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

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/fr%3A2024-02204

## Record

- **Collection:** Federal Register
- **Document type:** Proposed Rule
- **Published:** February 6, 2024
- **Citation:** 89 FR 8282

## Text

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.
1

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.
2

Intensifying precipitation associated with climate change, and the associated increases in precipitation extremes and flooding, thus presents a significant financial risk to homeowners.
3

1
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).

2
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).

3

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.
4

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.
5

4

See http://www.floodsmart.gov/flood-insurance/why
(last accessed Aug. 28, 2023).

5
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.
6

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.

6

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.
7

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.
8

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.
9

7
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.

8

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.”

9

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,”
10

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.

10
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,
11

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.
12

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.

11
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.

12
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
13

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.

13

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.
14

14

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.
15

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.

15

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
16

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

16
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;
17

(3) where the homeowner policyholder has changed the amount of coverage or deductible amounts; and (4) where the property was misrated.
18 19

17
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).

18
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).

19
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.
20

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.
21

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.

20

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

21

Id.

In addition to coverage for building or contents losses, most NFIP policies also include Increased Cost of Compliance (ICC) coverage.
22

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.

22
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).
23

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.
24

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),
25

FEMA consulted with property and casualty experts over time
26

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.
27

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.

23
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).

24

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 id.
at chapter 6 (p. 85): “Because [the private flood form] was developed by ISO it bears similarities to the ISO Homeowners Policy, making it easier to dovetail coverages so that the insured has no gaps in coverage. Because of this, many sections of the flood policy are identical or very similar to the homeowners policy.”

25
FEMA.
2022-2026 FEMA Strategic Plan. https://www.fema.gov/sites/default/files/documents/fema_2022-2026-strategic-plan.pdf.

26
FEMA conducted interviews with flood insurance professionals in its loaned executive officer program in spring of 2017. FEMA procured insurance product expertise from Milliman, Stanley Parsons, and Hinshaw between 2017-2019. FEMA engaged with and sought feedback from ten Write Your Own companies in the summer of 2019.

27
An endorsement is a written document attached to an insurance policy that modifies the policy by changing the coverage provided by the policy. Also known as a “rider,” “addendum,” or “attachment,” an endorsement can add coverage for acts or things not covered by the original policy, limit or subtract coverage, add or remove exclusions or conditions, or otherwise modify the policy.

FEMA is committed to building a culture of preparedness, and such a culture necessarily includes individuals, communities, and businesses managing risks through proper insurance coverage. One of FEMA's roles is to help people understand their risk and the available options to best manage those risks. Flood insurance is an effective tool to transfer risk and enable rapid recovery. The proposed Homeowner Flood form would help build this culture by better advising homeowners of their flood risks and options to manage those risks.

Flooding can be an emotionally and financially devastating event. Experience has shown repeatedly that individuals, communities, and businesses who manage risk through insurance accelerate their financial recovery after a disaster.
28

If an individual does not have adequate savings to repair or replace their property, flood insurance will help fill that gap when a flood occurs. Flood insurance allows homeowners to recover quicker by providing the funds needed to repair or replace property after a disaster. The proposed Homeowner Flood Form would provide homeowners with options to more quickly receive funds to help accelerate their financial recovery.

28
In 2017, a costly year due to Hurricanes Harvey, Irma, and Maria, the NFIP paid an average claim amount of more than $90,000, while the average disaster assistance grant was just $9,000.
See
FEMA Fact Sheet on Flood Insurance: A Small Price to Pay for Peace of Mind at:
https://agents.floodsmart.gov/sites/default/files/flood-insurance-small-price-pay-peace-mind_fact-sheet_jun20.pdf
(last accessed Aug. 28, 2023).

With flood insurance, individuals are able to financially recover faster. While grants provided under the Robert T. Stafford Disaster Relief and Emergency Assistance Act (“Stafford Act”)
29

may support survivors in the immediate aftermath of a presidentially-declared disaster, this Federal support is only intended to meet basic needs as a survivor moves forward with recovery. Federal disaster assistance typically comes in two forms to individuals: a loan, which must be paid back with interest, or a FEMA disaster grant, which averages approximately $5,000 per household.
30

A disaster grant is not intended to make survivors whole and is not a substitute for insurance. The average flood insurance claim in 2019 was more than $50,000.
31

Maintaining flood insurance is therefore critical to rebuilding a home and replacing belongings following a flood.

29
Public Law 93-288; 42 U.S.C. 5121
et seq.

30

See http://www.floodsmart.gov/flood-insurance/requirements
(last accessed Aug. 28, 2023).

31

Id. See also https://www.fema.gov/data-visualization/historical-flood-risk-and-costs
(last accessed Aug. 28, 2023).

Moreover, when a flood results in a presidentially-declared disaster, flood insurance not only benefits those directly affected by a flood, it also reduces the need for Federal disaster assistance and lowers costs for taxpayers. Because one of FEMA's goals is to close the Nation's insurance gap, and because homeowners make up the majority of NFIP policyholders, FEMA is working to encourage homeowners to better understand their risk and purchase adequate insurance coverage to reduce their losses from flood.
32

FEMA is proposing this new Form for that purpose.

32
Although the NFIP does not maintain data on the ownership status of policyholders, FEMA estimates that a majority of policyholders are homeowners. This estimation stems from certain assumptions based on NFIP eligibility rules and coverage type (for instance, a policyholder with building coverage must own the building, and a policyholder with contents coverage only is likely a renter).

The new Homeowner Flood Form, which FEMA proposes to add to its regulations at 44 CFR 61 Appendix A(4), would protect property owners in a one-to-four family residence. Upon adoption, the Homeowner Flood Form would replace the Dwelling Form as a source of coverage for this class of residential properties.
33

FEMA would continue to use the Dwelling Form to insure landlords, renters, and owners of mobile homes, travel trailers, and condominium units. (FEMA will evaluate any changes needed for these other types of residential policyholders, as well as commercial policyholders, based on public comment associated with this rulemaking). Compared to the current Dwelling Form, the new Homeowner Flood Form would clarify coverage and more clearly highlight conditions, limitations, and exclusions in coverage as well as add and modify coverages and coverage options. FEMA also proposes adding to its regulations five endorsements to accompany the new Form: Increased Cost of Compliance Coverage, Actual Cash Value Loss Settlement, Temporary Housing Expense, Basement Coverage, and Builder's Risk. These endorsements, which FEMA proposes to codify at 44 CFR 61 Appendices A(101)-(105), respectively, would give homeowner policyholders the option of amending the Homeowner Flood Form to modify coverage with a commensurate adjustment to premiums charged.
34

Together, the Homeowner Flood Form and accompanying endorsements would increase options and coverage for owners of one-to-four family residences.

33
FEMA estimates that roughly 88.4% of current Dwelling Form policyholders are homeowners and therefore would use the proposed Homeowner Flood Form. Homeowners as a percentage of policyholders was estimated using data from the PIVOT database from 2010 through 2019. The PIVOT database is the NFIP's official system of record which contains NFIP information.

34
These endorsements would be available to homeowner policyholders to amend only the Homeowner Flood Form; they would not be available to amend the current SFIP forms for other types of policyholders.

A. 44 CFR 61.2: Definitions

44 CFR 61.2 provides that the definitions set forth in 44 CFR part 59 apply to 44 CFR part 61. FEMA proposes to revise this provision to clarify that the definitions set forth in part 59 apply to part 61, including appendices, but if an appendix defines a term differently, that definition controls for the purposes of that appendix. FEMA proposes this revision for clarity and accuracy.

B. 44 CFR 61.13: Standard Flood Insurance Policy

44 CFR 61.13 describes the Standard Flood Insurance Policy. Section 61.13(a), “Incorporation of forms,” states that each of the SFIP forms included in Appendix A hereto (General

Property, Dwelling, and Residential Condominium Building Association) and incorporated herein shall be incorporated into the SFIP. FEMA proposes to remove “(General Property, Dwelling, and Residential Condominium Building Association)” so that the provision states simply that each of the SFIP forms included in Appendix A hereto and by reference incorporated herein shall be incorporated into the SFIP. The removal of this phrase would allow FEMA to incorporate the new Homeowner Flood Form, as well as any additional forms that FEMA may implement in the future, without having to revise this section upon issuance of each new form.

C. Appendix A(4): Homeowner Flood Form

As mentioned above, FEMA has not substantively updated the SFIP since 2000. While the SFIP has performed ably over the last two decades, FEMA recognizes that changes in consumer expectations, technology, and the insurance industry over the last 20 years warrant an update to it. The new Homeowner Flood Form and its accompanying endorsements would provide a more personalized, customizable product than the NFIP has offered during its 50 years. In addition to aligning with property and casualty homeowners insurance, the result would increase consumer choice. For instance, rather than universally limiting basement coverage, the new Form allows homeowner policyholders to choose their coverage based on their understanding of flood risk and the coverage they desire. The Form would also simplify coverage, such as offering the same coverage on a building regardless of whether it is a primary residence or not, or pre- or post-FIRM, and removing the importance of flood zones for purposes of coverage.
35

Ultimately, the purpose of coverage is to help homeowner policyholders recover, and FEMA anticipates that the premiums tied to homeowner policyholders' coverage choices would signal the underlying risk and prompt mitigation efforts.

35
Although the Form would offer the same coverage regardless of flood zone, the premiums charged would continue to differ based on risk. For instance, owners of riskier buildings, such as pre-FIRM buildings and buildings with the lowest level below Base Flood Elevation, would continue to pay more in premiums for the same level of coverage compared to a building carrying less risk. This is because the NFIP will continue charging the most accurate actuarial rates it can based not just on flood maps, but other information (such as distance to water sources and elevations) as improvements in technology allow, as discussed in greater detail below.

The following chart illustrates how homeowner policyholders could customize their policy at the point of sale:

BILLING CODE 9111-52-P

EP06FE24.021

BILLING CODE 9111-52-C
Simplifying the Policy for Homeowner Policyholders and Plain Language Efforts

The Form would provide FEMA with greater flexibility in administering flood insurance. Unlike the Dwelling Form, which is highly prescriptive and includes long lists of covered items, the new Form would further incorporate plain language, remove unnecessary provisions, reduce reliance on lists, and highlight certain specifics on the declarations page. Moreover, the Form would add in flexibilities, like special procedures during catastrophic flood events.
36

Altogether, the proposed products would allow FEMA to provide homeowners with better, more tailored coverage.

36
FEMA currently provides special procedures for catastrophic events through bulletins issued on a catastrophe-by-catastrophe basis.
See e.g.,
Bulletin W-17030, “Activation of NFIP Catastrophic Event Enhanced Claim Payment Process for Hurricane Harvey,” (Sept. 3, 2017), found at
https://nfipservices.floodsmart.gov/sites/default/files/w-17030.pdf
(last accessed Aug. 28, 2023); Bulletin W-17031a, “Guidance for Advance Payments for Hurricane Harvey,” (Sept. 4, 2017), found at
https://nfipservices.floodsmart.gov/sites/default/files/w-17031a.pdf
(last accessed Aug. 28, 2023); Bulletin W-17035, “Hurricane Harvey Enhanced Claim Handling for Prior Loss and Contents Claims under the Dwelling Form of the SFIP,” (Sept. 9, 2017), found at
https://nfipservices.floodsmart.gov/sites/default/files/w-17035.pdf
(last accessed Aug. 28 2023). FEMA proposes to incorporate these special procedures into the Homeowner Flood Form for ease of administration and to increase transparency.

As an insurance contract, the new Form has to be capable of being read from start to finish as well as quickly navigable to find the specific information in the event of an issue or a loss. To maintain certain decades-old foundational concepts, limit implementation errors, and minimize disruption to the administration of the NFIP, FEMA found it necessary to favor certain flood insurance terminology and/or terms of art even where the phrasing may seem stuffy or overworked. FEMA is proposing several changes with plain language in mind and seeks comment on whether the proposed changes result in the desired clarity. Specifically, FEMA proposed to change the organization of the policy, such that fewer sections are provided in the overall policy and similar concepts are grouped together to allow the reader to know what is and is not covered without having to review a section and then have to return to it again for clarity. FEMA is also proposing to add headers and captions to guide the reader and improve comprehension. Insurance professionals often “speak by citation,” quoting the policy provisions by location rather than name. The headers and captions will help non-insurance professionals quickly understand what is in those citations. FEMA proposes italicizing defined terms throughout the policy as a signal to the reader that this is one of those defined terms they read and thus allowing the reader to refer back to the definitions as appropriate. FEMA is also proposing to define specific terms not used elsewhere in the policy within the clause. For example, “pollutants” is defined in the proposed III.A.3.d, rather than in the proposed section II. FEMA is proposing to remove technical information. The Dwelling Form makes reference to specific flood zones, post-FIRM buildings, and defines numerous terms not relevant to the policyholder with coverage under the SFIP. FEMA also seeks comment on other ways the Form can be revised to improve the policy's language and decrease confusion.

Potential Benefits and Impacts on Disadvantaged Communities

FEMA believes that the proposed changes to the Homeowner Flood Form will reduce burdens on low-income and other disadvantaged communities particularly affected by changing conditions and increased flooding. FEMA's current authority requires actuarial rates, which can impact low-income and other disadvantaged communities. By offering choices such as options for actual cash value or replacement cost value coverage and basement coverage options, FEMA believes that homeowner policyholders can make a value judgment regarding the extent of their coverage.
37

FEMA seeks specific comment on the potential benefits and impacts of this proposed rulemaking on various geographic regions and communities, including based on income, insurance access, and affordability.

37
FEMA believes additional equitable and affordability solutions require legislative change.
See generally https://www.fema.gov/flood-insurance/rules-legislation/congressional-reauthorization/legislative-proposals
(last accessed Aug. 28, 2023).

Premium Rates

The changes proposed in this rule would generally not impact the NFIP's premium structure. A decision to select more robust coverage, as with all insurance coverage, would result in increased premiums.

Homeowner Flood Form

1. Section I: Insuring Agreement

FEMA proposes to consolidate multiple sections from the Dwelling Form into one larger section. Specifically, elements of sections I and X of the Dwelling Form appear in proposed section I.A on governing law to make clear that this is a Federal policy and is governed by Federal law.
38

Proposed section I.A would retain the language indicating that Federal law governs all disputes regarding the policy and claims handling. Standard Flood Insurance Policies are sold by private WYO insurance companies and directly to the public by FEMA's direct servicing agent, NFIP Direct. Because the NFIP is national in scope and accomplishes a number of programmatic missions in addition to making affordable flood insurance generally available to the public, the SFIP provides that its terms cannot be altered, varied, or waived except by the written authority of the Federal Insurance Administrator.
39

The Administrator intends that the same benefits should be available to all those insured wherever the insured property is located, or whether the policy is purchased from a WYO insurance company or from NFIP Direct. There is a continued need for uniformity in the interpretation of and standards applicable to the policies and their administration. FEMA is reiterating the policy language pertaining to applicable law to emphasize that matters pertaining to the SFIP are governed exclusively by Federal law. Proposed section I.B on conflicts with Federal law would eliminate the need to list specific legal authorities that currently or could eventually conflict with the policy.
40

Listing all potentially applicable laws here is unnecessary, unwieldly, and constrains any future flexibility. Consistent with the goals of updating the SFIP, this revised section would increase readability and comprehensibility.

38

See generally
42 U.S.C. 4011(a), 4053, 4072; 44 CFR 59.2, 61.5(e), 62.22, 62.23(g).

39

See also Nelson
v.
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
v.
Kimbell Foods,
440 U.S. 715, 728 (1979))).

40
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,
41

and retaining this clarification comports with plain language guidelines.
42

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.

41
Prior to 1982, the forms referred to “insurer” and “insured” throughout.
See e.g.,
44 CFR 61 App. A(1) (1981).

42

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.
43

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.

43
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.
44

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.”

44

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.
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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,
46

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.

45
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.

46
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.
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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.

47
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,
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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.
49

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.

48
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.

49

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.
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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.

50

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.
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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.

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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.
52

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.

52
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
53

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).

53

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
54

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.

54
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.
55

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.

55
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.
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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
57

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.

56
42 U.S.C. 4011(a).

57
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.
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58
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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2024-02204. Public record. Not legal advice.