the resdesignation of earlier sections of
Article VII. The changes are as follows: Current Article VII.J
(proposed VII.G), Requirements in Case of Loss; current Article VII.M
(proposed VII.J), Loss Payment; current Article VII.T (proposed VII.Q),
Continuous Lake Flooding; and current Article VII.V (proposed VII.R),
Loss Settlement.
6. Article VIII Policy Nullification, Cancellation, and Non-Renewal
As discussed above, FEMA proposes to add a new Article VIII
(``Policy Nullification, Cancellation, and Non-Renewal''), which would
address in one place all the current reasons for which a policy may be
nullified, cancelled, or non-renewed. This would consolidate the policy
nullification, cancellation, and non-renewal reasons currently in the
Dwelling Form at Article VII.B (``Concealment or Fraud and Policy
Voidance''), VII.E (``Cancellation of the Policy by You''), and VII.F
(``Non-Renewal of the Policy by Us''), and VII.U (``Duplicate Policies
Not Allowed''). It would also incorporate the reasons that are being
codified into regulation at 44 CFR 62.5 (discussed below). This
consolidation would improve the organization and structure of the
document. This new article would also improve transparency to the
policyholder regarding the reasons for which a policy may be nullified,
cancelled, or non-renewed.
i. Section A--Policy Nullification for Fraud, Misrepresentation, or
Making False Statements
Current Article VII.B.1-3 provides that a policy is void, has no
legal force or effect, cannot be renewed, and cannot be replaced by a
new NFIP policy if the policyholder (or another insured or agent) has
intentionally concealed or misrepresented any material fact or
circumstance, engaged in fraudulent conduct, or made false statements
related to this or any other NFIP policy. It also provides that the
policy would be void as of the date the wrongful acts were committed,
and that fines, civil penalties, and imprisonment may also apply. FEMA
proposes to move these sections to Article VIII.A, rename it ``Policy
Nullification for Fraud, Misrepresentation, or Making False
Statements,'' and reorganize it without substantive change for greater
clarity.
ii. Section B--Policy Nullification for Reasons Other Than Fraud
Current Article VII.B.4 provides that the policy is void and has no
legal force where the property is located in a community not
participating in the NFIP on the policy's inception date and

[[Page 32972]]

did not join or reenter the program during the policy term and before
the loss occurred, or if the property is not otherwise eligible for
NFIP coverage. FEMA proposes to establish a new Article VIII.B,
entitled ``Policy Nullification for Reasons Other Than Fraud'' which
would incorporate the provisions of current VII.B.4 but add additional
reasons that a policy may be void. These are: (1) The applicant or
policyholder never had an insurable interest (proposed VIII.B.1.c); (2)
the policyholder provided an agent with an application and payment, but
the payment did not clear (proposed VIII.B.1.d); and (3) the insurer
received notice from the policyholder, prior to the policy effective
date, that the policyholder has decided not to take the policy and the
policyholder is not subject to a requirement to obtain and maintain
flood insurance pursuant to any statute, regulation, or contract. These
added reasons for policy voidance reflect current agency
interpretations and practices, as reflected in the Cancellation/
Nullification Section of the Flood Insurance Manual.
FEMA proposes to add Article VIII.B to state that the applicant or
policyholder would be entitled to a full refund of all premium, fees,
and surcharges received, but if a claim was paid for a policy that is
void, the claim payment must be returned to FEMA or offset from the
premiums to be refunded before the refund will be processed. This
reflects current agency interpretations and procedures, as reflected in
the Cancellation/Nullification Section of the Flood Insurance Manual.
iii. Section C--Cancellation of the Policy by You
Current Article VII.E (``Cancellation of the Policy by You'')
provides that a policyholder may cancel the policy in accordance with
the NFIP's rules and regulations, in which event they may be entitled
to a full or partial refund of premium under those same rules and
regulations. FEMA proposes to incorporate the provisions of current
Article VII.E into a new Article VIII.C, entitled ``Cancellation of the
Policy by You.'' The proposed section C would retain the same language
except for two changes. First, instead of stating ``in accordance with
the applicable rules and regulations of the NFIP,'' it would state ``in
accordance with the terms and conditions of this policy and the
applicable rules and regulations of the NFIP.'' Second, it would
replace the phrase ``premium also under the applicable rules and
regulations of the NFIP'' with ``premium, surcharges, or fees under the
terms and conditions of this policy and the applicable rules and
regulations of the NFIP.'' No substantive change is intended.
iv. Section D--Cancellation of the Policy by Us
FEMA proposes to establish a new Article VIII.D, entitled
``Cancellation of the Policy by Us,'' which would state four reasons
for which a policy may be cancelled by the insurer: 1. Cancellation for
underpayment of amounts owed on the policy, 2. cancellation due to lack
of an insurable interest, 3. cancellation of duplicate policies, and 4.
cancellation due to physical alteration of property.
The first reason for which the insurer may cancel a policy is in
proposed Article VIII.D.1, entitled ``Cancellation for Underpayment of
Amounts Owed on Policy.'' This provision would state that the insurer
may cancel the policy if, pursuant to VII.D.2, it is determined that
the amounts paid by the policyholder were not sufficient to buy any
amount of coverage, and the policyholder did not pay the additional
amount of premium owed to increase the coverage to the originally
requested amount within the required time period. FEMA proposes to add
this cancellation reason to align with current practice, as reflected
in proposed VII.D.2, that FEMA will cancel a policy where the
policyholder has paid a premium that is insufficient to buy a policy
with the lowest available coverage limits.
FEMA proposes to add the second reason for which the insurer may
cancel a policy in proposed Article VIII.D.2, entitled ``Cancellation
Due to Lack of an Insurable Interest.'' Proposed Article VIII.D.2.a
would state that if the policyholder no longer has an insurable
interest in the insured property, the insurer will cancel the policy,
and that the policyholder would cease to have an insurable interest if
(1) for building coverage, the building was sold, destroyed, or
removed, and (2) for contents coverage, the contents were sold or
transferred ownership, or the contents were completely removed from the
described location. Proposed Article III.D.2.b would state that if a
policy is cancelled for these reasons, the policyholder may be entitled
to a partial refund of premium under the applicable rules and
regulations of the NFIP. This reflects FEMA's current practice and
interpretations, as shown in the Cancellation/Nullification section of
the Flood Insurance Manual, pages 1-2 (``1. Building Sold or Removed,
Destroyed or Physically Altered to no Longer Meet the Definition of an
Eligible Building'').
FEMA proposes to add the third reason for which the insurer may
cancel a policy in proposed Article VIII.D.3, entitled ``Cancellation
of Duplicate Policies.'' Article VIII.D.3 would have three subsections.
Subsection (a) would state that except as allowed under Article I.G
(i.e., for a Dwelling Form policy on a condominium unit that is also
insured by an RCBAP policy), property may not be insured by more than
one NFIP policy. This would incorporate the language in the current
Article VII.U, stating that duplicate policies are not allowed under
the NFIP, as well as the exception to that rule created in Article I.G.
FEMA also proposes to add that payment for damages will only be made
under one policy. This would align with current Article VII.U, which
prevents coverage under more than one NFIP policy and VII.U.2, which
states which one policy will pay for a loss in the case of duplicate
policies. This proposed language would improve the clarity of the
policy by explicitly stating what is currently strongly implied in the
SFIP.
Subsection (b) would state that except as allowed under Article
I.G, if the property is insured by more than one NFIP policy, all but
one of the policies will be cancelled, and that the policy, or
policies, will be selected for cancellation in accordance with 44 CFR
62.5 and the applicable rules and guidance of the NFIP. FEMA proposes
to add this provision in conjunction with its proposed revisions to the
cancellation provisions at 44 CFR 62.5 (discussed below).
Subsection (c) would state that if a policy is cancelled pursuant
to VIII.D.4.b, the policyholder may be entitled to a full or partial
refund of premium, surcharges, or fees. FEMA proposes to add the third
subsection in conjunction with the refund rules proposed at 44 CFR
62.5.
FEMA proposes to add the fourth reason for which the insurer may
cancel a policy in proposed Article VIII.D.4, entitled ``Cancellation
Due to Physical Alteration of Property.'' The proposed provision states
that the insurer may cancel the policy if the insured building has been
physically altered in such a manner that it is no longer eligible for
flood insurance coverage, and that if the policy is cancelled for this
reason, the policyholder may be entitled to a partial refund of premium
under the terms and conditions of the policy and the applicable
regulations of the NFIP. This reflects current agency practice and
interpretations, as shown in the Cancellation/Nullification section of
the Flood Insurance Manual, pages 1-2.

[[Page 32973]]

v. Section E--Non-Renewal of the Policy by Us
Current Article VII.F (``Non-Renewal of the Policy by Us'')
provides that a policy will not be renewed if the community where the
covered property is located stops participating in the NFIP, or if the
building has been declared ineligible under the section 1316 of the
NFIA. FEMA proposes to incorporate these provisions into proposed
Article VIII.E, entitled ``Non-Renewal of the Policy by Us.'' FEMA
proposes to retain both provisions stating that the property is located
in a suspended or non-participating community and the building is
ineligible for NFIP coverage, but proposes to move the words ``if''
from the beginning of each subsection and instead put the word ``if''
directly after the phrase ``will not be renewed''; to replace the word
``covered'' with ``insured,'' and replace the phrase ``has been
declared'' with the phrase ``is otherwise.'' FEMA proposes these
revisions to improve the language.
FEMA also proposes to add a new provision stating that the policy
will not be renewed if the policyholder has not provided the
information necessary to rate the policy within the required deadline.
FEMA proposes to add this third reason for which a policy will not be
renewed to clarify that a policyholder has an obligation to provide the
information needed to rate the policy and that failure to provide this
information within the required deadline will result in that policy not
being renewed. This is implicit in the language of Article I of the
SFIP and reflects FEMA's current practices, but the proposed language
is a more explicit statement needed to increase the transparency and
clarity of the policy.
FEMA further proposes to renumber current Articles VIII and IX as
IX and X, respectively, due to the renumbering of prior articles.
7. Article IX What Law Governs
Current Article IX (``What Law Governs'') describes which law
applies to the SFIP. FEMA proposes to redesignate current Article IX as
Article X and to add ``the insurer's policy issuance'' and ``policy
administration'' to the list of insurer activities taken under the NFIP
that must be governed exclusively by the National Flood Insurance Act
of 1968, the regulations prescribed pursuant to the Act, and Federal
common law. FEMA proposes this change to clarify that the NFIP
insurer's policy issuance and policy administration operations are also
governed solely by the Act, the NFIP's regulations, and Federal common
law.
8. Signing Statement
The Dwelling Form of the Standard Flood Insurance Policy concludes
with a signing statement that references the ``Federal Insurance
Administration.'' FEMA proposes to changes this to the ``Federal
Insurance and Mitigation Administration'' to align with the current
organizational title.

D. Appendix A(2) to Part 61: General Property Form

FEMA proposes to revise the General Property Form of the SFIP in a
manner consistent with the revisions to the Dwelling Form of the SFIP
described above. Except as indicated in the sections below, the changes
FEMA is proposing to the General Property Form are identical to those
in the Dwelling Form.
1. Article I Agreement
In the current General Property Form, the first paragraph is a
prefatory statement regarding what the policy does not cover, and it is
outside of Article I. As FEMA proposed above in Article I of the
Dwelling Form of the SFIP, FEMA proposes to move this statement so that
it is included in Article I and labeled section ``A.'' FEMA proposes to
further revise this section in the General Property Form to include a
statement about what the General Property Form does cover. FEMA
proposes to add language stating that except as provided in Article
I.A.2 (the current language stating what the policy does not cover),
``this policy provides coverage for multifamily buildings (residential
buildings designed for use by 5 or more families that is not a
condominium building), non-residential buildings, and their contents.''
This clear statement would help differentiate the General Property Form
from the other SFIP policy forms.
In addition, the proposed General Property Form would not include
the proposed Dwelling Form's Art. I.G, which provides that a building
may be covered under both a Dwelling Form policy and a RCBAP. General
Property Form policies may only insure non-residential buildings, while
RCBAP may only insure residential condominium buildings. Accordingly,
Art. I.G would not apply similarly in the General Property Form.
2. Article II Definitions
The definitions FEMA proposes to add, delete, or revise in Article
II of the General Property Form of the SFIP, ``Definitions,'' would be
the same as those in the Dwelling Form of the SFIP, insofar as those
terms are also defined in the General Property Form, with one
exception. FEMA proposes to revise the definition of ``unit'' in the
General Property form to mean ``a single-family residential or non-
residential space you own in a condominium building.'' Although this is
different from the definition used in the Dwelling Form (the Dwelling
Form covers only residential properties, whereas the General Property
Form covers both residential and non-residential properties), the
reason for this proposed revision is the same--to remove the word
``unit'' within the definition of ``unit.''
3. Article III Property Covered
Article III.A. describes the conditions under which the policy
covers building property. Article III.A.2 provides that the policy
covers building property at a location other than the one described on
the Declarations Page according to certain conditions. FEMA proposes to
replace the phrase ``We also insure building property . . .'' with
``Building property located at another location . . .'' to reduce
redundancy and improve readability with the first sentence of the
paragraph, which states ``We insure against direct physical loss by or
from flood to:''. Article III.A.6.a provides the conditions for
coverage where the structure is not yet walled or roofed as described
in the definition for ``building.'' The subsection erroneously cites to
``II. 6.a.'' rather than to ``II.B.6.a.'' as the location for the
definition of ``building.'' FEMA proposes to add ``B'' to the citation
to correct the typographical error.
Article III.B.1 describes the conditions under which the policy
covers personal property inside a building. Current Article III.B.1.b
contains an unnumbered paragraph after paragraph B.1.b. FEMA proposes
to number this unnumbered paragraphs as ``2'', and to renumber
subsequent paragraphs accordingly, to improve readability and
organization.
E. Appendix A(3) to Part 61: Residential Condominium Building
Association Policy
FEMA proposes to amend the Residential Condominium Building
Association Policy (RCBAP) Form of the SFIP in a manner consistent with
the revisions to the Dwelling Form of the SFIP. The changes made to the
RCBAP Form would be identical to those in the Dwelling Form for all
provisions that these two forms have in common. Additionally, FEMA
proposes to replace reference to the ``FEMA Regional

[[Page 32974]]

Director'' with ``FEMA Regional Administrator'' in current VIII.T.2.h
(proposed VIII.Q.2.h) to align with the current organizational title.
F. Part 62: Sale of Insurance and Adjustment of Claims
Part 62 sets forth the manner in which NFIP flood insurance is made
available to the public in participating communities, prescribes the
general method by which FEMA exercises its responsibility regarding the
manner in which claims for losses are paid, and states reasons for
which a policy may be nullified or cancelled and the associated
refunds.
1. Part 62 Authority Citation
The current authority citation for part 62 is 42 U.S.C. 4001 et
seq.; Reorganization Plan No. 3 of 1978, 43 FR 41943, 3 CFR, 1978
Comp., p. 329; E.O. 12127 of Mar. 31, 1979, 44 FR 19367, 3 CFR, 1979
Comp., p. 376. FEMA proposes to replace the citations to Reorganization
Plan No. 3 and Executive Order 12127 with a citation to the
codification of the Homeland Security Act of 2002, 6 U.S.C. 101 et seq.
The authority citation would therefore read 42 U.S.C. 4001 et seq.; 6
U.S.C. 101 et seq. FEMA proposes this change because while
Reorganization Plan No. 3 and Executive Order 12127 originally created
FEMA as an executive agency, PKEMRA amended the Homeland Security Act
of 2002, Public Law 107-296, by establishing the Agency in statute and
defining the Agency's authorities and responsibilities. Accordingly, a
citation to the codification of the Homeland Security Act is more
appropriate.
2. Section 62.3 Servicing Agent
Section 62.3 currently describes the Flood Insurance
Administrator's authority to enter into an agreement with a servicing
agent that can service policies and claims on behalf of the Agency.
Paragraph (a) currently states that the Federal Insurance Administrator
``has entered into the Agreement'' with a servicing agent. Section
62.3(b) currently names National Con-Serv, Inc. (NCSI) as FEMA's
servicing agent for its direct side policies. FEMA proposes to make a
change to paragraphs (a), remove paragraph (b), and renumber paragraph
(c) as paragraph (b) to better describe the present status of the
direct servicing agent.
In section 62.3(a), FEMA proposes to replace the words ``has
entered into the Agreement'' with the words ``may enter into an
agreement.'' The current formulation states a current fact, rather than
defining the Agency's powers and duties, which is a traditional role of
a rule. Further, the use of ``the Agreement'' seems to imply that a
particular agreement must be entered into with the servicing agent.
However, no such standard agreement exists in regards to contracting
with a direct servicing agent. FEMA contracts with servicing agents in
accord with the Federal Acquisition Regulations.\5\ This adjustment
better describes the Administrator's authority to decide whether or not
to use the services of a servicing agent, and if choosing to do so, the
terms of the agreement.
---------------------------------------------------------------------------

\5\ See 48 CFR part 37.
---------------------------------------------------------------------------

FEMA proposes to remove section 62.3(b) because the current
regulation lists NCSI as the NFIP Direct Servicing Agent even though
this is not accurate and it is uncessary to name a government
contractor in the Code of Federal Regulations. Contact information for
the Direct Servicing Agent is provided to each policyholder sold NFIP
flood insurance through the Direct Servicing Agent. FEMA also provides
this information on its website.\6\ Removing this from regulation would
reduce the burden on FEMA to undertake a rulemaking each time the
Direct Servicing Agent changes, while not materially impacting the
public.
After removing current paragraph (b), FEMA proposes to renumber
current paragraph (c) as paragraph (b).
With respect to section 62.3(b), FEMA proposes to remove the
paragraph because the named servicing agent is no longer accurate--NCSI
is no longer FEMA's direct servicing agent. FEMA proposes to add a new
paragraph (b) stating that FEMA will provide public notice of the name
of the servicing agent in the Federal Register. This change will allow
the agency greater flexibility in providing public notice of the
identity of its direct servicing agent without having to undertake a
full rulemaking to do so.
3. Section 62.5 Premium Refund
Section 62.5 describes reasons for which FEMA will allow
cancellation of a policy. Section 62.5 currently allows a policyholder
to cancel a policy for two reasons. First, the policyholder may cancel
a policy that covers property for which the policyholder is no longer
required to maintain flood insurance because a Letter of Map Amendment
issued under part 70 has determined that the property is not located in
an SFHA. Second, the policyholder may cancel a policy that is a three-
year policy where the policyholder has either obtained a replacement
flood insurance policy or the lender has provided the NFIP with actual
notice that the mortgage has been paid off and/or the lender no longer
requires the policyholder to maintain flood insurance.
In addition to section 62.5, section 61.5(c) and certain sections
of the SFIP also describe the reasons for which FEMA will allow
cancellation of a policy. FEMA proposes to remove current section 62.5
and replace these various regulatory provisions with a comprehensive
new section 62.5 codifying all the reasons for which FEMA allows a
policyholder to cancel or nullify a policy, as well as the handling of
associated premium refunds. FEMA proposes to entitle section 62.5
``Nullifications, Cancellations, and Premium Refunds.'' In this new
section 62.5, FEMA proposes to incorporate the first policy
cancellation reason (e.g., the property is no longer in a SFHA),
discussed in more detail below. FEMA proposes to remove the second
reason because it refers to a three-year insurance policy the NFIP no
longer uses. FEMA proposes to consolidate the remaining reasons for
which the NFIP may nullify or cancel a policy in section 62.5.
i. Paragraph (a): Nullification
Paragraph (a) of this new section, entitled ``Nullification,''
would describe all the reasons for which FEMA may terminate a policy.
Subparagraph (1), entitled ``Property Ineligible at Time of
Application,'' would state that a policy for a property that was not
eligible for coverage at the time of the initial application will be
considered void from commencement. This paragraph would also provide
the rules and limitations governing the applicability of this
nullification reason, as well as the associated premium refunds. FEMA
has previously handled situations where property was ineligible for
flood insurance at the time of application via NFIP procedures. FEMA
proposes to codify existing practice, found at Reason Code 6 from the
Nullification/Cancellation section of the Flood Insurance Manual, into
regulation to ensure consistent application of the procedures and to
provide a comprehensive nullification section in regulation.
Subparagraph (2), entitled ``Property Later Becomes Ineligible,''
would state that a policy for a property that was eligible for coverage
at the time of the initial application, but later became ineligible for
coverage, may not be renewed and will be void from the first renewal
date after the property became ineligible. This paragraph would also

[[Page 32975]]

provide the rules and limitations governing the applicability of this
nullification reason, as well as the associated premium refunds. This
would further codify Reason Codes 1 and 6 from the Nullification/
Cancellation section of the Flood Insurance Manual into regulation.
Paragraph (3), entitled ``Nullification Prior to Policy Effective
Date,'' would clarify that in cases where a policy is nullified before
it becomes effective, the NFIP will void the policy from the beginning
of the policy term. Such a situation may arise where a policyholder's
premium payment check is returned for insufficient balance or where a
policyholder cancels his or her policy before it becomes effective. The
provision would also clarify that in the rare instance where the NFIP
pays a claim for a policy that was actually nullified before the
policy's effective date, the policyholder would have to either return
the claim payment or pay the premium using the claim payment. This
paragraph would also provide the rules and limitations governing the
applicability of this nullification reason, as well as the associated
premium refunds. Overall, this provision will codify existing Reason
Codes 5, 7, and 13 from the Nullification/Cancellation section of the
Flood Insurance Manual into regulation. These reason codes are based on
basic principles of insurance that the program has applied with
regulatory instruction. FEMA proposes to codify these cancelation/
nullification reasons in regulation to provide stakeholders with a
comprehensive regulatory basis for nullification.
ii. Section 62.5(b): Cancellation Due to Lack of an Insurable Interest
Section (b), entitled ``Cancellation Due to Lack of an Insurable
Interest,'' would be taken from the current 61.5(c) and would allow
policy cancellations when a policyholder ceases to have an insurable
interest in the insured property (i.e., because the property was sold,
destroyed, or removed). This subsection would state that for building
coverage, a policyholder ceases to have an insurable interest if the
building has been sold, destroyed, or removed. This subsection would
further state that for contents coverage, a policyholder ceases to have
an insurable interest if the contents were sold, transferred ownership,
or have been removed from the described location. This paragraph would
also provide the rules and limitations governing the applicability of
this cancellation reason, as well as the associated premium refunds.
This will codify Reason Codes 1 and 2 from the Nullification/
Cancellation section of the Flood Insurance Manual into regulation.
Reason Codes 1 and 2 are necessitated by basic principles of insurance
that prevent an insurer from insuring property in which the
policyholder does not have an insurable interest. FEMA proposes to
codify these cancelation/nullification reasons in regulation to provide
stakeholders with a comprehensive regulatory basis for nullification.
iii. Section 62.5(c): No Insurance Coverage Requirement
Paragraph (c), entitled ``No Insurance Coverage Requirement,''
would allow cancellation in cases where the policyholder is no longer
required to maintain flood insurance on the property. The new paragraph
would state that a policyholder may cancel a policy if there was a
requirement by a lender, loss payee, or other Federal agency to obtain
and maintain flood insurance pursuant to statute, regulation, or
contract, but there no longer is such a requirement. Such situatons
would include where (i) the policyholder has paid off his or her
mortgage, (ii) the policy was required by the mortgagee in error, or
(iii) the property has been removed from the SFHA, and accordingly from
the mandatory purchase requirement, through a revision or amendment to
the FIRM, including the issuance of a Letter of Map Amendment (LOMA)
removing a property from an SFHA.
The paragraph will further state that in such instances, FEMA would
only provide a pro rata refund of the premium for the current policy
year, as calculated from the date of the cancellation request.
Surcharges or other fees would not be refunded. This will codify into
regulation FEMA's interpretation of 44 CFR 62.5, which is currently
found in Reason Codes 9, 12, 15, 18, and 19 from the Nullification/
Cancellation section of the Flood Insurance Manual.
iv. Subsection 62.5(d): Establishment of a Common Expiration Date
Subsection (d), entitled ``Establishment of a Common Expiration
Date,'' would codify parts of current Article VII.U of the SFIP. The
provision would allow policyholders to create duplicate policies, and
then cancel the policy with the earlier effective date, to establish
common expiration dates with other coverage. This paragraph would also
provide the rules and limitations governing the applicability of this
nullification reason, as well as the associated premium refunds. This
would codify into regulation the NFIP's existing cancellation reason
found under Reason Code 3 in the Nullification/Cancellation section of
the Flood Insurance Manual.
v. Subsection 62.5(e): Cancellation or Nullification of Duplicate NFIP
Policies
Subsection (e) would be entitled ``Cancellation or Nullification of
Duplicate NFIP Policies.'' The subsection would incorporate provisions
of current Article VII.U, which allow for cancellation of duplicate
NFIP policies. The proposed subsection would include two paragraphs.
Paragraph (1), entitled ``Generally,'' would have two paragraphs.
Paragraph (i) would state that if more than one policy covers the same
building not in accordance with applicable regulation and SFIP terms
and conditions, FEMA must nullify the policy with the later effective
date. This paragraph would also provide the rules and limitations
governing the applicability of this nullification reason, as well as
the associated premium refunds.
Paragraph (ii) would state that if both policies have the same
effective date, the policyholder may choose which policy will remain in
effect, at which point the same refund rules laid out in paragraph (i)
apply. This paragraph would also provide the rules and limitations
governing the applicability of this nullification reason.
Paragraph (2), entitled ``Exceptions,'' would establish the
exceptions to Paragraph (1) and would state that in certain cases, the
policy with the earlier effective date may be cancelled instead of the
policy with the later effective date. The first exception, contained in
paragraph (i) and entitled ``Earlier Policy Expired'' would allow the
policy with the earlier effective date to be cancelled where that
policy has expired for more than 30 days. The second exception, in
paragraph (ii) entitled ``Group Flood Insurance Policy (GFIP)'' would
provide that the policy with the earlier effective date may be
cancelled if that policy is a GFIP. The third exception, in paragraph
(iii) entitled ``Cancellations to Establish a Common Expiration Date''
would provide that the policy with the earlier effective date may be
cancelled pursuant to paragraph (d) of this proposed section (i.e., to
establish a common expiration date). The fourth exception, in paragraph
(iv) entitled ``Force-Placed Policy'' would allow the policy with the
earlier effective date to be cancelled if the the mortgagee buys a
flood insurance policy through the Mortgage Portfolio Protection
Program after the property owner fails to obtain a flood insurance
policy on their own. This is often

[[Page 32976]]

refered to as ``force placing'' a policy. The last exception, in
paragraph (v) entitled ``Condominium Unit Covered by a Dwelling Form
Policy and an RCBAP'' would provide that if the policy with the earlier
effective date is a Dwelling Form policy with building coverage on a
condominium unit that is also covered by an RCBAP with coverage that
equals the statutory maximum building coverage limit, the Dwelling Form
Policy may be cancelled.
Each paragraph establishing an exception would also provide the
premium refunds associated with cancellations falling under the
exception. This proposed section would clarify, in regulation, how FEMA
has interpreted Article VII.U of the SFIP in practice. This
cancellation reason is currently found in Reason Code 4 in the
Nullification/Cancellation section of the Flood Insurance Manual.
vi. Subsection 62.5(f): Other Cancellations and Nullifications
Subsection (f) would be entitled ``Other Cancellations and
Nullifications,'' and clarify the other current reasons for which a
policy may be cancelled. This section would also state that the
policyholder will not receive a refund of any premium, fees, or
surcharges for policies cancelled pursuant to this section. Paragraph
(1), entitled ``Fraud,'' would state that FEMA will cancel a policy for
fraud committed by the policyholder or agent and may cancel a policy
for misrepresentation of a material fact by the policyholder or agent.
In either case, the cancellation would take effect as of the date of
the fraudulent act or material misrepresentation of fact. This is taken
from current Article VII.B of the SFIP, which states that fraud by the
agent or the insured voids a policy. This nullification reason may be
found under Reason Code 23 in the Nullification/Cancellation section of
the Flood Insurance Manual.
Paragraph (2), entitled ``Administrative Cancellation,'' would
allow a policy to be cancelled and rewritten to correct an
administrative error, such as when the policy is written with the wrong
effective date, and any excess premium, fees, or surcharges would be
refunded. This cancellation reason may be found under Reason Code 20 in
the Nullification/Cancellation section of the Flood Insurance Manual.
Paragraph (3), entitled ``Nullification for Properties Ineligible
Due to Physical Alteration of Property,'' would state that a policy
insuring a building or its contents, or both, may be cancelled if the
building has been physically altered so that the building and its
contents are no longer eligible for flood insurance coverage. This
paragraph would also provide the rules and limitations governing the
applicability of this nullification reason, as well as the associated
premium refunds. This nullification may be found under Reason Codes 1
and 2 in the Nullification/Cancellation section of the Flood Insurance
Manual.
4. Section 62.6 Minimum Commissions
Current section 62.6 contains provisions applicable to insurance
agents and brokers writing NFIP policies through the NFIP Direct
Services Agent. It does not apply to agents or brokers associated with
WYO companies. FEMA proposes several nonsubstantive changes designed to
clarify the existing section.
i. Section Heading
Currently, section 62.6 is titled, ``Minimum Commissions.'' FEMA
proposes to revise the title of section 62.6 to ``Brokers and Agents
Writing NFIP Policies through the NFIP Direct Servicing Agent'' because
the section covers more than just commissions. FEMA believes the
proposed title better reflects the contents of the section.
ii. Paragraph (a): Agent and Broker Licensing Requirements
Currently, section 62.6(a) defines the commissions paid to agents
and brokers participating in the Direct Servicing Agent (DSA) portion
of the NFIP. However, it also includes a requirement that such agents
and brokers are ``duly licensed by a state insurance regulatory
authority.'' FEMA proposes to move this important requirement from
within the minimum commission provision and set it out in its own
paragraph. Accordingly, FEMA proposes to add a new paragraph (a) that
only includes the requirement and to redesignate current paragraphs (a)
and (b) as paragraphs (b) and (c), respectively. Accordingly, FEMA also
proposes to make corresponding changes to proposed paragraph (b) by
removing the existing references to state licensing requirements. FEMA
does not intend to substantively change the licensing requirements of
DSA agents, but rather intends to separate this requirement from other
subject matter to improve overall clarity of the section. FEMA also
proposes to change the uses of ``shall'' to ``will'' to incorporate
plainer language without making substantive change.
5. Section 62.22 Judicial Review
Section 62.22 provides that actions for disallowed claims must be
instituted in the U.S. District Court for the district in which the
insured property was situated and describes service of process
requirements. FEMA proposes to revise section 62.22 to replace
references to the ``Federal Insurance Administration'' with the current
organizational title, ``Federal Insurance and Mitigation
Administration.''

IV. Regulatory and Economic Analysis

A. Executive Order 12866, Regulatory Planning and Review & Executive
Order 13563, Improving Regulation and Regulatory Review

Executive Orders 13563 (``Improving Regulation and Regulatory
Review'') and 12866 (``Regulatory Planning and Review'') direct
agencies to assess the costs and benefits of available regulatory
alternatives and, if regulation is necessary, to select regulatory
approaches that maximize net benefits (including potential economic,
environmental, public health and safety effects, distributive impacts,
and equity). Executive Order 13563 emphasizes the importance of
quantifying both costs and benefits, of reducing costs, of harmonizing
rules, and of promoting flexibility. Executive Order 13771 (``Reducing
Regulation and Controlling Regulatory Costs'') directs agencies to
reduce regulation and control regulatory costs and provides that ``for
every one new regulation issued, at least two prior regulations be
identified for elimination, and that the cost of planned regulations be
prudently managed and controlled through a budgeting process.''
The Office of Management and Budget (OMB) has not designated this
rule a ``significant regulatory action'' under section 3(f) of
Executive Order 12866. Accordingly, OMB has not reviewed it. As this
rule is not a significant regulatory action, this rule is exempt from
the requirements of Executive Order 13771. See OMB's Memorandum
``Guidance Implementing Executive Order 13771, titled `Reducing
Regulation and Controlling Regulatory Costs' '' (April 5, 2017).
In this rule, FEMA proposes to make several nonsubstantive changes
to the National Flood Insurance Program's (NFIP) regulations at Parts
59, 61, and 62, as well as the Appendices to Part 61. FEMA proposes to
codify in regulation certain provisions of the Biggert Waters Flood
Insurance Reform Act of 2012 (BW-12) and the Homeowner Flood Insurance
Affordability Act of 2014 (HFIAA) that have already been

[[Page 32977]]

implemented. FEMA implemented these changes via the Flood Insurance
Manual or other related guidance documents as they were unambiguous
changes that left no discretion on the part of the agency to implement.
Now FEMA proposes to update the regulations accordingly. FEMA also
proposes to clarify certain existing NFIP regulations relating to NFIP
operations and the Standard Flood Insurance Policy unrelated to recent
legislation by consolidating and stylistically updating the regulatory
text and standardizing key terminology.
Overall, there are 34 identified proposed regulatory changes in
this rule (itemized in Table 1 below). The vast majority of these
changes are limited to nonsubtantive clarifications. The remaining
provisions are considered ``Codifications,'' that codify in regulation
either an existing practice or policy, or a process heretofore
requiring special waiver by FEMA.
Following guidance in OMB Circular A-4, FEMA assesses the impacts
of this rule against the no-action baseline as well as a pre-statutory
baseline. The no action baseline is an assessment against what the
world would be like if the proposed rule is not adopted. The pre-
statutory baseline is an assessment against what the world would be
like if the relevant statute(s) had not been adopted. By considering
both baselines we are able to consider full costs of the action.
Under a no-action baseline, this proposed rule would carry no
transfers or quantifiable costs. The proposed rulemaking would make
material improvements to the language and organization of the NFIP's
regulations, but such clarifications and codifications would not result
in any quantifiable burden or benefit. The proposed rule also would
codify certain changes pursuant to BW-12 and HFIAA that FEMA has
already implemented via the Flood Insurance Manual or other related
guidance documents. WYO companies would, however, incur opportunity
costs as they spend time becoming familiar with the proposed changes.
The proposed rule would result in cost savings associated with no
longer requiring individual waivers for condominium loss assessment
restrictions.
The below analysis adopts a consistent pre-statutory baseline of
2012 in order to capture the effects of the proposed rule, including
those of modifications already implemented through interim actions. The
summary table below (Table 1) presents the proposed rule's components
based on the two categorizations above, including the related statutory
mandates (BW-12, HFIAA or both), a description of their effects and
their likely impact.

Table 1--Summary of Proposed Changes
----------------------------------------------------------------------------------------------------------------
Current section No./ subject Mandatory or
matter Proposed change discretionary action Impact
----------------------------------------------------------------------------------------------------------------
Nonsubstantive Clarifications & Consolidations
----------------------------------------------------------------------------------------------------------------
1. Sec. 59 Definitions.......... FEMA proposes to add Discretionary.......... No change in compliance
and revise definitions burden.
to support
clarifications and
codificatons described
below. This is a
nonsubstantive change
that clarifies
existing definitions
and does not alter the
administration of the
program.
2. Sec. 61.1 Purpose of part.... FEMA proposes to remove Discretionary.......... No change in compliance
irrelevant second burden.
sentence that does not
relate to the
substantive content of
part 61. This is a
nonsubstantive change
that does not alter
the administration of
the program but rather
provides greater
clarity for the reader.
3. Sec. 61.3 Coverage and FEMA proposes to Discretionary.......... No change in compliance
benefits provided under the SFIP. clarify language to burden.
provide a more
complete statement of
coverage and benefits
provided by the SFIP.
The coverage and
benefits provided
under the SFIP are
already stated in
regulations; this is
just a consolidated,
unified statement of
coverage and benefits
under the SFIP. This
is a nonsubstantive
change that does not
alter the
administration of the
program but rather
provides greater
clarity for the reader.
4. Sec. 61.5 Deductibles........ An application of BW-12 Mandatory.............. No change in compliance
section 100210 and burden.
HFIAA section 12, that
would clarify existing
policy/practice by
moving content of 61.5
to new unified
cancellation/
nullification section
in 44 CFR 62.5
(discussed below).
FEMA also proposes to
replace the current
deductible tables with
provisions describing
the minimum
deductibles required
by BW-12 section
100210 and the $10,000
deductible option
required by HFIAA
section 12. This is a
nonsubstantive change
because FEMA has
always had this
authority and has
always made these
deductible options
available to
policyholders despite
not being explicitly
provided for in the
CFR.
5. Sec. 61.6 Maximum amounts of FEMA proposes to Discretionary.......... No change in compliance
coverage available. clarify the maximum burden.
coverage limit tables
in section 61.6 with
nonsubstantive changes
to improve readability
and conformance with
standard program
terminology and
terminology introduced
by BW-12. This is a
nonsubstantive change
that does not alter
the administration of
the program but rather
provides greater
clarity for the reader.
6. Sec. 61.10 Requirements for FEMA proposes to Discretionary.......... No change in compliance
Issuance or Renewal of Flood clarify/consolide burden.
Insurance Coverage. existing regulation
language. This new
provision would
clarify that no flood
insurance coverage
will be issued unless
there is (a) receipt
of full amount due and
(b) submission of a
complete application
with all the required
rating information.
Although this has
always been the case,
and these concepts are
covered in sections
61.5 and 61.11, FEMA
believes that
increased clarity is
needed by adding a
consolidated statement
in the regulations.
This is a
nonsubstantive change
that does not alter
the administration of
the program but rather
provides greater
clarity for the reader.

[[Page 32978]]

7. Sec. 61.13 Standard Flood This provision would Discretionary.......... No change in compliance
Insurance Policy. clarify that SFIP is burden.
authorized only under
terms and conditions
established by Act,
regulations, SFIP, and
Administrator
interpretations. FEMA
also proposes to
clarify that the agent
acts only for
policyholder and that
the risk of loss is
borne by the National
Flood Insurance Fund,
not the WYO company.
This does not
represent a
substantive change in
policy or terms and
conditions of the
SFIP, but instead
would make terms
clearer.
8. Sec. 62.5 Policy FEMA proposes to make Discretionary.......... No change in compliance
Nullification and Cancellation. changes that would burden.
clarify and
consolidate the
existing reasons for
which a policy may be
cancelled or
nullified. The current
reasons for which a
policy may be
cancelled or nullified
are spread throughout
the regulations and
FEMA's interpretations
of those regulations
in the Flood Insurance
Manual. This would
consolidate those
reasons into one
section for greater
clarity and
transparency to the
public. This is a
nonsubstantive change
that does not alter
the administration of
the program but rather
provides greater
clarity for the reader.
9. Sec. 62.6 Broker and Agents This provision would Discretionary.......... No change in compliance
for Servicing Agent. clarify FEMA's burden.
existing policy by
adding it to
regulation that a
broker or agent
selling NFIP policies
must be licensed in
the state in which the
property is located.
This is a
nonsubstantive change
that does not alter
the administration of
the program but rather
provides greater
clarity for the reader.
10. SFIP Article I................ FEMA proposes changes Discretionary.......... No change in compliance
to SFIP Article I that burden.
would clarify the
types of property
covered by the SFIP.
Proposed
clarifications are
about coverage limits
and multiple policies
covering one building.
This is a
nonsubstantive change
that does not alter
the administration of
the program but rather
provides greater
clarity for the reader.
11. SFIP Article II-Definitions... FEMA proposes to revise Discretionary.......... No change in compliance
and add some burden.
definitions for
clarity. In
particular, the
proposed changes would
clarify that the named
insured must also
include the building
owner if building
coverage is purchased.
This is a
nonsubstantive change
that does not alter
the administration of
the program but rather
provides greater
clarity for the reader.
12. SFIP Article III.............. FEMA proposes to Discretionary.......... No change in compliance
clarify that burden.
references to insured
property do not extend
coverage to any type
or item of property
not otherwise insured
in accordance with the
terms and conditions
of SFIP. This is a
nonsubstantive change
that does not alter
the administration of
the program but rather
provides greater
clarity for the reader.
13. SFIP Article III.A............ FEMA proposes minor Discretionary.......... No change in compliance
nonsubstantive changes burden.
to Article III.A.5.b.2
to improve the grammar
of the section; revise
Article III.A.8 to
remove the phrase ``in
a building
enclosure.'' This is a
nonsubstantive change
that does not alter
the administration of
the program but rather
provides greater
clarity for the reader.
14. SFIP Article III.B............ FEMA proposes to revise Discretionary.......... No change in compliance
the numbering in this burden.
section to improve
readability and
organization; revise
Article III.B.3 by
removing the phrase
``in a building
enclosure.'' This is a
nonsubstantive change
that does not alter
the administration of
the program but rather
provides greater
clarity for the reader.
15. SFIP Article III.D............ FEMA proposes to revise Discretionary.......... No change in compliance
the language in this burden.
section so that the
word ``structure'' is
replaced by the word
``building''
throughout the section
except at III.D.5.c.
The reason for this
change is the NFIP
insures SFIP defined
``buildings,'' not any
structure that does
not meet the
definition of
``building'' as
defined in the SFIP.
FEMA also proposes to
improve the language
in III.D.3.d and
III.D.3.e by replacing
the phrase ``this
coverage'' with the
phrase ``Coverage D''
to clarify that the
coverage referred to
in these provisions is
Coverage D. This is a
nonsubstantive change
that does not alter
the administration of
the program but rather
provides greater
clarity for the reader.
16. SFIP Article V.B.............. FEMA proposes a Discretionary.......... No change in compliance
nonsubstantive, burden.
clarifying adjustment
to the Flood in
Progress Exclusion at
SFIP Art. V.B to align
with reports required
by BW-12 section
100227. This change
does not impact the
application of the
exclusion, but will
help support more
consistent reading of
the provison.
17. SFIP Article VII.B............ FEMA proposes to move Discretionary.......... No change in compliance
the provision on burden.
concealment of fraud
and policy voidance
for consolidation into
unified section on
policy cancellations
and nullifications
(discussed below).
This is a
nonsubstantive change
that does not alter
the administration of
the program but rather
provides greater
clarity for the reader.
18. SFIP Article VII.E............ FEMA proposes to remove Discretionary.......... No change in compliance
Article VII.E, burden.
Cancellation of the
Policy by You, and
incorporate the
language into a new
consolidated section
on policy
nullifications,
cancellations, and non-
renewals. This is a
nonsubstantive change
that does not alter
the administration of
the program but rather
provides greater
clarity for the reader.

[[Page 32979]]

19. SFIP Article VII.F............ FEMA proposes to remove Discretionary.......... No change in compliance
Article VII.F, Non- burden.
Renewal of the Policy
by Us, and incorporate
the language into a
new Article VIII
discussing policy
nullifications,
cancellations, and non-
renewals. This is a
nonsubstantive change
that does not alter
the administration of
the program but rather
provides greater
clarity for the reader.
20. SFIP Article VII.G............ This provision would Discretionary.......... No change in compliance
revise the reformation burden.
section for clarity/
readability. This is a
nonsubstantive change
that does not alter
the administration of
the program but rather
provides greater
clarity for the reader.
21. SFIP Article VII.U............ FEMA proposes to move Discretionary.......... No change in compliance
the provision on burden.
duplicate policies for
consolidation into
unified section on
policy cancellations
and nullifications
(discussed below).
This is a
nonsubstantive change
that does not alter
the administration of
the program but rather
provides greater
clarity for the reader.
22. SFIP Article VII.V............ FEMA proposes to revise Discretionary.......... No change in compliance
Article VII.V.1.a.1 of burden.
the current policy to
remove all the
language after ``It is
your principal
residence.'' The
reason for this
proposed change is
that this language,
which is essentially a
definition of the term
``principal
residence,'' has been
incorporated into the
new definition of
``principal
residence'' being
added to Definitions
section in Article II.
This is a
nonsubstantive change
that does not alter
the administration of
the program but rather
provides greater
clarity for the reader.
23. SFIP Article VIII............. FEMA proposes to Discretionary.......... No change in compliance
clarify the existing burden.
reasons for which a
policy may be
cancelled, nullified,
or not renewed. This
would mirror similar
section being
established at 44 CFR
62.5 (discussed
above). This is a
nonsubstantive change
that does not alter
the administration of
the program but rather
provides greater
clarity for the reader.
24. SFIP Article IX............... FEMA proposes to Discretionary.......... No change in compliance
clarify that the SFIP burden.
and all disputes
arising from the
insurer's policy
issuance, policy
administration, or the
handling of any claim
under the SFIP are
governed by the
National Flood
Insurance Act and the
regulations. This is a
nonsubstantive change
that does not alter
the administration of
the program but rather
provides greater
clarity for the reader.
25. Entire SFIP--Global Language FEMA proposes to Discretionary.......... No change in compliance
Replacements. replace the word burden.
``covered'' with the
word ``insured''
because the word
``covered'' does not
conform to common
industry or Agency
usage. This is a
nonsubstantive change
that does not alter
the administration of
the program but rather
provides greater
clarity for the reader.
26. 62.22 Judicial Review FEMA proposes to Discretionary.......... No change in compliance
(preamble sec. III.F.5). replace references to burden.
the ``Federal
Insurance
Administration'' with
the current
organizational title,
``Federal Insurance
and Mitigation
Administration.'' This
is a nonsubstantive
change that does not
alter the
administration of the
program but rather
provides greater
clarity for the reader.
27. SFIP Article VII.D............ FEMA proposes to Discretionary.......... No change in compliance
redesignate Article burden.
VII.D as Article
VII.C. Replaces the
phrase ``structure
during the course of
construction'' in
Article VII.D.2 of the
current rule with
``building under
construction,'' which
is the proper term of
art, as used in
Article III.A.5.a and
Article VI.A. This is
a nonsubstantive
change that does not
alter the
administration of the
program but rather
provides greater
clarity for the reader.
28. Sec. 61.4 Limitations on FEMA proposes to delete Discretionary.......... No change in compliance
Coverage. this provision because burden.
some of the language
is duplicative with
language in other
sections, and the rest
of the language is
more appropriately
moved to other
sections of the
regulation. Move
61.5(a) and (b) to
become a new 44 CFR
61.4. This is a
nonsubstantive change
that does not alter
the administration of
the program but rather
provides greater
clarity for the reader.
29. Sec. 62.3 Servicing agent... FEMA proposes to remove Discretionary.......... No change in compliance
the name of specific burden.
direct servicing
agent. This is a
nonsubstantive change
that codifies current
practices that began
more than a decade
before the baseline
regarding the public
announcement of the
direct servicing agent.
30. Part 59 Authority Citation.... FEMA proposes to Discretionary.......... No change in compliance
replace the citations burden.
to Reorganization Plan
No. 3 and Executive
Order 12127 with a
citation to the
codification of the
Homeland Security Act
of 2002, 6 U.S.C. 101
et seq. This is a
nonsubstantive change
that does not alter
the administration of
the program but rather
provides greater
clarity for the reader.
31. Part 61 Authority Citation.... FEMA proposes to update Discretionary.......... No change in compliance
authority citations to burden.
reflect changes to
FEMA's source of
authority from
Executive orders to
statute. This is a
nonsubstantive change
that does not alter
the administration of
the program but rather
provides greater
clarity for the reader.
32. Part 62 Authority Citation.... FEMA propose to update Discretionary.......... No change in compliance
authority citations to burden.
reflect changes to
FEMA's source of
authority from
Executive orders to
statute. This is a
nonsubstantive change
that does not alter
the administration of
the program but rather
provides greater
clarity for the reader.
----------------------------------------------------------------------------------------------------------------

[[Page 32980]]

Codification of Existing Policy and Practice
----------------------------------------------------------------------------------------------------------------
33. Sec. 61.11 Effective date FEMA proposes to codify Mandatory.............. No change in compliance
and time of coverage under the BW-12's addition of burden.
Standard Flood Insurance Policy-- the Post-Wildfire
New Business Applications and Exception to the 30-
Endorsements. day waiting period
required by 42 U.S.C.
4013(c). This change
does not alter the
current administration
of the program because
FEMA immediately
complied with the law.
FEMA also proposes a
clarification by
removing the second
clause of the first
sentence of 61.11(e)
and 61.11(f) because
thse clauses
accommodate a business
model that the WYO
companies no longer
use. This change does
not alter the current
administration of the
program but rather
provides greater
clarity for the reader.
34. SFIP Article III.C............ FEMA proposes to codify Mandatory.............. Cost savings of $2,048
BW-12 section 100214, over 10 years ($1,799 at
which prohibits the 3 percent and $1,539 at 7
application of SFIP percent discount rates).
Article III.C.3.b.4
(disallowing the
payment of a
condominium loss
assessment on a unit
policy if the
condominium building
is underinsured).
Prior to BW-12, FEMA
issued individual
waivers of this
provision as the need
arose. The proposed
changes would delete
Article III.C.3.b.4,
thus no longer
requiring FEMA to
issue individual
waivers.
----------------------------------------------------------------------------------------------------------------

1. Costs of Rulemaking
While the proposed rulemaking would make material improvements to
the language and organization of the NFIP's regulations, such changes
would not result in any quantifiable burden or benefit. WYO companies
would, however, incur opportunity costs as they spend time becoming
familiar with the proposed changes.
FEMA proposes to revise section 61.11 to codify an additional
exception to the 30-day waiting period before coverage on a flood
insurance policy takes effect. Prior to BW-12, there were only two
exceptions to this 30-day waiting period. The first exception was for
the initial purchase of flood insurance in connection with the making,
increasing, extension, or renewal of a loan. The second exception was
for the initial purchase of flood insurance pursuant to a revision or
updating of floodplain areas or flood risk zones, if such purchase took
place within one year of the notice of such revision.
The proposed rule would codify in regulation Section 100241 of BW-
12, which amended Section 1306(c) of the NFIA (42 U.S.C. 4013(c)), by
placing a third exception to the 30-day new policy waiting period in
regulation. This new exception applies to situations where the flooding
to an insured privately owned property is the result of flooding on
Federal land that was caused or exacerbated by post-wildfire
conditions, also on Federal land. FEMA implemented this new exception
via bulletin. See WYO Bulletin W-12045 (July 10, 2012) (announcing the
implementation of Section 100241), see also, WYO Bulletin W-18001 (Jan.
16, 2018) (replacing WYO Bulletin W-12045). To date, circumstances have
not existed requiring FEMA to apply this exception. The proposed change
updates the regulations to reflect the revised statutory language and
existing Agency practice.
When looking at the NFIP claim data from FEMA, since implementation
of this exception in July 2012, no parties have made claims that would
apply to this provision. Additionally, due to both the brief window of
applicability (the 30-day waiting period after initial enrollment in
the NFIP) and the narrow circumstances to which this exception applies
(flood damage due to flood on Federal land caused, or exacerbated, by
post-wildfire conditions), FEMA believes the exception would continue
to be rarely invoked. This provision serves as an added enticement to
potential enrollees of the NFIP to join the NFIP if they believe that a
wildfire on Federal land may cause, or exacerbate, flooding on their
property. This provision serves mostly as an added comfort to potential
enrollees of the NFIP. In accordance with the data examined, there has
not been and FEMA estimates that there would continue to be no
additional burden on any party. This provision would ensure that FEMA's
regulation concerning the application of the 30-day waiting period
includes all statutory exceptions. FEMA requests comments regarding
this assumption and estimated frequency of applicable occurrence.
2. Benefits of Rulemaking
The vast majority of provisions represent clarifications to the
regulation or program documents, or remove regulations that are no
longer applicable. The few non-clarifying provisions reflect in
regulations certain provisions that have already been implemented
through policy that streamline operations, or meet greater potential
needs of policyholders (codifications). It is only with codifications
where any quantifiable impacts appear. This analysis considers the
following as possible benefits of this rule:
i. Clarification of NFIP Terms and Conditions
This analysis looks at the many efficiencies of the proposed rule,
however, the bulk of these benefits are unquantifiable. Although they
have not been quantified, they are essential to the justification of
the proposed rule and should be considered as they provide significant
benefits that will be seen for all stakeholders involved.
Under current conditions, the NFIP-related sections of the CFR
contain inconsistencies or vague language that may cause confusion to
stakeholders. The following are selected examples of proposed changes
presented in Table 1 that would be introduced by the rule:
a. Making Explicit the Implicit
The NFIP deductible charts currently in the regulations at 44 CFR
61.5(d) show several possible deductible options, but not all the
deductible options available under the program. A note to these tables
indicates that policyholders may submit any other other deductible
amounts not currently listed in this chart (including the $10,000
deductible option required under HFIAA). Notwithstanding this note, the
current regulation's listing of

[[Page 32981]]

deductible options may give readers the impression that the list is
exhaustive. FEMA proposes to remove the deductible charts and replace
them with a requirement that FEMA must provide policyholders with
deductible options in various amounts, up to and including $10,000,
subject to certain minimum deductibles. This change would not expand or
contract the deductible options offered by the NFIP under current
regulations; rather, it would clarify that FEMA offers various options,
including the $10,000 deductible, subject to other restrictions.
FEMA also proposes to change the language in Appendix A(1) of Part
61 to clarify that personal property is also insured under this policy.
FEMA has always insured personal property under this policy, but the
proposed change will make this more explicit in the initial coverage
statement. Also under Appendix A(2) to Part 61, FEMA would state that
the policy will only cover one building and that the building covered
is the one specifically described in the Flood Insurance Application.
Coverage under the SFIP has always been limited to one building, but
FEMA is proposing that this language be clearly stated at the very
beginning of the SFIP.
b. Modifying, Adding or Removing Definitions
FEMA proposes to revise definitions such as ``deductible,''
``emergency program,'' ``act,'' or ``basement.'' FEMA believes these
non-substantive changes will be clearer and more consistent with the
language in the Articles of the SFIP. The same can be said of the
proposed changes to add acronyms for ease of repetitive use (such as
that for the Special Flood Hazard Area as ``SFHA'') or to remove a term
or definition that is no longer used (e.g., ``Expense Constant'' which
no longer applies, or ``Probation Premium'' which is better changed to
``Probation Surcharge'').
FEMA believes that this increased precision and consistent use of
terms would increase clarity of FEMA's NFIP regulations for the
insurance companies, flood insurance policyholders, academic
researchers, and private citizens. This improved accuracy will help to
minimize confusion.
ii. Codification of Dwelling Policy Underinsurance Exception
Presently, Article III.C.3.b.4 of the SFIP, found in Appendix A(1)
to Part 61, prevents payment of condominium loss assessments on a unit
policy if the condominium building itself is underinsured. The SFIP
also requires the coverage limits of the RCBAP policy (the primary
policy) to be exhausted before the Dwelling Policy (the secondary
policy). This poses a challenge in the event the primary policy was
disallowed in the above circumstance. Since 2007, policyholders facing
such a predicament were required to obtain a waiver from FEMA to
process such claims.
As directed by Section 100214 of BW-12, the proposed changes would
delete Article III.C.3.b.4 of the SFIP, which would otherwise prohibit
such claim payments and necessitate the submission and processing of
waivers. As a result, waivers for this prohibition would no longer be
required.
To estimate the cost savings that would result from omitting this
process, FEMA considered the frequency these specific circumstances
have occurred. Between 2007, when FEMA began issuing the waivers, and
2013 when FEMA terminated the waiver process (following the passage and
FEMA's provisional implementation of BW-12), there have been four
occurrences of the aforementioned conditions. The applicable cases were
reported twice in Illinois, once in Texas and once in Tennessee. Four
occurrences over six years equate to an estimated frequency of 0.667
instances each year, assuming that the rate remains consistent in the
future.
The reported time required for FEMA to process the resulting waiver
requests is around three hours per wavier. This process is undertaken
by two General Schedule (GS) Federal employees in the National Capital
Region, at the GS-14 and GS-15 levels, in equal proportion. Obtaining
2018 GS scale \7\ published hourly wage rates from the Office of
Personnel Management (OPM) for the midpoint (step 5) of these grade
levels produces fully loaded \8\ wage rates of $90.85 and $106.87 per
hour, respectively. At approximately 90 minutes per officer for each
expected waiver, the subtotal is $136.28 \9\ and $160.30,\10\
respectively. The waivers also require concurrence, cleared by the
appropriate Assistant Administrator. This review and approval takes
approximately five minutes at the estimated midpoint in the Senior
Executive Service (SES).\11\ FEMA estimates that a fully loaded SES
hourly rate is $126.66 per hour.\12\ The subtotal of the SES time is
$10.56.\13\ The total opportunity cost of FEMA processing each wavier
is $307.16.\14\
---------------------------------------------------------------------------

\7\ GS Scale based on 2018 OPM tables, hourly basic wage rates
by grade and step for the locality pay area of Washington-Baltimore-
Arlington, DC-MD-VA-WV-PA Accessed March 1st, 2018. https://www.opm.gov/policy-data-oversight/pay-leave/salaries-wages/salary-tables/18Tables/html/DCB_h.aspx.
\8\ Bureau of Labor Statistics, Employer Cost for Employee
Compensation News Release, Table 1. Employer costs per hour worked
for employee compensation and costs as a percent of total
compensation; civilian workers, by major occupational and industry
group, December 2017. https://www.bls.gov/news.release/archives/ecec_03202018.htm.
The per hour benefits multiplier is calculated by dividing total
compensation for all workers ($35.87) by wages and salaries for all
workers ($24.49), which yields a per hour benefits multiplier of
1.46. ($35.87 / $24.49 = 1.46468). Fully-loaded wage rates are
calculated by multiplying the per hour benefits multiplier by the
applicable wage rate. GS-14: $62.23 x 1.46 = $90.85 and GS-15:
$73.20 x 1.46 = $106.87.
\9\ $90.85 (hourly wage rate of $62.23 x 1.46) * 1.5 hours =
$136.28.
\10\ $106.87 (hourly wage rate of $73.20 x 1.46) * 1.5 hours =
$160.30.
\11\ FEMA bases SES salary estimates on OPM's Senior Executive
Service Report. The latest report available is for 2016. Across all
agencies the median SES pay is $173,882 (see table 13 at the
following link) https://www.opm.gov/policy-data-oversight/data-analysis-documentation/federal-employment-reports/reports-publications/ses-summary-2016.pdf. Accessed June 4, 2018.
\12\ $173,882 annual wage/2087 annual hours = $83.32 hourly wage
rate x 1.46 benefits multiplier = $121.65 fully loaded hourly wage x
1.04115 inflation adjustment = $126.66 fully loaded $2018 hourly
wage.
We calculated the inflation adjustment by subtracting the July
2016 CPI-U (240.6) from the April 2018 CPI-U (250.5). We divided the
result (9.9) by the July 2016 CPI-U (240.0). Calculation: (250.5-
240.6)/240.6 = 0.04115. BLS CPI-U data is available at https://data.bls.gov/cgi-bin/surveymost?bls. Select CPI for All Urban
Consumers (CPI-U) 1982-84 = 100 (Unadjusted) - CUUR0000SA0 and click
the Retrieve data button. Accessed June 8, 2018.
\13\ $126.96 * 5 minutes = $10.56.
\14\ $136.28 + $160.30 + $10.56 = $307.14.

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[[Page 32982]]

[GRAPHIC] [TIFF OMITTED] TP16JY18.000

Applying this cost to the estimated frequency of occurrence of 0.67
waivers per year and extending the avoided costs over a ten-year period
would project a total undiscounted cost savings of $2,048. The ten-year
total would equate to $1,799 and $1,539, when discounted at three
percent and seven percent respectively.
3. Alternatives Considered
Given that this rule has no direct compliance costs, no less
burdensome alternatives to the proposed rule are available. In the
absence of this proposed rule, stakeholders would continue to
experience the negative repercussions of inconsistences between the
statutes, regulations, and agency policy documents.
FEMA invites all interested parties to submit data and information
regarding the potential economic impact that would result from adoption
of the proposals in this NPRM. FEMA will consider all comments received
in the public comment process.
4. Summary
For the 10-year period analyzed, FEMA does not anticipate any costs
resulting from the selected provisions of BW-12 and HFIAA that the rule
is implementing. During that same period analyzed, the estimated
quantified benefits total $2,048. The present value, discounted at 7
percent, of the estimated quantified benefits is approximately $1,539
and $1,799 discounted at 3 percent. FEMA's ability to administer the
NFIP in a more streamlined manner, and the public's enhanced
understanding of the terms and conditions of the program would justify
the proposed rule, compliant with the respective Congressional
mandates.

B. Regulatory Flexibility Act

The Regulatory Flexibility Act of 1980 (5 U.S.C. 601 et seq.)
requires agency review of proposed and final rules to assess their
impact on small entities. When an agency is required by 5 U.S.C. 553,
or any other law, to publish a general notice of proposed rulemaking
for any proposed rule, the agency must prepare an initial regulatory
flexibility analysis (IRFA) or have the head of the agency certify
pursuant to 5 U.S.C. 605(b) that the rule will not, if promulgated,
have a significant economic impact on a substantial number of small
entities. FEMA believes this proposed rule, if promulgated, will not
have a significant economic impact on a substantial number of small
entities. However, FEMA is publishing this IRFA to aid the public in
commenting on the potential impacts of the proposed requirements in
this NPRM on small entities. FEMA invites all interested parties to
submit data and information regarding the potential economic impact on
small entities that would result from the adoption of this NPRM. FEMA
will consider all comments received in the public comment process when
making a final determination.
In accordance with the Regulatory Flexibility Act, an IFRA must
contain: (1) A description of the reasons why the action by the agency
is being considered; (2) A succinct statement of the objectives of, and
legal basis for, the proposed rule; (3) A description--and, where
feasible, an estimate of the number--of small entities to which the
proposed rule will apply; (4) A description of the projected reporting,
recordkeeping, and other compliance requirements of the proposed rule,
including an estimate of the classes of small entities that will be
subject to the requirements and the types of professional skills
necessary for preparation of the report or record; (5) An
identification, to the extent practicable, of all relevant Federal
rules that may duplicate, overlap, or conflict with the proposed rule;
and (6) A description of significant alternatives to the rule.
1. A Description of the Reasons Why Action by the Agency Is Being
Considered
The proposed rule would revise the NFIP implementing regulations at
parts 59, 61, and 62, as well as the Appendices to part 61, to codify
in regulation certain provisions of the Biggert-Waters Flood Insurance
Reform Act of 2012 and the Homeowner Flood Insurance Affordability Act
of 2014 that FEMA has already implemented and to clarify certain
existing NFIP rules relating to NFIP operations and the SFIP.
2. A Succinct Statement of the Objectives of, and Legal Basis for, the
Proposed Rule
The proposed changes to the regulation would codify FEMA's
implementation of the legislative requirements of the Biggert-Waters
Flood Insurance Reform Act of 2012 and the Homeowner Flood Insurance
Affordability Act of 2014, and clarify existing rules. These required
changes have already been implemented and this rule would conform NFIP
regulations with existing policies and practices.
FEMA anticipates that this rulemaking will result in a more
streamlined operation of the NFIP and enhance customer service because
of greater information and clarity for policyholders and all
stakeholders.
The NFIA authorizes FEMA to ``enter into any contracts, agreements,
or other arrangements'' with private insurance companies to utilize
their facilities and services in administering the NFIP, and on such
terms and conditions as may be agreed upon. See 42 U.S.C. 4081.
Pursuant to this authority, FEMA enters into a standard Financial
Assistance/Subsidy Arrangement with private sector property insurers,
also known as the WYO companies. Under this

[[Page 32983]]

arrangement, WYO companies sell NFIP flood insurance policies under
their own names and adjust and pay claims arising under the policy. It
is in reference to these specific authorities to administer the NFIP,
and the WYO program that is encompassed within it, that FEMA is
proposing to continue to streamline operations and remove confusing
obsolete or redundant language that may confuse stakeholders, including
its policyholders, the WYO companies, and FEMA.
3. A Description of and, Where Feasible, an Estimate of the Number of
Small Entities to Which the Proposed Rule Will Apply
``Small entity'' is defined in 5 U.S.C. 601. The term ``small
entity'' can have the same meaning as the terms ``small business,''
``small organization'' and ``small governmental jurisdiction.'' Section
601(3) defines a ``small business'' as having the same meaning as
``small business concern'' under Section 3 of the Small Business Act.
This includes any small business concern that is independently owned
and operated, and is not dominant in its field of operation. Section
601(4) defines a ``small organization'' as any not-for-profit
enterprises that are independently owned and operated, and are not
dominant in their field of operation. Section 601(5) defines ``small
governmental jurisdictions'' as governments of cities, counties, towns,
townships, villages, school districts, or special districts with a
population of less than 50,000. No small organization or governmental
jurisdiction is a party to the WYO program and therefore would be
affected.
The SBA stipulates in its size standards the largest business may
be and still be classified as a ``small entity.'' \15\ The small
business size standard for North American Industry Classification
System (NAICS) code 524126 (direct property and casualty insurance
carriers) is 1,500 employees. The size standard for 524210 (Insurance
Agencies and Brokerages) is $7.5 million, and $32.5 million for 524292
(Third Party Administration of Insurance and Pension Funds). For the
two remaining applicable codes of 524113 (Direct Life Insurance
Carriers), and 524128 (Other Direct Insurance), the threshold is $38.5
million in revenue as modified by the SBA, effective October 1, 2017.
---------------------------------------------------------------------------

\15\ U.S. Small Business Administration Table of Small Business
Size Standards Matched to North American Industry Classification
System Codes effective October 1, 2017. Available at https://www.sba.gov/content/small-business-size-standards.
---------------------------------------------------------------------------

There are currently 67 companies \16\ participating in the WYO
Program. These 67 companies are subject to the terms of the Arrangement
and the standards and requirements in the Financial Control Plan. FEMA
researched each WYO company to determine the NAICS code, number of
employees, and revenue for the individual companies. FEMA used the
open-access database, www.manta.com, as well as www.cortera.com to find
this information for the size determination. The database was used to
help determine the metric of company size, compliant with the SBA
thresholds based on the assigned NAICS code. Of the 67 WYO companies,
we found a majority of 46 firms were under code 524210 (Insurance
Agencies and Brokerages), of which 17 firms, or 37 percent, were small
(with only one lacking full data but presumed to be small). The second
largest contingent of 16 firms were under 524126 (direct property and
casualty insurance carriers), of which 10 firms, or 63 percent, were
small (with only one missing data points but presumed to be small). Of
the other three aforementioned industry codes, 524113, 524292 and
524128, there was one firm under each and none were small. Finally, two
firms were missing industry classifications, and FEMA assumes these are
small firms. In total, we found that 29 of the 67 companies are below
this maximum, and therefore would be considered small entities.
Consequently, small entities comprise 43 percent of participating
companies.
---------------------------------------------------------------------------

\16\ Number of firms participating in the WYO Program as of May
2018. https://www.fema.gov/wyo_company.
---------------------------------------------------------------------------

4. A Description of the Projected Reporting, Recordkeeping, and Other
Compliance Requirements of the Proposed Rule, Including an Estimate of
the Classes of Small Entities Which Will Be Subject to the Requirement
and the Types of Professional Skills Necessary for Preparation of the
Report or Record
FEMA believes that the rule would impose no burdens on any
participating company because it does not consist of any substantive
policy changes, but instead would make changes for clarity and to
accurately reflect current FEMA policies and practices. There may be
familiarization costs incurred by WYO companies as they review these
changes, despite the lack of any substantive changes that would
ultimately affect them. Therefore, FEMA anticipates that the rule would
not have a significant economic impact on a substantial number of small
entities.
5. An Identification, to the Extent Practicable, of All Relevant
Federal Rules Which May Duplicate, Overlap, or Conflict With the
Proposed Rule
There are no relevant Federal rules that may duplicate, overlap, or
conflict with the proposed rule.
6. A Description of Any Significant Alternatives to the Proposed Rule
Which Accomplish the Stated Objectives of Applicable Statutes and Which
Minimize Any Significant Economic Impact of the Proposed Rule on Small
Entities
Given that this rule has no direct compliance costs, no less
burdensome alternatives to the proposed rule are available. In the
absence of this proposed rule, small entities would continue to
experience the negative repercussions of inconsistences between the
statutes, regulations and agency policy documents.
FEMA invites all interested parties to submit data and information
regarding the potential economic impact that would result from adoption
of the proposals in this NPRM. FEMA will consider all comments received
in the public comment process.

C. Unfunded Mandates Reform Act

Pursuant to section 201 of the Unfunded Mandates Reform Act of 1995
(Pub. L. 104-4, 2 U.S.C. 1531), each Federal agency ``shall, unless
otherwise prohibited by law, assess the effects of Federal regulatory
actions on State, local, and Tribal governments, and the private sector
(other than to the extent that such regulations incorporate
requirements specifically set forth in law).'' Section 202 of the Act
(2 U.S.C. 1532) further requires that ``before promulgating any general
notice of proposed rulemaking that is likely to result in the
promulgation of any rule that includes any Federal mandate that may
result in expenditure by State, local, and Tribal governments, in the
aggregate, or by the private sector, of $100 million or more (adjusted
annually for inflation) in any one year, and before promulgating any
final rule for which a general notice of proposed rulemaking was
published, the agency shall prepare a written statement'' detailing the
effect on State, local, and Tribal governments and the private sector.
The proposed rule would not result in such an expenditure, and thus
preparation of such a statement is not required.

[[Page 32984]]

D. National Environmental Policy Act of 1969 (NEPA)

Section 102 of the National Environmental Policy Act of 1969
(NEPA), 83 Stat. 852 (Jan. 1, 1970) (42 U.S.C. 4321 et seq.) requires
agencies to consider the impacts of their proposed actions on the
quality of the human environment. The Council on Environmental
Quality's procedures for implementing NEPA, 40 CFR 1500 et seq.,
require Federal agencies to prepare Environmental Impact Statements
(EIS) for major Federal actions significantly affecting the quality of
the human environment. Each agency can develop categorical exclusions
to cover actions that have been demonstrated to not typically trigger
significant impacts to the human environment individually or
cumulatively. Agencies develop environmental assessments (EA) to
evaluate those actions that do not fit an agency's categorical
exclusion and for which the need for an EIS is not readily apparent. At
the end of the EA process, the agency will determine whether to make a
Finding of No Significant Impact (FONSI) or whether to initiate the EIS
process.
Rulemaking is a major Federal action subject to NEPA. The List of
exclusion categories at DHS Instruction Manual 023-01-001-01, Appendix
A excludes the promulgation of rules that are of a strictly
administrative or procedural nature and rules that implement, without
substantive change, statutory or regulatory requirements from the
preparation of an EA or EIS. (Catex A3(a) and (b)). The purpose of this
rule is to implement some statutory requirements of BW-12 and HFIAA,
along with making non-substantive clarifications designed to improve
overall clarity and readability. These changes are administrative-
related changes that are categorically excluded under Catex A3(a) and
(b) of DHS Instruction Manual 023-01-001-01, Appendix A. No
extraordinary circumstances exist that will trigger the need to develop
an EA or EIS. See DHS Instruction Manual 023-01-001-01 V(B)(2). An EA
will not be prepared because a categorical exclusion applies to this
rulemaking action and no extraordinary circumstances exist.

E. Privacy Act/E-Government Act

Under the Privacy Act of 1974, 5 U.S.C. 552a, an agency must
determine whether implementation of a proposed regulation will result
in a system of records. A ``record'' is any item, collection, or
grouping of information about an individual that is maintained by an
agency, including, but not limited to, his/her education, financial
transactions, medical history, and criminal or employment history and
that contains his/her name, or the identifying number, symbol, or other
identifying particular assigned to the individual, such as a finger or
voice print or a photograph. See 5 U.S.C. 552a(a)(4). A ``system of
records'' is a group of records under the control of an agency from
which information is retrieved by the name of the individual or by some
identifying number, symbols, or other identifying particular assigned
to the individual. An agency cannot disclose any record that is
contained in a system of records except by following specific
procedures. The E-Government Act of 2002, 44 U.S.C. 3501 note, also
requires specific procedures when an agency takes action to develop or
procure information technology that collects, maintains, or
disseminates information that is in an identifiable form. This Act also
applies when an agency initiates a new collection of information that
will be collected, maintained, or disseminated using information
technology if it includes any information in an identifiable form
permitting the physical or online contacting of a specific individual.
In accordance with DHS policy, FEMA has completed a Privacy
Threshold Analysis (PTA) for this proposed rule. DHS/FEMA has
determined that this proposed rulemaking does not affect the 1660-0006
OMB Control Number's current compliance with the E-Government Act of
2002 or the Privacy Ac of 1974, as amended. As a result, DHS/FEMA has
concluded that the 1660-0006 OMB Control Number is covered by the DHS/
FEMA/PIA-011--National Flood Insurance Program Information Technology
Systems (NFIP ITS) Privacy Impact Assessment (PIA). Additionally, DHS/
FEMA has decided that the 1660-0006 OMB Control Number is covered by
the DHS/FEMA-003 National Flood Insurance Program Files, 79 FR 28747,
May 19, 2014 System of Records Notice (SORN).

F. Paperwork Reduction Act of 1995

Under the Paperwork Reduction Act of 1995 (PRA), as amended, 44
U.S.C. 3501-3520, an agency may not conduct or sponsor, and a person is
not required to respond to, a collection of information unless the
agency obtains approval from the Office of Management and Budget (OMB)
for the collection and the collection displays a valid OMB control
number. See 44 U.S.C. 3506, 3507. This proposed rulemaking does not
call for a new collection of information under the PRA. There is an
existing collection of information, 1660-0006, the National Flood
Insurance Program Policy Forms, Public Law 90-448 (1968) (expanded by
Pub. L. 93-234 (1973)) included in this rulemaking. BW-12 and HFIAA
require modifications to the NFIP. Program changes resulting from BW-12
and HFIAA necessitated revision of the NFIP Policy Forms to assure
proper classification of properties for rating purposes and to rate and
issue the policies in accordance with the provisions of BW-12 and
HFIAA. However, this proposed rule will not impact this collection
because the forms have already been updated as needed.

G. Executive Order 13175 Consultation and Coordination With Indian
Tribal Governments

Executive Order 13175, ``Consultation and Coordination with Indian
Tribal Governments,'' 65 FR 67249 (Nov. 9, 2000), applies to agency
regulations that have Tribal implications, that is, regulations that
have substantial direct effects on one or more Indian Tribes, on the
relationship between the Federal Government and Indian Tribes, or on
the distribution of power and responsibilities between the Federal
Government and Indian Tribes. Under this Executive Order, to the extent
practicable and permitted by law, no agency shall promulgate any
regulation that has Tribal implications, that imposes substantial
direct compliance costs on Indian Tribal governments, and that is not
required by statute, unless funds necessary to pay the direct costs
incurred by the Indian Tribal government in complying with the
regulation are provided by the Federal Government or the agency
consults with Tribal officials. Nor, to the extent practicable by law,
may an agency promulgate a regulation that has Tribal implications and
preempts Tribal law, unless the agency consults with Tribal officials.
This proposed rule involves no policies that have Tribal implications
under Executive Order 13175. This rulemaking makes limited changes to
the comprehensive, longstanding National Flood Insurance Program
regulations applicable to communities, including participating Indian
Tribal governments and Tribes, which voluntarily choose to participate
in the program. Because these program updates are limited, they will
not have substantial direct effects on Indian Tribes, on the
relationship between the national government and Indian Tribes, or the
distribution of power between the Federal Government and Indian Tribes.

[[Page 32985]]

H. Executive Order 13132 Federalism

Executive Order 13132, ``Federalism,'' 64 FR 43255 (Aug. 10, 1999),
sets forth principles and criteria that agencies must adhere to in
formulating and implementing policies that have federalism
implications, that is, regulations that have ``substantial direct
effects on the States, on the relationship between the national
government and the States, or on the distribution of power and
responsibilities among the various levels of government.'' For the
purposes of this Executive Order, the term States also includes local
governments or other subdivisions established by the States. Under this
Executive Order, Federal agencies must closely examine the statutory
authority supporting any action that would limit the policymaking
discretion of the States. Further, to the extent practicable and
permitted by law, no agency shall promulgate any regulation that has
federalism implications, that imposes substantial direct compliance
costs on State and local governments, and that is not required by
statute, unless the Federal Government provides funds necessary to pay
the direct costs incurred by the State and local governments in
complying with the regulation, or the agency consults with State and
local officials. Nor, to the extent practicable by law, may an agency
promulgate a regulation that has federalism implications and preempts
State law, unless the agency consults with State and local officials.
FEMA has reviewed this proposed rule under Executive Order 13132
and has determined that does not have substantial direct effects on the
States, on the relationship between the national government and the
States, or on the distribution of power and responsibilities among the
various levels of government, and therefore does not have federalism
implications as defined by the Executive Order. This rulemaking makes
limited changes to the comprehensive, longstanding National Flood
Insurance Program regulations governing the communities' participation
in the program. Because these program updates are limited, they will
not have substantial direct effects on the States or participating
communities, on the relationship between the national government and
the States or participating communities, or the distribution of power
among the various levels of government.

I. Executive Order 11988 Floodplain Management

Pursuant to Executive Order 11988, ``Floodplain Management,'' 42 FR
26951 (May 24, 1977), each agency must provide leadership and take
action to reduce the risk of flood loss, to minimize the impact of
floods on human safety, health and welfare, and to restore and preserve
the natural and beneficial values served by floodplains in carrying out
its responsibilities for (1) acquiring, managing, and disposing of
Federal lands and facilities; (2) providing Federally undertaken,
financed, or assisted construction and improvements; and (3) conducting
Federal activities and programs affecting land use, including but not
limited to water and related land resources planning, regulating, and
licensing activities. In carrying out these responsibilities, each
agency must evaluate the potential effects of any actions it may take
in a floodplain; ensure that its planning programs and budget requests
reflect consideration of flood hazards and floodplain management; and
prescribe procedures to implement the policies and requirements of the
Executive Order.
Before promulgating any regulation, an agency must determine
whether the proposed regulations will affect a floodplain(s), and if
so, the agency must consider alternatives to avoid adverse effects and
incompatible development in the floodplain(s). If the head of the
agency finds that the only practicable alternative consistent with the
law and with the policy set forth in Executive Order 11988 is to
promulgate a regulation that affects a floodplain(s), the agency must,
prior to promulgating the regulation, design or modify the regulation
in order to minimize potential harm to or within the floodplain,
consistent with the agency's floodplain management regulations. It must
also prepare and circulate a notice containing an explanation of why
the action is proposed to be located in the floodplain.
The purpose of this proposed rule is to implement insurance-related
administrative changes to clarify coverage, rates, and terms and
conditions. The changes proposed in this rule would not have an effect
on land use, floodplain management, or wetlands.

J. Executive Order 11990 Protection of Wetlands

Executive Order 11990, ``Protection of Wetlands,'' 42 FR 26961 (May
24, 1977) sets forth that each agency must provide leadership and take
action to minimize the destruction, loss or degradation of wetlands,
and to preserve and enhance the natural and beneficial values of
wetlands in carrying out the agency's responsibilities. These
responsibilities include (1) acquiring, managing, and disposing of
Federal lands and facilities; and (2) providing Federally undertaken,
financed, or assisted construction and improvements; and (3) conducting
Federal activities and programs affecting land use, including but not
limited to water and related land resources planning, regulating, and
licensing activities. Each agency, to the extent permitted by law, must
avoid undertaking or providing assistance for new construction located
in wetlands unless the head of the agency finds (1) that there is no
practicable alternative to such construction, and (2) that the proposed
action includes all practicable measures to minimize harm to wetlands
which may result from such use. In making this finding, the head of the
agency may take into account economic, environmental and other
pertinent factors.
In carrying out the activities described in Executive Order 11990,
each agency must consider factors relevant to a proposal's effect on
the survival and quality of the wetlands. These include public health,
safety, and welfare, including water supply, quality, recharge and
discharge; pollution; flood and storm hazards; sediment and erosion;
maintenance of natural systems, including conservation and long term
productivity of existing flora and fauna, species and habitat diversity
and stability, hydrologic utility, fish, wildlife, timber, and food and
fiber resources. They also include other uses of wetlands in the public
interest, including recreational, scientific, and cultural uses. The
purpose of this proposed rule is to implement insurance-related
administrative changes to clarify coverage, rates, and terms and
conditions. The changes proposed in this rule would not have an effect
on land use, floodplain management, or wetlands.

K. Executive Order 12898 Environmental Justice

Under Executive Order 12898, ``Federal Actions to Address
Environmental Justice in Minority Populations and Low-Income
Populations,'' 59 FR 7629 (Feb. 16, 1994), as amended by Executive
Order 12948, 60 FR 6381, (Feb. 1, 1995), FEMA incorporates
environmental justice into its policies and programs. The Executive
Order requires each Federal agency to conduct its programs, policies,
and activities that substantially affect human health or the
environment in a manner that ensures that those programs, policies, and
activities do not have the effect of excluding persons from
participation in programs, denying

[[Page 32986]]

persons the benefits of programs, or subjecting persons to
discrimination because of race, color, or national origin.
This rulemaking will not have a disproportionately high or adverse
effect on human health or the environment, nor will it exclude persons
from participation in FEMA programs, deny persons the benefits of FEMA
programs, or subject persons to discrimination because of race, color,
or national origin.

L. Congressional Review of Agency Rulemaking

Before a rule can take effect, the Congressional Review of Agency
Rulemaking Act (CRA), 5 U.S.C. 801-808, requires the Federal agency
promulgating the rule to submit to Congress and to the Government
Accountability Office (GAO) a copy of the rule, a concise general
statement relating to the rule, including whether it is a major rule,
the proposed effective date of the rule, a copy of any cost-benefit
analysis, descriptions of the agency's actions under the Regulatory
Flexibility Act and the Unfunded Mandates Reform Act, and any other
information or statements required by relevant Executive orders.
FEMA will send this rule to the Congress and to GAO pursuant to the
CRA if the rule is finalized. This proposed rule is not a ``major
rule'' within the meaning of the CRA. It will not have an annual effect
on the economy of $100,000,000 or more or result in a major increase in
costs or prices for consumers, individual industries, Federal, State,
or local government agencies, or geographic regions. Nor will it have
significant adverse effects on competition, employment, investment,
productivity, innovation, or on the ability of United States-based
enterprises to compete with foreign-based enterprises in domestic and
export markets.

List of Subjects

44 CFR Parts 59 and 61

Flood insurance, Reporting and recordkeeping requirements.

44 CFR Part 62

Claims, Flood insurance, Reporting and recordkeeping requirements.

For the reasons stated in the preamble, FEMA proposes to amend 44
CFR Chapter I as follows:

PART 59--GENERAL PROVISIONS

0
1. Revise authority citation for part 59 to read as follows:

Authority: 42 U.S.C. 4001 et seq.; 6 U.S.C. 101 et seq.

0
2. In section 59.1, add definitions, in alphabetical order, for
``Condominium Building,'' ``Mixed Use Building,'' ``Multifamily
Building,'' ``Non-Residential Building,'' ``Non-Residential Property,''
``Other Residential Building,'' ``Other Residential Property,''
``Residential Building,'' ``Residential Property,'' ``Single Family
Dwelling,'' and ``Two to Four Family Building'' and revise the
definitions for ``Act,'' ``Deductible,'' and ``Emergency Program'' to
read as follows:

Sec. 59.1 Definitions.

* * * * *
Act means the statutes authorizing the National Flood Insurance
Program that are incorporated in 42 U.S.C. 4001--et seq.
* * * * *
Condominium Building means a type of building in the form of
ownership in which each unit owner has an undivided interest in common
elements of the building.
* * * * *
Deductible means the amount of an insured loss that is the
responsibility of the insured and that is incurred before any amounts
are paid for the insured loss under the insurance policy.
* * * * *
Emergency Program means the initial phase of a community's
participation in the National Flood Insurance Program, as prescribed by
Section 1306 of the Act.
* * * * *
Mixed Use Building means a building that has both residential and
non-residential uses.
* * * * *
Multifamily Building means an other residential building that is
not a condominium building.
* * * * *
Non-Residential Building means a commercial or mixed-use building
where the primary use is commercial or non-habitational.
Non-Residential Property means either a non-residential building,
the contents within a non-residential building, or both.
* * * * *
Other Residential Building means a residential building that is
designed for use as a residential space for 5 or more families or a
mixed use building in which the total floor area devoted to non-
residential uses is less than 25 percent of the total floor area within
the building.
Other Residential Property means either an other residential
building, the contents within an other residential building, or both.
* * * * *
Residential Building means a non-commercial building designed for
habitation by one or more families or a mixed use building that
qualifies as a single-family, two to four family, or other residential
building.
Residential Property means either a residential building or the
contents within a residential building, or both.
* * * * *
Single Family Dwelling means either (a) a residential single-family
building in which the total floor area devoted to non-residential uses
is less than 50 percent of the building's total floor area, or (b) a
single-family residential unit within a two to four family building,
other-residential building, business, or non-residential building, in
which commercial uses within the unit are limited to less than 50
percent of the unit's total floor area.
* * * * *
Two to Four Family Building means a residential building, including
an apartment building, containing two to four residential spaces and in
which commercial uses are limited to less than 25 percent of the
building's total floor area.
* * * * *

PART 61--INSURANCE COVERAGE AND RATES

0
3. Revise the authority citation for part 61 to read as follows:

Authority: 42 U.S.C. 4001 et seq.; 6 U.S.C. 101 et seq.

0
4. Revise Sec. 61.1 to read as follows:

Sec. 61.1 Purpose of part.

This part describes the types of properties eligible for flood
insurance coverage under the Program, the limits of such coverage, and
the premium rates actually to be paid by insureds.
0
5. Revise Sec. 61.3 to read as follows:

Sec. 61.3 Coverage and benefits provided under the Standard Flood
Insurance Policy.

(a) Insurance coverage under the Program is available for buildings
and their contents. Coverage for each may be purchased separately.
(b) In addition to building and contents coverage, the Dwelling
Form of the Standard Flood Insurance Policy (SFIP) covers debris
removal, loss avoidance measures, and condominium loss assessments. The
General Property Form of the SFIP covers debris removal, loss avoidance
measures, and pollution damage. The Residential Condominium Policy Form
of the SFIP covers debris removal and loss avoidance measures.

[[Page 32987]]

(c) With the purchase of building coverage, the Standard Flood
Insurance Policy covers the costs associated with bringing the building
into compliance with local floodplain ordinances.
0
6. Revise Sec. 61.4 to read as follows:

Sec. 61.4 Special terms and conditions.

(a) No new flood insurance or renewal of flood insurance policies
will be written for properties declared by a duly constituted State or
local zoning or other authority to be in violation of any flood plain,
mudslide (i.e., mudflow), or flood-related erosion area management or
control law, regulation, or ordinance.
(b) In order to reduce the administrative costs of the Program, of
which the Federal Government pays a major share, applicants must pay
the full policy premium at the time of application.
0
7. Revise Sec. 61.5 to read as follows:

Sec. 61.5 Deductibles.

FEMA must provide policyholders with deductible options in various
amounts, up to and including $10,000, subject to the following minimum
deductible amounts:
(a) The minimum deductible for policies covering pre-FIRM buildings
charged less than full-risk rates with building coverage amounts less
than or equal to $100,000 is $1,500.
(b) The minimum deductible for policies covering pre-FIRM buildings
charged less than full-risk rates with building coverage amounts
greater than $100,000 is $2,000.
(c) The minimum deductible for policies covering post-FIRM
buildings and pre-FIRM buildings charged full risk rates, with building
coverage amounts equal to or less than $100,000 is $1,000.
(d) The minimum deductible for policies covering post-FIRM
buildings and pre-FIRM buildings charged full risk rates, with building
coverage amounts greater than $100,000 is $1,250
0
8. Revise Sec. 61.6 to read as follows:

Sec. 61.6 Maximum amounts of coverage available.

(a) Pursuant to section 1306 of the Act, the following are the
limits of coverage available under the emergency program and under the
regular program.

Maximum Amounts of Coverage Available 1
------------------------------------------------------------------------
Emergency program Regular program
Occupancy ------------------------------------------
Amount Amount
------------------------------------------------------------------------
Building Coverage:
Single Family Dwelling... * $35,000 $250,000.
Two to Four Family * 35,000 $250,000.
Building.
Other Residential ** 100,000 $500,000.
Building (including N/A $250,000 times
Multifamily Building). ** 100,000 the number of
Condominium Building..... units in the
Non-Residential Building. building.
$500,000.
Contents Coverage: \2\
Residential Property \3\. 10,000 100,000.
Non-Residential Property. $100,000 $500,000.
------------------------------------------------------------------------
\1\ This Table provides the maximum coverage amounts available under the
Emergency Program and the Regular Program, and the columns cannot be
aggregated to exceed the limits in the Regular Program, which are
established by statute. The aggregate limits for building coverage are
the maximum coverage amounts allowed by statute for each building
included in the relevant Occupancy Category.
\2\ The policy limits for contents coverage are not per building.
Although a single insured may not have more than one policy covering
contents in a building, several insureds may have separate policies of
up to the policy limits.
\3\ The Residential Property occupancy category includes the Single
Family Dwelling, Two to Four Family Building, Other Residential
Building, and Condominium Building occupancies categories.
* In Alaska, Guam, Hawaii, and U.S. Virgin Islands, the amount available
is $50,000.
** In Alaska, Guam, Hawaii, and U.S. Virgin Islands, the amount
available is $150,000.

(b) Coverage and benefits payable under the SFIP pursuant to Sec.
61.3(b) and Sec. 61.3(c) are included in, not in addition to, the
coverage limits provided by the Act or stated in paragraph (a) of this
section.
0
9. Add Sec. 61.10 to read as follows:

Sec. 61.10 Requirements for issuance or renewal of flood insurance
coverage.

FEMA will not issue or renew flood insurance unless FEMA receives:
(a) The full amount due (including applicable premiums, surcharges,
and fees); and
(b) A complete application, including the information necessary to
establish a premium rate for the policy, or submission of corrected or
additional information necessary to calculate the premium for the
renewal of the policy.

Sec. 61.11 Effective date and time of coverage under the Standard
Flood Insurance Policy--New Business Applications and Endorsements.

0
10. Amend Sec. 61.11 by revising paragraphs (c) through (g) to read as
follows:
* * * * *
(c) Where the following conditions are met, the effective date and
time of any initial purchase of flood insurance coverage for any
privately-owned property will be 12:01 a.m. (local time) on the first
calendar day after the application date and the presentment of payment
of premium or initial installment payment:
(1) The Administrator has determined that the property is affected
by flooding on Federal land that is a result of, or is exacerbated by,
post-wildfire conditions, after consultation with an authorized
employee of the Federal agency that has jurisdiction of the land on
which the wildfire that caused the post-wildfire conditions occurred;
and
(2) The flood insurance coverage was purchased not later than 60
calendar days after the fire containment date, as determined by the
appropriate Federal employee, relating to the wildfire that caused the
post-wildfire conditions described in clause (1).
(d) Except as provided by paragraphs (a), (b), and (c) of this
section, the effective date and time of any new policy or added
coverage or increase in the amount of coverage will be 12:01 a.m.
(local time) on the 30th calendar day after the application date and
the presentment of payment of premium; for example, a flood insurance
policy applied for with the payment of the premium on May 1 will become
effective at 12:01 a.m. on May 31.
(e) Adding new coverage or increasing the amount of coverage in
force is permitted during the term of any policy,

[[Page 32988]]

subject to any applicable waiting periods. The additional premium for
any new coverage or increase in the amount of coverage will be
calculated pro rata in accordance with the rates currently in force.
(f) With respect to any submission of an application in connection
with new business, the payment by an insured to an agent or the
issuance of premium payment by the agent does not constitute payment to
the NFIP. Therefore, it is important that an application for flood
insurance, as well as the full amount due, be mailed to the NFIP
promptly in order to have the effective date of the coverage based on
the application date plus the waiting period. If the application and
the full amount due are received at the office of the NFIP within ten
(10) calendar days from the date of application, the waiting period
will be calculated from the date of application. Also, as an
alternative, in those cases where the application and premium payment
are mailed by certified mail within four (4) calendar days from the
date of application, the waiting period will be calculated from the
date of application even though the application and full amount due are
received at the office of the NFIP after ten (10) calendar days
following the date of application. Thus, if the application and premium
payment are received after ten (10) calendar days from the date of the
application or are not mailed by certified mail within four (4)
calendar days from the date of application, the waiting period will be
calculated from the date of receipt at the office of the NFIP. To
determine the effective date of any coverage added by endorsement to a
flood insurance policy already in effect, substitute the term
endorsement for the term application in this paragraph (f).
(g) The rules set forth in paragraphs (a) through (f) of this
section apply to Write Your Own (WYO) companies, except that agents
must mail the premium payments and accompanying applications and
endorsements to the WYO company and the WYO company must receive the
applications and endorsements, rather than the NFIP.

Sec. 61.13 Standard Flood Insurance Policy.

0
11. Amend Sec. 61.13 by revising paragraphs (e) and (f) and adding
paragraphs (g) and (h) to read as follows:
* * * * *
(e) Authorized only under terms and conditions established by the
Act and Regulation. The Standard Flood Insurance Policy is authorized
only under terms and conditions established by Federal statute, the
program's regulations, the Federal Insurance Administrator's
interpretations, and the express terms of the policy itself.
Accordingly, representations regarding the extent and scope of coverage
that are not consistent with Federal statute, the program's
regulations, the Federal Insurance Administrator's interpretations, and
the express terms of the policy itself, are void.
(f) Agent acts only for policyholder. The duly licensed property or
casualty agent acts for the policyholder and does not act as agent for
the Federal Government, the Federal Emergency Management Agency, the
Write Your Own (WYO) program participating insurance company authorized
by part 62 of this chapter, or the NFIP servicing agent.
(g) Oral and written binders. No oral binder or contract will be
effective. No written binder will be effective unless issued with
express authorization of the Federal Insurance Administrator.
(h) The Standard Flood Insurance Policy and endorsements may be
issued by private sector Write Your Own (WYO) property insurance
companies, based upon flood insurance applications and renewal forms,
all of which instruments of flood insurance may bear the name, as
Insurer, of the issuing WYO company. In the case of any Standard Flood
Insurance Policy, and its related forms, issued by a WYO company,
wherever the names ``Federal Emergency Management Agency'' and
``Federal Insurance and Mitigation Administration'' appear, a WYO
company must substitute its own name therefor. Standard Flood Insurance
Policies issued by WYO companies may be executed by the issuing WYO
company as Insurer, in the place and stead of the Federal Insurance
Administrator, but the risk of loss is borne by the National Flood
Insurance Fund, not the WYO company.
0
12. Revise Appendix A(1) to part 61 to read as follows:

Appendix A(1) to Part 61

Federal Emergency Management Agency, Federal Insurance and Mitigation
Administration

Standard Flood Insurance Policy

Dwelling Form

Please read the policy carefully. The flood insurance provided
is subject to limitations, restrictions, and exclusions.

I. Agreement

A. This policy covers the following types of property only:
1. A one to four family residential building, not under a
condominium form of ownership;
2. A single family dwelling unit in a condominium building; and
3. Personal property in a building.
B. The Federal Emergency Management Agency (FEMA) provides flood
insurance under the terms of the National Flood Insurance Act of
1968 and its amendments, and Title 44 of the Code of Federal
Regulations.
C. We will pay you for direct physical loss by or from flood to
your insured property if you:
1. Have paid the full amount due (including applicable premiums,
surcharges, and fees);
2. Comply with all terms and conditions of this policy; and
3. Have furnished accurate information and statements.
D. We have the right to review the information you give us at
any time and revise your policy based on our review.
E. This policy insures only one building. If you own more than
one building, coverage will apply to the single building
specifically described in the Flood Insurance Application.
F. Subject to the exception in I.G below, multiple policies with
building coverage cannot be issued to insure a single building to
one insured or to different insureds, even if separate policies were
issued through different NFIP insurers. Payment for damages may only
be made under a single policy for building damages under Coverage
A--Building Property.
G. A Dwelling Form policy with building coverage may be issued
to a unit owner in a condominium building that is also insured under
a Residential Condominium Building Association Policy (RCBAP).
However, no more than $250,000 may be paid in combined benefits for
a single unit under the Dwelling Form policy and the RCBAP. We will
only pay for damage once. Items of damage paid for under an RCBAP
cannot also be claimed under the Dwelling Form policy.

II. Definitions

[[Page 32989]]

anticipated cyclical levels that result in a flood as defined in
B.1.a above.
C. The following are the other key definitions we use in this
policy:
1. Act. The National Flood Insurance Act of 1968 and any
amendments to it.
2. Actual Cash Value. The cost to replace an insured item of
property at the time of loss, less the value of its physical
depreciation.
3. Application. The statement made and signed by you or your
agent in applying for this policy. The application gives information
we use to determine the eligibility of the risk, the kind of policy
to be issued, and the correct premium payment. The application is
part of this flood insurance policy.
4. Base Flood. A flood having a one percent chance of being
equaled or exceeded in any given year.
5. Basement. Any area of a building, including any sunken room
or sunken portion of a room, having its floor below ground level on
all sides.
6. Building.
a. A structure with two or more outside rigid walls and a fully
secured roof that is affixed to a permanent site;
b. A manufactured home, also known as a mobile home, is a
structure: built on a permanent chassis, transported to its site in
one or more sections, and affixed to a permanent foundation); or
c. A travel trailer without wheels, built on a chassis and
affixed to a permanent foundation, that is regulated under the
community's floodplain management and building ordinances or laws.
Building does not mean a gas or liquid storage tank, shipping
container, or a recreational vehicle, park trailer, or other similar
vehicle, except as described in C.6.c above.
7. Cancellation. The ending of the insurance coverage provided
by this policy before the expiration date.
8. Condominium. That form of ownership of one or more buildings
in which each unit owner has an undivided interest in common
elements.
9. Condominium Association. The entity made up of the unit
owners responsible for the maintenance and operation of:
a. Common elements owned in undivided shares by unit owners; and
b. Other buildings in which the unit owners have use rights;
where membership in the entity is a required condition of ownership.
10. Condominium Building. A type of building for which the form
of ownership is one in which each unit owner has an undivided
interest in common elements of the building.
11. Declarations Page. A computer-generated summary of
information you provided in your application for insurance. The
Declarations Page also describes the term of the policy, limits of
coverage, and displays the premium and our name. The Declarations
Page is a part of this flood insurance policy.
12. Deductible. The amount of an insured loss that is your
responsibility and that is incurred by you before any amounts are
paid for the insured loss under this policy.
13. Described Location. The location where the insured
building(s) or personal property are found. The described location
is shown on the Declarations Page.
14. Direct Physical Loss By or From Flood. Loss or damage to
insured property, directly caused by a flood. There must be evidence
of physical changes to the property.
15. Dwelling. A building designed for use as a residence for no
more than four families or a single-family unit in a condominium
building.
16. Elevated Building. A building that has no basement and that
has its lowest elevated floor raised above ground level by
foundation walls, shear walls, posts, piers, pilings, or columns.
17. Emergency Program. The initial phase of a community's
participation in the National Flood Insurance Program. During this
phase, only limited amounts of insurance are available under the Act
and the regulations prescribed pursuant to the Act.
18. Federal Policy Fee. A flat rate charge you must pay on each
new or renewal policy to defray certain administrative expenses
incurred in carrying out the National Flood Insurance Program.
19. Improvements. Fixtures, alterations, installations, or
additions comprising a part of the dwelling or apartment in which
you reside.
20. Mudflow. A river of liquid and flowing mud on the surface of
normally dry land areas, as when earth is carried by a current of
water. Other earth movements, such as landslide, slope failure, or a
saturated soil mass moving by liquidity down a slope, are not
mudflows.
21. National Flood Insurance Program (NFIP). The program of
flood insurance coverage and floodplain management administered
under the Act and applicable Federal regulations in Title 44 of the
Code of Federal Regulations, Subchapter B.
22. Policy. The entire written contract between you and us. It
includes:
a. This printed form;
b. The application and Declarations Page;
c. Any endorsement(s) that may be issued; and
d. Any renewal certificate indicating that coverage has been
instituted for a new policy and new policy term. Only one dwelling,
which you specifically described in the application, may be insured
under this policy.
23. Pollutants. Substances that include, but are not limited to,
any solid, liquid, gaseous, or thermal irritant or contaminant,
including smoke, vapor, soot, fumes, acids, alkalis, chemicals, and
waste. ``Waste'' includes, but is not limited to, materials to be
recycled, reconditioned, or reclaimed.
24. Post-FIRM Building. A building for which construction or
substantial improvement occurred after December 31, 1974, or on or
after the effective date of an initial Flood Insurance Rate Map
(FIRM), whichever is later.
25. Principal Residence. The dwelling in which you or your
spouse have lived for at least 80 percent of (a) the 365 days
immediately preceding the time of loss; or (b) the period of
ownership of you or your spouse, if either you or your spouse owned
the dwelling for less than 365 days immediately preceding the time
of loss.
26. Probation Surcharge. A flat charge you must pay on each new
or renewal policy issued covering property in a community the NFIP
has placed on probation under the provisions of 44 CFR 59.24.
27. Regular Program. The final phase of a community's
participation in the National Flood Insurance Program. In this
phase, a Flood Insurance Rate Map is in effect and full limits of
coverage are available under the Act and the regulations prescribed
pursuant to the Act.
28. Special Flood Hazard Area (SFHA). An area having special
flood or mudflow, and/or flood-related erosion hazards, and shown on
a Flood Hazard Boundary Map or Flood Insurance Rate Map as Zone A,
AO, A1-A30, AE, A99, AH, AR, AR/A, AR/AE, AR/AH, AR/AO, AR/A1-A30,
V1-V30, VE, or V.
29. Unit. A single-family residential space you own in a
condominium building.
30. Valued Policy. A policy in which the insured and the insurer
agree on the value of the property insured, that value being payable
in the event of a total loss. The Standard Flood Insurance Policy is
not a valued policy.

III. Property Covered

A. Coverage A--Building Property

We insure against direct physical loss by or from flood to:
1. The dwelling at the described location, or for a period of 45
days at another location as set forth in III.C.2.b, Property Removed
to Safety.
2. Additions and extensions attached to and in contact with the
dwelling by means of a rigid exterior wall, a solid load-bearing
interior wall, a stairway, an elevated walkway, or a roof. At your
option, additions and extensions connected by any of these methods
may be separately insured. Additions and extensions attached to and
in contact with the building by means of a common interior wall that
is not a solid load-bearing wall are always considered part of the
dwelling and cannot be separately insured.
3. A detached garage at the described location. Coverage is
limited to no more than 10 percent of the limit of liability on the
dwelling. Use of this insurance is at your option but reduces the
building limit of liability. We do not cover any detached garage
used or held for use for residential (i.e., dwelling), business, or
farming purposes.
4. Materials and supplies to be used for construction,
alteration, or repair of the dwelling or a detached garage while the
materials and supplies are stored in a fully enclosed building at
the described location or on an adjacent property.
5. A building under construction, alteration, or repair at the
described location.
a. If the structure is not yet walled or roofed as described in
the definition for building (see II.B.6.a) then coverage applies:
(1) Only while such work is in progress; or
(2) If such work is halted, only for a period of up to 90
continuous days thereafter.
b. However, coverage does not apply until the building is walled
and roofed if the

[[Page 32990]]

lowest floor, including the basement floor, of a non-elevated
building or the lowest elevated floor of an elevated building is:
(1) Below the base flood elevation in Zones AH, AE, A1-A30, AR,
AR/AE, AR/AH, AR/A1-A30, AR/A, AR/AO; or
(2) Below the base flood elevation adjusted to include the
effect of wave action in Zones VE or V1-V30.
The lowest floor level is based on the bottom of the lowest
horizontal structural member of the floor in Zones VE or V1-V30 or
the top of the floor in Zones AH, AE, A1-A30, AR, AR/AE, AR/AH, AR/
A1-A30, AR/A, and AR/AO.
6. A manufactured home or a travel trailer, as described in the
II.C.6. If the manufactured home or travel trailer is in a special
flood hazard area, it must be anchored in the following manner at
the time of the loss:
a. By over-the-top or frame ties to ground anchors; or
b. In accordance with the manufacturer's specifications; or
c. In compliance with the community's floodplain management
requirements unless it has been continuously insured by the NFIP at
the same described location since September 30, 1982.
7. The following items of property which are insured under
Coverage A only:
a. Awnings and canopies;
b. Blinds;
c. Built-in dishwashers;
d. Built-in microwave ovens;
e. Carpet permanently installed over unfinished flooring;
f. Central air conditioners;
g. Elevator equipment;
h. Fire sprinkler systems;
i. Walk-in freezers;
j. Furnaces and radiators;
k. Garbage disposal units;
l. Hot water heaters, including solar water heaters;
m. Light fixtures;
n. Outdoor antennas and aerials fastened to buildings;
o. Permanently installed cupboards, bookcases, cabinets,
paneling, and wallpaper;
p. Plumbing fixtures;
q. Pumps and machinery for operating pumps;
r. Ranges, cooking stoves, and ovens;
s. Refrigerators; and
t. Wall mirrors, permanently installed.
8. Items of property below the lowest elevated floor of an
elevated post-FIRM building located in Zones A1-A30, AE, AH, AR, AR/
A, AR/AE, AR/AH, AR/A1-A30, V1-V30, or VE, or in a basement,
regardless of the zone. Coverage is limited to the following:
a. Any of the following items, if installed in their functioning
locations and, if necessary for operation, connected to a power
source:
(1) Central air conditioners;
(2) Cisterns and the water in them;
(3) Drywall for walls and ceilings in a basement and the cost of
labor to nail it, unfinished and unfloated and not taped, to the
framing;
(4) Electrical junction and circuit breaker boxes;
(5) Electrical outlets and switches;
(6) Elevators, dumbwaiters and related equipment, except for
related equipment installed below the base flood elevation after
September 30, 1987;
(7) Fuel tanks and the fuel in them;
(8) Furnaces and hot water heaters;
(9) Heat pumps;
(10) Nonflammable insulation in a basement;
(11) Pumps and tanks used in solar energy systems;
(12) Stairways and staircases attached to the building, not
separated from it by elevated walkways;
(13) Sump pumps;
(14) Water softeners and the chemicals in them, water filters,
and faucets installed as an integral part of the plumbing system;
(15) Well water tanks and pumps;
(16) Required utility connections for any item in this list; and
(17) Footings, foundations, posts, pilings, piers, or other
foundation walls and anchorage systems required to support a
building.
b. Clean-up.

B. Coverage B--Personal Property

1. If you have purchased personal property coverage, we insure
against direct physical loss by or from flood to personal property
inside a building at the described location, if:
a. The property is owned by you or your household family
members; and
b. At your option, the property is owned by guests or servants.
2. Personal property is also insured for a period of 45 days at
another location as set forth in III.C.2.b, Property Removed to
Safety.
3. Personal property in a building that is not fully enclosed
must be secured to prevent flotation out of the building. If the
personal property does float out during a flood, it will be
conclusively presumed that it was not reasonably secured. In that
case, there is no coverage for such property.
4. Coverage for personal property includes the following
property, subject to B.1 above, which is insured under Coverage B
only:
a. Air conditioning units, portable or window type;
b. Carpets, not permanently installed, over unfinished flooring;
c. Carpets over finished flooring;
d. Clothes washers and dryers;
e. ``Cook-out'' grills;
f. Food freezers, other than walk-in, and food in any freezer;
and
g. Portable microwave ovens and portable dishwashers.
5. Coverage for items of property below the lowest elevated
floor of an elevated post-FIRM building located in Zones A1-A30, AE,
AH, AR, AR/A, AR/AE, AR/AH, AR/A1-A30, V1-V30, or VE, or in a
basement, regardless of the zone, is limited to the following items,
if installed in their functioning locations and, if necessary for
operation, connected to a power source:
a. Air conditioning units, portable or window type;
b. Clothes washers and dryers; and
c. Food freezers, other than walk-in, and food in any freezer.
6. If you are a tenant and have insured personal property under
Coverage B in this policy, we will cover such property, including
your cooking stove or range and refrigerator. The policy will also
cover improvements made or acquired solely at your expense in the
dwelling or apartment in which you reside, but for not more than 10
percent of the limit of liability shown for personal property on the
Declarations Page. Use of this insurance is at your option but
reduces the personal property limit of liability.
7. If you are the owner of a unit and have insured personal
property under Coverage B in this policy, we will also cover your
interior walls, floor, and ceiling (not otherwise insured under a
flood insurance policy purchased by your condominium association)
for not more than 10 percent of the limit of liability shown for
personal property on the Declarations Page. Use of this insurance is
at your option but reduces the personal property limit of liability.
8. Special Limits. We will pay no more than $2,500 for any one
loss to one or more of the following kinds of personal property:
a. Artwork, photographs, collectibles, or memorabilia, including
but not limited to, porcelain or other figures, and sports cards;
b. Rare books or autographed items;
c. Jewelry, watches, precious and semi-precious stones, or
articles of gold, silver, or platinum;
d. Furs or any article containing fur that represents its
principal value; or
e. Personal property used in any business.
9. We will pay only for the functional value of antiques.

C. Coverage C--Other Coverages

[[Page 32991]]

(b) A legally authorized official must issue an evacuation order
or other civil order for the community in which the building is
located calling for measures to preserve life and property from the
peril of flood.
This coverage does not increase the Coverage A or Coverage B
limit of liability.
b. Property Removed to Safety.
(1) We will pay up to $1,000 for the reasonable expenses you
incur to move insured property to a place other than the described
location that contains the property in order to protect it from
flood or the imminent danger of flood. Reasonable expenses include
the value of work, at the Federal minimum wage, you or a member of
your household perform.
(2) If you move insured property to a location other than the
described location that contains the property, in order to protect
it from flood or the imminent danger of flood, we will cover such
property while at that location for a period of 45 consecutive days
from the date you begin to move it there. The personal property that
is moved must be placed in a fully enclosed building or otherwise
reasonably protected from the elements.
(3) Any property removed, including a moveable home described in
II.6.b and c, must be placed above ground level or outside of the
special flood hazard area.
(4) This coverage does not increase the Coverage A or Coverage B
limit of liability.
3. Condominium Loss Assessments.
a. Subject to III.C.3.b below, if this policy insures a
condominium unit, we will pay, up to the Coverage A limit of
liability, your share of loss assessments charged against you by the
condominium association in accordance with the condominium
association's articles of association, declarations and your deed.
The assessment must be made because of direct physical loss by
or from flood during the policy term, to the unit or to the common
elements of the NFIP insured condominium building in which this unit
is located.
b. We will not pay any loss assessment:
(1) Charged against you and the condominium association by any
governmental body;
(2) That results from a deductible under the insurance purchased
by the condominium association insuring common elements;
(3) That results from a loss to personal property, including
contents of a condominium building,
(4) In which the total payment combined under all policies
exceeds the maximum amount of coverage available under the Act for a
single unit in a condominium building where the unit is insured
under both a Dwelling Policy and a RCBAP.
(5) On any item of damage that has already been paid under a
RCBAP where a single unit in a condominium building is insured by
both a Dwelling Policy and a RCBAP.
c. Condominium Loss Assessment coverage does not increase the
Coverage A Limit of Liability and is subject to the maximum coverage
limits available for a single family dwelling under the Act, payable
between all policies issued and covering the unit, under the Act.

D. Coverage D--Increased Cost of Compliance

1. General.
This policy pays you to comply with a State or local floodplain
management law or ordinance affecting repair or reconstruction of a
building suffering flood damage. Compliance activities eligible for
payment are: Elevation, floodproofing, relocation, or demolition (or
any combination of these activities) of your building. Eligible
floodproofing activities are limited to:
a. Non-residential buildings.
b. Residential buildings with basements that satisfy FEMA's
standards published in the Code of Federal Regulations [44 CFR
60.6(b) or (c)].
2. Limit of Liability.
We will pay you up to $30,000 under this Coverage D--Increased
Cost of Compliance, which only applies to policies with building
coverage (Coverage A). Our payment of claims under Coverage D is in
addition to the amount of coverage which you selected on the
application and which appears on the Declarations Page. But the
maximum you can collect under this policy for both Coverage A--
Building Property and Coverage D--Increased Cost of Compliance
cannot exceed the maximum permitted under the Act. We do not charge
a separate deductible for a claim under Coverage D.
3. Eligibility.
a. A building covered under Coverage A--Building Property
sustaining a loss caused by a flood as defined by this policy must:
(1) Be a ``repetitive loss building.'' A repetitive loss
building is one that meets the following conditions:
(a) The building is insured by a contract of flood insurance
issued under the NFIP.
(b) The building has suffered flood damage on two occasions
during a 10-year period which ends on the date of the second loss.
(c) The cost to repair the flood damage, on average, equaled or
exceeded 25 percent of the market value of the building at the time
of each flood loss.
(d) In addition to the current claim, the NFIP must have paid
the previous qualifying claim, and the State or community must have
a cumulative, substantial damage provision or repetitive loss
provision in its floodplain management law or ordinance being
enforced against the building; or
(2) Be a building that has had flood damage in which the cost to
repair equals or exceeds 50 percent of the market value of the
building at the time of the flood. The State or community must have
a substantial damage provision in its floodplain management law or
ordinance being enforced against the building.
b. This Coverage D pays you to comply with State or local
floodplain management laws or ordinances that meet the minimum
standards of the National Flood Insurance Program found in the Code
of Federal Regulations at 44 CFR 60.3. We pay for compliance
activities that exceed those standards under these conditions:
(1) 3.a.1 above.
(2) Elevation or floodproofing in any risk zone to preliminary
or advisory base flood elevations provided by FEMA which the State
or local government has adopted and is enforcing for flood-damaged
buildings in such areas. (This includes compliance activities in B,
C, X, or D zones which are being changed to zones with base flood
elevations. This also includes compliance activities in zones where
base flood elevations are being increased, and a flood-damaged
building must comply with the higher advisory base flood elevation.)
Increased Cost of Compliance coverage does not apply to situations
in B, C, X, or D zones where the community has derived its own
elevations and is enforcing elevation or floodproofing requirements
for flood-damaged buildings to elevations derived solely by the
community.
(3) Elevation or floodproofing above the base flood elevation to
meet State or local ``free-board'' requirements, i.e., that a
building must be elevated above the base flood elevation.
c. Under the minimum NFIP criteria at 44 CFR 60.3(b)(4), States
and communities must require the elevation or floodproofing of
buildings in unnumbered A zones to the base flood elevation where
elevation data is obtained from a Federal, State, or other source.
Such compliance activities are eligible for Coverage D.
d. Coverage D will pay for the incremental cost, after
demolition or relocation, of elevating or floodproofing a building
during its rebuilding at the same or another site to meet State or
local floodplain management laws or ordinances, subject to Coverage
D Exclusion 5.g below.
e. Coverage D will pay to bring a flood-damaged building into
compliance with State or local floodplain management laws or
ordinances even if the building had received a variance before the
present loss from the applicable floodplain management requirements.
4. Conditions.
a. When a building insured under Coverage A--Building Property
sustains a loss caused by a flood, our payment for the loss under
this Coverage D will be for the increased cost to elevate,
floodproof, relocate, or demolish (or any combination of these
activities) caused by the enforcement of current State or local
floodplain management ordinances or laws. Our payment for eligible
demolition activities will be for the cost to demolish and clear the
site of the building debris or a portion thereof caused by the
enforcement of current State or local floodplain management
ordinances or laws. Eligible activities for the cost of clearing the
site will include those necessary to discontinue utility service to
the site and ensure proper abandonment of on-site utilities.
b. When the building is repaired or rebuilt, it must be intended
for the same occupancy as the present building unless otherwise
required by current floodplain management ordinances or laws.
5. Exclusions.
Under this Coverage D (Increased Cost of Compliance), we will
not pay for:
a. The cost to comply with any floodplain management law or
ordinance in communities participating in the Emergency Program.
b. The cost associated with enforcement of any ordinance or law
that requires any

[[Page 32992]]

insured or others to test for, monitor, clean up, remove, contain,
treat, detoxify or neutralize, or in any way respond to, or assess
the effects of pollutants.
c. The loss in value to any insured building due to the
requirements of any ordinance or law.
d. The loss in residual value of the undamaged portion of a
building demolished as a consequence of enforcement of any State or
local floodplain management law or ordinance.
e. Any Increased Cost of Compliance under this Coverage D:
(1) Until the building is elevated, floodproofed, demolished, or
relocated on the same or to another premises; and
(2) Unless the building is elevated, floodproofed, demolished,
or relocated as soon as reasonably possible after the loss, not to
exceed two years.
f. Any code upgrade requirements, e.g., plumbing or electrical
wiring, not specifically related to the State or local floodplain
management law or ordinance.
g. Any compliance activities needed to bring additions or
improvements made after the loss occurred into compliance with State
or local floodplain management laws or ordinances.
h. Loss due to any ordinance or law that you were required to
comply with before the current loss.
i. Any rebuilding activity to standards that do 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.
j. Increased Cost of Compliance for a garage or carport.
k. Any building insured under an NFIP Group Flood Insurance
Policy.
l. Assessments made by a condominium association on 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.
6. Other Provisions.
a. Increased Cost of Compliance coverage will not be included in
the calculation to determine whether coverage meets the 80 percent
insurance-to-value requirement for replacement cost coverage as set
forth in Art. VII.R (``Loss Settlement'') of this policy.
b. All other conditions and provisions of this policy apply.

IV. Property Not Covered

We do not insure any of the following:
1. Personal property not inside a building;
2. A building, and personal property in it, located entirely in,
on, or over water or seaward of mean high tide if it was constructed
or substantially improved after September 30, 1982;
3. Open structures, including a building used as a boathouse or
any structure or building into which boats are floated, and personal
property located in, on, or over water;
4. Recreational vehicles other than travel trailers described in
the Definitions section (see II.B.6.c) whether affixed to a
permanent foundation or on wheels;
5. Self-propelled vehicles or machines, including their parts
and equipment. However, we do cover self-propelled vehicles or
machines not licensed for use on public roads that are:
a. Used mainly to service the described location or
b. Designed and used to assist handicapped persons, while the
vehicles or machines are inside a building at the described
location;
6. Land, land values, lawns, trees, shrubs, plants, growing
crops, or animals;
7. Accounts, bills, coins, currency, deeds, evidences of debt,
medals, money, scrip, stored value cards, postage stamps,
securities, bullion, manuscripts, or other valuable papers;
8. Underground structures and equipment, including wells, septic
tanks, and septic systems;
9. Those portions of walks, walkways, decks, driveways, patios
and other surfaces, all whether protected by a roof or not, located
outside the perimeter, exterior walls of the insured building or the
building in which the insured unit is located;
10. Containers, including related equipment, such as, but not
limited to, tanks containing gases or liquids;
11. Buildings or units and all their contents if more than 49
percent of the actual cash value of the building is below ground,
unless the lowest level is at or above the base flood elevation and
is below ground by reason of earth having been used as insulation
material in conjunction with energy efficient building techniques;
12. Fences, retaining walls, seawalls, bulkheads, wharves,
piers, bridges, and docks;
13. Aircraft or watercraft, or their furnishings and equipment;
14. Hot tubs and spas that are not bathroom fixtures, and
swimming pools, and their equipment, such as, but not limited to,
heaters, filters, pumps, and pipes, wherever located;
15. Property not eligible for flood insurance pursuant to the
provisions of the Coastal Barrier Resources Act and the Coastal
Barrier Improvement Act and amendments to these Acts;
16. Personal property you own in common with other unit owners
comprising the membership of a condominium association.

V. Exclusions

A. We only pay for direct physical loss by or from flood, which
means that we do not pay you for:
1. Loss of revenue or profits;
2. Loss of access to the insured property or described location;
3. Loss of use of the insured property or described location;
4. Loss from interruption of business or production;
5. Any additional living expenses incurred while the insured
building is being repaired or is unable to be occupied for any
reason;
6. The cost of complying with any ordinance or law requiring or
regulating the construction, demolition, remodeling, renovation, or
repair of property, including removal of any resulting debris. This
exclusion does not apply to any eligible activities we describe in
Coverage D--Increased Cost of Compliance; or
7. Any other economic loss you suffer.
B. Flood in Progress. If this policy became effective as of the
time of a loan closing, as provided by 44 CFR 61.11(b), we will not
pay for a loss caused by a flood that is a continuation of a flood
that existed prior to coverage becoming effective. In all other
circumstances, we will not pay for a loss caused by a flood that is
a continuation of a flood that existed on or before the day you
submitted the application for coverage under this policy and the
full amount due. We will determine the date of application using 44
CFR 61.11(f).
C. We do not insure for loss to property caused directly by
earth movement even if the earth movement is caused by flood. Some
examples of earth movement that we do not cover are:
1. Earthquake;
2. Landslide;
3. Land subsidence;
4. Sinkholes;
5. Destabilization or movement of land that results from
accumulation of water in subsurface land area; or
6. Gradual erosion.
We do, however, pay for losses from mudflow and land subsidence
as a result of erosion that are specifically insured under our
definition of flood (see II.B.1.c and II.B.2).
D. We do not insure for direct physical loss caused directly or
indirectly by any of the following:
1. The pressure or weight of ice;
2. Freezing or thawing;
3. Rain, snow, sleet, hail, or water spray;
4. Water, moisture, mildew, or mold damage that results
primarily from any condition:
a. Substantially confined to the dwelling; or
b. That is within your control, including but not limited to:
(1) Design, structural, or mechanical defects;
(2) Failure, stoppage, or breakage of water or sewer lines,
drains, pumps, fixtures, or equipment; or
(3) Failure to inspect and maintain the property after a flood
recedes;
5. Water or water-borne material that:
a. Backs up through sewers or drains;
b. Discharges or overflows from a sump, sump pump or related
equipment; or
c. Seeps or leaks on or through the insured property; unless
there is a flood in the area and the flood is the proximate cause of
the sewer or drain backup, sump pump discharge or overflow, or the
seepage of water;
6. The pressure or weight of water unless there is a flood in
the area and the flood is the proximate cause of the damage from the
pressure or weight of water;
7. Power, heating, or cooling failure unless the failure results
from direct physical loss by or from flood to power, heating, or
cooling equipment on the described location;
8. Theft, fire, explosion, wind, or windstorm;

[[Page 32993]]

9. Anything you or any member of your household do or conspire
to do to deliberately cause loss by flood; or
10. Alteration of the insured property that significantly
increases the risk of flooding.
E. We do not insure for loss to any building or personal
property located on land leased from the Federal Government, arising
from or incident to the flooding of the land by the Federal
Government, where the lease expressly holds the Federal Government
harmless under flood insurance issued under any Federal Government
program.
F. We do not pay for the testing for or monitoring of pollutants
unless required by law or ordinance.

VI. Deductibles

A. When a loss is insured under this policy, we will pay only
that part of the loss that exceeds your deductible amount, subject
to the limit of liability that applies. The deductible amount is
shown on the Declarations Page.
However, when a building under construction, alteration, or
repair does not have at least two rigid exterior walls and a fully
secured roof at the time of loss, your deductible amount will be two
times the deductible that would otherwise apply to a completed
building.
B. In each loss from flood, separate deductibles apply to the
building and personal property insured by this policy.
C. The deductible does NOT apply to:
1. III.C.2. Loss Avoidance Measures;
2. III.C.3. Condominium Loss Assessments; or
3. III.D. Increased Cost of Compliance.

VII. General Conditions

A. Pair and Set Clause

In case of loss to an article that is part of a pair or set, we
will have the option of paying you:
1. An amount equal to the cost of replacing the lost, damaged,
or destroyed article, minus its depreciation, or
2. The amount that represents the fair proportion of the total
value of the pair or set that the lost, damaged, or destroyed
article bears to the pair or set.

B. Other Insurance

1. If a loss insured by this policy is also insured by other
insurance that includes flood coverage not issued under the Act, we
will not pay more than the amount of insurance you are entitled to
for lost, damaged, or destroyed property insured under this policy
subject to the following:
a. We will pay only the proportion of the loss that the amount
of insurance that applies under this policy bears to the total
amount of insurance covering the loss, unless VII.B.1.b or c
immediately below applies.
b. If the other policy has a provision stating that it is excess
insurance, this policy will be primary.
c. This policy will be primary (but subject to its own
deductible) up to the deductible in the other flood policy (except
another policy as described in VII.B.1.b above). When the other
deductible amount is reached, this policy will participate in the
same proportion that the amount of insurance under this policy bears
to the total amount of both policies, for the remainder of the loss.
2. If there is other insurance issued under the Act in the name
of your condominium association covering the same property insured
by this policy, then this policy will be in excess over the other
insurance, except where a condominium loss assessment to the unit
owner results from a loss sustained by the condominium association
that was not reimbursed under a flood insurance policy written in
the name of the association under the Act because the building was
not, at the time of loss, insured for an amount equal to the lesser
of:
a. 80 percent or more of its full replacement cost; or
b. The maximum amount of insurance permitted under the Act;
The combined coverage payment under the other NFIP insurance and
this policy cannot exceed the maximum coverage available under the
Act, of $250,000 per single unit.

C. Amendments, Waivers, Assignment

This policy cannot be changed, nor can any of its provisions be
waived, without the express written consent of the Federal Insurance
Administrator. No action we take under the terms of this policy
constitutes a waiver of any of our rights. You may assign this
policy in writing when you transfer title of your property to
someone else except under these conditions:
a. When this policy insures only personal property; or
b. When this policy insures a building under construction.

D. Insufficient Premium or Rating Information

1. Applicability. The following provisions apply to all
instances where the premium paid on this policy is insufficient or
where the rating information is insufficient, such as where an
Elevation Certificate is not provided.
2. Reforming the Policy with Reduced Coverage. Except as
otherwise provided in VII.D.1, if the premium we received from you
was not sufficient to buy the kinds and amounts of coverage you
requested, we will provide only the kinds and amounts of coverage
that can be purchased for the premium payment we received.
a. For the purpose of determining whether your premium payment
is sufficient to buy the kinds and amounts of coverage you
requested, we will first deduct the costs of all applicable fees and
surcharges.
b. If the amount paid, after deducting the costs of all
applicable fees and surcharges, is not sufficient to buy any amount
of coverage, your payment will be refunded. Unless the policy is
reformed to increase the coverage amount to the amount originally
requested pursuant to VII.D.3, this policy will be cancelled, and no
claims will be paid under this policy.
c. Coverage limits on the reformed policy will be based upon the
amount of premium submitted per type of coverage, but will not
exceed the amount originally requested.
3. Discovery of Insufficient Premium or Rating Information. If
we discover that your premium payment was not sufficient to buy the
requested amount of coverage, the policy will be reformed as
described in VII.D.2. You have the option of increasing the amount
of coverage resulting from this reformation to the amount you
requested as follows:
a. Insufficient Premium. If we discover that your premium
payment was not sufficient to buy the requested amount of coverage,
we will send you, and any mortgagee or trustee known to us, a bill
for the required additional premium for the current policy term (or
that portion of the current policy term following any endorsement
changing the amount of coverage). If it is discovered that the
initial amount charged to you for any fees or surcharges is
incorrect, the difference will be added or deducted, as applicable,
to the total amount in this bill.
(1) If you or the mortgagee or trustee pays the additional
premium amount due within 30 days from the date of our bill, we will
reform the policy to increase the amount of coverage to the
originally requested amount, effective to the beginning of the
current policy term (or subsequent date of any endorsement changing
the amount of coverage).
(2) If you or the mortgagee or trustee do not pay the additional
amount due within 30 days of the date of our bill, any flood
insurance claim will be settled based on the reduced amount of
coverage.
(3) As applicable, you have the option of paying all or part of
the amount due out of a claim payment based on the originally
requested amount of coverage.
b. Insufficient Rating Information. If we determine that the
rating information we have is insufficient and prevents us from
calculating the additional premium, we will ask you to send the
required information. You must submit the information within 60 days
of our request.
(1) If we receive the information within 60 days of our request,
we will determine the amount of additional premium for the current
policy term, and follow the procedure in VII.D.3.a above.
(2) If we do not receive the information within 60 days of our
request, no claims will be paid until the requested information is
provided. Coverage will be limited to the amount of coverage that
can be purchased for the payments we received, as determined when
the requested information is provided.
4. Coverage Increases. If we do not receive the amounts
requested in VII.D.3.a or the additional information requested in
VII.D.3.b by the date it is due, the amount of coverage under this
policy can only be increased by endorsement subject to the
appropriate waiting period. However, no coverage increases will be
allowed until you have provided the information requested in
VII.D.3.b.
5. Falsifying Information. However, if we find that you or your
agent intentionally did not tell us, or falsified any important fact
or circumstance or did anything fraudulent relating to this
insurance, the provisions of VIII.A apply.

E. Policy Renewal

1. This policy will expire at 12:01 a.m. on the last day of the
policy term.

[[Page 32994]]

2. We must receive the payment of the appropriate renewal
premium within 30 days of the expiration date.
3. If we find, however, that we did not place your renewal
notice into the U.S. Postal Service, or if we did mail it, we made a
mistake, e.g., we used an incorrect, incomplete, or illegible
address, which delayed its delivery to you before the due date for
the renewal premium, then we will follow these procedures:
a. If you or your agent notified us, not later than one year
after the date on which the payment of the renewal premium was due,
of non-receipt of a renewal notice before the due date for the
renewal premium, and we determine that the circumstances in the
preceding paragraph apply, we will mail a second bill providing a
revised due date, which will be 30 days after the date on which the
bill is mailed.
b. If we do not receive the premium requested in the second bill
by the revised due date, then we will not renew the policy. In that
case, the policy will remain an expired policy as of the expiration
date shown on the Declarations Page.
4. In connection with the renewal of this policy, we may ask you
during the policy term to recertify, on a Recertification
Questionnaire we will provide to you, the rating information used to
rate your most recent application for or renewal of insurance.

F. Conditions Suspending or Restricting Insurance

We are not liable for loss that occurs while there is a hazard
that is increased by any means within your control or knowledge.

G. Requirements in Case of Loss

In case of a flood loss to insured property, you must:
1. Give prompt written notice to us;
2. As soon as reasonably possible, separate the damaged and
undamaged property, putting it in the best possible order so that we
may examine it;
3. Prepare an inventory of damaged property showing the
quantity, description, actual cash value, and amount of loss. Attach
all bills, receipts, and related documents;
4. Within 60 days after the loss, send us a proof of loss, which
is your statement of the amount you are claiming under the policy
signed and sworn to by you, and which furnishes us with the
following information:
a. The date and time of loss;
b. A brief explanation of how the loss happened;
c. Your interest (for example, ``owner'') and the interest, if
any, of others in the damaged property;
d. Details of any other insurance that may cover the loss;
e. Changes in title or occupancy of the insured property during
the term of the policy;
f. Specifications of damaged buildings and detailed repair
estimates;
g. Names of mortgagees or anyone else having a lien, charge, or
claim against the insured property;
h. Details about who occupied any insured building at the time
of loss and for what purpose; and
i. The inventory of damaged personal property described in G.3
above.
5. In completing the proof of loss, you must use your own
judgment concerning the amount of loss and justify that amount.
6. You must cooperate with the adjuster or representative in the
investigation of the claim.
7. The insurance adjuster whom we hire to investigate your claim
may furnish you with a proof of loss form, and she or he may help
you complete it. However, this is a matter of courtesy only, and you
must still send us a proof of loss within 60 days after the loss
even if the adjuster does not furnish the form or help you complete
it.
8. We have not authorized the adjuster to approve or disapprove
claims or to tell you whether we will approve your claim.
9. At our option, we may accept the adjuster's report of the
loss instead of your proof of loss. The adjuster's report will
include information about your loss and the damages you sustained.
You must sign the adjuster's report. At our option, we may require
you to swear to the report.

H. Our Options After a Loss

Options we may, in our sole discretion, exercise after loss
include the following:
1. At such reasonable times and places that we may designate,
you must:
a. Show us or our representative the damaged property;
b. Submit to examination under oath, while not in the presence
of another insured, and sign the same; and
c. Permit us to examine and make extracts and copies of:
(1) Any policies of property insurance insuring you against loss
and the deed establishing your ownership of the insured real
property;
(2) Condominium association documents including the Declarations
of the condominium, its Articles of Association or Incorporation,
Bylaws, rules and regulations, and other relevant documents if you
are a unit owner in a condominium building; and
(3) All books of accounts, bills, invoices and other vouchers,
or certified copies pertaining to the damaged property if the
originals are lost.
2. We may request, in writing, that you furnish us with a
complete inventory of the lost, damaged or destroyed property,
including:
a. Quantities and costs;
b. Actual cash values or replacement cost (whichever is
appropriate);
c. Amounts of loss claimed;
d. Any written plans and specifications for repair of the
damaged property that you can reasonably make available to us; and
e. Evidence that prior flood damage has been repaired.
3. If we give you written notice within 30 days after we receive
your signed, sworn proof of loss, we may:
a. Repair, rebuild, or replace any part of the lost, damaged, or
destroyed property with material or property of like kind and
quality or its functional equivalent; and
b. Take all or any part of the damaged property at the value
that we agree upon or its appraised value.

I. No Benefit to Bailee

No person or organization, other than you, having custody of
insured property will benefit from this insurance.

J. Loss Payment

1. We will adjust all losses with you. We will pay you unless
some other person or entity is named in the policy or is legally
entitled to receive payment. Loss will be payable 60 days after we
receive your proof of loss (or within 90 days after the insurance
adjuster files the adjuster's report signed and sworn to by you in
lieu of a proof of loss) and:
a. We reach an agreement with you;
b. There is an entry of a final judgment; or
c. There is a filing of an appraisal award with us, as provided
in VII.M.
2. If we reject your proof of loss in whole or in part you may:
a. Accept our denial of your claim;
b. Exercise your rights under this policy; or
c. File an amended proof of loss as long as it is filed within
60 days of the date of the loss.

K. Abandonment

You may not abandon to us damaged or undamaged property insured
under this policy.

L. Salvage

We may permit you to keep damaged property insured under this
policy after a loss, and we will reduce the amount of the loss
proceeds payable to you under the policy by the value of the
salvage.

M. Appraisal

If you and we fail to agree on the actual cash value or, if
applicable, replacement cost of your damaged property to settle upon
the amount of loss, then either may demand an appraisal of the loss.
In this event, you and we will each choose a competent and impartial
appraiser within 20 days after receiving a written request from the
other. The two appraisers will choose an umpire. If they cannot
agree upon an umpire within 15 days, you or we may request that the
choice be made by a judge of a court of record in the state where
the insured property is located. The appraisers will separately
state the actual cash value, the replacement cost, and the amount of
loss to each item. If the appraisers submit a written report of an
agreement to us, the amount agreed upon will be the amount of loss.
If they fail to agree, they will submit their differences to the
umpire. A decision agreed to by any two will set the amount of
actual cash value and loss, or if it applies, the replacement cost
and loss.
Each party will:
1. Pay its own appraiser; and
2. Bear the other expenses of the appraisal and umpire equally.

N. Mortgage Clause

[[Page 32995]]

you, as interests appear. If more than one mortgagee is named, the
order of payment will be the same as the order of precedence of the
mortgages.
3. If we deny your claim, that denial will not apply to a valid
claim of the mortgagee, if the mortgagee:
a. Notifies us of any change in the ownership or occupancy, or
substantial change in risk of which the mortgagee is aware;
b. Pays any premium due under this policy on demand if you have
neglected to pay the premium; and
c. Submits a signed, sworn proof of loss within 60 days after
receiving notice from us of your failure to do so.
4. All of the terms of this policy apply to the mortgagee.
5. The mortgagee has the right to receive loss payment even if
the mortgagee has started foreclosure or similar action on the
building.
6. If we decide to cancel or not renew this policy, it will
continue in effect for the benefit of the mortgagee only for 30 days
after we notify the mortgagee of the cancellation or non-renewal.
7. If we pay the mortgagee for any loss and deny payment to you,
we are subrogated to all the rights of the mortgagee granted under
the mortgage on the property. Subrogation will not impair the right
of the mortgagee to recover the full amount of the mortgagee's
claim.

O. Suit Against Us

You may not sue us to recover money under this policy unless you
have complied with all the requirements of the policy. If you do
sue, you must start the suit within one year after the date of the
written denial of all or part of the claim, and you must file the
suit in the United States District Court of the district in which
the insured property was located at the time of loss. This
requirement applies to any claim that you may have under this policy
and to any dispute that you may have arising out of the handling of
any claim under the policy.

P. Subrogation

Whenever we make a payment for a loss under this policy, we are
subrogated to your right to recover for that loss from any other
person. That means that your right to recover for a loss that was
partly or totally caused by someone else is automatically
transferred to us, to the extent that we have paid you for the loss.
We may require you to acknowledge this transfer in writing. After
the loss, you may not give up our right to recover this money or do
anything that would prevent us from recovering it. If you make any
claim against any person who caused your loss and recover any money,
you must pay us back first before you may keep any of that money.

Q. Continuous Lake Flooding

1. If an insured building has been flooded by rising lake waters
continuously for 90 days or more and it appears reasonably certain
that a continuation of this flooding will result in an insured loss
to the insured building equal to or greater than the building policy
limits plus the deductible or the maximum payable under the policy
for any one building loss, we will pay you the lesser of these two
amounts without waiting for the further damage to occur if you sign
a release agreeing:
a. To make no further claim under this policy;
b. Not to seek renewal of this policy;
c. Not to apply for any flood insurance under the Act for
property at the described location;
d. Not to seek a premium refund for current or prior terms.
If the policy term ends before the insured building has been
flooded continuously for 90 days, the provisions of this paragraph
Q.1 will apply when the insured building suffers a covered loss
before the policy term ends.
2. If your insured building is subject to continuous lake
flooding from a closed basin lake, you may elect to file a claim
under either paragraph Q.1 above or Q.2 (A ``closed basin lake'' is
a natural lake from which water leaves primarily through evaporation
and whose surface area now exceeds or has exceeded one square mile
at any time in the recorded past. Most of the nation's closed basin
lakes are in the western half of the United States where annual
evaporation exceeds annual precipitation and where lake levels and
surface areas are subject to considerable fluctuation due to wide
variations in the climate. These lakes may overtop their basins on
rare occasions.) Under this paragraph Q.2, we will pay your claim as
if the building is a total loss even though it has not been
continuously inundated for 90 days, subject to the following
conditions:
a. Lake floodwaters must damage or imminently threaten to damage
your building.
b. Before approval of your claim, you must:
(1) Agree to a claim payment that reflects your buying back the
salvage on a negotiated basis; and
(2) Grant the conservation easement described in FEMA's ``Policy
Guidance for Closed Basin Lakes'' to be recorded in the office of
the local recorder of deeds. FEMA, in consultation with the
community in which the property is located, will identify on a map
an area or areas of special consideration (ASC) in which there is a
potential for flood damage from continuous lake flooding. FEMA will
give the community the agreed-upon map showing the ASC. This
easement will only apply to that portion of the property in the ASC.
It will allow certain agricultural and recreational uses of the
land. The only structures it will allow on any portion of the
property within the ASC are certain simple agricultural and
recreational structures. If any of these allowable structures are
insurable buildings under the NFIP and are insured under the NFIP,
they will not be eligible for the benefits of this paragraph Q.2. If
a U.S. Army Corps of Engineers certified flood control project or
otherwise certified flood control project later protects the
property, FEMA will, upon request, amend the ASC to remove areas
protected by those projects. The restrictions of the easement will
then no longer apply to any portion of the property removed from the
ASC; and
(3) Comply with paragraphs Q.1.a through Q.1.d above.
c. Within 90 days of approval of your claim, you must move your
building to a new location outside the ASC. FEMA will give you an
additional 30 days to move if you show there is sufficient reason to
extend the time.
d. Before the final payment of your claim, you must acquire an
elevation certificate and a floodplain development permit from the
local floodplain administrator for the new location of your
building.
e. Before the approval of your claim, the community having
jurisdiction over your building must:
(1) Adopt a permanent land use ordinance, or a temporary
moratorium for a period not to exceed 6 months to be followed
immediately by a permanent land use ordinance that is consistent
with the provisions specified in the easement required in paragraph
Q.2.b above.
(2) Agree to declare and report any violations of this ordinance
to FEMA so that under Section 1316 of the National Flood Insurance
Act of 1968, as amended, flood insurance to the building can be
denied; and
(3) Agree to maintain as deed-restricted, for purposes
compatible with open space or agricultural or recreational use only,
any affected property the community acquires an interest in. These
deed restrictions must be consistent with the provisions of
paragraph Q.2.b above, except that, even if a certified project
protects the property, the land use restrictions continue to apply
if the property was acquired under the Hazard Mitigation Grant
Program or the Flood Mitigation Assistance Program. If a non-profit
land trust organization receives the property as a donation, that
organization must maintain the property as deed-restricted,
consistent with the provisions of paragraph Q2.b above.
f. Before the approval of your claim, the affected State must
take all action set forth in FEMA's ``Policy Guidance for Closed
Basin Lakes.''
g. You must have NFIP flood insurance coverage continuously in
effect from a date established by FEMA until you file a claim under
paragraph Q.2. If a subsequent owner buys NFIP insurance that goes
into effect within 60 days of the date of transfer of title, any gap
in coverage during that 60-day period will not be a violation of
this continuous coverage requirement. For the purpose of honoring a
claim under this paragraph Q.2, we will not consider to be in effect
any increased coverage that became effective after the date
established by FEMA. The exception to this is any in-creased
coverage in the amount suggested by your insurer as an inflation
adjustment.
h. This paragraph Q.2 will be in effect for a community when the
FEMA Regional Administrator for the affected region provides to the
community, in writing, the following:
(1) Confirmation that the community and the State are in
compliance with the conditions in paragraphs Q.2.e and Q.2.f above,
and
(2) The date by which you must have flood insurance in effect.

[[Page 32996]]

R. Loss Settlement

1. Introduction

This policy provides three methods of settling losses:
Replacement Cost, Special Loss Settlement, and Actual Cash Value.
Each method is used for a different type of property, as explained
in paragraphs a-c below.
a. Replacement Cost Loss Settlement, described in R.2 below,
applies to a single family dwelling provided:
(1) It is your principal residence and (2) At the time of loss,
the amount of insurance in this policy that applies to the dwelling
is 80 percent or more of its full replacement cost immediately
before the loss, or is the maximum amount of insurance available
under the NFIP.
b. Special Loss Settlement, described in R.3 below, applies to a
single family dwelling that is a manufactured or mobile home or a
travel trailer.
c. Actual Cash Value loss settlement applies to a single family
dwelling not subject to replacement cost or special loss settlement,
and to the property listed in R.4 below.

2. Replacement Cost Loss Settlement

The following loss settlement conditions apply to a single-
family dwelling described in R.1.a above:
a. We will pay to repair or replace the damaged dwelling after
application of the deductible and without deduction for
depreciation, but not more than the least of the following amounts:
(1) The building limit of liability shown on your Declarations
Page;
(2) The replacement cost of that part of the dwelling damaged,
with materials of like kind and quality and for like use; or
(3) The necessary amount actually spent to repair or replace the
damaged part of the dwelling for like use.
b. If the dwelling is rebuilt at a new location, the cost
described above is limited to the cost that would have been incurred
if the dwelling had been rebuilt at its former location.
c. When the full cost of repair or replacement is more than
$1,000, or more than 5 percent of the whole amount of insurance that
applies to the dwelling, we will not be liable for any loss under
R.2.a above or R.4.a.2 below unless and until actual repair or
replacement is completed.
d. You may disregard the replacement cost conditions above and
make claim under this policy for loss to dwellings on an actual cash
value basis. You may then make claim for any additional liability
according to R.2.a, b, and c above, provided you notify us of your
intent to do so within 180 days after the date of loss.
e. If the community in which your dwelling is located has been
converted from the Emergency Program to the Regular Program during
the current policy term, then we will consider the maximum amount of
available NFIP insurance to be the amount that was available at the
beginning of the current policy term.

3. Special Loss Settlement

a. The following loss settlement conditions apply to a single
family dwelling that:
(1) is a manufactured or mobile home or a travel trailer, as
defined in II.C.6.b and c,
(2) is at least 16 feet wide when fully assembled and has an
area of at least 600 square feet within its perimeter walls when
fully assembled, and
(3) is your principal residence as specified in R.1.a.1 above.
b. If such a dwelling is totally destroyed or damaged to such an
extent that, in our judgment, it is not economically feasible to
repair, at least to its pre-damage condition, we will, at our
discretion pay the least of the following amounts:
(1) The lesser of the replacement cost of the dwelling or 1.5
times the actual cash value, or
(2) The building limit of liability shown on your Declarations
Page.
c. If such a dwelling is partially damaged and, in our judgment,
it is economically feasible to repair it to its pre-damage
condition, we will settle the loss according to the Replacement Cost
conditions in R.2 above.

4. Actual Cash Value Loss Settlement

The types of property noted below are subject to actual cash
value (or in the case of R.4.a.2., below, proportional) loss
settlement.
a. A dwelling, at the time of loss, when the amount of insurance
on the dwelling is both less than 80 percent of its full replacement
cost immediately before the loss and less than the maximum amount of
insurance available under the NFIP. In that case, we will pay the
greater of the following amounts, but not more than the amount of
insurance that applies to that dwelling:
(1) The actual cash value, as defined in II.C.2, of the damaged
part of the dwelling; or
(2) A proportion of the cost to repair or replace the damaged
part of the dwelling, without deduction for physical depreciation
and after application of the deductible.
This proportion is determined as follows: If 80 percent of the
full replacement cost of the dwelling is less than the maximum
amount of insurance available under the NFIP, then the proportion is
determined by dividing the actual amount of insurance on the
dwelling by the amount of insurance that represents 80 percent of
its full replacement cost. But if 80 percent of the full replacement
cost of the dwelling is greater than the maximum amount of insurance
available under the NFIP, then the proportion is determined by
dividing the actual amount of insurance on the dwelling by the
maximum amount of insurance available under the NFIP.
b. A two-, three-, or four-family dwelling.
c. A unit that is not used exclusively for single-family
dwelling purposes.
d. Detached garages.
e. Personal property.
f. Appliances, carpets, and carpet pads.
g. Outdoor awnings, outdoor antennas or aerials of any type, and
other outdoor equipment.
h. Any property insured under this policy that is abandoned
after a loss and remains as debris anywhere on the described
location.
i. A dwelling that is not your principal residence.
5. Amount of Insurance Required
To determine the amount of insurance required for a dwelling
immediately before the loss, we do not include the value of:
a. Footings, foundations, piers, or any other structures or
devices that are below the undersurface of the lowest basement floor
and support all or part of the dwelling;
b. Those supports listed in R.5.a above, that are below the
surface of the ground inside the foundation walls if there is no
basement; and
c. Excavations and underground flues, pipes, wiring, and drains.

Note: The Coverage D--Increased Cost of Compliance limit of
liability is not included in the determination of the amount of
insurance required.

VIII. Policy Nullification, Cancellation, and Non-Renewal

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

1. With respect to all insureds under this policy, this policy
is void and has no legal force and effect if at any time, before or
after a loss, you or any other insured or your agent have, with
respect to this policy or any other NFIP insurance:
a. Concealed or misrepresented any material fact or
circumstance;
b. Engaged in fraudulent conduct; or
c. Made false statements.
2. Policies voided under A.1 cannot be renewed or replaced by a
new NFIP policy.
3. Policies are void as of the date the acts described in A.1
above were committed.
4. Fines, civil penalties, and imprisonment under applicable
Federal laws may also apply to the acts of fraud or concealment
described above.

B. Policy Nullification for Reasons Other Than Fraud

1. This policy is void from its inception, and has no legal
force or effect, if:
a. The property listed on the application is located in a
community that was not participating in the NFIP on this policy's
inception date and did not join or reenter the program during the
policy term and before the loss occurred;
b. The property listed on the application is otherwise not
eligible for coverage under the NFIP at the time of the initial
application;
c. You never had an insurable interest in the property listed on
the application;
d. You provided an agent with an application and payment, but
the payment did not clear; or
e. We receive notice from you, prior to the policy effective
date, that you have determined not to take the policy and you are
not subject a requirement to obtain and maintain flood insurance
pursuant to any statute, regulation, or contract.
2. In such cases, you will be entitled to a full refund of all
premium, fees, and surcharges received. However, if a claim was paid
for a policy that is void, the claim payment must be returned to
FEMA or offset from the premiums to be refunded before the refund
will be processed.

[[Page 32997]]

C. Cancellation of the Policy by You

1. You may cancel this policy in accordance with the terms and
conditions of this policy and the applicable rules and regulations
of the NFIP.
2. If you cancel this policy, you may be entitled to a full or
partial refund of premium, surcharges, or fees under the terms and
conditions of this policy and the applicable rules and regulations
of the NFIP.

D. Cancellation of the Policy by Us

1. Cancellation for Underpayment of Amounts Owed on Policy. This
policy will be cancelled, pursuant to VII.D.2, if it is determined
that the premium amount you paid is not sufficient to buy any amount
of coverage, and you do not pay the additional amount of premium
owed to increase the coverage to the originally requested amount
within the required time period.
2. Cancellation Due to Lack of an Insurable Interest.
a. If you no longer have an insurable interest in the insured
property, we will cancel this policy. You will cease to have an
insurable interest if:
(1) For building coverage, the building was sold, destroyed, or
removed.
(2) For contents coverage, the contents were sold or transferred
ownership, or the contents were completely removed from the
described location.
b. If your policy is cancelled for this reason, you may be
entitled to a partial refund of premium under the applicable rules
and regulations of the NFIP.
3. Cancellation of Duplicate Policies.
a. Except as allowed under Article I.G, your property may not be
insured by more than one NFIP policy, and payment for damages to
your property will only be made under one policy.
b. Except as allowed under Article I.G, if the property is
insured by more than one NFIP policy, we will cancel all but one of
the policies. The policy, or policies, will be selected for
cancellation in accordance with 44 CFR 62.5 and the applicable rules
and guidance of the NFIP.
c. If this policy is cancelled pursuant to VIII.D.4.b, you may
be entitled to a full or partial refund of premium, surcharges, or
fees under the terms and conditions of this policy and the
applicable rules and regulations of the NFIP.
4. Cancellation Due to Physical Alteration of Property.
a. If the insured building has been physically altered in such a
manner that it is no longer eligible for flood insurance coverage,
we will cancel this policy.
b. If your policy is cancelled for this reason, you may be
entitled to a partial refund of premium under the terms and
conditions of this policy and the applicable rules and regulations
of the NFIP.

E. Non-Renewal of the Policy by Us

Your policy will not be renewed if:
1. The community where your insured property is located is
suspended or stops participating in the NFIP;
2. Your building is otherwise ineligible for flood insurance
under the Act;
3. You have failed to provide the information we requested for
the purpose of rating the policy within the required deadline.

IX. Liberalization Clause

If we make a change that broadens your coverage under this
edition of our policy, but does not re-quire any additional premium,
then that change will automatically apply to your insurance as of
the date we implement the change, provided that this implementation
date falls within 60 days before or during the policy term stated on
the Declarations Page.

X. What Law Governs

This policy and all disputes arising from the insurer's policy
issuance, policy administration, or the handling of any claim under
the policy are governed exclusively by the flood insurance
regulations issued by FEMA, the National Flood Insurance Act of
1968, as amended (42 U.S.C. 4001, et seq.), and Federal common law.
In Witness Whereof, we have signed this policy below and hereby
enter into this Insurance Agreement.
Administrator, Federal Insurance and Mitigation Administration
0
13. Revise Appendix A(2) to Part 61 to read as follows:

Appendix A(2) to Part 61

Federal Emergency Management Agency, Federal Insurance and Mitigation
Administration

Standard Flood Insurance Policy

GENERAL PROPERTY FORM

Please read the policy carefully. The flood insurance provided
is subject to limitations, restrictions, and exclusions.

I. Agreement

A. Coverage Under This Policy.
1. Except as provided in I.A.2, this policy provides coverage
for multifamily buildings (residential buildings designed for use by
5 or more families that are not condominmum buildings), non-
residential buildings, and their contents.
2. There is no coverage for a residential condominium building
in a regular program community, except for personal property
coverage for a unit in a condominium building.
B. The Federal Emergency Management Agency (FEMA) provides flood
insurance under the terms of the National Flood Insurance Act of
1968 and its amendments, and Title 44 of the Code of Federal
Regulations.
C. We will pay you for direct physical loss by or from flood to
your insured property if you:
1. Have paid the full amount due (including applicable premiums,
surcharges, and fees);
2. Comply with all terms and conditions of this policy; and
3. Have furnished accurate information and statements.
D. We have the right to review the information you give us at
any time and revise your policy based on our review.
E. This policy insures only one building. If you own more than
one building, coverage will apply to the single building
specifically described in the Flood Insurance Application.
F. Multiple policies with building coverage cannot be issued to
insure a single building to one insured or to different insureds,
even if issued through different NFIP insurers. Payment for damages
may only be made under a single policy for building damages under
Coverage A--Building Property.

II. Definitions

A. In this policy, ``you'' and ``your'' refer to the named
insured(s) shown on the Declarations Page of this policy and the
spouse of the named insured, if a resident of the same household.
Insured(s) also includes: Any mortgagee and loss payee named in the
Application and Declarations Page, as well as any other mortgagee or
loss payee determined to exist at the time of loss, in the order of
precedence. ``We,'' ``us,'' and ``our'' refer to the insurer.
Some definitions are complex because they are provided as they
appear in the law or regulations, or result from court cases.
B. Flood, as used in this flood insurance policy, means:
1. A general and temporary condition of partial or complete
inundation of two or more acres of normally dry land area or of two
or more properties (one of which is your property) from:
a. Overflow of inland or tidal waters,
b. Unusual and rapid accumulation or runoff of surface waters
from any source,
c. Mudflow
2. Collapse or subsidence of land along the shore of a lake or
similar body of water as a result of erosion or undermining caused
by waves or currents of water exceeding anticipated cyclical levels
that result in a flood as defined in B.1.a above.
C. The following are the other key definitions we use in this
policy:
1. Act. The National Flood Insurance Act of 1968 and any
amendments to it.
2. Actual Cash Value. The cost to replace an insured item of
property at the time of loss, less the value of its physical
depreciation.
3. Application. The statement made and signed by you or your
agent in applying for this policy. The application gives information
we use to determine the eligibility of the risk, the kind of policy
to be issued, and the correct premium payment. The application is
part of this flood insurance policy.
4. Base Flood. A flood having a one percent chance of being
equaled or exceeded in any given year.
5. Basement. Any area of a building, including any sunken room
or sunken portion of a room, having its floor below ground level on
all sides.
6. Building.
a. A structure with two or more outside rigid walls and a fully
secured roof, that is affixed to a permanent site;
b. A manufactured home, also known as a mobile home, is a
structure built on a permanent chassis, transported to its site in
one or more sections, and affixed to a permanent foundation); or
c. A travel trailer without wheels, built on a chassis and
affixed to a permanent

[[Page 32998]]

foundation, that is regulated under the community's floodplain
management and building ordinances or laws.
Building does not mean a gas or liquid storage tank, shipping
container, or a recreational vehicle, park trailer, or other similar
vehicle, except as described in C.6.c above.
7. Cancellation. The ending of the insurance coverage provided
by this policy before the expiration date.
8. Condominium. That form of ownership of one or more buildings
in which each unit owner has an undivided interest in common
elements.
9. Condominium Association. The entity made up of the unit
owners responsible for the maintenance and operation of:
a. Common elements owned in undivided shares by unit owners; and
b. Other buildings in which the unit owners have use rights
where membership in the entity is a required condition of unit
ownership.
10. Condominium Building. A type of building for which the form
of ownership is one in which each unit owner has an undivided
interest in common elements of the building.
11. Declarations Page. A computer-generated summary of
information you provided in your application for insurance. The
Declarations Page also describes the term of the policy, limits of
coverage, and displays the premium and our name. The Declarations
Page is a part of this flood insurance policy.
12. Deductible. The fixed amount of an insured loss that is your
responsibility and that is incurred by you before any amounts are
paid for the insured loss under this policy.
13. Described Location. The location where the insured
building(s) or personal property are found. The described location
is shown on the Declarations Page.
14. Direct Physical Loss By or From Flood. Loss or damage to
insured property, directly caused by a flood. There must be evidence
of physical changes to the property.
15. Elevated Building. A building that has no basement and that
has its lowest elevated floor raised above ground level by
foundation walls, shear walls, posts, piers, pilings, or columns.
16. Emergency Program. The initial phase of a community's
participation in the National Flood Insurance Program. During this
phase, only limited amounts of insurance are available under the Act
and the regulations prescribed pursuant to the Act.
17. Federal Policy Fee. A flat rate charge you must pay on each
new or renewal policy to defray certain administrative expenses
incurred in carrying out the National Flood Insurance Program.
18. Improvements. Fixtures, alterations, installations, or
additions comprising a part of the dwelling or apartment in which
you reside.
19. Mudflow. A river of liquid and flowing mud on the surface of
normally dry land areas, as when earth is carried by a current of
water. Other earth movements, such as landslide, slope failure, or a
saturated soil mass moving by liquidity down a slope, are not
mudflows.
20. National Flood Insurance Program (NFIP). The program of
flood insurance coverage and floodplain management administered
under the Act and applicable Federal regulations in Title 44 of the
Code of Federal Regulations, Subchapter B.
21. Policy. The entire written contract between you and us. It
includes:
a. This printed form;
b. The application and Declarations Page;
c. Any endorsement(s) that may be issued; and
d. Any renewal certificate indicating that coverage has been
instituted for a new policy and new policy term. Only one building,
which you specifically described in the application, may be insured
under this policy.
22. Pollutants. Substances that include, but are not limited to,
any solid, liquid, gaseous, or thermal irritant or contaminant,
including smoke, vapor, soot, fumes, acids, alkalis, chemicals, and
waste. ``Waste'' includes, but is not limited to, materials to be
recycled, reconditioned, or reclaimed.
23. Post-FIRM Building. A building for which construction or
substantial improvement occurred after December 31, 1974, or on or
after the effective date of an initial Flood Insurance Rate Map
(FIRM), whichever is later.
24. Probation Surcharge. A flat charge you must pay on each new
or renewal policy issued covering property in a community the NFIP
has placed on probation under the provisions of 44 CFR 59.24.
25. Regular Program. The final phase of a community's
participation in the National Flood Insurance Program. In this
phase, a Flood Insurance Rate Map is in effect and full limits of
coverage are available under the Act and the regulations prescribed
pursuant to the Act.
26. Residential Condominium Building. A condominium building,
containing one or more family units and in which at least 75 percent
of the floor area is residential.
27. Special Flood Hazard Area (SFHA). An area having special
flood or mudflow, and/or flood-related erosion hazards, and shown on
a Flood Hazard Boundary Map or Flood Insurance Rate Map as Zone A,
AO, A1-A30, AE, A99, AH, AR, AR/A, AR/AE, AR/AH, AR/AO, AR/A1-A30,
V1-V30, VE, or V.
28. Stock means merchandise held in storage or for sale, raw
materials, and in-process or finished goods, including supplies used
in their packing or shipping. Stock does not include any property
not covered under Section IV. Property Not Covered, except the
following:
a. Parts and equipment for self-propelled vehicles;
b. Furnishings and equipment for watercraft;
c. Spas and hot-tubs, including their equipment; and
d. Swimming pool equipment.
29. Unit. A single-family residential or non-residential space
you own in a condominium building.
30. Valued Policy. A policy in which the insured and the insurer
agree on the value of the property insured, that value being payable
in the event of a total loss. The Standard Flood Insurance Policy is
not a valued policy.

III. Property Covered

A. Coverage A--Building Property

We insure against direct physical loss by or from flood to:
1. The building described on the Declarations Page at the
described location. If the building is a condominium building and
the named insured is the condominium association, Coverage A
includes all units within the building and the improvements within
the units, provided the units are owned in common by all unit
owners.
2. Building property located at another location for a period of
45 days at another location, as set forth in III.C.2.b, Property
Removed to Safety.
3. Additions and extensions attached to and in contact with the
building by means of a rigid exterior wall, a solid load-bearing
interior wall, a stairway, an elevated walkway, or a roof. At your
option, additions and extensions connected by any of these methods
may be separately insured. Additions and extensions attached to and
in contact with the building by means of a common interior wall that
is not a solid load-bearing wall are always considered part of the
building and cannot be separately insured.
4. The following fixtures, machinery, and equipment, which are
insured under Coverage A only:
a. Awnings and canopies;
b. Blinds;
c. Carpet permanently installed over unfinished flooring;
d. Central air conditioners;
e. Elevator equipment;
f. Fire extinguishing apparatus;
g. Fire sprinkler systems;
h. Walk-in freezers;
i. Furnaces;
j. Light fixtures;
k. Outdoor antennas and aerials attached to buildings;
l. Permanently installed cupboards, bookcases, paneling, and
wallpaper;
m. Pumps and machinery for operating pumps;
n. Ventilating equipment; and
o. Wall mirrors, permanently installed;
p. In the units within the building, installed:
(1) Built-in dishwashers;
(2) Built-in microwave ovens;
(3) Garbage disposal units;
(4) Hot water heaters, including solar water heaters;
(5) Kitchen cabinets;
(6) Plumbing fixtures;
(7) Radiators;
(8) Ranges;
(9) Refrigerators; and
(10) Stoves.
5. Materials and supplies to be used for construction,
alteration, or repair of the insured building while the materials
and supplies are stored in a fully enclosed building at the
described location or on an adjacent property.
6. A building under construction, alteration, or repair at the
described location.
a. If the structure is not yet walled or roofed as described in
the definition for building (see II.B.6.a.) then coverage applies:

[[Page 32999]]

(1) Only while such work is in progress; or
(2) If such work is halted, only for a period of up to 90
continuous days thereafter.
b. However, coverage does not apply until the building is walled
and roofed if the lowest floor, including the basement floor, of a
non-elevated building or the lowest elevated floor of an elevated
building is:
(1) Below the base flood elevation in Zones AH, AE, A1-A30, AR,
AR/AE, AR/AH, AR/A1-A30, AR/A, AR/AO; or
(2) Below the base flood elevation adjusted to include the
effect of wave action in Zones VE or V1-V30.
The lowest floor level is based on the bottom of the lowest
horizontal structural member of the floor in Zones VE or V1-V30 or
the top of the floor in Zones AH, AE, A1-A30, AR, AR/AE, AR/AH, AR/
A1-A30, AR/A, and AR/AO.
7. A manufactured home or a travel trailer, as described in the
II.C.6. If the manufactured home or travel trailer is in a special
flood hazard area, it must be anchored in the following manner at
the time of the loss:
a. By over-the-top or frame ties to ground anchors; or
b. In accordance with the manufacturer's specifications; or
c. In compliance with the community's floodplain management
requirements unless it has been continuously insured by the NFIP at
the same described location since September 30, 1982.
8. Items of property below the lowest elevated floor of an
elevated post-FIRM building located in zones A1-A30, AE, AH, AR, AR/
A, AR/AE, AR/AH, AR/A1-A30, V1-V30, or VE, or in a basement,
regardless of the zone. Coverage is limited to the following:
a. Any of the following items, if installed in their functioning
locations and, if necessary for operation, connected to a power
source:
(1) Central air conditioners;
(2) Cisterns and the water in them;
(3) Drywall for walls and ceilings in a basement and the cost of
labor to nail it, unfinished and unfloated and not taped, to the
framing;
(4) Electrical junction and circuit breaker boxes;
(5) Electrical outlets and switches;
(6) Elevators, dumbwaiters, and related equipment, except for
related equipment installed below the base flood elevation after
September 30, 1987;
(7) Fuel tanks and the fuel in them;
(8) Furnaces and hot water heaters;
(9) Heat pumps;
(10) Nonflammable insulation in a basement;
(11) Pumps and tanks used in solar energy systems;
(12) Stairways and staircases attached to the building, not
separated from it by elevated walkways;
(13) Sump pumps;
(14) Water softeners and the chemicals in them, water filters,
and faucets installed as an integral part of the plumbing system;
(15) Well water tanks and pumps;
(16) Required utility connections for any item in this list; and
(17) Footings, foundations, posts, pilings, piers, or other
foundation walls and anchorage systems required to support a
building.
b. Clean-up.

B. Coverage B--Personal Property

1. If you have purchased personal property coverage, we insure,
subject to B.2-4 below, against direct physical loss by or from
flood to personal property inside the fully enclosed insured
building:
a. Owned solely by you, or in the case of a condominium, owned
solely by the condominium association and used exclusively in the
conduct of the business affairs of the condominium association; or
b. Owned in common by the unit owners of the condominium
association.
2. We also insure such personal property for 45 days while
stored at a temporary location, as set forth in III.C.2.b, Property
Removed to Safety.
3. When this policy covers personal property, coverage will be
either for household personal property or other than household
personal property, while within the insured building, but not both.
a. If this policy covers household personal property, it will
insure household personal property usual to a living quarters, that:
(1) Belongs to you, or a member of your household, or at your
option:
(a) Your domestic worker;
(b) Your guest; or
(2) You may be legally liable for.
b. If this policy covers other than household personal property,
it will insure your:
(1) Furniture and fixtures;
(2) Machinery and equipment;
(3) Stock; and
(4) Other personal property owned by you and used in your
business, subject to IV, Property Not Covered.
4. Coverage for personal property includes the following
property, subject to B.1.a and B.1.b above, which is insured under
Coverage B, only:
a. Air conditioning units, portable or window type;
b. Carpets, not permanently installed, over unfinished flooring;
c. Carpets over finished flooring;
d. Clothes washers and dryers;
e. ``Cook-out'' grills;
f. Food freezers, other than walk-in, and food in any freezer;
g. Outdoor equipment and furniture stored inside the insured
building;
h. Ovens and the like; and
i. Portable microwave ovens and portable dishwashers.
5. Coverage for items of property below the lowest elevated
floor of an elevated post-FIRM building located in Zones A1-A30, AE,
AH, AR, AR/A, AR/AE, AR/AH, AR/A1-A30, V1-V30, or VE, or in a
basement, regardless of the zone, is limited to the following items,
if installed in their functioning locations and, if necessary for
operation, connected to a power source:
a. Air conditioning units, portable or window type;
b. Clothes washers and dryers; and
c. Food freezers, other than walk-in, and food in any freezer.
6. Special Limits. We will pay no more than $2,500 for any loss
to one or more of the following kinds of personal property:
a. Artwork, photographs, collectibles, or memorabilia, including
but not limited to, porcelain or other figures, and sports cards;
b. Rare books or autographed items;
c. Jewelry, watches, precious and semi-precious stones, or
articles of gold, silver, or platinum;
d. Furs or any article containing fur that represents its
principal value.
7. We will pay only for the functional value of antiques.
8. If you are a tenant, you may apply up to 10 percent of the
Coverage B limit to improvements:
a. Made a part of the building you occupy; and
b. You acquired, or made at your expense, even though you cannot
legally remove.
This coverage does not increase the amount of insurance that
applies to insured personal property.
9. If you are a condominium unit owner, you may apply up to 10
percent of the Coverage B limit to cover loss to interior:
a. Walls,
b. floors, and
c. ceilings,

that are not covered under a policy issued to the condominium
association insuring the condominium building.
This coverage does not increase the amount of insurance that
applies to insured personal property.
10. If you are a tenant, personal property must be inside the
fully enclosed building.

C. Coverage C--Other Coverages

1. Debris Removal

a. We will pay the expense to remove non-owned debris that is on
or in insured property and debris of insured property anywhere.
b. If you or a member of your household perform the removal
work, the value of your work will be based on the Federal minimum
wage.
c. This coverage does not increase the Coverage A or Coverage B
limit of liability.

2. Loss Avoidance Measures

a. Sandbags, Supplies, and Labor

(1) We will pay up to $1,000 for costs you incur to protect the
insured building from a flood or imminent danger of flood, for the
following:
(a) Your reasonable expenses to buy:
(i) Sandbags, including sand to fill them;
(ii) Fill for temporary levees;
(iii) Pumps; and
(iv) Plastic sheeting and lumber used in connection with these
items.
(b) The value of work, at the Federal minimum wage, that you
perform.
(2) This coverage for Sandbags, Supplies and Labor only applies
if damage to insured property by or from flood is imminent and the
threat of flood damage is apparent enough to lead a person of common
prudence to anticipate flood damage. One of the following must also
occur:
(a) A general and temporary condition of flooding in the area
near the described

[[Page 33000]]

location must occur, even if the flood does not reach the building;
or
(b) A legally authorized official must issue an evacuation order
or other civil order for the community in which the building is
located calling for measures to preserve life and property from the
peril of flood.
This coverage does not increase the Coverage A or Coverage B
limit of liability.

b. Property Removed to Safety

(1) We will pay up to $1,000 for the reasonable expenses you
incur to move insured property to a place other than the described
location that contains the property in order to protect it from
flood or the imminent danger of flood. Reasonable expenses include
the value of work, at the Federal minimum wage, you or a member of
your household perform.
(2) If you move insured property to a location other than the
described location that contains the property, in order to protect
it from flood or the imminent danger of flood, we will cover such
property while at that location for a period of 45 consecutive days
from the date you begin to move it there. The personal property that
is moved must be placed in a fully enclosed building or otherwise
reasonably protected from the elements.
(3) Any property removed, including a moveable home described in
II.6, must be placed above ground level or outside of the special
flood hazard area.
(4) This coverage does not increase the Coverage A or Coverage B
limit of liability.

3. Pollution Damage

We will pay for damage caused by pollutants to covered property
if the discharge, seepage, migration, release, or escape of the
pollutants is caused by or results from flood. The most we will pay
under this coverage is $10,000. This coverage does not increase the
Coverage A or Coverage B limits of liability. Any payment under this
provision when combined with all other payments for the same loss
cannot exceed the replacement cost or actual cash value, as
appropriate, of the covered property. This coverage does not include
the testing for or monitoring of pollutants unless required by law
or ordinance.

D. Coverage D--Increased Cost of Compliance

1. General.
This policy pays you to comply with a State or local floodplain
management law or ordinance affecting repair or reconstruction of a
building suffering flood damage. Compliance activities eligible for
payment are: Elevation, floodproofing, relocation, or demolition (or
any combination of these activities) of your building. Eligible
floodproofing activities are limited to:
a. Non-residential buildings.
b. Residential buildings with basements that satisfy FEMA's
standards published in the Code of Federal Regulations [44 CFR
60.6(b) or (c)].
2. Limits of Liability.
We will pay you up to $30,000 under this Coverage D (Increased
Cost of Compliance), which only applies to policies with building
coverage (Coverage A). Our payment of claims under Coverage D is in
addition to the amount of coverage which you selected on the
application and which appears on the Declarations Page. However, the
maximum you can collect under this policy for both Coverage A
(Building Property) and Coverage D (Increased Cost of Compliance)
cannot exceed the maximum permitted under the Act. We do NOT charge
a separate deductible for a claim under Coverage D.
3. Eligibility.
a. A building covered under Coverage A (Building Property)
sustaining a loss caused by a flood as defined by this policy must:
(1) Be a ``repetitive loss building.'' A repetitive loss
building is one that meets the following conditions:
(a) The building is insured by a contract of flood insurance
issued under the NFIP.
(b) The building has suffered flood damage on two occasions
during a 10-year period which ends on the date of the second loss.
(c) The cost to repair the flood damage, on average, equaled or
exceeded 25 percent of the market value of the building at the time
of each flood loss.
(d) In addition to the current claim, the NFIP must have paid
the previous qualifying claim, and the State or community must have
a cumulative, substantial damage provision or repetitive loss
provision in its floodplain management law or ordinance being
enforced against the building; or
(2) Be a building that has had flood damage in which the cost to
repair equals or exceeds 50 percent of the market value of the
building at the time of the flood. The State or community must have
a substantial damage provision in its floodplain management law or
ordinance being enforced against the building.
b. This Coverage D pays you to comply with State or local
floodplain management laws or ordinances that meet the minimum
standards of the National Flood Insurance Program found in the Code
of Federal Regulations at 44 CFR 60.3. We pay for compliance
activities that exceed those standards under these conditions:
(1) 3.a.1 above.
(2) Elevation or floodproofing in any risk zone to preliminary
or advisory base flood elevations provided by FEMA which the State
or local government has adopted and is enforcing for flood-damaged
buildings in such areas. (This includes compliance activities in B,
C, X, or D zones which are being changed to zones with base flood
elevations. This also includes compliance activities in zones where
base flood elevations are being increased, and a flood-damaged
building must comply with the higher advisory base flood elevation.)
Increased Cost of Compliance coverage does not apply to situations
in B, C, X, or D zones where the community has derived its own
elevations and is enforcing elevation or floodproofing requirements
for flood-damaged buildings to elevations derived solely by the
community.
(3) Elevation or floodproofing above the base flood elevation to
meet State or local ``free-board'' requirements, i.e., that a
building must be elevated above the base flood elevation.
c. Under the minimum NFIP criteria at 44 CFR 60.3(b)(4), States
and communities must require the elevation or floodproofing of
buildings in unnumbered A zones to the base flood elevation where
elevation data is obtained from a Federal, State, or other source.
Such compliance activities are also eligible for Coverage D.
d. This coverage will pay for the incremental cost, after
demolition or relocation, of elevating or floodproofing a building
during its rebuilding at the same or another site to meet State or
local floodplain management laws or ordinances, subject to the
exclusion at III.D.5.g.
e. This coverage will pay to bring a flood-damaged building into
compliance with State or local floodplain management laws or
ordinances even if the building had received a variance before the
present loss from the applicable floodplain management requirements.
4. Conditions.
a. When a building insured under Coverage A--Building Property
sustains a loss caused by a flood, our payment for the loss under
this Coverage D will be for the increased cost to elevate,
floodproof, relocate, or demolish (or any combination of these
activities) caused by the enforcement of current State or local
floodplain management ordinances or laws. Our payment for eligible
demolition activities will be for the cost to demolish and clear the
site of the building debris or a portion thereof caused by the
enforcement of current State or local floodplain management
ordinances or laws. Eligible activities for the cost of clearing the
site will include those necessary to discontinue utility service to
the site and ensure proper abandonment of on-site utilities.
b. When the building is repaired or rebuilt, it must be intended
for the same occupancy as the present building unless otherwise
required by current floodplain management ordinances or laws.
5. Exclusions.
Under this Coverage D (Increased Cost of Compliance), we will
not pay for:
a. The cost to comply with any floodplain management law or
ordinance in communities participating in the Emergency Program.
b. The cost associated with enforcement of any ordinance or law
that requires any insured or others to test for, monitor, clean up,
remove, contain, treat, detoxify or neutralize, or in any way
respond to, or assess the effects of pollutants.
c. The loss in value to any insured building due to the
requirements of any ordinance or law.
d. The loss in residual value of the undamaged portion of a
building demolished as a consequence of enforcement of any State or
local floodplain management law or ordinance.
e. Any Increased Cost of Compliance under this Coverage D:
(1) Until the building is elevated, floodproofed, demolished, or
relocated on the same or to another premises; and
(2) Unless the building is elevated, floodproofed, demolished,
or relocated as soon as reasonably possible after the loss, not to
exceed two years.
f. Any code upgrade requirements, e.g., plumbing or electrical
wiring, not

[[Page 33001]]

specifically related to the State or local floodplain management law
or ordinance.
g. Any compliance activities needed to bring additions or
improvements made after the loss occurred into compliance with State
or local floodplain management laws or ordinances.
h. Loss due to any ordinance or law that you were required to
comply with before the current loss.
i. Any rebuilding activity to standards that do 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.
j. Increased Cost of Compliance for a garage or carport.
k. Any building insured under an NFIP Group Flood Insurance
Policy.
l. Assessments made by a condominium association on 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.
6. Other Provisions.
All other conditions and provisions of the policy apply.

IV. Property not Covered

We do not insure any of the following property:
1. Personal property not inside the fully enclosed building;
2. A building, and personal property in it, located entirely in,
on, or over water or seaward of mean high tide if it was constructed
or substantially improved after September 30, 1982;
3. Open structures, including a building used as a boathouse or
any structure or building into which boats are floated, and personal
property located in, on, or over water;
4. Recreational vehicles other than travel trailers described in
the II.C.6.c, whether affixed to a permanent foundation or on
wheels;
5. Self-propelled vehicles or machines, including their parts
and equipment. However, we do cover self-propelled vehicles or
machines not licensed for use on public roads and are:
a. Used mainly to service the described location; or
b. Designed and used to assist handicapped persons, while the
vehicles or machines are inside a building at the described
location;
6. Land, land values, lawns, trees, shrubs, plants, growing
crops, or animals;
7. Accounts, bills, coins, currency, deeds, evidences of debt,
medals, money, scrip, stored value cards, postage stamps,
securities, bullion, manuscripts, or other valuable papers;
8. Underground structures and equipment, including wells, septic
tanks, and septic systems;
9. Those portions of walks, walkways, decks, driveways, patios,
and other surfaces, all whether protected by a roof or not, located
outside the perimeter, exterior walls of the insured building;
10. Containers, including related equipment, such as, but not
limited to, tanks containing gases or liquids;
11. Buildings or units and all their contents if more than 49
percent of the actual cash value of the building is below ground,
unless the lowest level is at or above the base flood elevation and
is be-low ground by reason of earth having been used as insulation
material in conjunction with energy efficient building techniques;
12. Fences, retaining walls, seawalls, bulkheads, wharves,
piers, bridges, and docks;
13. Aircraft or watercraft, or their furnishings and equipment;
14. Hot tubs and spas that are not bathroom fixtures, and
swimming pools, and their equipment, such as, but not limited to,
heaters, filters, pumps, and pipes, wherever located;
15. Property not eligible for flood insurance pursuant to the
provisions of the Coastal Barrier Resources Act and the Coastal
Barrier Improvement Act and amendments to these Acts;
16. Personal property owned by or in the care, custody or
control of a unit owner, except for property of the type and under
the circumstances set forth under III. Coverage B--Personal Property
of this policy;
17. A residential condominium building located in a Regular
Program community.

V. Exclusions

A. We only pay for ``direct physical loss by or from flood,''
which means that we do not pay you for:
1. Loss of revenue or profits;
2. Loss of access to the insured property or described location;
3. Loss of use of the insured property or described location;
4. Loss from interruption of business or production;
5. Any additional living expenses incurred while the insured
building is being repaired or is unable to be occupied for any
reason;
6. The cost of complying with any ordinance or law requiring or
regulating the construction, demolition, remodeling, renovation, or
repair of property, including removal of any resulting debris. This
exclusion does not apply to any eligible activities we describe in
Coverage D--Increased Cost of Compliance; or
7. Any other economic loss you suffer.
B. Flood in Progress. If this policy became effective as of the
time of a loan closing, as provided by 44 CFR 61.11(b), we will not
pay for a loss caused by a flood that is a continuation of a flood
that existed prior to coverage becoming effective. In all other
circumstances, we will not pay for a loss caused by a flood that is
a continuation of a flood that existed on or before the day you
submitted the application for coverage under this policy and the
correct premium. We will determine the date of application using 44
CFR 611.11(f).
C. We do not insure for loss to property caused directly by
earth movement even if the earth movement is caused by flood. Some
examples of earth movement that we do not cover are:
1. Earthquake;
2. Landslide;
3. Land subsidence;
4. Sinkholes;
5. Destabilization or movement of land that results from
accumulation of water in subsurface land areas; or
6. Gradual erosion.
We do, however, pay for losses from mudflow and land subsidence
as a result of erosion that are specifically insured under our
definition of flood (see II.B.1.c and II.B.2).
D. We do not insure for direct physical loss caused directly or
indirectly by:
1. The pressure or weight of ice;
2. Freezing or thawing;
3. Rain, snow, sleet, hail, or water spray;
4. Water, moisture, mildew, or mold damage that results
primarily from any condition:
a. Substantially confined to the insured building; or
b. That is within your control including, but not limited to:
(1) Design, structural, or mechanical defects;
(2) Failures, stoppages, or breakage of water or sewer lines,
drains, pumps, fixtures, or equipment; or
(3) Failure to inspect and maintain the property after a flood
recedes;
5. Water or water-borne material that:
a. Backs up through sewers or drains;
b. Discharges or overflows from a sump, sump pump or related
equipment; or
c. Seeps or leaks on or through the insured property; unless
there is a flood in the area and the flood is the proximate cause of
the sewer or drain backup, sump pump discharge or overflow, or the
seepage of water;
6. The pressure or weight of water unless there is a flood in
the area and the flood is the proximate cause of the damage from the
pressure or weight of water;
7. Power, heating, or cooling failure unless the failure results
from direct physical loss by or from flood to power, heating, or
cooling equipment on the described location;
8. Theft, fire, explosion, wind, or windstorm;
9. Anything you or any member of your household do or conspires
to do to deliberately cause loss by flood; or
10. Alteration of the insured property that significantly
increases the risk of flooding.
E. We do not insure for loss to any building or personal
property located on land leased from the Federal Government, arising
from or incident to the flooding of the land by the Federal
Government, where the lease expressly holds the Federal Government
harmless under flood insurance issued under any Federal Government
program.

VI. Deductibles

[[Page 33002]]

deductible that would otherwise apply to a completed building.
B. In each loss from flood, separate deductibles apply to the
building and personal property insured by this policy.
C. The deductible does NOT apply to:
1. III.C.2. Loss Avoidance Measures; or
2. III.D. Increased Cost of Compliance.

VII. General Conditions

A. Pair and Set Clause

B. Other Insurance

1. If a loss insured by this policy is also insured by other
insurance that includes flood coverage not issued under the Act, we
will not pay more than the amount of insurance that you are entitled
to for lost, damaged, or destroyed property insured under this
policy subject to the following:
a. We will pay only the proportion of the loss that the amount
of insurance that applies under this policy bears to the total
amount of insurance covering the loss, unless VII.B.1.b or c below
applies.
b. If the other policy has a provision stating that it is excess
insurance, this policy will be primary.
c. This policy will be primary (but subject to its own
deductible) up to the deductible in the other flood policy (except
another policy as described in VII.B.1.b above). When the other
deductible amount is reached, this policy will participate in the
same proportion that the amount of insurance under this policy bears
to the total amount of both policies, for the remainder of the loss.
2. Where this policy covers a condominium association and there
is a National Flood Insurance Program flood insurance policy in the
name of a unit owner that insures the same loss as this policy, then
this policy will be primary.

C. Amendments, Waivers, Assignment

This policy cannot be changed, nor can any of its provisions be
waived, without the express written consent of the Federal Insurance
Administrator. No action that we take under the terms of this policy
can constitute a waiver of any of our rights. You may assign this
policy in writing when you transfer title of your property to
someone else except under these conditions:
1. When this policy covers only personal property; or
2. When this policy covers a building under construction.

D. Insufficient Premium or Rating Information

1. Applicability. The following provisions apply to all
instances where the premium paid on this policy is insufficient or
where the rating information is insufficient, such as where an
Elevation Certificate is not provided.
2. Reforming the Policy with Reduced Coverage. Except as
otherwise provided in VII.D.1 and VII.D.4, if the premium we
received from you was not sufficient to buy the kinds and amounts of
coverage you requested, we will provide only the kinds and amounts
of coverage that can be purchased for the premium payment we
received.
a. For the purpose of determining whether your premium payment
is sufficient to buy the kinds and amounts of coverage you
requested, we will first deduct the costs of all applicable fees and
surcharges.
b. If the amount paid, after deducting the costs of all
applicable fees and surcharges, is not sufficient to buy any amount
of coverage, your payment will be refunded. Unless the policy is
reformed to increase the coverage amount to the amount originally
requested pursuant to VII.D.3, this policy will be cancelled, and no
claims will be paid under this policy.
c. Coverage limits on the reformed policy will be based upon the
amount of premium submitted per type of coverage, but will not
exceed the amount originally requested.
3. Discovery of Insufficient Premium or Rating Information. If
we discover that your premium payment was not sufficient to buy the
requested amount of coverage, the policy will be reformed as
described in VII.D.2. You have the option of increasing the amount
of coverage resulting from this reformation to the amount you
requested as follows:
a. Insufficient Premium. If we discover that your premium
payment was not sufficient to buy the requested amount of coverage,
we will send you, and any mortgagee or trustee known to us, a bill
for the required additional premium for the current policy term (or
that portion of the current policy term following any endorsement
changing the amount of coverage). If it is discovered that the
initial amount charged to you for any fees or surcharges is
incorrect, the difference will be added or deducted, as applicable,
to the total amount in this bill.
(1) If you or the mortgagee or trustee pay the additional amount
due within 30 days from the date of our bill, we will reform the
policy to increase the amount of coverage to the originally
requested amount, effective to the beginning of the current policy
term (or subsequent date of any endorsement changing the amount of
coverage).
(2) If you or the mortgagee or trustee do not pay the additional
amount due within 30 days of the date of our bill, any flood
insurance claim will be settled based on the reduced amount of
coverage.
(3) As applicable, you have the option of paying all or part of
the amount due out of a claim payment based on the originally
requested amount of coverage.
b. Insufficient Rating Information. If we determine that the
rating information we have is insufficient and prevents us from
calculating the additional premium, we will ask you to send the
required information. You must submit the information within 60 days
of our request.
(1) If we receive the information within 60 days of our request,
we will determine the amount of additional premium for the current
policy term and follow the procedure in VII.D.3.a above.
(2) If we do not receive the information within 60 days of our
request, no claims will be paid until the requested information is
provided. Coverage will be limited to the amount of coverage that
can be purchased for the payments we received, as determined when
the requested information is provided.
4. Coverage Increases. If we do not receive the amounts
requested in VII.D.3.a or the additional information requested in
VII.D.3.b by the date it is due, the amount of coverage under this
policy can only be increased by endorsement subject to the
appropriate waiting period. However, no coverage increases will be
allowed until you have provided the information requested in
VII.D.3.b is provided.
5. Falsifying Information. However, if we find that you or your
agent intentionally did not tell us, or falsified, any important
fact or circumstance or did anything fraudulent relating to this
insurance, the provisions of VIII.A apply.

E. Policy Renewal

1. This policy will expire at 12:01 a.m. on the last day of the
policy term.
2. We must receive the payment of the appropriate renewal
premium within 30 days of the expiration date.
3. If we find, however, that we did not place your renewal
notice into the U.S. Postal Service, or if we did mail it, we made a
mistake, e.g., we used an incorrect, incomplete, or illegible
address, which delayed its delivery to you before the due date for
the renewal premium, then we will follow these procedures:
a. If you or your agent notified us, not later than one year
after the date on which the payment of the renewal premium was due,
of non-receipt of a renewal notice before the due date for the
renewal premium, and we determine that the circumstances in the
preceding paragraph apply, we will mail a second bill providing a
revised due date, which will be 30 days after the date on which the
bill is mailed.
b. If we do not receive the premium requested in the second bill
by the revised due date, then we will not renew the policy. In that
case, the policy will remain as an expired policy as of the
expiration date shown on the Declarations Page.
4. In connection with the renewal of this policy, we may ask you
during the policy term to recertify, on a Recertification
Questionnaire that we will provide to you, the rating information
used to rate your most recent application for or renewal of
insurance.

F. Conditions Suspending or Restricting Insurance

We are not liable for loss that occurs while there is a hazard
that is increased by any means within your control or knowledge.

G. Requirements in Case of Loss

[[Page 33003]]

3. Prepare an inventory of damaged property showing the
quantity, description, actual cash value, and amount of loss. Attach
all bills, receipts, and related documents;
4. Within 60 days after the loss, send us a proof of loss, which
is your statement of the amount you are claiming under the policy
signed and sworn to by you, and which furnishes us with the
following information:
a. The date and time of loss;
b. A brief explanation of how the loss happened;
c. Your interest (for example, ``owner'') and the interest, if
any, of others in the damaged property;
d. Details of any other insurance that may cover the loss;
e. Changes in title or occupancy of the insured property during
the term of the policy;
f. Specifications of damaged buildings and detailed repair
estimates;
g. Names of mortgagees or anyone else having a lien, charge, or
claim against the insured property;
h. Details about who occupied any insured building at the time
of loss and for what purpose; and
i. The inventory of damaged personal property described in G.3
above.
5. In completing the proof of loss, you must use your own
judgment concerning the amount of loss and justify that amount.
6. You must cooperate with the adjuster or representative in the
investigation of the claim.
7. The insurance adjuster whom we hire to investigate your claim
may furnish you with a proof of loss form, and she or he may help
you complete it. However, this is a matter of courtesy only, and you
must still send us a proof of loss within 60 days after the loss
even if the adjuster does not furnish the form or help you complete
it.
8. We have not authorized the adjuster to approve or disapprove
claims or to tell you whether we will approve your claim.
9. At our option, we may accept the adjuster's report of the
loss instead of your proof of loss. The adjuster's report will
include information about your loss and the damages you sustained.
You must sign the adjuster's report. At our option, we may require
you to swear to the report.

H. Our Options After a Loss

I. No Benefit to Bailee

No person or organization, other than you, having custody of
insured property will benefit from this insurance.

J. Loss Payment

K. Abandonment

You may not abandon damaged or undamaged insured property to us.

L. Salvage

We may permit you to keep damaged insured property after a loss,
and we will reduce the amount of the loss proceeds payable to you
under the policy by the value of the salvage.

M. Appraisal

If you and we fail to agree on the actual cash value of the
damaged property so as to determine the amount of loss, either may
demand an appraisal of the loss. In this event, you and we will each
choose a competent and impartial appraiser within 20 days after
receiving a written request from the other. The two appraisers will
choose an umpire. If they cannot agree upon an umpire within 15
days, you or we may request that the choice be made by a judge of a
court of record in the state where the insured property is located.
The appraisers will separately state the actual cash value and the
amount of loss to each item. If the appraisers submit a written
report of an agreement to us, the amount agreed upon will be the
amount of loss. If they fail to agree, they will submit their
differences to the umpire. A decision agreed to by any two will set
the amount of actual cash value and loss.
Each party will:
1. Pay its own appraiser; and
2. Bear the other expenses of the appraisal and umpire equally.

N. Mortgage Clause

1. The word ``mortgagee'' includes trustee.
2. Any loss payable under Coverage A--Building Property will be
paid to any mortgagee of whom we have actual notice, as well as any
other mortgagee or loss payee determined to exist at the time of
loss, and you, as interests appear. If more than one mortgagee is
named, the order of payment will be the same as the order of
precedence of the mortgages.
3. If we deny your claim, that denial will not apply to a valid
claim of the mortgagee, if the mortgagee:
a. Notifies us of any change in the ownership or occupancy, or
substantial change in risk of which the mortgagee is aware;
b. Pays any premium due under this policy on demand if you have
neglected to pay the premium; and
c. Submits a signed, sworn proof of loss within 60 days after
receiving notice from us of your failure to do so.
4. All terms of this policy apply to the mortgagee.
5. The mortgagee has the right to receive loss payment even if
the mortgagee has started foreclosure or similar action on the
building.
6. If we decide to cancel or not renew this policy, it will
continue in effect for the benefit of the mortgagee only for 30 days
after we notify the mortgagee of the cancellation or non-renewal.
7. If we pay the mortgagee for any loss and deny payment to you,
we are subrogated to all the rights of the mortgagee granted under
the mortgage on the property. Subrogation will not impair the right
of the mortgagee to recover the full amount of the mortgagee's
claim.

O. Suit Against Us

You may not sue us to recover money under this policy unless you
have complied with all the requirements of the policy. If you do
sue, you must start the suit within one year of the date of the
written denial of all or part of the claim, and you must file the
suit in the United States District Court of the district in which
the insured property was located at the time of loss. This
requirement applies to any claim that you may have under this policy
and to any dispute that you may have arising out of the handling of
any claim under the policy.

P. Subrogation

Whenever we make a payment for a loss under this policy, we are
subrogated to your

[[Page 33004]]

right to re-cover for that loss from any other person. That means
that your right to recover for a loss that was partly or totally
caused by someone else is automatically transferred to us, to the
extent that we have paid you for the loss. We may require you to
acknowledge this transfer in writing. After the loss, you may not
give up our right to recover this money or do anything that would
prevent us from recovering it. If you make any claim against any
person who caused your loss and recover any money, you must pay us
back first before you may keep any of that money.

Q. Continuous Lake Flood

1. If an insured building has been flooded by rising lake waters
continuously for 90 days or more and it appears reasonably certain
that a continuation of this flooding will result in an insured loss
to the insured building equal to or greater than the building policy
limits plus the deductible or the maximum payable under the policy
for any one building loss, we will pay you the lesser of these two
amounts without waiting for the further damage to occur if you sign
a release agreeing:
a. To make no further claim under this policy;
b. Not to seek renewal of this policy;
c. Not to apply for any flood insurance under the Act for
property at the described location;
d. Not to seek a premium refund for current or prior terms.
If the policy term ends before the insured building has been
flooded continuously for 90 days, the provisions of this paragraph
Q.1 will apply when the insured building suffers a covered loss
before the policy term ends.
2. If your insured building is subject to continuous lake
flooding from a closed basin lake, you may elect to file a claim
under either paragraph Q.1 above or Q.2 (A ``closed basin lake'' is
a natural lake from which water leaves primarily through evaporation
and whose surface area now exceeds or has exceeded one square mile
at any time in the recorded past. Most of the nation's closed basin
lakes are in the western half of the United States where annual
evaporation exceeds annual precipitation and where lake levels and
surface areas are subject to considerable fluctuation due to wide
variations in the climate. These lakes may overtop their basins on
rare occasions.) Under this paragraph Q.2, we will pay your claim as
if the building is a total loss even though it has not been
continuously inundated for 90 days, subject to the following
conditions:
a. Lake floodwaters must damage or imminently threaten to damage
your building.
b. Before approval of your claim, you must:
(1) Agree to a claim payment that reflects your buying back the
salvage on a negotiated basis; and
(2) Grant the conservation easement described in FEMA's ``Policy
Guidance for Closed Basin Lakes'' to be recorded in the office of
the local recorder of deeds. FEMA, in consultation with the
community in which the property is located, will identify on a map
an area or areas of special consideration (ASC) in which there is a
potential for flood damage from continuous lake flooding. FEMA will
give the community the agreed-upon map showing the ASC. This
easement will only apply to that portion of the property in the ASC.
It will allow certain agricultural and recreational uses of the
land. The only structures it will allow on any portion of the
property within the ASC are certain simple agricultural and
recreational structures. If any of these allowable structures are
insurable buildings under the NFIP and are insured under the NFIP,
they will not be eligible for the benefits of this paragraph Q.2. If
a U.S. Army Corps of Engineers certified flood control project or
otherwise certified flood control project later protects the
property, FEMA will, upon request, amend the ASC to remove areas
protected by those projects. The restrictions of the easement will
then no longer apply to any portion of the property removed from the
ASC; and
(3) Comply with paragraphs Q.1.a through Q.1.d above.
c. Within 90 days of approval of your claim, you must move your
building to a new location outside the ASC. FEMA will give you an
additional 30 days to move if you show there is sufficient reason to
extend the time.
d. Before the final payment of your claim, you must acquire an
elevation certificate and a floodplain development permit from the
local floodplain administrator for the new location of your
building.
e. Before the approval of your claim, the community having
jurisdiction over your building must:
(1) Adopt a permanent land use ordinance, or a temporary
moratorium for a period not to exceed 6 months to be followed
immediately by a permanent land use ordinance that is consistent
with the provisions specified in the easement required in paragraph
Q.2.b above.
(2) Agree to declare and report any violations of this ordinance
to FEMA so that under Section 1316 of the National Flood Insurance
Act of 1968, as amended, flood insurance to the building can be
denied; and
(3) Agree to maintain as deed-restricted, for purposes
compatible with open space or agricultural or recreational use only,
any affected property the community acquires an interest in. These
deed restrictions must be consistent with the provisions of
paragraph Q.2.b above, except that, even if a certified project
protects the property, the land use restrictions continue to apply
if the property was acquired under the Hazard Mitigation Grant
Program or the Flood Mitigation Assistance Program. If a non-profit
land trust organization receives the property as a donation, that
organization must maintain the property as deed-restricted,
consistent with the provisions of paragraph Q2.b. above.
f. Before the approval of your claim, the affected State must
take all action set forth in FEMA's ``Policy Guidance for Closed
Basin Lakes.''
g. You must have NFIP flood insurance coverage continuously in
effect from a date established by FEMA until you file a claim under
paragraph Q.2. If a subsequent owner buys NFIP insurance that goes
into effect within 60 days of the date of transfer of title, any gap
in coverage during that 60-day period will not be a violation of
this continuous coverage requirement. For the purpose of honoring a
claim under this paragraph Q.2, we will not consider to be in effect
any increased coverage that became effective after the date
established by FEMA. The exception to this is any in-creased
coverage in the amount suggested by your insurer as an inflation
adjustment.
h. This paragraph Q.2 will be in effect for a community when the
FEMA Regional Administrator for the affected region provides to the
community, in writing, the following:
(1) Confirmation that the community and the State are in
compliance with the conditions in paragraphs Q.2.e and Q.2.f above,
and
(2) The date by which you must have flood insurance in effect.

R. Loss Settlement

We will pay the least of the following amounts after application
of the deductible:
1. The applicable amount of insurance under this policy;
2. The actual cash value; or
3. The amount it would cost to repair or replace the property
with material of like kind and quality within a reasonable time
after the loss.

VIII. Policy Nullification, Cancellation, and Non-Renewal

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

B. Policy Nullification for Reasons Other Than Fraud

[[Page 33005]]

determined not to take the policy and you are not subject a
requirement to obtain and maintain flood insurance pursuant to any
statute, regulation, or contract.
2. In such cases, you will be entitled to a full refund of all
premium, fees, and surcharges received. However, if a claim was paid
for a policy that is void, the claim payment must be returned to
FEMA or offset from the premiums to be refunded before the refund
will be processed.

C. Cancellation of the Policy by You

D. Cancellation of the Policy by Us

1. Cancellation for Underpayment of Amounts Owed on Policy. This
policy will be cancelled, pursuant to VII.D.2, if it is determined
that the premium amount you paid is not sufficient to buy any amount
of coverage, and you do not pay the additional amount of premium
owed to increase the coverage to the originally requested amount
within the required time period.
2. Cancellation Due to Lack of an Insurable Interest.
a. If you no longer have an insurable interest in the insured
property, we will cancel this policy. You will cease to have an
insurable interest if:
(1) For building coverage, the building was sold, destroyed, or
removed.
(2) For contents coverage, the contents were sold or transferred
ownership, or the contents were completely removed from the
described location.
b. If your policy is cancelled for this reason, you may be
entitled to a partial refund of premium under the applicable rules
and regulations of the NFIP.
3. Cancellation of Duplicate Policies.
a. Your property may not be insured by more than one NFIP
policy, and payment for damages to your property will only be made
under one policy.
b. If the property is insured by more than one NFIP policy, we
will cancel all but one of the policies. The policy, or policies,
will be selected for cancellation in accordance with 44 CFR 62.5 and
the applicable rules and guidance of the NFIP.
c. If this policy is cancelled pursuant to VIII.D.4.b, you may
be entitled to a full or partial refund of premium, surcharges, or
fees under the terms and conditions of this policy and the
applicable rules and regulations of the NFIP.
4. Cancellation Due to Physical Alteration of Property.
a. If the insured building has been physically altered in such a
manner that it is no longer eligible for flood insurance coverage,
we will cancel this policy.
b. If your policy is cancelled for this reason, you may be
entitled to a partial refund of premium under the terms and
conditions of this policy and the applicable rules and regulations
of the NFIP.

E. Non-Renewal of the Policy by Us

IX. Liberalization Clause

X. What Law Governs

0
14. Revise Appendix A(3) to Part 61 to read as follows:

Appendix A(3) to Part 61

Federal Emergency Management Agency, Federal Insurance and Mitigation
Administration

Standard Flood Insurance Policy

RESIDENTIAL CONDOMINIUM BUILDING ASSOCIATION POLICY

Please read the policy carefully. The flood insurance provided
is subject to limitations, restrictions, and exclusions.

I. Agreement

A. This policy covers only a residential condominium building in
a regular program community. If the community reverts to emergency
program status during the policy term and remains as an emergency
program community at time of renewal, this policy cannot be renewed.
B. The Federal Emergency Management Agency (FEMA) provides flood
insurance under the terms of the National Flood Insurance Act of
1968 and its amendments, and Title 44 of the Code of Federal
Regulations.
C. We will pay you for direct physical loss by or from flood to
your insured property if you:
1. Have paid the full amount due (including applicable premiums,
surcharges, and fees);
2. Comply with all terms and conditions of this policy; and
3. Have furnished accurate information and statements.
D. We have the right to review the information you give us at
any time and revise your policy based on our review.
E. This policy insures only one building. If you own more than
one building, coverage will apply to the single building
specifically described in the Flood Insurance Application.
F. Subject to the exception in Section I.G below, multiple
policies with building coverage cannot be issued to insure a single
building to one insured or to different insureds, even if issued
through different NFIP insurers. Payment for damages may only be
made under a single policy for building damages under Coverage A--
Building Property.
G. A Dwelling Form policy with building coverage may be issued
to a unit owner in a condominium building that is also insured under
a Residential Condominium Building Association Policy (RCBAP).
However, no more than $250,000 may be paid in combined benefits for
a single unit under the Dwelling Form and the RCBAP. We will only
pay for damage once. Items of damage paid for under a RCBAP cannot
also be claimed under the Dwelling Form policy.

II. Definitions

A. In this policy, ``you'' and ``your'' refer to the named
insured(s) shown on the Declarations Page of this policy. The named
insured must also include the building owner if building coverage is
purchased. Insured(s) includes: Any mortgagee and loss payee named
in the Application and Declarations Page, as well as any other
mortgagee or loss payee determined to have an existing interest at
the time of loss, in the order of precedence. ``We,'' ``us,'' and
``our'' refer to the insurer.
Some definitions are complex because they are provided as they
appear in the law or regulations, or result from court cases.
B. Flood, as used in this flood insurance policy, means:
1. A general and temporary condition of partial or complete
inundation of two or more acres of normally dry land area or of two
or more properties (one of which is your property) from:
a. Overflow of inland or tidal waters,
b. Unusual and rapid accumulation or runoff of surface waters
from any source,
c. Mudflow.
2. Collapse or subsidence of land along the shore of a lake or
similar body of water as a result of erosion or undermining caused
by waves or currents of water exceeding anticipated cyclical levels
which result in a flood as defined in B.1.a above.
C. The following are the other key definitions we use in this
policy:
1. Act. The National Flood Insurance Act of 1968 and any
amendments to it.
2. Actual Cash Value. The cost to replace an insured item of
property at the time of loss, less the value of its physical
depreciation.
3. Application. The statement made and signed by you or your
agent in applying for this policy. The application gives information
we use to determine the eligibility of the risk, the kind of policy
to be issued, and the correct premium payment. The application is
part of this flood insurance policy.

[[Page 33006]]

4. Base Flood. A flood having a one percent chance of being
equaled or exceeded in any given year.
5. Basement. Any area of a building, including any sunken room
or sunken portion of a room, having its floor below ground level on
all sides.
6. Building.
a. A structure with two or more outside rigid walls and a fully
secured roof that is affixed to a permanent site;
b. A manufactured home, also known as a mobile home, is a
structure built on a permanent chassis, transported to its site in
one or more sections, and affixed to a permanent foundation); or
c. A travel trailer without wheels, built on a chassis and
affixed to a permanent foundation, that is regulated under the
community's floodplain management and building ordinances or laws.
Building does not mean a gas or liquid storage tank, shipping
container, or a recreational vehicle, park trailer, or other similar
vehicle, except as described in C.6.c above.
7. Cancellation. The ending of the insurance coverage provided
by this policy before the expiration date.
8. Condominium. That form of ownership of one or more buildings
in which each unit owner has an undivided interest in common
elements.
9. Condominium Association. The entity made up of the unit
owners responsible for the maintenance and operation of:
a. Common elements owned in undivided shares by unit owners; and
b. Other buildings in which the unit owners have use rights;
where membership in the entity is a required condition of ownership.
10. Condominium Building. A type of building for which the form
of ownership is one in which each unit owner has an undivided
interest in common elements of the building.
11. Declarations Page. A computer-generated summary of
information you provided in your application for insurance. The
Declarations Page also describes the term of the policy, limits of
coverage, and displays the premium and our name. The Declarations
Page is a part of this flood insurance policy.
12. Deductible. The fixed amount of an insured loss that is your
responsibility and that is incurred by you before any amounts are
paid for the insured loss under this policy.
13. Described Location. The location where the insured building
or personal property are found. The described location is shown on
the Declarations Page.
14. Direct Physical Loss By or From Flood. Loss or damage to
insured property, directly caused by a flood. There must be evidence
of physical changes to the property.
15. Elevated Building. A building that has no basement and that
has its lowest elevated floor raised above ground level by
foundation walls, shear walls, posts, piers, pilings, or columns.
16. Emergency Program. The initial phase of a community's
participation in the National Flood Insurance Program. During this
phase, only limited amounts of insurance are available under the Act
and the regulations prescribed pursuant to the Act.
17. Federal Policy Fee. A flat rate charge you must pay on each
new or renewal policy to defray certain administrative expenses
incurred in carrying out the National Flood Insurance Program.
18. Improvements. Fixtures, alterations, installations, or
additions comprising a part of the residential condominium building,
including improvements in the units.
19. Mudflow. A river of liquid and flowing mud on the surface of
normally dry land areas, as when earth is carried by a current of
water. Other earth movements, such as landslide, slope failure, or a
saturated soil mass moving by liquidity down a slope, are not
mudflows.
20. National Flood Insurance Program (NFIP). The program of
flood insurance coverage and floodplain management administered
under the Act and applicable Federal regulations in Title 44 of the
Code of Federal Regulations, Subchapter B.
21. Policy. The entire written contract between you and us. It
includes:
a. This printed form;
b. The application and Declarations Page;
c. Any endorsement(s) that may be issued; and
d. Any renewal certificate indicating that coverage has been
instituted for a new policy and new policy term. Only one building,
which you specifically described in the application, may be insured
under this policy.
22. Pollutants. Substances that include, but are not limited to,
any solid, liquid, gaseous, or thermal irritant or contaminant,
including smoke, vapor, soot, fumes, acids, alkalis, chemicals, and
waste. ``Waste'' includes, but is not limited to, materials to be
recycled, reconditioned, or reclaimed.
23. Post-FIRM Building. A building for which construction or
substantial improvement occurred after December 31, 1974, or on or
after the effective date of an initial Flood Insurance Rate Map
(FIRM), whichever is later.
24. Probation Surcharge. A flat charge you must pay on each new
or renewal policy issued covering property in a community the NFIP
has placed on probation under the provisions of 44 CFR 59.24.
25. Regular Program. The final phase of a community's
participation in the National Flood Insurance Program. In this
phase, a Flood Insurance Rate Map is in effect and full limits of
coverage are available under the Act and the regulations prescribed
pursuant to the Act.
26. Residential Condominium Building. A building, condominium,
containing one or more family units and in which at least 75 percent
of the floor area is residential.
27. Special Flood Hazard Area (SFHA). An area having special
flood or mudflow, and/or flood-related erosion hazards, and shown on
a Flood Hazard Boundary Map or Flood Insurance Rate Map as Zone A,
AO, A1-A30, AE, A99, AH, AR, AR/A, AR/AE, AR/AH, AR/AO, AR/A1-A30,
V1-V30, VE, or V.
28. Unit. A single-family residential space in a residential
condominium building.
29. Valued Policy. A policy in which the insured and the insurer
agree on the value of the property insured, that value being payable
in the event of a total loss. The Standard Flood Insurance Policy is
not a valued policy.

III. Property Covered

A. Coverage A--Building Property

We insure against direct physical loss by or from flood to:
1. The residential condominium building described on the
Declarations Page at the described location, including all units
within the building and the improvements within the units.
2. We also insure such building property for a period of 45 days
at another location, as set forth in III.C.2.b, Property Removed to
Safety.
3. Additions and extensions attached to and in contact with the
building by means of a rigid exterior wall, a solid load-bearing
interior wall, a stairway, an elevated walkway, or a roof. At your
option, additions and extensions connected by any of these methods
may be separately insured. Additions and extensions attached to and
in contact with the building by means of a common interior wall that
is not a solid load-bearing wall are always considered part of the
building and cannot be separately insured.
4. The following fixtures, machinery and equipment, including
its units, which are insured under Coverage A only:
a. Awnings and canopies;
b. Blinds;
c. Carpet permanently installed over unfinished flooring;
d. Central air conditioners;
e. Elevator equipment;
f. Fire extinguishing apparatus;
g. Fire sprinkler systems;
h. Walk-in freezers;
i. Furnaces;
j. Light fixtures;
k. Outdoor antennas and aerials fastened to buildings;
l. Permanently installed cupboards, bookcases, paneling, and
wallpaper;
m. Pumps and machinery for operating pumps;
n. Ventilating equipment;
o. Wall mirrors, permanently installed; and
p. In the units within the building, installed:
(1) Built-in dishwashers;
(2) Built-in microwave ovens;
(3) Garbage disposal units;
(4) Hot water heaters, including solar water heaters;
(5) Kitchen cabinets;
(6) Plumbing fixtures;
(7) Radiators;
(8) Ranges;
(9) Refrigerators; and
(10) Stoves.
5. Materials and supplies to be used for construction,
alteration or repair of the insured building while the materials and
supplies are stored in a fully enclosed building at the described
location or on an adjacent property.
6. A building under construction, alteration, or repair at the
described location.
a. If the structure is not yet walled or roofed as described in
the definition for building (see II.B.6.a.) then coverage applies:

[[Page 33007]]

(1) Only while such work is in progress; or
(2) If such work is halted, only for a period of up to 90
continuous days thereafter.
b. However, coverage does not apply until the building is walled
and roofed if the lowest floor, including the basement floor, of a
non-elevated building or the lowest elevated floor of an elevated
building is:
(1) Below the base flood elevation in Zones AH, AE, A1-30, AR,
AR/AE, AR/AH, AR/A1-30, AR/A, AR/AO; or
(2) Below the base flood elevation adjusted to include the
effect of wave action in Zones VE or V1-30.
The lowest floor level is based on the bottom of the lowest
horizontal structural member of the floor in Zones VE or V1-V30 or
top of the floor in Zones AH, AE, A1-A30, AR, AR/AE, AR/AH, AR/A1-
A30, AR/A, and AR/AO.
7. A manufactured home or a travel trailer, as described in the
II.C.6. If the manufactured home is in a special flood hazard area,
it must be anchored in the following manner at the time of the loss:
a. By over-the-top or frame ties to ground anchors; or
b. In accordance with the manufacturer's specifications; or
c. In compliance with the community's floodplain management
requirements unless it has been continuously insured by the NFIP at
the same described location since September 30, 1982.
8. Items of property below the lowest elevated floor of an
elevated post-FIRM building located in zones A1-A30, AE, AH, AR, AR/
A, AR/AE, AR/AH, AR/A1-A30, V1-V30, or VE, or in a basement,
regardless of the zone. Coverage is limited to the following:
a. Any of the following items, if installed in their functioning
locations and, if necessary for operation, connected to a power
source:
(1) Central air conditioners;
(2) Cisterns and the water in them;
(3) Drywall for walls and ceilings in a basement and the cost of
labor to nail it, unfinished and unfloated and not taped, to the
framing;
(4) Electrical junction and circuit breaker boxes;
(5) Electrical outlets and switches;
(6) Elevators, dumbwaiters, and related equipment, except for
related equipment installed below the base flood elevation after
September 30, 1987;
(7) Fuel tanks and the fuel in them;
(8) Furnaces and hot water heaters;
(9) Heat pumps;
(10) Nonflammable insulation in a basement;
(11) Pumps and tanks used in solar energy systems;
(12) Stairways and staircases attached to the building, not
separated from it by elevated walkways;
(13) Sump pumps;
(14) Water softeners and the chemicals in them, water filters,
and faucets installed as an integral part of the plumbing system;
(15) Well water tanks and pumps;
(16) Required utility connections for any item in this list; and
(17) Footings, foundations, posts, pilings, piers, or other
foundation walls and anchorage systems required to support a
building.
b. Clean-up.

B. Coverage B--Personal Property

1. If you have purchased personal property coverage, we insure,
subject to B.2 and B.3 below, against direct physical loss by or
from flood to personal property that is inside the fully enclosed
insured building and is:
a. Owned by the unit owners of the condominium association in
common, meaning property in which each unit owner has an undivided
ownership interest; or
b. Owned solely by the condominium association and used
exclusively in the conduct of the business affairs of the
condominium association.
2. We also insure such personal property for 45 days while
stored at a temporary location, as set forth in III.C.2.b, Property
Removed to Safety.
3. Coverage for personal property includes the following
property, subject to B.1. above, which is covered under Coverage B
only:
a. Air conditioning units, portable or window type;
b. Carpets, not permanently installed, over unfinished flooring;
c. Carpets over finished flooring;
d. Clothes washers and dryers;
e. ``Cook-out'' grills;
f. Food freezers, other than walk-in, and food in any freezer;
g. Outdoor equipment and furniture stored inside the insured
building;
h. Ovens and the like; and
i. Portable microwave ovens and portable dishwashers.
4. Coverage for items of property in a building enclosure below
the lowest elevated floor of an elevated post-FIRM building located
in zones A1-A30, AE, AH, AR, AR/A, AR/AE, AR/AH, AR/A1-A30, V1-V30,
or VE, or in a basement, regardless of the zone, is limited to the
following items, if installed in their functioning locations and, if
necessary for operation, connected to a power source:
a. Air conditioning units, portable or window type;
b. Clothes washers and dryers; and
c. Food freezers, other than walk-in, and food in any freezer.
5. Special Limits. We will pay no more than $2,500 for any one
loss to one or more of the following kinds of personal property:
a. Artwork, photographs, collectibles, or memorabilia, including
but not limited to, porcelain or other figures, and sports cards;
b. Rare books or autographed items;
c. Jewelry, watches, precious and semi-precious stones, or
articles of gold, silver, or platinum;
d. Furs or any article containing fur which represents its
principal value.
6. We will pay only for the functional value of antiques.

C. Coverage C--Other Coverages

1. Debris Removal.
a. We will pay the expense to remove non-owned debris that is on
or in insured property and debris of insured property anywhere.
b. If you or a member of your household perform the removal
work, the value of your work will be based on the Federal minimum
wage.
c. This coverage does not increase the Coverage A or Coverage B
limit of liability.
2. Loss Avoidance Measures.
a. Sandbags, Supplies, and Labor.
(1) We will pay up to $1,000 for costs you incur to protect the
insured building from a flood or imminent danger of flood, for the
following:
(a) Your reasonable expenses to buy:
(i) Sandbags, including sand to fill them;
(ii) Fill for temporary levees;
(iii) Pumps; and
(iv) Plastic sheeting and lumber used in connection with these
items.
(b) The value of work, at the Federal minimum wage, that you
perform.
(2) This coverage for Sandbags, Supplies and Labor only applies
if damage to insured property by or from flood is imminent and the
threat of flood damage is apparent enough to lead a person of common
prudence to anticipate flood damage. One of the following must also
occur:
(a) A general and temporary condition of flooding in the area
near the described location must occur, even if the flood does not
reach the building; or
(b) A legally authorized official must issue an evacuation order
or other civil order for the community in which the building is
located calling for measures to preserve life and property from the
peril of flood.
b. Property Removed to Safety.
(1) We will pay up to $1,000 for the reasonable expenses you
incur to move insured property to a place other than the described
location that contains the property in order to protect it from
flood or the imminent danger of flood. Reasonable expenses include
the value of work, at the Federal minimum wage, you or a member of
your household perform.
(2) If you move insured property to a location other than the
described location that contains the property, in order to protect
it from flood or the imminent danger of flood, we will cover such
property while at that location for a period of 45 consecutive days
from the date you begin to move it there.
(3) The personal property that is moved must be placed in a
fully enclosed building or otherwise reasonably protected from the
elements. Any property removed, including a moveable home described
in II.6.b and c, must be placed above ground level or outside of the
special flood hazard area
(4) This coverage does not increase the Coverage A or Coverage B
limit of liability.

D. Coverage D--Increased Cost of Compliance

[[Page 33008]]

the Code of Federal Regulations [44 CFR 60.6 (b) or (c)].
2. Limit of Liability.
We will pay you up to $30,000 under this Coverage D (Increased
Cost of Compliance), which only applies to policies with building
coverage (Coverage A). Our payment of claims under Coverage D is in
addition to the amount of coverage which you selected on the
application and which appears on the Declarations Page. But, the
maximum you can collect under this policy for both Coverage A--
Building Property and Coverage D--Increased Cost of Compliance
cannot exceed the maximum permitted under the Act. We do not charge
a separate deductible for a claim under Coverage D.
3. Eligibility.
a. A building covered under Coverage A (Building Property)
sustaining a loss caused by a flood as defined by this policy must:
(1) Be a ``repetitive loss building.'' A repetitive loss
building is one that meets the following conditions:
(a) The building is insured by a contract of flood insurance
issued under the NFIP.
(b) The building has suffered flood damage on two occasions
during a 10-year period which ends on the date of the second loss.
(c) The cost to repair the flood damage, on average, equaled or
exceeded 25 percent of the market value of the building at the time
of each flood loss.
(d) In addition to the current claim, the NFIP must have paid
the previous qualifying claim, and the State or community must have
a cumulative, substantial damage provision or repetitive loss
provision in its floodplain management law or ordinance being
enforced against the building; or
(2) Be a building that has had flood damage in which the cost to
repair equals or exceeds 50 percent of the market value of the
building at the time of the flood. The State or community must have
a substantial damage provision in its floodplain management law or
ordinance being enforced against the building.
b. This Coverage D pays you to comply with State or local
floodplain management laws or ordinances that meet the minimum
standards of the National Flood Insurance Program found in the Code
of Federal Regulations at 44 CFR 60.3. We pay for compliance
activities that exceed those standards under these conditions:
(1) 3.a.1 above.
(2) Elevation or floodproofing in any risk zone to preliminary
or advisory base flood elevations provided by FEMA which the State
or local government has adopted and is enforcing for flood-damaged
buildings in such areas. (This includes compliance activities in B,
C, X, or D zones which are being changed to zones with base flood
elevations. This also includes compliance activities in zones where
base flood elevations are being increased, and a flood-damaged
building must comply with the higher advisory base flood elevation.)
Increased Cost of Compliance coverage does not apply to situations
in B, C, X, or D zones where the community has derived its own
elevations and is enforcing elevation or floodproofing requirements
for flood-damaged buildings to elevations derived solely by the
community.
(3) Elevation or floodproofing above the base flood elevation to
meet State or local ``freeboard'' requirements, i.e., that a
building must be elevated above the base flood elevation.
c. Under the minimum NFIP criteria at 44 CFR 60.3(b)(4), States
and communities must require the elevation or floodproofing of
buildings in unnumbered A zones to the base flood elevation where
elevation data is obtained from a Federal, State, or other source.
Such compliance activities are also eligible for Coverage D.
d. Coverage D will pay for the incremental cost, after
demolition or relocation, of elevating or floodproofing a building
during its rebuilding at the same or another site to meet State or
local floodplain management laws or ordinances, subject to Exclusion
D.5.g below relating to improvements.
e. Coverage D will pay to bring a flood-damaged building into
compliance with State or local floodplain management laws or
ordinances even if the building had received a variance before the
present loss from the applicable floodplain management requirements.
4. Conditions.
a. When a building covered under Coverage A--Building Property
sustains a loss caused by a flood, our payment for the loss under
this Coverage D will be for the increased cost to elevate,
floodproof, relocate, or demolish (or any combination of these
activities) caused by the enforcement of current State or local
floodplain management ordinances or laws. Our payment for eligible
demolition activities will be for the cost to demolish and clear the
site of the building debris or a portion thereof caused by the
enforcement of current State or local floodplain management
ordinances or laws. Eligible activities for the cost of clearing the
site will include those necessary to discontinue utility service to
the site and ensure proper abandonment of on-site utilities.
b. When the building is repaired or rebuilt, it must be intended
for the same occupancy as the present building unless otherwise
required by current floodplain management ordinances or laws.
5. Exclusions.
Under this Coverage D (Increased Cost of Compliance) we will not
pay for:
a. The cost to comply with any floodplain management law or
ordinance in communities participating in the Emergency Program.
b. The cost associated with enforcement of any ordinance or law
that requires any insured or others to test for, monitor, clean up,
remove, contain, treat, detoxify or neutralize, or in any way
respond to, or assess the effects of pollutants.
c. The loss in value to any insured building due to the
requirements of any ordinance or law.
d. The loss in residual value of the undamaged portion of a
building demolished as a consequence of enforcement of any State or
local floodplain management law or ordinance.
e. Any Increased Cost of Compliance under this Coverage D:
(1) Until the building is elevated, floodproofed, demolished, or
relocated on the same or to another premises; and
(2) Unless the building is elevated, floodproofed, demolished,
or relocated as soon as reasonably possible after the loss, not to
exceed two years.
f. Any code upgrade requirements, e.g., plumbing or electrical
wiring, not specifically related to the State or local floodplain
management law or ordinance.
g. Any compliance activities needed to bring additions or
improvements made after the loss occurred into compliance with State
or local floodplain management laws or ordinances.
h. Loss due to any ordinance or law that you were required to
comply with before the current loss.
i. Any rebuilding activity to standards that do 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.
j. Increased Cost of Compliance for a garage or carport.
k. Any building insured under an NFIP Group Flood Insurance
Policy.
l. Assessments made by a condominium association on 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.
6. Other Provisions.
a. Increased Cost of Compliance coverage will not be included in
the calculation to determine whether coverage meets the coinsurance
requirement for replacement cost coverage under Art. VIII.R. (``Loss
Settlement'').
b. All other conditions and provisions of this policy apply.

IV. Property Not Covered

[[Page 33009]]

7. Accounts, bills, coins, currency, deeds, evidences of debt,
medals, money, scrip, stored value cards, postage stamps,
securities, bullion, manuscripts, or other valuable papers;
8. Underground structures and equipment, including wells, septic
tanks, and septic systems;
9. Those portions of walks, walkways, decks, driveways, patios,
and other surfaces, all whether protected by a roof or not, located
outside the perimeter, exterior walls of the insured building;
10. Containers, including related equipment, such as, but not
limited to, tanks containing gases or liquids;
11. Buildings and all their contents if more than 49 percent of
the actual cash value of the building is below ground, unless the
lowest level is at or above the base flood elevation and is below
ground by reason of earth having been used as insulation material in
conjunction with energy efficient building techniques;
12. Fences, retaining walls, seawalls, bulkheads, wharves,
piers, bridges, and docks;
13. Aircraft or watercraft, or their furnishings and equipment;
14. Hot tubs and spas that are not bathroom fixtures, and
swimming pools, and their equipment such as, but not limited to,
heaters, filters, pumps, and pipes, wherever located;
15. Property not eligible for flood insurance pursuant to the
provisions of the Coastal Barrier Resources Act and the Coastal
Barrier Improvements Act of 1990 and amendments to these Acts;
16. Personal property used in connection with any incidental
commercial occupancy or use of the building.

V. Exclusions

A. We only pay for ``direct physical loss by or from flood,''
which means that we do not pay you for:
1. Loss of revenue or profits;
2. Loss of access to the insured property or described location;
3. Loss of use of the insured property or described location;
4. Loss from interruption of business or production;
5. Any additional living expenses incurred while the insured
building is being repaired or is unable to be occupied for any
reason;
6. The cost of complying with any ordinance or law requiring or
regulating the construction, demolition, remodeling, renovation, or
repair of property, including removal of any resulting debris. This
exclusion does not apply to any eligible activities we describe in
Coverage D--Increased Cost of Compliance; or
7. Any other economic loss you suffer.
B. Flood in Progress. If this policy became effective as of the
time of a loan closing, as provided by 44 CFR 61.11(b), we will not
pay for a loss caused by a flood that is a continuation of a flood
that existed prior to coverage becoming effective. In all other
circumstances, we will not pay for a loss caused by a flood that is
a continuation of a flood that existed on or before the day you
submitted the application for coverage under this policy and the
correct premium. We will determine the date of application using 44
CFR 611.11(f).
C. We do not insure for loss to property caused directly by
earth movement even if the earth movement is caused by flood. Some
examples of earth movement that we do not cover are:
1. Earthquake;
2. Landslide;
3. Land subsidence;
4. Sinkholes;
5. Destabilization or movement of land that results from
accumulation of water in subsurface land areas; or
6. Gradual erosion.
We do, however, pay for losses from mudflow and land subsidence
as a result of erosion that are specifically covered under our
definition of flood (see II.B.1.c and II.B.2).
D. We do not insure for direct physical loss caused directly or
indirectly by:
1. The pressure or weight of ice;
2. Freezing or thawing;
3. Rain, snow, sleet, hail, or water spray;
4. Water, moisture, mildew, or mold damage that results
primarily from any condition:
a. Substantially confined to the insured building; or
b. That is within your control including, but not limited to:
(1) Design, structural, or mechanical defects;
(2) Failures, stoppages, or breakage of water or sewer lines,
drains, pumps, fixtures, or equipment; or
(3) Failure to inspect and maintain the property after a flood
recedes;
5. Water or water-borne material that:
a. Backs up through sewers or drains;
b. Discharges or overflows from a sump, sump pump or related
equipment; or
c. Seeps or leaks on or through the insured property;
unless there is a flood in the area and the flood is the
proximate cause of the sewer or drain backup, sump pump discharge or
overflow, or the seepage of water;
6. The pressure or weight of water unless there is a flood in
the area and the flood is the proximate cause of the damage from the
pressure or weight of water;
7. Power, heating, or cooling failure unless the failure results
from direct physical loss by or from flood to power, heating, or
cooling equipment on the described location;
8. Theft, fire, explosion, wind, or windstorm;
9. Anything you or your agents do or conspire to do to cause
loss by flood deliberately; or
10. Alteration of the insured property that significantly
increases the risk of flooding.
E. We do not insure for loss to any building or personal
property located on land leased from the Federal Government, arising
from or incident to the flooding of the land by the Federal
Government, where the lease expressly holds the Federal Government
harmless under flood insurance issued under any Federal Government
program.
F. We do not pay for the testing for or monitoring of pollutants
unless required by law or ordinance.

VI. Deductibles

A. When a loss is insured under this policy, we will pay only
that part of the loss that exceeds your deductible amount, subject
to the limit of liability that applies. The deductible amount is
shown on the Declarations Page.
However, when a building under construction, alteration, or
repair does not have at least two rigid exterior walls and a fully
secured roof at the time of loss, your deductible amount will be two
times the deductible that would otherwise apply to a completed
building.
B. In each loss from flood, separate deductibles apply to the
building and personal property insured by this policy.
C. No deductible applies to:
1. III.C.2. Loss Avoidance Measures; or
2. III.D. Increased Cost of Compliance.

VII. Coinsurance

A. This Coinsurance Section applies only to coverage on the
building.
B. We will impose a penalty on loss payment unless the amount of
insurance applicable to the damaged building is:
1. At least 80 percent of its replacement cost; or
2. The maximum amount of insurance available for that building
under the NFIP, whichever is less.
C. If the actual amount of insurance on the building is less
than the required amount in accordance with the terms of VII.B
above, then loss payment is determined as follows (subject to all
other relevant conditions in this policy, including those pertaining
to valuation, adjustment, settlement, and payment of loss):
1. Divide the actual amount of insurance carried on the building
by the required amount of insurance.
2. Multiply the amount of loss, before application of the
deductible, by the figure determined in C.1 above.
3. Subtract the deductible from the figure determined in C.2
above.
We will pay the amount determined in C.3 above, or the amount of
insurance carried, whichever is less. The amount of insurance
carried, if in excess of the applicable maximum amount of insurance
available under the NFIP, is reduced accordingly.

Examples
Example #1 (Inadequate Insurance)
Replacement value of the building--$250,000
Required amount of insurance--$200,000
(80 percent of replacement value of $250,000)
Actual amount of insurance carried--$180,000
Amount of the loss--$150,000
Deductible--$500
Step 1: 180,000/200,000 = .90
(90 percent of what should be carried.)
Step 2: 150,000 x .90 = 135,000
Step 3: 135,000 500 = 134,500

We will pay no more than $134,500. The remaining $15,500 is not
covered due to the coinsurance penalty ($15,000) and application of
the deductible ($500).

Example #2 (Adequate Insurance)
Replacement value of the building--$500,000
Required amount of insurance--$400,000
(80 percent of replacement value of $500,000)

[[Page 33010]]

Actual amount of insurance carried--$400,000
Amount of the loss--$200,000
Deductible--$500

In this example there is no coinsurance penalty, because the
actual amount of insurance carried meets the required amount. We
will pay no more than $199,500 ($200,000 amount of loss minus the
$500 deductible).
D. In calculating the full replacement cost of a building:
1. The replacement cost value of any covered building property
will be included;
2. The replacement cost value of any building property not
covered under this policy will not be included; and
3. Only the replacement cost value of improvements installed by
the condominium association will be included.

VIII. General Conditions

A. Pair and Set Clause

B. Other Insurance

1. If a loss insured by this policy is also insured by other
insurance that includes flood coverage not issued under the Act, we
will not pay more than the amount of insurance that you are entitled
to for lost, damaged, or destroyed property insured under this
policy subject to the following:
a. We will pay only the proportion of the loss that the amount
of insurance that applies under this policy bears to the total
amount of insurance covering the loss, unless VIII.B.1.b or c
immediately below applies.
b. If the other policy has a provision stating that it is excess
insurance, this policy will be primary.
c. This policy will be primary (but subject to its own
deductible) up to the deductible in the other flood policy (except
another policy as described in VIII.B.1.b. above). When the other
deductible amount is reached, this policy will participate in the
same proportion that the amount of insurance under this policy bears
to the total amount of both policies, for the remainder of the loss.
2. If there is a National Flood Insurance Program flood
insurance policy in the name of a unit owner that covers the same
loss as this policy, then this policy will be primary.

C. Amendments, Waivers, Assignment

This policy cannot be changed, nor can any of its provisions be
waived, without the express written consent of the Federal Insurance
Administrator. No action we take under the terms of this policy
constitutes a waiver of any of our rights. You may assign this
policy in writing when you transfer title of your property to
someone else except under these conditions:
1. When this policy insures only personal property; or
2. When this policy insures a building under construction.

D. Insufficient Premium or Rating Information

1. Applicability. The following provisions apply to all
instances where the premium paid on this policy is insufficient or
where the rating information is insufficient, such as where an
Elevation Certificate is not provided.
2. Reforming the Policy with Reduced Coverage. Except as
otherwise provided in VIII.D.1 and VIII.D.4, if the premium we
received from you was not sufficient to buy the kinds and amounts of
coverage you requested, we will provide only the kinds and amounts
of coverage that can be purchased for the premium payment we
received.
a. For the purpose of determining whether your premium payment
is sufficient to buy the kinds and amounts of coverage you
requested, we will first deduct the costs of all applicable fees and
surcharges.
b. If the amount paid, after deducting the costs of all
applicable fees and surcharges, is not sufficient to buy any amount
of coverage, your payment will be refunded. Unless the policy is
reformed to increase the coverage amount to the amount originally
requested pursuant to VIII.E.3, this policy will be cancelled, and
no claims will be paid under this policy.
c. Coverage limits on the reformed policy will be based upon the
amount of premium submitted per type of coverage, but will not
exceed the amount originally requested.
3. Discovery of Insufficient Premium or Rating Information. If
we discover that your premium payment was not sufficient to buy the
requested amount of coverage, the policy will be reformed as
described in VIII.D.2. You have the option of increasing the amount
of coverage resulting from this reformation to the amount you
requested as follows:
a. Insufficient Premium. If we discover that your premium
payment was not sufficient to buy the requested amount of coverage,
we will send you, and any mortgagee or trustee known to us, a bill
for the required additional premium for the current policy term (or
that portion of the current policy term following any endorsement
changing the amount of coverage). If it is discovered that the
initial amount charged to you for any fees or surcharges is
incorrect, the difference will be added or deducted, as applicable,
to the total amount in this bill.
(1) If you or the mortgagee or trustee pay the additional amount
due within 30 days from the date of our bill, we will reform the
policy to increase the amount of coverage to the originally
requested amount, effective to the beginning of the current policy
term (or subsequent date of any endorsement changing the amount of
coverage).
(2) If you or the mortgagee or trustee do not pay the additional
amount due within 30 days of the date of our bill, any flood
insurance claim will be settled based on the reduced amount of
coverage.
(3) As applicable, you have the option of paying all or part of
the amount due out of a claim payment based on the originally
requested amount of coverage.
b. Insufficient Rating Information. If we determine that the
rating information we have is insufficient and prevents us from
calculating the additional premium, we will ask you to send the
required information. You must submit the information within 60 days
of our request.
(1) If we receive the information within 60 days of our request,
we will determine the amount of additional premium for the current
policy term and follow the procedure in VIII.D.3.a above.
(2) If we do not receive the information within 60 days of our
request, no claims will be paid until the requested information is
provided. Coverage will be limited to the amount of coverage that
can be purchased for the payments we received, as determined when
the requested information is provided.
4. Coverage Increases. If we do not receive the amount requested
in VIII.D.3.a or VIII.D.4.a, or the additional information requested
in VIII.D.3.b or VIII.D.4.b by the date it is due, the amount of
coverage under this policy can only be increased by endorsement
subject to the appropriate waiting period. However, no coverage
increases will be allowed until you have provided the information
requested in VIII.D.3.b or VIII.D.4.b.
5. Falsifying Information. However, if we find that you or your
agent intentionally did not tell us, or falsified, any important
fact or circumstance or did anything fraudulent relating to this
insurance, the provisions of IX.A apply.

E. Policy Renewal

1. This policy will expire at 12:01 a.m. on the last day of the
policy term.
2. We must receive the payment of the appropriate renewal
premium within 30 days of the expiration date.
3. If we find, however, that we did not place your renewal
notice into the U.S. Postal Service, or if we did mail it, we made a
mistake, e.g., we used an incorrect, incomplete, or illegible
address, which delayed its delivery to you before the due date for
the renewal premium, then we will follow these procedures:
a. If you or your agent notified us, not later than one year
after the date on which the payment of the renewal premium was due,
of non-receipt of a renewal notice before the due date for the
renewal premium, and we determine that the circumstances in the
preceding paragraph apply, we will mail a second bill providing a
revised due date, which will be 30 days after the date on which the
bill is mailed.
b. If we do not receive the premium requested in the second bill
by the revised due date, then we will not renew the policy. In that
case, the policy will remain as an expired policy as of the
expiration date shown on the Declarations Page.
c. In connection with the renewal of this policy, we may ask you
during the policy term to recertify, on a Recertification
Questionnaire that we will provide you, the rating information used
to rate your most recent application for or renewal of insurance.

[[Page 33011]]

F. Conditions Suspending or Restricting Insurance

We are not liable for loss that occurs while there is a hazard
that is increased by any means within your control or knowledge.

G. Requirements in Case of Loss

H. Our Options After a Loss

Options we may, in our sole discretion, exercise after loss
include the following:
1. At such reasonable times and places that we may designate,
you must:
a. Show us or our representative the damaged property;
b. Submit to examination under oath, while not in the presence
of another insured, and sign the same; and
c. Permit us to examine and make extracts and copies of:
(1) Any policies of property insurance insuring you against loss
and the deed establishing your ownership of the insured real
property;
(2) Condominium association documents including the Declarations
of the condominium, its Articles of Association or Incorporation,
Bylaws, and rules and regulations; and
(3) All books of accounts, bills, invoices and other vouchers,
or certified copies pertaining to the damaged property if the
originals are lost.
2. We may request, in writing, that you furnish us with a
complete inventory of the lost, damaged, or destroyed property,
including:
a. Quantities and costs;
b. Actual cash values or replacement cost (whichever is
appropriate);
c. Amounts of loss claimed;
d. Any written plans and specifications for repair of the
damaged property that you can reasonably make available to us; and
e. Evidence that prior flood damage has been repaired.
3. If we give you written notice within 30 days after we receive
your signed, sworn proof of loss, we may:
a. Repair, rebuild, or replace any part of the lost, damaged, or
destroyed property with material or property of like kind and
quality or its functional equivalent; and
b. Take all or any part of the damaged property at the value
that we agree upon or its appraised value.

I. No Benefit to Bailee

No person or organization, other than you, having custody of
insured property will benefit from this insurance.

J. Loss Payment

1. We will adjust all losses with you. We will pay you unless
some other person or entity is named in the policy or is legally
entitled to receive payment. Loss will be payable 60 days after we
receive your proof of loss (or within 90 days after the insurance
adjuster files the adjuster's report signed and sworn to by you in
lieu of a proof of loss) and:
a. We reach an agreement with you;
b. There is an entry of a final judgment; or
c. There is a filing of an appraisal award with us, as provided
in VIII.M.
2. If we reject your proof of loss in whole or in part you may:
a. Accept our denial of your claim;
b. Exercise your rights under this policy; or
c. File an amended proof of loss as long as it is filed within
60 days of the date of the loss.

K. Abandonment

You may not abandon damaged or undamaged insured property to us.

L. Salvage

We may permit you to keep damaged insured property after a loss,
and we will reduce the amount of the loss proceeds payable to you
under the policy by the value of the salvage.

M. Appraisal

If you and we fail to agree on the actual cash value or, if
applicable, replacement cost of the damaged property so as to
determine the amount of loss, then either may demand an appraisal of
the loss. In this event, you and we will each choose a competent and
impartial appraiser within 20 days after receiving a written request
from the other. The two appraisers will choose an umpire. If they
cannot agree upon an umpire within 15 days, you or we may request
that the choice be made by a judge of a court of record in the state
where the insured property is located. The appraisers will
separately state the actual cash value, the replacement cost, and
the amount of loss to each item. If the appraisers submit a written
report of an agreement to us, the amount agreed upon will be the
amount of loss. If they fail to agree, they will submit their
differences to the umpire. A decision agreed to by any two will set
the amount of actual cash value and loss, or if it applies, the
replacement cost and loss.
Each party will:
1. Pay its own appraiser; and
2. Bear the other expenses of the appraisal and umpire equally.

N. Mortgage Clause

[[Page 33012]]

O. Suit Against Us

P. Subrogation

Q. Continuous Lake Flood

1. If an insured building has been flooded by rising lake waters
continuously for 90 days or more and it appears reasonably certain
that a continuation of this flooding will result in an insured loss
to the insured building equal to or greater than the building policy
limits plus the deductible or the maximum payable under the policy
for any one building loss, we will pay you the lesser of these two
amounts without waiting for the further damage to occur if you sign
a release agreeing:
a. To make no further claim under this policy;
b. Not to seek renewal of this policy;
c. Not to apply for any flood insurance under the Act for
property at the described location;
d. Not to seek a premium refund for current or prior terms.
If the policy term ends before the insured building has been
flooded continuously for 90 days, the provisions of this paragraph
Q.1 will apply when the insured building suffers a covered loss
before the policy term ends.
2. If your insured building is subject to continuous lake
flooding from a closed basin lake, you may elect to file a claim
under either paragraph Q.1 above or this paragraph Q.2 (A ``closed
basin lake'' is a natural lake from which water leaves primarily
through evaporation and whose surface area now exceeds or has
exceeded one square mile at any time in the recorded past. Most of
the nation's closed basin lakes are in the western half of the
United States where annual evaporation exceeds annual precipitation
and where lake levels and surface areas are subject to considerable
fluctuation due to wide variations in the climate. These lakes may
overtop their basins on rare occasions.) Under this paragraph Q.2,
we will pay your claim as if the building is a total loss even
though it has not been continuously inundated for 90 days, subject
to the following conditions:
a. Lake floodwaters must damage or imminently threaten to damage
your building.
b. Before approval of your claim, you must:
(1) Agree to a claim payment that reflects your buying back the
salvage on a negotiated basis; and
(2) Grant the conservation easement contained in FEMA's ``Policy
Guidance for Closed Basin Lakes,'' to be recorded in the office of
the local recorder of deeds. FEMA, in consultation with the
community in which the property is located, will identify on a map
an area or areas of special consideration (ASC) in which there is a
potential for flood damage from continuous lake flooding. FEMA will
give the community the agreed-upon map showing the ASC. This
easement will only apply to that portion of the property in the ASC.
It will allow certain agricultural and recreational uses of the
land. The only structures that it will allow on any portion of the
property within the ASC are certain simple agricultural and
recreational structures. If any of these allowable structures are
insurable buildings under the NFIP and are insured under the NFIP,
they will not be eligible for the benefits of this paragraph Q.2. If
a U.S. Army Corps of Engineers certified flood control project or
otherwise certified flood control project later protects the
property, FEMA will, upon request, amend the ASC to remove areas
protected by those projects. The restrictions of the easement will
then no longer apply to any portion of the property removed from the
ASC; and
(3) Comply with paragraphs Q.1.a through Q.1.d above.
c. Within 90 days of approval of your claim, you must move your
building to a new location outside the ASC. FEMA will give you an
additional 30 days to move if you show there is sufficient reason to
extend the time.
d. Before the final payment of your claim, you must acquire an
elevation certificate and a floodplain development permit from the
local floodplain administrator for the new location of your
building.
e. Before the approval of your claim, the community having
jurisdiction over your building must:
(1) Adopt a permanent land use ordinance, or a temporary
moratorium for a period not to exceed 6 months to be followed
immediately by a permanent land use ordinance, that is consistent
with the provisions specified in the easement required in paragraph
Q.2.b above;
(2) Agree to declare and report any violations of this ordinance
to FEMA so that under Section 1316 of the National Flood Insurance
Act of 1968, as amended, flood insurance to the building can be
denied; and
(3) Agree to maintain as deed-restricted, for purposes
compatible with open space or agricultural or recreational use only,
any affected property the community acquires an interest in. These
deed restrictions must be consistent with the provisions of
paragraph Q.2.b above, except that even if a certified project
protects the property, the land use restrictions continue to apply
if the property was acquired under the Hazard Mitigation Grant
Program or the Flood Mitigation Assistance Program. If a non-profit
land trust organization receives the property as a donation, that
organization must maintain the property as deed-restricted,
consistent with the provisions of paragraph Q.2.b above.
f. Before the approval of your claim, the affected State must
take all action set forth in FEMA's ``Policy Guidance for Closed
Basin Lakes.''
g. You must have NFIP flood insurance coverage continuously in
effect from a date established by FEMA until you file a claim under
this paragraph Q.2. If a subsequent owner buys NFIP insurance that
goes into effect within 60 days of the date of transfer of title,
any gap in coverage during that 60-day period will not be a
violation of this continuous coverage requirement. For the purpose
of honoring a claim under this paragraph Q.2, we will not consider
to be in effect any increased coverage that became effective after
the date established by FEMA. The exception to this is any increased
coverage in the amount suggested by your insurer as an inflation
adjustment.
h. This paragraph Q.2 will be in effect for a community when the
FEMA Regional Administrator for the affected region provides to the
community, in writing, the following:
(1) Confirmation that the community and the State are in
compliance with the conditions in paragraphs Q2.e and Q.2.f above,
and
(2) The date by which you must have flood insurance in effect.

R. Loss Settlement

1. Introduction

2. Replacement Cost Loss Settlement

a. We will pay to repair or replace a damaged or destroyed
building, after application of the deductible and without deduction
for depreciation, but not more than the least of the following
amounts:
(1) The amount of insurance in this policy that applies to the
building;
(2) The replacement cost of that part of the building damaged,
with materials of like kind and quality, and for like occupancy and
use; or
(3) The necessary amount actually spent to repair or replace the
damaged part of the building for like occupancy and use.
b. We will not be liable for any loss on a Replacement Cost
Coverage basis unless and

[[Page 33013]]

until actual repair or replacement of the damaged building or parts
thereof, is completed.
c. If a building is rebuilt at a location other than the
described location, we will pay no more than it would have cost to
repair or rebuild at the described location, subject to all other
terms of Replacement Cost Loss Settlement.

3. Special Loss Settlement

a. The following loss settlement conditions apply to a
residential condominium building that is:
(1) A manufactured home or travel trailer, as defined in
II.C.6.b and c, and
(2) at least 16 feet wide when fully assembled and has at least
600 square feet within its perimeter walls when fully assembled.
b. If such a building is totally destroyed or damaged to such an
extent that, in our judgment, it is not economically feasible to
repair, at least to its pre-damaged condition, we will, at our
discretion, pay the least of the following amounts:
(1) The lesser of the replacement cost of the manufactured home
or travel trailer or 1.5 times the actual cash value; or
(2) The Building Limit of liability shown on your Declarations
Page.
c. If such a manufactured home or travel trailer is partially
damaged and, in our judgment, it is economically feasible to repair
it to its pre-damaged condition, we will settle the loss according
to the Replacement Cost Loss Settlement conditions in R.2 above.

4. Actual Cash Value Loss Settlement

a. The types of property noted below are subject to actual cash
value loss settlement:
(1) Personal property;
(2) Insured property abandoned after a loss and that remains as
debris at the described location;
(3) Outside antennas and aerials, awning, and other outdoor
equipment;
(4) Carpeting and pads;
(5) Appliances; and
(6) A manufactured home or mobile home or a travel trailer as
defined in II.C.6.b or c that does not meet the conditions for
special loss settlement in R.3 above.
b. We will pay the least of the following amounts:
(1) The applicable amount of insurance under this policy;
(2) The actual cash value, as defined in II.C.2; or
(3) The amount it would cost to repair or replace the property
with material of like kind and quality within a reasonable time
after the loss.

IX. Policy Nullification, Cancellation, and Non-Renewal

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

1. With respect to all insureds under this policy, this policy
is void and has no legal force and effect if at any time, before or
after a loss, you or any other insured or your agent have, with
respect to this policy or any other NFIP insurance:
a. Concealed or misrepresented any material fact or
circumstance;
b. Engaged in fraudulent conduct; or
c. Made false statements.
2. Policies voided under A.1 cannot be renewed or replaced by a
new NFIP policy.
3. Policies are void as of the date the acts described in
A.1.above were committed.
4. Fines, civil penalties, and imprisonment under applicable
Federal laws may also apply to the acts of fraud or concealment
described above.

B. Policy Nullification for Reasons Other Than Fraud

C. Cancellation of the Policy by You

D. Cancellation of the Policy by Us

1. Cancellation for Underpayment of Amounts Owed on This Policy.
This policy will be cancelled, pursuant to VIII.D.2, if it is
determined that the premium amount you paid is not sufficient to buy
any amount of coverage, and you do not pay the additional amount of
premium owed to increase the coverage to the originally requested
amount within the required time period.
2. Cancellation Due to Lack of an Insurable Interest.
a. If you no longer have an insurable interest in the insured
property, we will cancel this policy. You will cease to have an
insurable interest if:
(1) For building coverage, the building was sold, destroyed, or
removed.
(2) For contents coverage, the contents were sold or transferred
ownership, or the contents were completely removed from the
described location.
b. If your policy is cancelled for this reason, you may be
entitled to a partial refund of premium under the applicable rules
and regulations of the NFIP.
3. Cancellation of Duplicate Policies.
a. Except as allowed under Article I.F, your property may not be
insured by more than one NFIP policy, and payment for damages to
your property will only be made under one policy.
b. Except as allowed under Article I.G, if the property is
insured by more than one NFIP policy, we will cancel all but one of
the policies. The policy, or policies, will be selected for
cancellation in accordance with 44 CFR 62.5 and the applicable rules
and guidance of the NFIP.
c. If this policy is cancelled pursuant to VIII.D.3.a, you may
be entitled to a full or partial refund of premium, surcharges, or
fees under the terms and conditions of this policy and the
applicable rules and regulations of the NFIP.
4. Cancellation Due to Physical Alteration of Property.
a. If the insured building has been physically altered in such a
manner that it is no longer eligible for flood insurance coverage,
we will cancel this policy.
b. If your policy is cancelled for this reason, you may be
entitled to a partial refund of premium under the terms and
conditions of this policy and the applicable rules and regulations
of the NFIP.

E. Non-Renewal of the Policy by Us

X. Liberalization Clause

If we make a change that broadens your coverage under this
edition of our policy, but does not require any additional premium,
then that change will automatically apply to your insurance as of
the date we implement the change, provided that this implementation
date falls within 60 days before or during the policy term stated on
the Declarations Page.

XI. What Law Governs

[[Page 33014]]

PART 62--SALE OF INSURANCE AND ADJUSTMENT OF CLAIMS

0
15. Revise the authority citation for Part 62 to read as follows:

Authority: 42 U.S.C. 4001 et seq.; 6 U.S.C. 101 et seq.

0
16. Revise Sec. 62.3 to read as follows:

Sec. 62.3 Servicing Agent.

(a) Pursuant to sections 1345 and 1346 of the Act, the Federal
Insurance Administrator may enter into an agreement with a servicing
agent to authorize it to assist in issuing flood insurance policies
under the Program in communities designated by the Federal Insurance
Administrator and to accept responsibility for delivery of policies and
payment of claims for losses as prescribed by and at the discretion of
the Federal Insurance Administrator.
(b) The servicing agent will arrange for the issuance of flood
insurance to any person qualifying for such coverage under parts 61 and
64 of this subchapter who submits an application to the servicing agent
in accordance with the terms and conditions of the contract between the
Agency and the servicing agent.
0
17. Revise Sec. 62.5 to read as follows:

Sec. 62.5 Nullifications, Cancellations, and Premium Refunds.

(a) Nullification.
(1) Property Ineligible at Time of Application. FEMA will void a
policy for a property that was not eligible for coverage at the time of
the initial application from the commencement of the policy. FEMA must
pay the policyholder a refund of all premium, fees, and surcharges paid
from the date of commencement of the policy, but no more than 5 years
prior to the date of date of receipt of verifiable evidence that the
property was ineligible for coverage at the time of the initial
application. If FEMA paid a claim for an ineligible property, the
policyholder must return the claim payment to FEMA, or offset the
payment from the premiums to be refunded, before FEMA will process the
refund.
(2) Property Later Becomes Ineligible. FEMA may not renew a policy
for a property that was eligible for coverage at the time of the
initial application, but later became ineligible for coverage. In such
instances, the FEMA must nullify the policy from the first renewal date
after the property became ineligible. FEMA must refund all premium,
fees, and surcharges paid from the first renewal date after the
property became ineligible, but no more than 5 years prior to the date
of receipt of verifiable evidence that the property was eligible for
coverage at the time of the initial application, but later became
ineligible for coverage. If FEMA paid a claim for a property after it
became ineligible for coverage, the policyholder must return the claim
payment to FEMA or FEMA must offset the amount of claim payment from
the premiums to be refunded before FEMA may process the refund.
(3) Nullification Prior to Policy Effective Date. If FEMA nullifies
a policy prior to the policy effective date, that policy will be void
from the commencement of the nullified policy term. In such case, FEMA
will refund all premium, fees, and surcharges paid for the current
policy term only. If FEMA paid a claim for a policy that was improperly
issued, the policyholder must return the claim payment to FEMA or FEMA
must offset the amount of claim payment from the premiums to be
refunded before the NFIP may process the refund.
(b) Cancellation Due to Lack of an Insurable Interest. If the
policyholder had an insurable interest, but no longer has an insurable
interest, in the insured property, FEMA must cancel the policy on the
insured property. If FEMA cancels a policy for this reason, FEMA must
refund the policyholder a pro rata share of the premium from the date
the policyholder lost an insurable interest in the property, but no
more than 5 years prior to the date of the cancellation request. FEMA
must pay the policyholder a refund of all fees or surcharges for any
full policy term during which the policyholder had no insurable
interest in the insured property, but no more than 5 years prior to the
date of the cancellation request. A policyholder ceases to have an
insurable interest if:
(1) For building coverage, the building was sold, destroyed, or
removed.
(2) For contents coverage, the contents were sold or transferred
ownership, or the contents were completely removed from the described
location.
(c) No Insurance Coverage Requirement. A policyholder may cancel a
policy if the policyholder was subject to a requirement by a lender,
loss payee, or other Federal agency to obtain and maintain flood
insurance pursuant to statute, regulation, or contract, but there is no
longer such a requirement. The policyholder will receive a refund of a
pro rata share of the premium for the current policy term only,
calculated from the date of the cancellation request, but will not
receive a refund of any fees or surcharges.
(d) Establishment of a Common Expiration Date. A policyholder may
purchase a new policy and cancel an existing policy in order to
establish a common expiration date between flood insurance coverage and
other coverage. The policyholder will receive a refund of a pro rata
share of the premium calculated from the effective date of the new
policy to the end date of the previous policy. The policyholder will
not receive a refund of any fees or surcharges. In order to rewrite and
cancel the policy, the following conditions must apply:
(1) The new policy must be written with the same company for the
same or higher amount of coverage. If the policy is written for a
higher amount or different type of coverage, the waiting period in
Sec. 61.11 will apply.
(2) The other insurance coverage for which the common expiration
date is being established must be for coverage on the same building
that is insured by the flood policy being cancelled and rewritten.
(3) The coverage for the new policy must be effective prior to the
cancelling the existing policy.
(e) Cancelation or Nullification of Duplicate NFIP Policies.
(1) Generally.
(i) Except as described in 44 CFR 62.5(e)(2), if an insured
property is covered by more than one NFIP policy not in accordance with
applicable regulations and the Standard Flood Insurance Policy, FEMA
must nullify the policy with the later effective date. The policy with
the earlier effective date will continue. The policyholder will receive
a pro rata refund of all premium for the nullified policy from the
effective date of the nullified policy, but no more than 5 years prior
to the date of receipt of verifiable evidence that the insured property
is covered by more than one NFIP policy. The policyholder will receive
a refund of all fees or surcharges for any full policy term during
which the policyholder was covered by more than one policy, but no more
than 5 years prior to the date of receipt of verifiable evidence that
the insured property is covered by more than one NFIP policy.
(ii) If both polices have the same policy effective date, the
policyholder may choose which policy will remain in effect, and the
policyholder will receive a refund of all premium, fees, and surcharges
for the cancelled policy from the effective date of the cancelled
policy, but no more than 5 years prior to the date of receipt of
verifiable evidence that the insured property is covered by more than
one NFIP policy.
(2) Exceptions. In the following cases, the policyholder may
maintain the policy with the later policy effective

[[Page 33015]]

date while cancelling the policy with the earlier policy effective
date:
(i) Earlier Policy Expired--The policy with the earlier effective
date has expired for more than 30 days. In such cases, the policyholder
will receive a refund of a pro rata share of the premium, calculated
from the effective date of the policy with the later effective date to
the end date of the policy with the earlier effective date, but no more
than 5 years prior to the date of cancellation. The policyholder will
also receive a refund of all fees and surcharges for any full policy
terms during which the insured property is covered by both policies,
but no more than 5 years prior to the date of the cancellation request.
(ii) Group Flood Insurance Policy (GFIP)--The policy with the
earlier policy effective date is a Group Flood Insurance Policy. In
such cases, there will be no refund of any premium, fees, or
surcharges.
(iii) Cancellations to Establish a Common Expiration Date--The
policy with the earlier effective date is cancelled to establish a
common policy expiration date pursuant to paragraph (d) of this
section. In such cases, refunds will be provided in accordance with
paragraph (d) of this section.
(iv) Force-Placed Policy--The policy with the earlier effective
date was force placed pursuant to 42 U.S.C. 4012a using the NFIP's
Mortgage Portfolio Protection Program. In such cases, the policyholder
will receive a refund of the pro rata share of the premium calculated
from the policy effective date of the new policy to the expiration date
of the cancelled policy. There will be no refund of any fees or
surcharges.
(v) Condominium Unit Covered by a Dwelling Form Policy and an
RCBAP--The policy with the earlier effective date is a Dwelling Form
Policy with building coverage on a condominium unit that is also
covered by a Residential Condominium Building Association Policy
(RCBAP) that is issued at the statutory maximum coverage limit for
buildings. In such cases, the policyholder will receive a refund of a
pro rata share of the premium for the building coverage issued under
the Dwelling Form policy, as calculated from the effective date of the
RCBAP policy to the end date of the Dwelling Form policy. The
policyholder will also receive a refund of all fees and surcharges for
any full policy terms during which the condominium unit is covered by
both a Dwelling Form policy and an RCBAP in which the coverage equals
the statutory maximum coverage limits for buildings, but no more than 5
years prior to the date of the cancellation request.
(f) Other Cancellations and Nullifications. Except as indicated
below, FEMA will not refund premiums, assessments, fees, or surcharges
if FEMA cancels a policy for any of the following reasons:
(1) Fraud. FEMA will cancel a policy for fraud committed by the
policyholder or the agent. FEMA may cancel a policy for
misrepresentation of a material fact by the policyholder or agent. Such
cancellations will take effect as of the date of the fraudulent act or
material misrepresentation of fact.
(2) Administrative Cancellation. FEMA may cancel and rewrite a
policy to correct an administrative error, such as when the policy is
written with the wrong policy effective date. In such cases, FEMA will
apply any premium, assessments, fees, or surcharges to the new policy.
FEMA will refund any excess premium, fees, surcharges, or assessments
paid.
(3) Nullification for Properties Ineligible Due to Physical
Alteration of Property. A policy insuring a building or its contents,
or both, may be cancelled if the building has been physically altered
in such a manner that the building and its contents are no longer
eligible for flood insurance coverage. The policyholder will receive a
refund of a pro rata share of the premium for the current policy term
only, but the policyholder will not receive a refund of any fees or
surcharges.
0
18. Revise Sec. 62.6 to read as follows:

Sec. 62.6 Brokers and Agents Writing NFIP Policies through the NFIP
Direct Servicing Agent.

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

Sec. 62.22 [Amended]

0
19. In Sec. 62.22, amend paragraph (a) by removing the two instances
of the words ``Federal Insurance Administration'' and replacing them
with ``Federal Insurance and Mitigation Administration.''

Brock Long,
Administrator, Federal Emergency Management Agency.
[FR Doc. 2018-13292 Filed 7-13-18; 8:45 am]
BILLING CODE 9111-52-P

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