National Flood Insurance Program; Assistance to Private Sector Property Insurers

FEDERAL EMERGENCY MANAGEMENT AGENCY

44 CFR Part 62

RIN 3067-AC62

National Flood Insurance Program; Assistance to Private Sector

Property Insurers

AGENCY: Federal Insurance Administration, (FEMA).

ACTION: Proposed rule.

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SUMMARY: This proposed rule would amend the National Flood Insurance

Program (NFIP) regulations establishing the Financial Assistance/

Subsidy Arrangement. This Arrangement may be entered into by and

between the Administrator and private sector insurers under the Write

Your Own (WYO) program. The proposed amendments would: (1) Reduce the

range between the minimum and maximum amount of premium income a

company may retain as a servicing fee as a result of its marketing

performance; (2) restructure the Arrangement so that under no

circumstance would a company have to return any portion of the expense

allowance; (3) reformat the Arrangement to make it easier to read; (4)

standardize references throughout the document, and (5) add details to

clarify responsibilities of private sector insurers under the

Arrangement with regard to reporting requirements, litigation, and

``errors and omissions.''

DATES: All comments received on or before June 16, 1997 will be

considered before final action is taken on the proposed rule.

ADDRESSES: Please submit any written comments to the Rules Docket

Clerk, Office of the General Counsel, Federal Emergency Management

Agency, 500 C Street, SW., room 840, Washington, DC 20472, (facsimile)

202-646-4536.

FOR FURTHER INFORMATION CONTACT: Edward T. Pasterick, Federal Emergency

Management Agency, Federal Insurance Administration, 500 C Street SW.,

Washington, DC 20472, 202-646-3443.

SUPPLEMENTARY INFORMATION: The Write Your Own (WYO) program has

operated for fourteen years as a cooperative venture between the

Federal Government and private insurance companies in order to make it

easier for the public to obtain flood insurance coverage. The duties

and responsibilities of the Federal Government and the private insurers

participating in the WYO program are spelled out each year in the

Financial Assistance/Subsidy Arrangement (the ``Arrangement'').

Prior to the 1994-95 Arrangement Year, the amount of premium which

the Company retained as a servicing fee or expense allowance was

adjusted based on the average of expense ratios for ``Other Acq.,''

``General Exp.,'' and ``Taxes'' as published in the latest available

``Best's'' Aggregates and Averages: Property Casualty Insurance

Underwriting-- by Lines for Fire, Allied Lines, Farmowners Multiple

Peril, Homeowners Multiple Peril combined. The average for the 1993-94

Arrangement Year was 32.6 percent, and the expense allowance has not

been adjusted for the last three years. This rule proposes an expense

allowance range between 31.6 percent and 32.9 percent depending on a

company's reaching certain policy growth goals, with 31.9 percent, the

current industry average, corresponding to a four percent growth, the

current annual growth of flood insurance under the Write Your Own

program. FIA also plans, after the implementation of the Arrangement

for 1997-98, to continue discussions with the WYO companies on the best

way to maintain in future years financial incentives for companies to

market flood insurance while minimizing financial uncertainties from

one year to the next for participating companies.

This rule proposes in ``B. Time Standards'' of Article II,

``Undertaking of the Company'' adding specific provisions regarding

``continual failure'' of a participating company to meet the time

standards of the Arrangement.

Additionally, this rule proposes adding under ``Article III-Loss

Costs, Expenses, Expense Reimbursement, and Premium Refunds'': 1.

Specific reporting requirements regarding litigation, 2. specific

criteria for reporting litigation, and 3. Authority to withhold

reimbursement for companies failing to meet the Arrangement's reporting

requirements for litigation. Also added in Article III and Article IX,

``Errors and Omissions,'' is proposed language that clarifies the

responsibilities of participating companies in connection with ``errors

and omissions.''

Finally, this rule proposes other changes that would reformat the

Arrangement by modifying the outline format and rearranging text in

order to make the document clearer and easier to read. These proposed

changes would be consistent with the changes made to the Arrangement

last year for the express purpose of making the Arrangement more

serviceable for FIA and its insurance industry partners.

National Environmental Policy Act

This proposed rule is categorically excluded from the requirements

of 44 CFR Part 10, Environmental Consideration. No environmental

assessment has been prepared.

Executive Order 12898, Environmental Justice

The socioeconomic conditions to this proposed rule were reviewed

and a finding was made that no disproportionately high and adverse

effect on minority or low income populations would result from this

final rule.

Executive Order 12866, Regulatory Planning and Review

This proposed rule is not a significant regulatory action within

the meaning of sec. 2(f) of E.O. 12866 of September 30, 1993, 58 FR

51735, and has not been reviewed by the Office of Management and

Budget. Nevertheless, this final rule adheres to the regulatory

principles set forth in E.O. 12866.

Paperwork Reduction Act

This proposed rule does not contain a collection of information and

is therefore not subject to the provisions of the Paperwork Reduction

Act.

Executive Order 12612, Federalism

This proposed rule involves no policies that have federalism

implications under Executive Order 12612, Federalism, dated October 26,

1987.

Executive Order 12778, Civil Justice Reform

This proposed rule meets the applicable standards of section

2(b)(2) of Executive Order 12778.

List of Subjects in 44 CFR Part 62

Claims, Flood insurance.

Accordingly, 44 CFR part 62 is proposed to be amended as follows:

PART 62-- SALE OF INSURANCE AND ADJUSTMENT OF CLAIMS

1. The authority citation for part 62 continues to read as follows:

Authority: 42 U.S.C. 4001 et seq.; Reorganization Plan No. 3 of

1978; 43 FR 41943, 3 CFR, 1978 Comp., p. 329; E.O. 12127 of Mar. 31,

1979, 44 FR 19367, 3 CFR, 1979 Comp., p. 376.

2. Appendix A of part 62 would be revised to read as follows:

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Appendix A to Part 62--Federal Emergency Management Agency, Federal

Insurance Administration, Financial Assistance/Subsidy Arrangement

Purpose: To assist the company in underwriting flood insurance

using the Standard Flood Insurance Policy.

Accounting Data: Pursuant to Section 1310 of the Act, a Letter

of Credit shall be issued for payment as provided for herein from

the National Flood Insurance Fund.

Effective Date: October 1, 1996.

Issued By: Federal Emergency Management Agency, Federal

Insurance Administration, Washington, DC 20472.

Article I--Findings, Purpose, and Authority

Whereas, the Congress in its ``Finding and Declaration of

Purpose'' in the National Flood Insurance Act of 1968, as amended,

(``the Act'') recognized the benefit of having the National Flood

Insurance Program (the ``Program'' or ``NFIP'') ``carried out to the

maximum extent practicable by the private insurance industry''; and

Whereas, the Federal Insurance Administration (FIA) recognizes

this Arrangement as coming under the provisions of Section 1345 of

the Act; and

Whereas, the goal of the FIA is to develop a program with the

insurance industry where, overtime, some risk-bearing role for the

industry will evolve as intended by the Congress (Section 1304 of

the Act); and

Whereas, the insurer (hereinafter the ``Company'') under this

Arrangement shall charge rates established by the FIA; and

Whereas, this Arrangement will subsidize all flood policy losses

by the Company; and

Whereas, this Financial Assistance/Subsidy Arrangement has been

developed to enable any interested qualified insurer to write flood

insurance under its own name; and

Whereas, one of the primary objectives of the Program is to

provide coverage to the maximum number of structures at risk and

because the insurance industry has marketing access through its

existing facilities not directly available to the FIA, it has been

concluded that coverage will be extended to those who would not

otherwise be insured under the Program; and

Whereas, flood insurance policies issued subject to this

Arrangement shall be only that insurance written by the Company in

its own name under prescribed policy conditions and pursuant to this

Arrangement and the Act; and

Whereas, over time, the Program is designed to increase industry

participation, and, accordingly, reduce or eliminate Government as

the principal vehicle for delivering flood insurance to the public;

and

Whereas, the direct beneficiaries of this Arrangement will be

those Company policyholders and applicants for flood insurance who

otherwise would not be covered against the peril of flood.

Now, therefore, the parties hereto mutually undertake the

following:

Article II--Undertaking of the Company

A. Eligibility Requirements for Participation in the NFIP:

1. Policy Administration. All fund receipt, recording, control,

timely deposit requirements, and disbursement in connection with all

Policy Administration and any other related activities or

correspondences, must meet all requirements of the Financial Control

Plan. The Company shall be responsible for:

a. Compliance with the Community Eligibility/Rating Criteria

b. Making Policyholder Eligibility Determinations

c. Policy Issuance

d. Policy Endorsements

e. Policy Cancellations

f. Policy Correspondence

g. Payment of Agents' Commissions

2. Claims Processing. All claims processing must be processed in

accordance with the processing of all the companies' insurance

policies and with the Financial Control Plan. Companies will also be

required to comply with FIA Policy Issuance's and other guidance

authorized by FIA or the Federal Emergency Management Agency

(``FEMA'').

3. Reports a. Monthly Financial Reporting and Statistical

Transaction reporting requirements. All monthly financial reporting

and statistical transaction reporting shall be in accordance with

the requirements of the NFIP Transaction Record Reporting and

processing plan for the Company Program and the Financial Control

Plan for business written under the WYO (Write Your Own) Program. 44

C.F.R. Part 62, App. (B). These data shall be validated/edited/

audited in detail and shall be compared and balanced against Company

reports.

b. Monthly financial reporting procedure shall be in accordance

with the WYO Accounting Procedures.

B. Time Standards. These time standards are for guidance. Time

will be measured from the date of receipt through the date mailed

out. All dates referenced are working days, not calendar days. In

addition to the standards set forth below, all functions performed

by the company shall be in accordance with the highest reasonably

attainable quality standards generally utilized in the insurance and

data processing field. Continual failure to meet these requirements

may result in limitations on the company's authority to write new

business or the removal of the Company from the program. Applicable

time standards are:

1. Application Processing--15 days (note: if the policy cannot

be mailed due to insufficient or erroneous information or

insufficient funds, a request for correction or added moneys shall

be mailed within 10 days);

2. Renewal Processing--7 days

3. Endorsement Processing--15 days

4. Cancellation Processing--15 days

5. Claims Draft Processing--7 days from completion of file

examination

6. Claims Adjustment--45 days average from the receipt of Notice

of Loss (or equivalent) through completion of examination.

C. Single Adjuster Program. To ensure the maximum responsiveness

to the NFIP policy holders following a catastrophic event, e.g., a

hurricane, involving insured wind and flood damage to policyholders,

the Company shall agree to the adjustment of the combined flood and

wind losses utilizing one adjuster under an NFIP-approved Single

Adjuster Program using procedures issued by the Administrator. The

Single Adjuster procedure shall be followed in the following cases:

1. Where the flood and wind coverage is provided by the Company;

2. Where the flood coverage is provided by the Company and the

wind coverage is provided by a participating State Property

Insurance Plan, Windpool Association, Beach Plan, Joint Underwriting

Association, FAIR Plan, or similar property insurance mechanism; and

3. Where the flood coverage is provided by the Company and the

wind coverage is provided by another property insurer and the State

Insurance Regulator has determined that such property insurer shall,

in the interest of consumers, facilitate the adjustment of its wind

loss by the adjuster engaged to adjust the flood loss of the

Company.

D. Policy Issuance. 1. The flood insurance subject to this

Arrangement shall be only that insurance written by the Company in

its own name pursuant to the Act.

2. The Company shall issue policies under the regulations

prescribed by the Administrator in accordance with the Act.

3. All such policies of insurance shall conform to the

regulations prescribed by the Administrator pursuant to the Act, and

be issued on a form approved by the Administrator.

4. All policies shall be issued in consideration of such

premiums and upon such terms and conditions and in such States or

areas or subdivisions thereof as may be designated by the

Administrator and only where the Company is licensed by State law to

engage in the property insurance business.

5. The Administrator may require the Company to discontinue

issuing policies subject to this Arrangement immediately in the

event Congressional authorization or appropriation for the National

Flood Insurance Program is withdrawn.

E. The Company shall separate Federal flood insurance funds from

all other Company accounts, at a bank or banks of its choosing for

the collection, retention and disbursement of Federal funds relating

to its obligation under this Arrangement, less the Company's

expenses as set forth in Article III, and the operation of the

Letter of Credit established pursuant to Article IV. All funds not

required to meet current expenditures shall be remitted to the

United States Treasury, in accordance with the provisions of the WYO

Accounting Procedures Manual.

F. The Company shall investigate, adjust, settle and defend all

claims or losses arising from policies issued under this

Arrangement. Payment of flood insurance claims by the Company shall

be binding upon the FlA.

G. The Company shall market flood insurance policies in a manner

consistent with the marketing guidelines established by the Federal

Insurance Administration.

Article III--Loss Costs, Expenses, Expense Reimbursement, and Premium

Refunds

A. The Company shall be liable for operating, administrative and

production

[[Page 23738]]

expenses, including any State premium taxes, dividends, agent's

commissions or any other expense of whatever nature incurred by the

Company in the performance of its obligations under this Arrangement

but excluding other taxes or fees, such as surcharges on flood

insurance premium and guaranty fund assessments.

B. The Company shall be entitled to withhold, as operating and

administrative expenses, including agents' or brokers' commissions,

an amount from the Company's written premium on the policies covered

by this Arrangement in reimbursement of all of the Company's

marketing, operating and administrative expenses, except for

allocated and unallocated loss adjustment expenses described in

Section C. of this Article, which amount shall be a minimum of 31.6%

of the Company's written premium on the policies covered by this

Arrangement.

The amount of expense allowance retained by the company may be

increased to a maximum of 32.9%, depending on the extent to which

the company meets the marketing goals for the 1997-1998 Arrangement

year contained in marketing guidelines established pursuant to

Article II. G. The amount of any increase shall be paid to the

company after the end of the 1997-1998 Arrangement year.

The Company, with the consent of the Administrator as to terms

and costs, shall be entitled to utilize the services of a national

rating organization, licensed under state law, to assist the FIA in

undertaking and carrying out such studies and investigations on a

community or individual risk basis, and in determining more

equitable and accurate estimates of flood insurance risk premium

rates as authorized under the National Flood Insurance Act of 1968,

as amended. The Company shall be reimbursed in accordance with the

provisions of the WYO Accounting Procedures Manual for the charges

or fees for such services.

C. Loss Adjustment Expenses shall be reimbursed as follows:

1. Unallocated loss adjustment shall be an expense reimbursement

of 3.3% of the incurred loss (except that it does not include

``incurred but not reported'').

2. Allocated loss adjustment expense shall be reimbursed to the

Company pursuant to a ``Fee Schedule'' coordinated with the Company and

provided by the Administrator.

3. Special allocated loss expenses shall be reimbursed to the

Company in accordance with guidelines issued by the Administrator.

D. Loss Payments. 1. Loss payments under policies of flood

insurance shall be made by the Company from funds retained in the

bank account(s) established under Article II, Section E and, if such

funds are depleted, from funds derived by drawing against the Letter

of Credit established pursuant to Article IV.

2. Loss payments include payments as a result of litigation which

arises under the scope of this Arrangement, and the Authorities set

forth above. All such loss payments must meet the documentation

requirements of the Financial Control Plan and of this Arrangement. The

Company will be reimbursed for errors and omissions only as set forth

at Article IX of this Arrangement.

3. Notification of claims in litigation against the company. To

ensure reimbursement of costs expended to defend a claim in litigation

against the Company, the Company must promptly notify FIA and the FEMA

Office of General Counsel (OGC) of all pending and active litigation

upon receipt of notice of that litigation and/or claim.

Prompt notice of any such claim for damages within the scope of

this section (D) shall be sent to the Administrator along with a copy

of any material pertinent to the claim for damages. At the same time as

notice is sent to the Administrator, the Company must submit written

notice of all such claims to the Associate General Counsel for

Litigation, FEMA OGC, 500 C St. SW, Washington, DC 20472. Following the

initial notice of claims in litigation, the company must submit all

pertinent material and billing documentation as it becomes available.

Within 60 days of the receipt of a claim in litigation by the Company,

the company must submit an initial case analysis and legal fee

estimate. Failure to meet these notice requirements may result in the

Administrator's decision not to reimburse expenses for which FIA and

the FEMA OGC have not been notified in a timely manner.

4. Limitation on Litigation Costs. Following receipt of notice of

such claim, the Office of General Counsel (OGC), FEMA, shall review the

information submitted. If it is determined that the claim is grounded

in actions by the Company that are outside the scope of this

Arrangement, the National Flood Insurance Act, and 44 C.F.R. Part 59,

et seq., and/or involve issues of insurer/agent negligence as discussed

in Article IX of this Arrangement, the OGC shall make a recommendation

to the Administrator as to whether the claim is grounded in actions by

the Company that are significantly outside the scope of this

Arrangement. In the event the Administrator determines that the claim

is grounded in actions by the Company that are significantly outside

the scope of this Arrangement, the Company will be notified, in

writing, within thirty (30) days of the Administrator's decision, if

the decision is that any award or judgment for damages arising out of

such actions will not be recognized under Article III of this

Arrangement as a reimbursable loss cost, expense or expense

reimbursement. In the event that the Company wishes to petition for

reconsideration the determination that it will not be reimbursed for

the award or judgment made under the above circumstances, it may do so

by mailing, within thirty days of the notice declining to recognize any

such award or judgment as reimbursable under Article III, a written

petition to the Chairman of the WYO Standards Committee established

under the Financial Control Plan. The WYO Standards Committee will,

then, consider the petition at its next regularly scheduled meeting or

at a special meeting called for that purpose by the Chairman and issue

a written recommendation to the Administrator, within thirty days of

the meeting. The Administrator's final determination will be made, in

writing, to the Company within thirty days of the recommendation made

by the WYO Standards Committee.

E. Premium refunds to applicants and policyholders required

pursuant to rules contained in the National Flood Insurance Program

(NFIP) ``Flood Insurance Manual'' shall be made by the Company from

Federal flood insurance funds referred to in Article II, Section E,

and, if such funds are depleted, from funds derived by drawing against

the Letter of Credit established pursuant to Article IV.

Article IV--Undertakings of the Government

A. Letter(s) of Credit shall be established by the Federal

Emergency Management Agency (FEMA) against which the Company may

withdraw funds daily, if needed, pursuant to prescribed procedures

implemented by FEMA. The amounts of the authorizations will be

increased as necessary to meet the obligations of the Company under

Article III, Sections C, D, and E. Request for funds shall be made only

when net premium income has been depleted. The timing and amount of

cash advances shall be as close as is administratively feasible to the

actual disbursements by the recipient organization for allowable Letter

of Credit expenses.

Request for payment on Letters of Credit Shall not Ordinarily be

drawn more frequently than daily nor in amounts less than $5,000, and

in no case more than $5,000,000 unless so stated on the Letter of

Credit. This Letter of Credit may be drawn by the Company for any of

the following reasons:

1. Payment of claim as described in Article III, Section D;

2. Refunds to applicants and policyholders for insurance premium

overpayment, or if the application for insurance is rejected Or when

[[Page 23739]]

cancellation or endorsement of a policy results in a premium refund as

described in Article III, Section E; and

3. Allocated and unallocated Loss Adjustment Expenses as described

in Article III, Section C.

B. The FIA shall provide technical assistance to the Company as

follows:

1. The FIA's policy and history concerning underwriting and claims

handling.

2. A mechanism to assist in clarification of coverage and claims

questions.

3. Other assistance as needed.

Article V--Commencement and Termination

A. Upon signature of authorized officials for both the Company and

the FIA, this Arrangement shall be effective for the period October 1

through September 30. The FIA shall provide financial assistance only

for policy applications and endorsements accepted by the Company during

this period pursuant to the Program's effective date, underwriting and

eligibility rules.

B. By June 1, of each year, the FIA shall publish in the Federal

Register and make available to the Company the terms for the re-

subscription of this Financial Assistance/Subsidy Arrangement. In the

event the Company chooses not to re-subscribe, it shall notify the FIA

to that effect by the following July 1.

C. In the event the Company elects not to participate in the

Program in any subsequent fiscal year, or the FIA chooses not to renew

the Company's participation, the FIA, at its option, may require (1)

the continued performance of this entire Arrangement for a period not

to exceed one (1) year following the original term of this Arrangement,

or any renewal thereof, or (2) the transfer to the FIA of:

1. All data received, produced, and maintained through the life of

the Company's participation in the Program, including certain data, as

determined by FIA, in a standard format and medium; and

2. A plan for the orderly transfer to the FIA of any continuing

responsibilities in administering the policies issued by the Company

under the Program including provisions for coordination assistance; and

3. All claims and policy files, including those pertaining to

receipts and disbursements that have occurred during the life of each

policy. In the event of a transfer of the services provided, the

Company shall provide the FIA with a report showing, on a policy basis,

any amounts due from or payable to insureds, agents, brokers, and

others as of the transition date.

D. Financial assistance under this Arrangement may be canceled by

the FIA in its entirety upon 30 days written notice to the Company by

certified mail stating one of the following reasons for such

cancellation: (1) Fraud or misrepresentation by the Company subsequent

to the inception of the contract, or (2) nonpayment to the FIA of any

amount due the FIA. Under these very specific conditions, the FIA may

require the transfer of data as shown in Section C., above. If transfer

is required, the unearned expenses retained by the Company shall be

remitted to the FIA. In such event the Government will assume all

obligations and liabilities owed to policyholders under such policies

arising before and after the date of transfer.

E. In the event the Act is amended, or repealed, or expires, or if

the FIA is otherwise without authority to continue the Program,

financial assistance under this Arrangement may be canceled for any new

or renewal business, but the Arrangement shall continue for policies in

force that shall be allowed to run their term under the Arrangement.

F. In the event that the Company is unable to, or otherwise

fails to, carry out its obligations under this Arrangement by reason

of any order or directive duly issued by the Department of Insurance

of any Jurisdiction to which the Company is subject, the Company

agrees to transfer, and the Government will accept, any and all WYO

policies issued by the Company and in force as of the date of such

inability or failure to perform. In such event the Government will

assume all obligations and liabilities owed to policyholders under

such policies arising before and after the date of transfer and the

Company will immediately transfer to the Government all funds in its

possession with respect to all such policies transferred and the

unearned portion of the Company expenses for operating,

administrative and loss adjustment on all such policies.

Article VI--Information and Annual Statements

The Company shall furnish to FEMA such summaries and analyses of

information including claim file information, and property address,

location, and/or site information in its records as may be necessary

to carry out the purposes of the National Flood Insurance Act of

1968, as amended, in such form as the FIA, in cooperation with the

Company, shall prescribe. The Company shall be a property/casualty

insurer domiciled in a State or territory of the United States. Upon

request, the Company shall file with the FIA a true and correct copy

of the Company's Fire and Casualty Annual Statement, and Insurance

Expense Exhibit or amendments thereof as filed with the State

Insurance Authority of the Company's domiciliary State.

Article VII--Cash Management and Accounting

FEMA shall make available to the Company during the entire term

of this Arrangement and any continuation period required by FIA

pursuant to Article V, Section C., the Letter of Credit provided for

in Article IV drawn on a repository bank within the Federal Reserve

System upon which the Company may draw for reimbursement of its

expenses as set forth in Article IV that exceed net written premiums

collected by the Company from the effective date of this Arrangement

or continuation period to the date of the draw.

B. The Company shall remit all funds, including interest, not

required to meet current expenditures to the United States Treasury,

in accordance with the provisions of the WYO Accounting Procedures

Manual or procedures approved in writing by the FIA.

C. In the event the Company elects not to participate in the

Program in any subsequent fiscal year, the Company and FIA shall

make a provisional settlement of all amounts due or owing within

three months of the termination of this Arrangement. This settlement

shall include net premiums collected, funds drawn on the Letter of

Credit, and reserves for outstanding claims. The Company and FIA

agree to make a final settlement of accounts for all obligations

arising from this Arrangement within 18 months of its expiration or

termination, except for contingent liabilities that shall be listed

by the Company. At the time of final settlement, the balance, if

any, due the FIA or the Company shall be remitted by the other

immediately and the operating year under this Arrangement shall be

closed.

Article VIII--Arbitration

If any misunderstanding or dispute arises between the Company

and the FIA with reference to any factual issue under any provisions

of this Arrangement or with respect to the FIA's non-renewal of the

Company's participation, other than as to legal liability under or

interpretation of the standard flood insurance policy, such

misunderstanding or dispute may be submitted to arbitration for a

determination that shall be binding upon approval by the FIA. The

Company and the FIA may agree on and appoint an arbitrator who shall

investigate the subject of the misunderstanding or dispute and make

a determination. If the Company and the FIA cannot agree on the

appointment of an arbitrator, then two arbitrators shall be

appointed, one to be chosen by the Company and one by the FIA.

The two arbitrators so chosen, if they are unable to reach an

agreement, shall select a third arbitrator who shall act as umpire,

and such umpire's determination shall become final only upon

approval by the FIA.

The Company and the FIA shall bear in equal shares all expenses

of the arbitration. Findings, proposed awards, and determinations

resulting from arbitration proceedings carried out under this

section, upon objection by FIA or the Company, shall be inadmissible

as evidence in any subsequent proceedings in any court of competent

jurisdiction.

[[Page 23740]]

This Article shall indefinitely succeed the term of this

Arrangement.

Article IX--Errors and Omissions

The parties shall not be liable to each other for damages caused

by inadvertent delay, error, or omission made in connection with any

transaction under this Arrangement. In the event of such actions,

the responsible party must attempt to rectify that error as soon as

possible after discovery of the error and act to mitigate any costs

incurred due to that error. In the event that steps are not taken to

rectify the situation and such action leads to claims against the

company, the NFIP, or other related entities, the responsible party

shall bear all liability attached to that delay, error or omission

to the extent permissible by law.

However, in the event that the Company has made a claim payment

to an insured without including a mortgagee (or trustee) of which

the Company had actual notice prior to making payment, and

subsequently determines that the mortgagee (or trustee) is also

entitled to any part of said claim payment, any additional payment

shall not be paid by the Company from any portion of the premium and

any funds derived from any Federal Letter of Credit deposited in the

bank account described in Article II, section E. In addition, the

Company agrees to hold the Federal Government harmless against any

claim asserted against the Federal Government by any such mortgagee

(or Trustee), as described in the preceding sentence, by reason of

any claim payment made to any insured under the circumstances

described above.

Article X--Officials Not To Benefit

No Member or Delegate to Congress, or Resident Commissioner,

shall be admitted to any share or part of this Arrangement, or to

any benefit that may arise therefrom; but this provision shall not

be construed to extend to this Arrangement if made with a

corporation for its general benefit.

Article XI--Offset

At the settlement of accounts the Company and the FIA shall

have, and may exercise, the right to offset any balance or balances,

whether on account of premiums, commissions, losses, loss adjustment

expenses, salvage, or otherwise due one party to the other, its

successors or assigns, hereunder or under any other Arrangements

heretofore or hereafter entered into between the Company and the

FlA. This right of offset shall not be affected or diminished

because of insolvency of the Company.

All debts or credits of the same class, whether liquidated or

unliquidated, in favor of or against either party to this

Arrangement on the date of entry, or any order of conservation,

receivership, or liquidation, shall be deemed to be mutual debts and

credits and shall be offset with the balance only to be allowed or

paid. No offset shall be allowed where a conservator, receiver, or

liquidator has been appointed and where an obligation was purchased

by or transferred to a party hereunder to be used as an offset.

Although a claim on the part of either party against the other

may be unliquidated or undetermined in amount on the date of the

entry of the order, such claim will be regarded as being in

existence as of the date of such order and any credits or claims of

the same class then in existence and held by the other party may be

offset against it.

Article XII--Equal Opportunity

The Company shall not discriminate against any applicant for

insurance because of race, color, religion, sex, age, handicap,

marital status, or national origin.

Article XIII--Restriction on Other Flood Insurance

As a condition of entering into this Arrangement, the Company

agrees that in any area in which the Administrator authorizes the

purchase of flood insurance pursuant to the Program, all flood

insurance offered and sold by the Company to persons eligible to buy

pursuant to the Program for coverages available under the Program

Shall be written pursuant to this Arrangement.

However, this restriction applies solely to policies providing

only flood insurance. It does not apply to policies provided by the

Company of which flood is one of the several perils covered, or

where the flood insurance coverage amount is over and above the

limits of liability available to the insured under the Program

Article XIV--Access to Books and Records

The FIA and the Comptroller; General of The United States, or

their duly authorized representatives, for the purpose of

investigation, audit, and examination shall have access to any

books, documents, papers and records of the Company that are

pertinent to this Arrangement. The Company shall keep records that

fully disclose all matters pertinent to this Arrangement, including

premiums and claims paid or payable under policies issued pursuant

to this Arrangement. Records of accounts and records relating to

financial assistance shall be retained and available for three (3)

years after final settlement of accounts, and to financial

assistance, three (3) years after final adjustment of such claims.

The FIA shall have access to policyholder and claim records at all

times for purposes of the review, defense, examination, adjustment,

or investigation of any claim under a flood insurance policy subject

to this Arrangement.

Article XV--Compliance with Act and Regulations

This Arrangement and all policies of insurance issued pursuant

thereto shall be subject to the provisions of the National Flood

Insurance Act of 1968, as amended, the Flood Disaster Protection Act

of 1973, as amended, the National Flood Insurance Reform Act of

1994, and Regulations issued pursuant thereto and all Regulations

affecting the work that are issued pursuant thereto, during the term

hereof.

Article XVI--Relationship Between the Parties (Federal Government and

Company) and the Insured

Inasmuch as the Federal Government is a guarantor hereunder, the

primary relationship between the Company and the Federal Government

is one of a fiduciary nature, i.e., to assure that any taxpayer

funds are accounted for and appropriately expended.

The Company is not the agent of the Federal Government. The

Company is solely responsible for its obligations to its insured

under any flood policy issued pursuant hereto.

(Catalog of Federal Domestic Assistance No. 83.100, ``Flood

Insurance'')

Dated: April 24, 1997.

Roland E. Holland,

Acting Executive Administrator, Federal Insurance Administration.

[FR Doc. 97-11318 Filed 4-30-97; 8:45 am]

BILLING CODE 6718-03-P