National Flood Insurance Program: Standard Flood Insurance Policy, Homeowner Flood Form

Federal RegisterFeb 6, 2024

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DEPARTMENT OF HOMELAND SECURITY

Federal Emergency Management Agency

44 CFR Part 61

[Docket ID FEMA-2024-0004]

RIN 1660-AB06

National Flood Insurance Program: Standard Flood Insurance Policy, Homeowner Flood Form

AGENCY:

Federal Emergency Management Agency, DHS.

ACTION:

Notice of proposed rulemaking.

SUMMARY:

The National Flood Insurance Program (NFIP), established pursuant to the National Flood Insurance Act of 1968, is a voluntary program in which participating communities adopt and enforce a set of minimum floodplain management requirements to reduce future flood damages. Property owners within participating communities are eligible to purchase NFIP flood insurance. This proposed rule would revise the Standard Flood Insurance Policy by adding a new Homeowner Flood Form and five accompanying endorsements. The new Homeowner Flood Form would replace the Dwelling Form as a source of coverage for homeowners of one-to-four family residences. Together, the new Homeowner Flood Form and endorsements would more closely align with property and casualty homeowners insurance and provide increased options and coverage in a more user-friendly and comprehensible format.

DATES:

Comments must be received on or before April 8, 2024.

ADDRESSES:

You may submit comments, identified by Docket ID FEMA-2024-0004, via the Federal eRulemaking Portal:

http://www.regulations.gov.

Follow the instructions for submitting comments.

FOR FURTHER INFORMATION CONTACT:

Kelly Bronowicz, Product and Policy Development Division Director, Federal Insurance Directorate, Resilience, (202) 646-2559,

FEMA-NFIP-Federal-Insurance-Policy@fema.dhs.gov.

SUPPLEMENTARY INFORMATION:

I. Public Participation

Interested persons are invited to participate in this rulemaking by submitting comments and related materials. We will consider all comments and material received during the comment period.

If you submit a comment, include the Docket ID FEMA-2024-0004, indicate the specific section of this document to which each comment applies, and give the reason for each comment. All submissions may be posted, without change, to the Federal e-Rulemaking Portal at

http://www.regulations.gov,

and will include any personal information you provide. Therefore, submitting this information makes it public. For more information about privacy and the docket, visit

https://www.regulations.gov/document?D=DHS-2018-0029-0001.

Viewing comments and documents:

For access to the docket to read background documents or comments received, go to the Federal e-Rulemaking Portal at

http://www.regulations.gov.

II. Executive Summary

The United States is experiencing increased flooding and flood risk from climate change.

In a recent study, researchers found that changes in precipitation contributed to one-third of the flooding financial costs in the United States over the past three decades, totaling almost $75 billion of the estimated $199 billion in flood damages from 1988 to 2017.

Intensifying precipitation associated with climate change, and the associated increases in precipitation extremes and flooding, thus presents a significant financial risk to homeowners.

Climate change means that flood events are on the rise. Climate change is increasing flood risk through (1) more “extreme” rainfall events, caused by a warmer atmosphere holding more water vapor and changes in regional precipitation patterns; and (2) sea-level rise.

See

Rob Bailey, Claudio Saffioti, and Sumer Drall,

Sunk Costs: The Socioeconomic Impacts of Flooding

3 and 8, MarshMcLennan (2021), found at

https://www.marshmclennan.com/content/dam/mmc-web/insights/publications/2021/june/Sunk-Cost_Socioeconomic-impacts-of-flooding_vF.pdf

(last accessed Aug. 28, 2023).

Frances V. Davenport, Marshall Burke, and Noah S. Diffenbaugh,

Contribution of historical precipitation change to US flood damages,

Proceedings of the National Academy of Sciences of the United States of America, Jan. 2021, 118 (4) e2017524118; DOI: 10.1073/pnas.2017524118, found at

https://www.pnas.org/content/118/4/e2017524118

(last accessed Aug. 28, 2023).

See also

Don Jergler, “Climate Change Could Push Flood Losses in U.S. to $40B by 2050,”

Insurance Journal

(Feb. 17, 2022), found at

https://www.insurancejournal.com/news/national/2022/02/17/654831.htm

(last accessed Aug. 28, 2023) (noting annual flood losses forecasted to increase by 26.4% from $32B to $40.6B).

There are four main ways to manage any risk: (1) acceptance; (2) avoidance; (3) mitigation; and (4) transference. Flood risk is a reality. No home is completely safe from potential flooding. Just one inch of flood water in a home can cost more than $25,000 in damage.

Homeowners must accept that the risk of flooding is increasing and with it, the potential for damage to their property. Homeowners can seek to reduce risk by building or purchasing homes away from natural flood hazards and can seek to mitigate risk by building or modifying homes to reduce potential damage from flooding. Homeowners can also transfer the risk by purchasing flood insurance.

See http://www.floodsmart.gov/flood-insurance/why

(last accessed Aug. 28, 2023).

Flood insurance is one risk management tool. “Governments tend to spend significantly more on disaster response than disaster prevention.” Rob Bailey, Claudio Saffioti & Sumer Drall,

Sunk Costs: The Socioeconomic Impacts of Flooding

9, MarshMcLennan (2021), found at

https://www.marshmclennan.com/content/dam/mmc-web/insights/publications/2021/june/Sunk-Cost_Socioeconomic-impacts-of-flooding_vF.pdf

(last accessed Aug. 28, 2023).

Congress created the National Flood Insurance Program (NFIP) in 1968 to help share the risk of flood losses through an insurance program to provide flood insurance coverage to those who need such protection.

In the context of risk, the NFIP helps communities avoid and mitigate flood risk through adoption of floodplain management ordinances and helps policyholders transfer flood risk to the Federal Government.

See

42 U.S.C. 4001(a).

Over the past five decades, the NFIP has been implemented primarily by FEMA (the “Agency”) to provide insurance to reduce the economic impact of floods.

The Agency seeks to update the current Standard Flood Insurance Policy (SFIP) Dwelling Form to better serve a growing percentage of the public looking for ways to manage their risk through insurance, as they are now threatened by the increased risk of flooding. Most homeowners do not have flood insurance. Some homeowners are required to purchase flood insurance as a condition of any federal financial assistance for acquisition or construction of buildings in the special flood hazard area (SFHA) (

e.g.,

mortgages, flood disaster grants) or as a condition of a loan secured by property in the SFHA while some homeowners choose to purchase it of their own volition. The decision to purchase flood insurance is frequently driven by whether they are subject to the mandatory purchase requirement rather than the actual flood risk to the property. Homeowners generally find it difficult to understand low probability/high impact risks such as flood damage to their property.

If purchasing flood

insurance is not mandatory, then homeowners may not be convinced that they should purchase it. Given the cost of customer acquisition is high, private insurance companies generally are not focused on homeowners that are not required to purchase flood insurance.

From 1968 to 1979, the Department of Housing and Urban Development housed the Federal Insurance Administration, which administered the NFIP until its transfer to FEMA in Executive Order 12127, 44 FR 19367, 3 CFR, 1979 Comp., p. 376.

See

Peter John Robinson, W.J. Wouter Botzen, Howard Kunreuther, Shereen J. Chaudhry,

Default Options and Insurance Demand,

Journal of

Economic Behavior and Organization at 2 (2020), found at

https://www.sciencedirect.com/science/article/pii/S0167268120304765

(last accessed Aug. 28, 2023).

See also

Rachel Cleetus

Overwhelming Risk: Rethinking Flood Insurance in a World of Rising Seas,

found at

https://www.ucsusa.org/sites/default/files/2019-09/Overwhelming-Risk-Full-Report.pdf

(last accessed Aug. 28, 2023) at 9: “In the wake of Sandy, it was estimated that only 15 to 25 percent of at-risk properties in Special Flood Hazard Areas (SFHAs) in the Northeast were insured for flood losses. Many coastal property owners do not carry adequate insurance or are simply not insured at all. It is estimated that, nationally, only 18 percent of households in flood zone areas, which include inland (lakeside and riverside) and coastal areas, have flood insurance.”

See

Rob Bailey, Claudio Saffioti & Sumer Drall,

Sunk Costs: The Socioeconomic Impacts of Flooding

24, MarshMcLennan (2021), found at

https://www.marshmclennan.com/content/dam/mmc-web/insights/publications/2021/june/Sunk-Cost_Socioeconomic-impacts-of-flooding_vF.pdf

(last viewed accessed May 2, 2022Aug. 28, 2023).

See also

Noelwah R. Netusil, Carolyn Kousky, Shulav Neupane, Will Daniel & Howard Kunreuther,

The Willingness to Pay for Flood Insurance

at 33. “Among those who can afford a policy, they may not feel it provides value—that it is not `worth it'—if they fail to understand the role of insurance in their recovery, have challenges in assessing low probability events, or the policy terms do not meet their need,” found at

https://le.uwpress.org/content/wple/97/1/17.full.pdf

(last accessed Aug. 28, 2023).

See also

Tom Hammond

Lowering Costs of Customer Acquisition

found at

https://www.insurancethoughtleadership.com/customer-experience/lowering-costs-customer-acquisition

(last accessed Aug. 28, 2023); Becky Yerak

Direct insurers paying less to attract customers,

found at

https://www.chicagotribune.com/business/ct-customer-acquisition-costs-0515-biz-20150515-story.html

(last accessed Aug. 28, 2023);

How to Lower Customer Acquisition Cost in the Insurance Industry

found at

https://www.amsive.com/2021/09/14/how-to-lower-customer-acquisition-cost-in-the-insurance-industry-amsive/

(last accessed Aug. 28, 2023); and

Insurtechs Need to Ace Customer Acquisition Cost (CAC) Optimization

found at

https://rintupatnaik.medium.com/insurtechs-need-to-ace-customer-acquisition-cost-cac-optimization-b695bc45bf7b

(last accessed Aug. 28, 2023).

FEMA has not substantively updated its flood insurance products—the Dwelling Form, the General Property Form, and the Residential Condominium Building Association Policy (RCBAP)—since 2000. While these products have performed ably over two decades of service, they are overdue for revision. Consistent with the National Flood Insurance Act (NFIA) of 1968, FEMA must provide by regulation the general terms and conditions of insurability for properties eligible for flood insurance coverage. 42 U.S.C. 4013(a). Further, Executive Order 13563, “Improving Regulation and Regulatory Review,” requires agencies to complete retrospective analyses of existing rules and periodically review existing significant regulations to determine whether they should be modified, streamlined, expanded, or repealed to better achieve the Agency's regulatory objective. 76 FR 3821 (Jan. 21, 2011). FEMA seeks to make these revisions consistent with the requirements under the NFIA and Executive Order 13563. The proposed new Homeowner Flood Form would update the general terms and conditions of insurability under the NFIP while also modifying the existing regulations and policy to make the program more effective and less burdensome for homeowner policyholders as explained below. Additionally, consistent with Executive Order 14058, “Transforming Federal Customer Experience and Service Delivery to Rebuild Trust in Government,”

FEMA seeks to improve the homeowner policyholder experience with the NFIP through the proposed Homeowner Flood Form, by simplifying coverage terms, reducing complexity, and resolving key challenges faced by homeowner policyholders.

86 FR 71357 (Dec. 16, 2021).

The proposed new Homeowner Flood Form provides a more personalized, customizable product than the NFIP has ever offered during its more than 50 years in existence. Currently, the Dwelling Form serves homeowners, renters, landlords, mobile homeowners, and condo unit owners all in a single policy. The Dwelling Form also includes different coverage terms for certain buildings constructed, or substantially damaged or improved, on or after the effective date of the community's initial Flood Insurance Rate Map (generally referred to as “post-FIRM buildings”) in an attempt to capture all possibilities. The current structure results in confusion for the homeowner policyholders looking for the specific coverage that applies directly to their situation, and imposes a series of choices onto consumers without offering an ability to change them.

The proposed new Homeowner Flood Form offers more choices to policyholders who own their own homes,

which help inform policyholders and prospective policyholders of increased risk of flooding and flood damage, and how best to cover their property as a result. The proposed new Homeowner Flood Form offers enhanced comprehensive default coverages. For example, while much of the default coverage proposed would mirror existing default coverage in the Dwelling Form, FEMA is proposing to shift the default loss settlement from actual cash value to replacement cost value to help policyholders more effectively and more fully recover from loss. These decisions FEMA made in setting coverage defaults (1) nudge homeowner policyholders toward the more appropriate coverage to insure against their risk, and (2) represent FEMA's strategic objective of positioning individuals to understand their risk and take well-informed actions.

This rulemaking also proposes new endorsements for additional coverages that homeowner policyholders may

want

in order to recover from flood events. A homeowner policyholder may want to expand their coverage and therefore increase their policy's flood risk exposure (

i.e.,

purchase the basement coverage endorsement) even if it means they will pay more for the additional coverage, or they may wish to reduce their premium (

i.e.,

purchase the actual cash value endorsement) even if it means they stand to receive a smaller benefit post-loss. Until now, homeowner policyholders have been unable to make any personalized selections. FEMA is introducing choices consumers can make in several ways, through the use of endorsements that modify coverage. These choices will help homeowner policyholders learn about their coverages prior to loss.

The proposed Homeowner Flood Form would be offered to individuals owning a one-to-four family residential building. FEMA will evaluate any changes needed to forms for other types of policyholders (

e.g.,

other residential and commercial) based on public comment associated with this rulemaking.

FEMA,

2022-2026 FEMA Strategic Plan,

found at

https://www.fema.gov/about/strategic-plan

(last accessed Aug. 28, 2023).

The proposed new Homeowner Flood Form does not presuppose that homeowner policyholders are knowledgeable about floodplain management and flood risk. By changing coverage based on pre- or post-FIRM status, and by having certain terms only apply to certain zones, the Dwelling Form presupposes a level of homeowner policyholder floodplain management and flood risk knowledge. Unlike in the Dwelling Form, FEMA is not proposing to change coverage if the building covered is not a primary or principal residence, or if it is pre- or post-FIRM, or for any other reason. Ultimately, flood insurance coverage under the proposed new Homeowner Flood Form is there to help the homeowner policyholder recover. The premiums tied to the coverage choices homeowner policyholders make would

signal the underlying risk and prompt mitigation efforts.

The proposed new Homeowner Flood Form adds directly into the policy terms flexibilities the Agency has had to implement via bulletin or other means, such as special procedures during catastrophic flood events and advance payments. These changes would help homeowner policyholders better understand the options available to them and learn about special procedures under the policy up front, rather than making them wait to find out via a bulletin after a flood event.

The proposed new Homeowner Flood Form also allows for a single deductible rather than multiple deductibles, reducing unnecessary administrative burdens for the homeowner policyholder. Additionally, the proposed new Homeowner Flood Form would provide FEMA with greater flexibility in implementing the flood insurance program. The proposed new Homeowner Flood Form removes unnecessary provisions of the current Dwelling Form policy, reducing the reliance on lists and pushing certain provisions to the declarations page for clarity. The insurance industry recognizes that many policyholders will not read their insurance policy

and has endeavored to put critical information onto the declarations page to increase policyholder understanding of what is and is not covered. In the context of the NFIP, policyholders with basements continue to be surprised that under the current Dwelling Form, the policy provides limited coverage in a basement. Under the proposed new Homeowner Flood Form, the declarations page would include language along the lines that “This property includes a basement. The Homeowner Flood Form provides limited coverage in a basement.” This upfront tailoring of the policy to suit the homeowner policyholder's choices and the placement of critical information on the declarations page would reduce the administrative sludge a homeowner policyholder faces during the claims process. Homeowner policyholders would better understand the coverages they have selected, information would be easily accessible on their declarations page, and their claims should reflect a better understanding of their coverages. This better understanding of their coverages should result in fewer denials, faster claims payments, and an improved customer experience during a difficult time.

See

Louise Castoria, “Is there a duty to read insurance contracts?”

available at https://www.propertycasualty360.com/2019/11/07/is-there-a-duty-to-read-insurance-contracts/

(last accessed on Aug. 28, 2023).

By making these changes and updating coverage, FEMA seeks to address the increased risk of flooding from climate change in several ways. These ways include (1) re-baselining the market, (2) introducing optionality, (3) creating market buzz, (4) creating the opportunity to build back in more resilient ways to reduce future flood risk post-loss, and (5) revamping increased cost of compliance coverage. First, the proposed rule would reset the market. Currently the existing and small private market for flood insurance sets the Dwelling Form as a baseline level of coverage. By revising the coverage in the proposed Homeowner Form, FEMA would drive the market in the right direction to ensure that homeowner policyholders are able to effectively transfer their flood risk. By increasing coverage, people are able to recover faster so that the last flood does not leave them more vulnerable to the next flood.

See

Rob Bailey, Claudio Saffioti & Sumer Drall,

Sunk Costs: The Socioeconomic Impacts of Flooding

3, MarshMcLennan (2021), found at

https://www.marshmclennan.com/content/dam/mmc-web/insights/publications/2021/june/Sunk-Cost_Socioeconomic-impacts-of-flooding_vF.pdf

(last accessed Aug. 28, 2023).

Second, FEMA has utilized the “one size fits all” coverage for policyholders for 50 years. The proposed Homeowner Form seeks to address specific needs of specific homeowner policyholders through the choices being made available. FEMA proposes to increase optionality and require homeowners to assess their own risks, communicating those risks through coverage options and the costs associated with them.

Third, FEMA also anticipates that the changes in the proposed Homeowner Form would generate more interest in flood insurance as the last update occurred over 20 years ago. This interest could include insurance agents, for whom it will be easier to learn about flood insurance coverage. The proposed Homeowner Form would make flood insurance align more with other insurance products and thus more accessible to agents, who may then seek to sell more flood insurance as they better see the value of coverage for their clients.

Fourth, FEMA proposes to create the opportunity to build more resiliently by introducing provisions in its loss settlement clause that would enable homeowner policyholders to replace their damaged building elements with flood damage resistant materials. In addition, these same provisions would enable homeowner policyholders to elevate flood damaged machinery and equipment to reduce the likelihood of future flood damage.

Finally, FEMA proposes to revamp its increased cost of compliance (ICC) provision. Previously, ICC appeared in the Dwelling Form as Coverage D, and its inclusion there was incongruous with the other coverages because it set out an eligibility framework and specifically listed out all the covered and uncovered compliance activities. FEMA proposes to simplify ICC so homeowner policyholders can better understand their ICC coverage, adjusters can more easily advise homeowner policyholders to consult their local floodplain management requirements, and local floodplain managers have appropriate discretion.

What follows below is an overview of the major changes in each section in the proposed Homeowner Flood Form as well as an analysis of the degree of change compared to the Dwelling Form. A detailed description of the changes is found later in this preamble.

Section I: Insuring Agreement.

This section proposes a low level of change from the current Dwelling Form. It would simplify the language and organization of the global aspects of the Form, and replace references to Federal laws (

e.g.,

the Coastal Barrier Resources Act and section 1316 of the NFIA) with a broader statement about conflicts with Federal law.

Section II: Definitions.

This section proposes a moderate to high level of change from the current Dwelling Form. It would eliminate definitions for words only used once within the policy that are currently defined in the Dwelling Form; refine definitions for simplicity and clarity; make substantive changes to the definitions for “Basement,” “Building,” and “Flood”; and add definitions for new concepts such as “Flood Damage Resistant Materials” and “Replacement Cost Value.”

Section III: What We Cover.

This section proposes a moderate to high level of change from the current Dwelling Form. It would combine sections III and IV from the Dwelling Form to present in one place all aspects of coverage (

i.e.,

what is covered, what receives limited coverage, and what is not covered). It would also incorporate plain language, remove lists, and rephrase coverage currently phrased in the negative. In contrast to the Dwelling Form that offers different coverage based on flood zone and pre- or post-FIRM designation, the proposed Homeowner's Form provides uniform coverage. In addition:

•

Coverage A.

It would allow homeowner policyholders to more

easily determine the existence of a basement for coverage purposes as further explained below.

•

Coverage B.

Similar to homeowners insurance coverage, Coverage B would provide coverage to restore certain other, non-dwelling buildings to a functional level. The amount of coverage would be a sublimit of the amount selected for Coverage A, without requiring a separate insurance policy.

•

Coverage C.

Due to the recharacterization of Coverage B for other buildings, and to align with homeowners coverage, Coverage C would address contents coverage and would expand personal property coverage to contents located anywhere in the United States. It would also clarify that coverage for items stored in digital format (like cryptocurrency) is excluded given challenges with proving loss.

Section IV: Exclusions.

This section proposes a low to moderate level of change from the current Dwelling Form. It would limit items excluded from coverage in this section to those items excluded based on cause of the loss consistent with industry practice. It would address earth movement, pollutants, increase in hazard, and other excluded losses under the general heading of “Excluded Losses,” consistent with other lines of property coverage. It would keep “Flood in Progress” as a separate provision, and explicitly exclude coverage for pre-existing damage in a standalone provision.

Section V: Policy Conditions.

This section proposes a moderate to high level of change from the current Dwelling Form. It would separate out the provisions from section VII of the current Dwelling Form that specifically apply to how the policy is administered, the policyholder-facing underwriting aspects of the policy. It would state in simple, plain language the reasons a homeowner policyholder may cancel the policy in accordance with current regulation.

It would give FEMA discretion to extend the deadline to submit proof of loss to 365 days from the date of loss, and the deadline for policy renewal to 60 days from the policy's expiration date (referred to as a “grace period”), following a presidentially-declared flood disaster in accordance with the Robert T. Stafford Disaster Relief and Emergency Assistance Act. FEMA has established a business practice of issuing proof of loss extensions for claims following a major flood event and grace period extensions for flood insurance renewals. The proposed Homeowner Flood Form would normalize this course of business and make the provision discretionary, not mandatory, so that these flexibilities not found in the current Dwelling Form can be leveraged where appropriate. It would also allow insurers to accept and make payment on the adjuster's reports and allow FEMA to issue special terms for advance payments not currently provided in the Dwelling Form.

See

44 CFR 62.5.

Section VI: Procedures and Duties When A Loss Occurs.

This section proposes a moderate to high level of change from the current Dwelling Form. The current Dwelling Form includes various provisions under its section VII (General Conditions) and the proposed Homeowner Flood Form would separate out the provisions that specifically apply to how losses are proven and paid for the homeowner policyholder in this section (

i.e.,

claims issues). It would simplify the options after a loss and extend the proof of loss deadline from the current Dwelling Form deadline of 60 days to 90 days. It would allow insurers to issue a de minimis advance payment to insureds up to five percent of the Coverage A limit of liability (without requiring the mortgage company to be on the check). The proposed Homeowner Flood Form would fold the deductible section from the Dwelling Form into a larger section and introduce language that presents the deductible as a single deductible rather than separate deductibles. It would also simplify loss settlement by removing distinctions between principal and primary residences, using replacement cost value as the default rather than the current Dwelling Form's actual cash value default, and removing all special situations where only actual cash value applies.

Section VII: General Conditions.

This section proposes a low to moderate level of change from the current Dwelling Form. It would reorganize the sections alphabetically and simplify language, add language to capture the ability to have other insurance from a private flood carrier not in the current Dwelling Form, and add sections on “Death,” “Headings and Captions,” and “Your Options After Our Denial.” FEMA is proposing to add a section on death to address situations where there are questions regarding the household residents, and to help alleviate the challenges associated with claims involving a deceased homeowner policyholder for their survivors. Under the Dwelling Form, FEMA observed instances where the family of deceased policyholders would have their claims denied by insurers participating in the NFIP, on grounds that the SFIP prohibits assignment of claims. FEMA is therefore proposing to add a section on death to address and alleviate the challenges associated with claims involving a deceased homeowner policyholder for their survivors. FEMA proposes the “Your Options After Our Denial” section to present in one location the homeowner policyholder's options after denial. This proposed section would reaffirm to homeowner policyholders that there are additional administrative options to work with the insurer to reach a resolution to a claim, but also incorporate requirements from the Bunning-Bereuter-Blumenauer Flood Insurance Reform Act of 2004

explaining the appeals process not currently found in the Dwelling Form.

Public Law 108-264 (June 30, 2004).

III. Background

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. 572), found at 42 U.S.C. 4001

et seq.

The NFIP is a voluntary Federal program enabling property owners in participating communities to purchase flood insurance as a protection against flood losses. In exchange, participating communities must enact floodplain management regulations that incorporate the NFIP minimum floodplain management criteria. The minimum floodplain management criteria are designed to: (1) constrict the development of land which is exposed to flood damage where appropriate; (2) guide the development of proposed construction away from locations which are threatened by flood hazards; (3) assist in reducing damage caused by floods; and (4) otherwise improve the long-range land management and use of flood-prone areas. 42 U.S.C. 4102(c). These NFIP requirements apply to areas known as special flood hazard areas (SFHA) in participating communities.

FEMA administers the NFIP so that the provision of insurance and adoption of minimum floodplain management criteria are mutually reinforcing. NFIP flood insurance indemnifies property owners from flood losses, reducing the need for Federal disaster assistance. And 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 and to identify the areas where the minimum floodplain management requirements apply.

Section 102 of the Flood Disaster Protection Act of 1973 (42 U.S.C. 4012a) makes flood insurance mandatory for all federally-backed mortgages of properties located in special flood hazard areas. This is commonly referred to as the “mandatory purchase requirement.” Additionally, Federal agencies are prohibited from providing loans and grants to any property located in a special flood hazard area unless the property is covered by flood insurance.

See

42 U.S.C. 4012a(a).

In general, the NFIP charges premium rates sufficient to cover the expected claims payouts and operating expenses. Such premium rates are commonly referred to as risk-based or actuarial rates.

See

42 U.S.C. 4014(a)(1), 4015(b). In general, FEMA offers only actuarial rates to all buildings constructed, or substantially damaged or improved, on or after the effective date of the community's initial Flood Insurance Rate Map (FIRM), generally referred to as “post-FIRM buildings.”

See

42 U.S.C. 4015(c)(1). However, the NFIA makes available discounted rates for certain classes of properties. The most common discount is for certain policies covering buildings built or substantially improved prior to the community's adoption of its initial FIRM, generally referred to as “pre-FIRM buildings.”

See

42 U.S.C. 4014(a)(2), 42 U.S.C. 4015(a).

FEMA must also provide discounted rates for properties newly mapped into a SFHA for the first time.

See

42 U.S.C. 4015(i). FEMA gradually phases out these discounts within the premium increase caps set by statute. For the “first policy year,” FEMA must provide homeowner policyholders of newly mapped-in properties the newly mapped discount and increase the premium “in accordance with” the Act's annual limitation of premium increases until the premium reaches its full-risk rate.

Id.; see also

42 U.S.C. 4014(a)(1) (full-risk rates); 42 U.S.C. 4015(e) (annual limitation).

The NFIA limits annual premium increases to not more than 18 percent for any property, with limited exceptions. 42 U.S.C. 4015(e)(1). However, this premium increase cap does not apply (1) to certain pre-FIRM properties for which the NFIA mandates FEMA to increase premiums by 25 percent a year until they reach full-risk rates; (2) to properties within a community which has experienced a downgrade in the NFIP's community rating system;

(3) where the homeowner policyholder has changed the amount of coverage or deductible amounts; and (4) where the property was misrated.

18 19

The Community Rating System (CRS) is a voluntary program for communities participating in the NFIP. The CRS offers NFIP policy premium discounts in communities that develop and execute extra measures beyond minimum floodplain management requirements to provide protection from flooding.

See

42 U.S.C. 4022(b).

A misrated policy occurs when a policy premium is incorrect because one or more rating characteristics are incorrect. Rating characteristics used to determine premium include items such as: loss history, building occupancy, building use, and primary residency status, among others. For more information, see

https://www.fema.gov/sites/default/files/documents/fema_nfip-flood-insurance-manual-sections-1-6_oct2021.pdf

(last accessd Aug. 28, 2023).

There are other exceptions, which are seldom triggered, for properties where the policy has lapsed (42 U.S.C. 4014(g)(1)) and where the owner has refused mitigation assistance (42 U.S.C. 4014(g)(2)).

The NFIA requires FEMA to provide by regulation the “general terms and conditions of insurability . . . applicable to properties eligible for flood insurance coverage.” 42 U.S.C. 4013(a). To comply with this requirement, FEMA adopts the Standard Flood Insurance Policy (SFIP) in regulation, which sets out the terms and conditions of insurance.

See

44 CFR part 61, Appendix A. FEMA must use the SFIP for all flood insurance policies sold through the NFIP.

See

44 CFR 61.13.

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.

See

42 U.S.C. 4013(b).

Id.

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.

ICC is authorized in 42 U.S.C. 4011(b).

IV. Discussion of the Proposed Rule

FEMA last substantively revised the SFIP in 2000.

See

65 FR 60758 (Oct. 12, 2000).

In 2020, FEMA published a final rule that made non-substantive clarifying and plain language improvements to the SFIP.

See

85 FR 43946 (July 20, 2020). However, many policyholders, agents, and adjusters continue to find the SFIP difficult to read and interpret compared to other, more modern, property and casualty insurance products found in the private market.

To achieve Objective 2.2 of FEMA's 2022-2026 Strategic Plan of building a climate resilient nation (

i.e.,

increasing the number of properties with flood insurance and ensuring adequate insurance coverage),

FEMA consulted with property and casualty experts over time

and received valuable suggestions on ways to align the SFIP's design with industry standards and practices and improve its readability. Accordingly, FEMA incorporated these suggestions into a new form of the SFIP, the Homeowner Flood Form, as well as several accompanying endorsements to that form.

FEMA now proposes to adopt this new Homeowner Flood Form and its endorsements. FEMA intends that this new Homeowner Flood Form will be more user-friendly and comprehensible and, as a result, will make it easier for agents to sell flood insurance and close the insurance gap.

FEMA adopted another substantive change in 2003 when it increased the limits for ICC coverage from $20,000 to $30,000.

See

68 FR 9895 (Mar. 3, 2003).

See, e.g.,

The Institutes' Handbook of Insurance Policies, American Institute for Chartered Property Casualty Underwriters, 12th ed. (2018) (containing copies of modern property casualty forms). The Insurance Services Office (ISO)'s template homeowners form (“HO-3” form) appears on page 5 and demonstrates the simplicity of this policy compared to the SFIP. The NFIP receives a high volume of inquiries on the SFIP, further demonstrating the challenges in reading and interpreting the SFIP. Policy inquiries generally make up 43 percent of the total inquiries received by FEMA's “Ask the Experts” tracking system between 2019 and May 2021.

See also

Barlow, Christine G.,

Personal Flood Insurance Coverage Guide

(2018) at 51: “The historic flooding from hurricanes in 2017 has only continued to highlight the issues with the current NFIP program and its ability to provide coverage for the claims that continue to occur. Because of this . . . ISO has developed a personal flood program to provide the industry with standalone private flood forms.” The Chapter (Chapter 4) goes on to compare the coverage to standard homeowner coverage and reference existing endorsements that agents can use with their flood form.

See also Nelson

Becton,

929 F.2d 1287, 1291 (8th Cir. 1991) (“The purpose of the National Flood Insurance Program is to provide flood insurance, which otherwise would not be available, on a uniform nationwide basis. To apply the varying reasonable expectations doctrines of the insurance laws of individual states would `frustrate [these] specific objectives of the Federal program[ ]' ” (citing

United States

Kimbell Foods,

440 U.S. 715, 728 (1979))).

For example, the current Dwelling Form contains references to other legal authority throughout, such as in sections IV.15 (referencing the Coastal Barrier Resources Act, the Coastal Barrier Improvement Act, and related amendments) and V.E (discussing leasing land from the Federal Government).

Like the Dwelling Form at section I.C, proposed section I.C of the new Form would detail the terms of the agreement to pay for direct physical loss by or from flood and would also state that a homeowner policyholder would only receive compensation up to the limits of liability listed on the declarations page. This proposed section would continue to clarify that the “full amount due” includes applicable premiums, surcharges, and fees to help homeowner policyholders understand that the full amount due can be reduced by these outstanding amounts. Additionally, the section would require that the information furnished by the homeowner policyholder be “complete” and accurate to negate incomplete proof of loss issues that can delay claims processing.

Proposed section I.D would move the policy term (currently in the Dwelling Form at section VII.E.1) to the front of the agreement section, separated from the policy renewal content, to make clear to the homeowner policyholder at the top of the form, how long the agreement lasts. Proposed section I.E would incorporate the liberalization clause from the Dwelling Form (article IX), authorizing FEMA to make changes that broaden coverage without an additional premium and making those changes automatically apply to the policy as of the date the change is implemented with certain caveats. Throughout the policy, FEMA proposes to modify timeframes to ensure clarity on how days are calculated under the policy. For example, proposed section I.E. would specify a 60 “calendar” day window prior to or during the policy term rather than a 60-day window as the Dwelling Form provides. The NFIP

currently operates based on calendar days, and specifying this in the policy promotes consistency and transparency, reducing the likelihood that a homeowner policyholder might wrongly assume that “days” are “business” days. Finally, proposed section I.F would retain the right of review language currently in section I.D of the Dwelling Form and incorporate concepts from section VII.D of that form, including the right to request additional information and revising the amounts due from the homeowner policyholder based on any information reviewed. These revisions would ensure the homeowner policyholder is aware of the key terms of the agreement at the onset.

3. Section II: Definitions

First, FEMA proposes to retain in proposed section II.A the upfront clarification that the pronouns “you” and “your” refer to the insured(s), and that “we,” “us,” and “our” refer to the insurer. This clarification concerning the use of pronouns has been in the current SFIP forms since 1982,

and retaining this clarification comports with plain language guidelines.

FEMA proposes to move the language currently in section II.A of the Dwelling Form regarding the policyholder's spouse and the language defining “insured(s)” to a new definition for “Insured(s).” FEMA also proposes not to retain the statement that some definitions are complex due to their presence in statute, regulation, or case law, because this sentence is unnecessary.

Prior to 1982, the forms referred to “insurer” and “insured” throughout.

See e.g.,

44 CFR 61 App. A(1) (1981).

See

“Federal Plain Language Guidelines,” Mar. 2011, at 30, found at

https://www.plainlanguage.gov/media/FederalPLGuidelines.pdf

(last accessed Aug. 28, 2023).

In section II.B, FEMA proposes to change the definition of “flood.” FEMA proposes “Flood” to mean a general and temporary condition of partial or complete inundation of normally dry land from (1) overflow of inland or tidal waters; (2) unusual and rapid accumulation or runoff of surface waters from any source; (3) mudflow, defined as a river of liquid and flowing mud on the surface of normally dry land, as when earth is carried by a current of water; or (4) sudden erosion or undermining of land along the shore of a lake or similar body of water caused by waves or currents of water exceeding anticipated cyclical levels that causes collapse or subsidence of land resulting in a flood. FEMA proposes not to retain the language currently in the Dwelling Form at section II.B.1 limiting flood to two or more acres, or two or more properties, one of which is the policyholder's, because it is unnecessarily restrictive: It deviates from the definition at 44 CFR 59.1, which does not include this limitation, and flood insurance adjusters can experience issues with finding a second property to qualify as a flood, or accessing other properties to investigate whether flooding occurred. FEMA proposes to define “mudflow” where it appears (

i.e.,

within the definition of flood), rather than later in the definitions, to save homeowner policyholders from having to reference a separate part of the policy for it. This is a change to the location of the definition, and not the meaning, as FEMA would continue to use the definition of “mudflow” from the Dwelling Form. FEMA's proposed sub-definition for “erosion” is substantively the same as the Dwelling Form's except that it specifies that the erosion must be

sudden,

making it clear that gradual erosion would not result in a flood under the policy. These proposed changes to the definition of “Flood” would simplify coverage; FEMA does not intend to broaden or narrow coverage here, and would continue to limit coverage where a homeowner policyholder causes a flood or where the cause is wind-driven rain (through a roof or window, etc.) or some other water source (

see

proposed section IV.A.5).

FEMA proposes to relocate and revise the definition of “Building” and incorporate a revised definition of “Basement” and add a definition for “Enclosure” within proximity of the definition of “Building” in section II.C. This relocation of terms will make it easier to read the definiition of the structural elements applicable to buildings in context of one another. “Building” would be defined as “a structure, the construction of which has been completed, that has a fully secured roof and solid, vertical, load-bearing walls and is affixed to a permanent site.” FEMA proposes to replace the phrase “two or more outside rigid walls” with “solid, vertical, load-bearing walls” because this description is more accurate, and specifying a number is unnecessary as “walls” is already plural. This proposed definition would not include the sub-definitions for mobile homes or travel trailers because, as mentioned above, owners of these units would continue to be covered under the Dwelling Form.

In addition, FEMA proposes to remove references to gas or liquid storage tanks, shipping containers, recreational vehicles, park trailers, or other similar vehicles—because as these are not buildings, specifically excluding them from the definition is unnecessary.

The proposed Homeowner Flood Form may insure some manufactured homes. Guidance regarding this coverage will be detailed in future updates to the underwriting rules used by the Program.

Under the current Dwelling Form at section II.C.5, a “Basement” is defined as “[a]ny area of a building, including any sunken room or sunken portion of a room, having its floor below ground level on all sides.” Sometimes this definition does not align with homeowner policyholder expectations that may consider what is defined in the Dwelling Form as a basement to be the first floor of their home.

Under the current Dwelling Form, coverage is limited in basements to specific items and homeowner policyholders cannot choose to increase coverage if they want it for areas of their home they may not otherwise consider to be a “Basement.” The proposed definition for “Basement” would state that a basement is “any area of a building having its floor level below ground level on all sides, regardless of design or use.” The proposed definition would further clarify that “An area of a

building is below ground level when the land touching the exterior of the building is above its floor level. An area of a building is presumed to be below ground level when it is necessary to walk up steps or a slope to reach the land surrounding the building. A professional land survey or report may rebut this presumption.”

See

Donovan Finn and John Travis Marshall,

Superstorm Sandy at Five: Lessons on Law as Catalyst and Obstacle to Long-Term Recovery Following Catastrophic Disasters,

48 Envtl. L. Rep. 10494 (2018), found at

https://commons.library.stonybrook.edu/cgi/viewcontent.cgi?article=1004&context=somas_articles

(last accessed Aug. 28, 2023). “For instance, consider flood insurance regulations and the seemingly simple question: what is a basement? In many parts of the country that would cause little confusion; according to the NFIP a basement is `[a]ny area of the building having its floor subgrade (below ground level) on all sides.' However, this seemingly straightforward definition became a source of significant concern for many building owners after Sandy. In New York City, Hoboken, Jersey City, and other municipalities in the region, the NFIP definition of a basement also technically describes many thousands of housing and retail units at the lowest level of attached row houses that are known in the local vernacular as `ground floor' or `garden units.' Such units may be located anywhere from a few inches to three feet below grade and, if conforming to stipulations in local laws, are legal for use as individual apartments, shops, offices, or fully habitable levels of a single-family home. Many buildings containing this kind of unit actually have an additional cellar or basement level underneath this `ground' level. However, while these units may sit above a second basement, and although they are discrete legal residences or commercial units according to local zoning and building codes, these units are classified by FEMA as basements and are therefore ineligible for NFIP reimbursement. One infamous case involved a Hoboken resident whose NFIP claim was denied because his apartment was determined to be 0.13 inches below grade.”

See also https://www.wxyz.com/news/what-does-fema-cover-if-youre-denied-help-after-floods-here-are-some-other-options

(last accessed Aug. 28, 2023) and

https://www.wxyz.com/news/why-many-people-are-being-denied-fema-flood-assistance

(last accessed Aug. 28, 2023).

FEMA proposes this definition to better explain its application to the area in the building, to the extent the definition is not aligned with a homeowner policyholder's conception of a basement. This proposed definition would better allow homeowner policyholders and their agents to identify whether they have a basement at the point of sale. The Homeowner Flood Form offers homeowner policyholders limited coverage for a basement by default. FEMA seeks comment on this proposed definition of basements to better address the needs and understanding of homeowner policyholders.

“Enclosure” would mean an area that exists below the dwelling and used in accordance with local floodplain management ordinances or law for the parking of vehicles, building access, or storage, and is shown on the declarations page. FEMA proposes this new definition to more clearly differentiate enclosures from basements.

FEMA is proposing to relocate the definitions currently found in section II.B of the Dwelling Form to section II.D and is proposing to include or modify several, but not all, definitions that are currently in the Dwelling Form, and to add several others. First, FEMA proposes to retain, with minimal to no changes, the definitions for “Act,” “Described Location,” “National Flood Insurance Program,” and “Policy.” “Act” would continue to be defined as the National Flood Insurance Act of 1968 (42 U.S.C. 4001

et seq.

). “Described Location” would be defined as the location of the insured building, as shown on the declarations page. The “National Flood Insurance Program” would continue to be defined as FEMA's program of flood insurance coverage and floodplain management administered under the “Act.” Lastly, the definition for “Policy” would specify that it is the entire written contract between the homeowner policyholder and FEMA to include: (1) the Homeowner Flood Form; (2) the completed application for insurance; (3) the declarations page; (4) any endorsements issued; and (5) any addenda FEMA attaches to the Form upon application or renewal.

FEMA proposes minor, but somewhat more meaningful changes to the definitions for “Actual Cash Value,” “Declarations Page,” “Direct Physical Loss By or From Flood,” and “Dwelling.” The definition for “Actual Cash Value” would continue to be the cost to replace an insured item of property at the time of loss, but FEMA proposes to replace the phrase “less the value of its physical depreciation” with “less depreciation based on its age and condition.” FEMA proposes to specify that depreciation is based on the insured item's age and condition to explain what “physical depreciation” means. The definition for “Declarations Page” would state that it is a document provided to homeowner policyholders summarizing the coverage limit(s), premium, insured(s), and other information about the policy, and that it is a part of the policy. FEMA proposes this definition because it is more modern than the Dwelling Form's current definition of a “computer-generated summary. . . .” FEMA proposes “Direct Physical Loss By or From Flood” to mean actual physical loss or damage to the insured property directly caused by a flood. FEMA chose not to retain the sentence currently in the Dwelling Form that “there must be evidence of physical changes to the property.” The addition of the words “actual physical” to describe loss or damage to the insured property obviates the need for that sentence and makes it clearer that FEMA may only pay for physical loss or damage directly caused by a flood. Lastly, FEMA proposes to define “Dwelling” as a building in use as a one-to-four family residence, and specify that it is not a mobile home, travel trailer, or condominium unit. FEMA proposes to specify that mobile homes, travel trailers, or condominium units are not “dwellings” under this Form because FEMA intends that this Form only cover homeowners of one-to-four family site-built residential buildings. At this time, the Dwelling Form would continue to serve as the Standard Flood Insurance Policy Form covering mobile homes, travel trailers, and condominium units, as well as landlords and tenants.

FEMA proposes to add definitions for “Administrator,” “Claim,” “Flood Damage Resistant Materials,” “Insured(s),” “Machinery and Equipment,” “Proof of Loss,” and “Replacement Cost Value.” FEMA proposes to specify that “Administrator” refers to the FEMA Administrator or designee for clarity. FEMA proposes to define “Claim” as the homeowner policyholder's assertion that (s)he is entitled to payment for a covered loss under the terms and conditions of the policy and specify that there is only one claim per flood event. This definition would complement the proposed definition for “Proof of Loss.” FEMA proposes to define “Flood Damage Resistant Materials” as building materials identified by the Administrator as resistant to flood damage to encourage homeowner policyholders to rebuild smarter. Use of materials that are resistant to flood damage reduces the likelihood of replacement in a future flood, and the ability to clean and repair items instead of replacing them would likely result in net savings to the NFIP and its policyholders. The definition of “Insured(s)” would include the homeowner policyholder and (1) any additional persons identified on the declarations page; (2) any mortgagee or loss payee named in the application for insurance, as well as any other mortgagee or loss payee determined to exist at the time of loss; and (3) the homeowner policyholder's spouse, if a resident of the same household. This definition is substantively the same as the definition of “you” from the Dwelling Form in II.A, but includes the homeowner policyholder's spouse here, to simplify and consolidate in one place the concept of who has an interest under the policy. FEMA proposes to specify that “Machinery and Equipment,” when contained within a building at the described location, would include functional electrical, plumbing, heating, cooling, and safety elements necessary for the operation of a building, and elevators. Outside of a building, “Machinery and Equipment” would include a heating and air conditioning system's condenser unit and heat pump, solar panels, and permanently installed whole house standby generators when these units are connected to and are servicing a building at the described location. FEMA proposes this definition to avoid long lists of items in the coverage section. The coverage limitations in the Dwelling Form (at III.A.8) appear in a list of 17 items. This new definition would condense these 17 entries into a single definition. While the new definition would still call out some items specifically, it is FEMA's position that this more condensed, succinct approach would be less cumbersome to homeowner policyholders and give the Agency increased flexibility in its implementation of the NFIP.

FEMA

also anticipates applying this definition during loss settlements to encourage homeowners to move these relatively costly items from their basements/lower enclosures to a less risky area of the property, increasing savings to the NFIP and its policyholders. FEMA would define “Proof of Loss” as a signed and sworn statement by the homeowner policyholder containing documentary evidence in support of one's loss and the amount one is claiming. FEMA proposes to define this term to mitigate confusion over what a proof of loss is,

further differentiate proof of loss from a claim, and to facilitate implementation of proposed V.E, “Disaster Conditions.” Lastly, “Replacement Cost Value” would mean the necessary cost, without deduction of depreciation, to repair or replace an item of property at the time of loss with an item of like kind and quality. FEMA proposes to add this definition because the new Homeowner Flood Form would offer homeowner policyholders replacement cost value as the default, rather than actual cash value as the Dwelling Form does, so defining the term would assist FEMA in administering the Form.

The NFIP Claims Manual currently explains each of the 17 items listed in section III.A.8.a of the Dwelling Form, and the explanations of these items can also include several related items themselves.

See

National Flood Insurance Program Claims Manual (May 1, 2020), found at

https://

www.fema.gov/sites/default/files/2020-07/fema_nfip_claims-manual_2020.pdf

(last accessed Aug. 28, 2023) (“Claims Manual”). For instance, the Claims Manual explains that “nonflammable insulation in a basement” [III.A.8.a(10)] includes the nonflammable insulation in walls and ceilings between joists in the lowest elevated floor and unfinished protective weather barriers affixed to floor joists and unattached protective barriers located in a crawlspace.

Id.

at 41. In addition, “well water tanks and pumps” [III.A.8.a(15)] include pressure switches, pressure valves, and gauges.

Id.

at 43. The removal of these lists would provide FEMA flexibility to the extent that the Agency can continue to clarify in the Claims Manual terms defined in the policy.

During the aftermath of Superstorm Sandy, policyholders and their representatives attempted to submit “placeholder” proofs of loss where they filled out the coversheet for FEMA's Proof of Loss Form (FEMA Form 086-0-9) with “TBD” on every line. This was not appropriate or within the terms of the SFIP, creating problems for these policyholders and for FEMA. (In this case, the insurance carriers had to deny these claims because these policyholders failed to meet the requirements of the SFIP. Many of these policyholders pursued litigation, creating the need for FEMA's NFIP Transformation Task Force established in 2015).

See

NFIP Bulletin w-14036, found at

https://nfipservices.floodsmart.gov/sites/default/files/w-14036.pdf

(last accessed Aug. 28, 2023) and NFIP Bulletin w-12092a, found at

https://nfipservices.floodsmart.gov/sites/default/files/w-12092a.pdf

(last accessed Aug. 28, 2023).

Finally, FEMA proposes not to carry over into the new Homeowner Flood Form three definitions currently in the Dwelling Form: “Base Flood,” “Deductible,” and “Principal Residence.” Because “base flood” would not have any impact on the terms and conditions of insurability in the new Form, defining it would be unnecessary. Because “deductible” is a commonly understood term in the insurance industry, it is FEMA's position that including a definition for it would be unnecessary. In addition, because the Homeowner Flood Form would not vary coverage between principal and secondary, etc., residences, defining the term “principal residence” would likewise be unnecessary.

4. Section III: What We Cover

FEMA proposes to incorporate language currently in the Dwelling Form with section III to improve the customer experience by presenting the material in a more organized manner. The Dwelling Form addresses property covered (article III), property not covered (article IV), and exclusions (article V) in different sections. In proposed section III, FEMA addresses in a single section what the policy covers, where coverage is limited, any conditional coverage, and then property that is not covered.

The proposed changes to Coverages B and C also generally align with coverage specifically for homeowners, the focus of this proposed form. These changes also remove lists and “hidden” coverage and simplify policy language to enhance understanding and functionality of the policy. Relying on the definitional concepts instead of specific lists gives FEMA the opportunity to clarify coverage and improve readability of the form while also providing increased flexibility to implement the policy. FEMA proposes to rephrase coverage that is currently phrased in the negative in the Dwelling Form to ensure a better understanding of coverage. The proposed revisions would also remove all references to flood zones in special flood hazard areas, and instead provide universal default coverage that applies to all buildings regardless of flood zone. These revisions reduce the complexity of the policy, as homeowner policyholders may not immediately recall what zone they are in. These revisions also help alleviate concerns raised in understanding flood risks through mapping alone and allowing the premium to inform the homeowner policyholder about flood risk.

FEMA includes “property not covered” in proposed section III, “What We Cover,” rather than proposed section IV, “Exclusions,” to conform with industry standards and address in the same section those items for which the policyholder has the burden of proof. The burden of proving that property is covered falls on the insured, but the burden of proving that property is excluded falls on the insurer.

FEMA proposes to remove specific dollar amounts from the policy, giving the Agency the ability to increase these limits based on statutory changes. Eliminating these specific dollar amounts also allows FEMA to offer different coverage limit choices to different homeowner policyholders by placing special limit amounts on the declarations page of the policy.

FEMA proposes to allow more consumer choice by allowing homeowner policyholders to choose whether they want basement coverage under Coverage A through the Enhanced Basement Endorsement Option detailed below. FEMA has long presumed that homeowner policyholders would not want to pay for full coverage in a basement because it would be too expensive,

but in doing so inadvertently made it more likely that homeowner policyholders would not realize the limitations on basement coverage until they experienced a loss.

FEMA has offered this restrictive coverage in basements for four decades and the proposed new Homeowner Flood Form would not change that coverage absent a homeowner policyholder purchasing an endorsement. FEMA believes the limited basement coverage creates challenges in the flood insurance sales context for homeowner policyholders who want more coverage than the current Dwelling Form and new Form would allow and in the recovery context for homeowner policyholders who need it to more fully recover from a flood event. Given these challenges, FEMA considered three approaches to basement coverage: (1) the current Dwelling Form approach of retaining the current restricted coverage, with a focus on training agents selling flood insurance to further discuss what constitutes a basement under the

Homeowner Flood Form and the restrictions on coverage at the point of sale to better inform homeowner policyholders and those seeking to purchase new homeowner flood insurance of the coverage restrictions; (2) FEMA's preferred approach of offering an endorsement to the proposed Homeowner Flood Form that would allow homeowner policyholders to purchase, for an additional premium, an enhanced basement endorsement to remove the restrictions in basement coverage (“Enhanced Basement Coverage Endorsement”); and (3) a third approach of offering a basement endorsement to remove coverage limitations, for an additional premium, for (a) homeowners with split-level homes or sunken room(s) (approach 3.1) and (b) homeowner policyholders who need to occupy part of their basement (approach 3.2). Occupancy means the basement is being used by the homeowner as bedrooms, bathrooms, and kitchens/kitchettes. Each of the approaches is further detailed in Appendix A(104): Basement Coverage Endorsement Option below.

Until 1983, FEMA offered coverage in a basement.

See e.g.,

44 CFR 61 App. A(1) Art. IV (1982). At that time, FEMA determined that it was paying out $5 for every $1 collected on buildings with damaged basements.

See

GAO Report on Flood Insurance: Federal Emergency Management Agency's Basement Coverage Limitations, RCED-86-10FS (Jan. 31, 1986) found at

http://www.gao.gov/assets/rced-86-10fs.pdf

(last accessed Aug. 28, 2023). In the 1990s, FEMA explored but abandoned an effort to offer some level of basement coverage and throughout the entirety of the Dwelling Form (

i.e.,

the last 20 years), there has been no option for basement coverage.

See

Donovan Finn and John Travis Marshall,

Superstorm Sandy at Five: Lessons on Law as Catalyst and Obstacle to Long-Term Recovery Following Catastrophic Disasters,

48 Envtl. L. Rep. 10494 (2018), found at

https://commons.library.stonybrook.edu/cgi/viewcontent.cgi?article=1004&context=somas_articles

(last accessed Aug. 28, 2023).

See also https://www.wxyz.com/news/what-does-fema-cover-if-youre-denied-help-after-floods-here-are-some-other-options

(last accessed Aug. 28, 2023) and

https://www.wxyz.com/news/why-many-people-are-being-denied-fema-flood-assistance

(last accessed Aug. 28, 2023).

FEMA does not expect the availability of optional basement coverage (approaches 2, 3.1, or 3.2 above) to encourage riskier behavior by homeowner policyholders. In general, policyholders do not wish to experience flood losses. The act of choosing an option will require the policyholder to envision their property being damaged by a flood. Accordingly, rather than encouraging risky behavior, FEMA believes the option would help homeowner policyholders to transfer their risk to better recover after a flood while also encouraging homeowner policyholders with basements to consider ways to mitigate their risks in those areas. The current inventory of housing in the United States contains homes built with basements. Recent studies on marginalized communities show that formerly redlined areas face higher flood risks, and several of the cities where this is most prevalent (New York, Boston, Chicago, Camden, Detroit, Newark) have older housing stock that are often built with basements.

By offering options to increase basement coverage, FEMA is proposing to increase the ability of these homeowners to better protect their investment from flood risks. FEMA understands that the additional coverage will result in additional premiums for policyholders, but the pricing associated with these additional premiums will reflect the reality of the structure above all and will align with the risk. By offering choice, FEMA can better educate homeowner policyholders on their coverage options, discuss the flood risks associated with their property (

i.e.,

through the price signal provided by comparing the premium options), and how they can better protect their property and mitigate those risks. FEMA seeks specific comments on the expansion of basement coverage and the approaches considered in this proposed rule as detailed in the basement coverage endorsement options below.

See https://www.redfin.com/news/redlining-flood-risk/

(last accessed Aug. 28, 2023) and

https://www.njspotlightnews.org/2021/04/redlining-atlantic-city-nj-overlooked-underfunded-minority-neighborhoods-back-bay-racist-maps-superstorm-sandy/

(last accessed Aug. 28, 2023). Note that in these areas, it is common to have a basement because of the necessity of building below the frost line, so that pipes do not burst.

Proposed section III would not include ICC as Coverage D for all homeowner policyholders as the Dwelling Form does (in section III.D), but instead would make it an endorsement required to be purchased only by those homeowner policyholders who may be eligible for it. Proposed section III would also remove buildings under construction from default coverage (as is the case under the Dwelling Form at section III.A.5), as a Builder's Risk Endorsement naming the builder as an additional insured party (with specific business rules associated with renewals) would provide homeowner policyholders the option to address such coverage. Finally, FEMA proposes to clarify that the policy would not cover certain losses to items stored in a digital format or other intangible format due to the complexity of demonstrating proof of loss.

Throughout the section, FEMA proposes minor edits to the Form for clarity. FEMA anticipates the proposed changes to section III would generally make the policy easier for agents to sell while also being more understandable and desirable for homeowner policyholders as the changes more closely align with other insurance policies with which homeowners are familiar and the changes generally provide homeowners with more flexibility by offering more coverage options.

Digital storage was not a substantial concern when the SFIP was drafted in 1999. However, modern technology (allowing for cryptocurrency, etc.), renders it sufficiently important to include here.

a. Coverage A—Dwelling

FEMA proposes to label Coverage A as “Dwelling” (rather than retain the Dwelling Form's title of “Building Property”) to differentiate coverage for the primary building—the dwelling—as opposed to other buildings that may be covered. In proposed sections III.A.1.a, III.A.2.b, III.A.2.c, III.A.3.c(1), and III.A.4.f, FEMA proposes to update the language to clarify the coverage detailed in this section of the policy relates specifically to the dwelling and to distinguish between the dwelling and other buildings that may be covered under Coverage B. Proposed section III.A.2, “Limited Coverage for Basements and Enclosures,” would remove the differentiation of coverage based on flood zone type or pre- or post-FIRM status found in the Dwelling Form at section III.A.8. This proposed section would clarify the limited coverage provided for basements regardless of where the property is located. As explained above, FEMA is proposing to remove differences in coverage based on flood zone type or pre- or post-FIRM status and provide universal default coverage that applies to all structures regardless of flood zone.

Maps generally create challenges for the application of policy coverage. In a flood event, the flood does not simply stop at the map boundary and a homeowner policyholder with property that is mapped in a higher risk zone could be paying more for less coverage than their neighbors across the street, when both are equally impacted by the flood event. By eliminating these distinctions in the policy, FEMA proposes to simplify the explanation of policy coverage for homeowner policyholders so that they have a full understanding of the risks associated with their property and can protect

themselves against flood peril by choosing their coverage accordingly.

The Dwelling Form provides different types of coverage based on FIRM status and zone: basements receive limited coverage regardless of zone; certain post-FIRM elevated buildings receive limited coverage below the lowest elevated floor; and the remainder do not experience coverage limitations. The coverage limitations for post-FIRM elevated buildings are a passive enforcement mechanism for floodplain management rules concerning use of these spaces (

i.e.,

44 CFR 60.3(c)(5), allowing parking of vehicles, building access, and storage). In practice, this often means policyholders do not learn about the coverage restrictions until they experience a loss. In the proposed Homeowner Flood Form, the policy would not provide different types of coverage based on FIRM status and zone. Basements continue to receive limited coverage regardless of zone. A building with an enclosure—meaning it is used in accordance with the floodplain management regulations—will continue to receive limited coverage. However, if a policyholder does not indicate that they have a basement or an enclosure at the time of application, they will receive full coverage, but will also pay additional premium based on the height of the first floor. The higher premium should also act as a more timely signal to the policyholder, who may then choose to not use the space for residential purposes. In other words, the insurance policy will no longer passively enforce floodplain management rules at the time of loss, but will complement those rules through risk signaling, and floodplain management officials may still take appropriate action on unacceptable uses of enclosures.

The proposed changes in section III.A.2.a eliminate the list of covered items from current section III.A.8.a as these items are defined in proposed section II. Elimination of the list is intended to make the policy more readable. Additionally, FEMA proposes changes in section III.A.2.d to simplify the understanding of coverage for unfinished drywall in a basement or enclosure. The Dwelling Form details drywall coverage for walls and ceilings in a basement and the cost to nail it, unfinished and unfloated and not taped, to the framing (section III.A.8.a(3)). FEMA proposes to simplify this by covering any unfinished drywall in a basement and removing the restriction that the drywall must be unfloated and not taped. FEMA also proposes to continue coverage for nonflammable insulation in basements and enclosures. (

See

Dwelling Form section III.A.8.a(10)).

FEMA proposes to add section III.A.3, “Dwelling Limitations,” to summarize the limitations throughout the policy and list them in one location. Proposed section III.A.3.a, “Limitations on mold and mildew,” would revise Dwelling Form section V.D.4 to restate coverage in positive rather than negative terms, simplifying the explanation that the policy covers damage to the dwelling due to mold and mildew caused by a flood only when it is outside of the homeowner policyholder's control,

i.e.,

when it is not in the homeowner policyholder's control to inspect and maintain the property after a flood recedes. FEMA is proposing this change to help resolve current challenges faced with claims in this area, as the Agency has experienced that implementation of this coverage is more challenging than it should be. FEMA historically issued several bulletins to clarify this coverage and its limitations

and believes making these proposed changes would reduce complexity and simplify the process for homeowner policyholders, insurance adjusters, and companies. FEMA proposes similar updates in proposed sections III.A.3.b, “Limitations on power, heating, or cooling failure,” III.A.3.c, “Limitations on flood in the area,” and III.A.3.d, “Limitations on pollutants,” for simplicity and readability, and to positively affirm coverage of specific items rather than stating coverage in the negative as the Dwelling Form does in sections V.D.7, V.D.5-6, and V.F.II.B.22 respectively. The policy would continue to cover damage to any covered building electrical system, such as the building's main service or home security system, or to the HVAC system, when a flood physically damages equipment installed at the described location (proposed section III.A.3.b) as well as pollutant testing and monitoring after a flood when required by law or ordinance (proposed section III.A.3.d). FEMA also proposes to continue coverage for losses when there is a flood in the area and the flood causes a back-up of water or waterborne material through sewers or drains, discharge or overflow of a sump pump or related equipment, or seepage/leakage on or through the dwelling (proposed section III.A.3.c(1)) as well as losses by or from water pressure or weight (hydrostatic pressure) (proposed section III.A.3.c(2)). FEMA would also continue to cover losses to the dwelling by or from the pressure or weight of water on or below the land's surface in proposed section III.A.3.c(2).

See

W-13009, found at

http://nfipservices.floodsmart.gov/sites/default/files/w-13009.pdf,

(last accessed Aug. 28, 2023); W-16061, found at

http://nfipservices.floodsmart.gov/sites/default/files/w-16061.pdf

(last accessed Aug. 28, 2023); W-20017, found at

http://nfipservices.floodsmart.gov/sites/default/files/w-20017.pdf

(last accessed Aug. 28, 2023); W-11062 found at

http://nfipservices.floodsmart.gov/sites/default/files/w-11062.pdf

(last accessed Aug. 28, 2023); and W-04020, found at

http://nfipservices.floodsmart.gov/sites/default/files/w-04020.pdf

(last accessed Aug. 28, 2023).

Proposed section III.A.4 addresses the items not covered under the policy, moving several provisions from article IV of the Dwelling Form (Property Not Covered) to keep all “coverage” elements together. FEMA proposes not to retain references to the Coastal Barrier Resources Act and the Coastal Barrier Improvement Act

in this section because the language in proposed section I concerning conflicts with Federal law renders it unnecessary. FEMA is incorporating into proposed section III.A.4.a information from the Dwelling Form at sections V.A.2, V.A.3, and V.A.5 to confirm that the policy does not cover loss of use at the described location, including any living expenses incurred while the dwelling is inaccessible or is unhabitable for any reason. FEMA proposes incorporating this into one section for simplicity and readability. In addition, FEMA proposes including it under this section rather than Section IV, “Exclusions,” because the new Form generally restricts “exclusions” to specific causes, and this language does not speak to causation. In sections III.A.4.b and III.A.4.c, FEMA proposes separating land and land values from lawns, trees, shrubs, plants, growing crops, and landscaping to clarify that land and land values are distinct from items that are on the land. Proposed section III.A.4.d restates the current requirement in section IV.3 of the Dwelling Form that no open structures including but not limited to those in, on, or over water are covered, regardless of boat usage. In the proposed form, FEMA retains in section III.A.4.e the substance of the language currently in the Dwelling Form at section IV.2 except to remove the reference to “personal property” because Coverage A of this Form treats dwellings, not personal property. In section III.A.4.f, FEMA proposes to clarify that in addition to underground structures and equipment like wells and septic tanks/systems, which are currently explicitly listed as not covered in section IV.8 of the Dwelling Form, sewer, plumbing supply, waste lines, gas supply lines, electrical and HVAC system components (not addressed in the proposed definition of “machinery and equipment”) that are not located in the dwelling would also continue to not be covered. In section III.A.4.g, FEMA proposes not to retain the phrase “or the building in which the insured unit is located” (found in the Dwelling Form at IV.9) for clarity of coverage as the new Form would not be available to condominium unit owners. FEMA is proposing additional minor changes in section III.A.4.h for clarity regarding containers and related equipment. Proposed sections III.A.4.i detailing fences, retaining walls, seawalls, bulkheads, wharves, piers, bridges, and docks and III.A.4.j detailing hot tubs and spas as well as swimming pools would be unchanged from Dwelling Form sections IV.12 and IV.14, respectively.

16 U.S.C. 3501

et seq.

b. Coverage B—Other Buildings

Coverage B would insure buildings other than the residence located at the described location.

This coverage would contain fewer limitations than in the Dwelling Form, but with the same 10 percent limit (

see

Dwelling Form section III.A.3). FEMA is proposing to require the homeowner policyholder to specify the specific sublimits of this coverage applicable to each of the

buildings on the declarations page to make sure that both the homeowner policyholder and FEMA share an understanding of what is on the property, to spur the conversation between the homeowner policyholder and the insurance agent that higher coverage limits are available by separately insuring these properties, and to capture data points for repetitive loss purposes. The changes proposed to Coverage B would restore non-dwelling buildings to a functional level but would not fully restore these buildings. A homeowner policyholder seeking more robust coverage should purchase a separate policy for these other buildings. Coverage B is not an additional coverage, as it would reduce the liability limit for the main building.

These proposed changes would restore coverage for other buildings to the NFIP's 1970's approach.

See

24 CFR 1911.4(f)(5) (1970): “The insured may apply up to, but not in excess of, 10 percent of the face amount of the policy to appurtenant structures and outbuildings (such as carports, garages, and guest houses) if they do not constitute a separate residence. If they do constitute a separate residence, or a residential structure still under construction, they must be insured under a separate policy.” This approach insures what the homeowner policyholder has and that the modern consumer expects, an experience customized and tailored to themselves.

Proposed section III.B.1 would clarify that FEMA would apply the terms of Coverage A to other buildings at the described location except as modified in proposed section III.B.2. As noted above, proposed section III.B.1.a would require the homeowner policyholder to schedule the buildings on the declarations page to confirm their location on the property. In doing so, FEMA anticipates homeowner policyholders would have discussions with agents regarding higher coverage limits if these buildings are separately insured. By capturing the information here, FEMA can also gather data on buildings that are repeatedly damaged during flooding. Proposed section III.B.1.b would replace section III.A.3 of the Dwelling Form and allow other buildings—not simply a detached garage—to receive coverage with fewer limitations than in the Dwelling Form, but with the same 10 percent limit.

FEMA proposes to add section III.B.2 to highlight the limitations of coverage for other buildings. FEMA is proposing to use Coverage A as a “base” layer of coverage specifically for the dwelling. Certain items previously covered under Coverage A related to other buildings are instead covered by this proposed section. Proposed section III.B.2.a would remind homeowner policyholders that FEMA would not cover anything already excluded under Coverage A. Proposed section III.B.2.b would state that FEMA would not cover basements or enclosures for any building that is not the dwelling. FEMA is proposing this addition as a public policy measure to ensure that the riskiest parts of a building that is not the property owner's residence are not afforded coverage. For example, homeowner policyholders may have a building near the beach on a coastal property containing a bathroom and storage space, with an outdoor shower in an enclosure for convenience. The proposed policy would allow for coverage of the building at the homeowner policyholder's request, but would not cover the enclosure given the enhanced risks associated with the enclosure. If a homeowner policyholder wants to invest in these enclosures, a separate NFIP flood insurance policy could be purchased to cover the other building with the enclosure (

i.e.,

under Coverage A), with restricted coverage applied to the enclosure. Proposed section III.B.2.c would provide that FEMA would not cover other buildings held or used for commercial purposes. The purpose of Coverage B is to extend coverage to other buildings that may have a residential use, such as a living space built above a detached garage; buildings held or used for commercial purposes are more appropriately suited for a commercial policy. Proposed section III.B.2.d would provide that coverage can only extend to property the homeowner policyholder owns. This addition is consistent with the broader principle of “insurable interest,” which requires that the insured have a right or relationship to the item insured such that the insured can suffer a financial loss from damage, loss, or destruction to it. By affirming this requirement, FEMA seeks to reduce the risk of moral hazard, whereby a homeowner policyholder might have a financial incentive to allow or even cause a loss.

c. Coverage C—Personal Property

FEMA proposes to move personal property coverage to proposed section III.C and to further align it with common industry practices. In contrast to section III.B.1 of the Dwelling Form that is conditioned on whether or not the homeowner policyholder has purchased contents coverage, FEMA proposes to change coverage in section III.C.1 to insure all property inside a building at the described location with coverage up to the limits listed on the declarations page. (Separate coverage for personal property not at the described location is detailed in proposed section III.C.2). Section III.C.1.a would remain unchanged from section III.B.1.a of the Dwelling Form. Proposed section III.C.1.b would provide that FEMA would insure property owned by non-paying guests or laborers. By specifying that the guests be non-paying, FEMA seeks to specifically exclude the possibility of short-term rentals, such as vacation rentals, to clarify the rental agreement would govern any such arrangement and ensure there is no contractual overlay, and also to avoid the scenario where a renter seeks payment pursuant to this policy. By changing “servants” to “laborers,” FEMA seeks to modernize the language and include more individuals that may have personal property in the described location.

In section III.C.2, FEMA is proposing to provide some coverage away from the described location to ensure that the homeowner policyholder gets an additional benefit of flood coverage to protect their personal property. Homeowner policyholders may experience flooding while on travel, may experience a flood loss if they have personal property at a family member's house, or if they keep items in a storage unit. Under the Dwelling Form at section III.C.2.b, a homeowner policyholder may already claim this type of coverage at another location if they moved the property because of a reasonable threat of flood. Expanding coverage would eliminate the cumbersome adjudication analysis of whether the homeowner policyholder moved the property to safety in advance of a flood. With a storage unit, a homeowner policyholder could rent a storage locker and, following a flood event, claim that he or she relocated certain property from the dwelling to the storage unit for safety. Under the Dwelling Form, if a flood occurs at the storage unit, absent a dated photo showing the property located in the storage unit, in the same position, the insurer would be unable to determine when the property was placed in the storage unit. The proposed expansion avoids this complex adjudication by providing the homeowner policyholder with coverage in that situation. Moreover, expanding coverage to contents that are not at the described location aligns with industry standards for homeowners personal property coverage.

FEMA notes that although homeowners coverage can extend to personal property anywhere in the world, the NFIA only authorizes flood insurance in the United States.

Thus, FEMA proposes limited coverage for personal property anywhere in the United States. Under proposed section III.C.2.a, FEMA would pay no more than 10 percent of the Coverage C limits for personal property located anywhere in the United States if the property is in a building at a location other than the described location, or in a storage facility building. FEMA proposes these changes to reaffirm the requirement that the personal property be located inside a “building” (defined as a fully enclosed structure) for coverage and to align with other common insurance products.

Under proposed section III.C.2.b, the 10 percent coverage limitation would not apply to personal property moved to a building reasonably safe from flood, and not in a basement or enclosure, due to flooding near the described location. This provision would not retain the language in section III.C.2.b(3) of the Dwelling Form requiring moving personal property outside of a special flood hazard area, but would instead just require a reasonable assurance of safety to expand coverage beyond the 10 percent limitation. It is difficult for homeowner policyholders to ascertain where special flood hazard areas are located, and an attic in a special flood hazard area may reasonably be more secure than a ground floor

just outside of that area. In section III.C.2.b(1), FEMA proposes language to clarify that it would cover personal property where a homeowner policyholder moves it from his or her home to another location for protection, but the home ultimately does not flood. Section III.C.2.b(2) would affirm coverage when an evacuation order is issued. Finally, in section III.C.2.b(3), FEMA proposes to extend coverage beyond the 10 percent limitation where the personal property was moved due to repairs, renovations, reconstruction, or other conditions rendering the described location uninhabitable or unsuitable for property storage.

42 U.S.C. 4011(a).

Property must be placed above ground level.

See

Dwelling Form section III.C.2.b(3).

In proposed section III.C.3, “Personal Property Limitations,” subsection 3.a would provide that in a basement or enclosure, the policy would only cover appliances installed in their functioning locations and, if necessary for operation, connected to a power source. FEMA proposes not to retain the references to flood zones and pre- or post-FIRM status found in the current Dwelling Form (in section III.B.5) to conform with other proposed changes to the policy. FEMA anticipates that homeowner policyholders would better understand the scope of the coverage available without the additional complicating language around the property's flood zone location and the pre- or post-FIRM status of the property. Additionally, rather than listing out specific appliances, FEMA proposes to categorize the items listed in section III.B.4 of the Dwelling Form as “appliances” for simplicity. Proposed section III.C.3.b would further clarify the Dwelling Form's requirement at section III.B.3 that personal property in any portion of a building that is not fully enclosed must be secured to prevent flotation out of the building.

Like section III.B.8 of the Dwelling Form, proposed section III.C.4 would provide special limits for specific kinds of personal property. Rather than retaining the dollar limit in this section, FEMA proposes instead to move it to the declarations page for readability and ease of understanding. While proposed sections III.C.4.a, III.C.4.b, III.C.4.c, III.C.4.d and III.C.4.f mirror existing provisions in the Dwelling Form for special limits to personal property coverage, FEMA proposes to add a new provision (section III.C.4.e) to specifically clarify coverage limits for portable electronic devices. A homeowner policyholder should be able to transport such personal property away from a flood and such property may also have separate insurance available. For instance, cell phones come with an offer of cell phone insurance; laptops and tablets often come with offers of insurance as well. The distinction between whether something is designed as portable or not should serve as the bright line rule. For example, a laptop computer is portable while a desktop computer is not, and a Sony PlayStation and a Microsoft Xbox are not designed as portable whereas a Nintendo Switch is. Proposed section III.C.4.f would also clarify that personal property primarily used “for any commercial purposes,” rather than the current “in any business” requirement in section III.B.6.e of the Dwelling Form, falls within these special limits. FEMA proposes to specify that coverage is limited for “commercial purposes” rather than “any business” to continue providing coverage for hobbyists who may occasionally sell what they create, but who do not operate as a business or have a Federal Employment Identification Number for commercial tax purposes. Finally, FEMA proposes to add section III.C.4.g to provide coverage for up to 10 percent of the special limit on the declarations page for valued paper, metals, or other similarly valued objects such as accounts, bills, coins, currency, deeds, evidences of debt, medals, money, scrip, stored value cards, postage stamps, securities, bullion, or manuscripts. FEMA proposes this additional coverage because coverage of these items is the industry standard. Proposed section III.C.5 would retain the statement currently in the Dwelling Form at section III.B.9 that FEMA would only pay for the functional value of antiques.

In proposed section III.C.6, FEMA seeks to consolidate all exclusions specific to personal property into one section to enhance readability and ensure that homeowner policyholders and insurance agents make appropriate decisions regarding how they insure the property. Proposed section III.C.6.a would make it clear that FEMA would not cover anything already excluded under Coverages A and B. FEMA proposes to categorically narrow the coverage for personal property in this respect to clarify that there can be no instance where something excluded from either Coverage A or Coverage B could be eligible for coverage under Coverage C. Proposed sections III.C.6.b and III.C.6.c (excluding coverage for loss of use of personal property at the described location, and personal property not inside a building) remain unchanged from existing language in the Dwelling Form. Consistent with coverage limitations in the current Dwelling Form, proposed section III.C.6.d of the Homeowner Flood Form provides that FEMA would not cover personal property in a basement or enclosure, except as stated in III.C.3 which limits coverage to appliances installed in their functioning locations consistent with the current Dwelling Form. FEMA is proposing to make a change to this section to eliminate references to flood zones or pre- or post-FIRM status of a building, consistent with other changes throughout the policy. Similarly, proposed section III.C.6.e, excluding coverage for personal property in a building constructed or substantially improved after September 30, 1982, that is located in, on, or over water or seaward of mean high tide, would include non-substantive, grammatical revisions to conform to other organizational changes within the policy. Proposed section III.C.6.f would clarify that personal property in any open structure that is in, on, or over water is not covered regardless of its use. FEMA proposes to add section III.C.6.g to exclude losses to items stored in digital or other intangible formats, consistent with broader industry standards and other insurance products. This addition would have the effect of excluding cryptocurrency and other such digital items, given the challenges with proving such losses. For example, a flood could cause a server or desktop computer with valuable information on it to stop working. The policy would not cover these losses given the challenges associated with proof of loss, such as demonstrating the existence of the information at the time of loss, the inability to access or restore the information through other means, the valuation of such information, and other concerns. In proposed section III.C.6.h, FEMA seeks to add items held in

violation of state or Federal law to the list of exclusions to clarify that the Agency would not pay to indemnify against inherently illegal activity. FEMA also proposes to add section III.C.6.i to exclude coverage for living things, consistent with current Agency policy, broader industry standards, and other insurance products. In section III.C.6.j, FEMA proposes a minor change to the exclusion from coverage of any self-propelled vehicle or machine to prohibit coverage for those vehicles or machines capable of transporting people or cargo while continuing to allow coverage for vehicles or machines not registered for use on public roads that are used solely to service the described location or to assist people with disabilities when such property is inside a building at the described location. FEMA is proposing this change to clarify that coverage would not extend to vehicles that do not service the property or aid those with a disability, as other insurance is more appropriate for those items.

For example, a separate automobile insurance policy would be more appropriate for all-terrain vehicles (ATVs) and golf carts because their use is not limited to servicing the location or assisting those with disabilities. By contrast, this policy would cover farm vehicles not licensed for use on a public road.

See

NFIP Claims Manual (June 2023) at COVERAGE-19,

available at https://www.fema.gov/sites/default/files/documents/fema_nfip-claims-manual_062023.pdf

(last accessed Aug. 28, 2023).

d. Coverage D—Other Coverages

FEMA proposes organizing section III.D to align with the policy's organizational structure. Section III.D.1, “Debris Removal,” clarifies what debris is covered and what is not. Specifically, FEMA proposes in section III.D.1.a to cover labor and expense to remove debris from anywhere that comes onto or into the dwelling or other insured buildings, and debris of insured property anywhere. FEMA proposes the clarification in section III.D.1.a(1) to emphasize that labor is an element of the total covered expense. Additionally, FEMA proposes a slight broadening of coverage from the current Dwelling Form in proposed section III.D.1.a(1)(a) of the Homeowner Flood Form to state that the removal of any debris inside the insured buildings is covered. Proposed section III.D.1.a(2) would clarify that FEMA would pay the value of any debris removal work performed by the homeowner policyholder or a member of one's household using the Federal minimum wage, and that this coverage does not increase the coverage limit on the declarations page. Proposed section III.D.1.b, “Debris Not Covered,” would provide that the policy does not cover debris from other locations on the land surrounding the dwelling or other insured buildings or any non-covered items of property from the dwelling or buildings, even if the removal facilitates covered cleanup or repairs. FEMA proposes this clarifying language to ensure that homeowner policyholders appropriately insure their property and to avoid duplication of benefits to both owners of debris and the homeowner policyholder upon whose land the debris resides.

FEMA proposes to slightly broaden coverage in section III.D.2, “Loss Prevention.” Section III.D.2.a would provide that FEMA would pay up to the coverage sublimit specified on the declarations page for the expenses a homeowner policyholder incurs to protect one's insured property from a flood or imminent danger of flood. These expenses would be limited to: (1) reasonable expenses to buy materials to use temporary measures to avoid or reduce the harm from an imminent flood, including sandbags, fill for temporary levees, and pumps; and (2) the value of work, at the Federal minimum wage, that a homeowner policyholder or a member of her household performs to protect the property. Section III.D.2.b would specify that this coverage for materials and labor only applies if damage to the insured property by or from flood is imminent and the threat of flood damage is apparent enough to reasonably anticipate flood damage, and only if one of the following occurs: (1) a general and temporary condition of flooding in the area near the described location occurs, even if the flood does not reach the insured building; or (2) a legally-authorized official issues an evacuation order or other civil order for the community in which the property is located to preserve life and property from flood. FEMA proposes this language for increased clarity and consistency with other sections in the Form. For instance, while the Dwelling Form at section III.C.2.a(1) limits coverage to $1,000, this proposed section would remove the dollar limit from the Form itself, allowing it to be altered through the declarations page or other guidance. The proposed language would also limit the use of lists (compare with sections III.C.2.a(1)(a)(i)-(iv) of the Dwelling Form) and allow coverage where there may be technological or local variances in what items are used to prevent losses rather than restrict it to the specific items in the policy as is currently the case.

Proposed section III.D.3, “Property Removed to Safety,” would provide that FEMA would pay up to the coverage limit on the declarations page, at the Federal minimum wage, for reasonable expenses and labor a homeowner policyholder or member of her household, incurs for moving insured property to a secure location to protect it from flood or the imminent danger of flood. Consistent with other sections in the Form, this language would simplify coverage by removing mention of special flood hazard areas, as well as the coverage limit, allowing the limit to be altered through the declarations page or other guidance. Proposed section III.D.4 would specify that Coverage D does not increase the limits of Coverages A, B, or C.

5. Section IV: Exclusions

Proposed section IV would replace article V of the Dwelling Form. By continuing to address exclusions separately from coverage, FEMA seeks to clearly delineate between the

types of property

covered and not covered from the

sources of damage

excluded. This is to conform with industry standards, as insurance companies generally combine what is covered and not covered in the coverage section of their policies, and address excluded causation in the exclusions section. As this is a single peril policy, it is FEMA's position that a shorter, simplified exclusions section would reduce confusion on the part of the homeowner policyholder. Proposed section IV is structured to address three main concepts: excluded losses; flood in progress; and pre-existing damage.

a. Excluded Losses

For excluded losses, FEMA proposes to exclude other perils, economic losses (including loss of business or losses associated with upgrading to code per law or ordinance), earth movement, gradual erosion, several non-flood but water-related causes of loss, and damage from defects, rot, or infestation. Many of the exclusions in the proposed policy mirror in substance those in the existing Dwelling Form. In proposed section IV.A.1, FEMA seeks to simplify the language to exclude other perils as this is a single-peril policy. Consistent with other changes in the policy, FEMA proposes to condense the list of economic losses excluded from coverage currently in sections V.A.1-7 of the Dwelling Form into section IV.A.2 for clarity.

The proposed earth movement section at IV.A.3 would clarify what is and what is not considered earth movement. In proposed section IV.A.3.a, FEMA would retain but revise the list of items in the corresponding sections of V.C of the Dwelling Form for clarity; this list describes what earth movement includes, even if caused by flood. While

FEMA would retain earthquake, landslide, subsidence, and sinkholes on the list in proposed sections of IV.A.3, other changes are being proposed for modest clarifications. For instance, proposed section IV.A.3.a(5) would not retain the phrase “movement of land that results from accumulation of water in subsurface land area” from section V.C.5 of the Dwelling Form for clarity. In addition, FEMA proposes to add section IV.A.3.a(6) (“Any other movement such as sinking, rising, shifting, expanding or contracting of the earth”) as a further catch all for any variety of geological phenomena not specifically listed in subsections (1)-(5).

In IV.A.3.b, FEMA proposes to provide further specificity that the earth movement coverage exclusion does not include hydrostatic pressures or hydrodynamic forces, buoyancy, and frictional force from floodwater moving along the surface of the ground. These terms are subsumed in the statutory definition of a “flood.”

These terms appear in the engineering reports included in claims files. The ability to line up an engineering report with the policy language should help provide policyholders with additional clarity regarding what is and is not excluded.

See

NFIA sec. 1370(b)-(c) (42 U.S.C. 4121(b)-(c)).

Proposed section IV.A.4 would exclude coverage for gradual erosion caused by the normal water action that wears an area of land away over time and contains minor clarifying edits for readability. FEMA proposes similar clarifying edits in section IV.A.5, “Other excluded causes of damage.” These clarifying edits include combining sections V.D.1 and V.D.2 of the Dwelling Form into proposed section IV.A.5.a because the listed items relate to ice; excluding in section IV.A.5.c damage from exposure to water of any form other than flood (as detailed in sections V.D.4.b(2), V.D.5, and V.D.6 of the Dwelling Form); and excluding in section IV.A.5.e actions taken by homeowner policyholders or any members of their household that deliberately cause direct physical loss by or from flood (

see

section V.D.9 of the Dwelling Form). Proposed section IV.A.5.b would remain unchanged from section V.D.3 of the Dwelling Form. In section IV.A.5.d, FEMA proposes to add other related conditions to clarify that design, structural, or mechanical defects; deterioration, rot, or corrosion; or damage from insects and rodents would be excluded as these are all pre-existing conditions at the time of claims adjustment. Homeowner policyholders may not be aware of these conditions prior to experiencing a loss, but these conditions are generally not attributable to a single flood event and thus would not be covered under the policy.

The Dwelling Form currently excludes coverage for losses that occur because of an alteration to the insured property that significantly increases the risk of flooding at section V.D.10. Proposed section IV.A.6 would clarify that this exclusion covers any homeowner policyholder actions, whether an alteration to the insured property or a more general change, that causes the hazard to increase by any means within the homeowner policyholder's control or with the homeowner policyholder's knowledge. FEMA is proposing this revision to streamline the policy by stating in one location rather than the two sections found in the current Dwelling Form (sections V.D.10 and VII.F) that FEMA would not pay for a loss where the homeowner policyholder took action or allowed an action to happen that increased their risk of flooding.

b. Flood in Progress

In section IV.B, “Flood in Progress,” FEMA proposes to define what constitutes a flood in progress, and to address concerns where there is a strong moral hazard. This clarity would help ensure that policies are not written for a property while a flood is in progress at the described location. Further, this proposed revision ensures that if a policy is written while a flood is in progress, the exclusion is well-defined to help avoid disputes when the homeowner policyholder attempts to submit a claim. With this proposed revision, FEMA seeks to avoid situations where a homeowner policyholder purchases flood insurance as a means of “buying a claim” while also allowing homeowner policyholders to perceive their risk and take an appropriate action. FEMA proposes to explain in section IV.B.1 that a flood is in progress when (1) there is a near certainty of a flood loss at the described location from a flood control effort such as opening a spillway, breaching a levee, or releasing water from a dam, or (2) there is a flood at the described location. FEMA proposes to explain in section IV.B.2 that if the policy becomes effective in connection with a loan closing, FEMA would not pay for loss caused by a flood in progress at the time of the loan closing. Proposed section IV.B.3 would provide that in all other circumstances, FEMA would not pay for a loss caused by a flood in progress that existed on or before the day the homeowner policyholder submitted the application. While proposed sections IV.B.2 and IV.B.3 mirror in substance the language in section V.B of the Dwelling Form, the added clarity in proposed section IV.B.1 would help ensure that policies are written and administered consistently.

c. Pre-Existing Damage

FEMA proposes in section IV.C to explicitly exclude coverage for pre-existing damage. This section would specify that pre-existing damage includes flood loss or damage that occurred prior to the date of loss, whether direct physical loss or not, and whether paid or unpaid, and damage attributable to any non-flood peril that occurred prior to the date of loss. Under section VII.H.2.e of the Dwelling Form, when an insurance company suspects that damage existed prior to the flood event, it can request evidence that prior flood damage has been repaired. In some instances, the property may have been sold without disclosure of a prior flood loss.

In other instances, the insurer may know that a homeowner policyholder had a loss from another peril and was paid for the same items. More explicitly excluding coverage for pre-existing damage would make the exclusion clearer to homeowner policyholders and help prevent disputes over unrepaired flood damage or from unrepaired items from other perils that often arise when property changes owners. It would also better align the policy with traditional insurance concepts and FEMA's longstanding practice of not paying for pre-existing damage. Lastly, it would reinforce proposed VI.A.3.g(5) (requiring proof of repairs for prior losses to ensure coverage of damages occurring from the current loss). Note that FEMA is proposing not to retain in this section language regarding ICC coverage, as that would be detailed in the ICC Endorsement.

State laws govern disclosures of prior losses in property transfers and the SFIP cannot change state disclosure laws that apply to prior losses.

6. Section V: Policy Conditions

Proposed section V would combine provisions from articles VII, “General Conditions,” and VIII, “Policy Nullification, Cancellation, and Non-Renewal,” of the Dwelling Form that specifically apply to how FEMA administers the policy. These provisions represent homeowner policyholder-facing underwriting aspects of the policy.

a. Actions and Conditions That Can Void Your Policy

Proposed section V.A would describe the actions and conditions that can void a policy. Section V.A.1, “NFIP Ineligibility,” would provide scenarios where the policy is void from inception and has no legal force due to underlying ineligibilities. Retaining language from section VIII.B.1.a of the Dwelling Form, proposed section V.A.1.a would provide that the policy is void if the described location is in a community that was not participating in the NFIP at the policy's inception and did not join or reenter the NFIP during the policy term and before loss occurred. Similarly, proposed section V.A.1.b would retain the substance of section VIII.B.1.b of the Dwelling Form and provide that the policy is void where the described location or other property is otherwise not eligible for coverage under the NFIA or its implementing regulations, for reasons of noncompliance with local floodplain ordinances or otherwise. Subsection A.1.c would provide that the policy is void where any other Federal law prevents coverage of property at the described location. FEMA proposes not to retain the language in sections VIII.B.1.c-e and VIII.B.2 of the Dwelling Form; because these provisions do not relate to coverage, they are better suited to guidance.

Section V.A.2, “Concealment or Fraud,” contains much of the same language in the Dwelling Form, with three primary clarifications. Proposed section V.A.2.a provides that the policy is void and cannot be renewed if the insured or agent, at any time before or after a loss, intentionally concealed or misrepresented any material fact or circumstance, engaged in fraudulent conduct relating to the policy, or knowingly made false statements relating to the policy or any other NFIP insurance at any time. FEMA proposes to add the word “intentionally” to clarify that a homeowner policyholder must intend to conceal or misrepresent in order for the policy to be void; a scrivener's error would not result in voidance. FEMA proposes to specify that the fraudulent activity must relate to the policy, because any fraudulent activity beyond the scope of the policy is not a cause for voidance. FEMA also proposes to specify that any false statements must have been made “knowingly” to ensure that the policy is only voided in situations involving malfeasance on the part of the insured or agent. Like section VIII.A.3 of the Dwelling Form, proposed section V.A.2.b would specify that the policy would be void as of the date the acts described in subsection A.2.a were committed. Proposed section V.A.2 would not retain the language in section VIII.A.4 of the Dwelling Form regarding applicable Federal laws, consistent with other changes.

b. Policy Renewal

Proposed section V.B, “Policy Renewal,” would require that FEMA receive the renewal premium within 30 calendar days of the expiration date of the prior policy; it would also state the FEMA would not renew the policy if Federal law prevents coverage of property at the described location. This section is considerably shorter than the corresponding section in the Dwelling Form (at section VII.E) and conforms to modifications elsewhere in the policy. For instance, this section would no longer contain the policy term or right for review, as those would be addressed in proposed sections I.D and I.F, respectively. Additionally, the Dwelling Form explains the consequences when the insurer fails to mail the renewal notice or makes a mistake, such as by mailing the notice to the incorrect address. There is no analogous provision in other property insurance contracts, and FEMA is proposing to eliminate this language given the rarity of these situations. Lastly, section V.B.2 would reference “Federal law” for brevity, as this would include section 1316 and other relevant provisions of the NFIA, relevant provisions of the Coastal Barrier Resources Act,

and any future statutory changes.

16 U.S.C. 3501

et seq.

c. Cancellation of the Policy by You

Proposed section V.C, “Cancellation of the Policy by You,” would provide that the homeowner policyholder may cancel the policy when the homeowner policyholder (1) no longer has an insurable interest in the property, (2) is no longer required to maintain flood insurance pursuant to Federal law or lender requirements, or (3) has a duplicate NFIP policy. It would also provide that if a homeowner policyholder cancels the policy, he or she may be entitled to a full or partial refund of premium for the current policy term. While the NFIP uses over a dozen cancellation reason codes, not all of these are for homeowner policyholder cancellation. FEMA isolated the reasons specific to homeowner policyholder cancellation, found that they fell into the three broad categories outlined just above, and now proposes to highlight those categories in the policy itself. It is FEMA's position that these changes offer increased clarity for the homeowner policyholder compared to the language in the Dwelling Form at section VIII.C.

d. Reduction and Reformation of Coverage

Proposed section V.D, “Reduction and Reformation of Coverage,” would explain to homeowner policyholders what occurs when the premium FEMA receives is insufficient for the coverage sought, but in a shorter and easier to read format compared to the Dwelling Form (

see

section VII.D of the Dwelling Form). Proposed section V.D.1 would provide that where the premium is not enough to purchase the requested amount of coverage, FEMA would issue the policy, but only for the amount of coverage that the premium would purchase for a one-year term. This section would substantively mirror section VII.D.2 of the Dwelling Form but would be more readable. Proposed section V.D.2 would provide that FEMA would increase the reduced amount of coverage to the amount originally requested without regard to whether a loss occurred when FEMA bills for the additional premium, or if necessary to calculate the additional premium, requests information (V.D.2.a), and the homeowner policyholder responds to the request for additional premium within 30 calendar days, or responds to the request for additional information within 60 calendar days (V.D.2.b). Proposed section V.D.2.c would provide that a homeowner policyholder's failure to timely respond may result in a waiting period for additional coverage if a loss has not occurred within the policy term, or the settlement of a claim under the reduced limit if a loss has occurred within the term. Functionally, there is no difference between determining that there is an insufficient premium before loss or after loss, so treating these concepts together should simplify the policy. Altogether, section V.D.2 would condense sections VII.D.3.a and b of the Dwelling Form into one more concise and readable section and would conform to other changes in the policy (

e.g.,

specifying “calendar” days).

e. Disaster Conditions

FEMA proposes to add section V.E, “Disaster Conditions,” which would be a new section. This section would incorporate existing practices when a flood reaches such a magnitude that FEMA anticipates logistical challenges with adjusting losses and reasonably expects increased competition for limited contractor services in the disaster-effected area, or where homeowner policyholders may not be in a position to receive and respond to

mail regarding the renewal of their flood insurance policy. In these scenarios, FEMA has, as a courtesy to homeowner policyholders, extended both the proof of loss deadline beyond the 60 days stated in the policy and the grace period to renew coverage without experiencing a lapse. (For example, FEMA extended the proof of loss and grace period deadlines for Hurricanes Harvey, Irma, and Maria in 2017 and Hurricane Michael in 2018). FEMA has issued these extensions via bulletin to the WYO companies, and via public communications to policyholders who would otherwise lack awareness of these extensions and the flexibility they bring. In the absence of policy language governing extensions, however, stakeholders have often requested longer proof of loss timeframes for smaller flooding events, or have asked FEMA to continue to extend deadlines indefinitely for even longer periods following major flooding. To provide clarity and uniformity, therefore, proposed section V.E.1 would provide that in the event of a flood associated with a major disaster or emergency declared by the President under the Stafford Act,

the FEMA Administrator may, after written notice, extend the timeframes for proof of loss up to 365 calendar days from the date of loss, and the timeframes for policy renewal up to 60 calendar days from the policy's expiration date. Placing an explicit, objective trigger in the policy would allow it to indicate when these “special” provisions might apply to any homeowner policyholder. In addition, establishing clear upper limits for proof of loss and policy renewal extensions would enhance clarity and reduce requests for indefinite extensions. Furthermore, by making the provision discretionary and not mandatory, FEMA seeks to continue to offer flexibility. These flexibilities would allow FEMA to extend one or both deadlines when necessary and choose shorter timeframes when appropriate.

Public Law 93-288, as amended; 42 U.S.C. 5121

et seq.

Proposed section V.E.2 would provide new flexibilities that in the event of a flood associated with a declared major disaster or emergency, the Administrator may, after written notice, conditionally waive the requirement in proposed sections VI.A.3 and VI.B.2 that an insured must sign or swear to a proof of loss or an adjuster's report. This would authorize the insurer to accept and make payment on the adjuster's report. This payment based on the adjuster's report is “undisputed” which allows the insurer to accept that a covered loss took place without any further action needed from the policyholder. The flexibility provided here would not stop the homeowner policyholder from seeking additional payment through a proof of loss but would help ensure payment as quickly and safely as possible to the homeowner policyholder.

Proposed section V.E.3 would provide new flexibilities that in the event of a flood associated with a declared major disaster or emergency, the Administrator may, after written notice, establish special procedures for advance payments to insured(s) in accordance with proposed section VI.C.3. (As discussed below at section III.A.7.c of this preamble, this section would allow the insurer to make an advance payment for up to 5 percent of the Coverage A limit to a homeowner policyholder without putting the mortgage company on the check). Under the current Dwelling Form, a homeowner policyholder with Coverage A receives a check issued to the homeowner policyholder and any secured interest (

i.e.,

a mortgage or second mortgage, etc.) and the homeowner policyholder may have to negotiate with the secured interest holder before the check can be cashed to provide payment to a contractor for repairs. Some secured interest holders may be reluctant to endorse the check until they know the repairs have been made to protect their financial position. Doing so, however, can negatively impact the homeowner policyholder who is then required to secure the contractor with out-of-pocket funds. By allowing for advance payment, homeowner policyholders without contents coverage should be able to secure a contractor without necessarily utilizing out-of-pocket funds while not affecting the mortgage company's ability to file its own claim. FEMA understands the proposed 5 percent advance payment would benefit the homeowner policyholder so they can rebuild more quickly. FEMA believes the proposed 5 percent advance payment is an insurance industry standard and seeks comment from the public specifically on whether or not the 5 percent advance payment is standard.

Finally, proposed section V.E.4 would provide new flexibilities that in the event of a flood associated with a declared major disaster or emergency, the Administrator may, after written notice, settle losses in accordance with any formula established under Federal law that allocates covered damages amongst multiple perils, including flood. This would add flexibility if a declared disaster allows the use of the COASTAL Formula for settling losses that allocate damages amongst multiple perils.

Section 1337(b)(1) of the National Flood Insurance Act of 1968 (NFIA) (42 U.S.C. 4057(b)(1)), as added by section 100253 of the Consumer Option for an Alternative System to Allocate Losses Act of 2012 (also referred to as the COASTAL Act of 2012) (Pub. L. 112-141, div. F, title II), requires FEMA to “establish by rule a standard formula to determine and allocate wind losses and flood losses for claims involving indeterminate losses.” This formula is referred to as the “COASTAL Formula” pursuant to NFIA sec. 1337(a)(2) (42 U.S.C. 4057(a)(2)). Once FEMA adopts a COASTAL Formula in regulation, FEMA may use the formula to oversee the handling of claims involving indeterminate losses and, for floods resulting in a Federal disaster declaration, make claim payments based on the formula.

See

NFIA sec. 1337(c) (42 U.S.C. 4057(c)).

7. Section VI: Procedures and Duties When a Loss Occurs

The Dwelling Form includes various provisions under article VII, “General Conditions.” FEMA proposes to combine all provisions relating to how losses are proven and paid (traditionally claims issues) in proposed section VI, “Procedures and Duties When A Loss Occurs.” The organization of this section would mirror the sequence that a homeowner policyholder would use the policy following a loss, first addressing what the homeowner policyholder must do, then what insurer options exist, how the claims adjustment process works, what deductible applies, how loss is settled, and how the appraisal process works when required. It is FEMA's position that organizing this section according to the logical progression of the process would aid homeowner policyholders who experience a loss, helping ensure that they understand the policy's terms and conditions as well as the process.

a. Your Duties After a Loss

In organizing section VI.A, “Your Duties After a Loss,” FEMA focused extensively on proof of loss. The proof of loss is an industry standard concept and is the foundation of payment of any claim. In the NFIP, the proof of loss is a crucial customer service tool, ensuring that the flood adjuster takes the time to explain coverage and helps the homeowner policyholder understand how to address situations where the insurance estimate and contractor estimate (or quote) deviate. Absent the proof of loss, an adjuster can submit a report to an examiner and the insurer can make payment without the homeowner policyholder ever understanding what they did or did not get paid for as part of the claim. In proposed section VI.A, FEMA seeks to simplify the language around proof of loss where possible and address what is

expected of the homeowner policyholder separately from what options the insurer has (proposed section VI.B). These changes align with other property insurance forms in the marketplace

and make clear that certain duties exist for both parties to the insurance transaction.

The changes align with the Insurance Services Office's “HO-3” form, the template behind most standard homeowners insurance policies.

See supra

note 24.

Proposed section VI.A would provide that if the described location experiences a direct physical loss by or from flood, the homeowner policyholder must comply with all of the duties listed in VI.A.1-7. This would ensure that the homeowner policyholder knows they must comply with these duties, and that substantial compliance would not suffice. Proposed section VI.A.1 outlines the first duty, which is to give prompt notice to the insurer. This would be a change from the Dwelling Form (

see

section VII.G) and allow for a reasonable form of prompt notice to the insurer when a loss occurs rather than specifically requiring a written notice. The critical element of the notice requirement is timing, not the form the notice takes. This proposed revision provides flexibility to the homeowner policyholder regarding the ways prompt notification can be given and reflects current practice, as some homeowner policyholders provide prompt notice by calling or emailing their insurance agents when a loss occurs. Proposed section VI.A.2 would require that the homeowner policyholder separate the damaged and undamaged property as soon as possible so that it can be examined and take all reasonable measures to protect covered property from any further loss. This section would not retain the phrase “best possible order” found in section VII.G.2 of the Dwelling Form because this language is unnecessary, as FEMA does not deny claims because there was a better possible order available. In addition, the requirement that homeowner policyholders take reasonable measures to protect undamaged property would help avoid scenarios where avoidable damage or intervening causes of loss occur, which could result in denial of coverage. This additional language reinforces the duty to mitigate loss and reduce the potential for intervening causes of loss which generally result in denial of insurance claims.

Proposed section VI.A.3 makes a significant change from the Dwelling Form (

see

section VII.G.4) regarding timing of submission of the proof of loss. It would require that within 90 calendar days after the loss, the homeowner policyholder must send FEMA a signed and sworn proof of loss containing the date and time of loss, how the loss occurred, details of any other insurance, changes in title or occupancy of the property during the policy term, names of mortgagees or anyone else with a lien, charge, or claim against the property, a description of all damages and detailed repair estimates (if available), and an inventory of the lost, damaged, or destroyed property. The inventory must show the quantity, description, replacement cost value or actual cash value (whichever is applicable), amount of loss, evidence that prior flood damage has been repaired, any written plans for repair of the property that the homeowner policyholder can reasonably make available, and all funds the homeowner policyholder spends recovering from the loss. The homeowner policyholder must also attach copies of all bills, receipts, invoices, written estimates, and related documents.

This proposed section would increase the timeframe to submit a proof of loss from 60 to 90 days, and, consistent with other provisions in the Homeowner Flood Form, specify that these are calendar days. FEMA has historically provided a 60-day window for providing proof of loss. FEMA recognizes that 60 days, the industry standard,

is normally a sufficient timeframe for homeowner policyholders to provide the proof of loss information in a non-disaster scenario. FEMA proposes, however, to surpass the industry standard regarding this timeframe given the nature of the peril involved—flooding—the governmental nature of the NFIP,

and the fact that as mentioned previously, FEMA has often provided homeowner policyholders with extensions of the 60-day window in catastrophic conditions.

Flooding, often resulting from severe storms, can require extended evacuation periods. After a flood, securing contractors to determine the full scope of damage to a property can be challenging given the increased demand in impacted areas for these services. Increasing the timeframe to provide proof of loss should assist homeowner policyholders by providing additional time to return to the property after an evacuation and secure a contractor. FEMA anticipates that this increased timeframe would also result in fewer homeowner policyholder requests for additional payment that FEMA currently sees with the 60-day window. In a catastrophic event, homeowner policyholders need to coordinate with contractors to obtain price quotes which can take time given the volume of demand after an event. While the insurance policy would provide payment based on an adjuster's estimate, it is just that—an estimate. An occasion may arise where an estimate is insufficient to cover the cost of repairs that are within the policy's coverage that a contractor's quote would capture. Additionally, there may be an occasion where a contractor's quote may include repairs that are not covered under the policy. For example, a garage door is damaged by flood. The adjuster finds coverage and identifies the scope of the

covered damage and estimates the value of the covered damage at $500. The contractor's quote may indicate a $1,000 price to replace the garage door. The additional $500 in the contractor's quote may be due to an increase in the price of the unit following the disaster and such cost may be covered. The additional $500 in the contractor's quote could be for rewiring to conform to local building codes and such a code upgrade would generally not be covered. The proposed additional time would allow homeowner policyholders to obtain contractor services and resolve these questions in advance, improving the efficiency of the process overall.

See

Nevada Department of Insurance Allstate Homeowner's Form, page 12, Section 1 Conditions 3.g (stating that signed, sworn proof of loss statements must be submitted within 60 days after the loss), found at

http://docs.nv.gov/doi/documents/home_policies/AllStateForms/AP783.pdf

(last accessed Aug. 28, 2023).

As a government program, the NFIP does not have the variety of flexibilities available to the private sector regarding post-loss options. If a policyholder experiences a loss, a private industry insurer can send over their preferred contractors to handle everything for the policyholder after the payment of the deductible. In the NFIP, utilizing treasury funds and other governmental requirements generally require a greater degree of precision and puts an added burden on SFIP policyholders as compared to their general homeowners coverage through private insurance. By providing more time in this proposed revision, FEMA is offering SFIP customers extra time beyond the industry standard to help alleviate this added burden.

For example, FEMA extended these deadlines for Hurricane Maria (s

ee e.g.,

Bulletin W-17057, “Activation of NFIP Catastrophic Event Enhanced Claim Payment Process and Proof of Loss Extension for Hurricane Maria,” (Sept. 28, 2017), found at

https://nfipservices.floodsmart.gov/sites/default/files/w-17057.pdf

(last accessed Aug. 28, 2023)), Hurricane Irma (

see e.g.,

Bulletin W-17040, “Activation of NFIP Catastrophic Event Enhanced Claim Payment Process and Proof of Loss Extension of Hurricane Irma,” (Sept. 17, 2017), found at

https://nfipservices.floodsmart.gov/sites/default/files/w-17040.pdf

(last accessed Aug. 28, 2023)), and the August 2016 floods in Louisiana (

see e.g.,

Bulletin W-16028, “Notice of the Limited Waiver of the Standard Flood Insurance Policy (“SFIP”) to Extend the Time for Sending Proofs of Loss in the States of Louisiana and Mississippi for Claims Related to Severe Winter Storms Commencing on March 7, 2016 through March 19, 2016,” (Apr. 21, 2016), found at

https://nfipservices.floodsmart.gov/sites/default/files/w-16028.pdf

(last accessed Aug. 28, 2023)); Bulletin W-16038, “Notice of the Limited Waiver of the Standard Flood Insurance Policy (“SFIP”) to Extend the Time for Sending Proofs of Loss in the State of Louisiana for Claims Related to Severe Spring Storms Commencing on April 17, 2016 through April 20, 2016,” (Jun. 15, 2016), found at

https://nfipservices.floodsmart.gov/sites/default/files/w-16038.pdf

(last accessed Aug. 28, 2023)); Bulletin W-16067, “Notice of the Limited Waiver of the Standard Flood Insurance Policy (“SFIP”) to Extend the Time for Sending Proofs of Loss in the State of Louisiana for Claims Related to the Mid-Summer Severe Storms Commencing on August 9, 2016 through August 31, 2016,” (Sept. 9, 2016), found at

https://nfipservices.floodsmart.gov/sites/default/files/w-16067.pdf

(last accessed Aug. 28, 2023)), among others.

FEMA proposes to retain in proposed section VI.A.3 the Dwelling Form's existing requirements in section VII.G.4 for documenting the proof of loss with a few minor adjustments. These include proposed VI.A.3.c's requirement that the homeowner policyholder provide details of any other insurance that may cover some or all of the loss, as this would make the insurer aware of the other insurance regardless of the extent of coverage it may provide for the loss. In addition, VI.A.3.f's requirement that the homeowner policyholder provide a description of all damages to the dwelling and other covered buildings with detailed repair estimates would help remind homeowner policyholders of the requirements to prepare their claim for Coverages A and B. While much of the required inventory list remains the same, FEMA highlights a few changes here. First, proposed section VI.A.3.g would require homeowner policyholders to list not only damaged property, but also property that may have been lost or destroyed, as that property may still be eligible for coverage. Second, proposed section VI.A.3.g(3) would add in replacement cost value, as Coverage C would be eligible for replacement cost value loss settlement instead of only actual cash value. Third, proposed section VI.A.3.g(7)'s requirement of information on all funds actually spent recovering from the loss, including copies of all bills, receipts, invoices, written estimates, and related documents, would enhance the insurer's ability to accurately and completely settle the loss.

FEMA proposes minor clarifying edits in proposed sections VI.A.4, VI.A.5, VI.A.6, and VI.A.7. Like section VII.G.5 of the Dwelling Form, proposed section VI.A.4 would continue requiring homeowner policyholders to use their own judgment concerning the amount of loss and justify that amount before signing it. Like section VII.G.6 of the Dwelling Form, proposed section VI.A.5 would clarify that there may be additional parties beyond an adjuster involved in the investigation of a claim. In proposed section VI.A.6, FEMA would add an industry standard provision requiring the homeowner policyholder make the damaged property accessible for inspection, to ensure that the insurer can inspect the damaged property as appropriate for the claims review process. FEMA also proposes conforming changes in section VI.A.7 (section VII.G.7 of the Dwelling Form) to the deadline for submission of proof of loss to 90 calendar days as reflected in proposed section VI.A.3.

b. Our Options After a Loss

In proposed section VI.B, “Our Options After a Loss,” FEMA seeks to simplify and further clarify the insurer's options. Section VI.B.1. would provide that after a loss and at the insurer's sole discretion, it may require that the homeowner policyholder provide it access to the damaged property, submit to examination under oath upon request and sign the transcript from such examination, and permit the insurer to examine and make copies of all or any portion of any policies of property insurance against loss and the deed establishing ownership of the insured property, and all bills, invoices, receipts, and other records pertaining to the damaged property (or certified copies if originals are lost). Section VI.B.2 would allow the insurer to accept its adjuster's report of the loss in lieu of a proof of loss and require the homeowner policyholder to sign the report, and it would also allow the insurer to require the homeowner policyholder to swear to the report. This section does not mirror its counterpart in the Dwelling Form (at section VII.H) because the section in the Dwelling Form includes several concepts that the Homeowner Flood Form would cover in other sections (

e.g.,

inventory requirements, which the Form would cover in VI.A.g, discussed above). FEMA proposes to add the requirement in VI.B.1.a that the homeowner policyholder provide the insurer access to the damaged property as this would formally enable the inspection of damaged property to better facilitate the claims review process. FEMA's proposed reorganization and restatement of the requirement to provide transactional and other records related to the damaged prope

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