National Flood Insurance Program Adjuster Claims Manual Effective December 31, 2000 Revision 1—January 1, 2002 Change 1—January 1, 2004 CONTENTS I. National Flood Insurance Program I-1 A. Background I-1 B. The Write Your Own Program I-1 C. The NFIP Today I-1 1. NFIP Direct Program I-1 2. WYO Program I-1 D. Flood Hazard Zones I-2 E. Program Phases and Coverage Limits I-3 1. Program Phases I-3 2. Amounts of Insurance Available I-3 II. Adjuster Participation in the NFIP II-1 A. Qualifications II-1 1. Residential, Manufactured (Mobile) Home/Travel Trailer, and Commercial Authorization II-1 2. Large Commercial and RCBAP Authorization II-2 B. Authorization Requirements II-2 C. Adjustment Standards and Requirements II-2 1. General Standards and Requirements II-3 2. Specific Standards and Requirements II-3 D. NFIP Fee Schedule Billing II-6 1. Gross Losses II-6 2. Increased Cost of Compliance (ICC) Claims II-6 III. NFIP Disaster Response III-1 A. Disaster Response Field Offices III-1 1. Adjuster Control Office III-1 2. Claims Coordinating Office III-1 3. Flood Insurance Claims Office III-1 4. Flood Response Office III-1 B. Single Adjuster Program and Claims Coordinating Office III-2 1. Objective III-2 2. Background III-2 3. Implementation III-2 4. Training III-3 IV. Policy Changes Affecting the Liberalization Clause IV-1 A. Additions and Extensions IV-1 B. Water Softeners and Other Parts of Plumbing System IV-1 C. Tenant’s Personal Property and Improvements IV-2 D. Unit Owner’s Interior Walls, Floor, and Ceiling IV-2 E. Special Limits on Certain Personal Property Items IV-2 F. Loss Avoidance Measures IV-3 G. Self-Propelled Vehicles IV-4 H. Backup, Overflow, and Seepage of Water IV-5 I. Pressure or Weight of Water IV-5 J. Special Loss Settlement IV- V. Standard Flood Insurance Policy V-1 A. Introduction V-1 1. The Three Policy Forms V-1 2. Use of New Policy Forms V-1 3. Currentness of Information V-1 B. Coverage Comparison Table V-1 C. New Policy Forms and Commentaries V-4 Dwelling Form V-5 General Property Form V-43 Residential Condominium Building Association Policy V-79 VI. Increased Cost of Compliance (ICC) VI-1 A. Principal Features of ICC Coverage VI-1 B. Coverage Questions and Answers VI-1 C. Eligibility Questions and Answers VI-2 D. Claims Adjustment Questions and Answers VI-4 E. Other Frequently Asked Questions and Answers VI-6 VII. Basic Adjustment Issues VII-1 A. Actual Cash Value (ACV) VII-1 B. Additions and Extensions VII-1 C. Depreciation VII-1 1. Building Depreciation VII-1 2. Contents Depreciation VII-1 D. Evidence of Loss VII-1 1. Insured’s Responsibilities VII-1 2. Adjuster’s Responsibilities VII-2 E. Improvements and Betterments VII-2 F. Non-Waiver Agreement VII-2 G. Other Insurance Clause VII-3 1. Introduction VII-3 2. Examples VII-3 H. Overhead and Profit VII-4 I. Pollution Damage VII-4 J. Proof of Loss Requirements and Waiver VII-5 K. Repair vs. Replacement VII-5 1. Appliances VII-5 2. Furniture VII-5 L. Replacement Cost Coverage (RCC) VII-5 M. Reservation of Rights Letter VII-6 N. Reserves VII-6 O. Salvage VII-6 P. Self-Propelled Vehicles VII-6 Q. Special Loss Settlement VII-6 R. Subrogation VII-7 VIII.Special Adjustment Issues VIII-1 A. Air Conditioning Condensers and Solar Heating Elements VIII-1 B. Bailee Goods VIII-1 C. Boathouses: Coverage for Non-Boathouse Parts of Building into Which Boats Are Floated VIII-1 D. Carpeting and Drapes VIII-2 E. Cisterns VIII-2 F. Closed Basin Lakes and Continuous Lake Flooding VIII-2 1. Closed Basin Lakes VIII-2 2. Continuous Lake Flooding VIII-2 G. Coastal Barrier Resources System (CBRS) VIII-3 1. Introduction VIII-3 2. Coastal Barrier Resources Act VIII-3 3. Coastal Barrier Improvement Act VIII-4 4. Substantial Improvement: The 50 Percent Rule VIII-4 H. Commercial Losses VIII-4 I. Condemnation of Property VIII-5 J. Constructive Total Loss VIII-5 K. Decks VIII-5 L. Elevated Buildings VIII-5 1. Coverage Restrictions VIII-5 2. Coverage for Garages and Contents VIII-6 3. Coverage for Building Property in a Building Enclosure below the Lowest Elevated Floor or in a Basement VIII-6 M. Elevators VIII-8 N. Erosion and Wave Wash VIII-8 O. Food in Freezers VIII-8 P. Foundations VIII-8 Q. Freezers VIII-9 R. Hydrostatic Pressure VIII-9 S. Ice and Debris Impact Damage VIII-9 T. Manufactured (Mobile) Homes VIII-9 U. Mudflow VIII-9 V. Property Removed to Safety VIII-9 W. Repetitive Loss Structures and Previous Claims VIII-10 1. Repetitive Loss Structures VIII-10 2. Previous Claims VIII-10 X. Scrip and Stored Value Cards VIII-10 Y. Seepage and High Water Table VIII-10 Z. Swimming Pools, Hot Tubs, and Spas VIII-11 A'. Travel Trailers VIII-11 B'. Venetian Blinds VIII-11 C'. Water, Moisture, Mildew, or Mold Damage VIII-11 D'. Water Softeners VIII-12 E'. Well Water Pumps VIII-12 IX. Maintaining the Integrity of the NFIP IX-1 A. Quality Assurance Inspections IX-1 1. Routine Reinspections IX-1 2. Special Assist Reinspections IX-1 B. Fraud Prevention IX-1 1. Detecting Possible Fraud IX-1 2. Reporting Possible Fraud IX-2 Appendix: NFIP Forms Used in Claims Adjustment A-1 Exhibit 1. Adjuster Certification Application [pending OMB approval] A-3 Exhibit 2. Adjuster Preliminary Damage Assessment [pending OMB approval] A-5 Exhibit 3. Assignment of Coverage D – Increased Cost of Compliance Coverage [pending OMB approval] A-7 Exhibit 4. Cause of Loss and Subrogation Report A-9 Exhibit 5. Elevation Certificate, 2003 Revision A-11 Exhibit 6. Increased Cost of Compliance (ICC) Adjuster Report A-13 Exhibit 7. Increased Cost of Compliance Proof of Loss A-15 Exhibit 8. Manufactured (Mobile) Home/Travel Trailer Worksheet A-17 Exhibit 9. NFIP Fee Schedule [Gross Loss] A-19 Exhibit 10. NFIP ICC Fee Schedule A-21 Exhibit 11. National Flood Insurance Program Preliminary Report A-23 Exhibit 12. National Flood Insurance Program Narrative Report A-25 Exhibit 13. National Flood Insurance Program Final Report A-27 Exhibit 14. Notice of Loss A-29 Exhibit 15. Proof of Loss A-31 Exhibit 16. Statement as to Full Cost of Repair or Replacement A-33 Exhibit 17. Worksheet – Building A-35 Exhibit 18. Worksheet – Building (Cont’d) A-37 Exhibit 19. Worksheet – Contents – Personal Property A-39 I. NATIONAL FLOOD INSURANCE PROGRAM A. BACKGROUND The National Flood Insurance Program (NFIP) is a federal program that allows property owners to purchase insurance protection against losses from flooding. This insurance is designed to provide an alternative to costly, taxpayer-funded disaster assistance in repairing flood damage to buildings and their contents. Congress established the NFIP with the passage of the National Flood Insurance Act of 1968. It is this act that provides the authority and guidelines for the NFIP. All changes since 1968 have been made as amendments to this act. The Federal Emergency Management Agency (FEMA) administers the NFIP. Participation in the NFIP is based on an agreement between local communities and the federal government. The agreement states that, if a community will implement and enforce measures to reduce future flood risks to new construction in Special Flood Hazard Areas, the federal government will make flood insurance available within the community as financial protection against future flood losses. B. THE WRITE YOUR OWN PROGRAM In 1981, a strong effort was initiated by FEMA to reinvolve the insurance industry in the NFIP. A cooperative effort between FEMA and insurance company representatives led to the creation of the Write Your Own (WYO) Program in July 1983. The WYO companies issue and service federally backed Standard Flood Insurance Policies under their own names, collect premiums, and pay claims. They are reimbursed for their services by FEMA. In August 1983, FEMA extended an invitation to all licensed property and casualty companies to participate in the WYO Program for fiscal year 1984. C. THE NFIP TODAY The NFIP now has two programs—the NFIP Direct Program and the WYO Program. 1. NFIP Direct Program The program that deals with the issuing and servicing of flood insurance policies, and the handling of resultant claims, directly by the federal government is known as the NFIP Direct Program. The NFIP Servicing Agent assists and advises agents and adjusters who handle Direct Program policies. 2. WYO Program The WYO Program now accounts for approximately 90 percent of all flood policies. The NFIP Bureau and Statistical Agent assists and advises the WYO companies. However, this does not diminish the authority of the WYO company or relieve the company of its obligations. The WYO company still collects the premium, issues the policy, and provides adjustment and payment for claims. D. FLOOD HAZARD ZONES In addition to providing flood insurance for property, the NFIP is actively engaged in evaluation of existing and potential flood hazards and long-term reduction of them. Accordingly, various zones of flooding probability and severity have been established. Flood Insurance Rate Maps (FIRMs) are produced to show the projected elevations to which flooding is likely to occur in a Special Flood Hazard Area (SFHA). These maps can be inspected at various locations, depending on the individual community. Places to check would be the building inspector’s office, city engineer’s office, city hall, planning commission, courthouse, etc. In some instances, the local agent may have the maps available. Maps can also be obtained by contacting the FEMA Map Service Center at 1-800-358-9616. The zone designations currently in use and the criteria by which they are grouped are as follows: Zone Designation Criteria Zone A SFHA in which the lowest floor elevation is required and the Base Flood Elevations (BFEs) are not provided. Zones A1-A30 SFHAs in which the lowest floor elevation is required and the BFEs are provided. Zone AE SFHA designation used in place of Zones A1-A30 on some maps. Zone AH SFHA in which shallow water depths (ponding) and/or unpredictable flow paths between 1 and 3 feet deep occur. BFEs are provided. Zone AO SFHA in which shallow water paths (sheet flow) and/or unpredictable flow paths between 1 and 3 feet deep occur. BFEs are not provided. Base flood depths may be provided. Zone A99 SFHA in which enough progress has been made on a protective system such as dikes, dams, and levees to consider it complete for insurance rating purposes. BFEs are not provided. Zone AR SFHA in which there has been decertification of a previously accredited flood protection system that is being restored to provide base flood protection. Zones AR/AE, AR/AH, AR/AO, Dual-zone SFHAs in which, because of flood risk from AR/A1-A30, and AR/A water sources that the flood protection system does not contain, there will continue to be hazard of flooding after the flood protection system is adequately restored. Zone Designation (continued) Criteria (continued) Zone V Coastal high-hazard SFHA in which inundation by tidal floods with velocity occurs. BFEs are not provided. Zones V1-V30 Coastal high-hazard SFHAs in which inundation by tidal floods with velocity occurs. BFEs are provided. Zone VE SFHA designation used in place of Zones V1-V30 on some maps. Zone VO SFHA in which shallow water depths and/or unpredictable flow paths between 1 and 3 feet deep with velocity occur. Zones B, C, and X Areas in which moderate or minimal flooding may result from severe storm activity or local drainage problems. Because they are not SFHAs, these zones may be lightly shaded or unshaded on the FIRM. Zone X is the designation for B and C Zones and is used in place of these zones on some maps. Zone D Area of undetermined flood hazard in which the population usually is very sparse. The designation of Zone D can also be used when one community has incorporated portions of another community’s area where no map has been prepared. E. PROGRAM PHASES AND COVERAGE LIMITS 1. Program Phases Flood insurance may be written only in those communities that have been designated by FEMA as participating in the NFIP. a. Emergency Program This is the initial phase of a community’s participation in the NFIP. Limited amounts of coverage are available. b. Regular Program This is the final phase of a community’s participation in the NFIP. In this phase, a Flood Insurance Rate Map is in effect and full limits of coverage are available. 2. Amounts of Insurance Available The table on the next page shows maximum amounts of insurance available under the Standard Flood Insurance Policy (SFIP) for building coverage and contents coverage, in both Emergency Program communities and Regular Program communities AMOUNTS OF INSURANCE AVAILABLE: DWELLING FORM AND GENERAL PROPERTY FORM1 EMERGENCY PROGRAM REGULAR PROGRAM Insurance Limits Basic Insurance Limits Additional Insurance Limits Total Insurance Limits BUILDING COVERAGE Single-Family Dwelling Two- to Four-Family Dwelling Other Residential Non-Residential $ 35,0002 $ 35,0002 $100,0003 $100,0003 $ 50,000 $ 50,000 $150,000 $150,000 $200,000 $200,000 $100,000 $350,000 $250,000 $250,000 $250,000 $500,000 CONTENTS COVERAGE Residential Non-Residential $ 10,000 $100,000 $ 20,000 $130,000 $ 80,000 $370,000 $100,000 $500,000 1For the Residential Condominium Building Association Policy (which is written only in Regular Program communities), the amount of building coverage available is the lesser of replacement cost value or $250,000 times the number of insured units in the building. See the CONDO section of the Flood Insurance Manual for contents coverage options. 2In Alaska, Guam, Hawaii, and the U.S. Virgin Islands, the amount of building coverage available in the Emergency Program for Single-Family Dwellings and Two- to Four-Family Dwellings is $50,000. 3In Alaska, Guam, Hawaii, and the U.S. Virgin Islands, the amount of building coverage available in the Emergency Program for Other Residential and Non-Residential buildings is $150,000 II. ADJUSTER PARTICIPATION IN THE NFIP A. QUALIFICATIONS The National Flood Insurance Program (NFIP) Bureau and Statistical Agent is required to maintain a database of independent adjusters who qualify to adjust flood claims under policies issued by the NFIP Direct and the Write Your Own (WYO) carriers who utilize the services of the independent adjusting community. The qualifications reflect that the NFIP, like many other insurers, has its own distinct characteristics concerning coverage and adjusting requirements. The adjuster database is designed to reflect by Flood Certification Number or other means that the approved adjuster has attended regular or special workshops that are held throughout the country. This includes adjusters who attend a FEMA-recognized flood workshop conducted by independent adjusting firms or WYO companies each year. The records reflect the adjuster’s name and the date and location of the workshop. The purpose of these workshops is to keep the adjusting community current with claims procedures required for adjusting losses under the three forms of the Standard Flood Insurance Policy—the Dwelling Form, the General Property Form, and the Residential Condominium Building Association Policy (RCBAP). For this reason, all independent adjusters who wish to be certified must submit the Adjuster Certification Application. WYO company staff adjusters should be guided by their particular company’s procedures. The application contains five areas of authorization. An adjuster can be authorized in all five categories or any combination thereof, if the adjuster’s qualifications meet the requirements. The five categories are as follows: ? Residential ? Manufactured (Mobile) Home/Travel Trailer ? Commercial ? Large Commercial ? RCBAP 1. Residential, Manufactured (Mobile) Home/Travel Trailer, and Commercial Authorization To be approved for Residential, Manufactured (Mobile) Home/Travel Trailer, or Commercial losses, or any combination thereof, an adjuster must: a. Have at least 4 consecutive years of full-time property loss adjusting experience. b. Be capable of preparing an accurate scope of damage and dollar estimate to $50,000 for manufactured (mobile) homes/travel trailers and to $500,000 for residential and commercial losses. c. Have attended an NFIP workshop and be able to demonstrate knowledge of the SFIP and of NFIP adjustment criteria for all policy forms. d. Be familiar with manufactured (mobile) home/travel trailer and Increased Cost of Compliance adjusting techniques. These requirements will be checked and verified prior to approval 2. Large Commercial and RCBAP Authorization To be approved for Large Commercial or RCBAP losses, or both, an adjuster must: a. Have at least 5 consecutive years of full-time large-loss property adjusting experience. b. Be capable of preparing an accurate scope of damage and dollar estimate of $500,000 or more. c. Submit written recommendations from three insurance company supervisory or claim management personnel. The recommendations must reflect adjusting experience only. d. Provide information regarding current Errors and Omissions coverage. These requirements will be checked and verified prior to approval. B. AUTHORIZATION REQUIREMENTS FEMA recognizes that specialized knowledge is required in order for the adjuster to properly adjust NFIP losses. Adjusters must know the differences between the Standard Flood Insurance Policy (SFIP) and industry property insurance forms. They must know interpretations of coverage made by FEMA and the unique reporting requirements of the NFIP. Accordingly, FEMA has made it a contractual requirement for the NFIP Bureau and Statistical Agent to maintain a list of adjusters who are authorized to handle NFIP losses. The requirement that independent adjusters be certified by the NFIP applies to all independent adjusters seeking to handle flood losses. However, this is only one of the capacities in which adjusters are involved in the NFIP. FEMA does not require that staff adjusters handling WYO claims be certified by the NFIP Bureau and Statistical Agent. The WYO companies are free to choose whatever adjusters they wish, staff or independent, to adjust their flood losses and are likewise free to establish any related qualifications or requirements for adjusters, including, at their option, the requirement that an adjuster be NFIP certified. A WYO staff adjuster handling a Direct loss assigned under the Single Adjuster Program is not required to submit an application for NFIP certification. In this case, WYO staff adjusters are deemed authorized by virtue of their being staff adjusters for a WYO company. (For further discussion of this situation, see Single Adjuster Program and Claims Coordinating Office in Subsection III.B. of this manual.) Independent adjusters must be approved by FEMA in order to adjust losses under the Single Adjuster Program. C. ADJUSTMENT STANDARDS AND REQUIREMENTS FEMA’s adjustment standards and requirements have been revised and expanded in order to clarify what the NFIP expects from the adjuster in the adjustment of a flood loss. What follows supersedes the “NFIP Minimum Standards and Reporting Procedures,” which have been distributed in the past. Since there are several significant changes from the previous “Minimum Standards,” adjusters should review these revised standards and requirements carefully and become thoroughly familiar with them. 1. General Standards and Requirements a. Authority of the Adjuster. The NFIP expects every adjuster handling NFIP flood losses to understand and to communicate to the policyholders that the adjuster does not have the authority either to deny a claim or to commit the NFIP or the WYO company to pay a claim and that all adjustments are recommendations only, subject to review by the NFIP Servicing Agent or the WYO company. b. Knowledge of Program. The NFIP expects every adjuster handling flood losses to be thoroughly familiar with the provisions of the SFIP, including coverage interpretations issued by FEMA, as explained in the NFIP Claims Presentations conducted by NFIP staff, and to adjust NFIP losses in accordance with these provisions. c. Professionalism. Because the adjuster represents the NFIP to the policyholder, the NFIP expects that every adjuster will conduct himself or herself in accordance with the highest standards of integrity and ethics and that his or her conduct will be courteous and professional in all dealings with policyholders. 2. Specific Standards and Requirements a. Adjuster Preliminary Damage Assessment. The adjuster must complete the Adjuster Preliminary Damage Assessment form on all building claims that meet the criteria for substantial damage. After the adjuster conducts the inspection of the risk, the form must be completed and faxed to the NFIP Bureau and Statistical Agent’s Claims Department at 1-800-457-4232. b. Building RC, Special Loss Settlement, and ACV. The adjuster must prepare accurate calculations of the insured building’s replacement cost and actual cash value and properly conclude the claim on an RC or ACV basis as applicable. c. Contents Claim Adjustment. The NFIP requires the adjuster to assist the insured as necessary with the preparation of the contents claim, to verify that all contents included in the adjustment are covered under the SFIP, and to determine or verify accurate local replacement costs and reasonable actual cash value. Applicable depreciation must be shown separately for each item. d. Coverage Limitations. The special limitation on some contents (jewelry, furs, etc.) must be properly applied. Documentation supporting the claimed value must accompany the worksheets as appropriate. Claims for removal of insured property due to the imminent danger of flooding must be documented and verified in order to be covered under the SFIP. e. Final Report. The NFIP Final Report is required on all NFIP Direct and WYO losses. The adjuster must not close his or her file until all items on the Final Report are completed. f. Identification of Building Equipment and Major Appliances. The NFIP requires the adjuster to provide identifying information (manufacturer, model, serial number if possible, capacity, etc.) on major building equipment such as furnaces and central air conditioning units and major appliances such as refrigerators, washers, televisions, etc. g. Identification of Minor Appliances. The adjuster must provide identifying information on certain items for claims control and validation purposes. h. Inspection. The adjuster is required to inspect the property within 48 hours of receiving the loss assignment for those losses of a critical nature and to inspect other losses as soon as possible within 1 week of receiving the loss assignment. This is also the time to complete the Adjuster Preliminary Damage Assessment form and fax it to the NFIP Bureau and Statistical Agent’s Claims Department at 1-800-457-4232. The initial inspection will include preparation of a preliminary scope of damages. The adjuster assigned to the loss must inspect it personally and should not take a contractor along to inspect or scope the loss. If it is not possible for the adjuster to inspect the loss within this time frame, the adjuster must explain why in the NFIP Preliminary Report and advise when the loss will be inspected. Visits to the insured risk without an appointment should be avoided. i. Insured’s Copy. When the claim has been concluded, the adjuster must furnish the insured with a copy of all building and contents worksheets and proof(s) of loss. j. Manufactured (Mobile) Home/Travel Trailer Worksheet. The adjuster must complete a Manufactured (Mobile) Home/Travel Trailer Worksheet for every manufactured (mobile) home/travel trailer loss. k. Narrative Report. One or more NFIP Narrative Reports must be submitted for any flood claim in which the circumstances are unusual, suspect, or especially complicated, and additional explanation is appropriate. l. Origin of Loss Verified. The adjuster must verify whether the reported loss resulted from flood as defined in the SFIP. m. Partial (Advance) Payments. The adjuster must advise the insured of the availability of a partial (advance) payment. If the insured requests a partial payment, the adjuster must prepare documentation necessary to support the amount of payment requested, including an NFIP Proof of Loss form. The partial payment should not be for more than 50 percent of the anticipated total claim and preferably should be made against the contents claim. n. Preliminary Report Complete. The NFIP Preliminary Report is required on all flood losses; however, adjusters who handle losses for WYO companies may use whatever comparable form is maintained by the company. The adjuster must eventually complete all items in the Preliminary Report; any information unknown at the time that the Preliminary Report is submitted must be supplied in a later report. o. Prior Losses Checked. The adjuster must verify that damages from any prior loss have been repaired before the subject loss occurred, and must exclude from the adjustment any unrepaired prior damages. The adjuster can contact the NFIP Bureau and Statistical Agent to determine prior losses. The adjuster will then contact the previous insurer and ask for the file copies of any prior flood claims. The adjuster is expected to review these as appropriate, drawing on investigative experience and exercising judgment to determine whether prior damage has been repaired. p. Progress Notes in File. The adjuster’s file must contain adequate notes regarding the progress of the claim and the scope of damages, calculations of replacement cost and actual cash value, and a diagram of the insured building with measurements. The adjuster must make this file available upon the request of the NFIP General Adjuster for the purpose of reinspection, whether the file is open or closed. q. Prompt Contact. The adjuster must initiate contact with the insured or agent by the end of the business day after receiving the loss assignment. This initial contact preferably will be by telephone, but, if contact by telephone is not possible, the adjuster should send the insured or agent a postcard or letter acknowledging the assignment and include a telephone number where the adjuster can be reached. Also, when the insured, agent, or company staff person leaves a telephone message for the adjuster, the adjuster must return the call by the end of the business day after the message was left. r. Proof of Loss. An NFIP Proof of Loss form signed by the insured is required on every claim on which any payment is recommended. On claims up to $7,500, the NFIP Final Report form will suffice for this purpose. On claims over $7,500, a separate Proof of Loss form must be submitted. If the insured qualifies for replacement cost coverage, the adjuster must submit the Statement as to Full Cost of Repair or Replacement for the additional amount recoverable under the replacement cost provisions. If the insured qualifies for Increased Cost of Compliance (ICC) coverage, the Increased Cost of Compliance Proof of Loss form must be submitted. The insured has 60 days from the date of loss to proffer the proof. A Proof of Loss must be submitted also for the amount of any partial payment that is requested. It is required that each Proof of Loss be filled out completely before the insured signs it. Proof of Loss forms must be dated and witnessed; notarization is not required. The forms must be submitted to the NFIP Servicing Agent or WYO company within 72 hours after securing the insured’s signature. The insured has 60 days from the date of loss to proffer the proof. Only FEMA can waive this requirement. s. Proper Building Depreciation. Depreciation must be applied reasonably and accurately. This refers both to the determination of the building’s actual cash value and the repair estimate. Depreciation must be shown separately, as applicable, for each item in the adjustment, including overhead and profit. “Lump sum” depreciation is not acceptable. Replacement cost, depreciation, and actual cash value for each item must be shown in this manner on all claims, regardless of whether the claim is concluded on an RC or ACV basis. t. Proper Building Scope and Estimate. The NFIP expects the adjuster to accurately identify the covered damages caused by flood and to allow in the adjustment only those repairs and replacements reasonably required to restore the structure. The repair estimate should be prepared on a room-by-room, unit-cost basis, clearly indicating room dimensions and unit costs, except when the building has been completely destroyed. For buildings that have been destroyed, value determination by a standard insurance industry method, such as Marshall-Swift, Boeckh, etc., is acceptable. The adjuster must personally prepare the repair estimates. If circumstances require the involvement of a contractor or other expert, the adjuster must obtain the authorization of the NFIP Servicing Agent or WYO company. u. Proper Photographs. The adjuster must take as many photographs as are necessary to portray the damage. v. Salvage. The salvage value of all total-loss items must be considered. Where the size of the salvageable loss makes it appropriate, a salvor should be engaged, with the authorization of the NFIP Servicing Agent or WYO company. Otherwise, the reasonable salvage value of property left with the insured must be deducted from the covered loss. w. Subrogation. When the adjuster identifies subrogation potential, he or she must determine whether there are grounds for a possible subrogation recovery. The investigation is considered a routine part of a loss adjustment. The adjuster must complete the Cause of Loss and Subrogation Report form. x. Timely Reporting. The adjuster’s NFIP Preliminary Report must be submitted within 15 days after receipt of the loss assignment. The NFIP Final Report is due 30 days later. If the claim has not been concluded within 45 days, subsequent reports are due every 30 days after the Preliminary Report, or otherwise as specifically directed by the claims examiner, until the claim is concluded. D. NFIP FEE SCHEDULE BILLING Payment of the adjuster’s service fee will be according to the NFIP fee schedule. The scheduled fee for handling a loss is based on the NFIP-approved adjustment. The fee includes all travel, photographs, reporting, telephone, and office investigation expenses to conclude the claim, including identification of possible subrogation, salvage, and fraud. Customarily, the claim file contents will include coverage verification; normal adjuster investigation documentation, including statements where necessary; building reports and investigations; damage verification; and other documentation relevant to the adjustment of the claim under the NFIP’s and the WYO company’s traditional claim adjustment procedures. There are two fee schedules (pages A-19 and A-21)—one for gross losses and one for Increased Cost of Compliance claims. 1. Gross Losses For gross losses sustained on or after May 1, 1997, use the NFIP Fee Schedule [Gross Loss] (page A-19). Use this schedule whether the claim will be closed without payment or will be paid up to the limit of $250,000 or more. 2. Increased Cost of Compliance (ICC) Claims For Increased Cost of Compliance claims, use the NFIP ICC Fee Schedule (page A-21). Use this schedule whether the claim will be closed without payment or will be paid up to the increased limit of $30,000 that became effective on May 1, 2003 III. NFIP DISASTER RESPONSE A. DISASTER RESPONSE FIELD OFFICES 1. Adjuster Control Office The Adjuster Control Office (ACO) is a temporary catastrophe office established by the NFIP Direct to assign losses to adjusters. 2. Claims Coordinating Office The Claims Coordinating Office (CCO) is a central clearinghouse for receiving notices of loss involving hurricane, wind, and flood damage. This is accomplished by the systematic identification of wind and flood losses at the same property address followed by assignment of the loss to a single adjuster who represents both insurers. Adjuster assignments are made for the NFIP Direct, the Write Your Own (WYO) companies, and the Coastal Plans. This measure avoids duplicate assignments of losses and better deploys the available adjuster resources in a major hurricane event. (See Subsection III.B. of this manual, Single Adjuster Program and Claims Coordinating Office, following.) 3. Flood Insurance Claims Office The Flood Insurance Claims Office (FICO) is a functioning flood insurance claim office established by the NFIP Direct to efficiently handle losses generated by major flooding events for the NFIP Direct only. 4. Flood Response Office The Flood Response Office (FRO) is established to efficiently coordinate with private sector windpool associations, WYO companies, FEMA’s Disaster Field Office (DFO) and Disaster Assistance Centers, and FEMA’s regional staff engaged in mitigation and floodplain management compliance activities in local communities. Major activities of the FRO include the following: a. Coordination with WYO companies to provide guidance, define the scope of coverage, and facilitate the adjustment of losses sustained by policyholders of the NFIP who are insured by WYO companies. b. Coordination with WYO companies, the NFIP Servicing Agent, and state windpool associations under the Single Adjuster Program (SAP) and NFIP Claims Coordinating Office (CCO). c. Support and coordination with the DFOs to advise the Federal Coordinating Officer on flood insurance activities, help avoid duplication of benefits, provide information and assistance to NFIP policyholders, and speed the delivery of flood insurance claim payments d. Distribution and utilization at the FRO and Disaster Assistance Centers of a series of education and information posters, notices, and instructions to provide guidance to the flood-insured public, agents, adjusters, and federal and state officials in matters related to the NFIP’s overall catastrophe response procedures. e. Implementation of support services such as the reinspection program, special adjuster meetings, and claim troubleshooting activities. Additional activities include surveying flood disaster areas, assessing the extent of damage, and advising FEMA of the findings. B. SINGLE ADJUSTER PROGRAM AND CLAIMS COORDINATING OFFICE 1. Objective In conjunction with the Claims Coordinating Office (CCO), the Single Adjuster Program (SAP) provides the most efficient use of adjusting resources in a catastrophic hurricane situation to improve service to the mutual policyholders of both wind damage and flood damage insurers. 2. Background There are currently over a million coastal flood insurance policies at risk, many of which could be subject to a combined wind/flood loss. Through the establishment of a CCO at the time of a catastrophe, many of these potential combined losses can be identified and assigned to loss adjusting companies jointly representing the WYO companies and the Coastal Plans (e.g., Windpool Associations, Fair Plans, Beach Plans, and Joint Underwriting Associations). The purpose of the CCO is to provide a central clearinghouse for receiving notices of loss involving hurricane, wind, and flood damage. This is accomplished by the systematic identification of wind and flood losses at the same property address followed by assignment of the loss to a single adjuster who represents both insurers. Adjuster assignments are made for the NFIP Direct, WYO companies, and Coastal Plans. The CCO, in cooperation with the WYO companies, Coastal Plans, and other property insurers, oversees the SAP. This measure avoids duplicate assignments of losses and better deploys the available adjuster resources in a major hurricane event. 3. Implementation FEMA and the various Coastal Plans determine whether a catastrophic event will necessitate an SAP response. The National Weather Service’s declaration of a tropical storm or hurricane event begins the watch for possible single adjuster response. In general, FEMA approves the SAP response when the storm is 48 hours from landfall. The NFIP Bureau and Statistical Agent deploys one or more General Adjusters to the affected area no later than 24 hours after landfall. The WYO companies are advised by telephone or fax, through their designated Single Adjuster Liaison, as to the areas and states that will be subject to the SAP response. At that point, the WYO companies are asked to immediately notify their agents of the SAP procedures for reporting the losses. The telephone call or facsimile to the WYO companies is followed by a written notice directing all WYO companies to have their agency force submit all flood losses that are reasonably believed to involve wind and flood damage to the CCO. Telephone contact also is made and a written notice is simultaneously sent to the participating State Coastal Plan, Joint Underwriting Association, etc., advising them of the opening of the CCO, which is co-located with or near the State Coastal Plan at a predetermined site. The on-site CCO becomes fully operational within 24 hours after the storm’s landfall. When the CCO is operational, the WYO companies are notified of all of their assigned claims. Reports reflecting the assigned claims are faxed each day. Once the assignment is made and communicated to each company, the WYO company manages its own loss adjustment. However, the CCO personnel ensure that the adjuster receives the loss assignment containing all the relevant information. 4. Training The NFIP Bureau and Statistical Agent General Adjusters and FEMA conduct educational workshops before and after major storms. These educational programs address regional problems, construction issues, adjuster certification, and community and state ordinances, etc. Contact information is provided for all of the single adjuster firms, as well as the WYO companies IV. POLICY CHANGES AFFECTING THE LIBERALIZATION CLAUSE All forms of the Standard Flood Insurance Policy (SFIP)—Dwelling Form, General Property Form, and Residential Condominium Building Association Policy (RCBAP)—were revised effective December 31, 2000. Under the SFIP’s Liberalization Clause, the liberalized coverages quoted and described below apply to claims occurring on or after December 31, 2000, under old policies effective before December 31, 2000. A. ADDITIONS AND EXTENSIONS Pertains to: ? Dwelling Form, Section III. Property Covered, A. Coverage A – Building Property, 2. ? General Property Form and RCBAP, Section III. Property Covered, A. Coverage A – Building Property, 3 (language differs slightly from Dwelling Form language quoted below). Coverage A – Building Property now includes: “Additions and extensions attached to and in contact with the dwelling by means of a rigid exterior wall, a solid load-bearing interior wall, a stairway, an elevated walkway, or a roof. At your option, additions and extensions connected by any of these methods may be separately insured. Additions and extensions attached to and in contact with the building by means of a common interior wall that is not a solid load- bearing wall are always considered part of the dwelling and cannot be separately insured.” Additions and extensions connected in an approved method can be insured either as separate buildings or as one building, except that, if the connection is a common interior wall that is not a solid load-bearing wall, the building and the addition or extension must be insured as one building. In the event of a loss occurring on or after December 31, 2000, to two or more buildings insured under the old policy and not eligible as one building under that policy but eligible as one building under the new policy, coverage will be extended to all buildings. If an insured has separate policies for two or more buildings as required under the old policy, but under the new policy these buildings are eligible to be insured with a single policy, the insured may combine coverage into one policy to reduce the premium. Under NFIP rules, such adjustment cannot be made until renewal. B. WATER SOFTENERS AND OTHER PARTS OF PLUMBING SYSTEM Pertains to: All policy forms, Section III. Property Covered, A. Coverage A – Building Property, 8.a.(14). Coverage A – Building Property now includes: “Water softeners and the chemicals in them, water filters, and faucets installed as an integral part of the plumbing system.” These items have been added to the list of building property covered in a post-FIRM enclosure or in a basement. C. TENANT’S PERSONAL PROPERTY AND IMPROVEMENTS Pertains to: Dwelling Form, Section III. Property Covered, B. Coverage B – Personal Property, 4. Coverage B – Personal Property now includes more tenant personal property and certain tenant improvements: “If you are a tenant and have insured personal property under Coverage B in this policy, we will cover such property, including your cooking stove or range and refrigerator. The policy will also cover improvements made or acquired solely at your expense in the dwelling or apartment in which you reside, but for not more than 10 percent of the limit of liability shown for personal property on the Declarations Page. Use of this insurance is at your option but reduces the personal property limit of liability.” Contents coverage has been expanded to include cooking stoves, ranges, and refrigerators owned by renters. In addition, improvements made by a renter are covered up to 10 percent of contents coverage (not as an additional amount of coverage). D. UNIT OWNER’S INTERIOR WALLS, FLOOR, AND CEILING Pertains to: ? Dwelling Form, Section III. Property Covered, B. Coverage B – Personal Property, 5. ? General Property Form, Section III. Property Covered, B. Coverage B – Personal Property, 8 (language differs slightly from Dwelling Form language quoted below). Coverage B – Personal Property now includes the interior walls, floor, and ceiling of a condominium unit owner, if these are not insured under the condominium association’s policy: “If you are the owner of a unit and have insured personal property under Coverage B in this policy, we will also cover your interior walls, floor, and ceiling (not otherwise covered under a flood insurance policy purchased by your condominium association) for not more than 10 percent of the limit of liability shown for personal property on the Declarations Page. Use of this insurance is at your option but reduces the personal property limit of liability.” For condominium unit owners, up to 10 percent of the contents coverage (not an additional amount of coverage) may be applied to losses to interior walls, floor, and ceiling not covered by the condominium association’s master policy. E. SPECIAL LIMITS ON CERTAIN PERSONAL PROPERTY ITEMS Pertains to: ? Dwelling Form, Section III. Property Covered, B. Coverage B – Personal Property, 6. ? General Property Form, Section III. Property Covered, B. Coverage B – Personal Property, 5. ? RCBAP, Section III. Property Covered, B. Coverage B – Personal Property, 4 Under Coverage B – Personal Property, the per-loss limit for certain items of personal property (formerly $500 per loss) has been increased: “Special Limits. We will pay no more than $2,500 for any one loss to one or more of the following kinds of personal property: a. Artwork, photographs, collectibles, or memorabilia, including but not limited to, porcelain or other figures, and sports cards; b. Rare books or autographed items; c. Jewelry, watches, precious and semiprecious stones, or articles of gold, silver, or platinum; d. Furs or any article containing fur which represents its principal value.” Coverage has been increased in all policies to $2,500 per loss for the items listed. In the Dwelling Form only, similar coverage has been added for “Personal property used in any business.” F. LOSS AVOIDANCE MEASURES Pertains to: All policy forms, Section III. Property Covered, C. Coverage C – Other Coverages, 2. Under Coverage C. – Other Coverages, the amount payable for specified loss avoidance measures (formerly $500 per measure) has been increased: “Loss Avoidance Measures a. Sandbags, Supplies, and Labor (1) We will pay up to $1,000 for costs you incur to protect the insured building from a flood or imminent danger of flood, for the following: (a) Your reasonable expenses to buy: (i) Sandbags, including sand to fill them; (ii) Fill for temporary levees; (iii) Pumps; and (iv) Plastics sheeting and lumber used in connection with these items. (b) The value of work, at the federal minimum wage, that you or a member of your household perform. (2) This coverage for Sandbags, Supplies, and Labor applies only if damage to insured property by or from flood is imminent, and the threat of flood damage is apparent enough to lead a person of common prudence to anticipate flood damage. One of the following must also occur: (a) A general and temporary condition of flooding in the area near the described location must occur, even if the flood does not reach the insured building; or (b) A legally authorized official must issue an evacuation order or other civil order for the community in which the insured building is located calling for measures to preserve life and property from the peril of flood. This coverage does not increase the Coverage A or Coverage B limit of liability. b. Property Removed to Safety (1) We will pay up to $1,000 for the reasonable expenses you incur to move insured property to a place other than the described location that contains the property in order to protect it from flood or the imminent danger of flood. Reasonable expenses include the value of work, at the federal minimum wage, that you or a member or your household perform. (2) If you move insured property to a location other than the described location that contains the property, in order to protect it from flood or the imminent danger of flood, we will cover such property while at that location for a period of 45 consecutive days from the date you begin to move it there. The personal property that is moved must be placed in a fully enclosed building or otherwise reasonably protected from the elements. Any property removed, including a moveable home described in II.B.6.b. and c., must be placed above ground level or outside of the special flood hazard area. This coverage does not increase the Coverage A or Coverage B limit of liability.” Coverage for these two loss avoidance measures has been increased to $1,000 per measure. G. SELF-PROPELLED VEHICLES Pertains to: All policy forms, Section IV. Property Not Covered, 5. The former prohibition on coverage of self-propelled vehicles has been modified: “Self-propelled vehicles or machines, including their parts and equipment[, generally are not covered]. However, we do cover self- propelled vehicles or machines not licensed for use on public roads that are: a. Used mainly to service the described location, or b. Designed and used to assist handicapped persons, while the vehicles or machines are inside a building at the described location.” Self-propelled vehicles that service the described location (not just the building) or are designed and used to assist the handicapped now are covered H. BACKUP, OVERFLOW, AND SEEPAGE OF WATER Pertains to: All policy forms, Section V. Exclusions, D.5. The former exclusion of coverage for backup, overflow, and seepage of water has been modified: “[Coverage generally is excluded for w]ater or waterborne material that: a. Backs up through sewer or drains; b. Discharges or overflows from a sump, sump pump, or related equipment; or c. Seeps or leaks on or through the covered [insured] property; unless there is a flood in the area and the flood is the proximate cause of the sewer or drain backup, sump pump discharge or overflow, or seepage of water.” Damage from backup, overflow, and seepage is covered if there is a general condition of flooding in the area. The other former requirements—additional $250 deductible, insurance to 80 percent of value, occurrence of damage within 72 hours—have been eliminated. I. PRESSURE OR WEIGHT OF WATER Pertains to: All policy forms, Section V. Exclusions, D.6. The former exclusion of coverage for damage by pressure or weight of water has been modified: “[Coverage generally is excluded for damage caused by t]he pressure or weight of water unless there is a flood in the area and the flood is the proximate cause of the damage from the pressure or weight of water.” Coverage is provided for damage by the pressure or weight of water against the insured building if there is a flood in the area and the flood is the proximate cause of damage from the pressure or weight of water. J. SPECIAL LOSS SETTLEMENT Pertains to: ? Dwelling Form, Section VII. General Conditions, V. Loss Settlement, 3. ? RCBAP, Section VIII. General Conditions, V. Loss Settlement, 3 (language differs slightly from Dwelling Form language quoted on the next page). Coverage provisions for total loss of a manufactured (mobile) home/travel trailer have been clarified, as shown on the next page “Special Loss Settlement a. The following loss settlement conditions apply to a single-family dwelling that: (1) Is a manufactured or mobile home or a travel trailer, as defined in II.B.6.b. and II.B.6.c.; (2) Is at least 16 feet wide when fully assembled and has an area of at least 600 square feet within its perimeter walls when fully assembled; and (3) Is your principal residence, as specified in V.1.a .(1) above. [Note: This requirement appears only in the Dwelling Form, not in the RCBAP.] b. If such a dwelling is totally destroyed or damaged to such an extent that, in our judgment, it is not economically feasible to repair, at least to its predamage condition, we will, at our discretion, pay the least of the following amounts: (1) The lesser of the replacement cost of the dwelling or 1.5 times the actual cash value, or (2) The building limit of liability shown on your Declarations Page. c. If such a dwelling is partially damaged and, in our judgment, it is economically feasible to repair it to its predamage condition, we will settle the loss according to the Replacement Cost conditions in paragraph V.2. above.” Coverage for a total loss of a manufactured (mobile) home or travel trailer eligible for replacement cost coverage now is the lesser of its replacement cost or 1.5 times its actual cash value. Loss Settlement paragraph 1.a.(2) does not apply to manufactured (mobile) homes or travel trailers under Special Loss Settlement. Only manufactured (mobile) homes and travel trailers as described in paragraphs 3.a.(2) and (3) qualify for Special Loss Settlement. All other manufactured (mobile) homes and travel trailers require Actual Cash Value Loss Settlement. V. STANDARD FLOOD INSURANCE POLICY A. INTRODUCTION The Standard Flood Insurance Policy (SFIP) specifies the terms and conditions of the agreement of insurance between either the Federal Emergency Management Agency (FEMA) as insurer (for policies issued by the NFIP Direct) or the WYO company as insurer (for policies issued by the WYO Program) and the named insured. Named insureds in NFIP participating communities include homeowners, renters, business owners, builders of buildings that are in the course of construction, condominium associations, owners of residential condominium units, and mortgagees/trustees (applicable to building coverage only). 1. The Three Policy Forms There are three policy forms—the Dwelling Form, the General Property Form, and the Residential Condominium Building Association Policy. Each is used to insure a different type of property. All, however, contain certain terms and conditions (e.g., Mortgage Clause, Reformation of Coverage) that are unique to flood insurance. 2. Use of New Policy Forms All forms of the SFIP have been revised. The new SFIP policy forms must be used for all new and renewal policies that become effective on or after December 31, 2000. On the following pages, you’ll find a coverage comparison table for the new policy forms and a detailed commentary on key provisions of each form. The Liberalization Clause applies for losses occurring on or after December 31, 2000, for policies written on the old SFIP policy forms. 3. Currentness of Information The National Flood Insurance Reform Act of 1994 substantially revised the SFIP. As noted above, FEMA revised the SFIP in December 2000. FEMA published and maintains the Adjuster Claims Manual with its integrated explanations of the 2000 SFIP. FEMA published and maintains Policy Issuances and Claims and Underwriting Bulletins to further explain and clarify coverage under the SFIP. These are available at www.fema.gov/library. All other earlier policy explanations, coverage interpretations, policy guidance memorandums, and letters are superseded and should not be referred to in determining coverage. B. COVERAGE COMPARISON TABLE The table on page V-3 shows similarities and differences among the three new SFIP forms for more than 30 coverage items This page is intentionally left blank. COVERAGE COMPARISON AS OF DECEMBER 31, 2000 ITEM DWELLING FORM GEN. PROP. FORM RCBAP Additional Living Exp. NO NO NO Appurtenant Structures YES; 10% of limit of liability can be applied to detached garage at described location. NO NO Awnings ACV, if attached to bldg. ACV, if attached to bldg. ACV, if attached to bldg. Building Fixtures Listed Listed Listed Carpeting ACV; no overhead and profit ACV; no overhead and profit ACV; no overhead and profit Construction Before Walled & Roofed YES; two times the deductible YES; two times the deductible YES; two times the deductible Debris Removal YES YES YES Decks NO; limit of 16 sq. feet NO; limit of 16 sq. feet NO; limit of 16 sq. feet Deductible Applied separately to building and contents Applied separately to building and contents Applied separately to building and contents Emergency Mitigation, Pre-Flood Limited coverage, $1,000 Limited coverage, $1,000 Limited coverage, $1,000 Exterior Paint YES YES YES Fences NO NO NO Hot Tubs & Spas YES, if they are bathroom fixtures YES, if they are bathroom fixtures or stock YES, if they are bathroom fixtures Hurricane Shutters YES YES YES ICC YES, except Emergency Program and Group Policy YES, except Emergency Program YES, except Emergency Program Improvements & Betterments YES; if tenant has per- sonal property coverage, we cover cooking stove, range, and refrigerator. 10% of personal property coverage will cover other tenant- installed improvements. 10% of personal property coverage Yes Loss Assessments YES; limited NO NO Loss of Rents NO NO NO Ordinance or Law YES, subject to Exclusion A.6. YES, subject to Exclusion A.6. YES, subject to Exclusion A.6. Pollutants YES YES, up to $10,000 YES Power Failure YES, if caused by flood on the described location YES, if caused by flood on the described location YES, if caused by flood on the described location Replacement Cost, Building YES, if insured to 80% of RC and insured lived at risk 80% of previous 365 days NO YES, with coinsurance provision Replacement Cost, Personal Property NO NO NO Screened Porches YES, unless below ele- vated floor (Post-FIRM) YES YES Storage Sheds NO NO NO Stove & Refrigerator Building ACV, if tenant’s contents Building ACV, if tenant’s contents Building ACV Swimming Pools/Hot Tubs NO NO NO Temporary Repairs NO NO NO Trees NO NO NO Venetian Blinds Building ACV Building ACV Building ACV Walkways NO NO NO C. NEW POLICY FORMS AND COMMENTARIES The new SFIP forms, along with a commentary on each, are reproduced on the following pages in this order: Dwelling Form, General Property Form, and Residential Condominium Building Association Policy. This section of the manual uses a side-by-side format in which: 1. Each left-hand page reproduces a page of the new SFIP; and 2. Each facing right-hand page provides a commentary about policy changes and other coverage issues important to claims adjusters. The footer on each page includes the name of the policy form, so you’ll know which form of the SFIP is being shown and discussed i iv Change 1, 1/1/04 I-3 Change 1, 1/1/04 I-4 II-1 Change 1, 1/1/04 II-1 Change 1, 1/1/04 II-2 Change 1, 1/1/04 II-3 Change 1, 1/1/04 II-4 Change 1, 1/1/04 II-5 Change 1, 1/1/04 II-6 Change 1, 1/1/04 III-1 III-3 Change 1, 1/1/04 IV-1 IV-2 IV-3 IV-4 IV-5 Change 1, 1/1/04 IV-6 Change 1, 1/1/04 V-1 Change 1, 1/1/04 V-2 V-3 Change 1, 1/1/04 V-4 V-4 Dwelling Form DWELLING FORM COMMENTARY LIMITATIONS, RESTRICTIONS, AND EXCLUSIONS The Dwelling Form covers only: ? A 1- to 4-family dwelling not under the condominium form of ownership ? A single-family dwelling unit in a condominium building I. AGREEMENT The insuring agreement states the following: ? The Standard Flood Insurance Policy (SFIP) is based upon the National Flood Insurance Act of 1968 and all amendments, and Title 44 of the Code of Federal Regulations (CFR). ? The insured must pay the correct premium to get the requested amount of coverage. ? The insured or the insured’s representative must submit accurate information. II. DEFINITIONS Flood. Requires surface water inundation of normally dry land from any source, including mudflow (see mudflow definition). Two acres or two or more properties must be inundated. Actual Cash Value. Replacement cost value of the property minus depreciation (does not include antique value). Application. Part of this policy; the application paragraph states that the insured must pay the correct premium. II. DEFINITIONS (continued) Basement. Any area that is below the natural grade on all sides. Building. A building must have at least two rigid walls and a roof. Liquid storage tanks and bubbles are not covered. Grain bins and silos are covered. Travel trailers without wheels and affixed to a permanent foundation are covered if regulated by local law. Condominium. Ownership of real property in which each unit owner has an interest in the common elements. Condominium Association. This policy does not cover homeowner associations. The adjuster must check the by-laws if there is a question. Declarations Page. A summary of information provided by the policyholder on the insurance application. The adjuster must verify the accuracy of the building description, as this may affect coverage. Described Location. Shown on the Declarations Page. Direct Physical Loss By or From Flood. Floodwaters must touch the insured property with the exception of seepage/hydrostatic pressure. Elevated Building. This definition requires space between ground level and the lowest floor. Mudflow. A surface river of liquid and flowing mud. Other earth movements such as landslide, slope failure, or saturated soil moving by liquidity are not mudflows. (The word “mudslide” no longer is used in the SFIP.) Pollutants. Testing for or monitoring of pollutants is not covered unless required by law. II. DEFINITIONS (continued) Post-FIRM Building. Start of construction or substantial improvement after December 31, 1974, or on or after the publication of the initial Flood Insurance Rate Map (FIRM), whichever is later. Special Flood Hazard Area (SFHA). All zones listed are SFHAs. However, the Post-FIRM coverage limitations apply only to Zones A1-A30, AE, AH, AR, AR/A, AR/AE, AR/AH, AR/A1-A30, V1-V30, and VE. Valued Policy. The SFIP is not a valued policy, in any state. III. PROPERTY COVERED COVERAGE A – BUILDING PROPERTY This policy covers only one- to four-family dwellings. Additions that are attached to and in contact with the risk by a rigid exterior wall, a solid load- bearing interior wall, a stairway, an elevated walkway, or a roof are covered. A solid load-bearing interior wall cannot have any openings and must not provide access from one building or room into another (partial walls). If access is available through a doorway or opening, then the structure must be insured as one building. Other provisions are: ? At the insured’s option, the additions and extensions may be insured separately. ? A common interior wall that is not solid or load bearing necessitates one policy. Garages. Coverage is limited to no more than 10 percent of liability on the dwelling. Any reimbursement for damage to garages would reduce the coverage. If any part of the garage is used for anything other than storage or parking, coverage for the garage is nullified. For example, a garage that has been converted and contains a separate room such as a play room, home workshop, workout room, laundry room, or bathroom does not meet the definition of a garage. There is no coverage unless the insured has purchased a separate policy for the garage. Coverage for detached carports has been eliminated. Materials and Supplies. Those used to alter, repair, or construct the insured building or a detached garage must be in a fully enclosed building at the property address or an adjacent property. Building Under Construction. The deductible is doubled (see Dwelling Form VI. Deductibles, second paragraph of provision A.) and, if there is no work on the building for a period of 90 continuous days, coverage ceases until such time as work is resumed. Coverage is provided for those items that will become part of the finished building. For example, rebar, footings, and concrete walls that will become part of the finished building are covered. There is no coverage for the forms used to retain the concrete. There is no coverage for a building under construction before it is walled and roofed when the building is Post-FIRM and the basement floor or lowest elevated floor is below Base Flood Elevation in any of Zones AH, AE, A1-A30, AR, AR/AE, AR/AH, AR/A1-A30, AR/A, or AR/AO, or below Base Flood Elevation adjusted for wave action in any of Zones VE or V1-V30. III. PROPERTY COVERED (continued) COVERAGE A – BUILDING PROPERTY (continued) The items listed in Dwelling Form III.A.7. are considered building property; they cannot be paid under contents coverage unless III.B.4. applies. Other building items are not excluded, but the items listed are those that will be covered only as part of the building. The items listed in Dwelling Form III.A.8., when installed beneath the lowest elevated floor of an elevated Post-FIRM building or in a basement, are considered building property; they cannot be paid under contents coverage. COVERAGE B – PERSONAL PROPERTY Contents coverage must be purchased separately, and a separate deductible is applied. Contents must be owned by the insured or family members of the insured’s household, or at the insured’s option, within the limits of liability of the policy, by the insured’s guests or servants. Contents are covered while stored in the dwelling or in another fully enclosed building at the property address. Flotation of contents out of a building that has fewer than four rigid walls is not covered. The items listed in Dwelling Form III.B.2., General Property Form III.B.3., and RCBAP III.B.2. are considered personal property and cannot be paid under building coverage. The items listed in Dwelling Form III.B.3., when installed beneath the lowest elevated floor of an elevated Post-FIRM building or in a basement, are considered personal property items. They cannot be paid under building coverage. Also see General Property Form III.B.4. and RCBAP III.B.3. Note: The policy lists items that must always be considered contents (III.B.2.). The policy also lists items covered in a basement or beneath the lowest elevated floor of a Post-FIRM elevated building (III.B.3.).that must always be considered contents III. PROPERTY COVERED (continued) COVERAGE B – PERSONAL PROPERTY (continued) Tenants. Paragraph 4. states that, if the insured is a tenant and has personal property coverage (Coverage B), the coverage extends to the insured’s cooking stove, range, and refrigerator. Also, improvements made or acquired solely at the insured’s expense are covered for up to 10 percent of the limit of liability for personal property. The 10 percent limit of liability for improvements does not include cooking stoves, ranges, or refrigerators. Condominium Unit Owners. Paragraph 5. states that the 10 percent coverage for building items cannot be applied and no coverage is available if the condominium policy or a combination of coverages pays the statutory limit. Special Limits. A total of $2,500 is the maximum payment allowed for artwork, rare books, jewelry, furs, or any article containing fur, which represents its principal value, as well as personal property used in any business. This maximum payment also extends to the following: ? Photographs ? Collectibles ? Memorabilia ? Porcelain or other figures and sports cards ? Autographed items ? Watches ? Precious and semiprecious stones ? Articles of gold, silver, or platinum This coverage is limited to personal property owned by the named insured, household family members, servants, and guests and to other personal property for which the insured is liable. Antiques. Coverage is provided only for the functional value of antiques. COVERAGE C – OTHER COVERAGES Debris Removal. Insured property means property we insure—i.e., the described building and covered contents. The described premises includes the lot, which is not covered. Coverage extends to insured property anywhere and to non-owned debris from beyond the insured premises or on or in the insured property. Non-covered items such as contents in a basement are excluded from debris removal coverage. Loss Mitigation. Expenses are covered up to $1,000 per measure; no deductible applies. Loss mitigation measures are described below. a. Sandbags, Supplies, and Labor ? Sandbags, including sand ? Fill for temporary levees ? Pumps ? ? Plastic sheeting and lumber used in connection with these items ? Labor (Members of family can be paid for labor at the federal minimum wage. This coverage applies only under Coverage A – Building Property. b. Property Removed to Safety. A maximum of $1,000 can be paid to move insured property to another place other than the described location above ground or outside the SFHA to preserve it from flood. Read Dwelling Form III.C.2.b. Property Removed to Safety III. PROPERTY COVERED (continued) COVERAGE C – OTHER COVERAGES (continued) If the property removed is a manufactured (mobile) home or travel trailer, coverage extends to it for 45 days, even if it is not on a foundation. This coverage can be used for building, contents, or both; but the total of building and contents payments cannot exceed $1,000. Other provisions regarding property removed to safety are: ? Contents must be placed in a fully enclosed building or otherwise reasonably protected and moved temporarily away from the peril of flood. ? Property must be removed to a location other than the described location. Property moved from one place to another at the described location is not covered. ? Coverage extends for 45 days at another place. ? No deductible applies. Removed property is covered for damage by flood only. Any property removed, including a moveable home described in Dwelling Form II.B.6.b. and c., must be placed above ground level at a location other than the described location or outside of the SFHA. See General Property Form III.C.2.b. and RCBAP III.C.2.b. Condominium Loss Assessment: If no Residential Condominium Building Association Policy (RCBAP) is in force on the building, then the Dwelling Form will respond to covered loss assessments. The Dwelling Form will not respond to assessments if there is an RCBAP that is not insured to 80 percent of the RCV or the maximum insurable value of the building, whichever is less. See 3.b.(4)(a) and (b). COVERAGE D – INCREASED COST OF COMPLIANCE The limit of liability for Increased Cost of Compliance (ICC) coverage was raised to $30,000 on May 1, 2003. Any flood loss incurred prior to May 2003 will be adjusted according to the previous limit of $20,000. ICC coverage is used for floodproofing, demolition, elevation, or relocation of the structure, or a combination of these. It is an additional amount of insurance above building limits of liability, but we cannot pay more than the law allows ($250,000 dwelling and $500,000 commercial). For further information about ICC coverage, see Section VI. of this manual. Subsection VI.D.3. specifically addresses assignment of Coverage D by the policyholder to the community III. PROPERTY COVERED (continued) COVERAGE D – INCREASED COST OF COMPLIANCE (continued) Structures that are in an SFHA and are declared by the local community to be substantially flood- damaged by 50 percent of their market value are eligible. An ICC claim must not be opened until the local official has declared in writing that the structure is substantially damaged. On ICC claims for structures in B, C, X, D, unnumbered A and V, and A99 zones, the adjuster needs to obtain a written statement explaining why the local official is requiring an ICC activity. For communities that have cumulative damage language in their ordinance, the building must have sustained two losses in 10 years, averaging 25 percent. The adjuster must verify that the community has such language in the ordinance. The adjuster must also verify that NFIP claim payments were issued to the insured for both qualifying losses. III. PROPERTY COVERED (continued) COVERAGE D – INCREASED COST OF COMPLIANCE (continued) Under ICC, even if a local ordinance or law requires the testing, monitoring, clean-up, removal, containment, treatment, detoxification, or neutralization of pollutants, there is no coverage. The 2-year limit for completing an ICC claim begins on the date of the declaration by the local community official that the insured structure has been substantially damaged by flood. This means that the 2-year period referenced in paragraph 5.e.(2) begins on that date. The two conditions in Paragraph 5.e. refer to the total payment of an ICC claim. Partial payments of ICC claims are permitted. Partial payments may be issued before completion of the mitigation activity but cannot exceed 50 percent of the estimated reimbursable cost of the mitigation activity. The adjuster must complete the Adjuster Preliminary Damage Assessment form on a daily basis as needed and fax it to the NFIP Bureau and Statistical Agent’s Claims Department at 1-800-457- 4232. IV. PROPERTY NOT COVERED Building or Personal Property Entirely in, on, or over Water or Seaward of Mean High Tide. No coverage is provided if the building was constructed or substantially improved after September 30,1982. Recreational Vehicles. Excluded from coverage except travel trailers defined in Dwelling Form II.B.6.c. Self-Propelled Vehicles or Machines. Excluded except those used to service the described location or designed and used to assist handicapped persons. The vehicles or machines must be located inside the building at the described location. Land, Land Values, Lawns, Trees, Shrubs, Plants, Growing Crops, or Animals. Animals are specifically excluded from coverage by the provision in Dwelling Form IV.6 (also General Property Form IV.6 and Residential Condominium Building Association Policy IV.6). This exclusion applies to live bait, such as worms or minnows, sold in fishing tackle shops IV. PROPERTY NOT COVERED (continued) Containers. Fuel tanks and well water tanks are not covered outside a basement, elevated building enclosure, or the insured building. Tanks containing other liquids or gases are not covered. Swimming Pools, Hot Tubs, and Spas. These and their equipment are not covered, except that spas and hot tubs are covered if they are bathroom fixtures. Coastal Barrier Resources Act (CBRA). It is the adjuster’s responsibility not to recommend payment for buildings and their contents made ineligible by CBRA legislation, as it is against the law to insure such buildings. These should be referred to Underwriting for a coverage determination. V. EXCLUSIONS Loss of Revenue or Profit, Loss of Access, Loss of Use, Business Interruption, and Additional Living Expenses. We will not pay for these. Coverage is not provided for the cost of complying with any ordinance or law except those described in D. Coverage D – Increased Cost of Compliance. Loss in Progress. Not covered (Paragraph B.). Single Peril. Paragraph C. makes it clear that this is a single-peril policy. Earth movement caused by flood is excluded. This includes but is not limited to earthquake, landslide, land subsidence, sinkholes, destabilization, or movement of land resulting from the accumulation of water in subsurface land areas, and gradual erosion. Land subsidence is covered if it is caused by erosion as specified in the definition of flood (see Dwelling Form II.A.2.). Water, Moisture, Mildew, or Mold Damage. Not covered when caused by a condition substantially confined to the building, or within the insured’s control, which includes design, structural, or mechanical defects; failure, stoppage, or breakage of water or sewer lines, drains, pumps, fixtures, or equipment; or the insured’s failure to adequately inspect and maintain the property after the flood waters recede. (For additional information about mold damage, see Subsection VIII.C'. of this manual.) V. EXCLUSIONS (continued) Water or Waterborne Materials. Damage from water or waterborne materials that cause sewers or drains to back up, including the discharge or overflow of water from a sump, sump pump, or any related equipment, or seeps or leaks on or through insured property, is not covered. However, if there is a general and temporary condition of flooding in the area and the flood is the proximate cause of the sewer, drain, or sump pump back-up and is the proximate cause of the seepage of water, then coverage is provided. Other Water Damage. Damage to the covered property from a roof leak or wind-driven rain is not covered. Power Failure. Only losses resulting from power, heating, or cooling equipment failure, if the failure was caused by flood and the failing equipment was located on the described location, are covered. Power failures occurring off the described location due to flood and causing damage to insured heating or cooling equipment or any other insured property are not covered. If the power is intentionally turned off by the insured, there is no coverage. Note: Federal government lease exclusion. VI. DEDUCTIBLES The deductible is doubled for a building under construction. (Per Dwelling Form III.A.5.a.(2), if there is no work on the building for a period of 90 continuous days, coverage ceases until such time as work is resumed.) There are separate deductibles for the structure and personal property ranging from $500 to $5,000. VII. GENERAL CONDITIONS Pairs and Sets. We pay for the one item damaged, or the fair proportion of the value of the pair or set. Concealment or Fraud and Policy Voidance. This and any other NFIP flood policy can be voided if the insured commits fraud. The adjuster must report to the insurer any discrepancies on the Narrative Report form. If there is a misrating, this needs to be corrected and the correct premium paid before the claim can be settled. The necessary premium must be paid in order for the requested limits of liability to be applicable. VII. GENERAL CONDITIONS (continued) Other Insurance. This policy is primary over all other policies that clearly state they are excess. If the other policy does not state it is excess, this policy is primary up to the other policy’s deductible, subject to this policy’s deductible; once our payment reaches the other deductible amount, the coverage becomes pro-rata. (See examples in Section VII. of this manual, Basic Adjustment Issues, following.) Nonrenewal of the Policy by Us. The policy will not be renewed if the community in which the insured property is located stops participating in the NFIP or if the building has been declared ineligible under Section 1316 of the National Flood Insurance Act of 1968, as amended. Reduction and Reformation of Coverage. The coverage amounts will be reduced if it is discovered that the premium was insufficient; if the amount of additional premium can be determined, the insured has 30 days to pay the additional premium. VII. GENERAL CONDITIONS (continued) Requirements in Case of Loss. Claims should be investigated under a Reservation of Rights or Non-Waiver Agreement if the insured does not comply with Paragraphs J.1. through 9. VII. GENERAL CONDITIONS (continued) Bailee Goods. No coverage. VII. GENERAL CONDITIONS (continued) Loss Payment. The adjuster needs to be prompt in reporting the investigation, as the insurer has only 60 days from the date of receiving the insured’s Proof of Loss to pay the claim, or within 90 days after the adjuster files a report that is signed and sworn to by the insured in lieu of the Proof of Loss. If the Proof of Loss is rejected in whole or in part or a new supplemental Proof of Loss is filed, it must be submitted and received within 60 days of the date of loss. Only FEMA has the authority to waive or extend the filing deadline. Salvage. The insured has the option to keep damaged property after a flood, and the adjuster will reduce the amount of the loss proceeds payable to the insured. Appraisal. The appraisal clause is much like that in the homeowner’s policy. There is no appraisal for coverage issues. The appraisal clause applies if the insured and adjuster fail to agree on the actual cash value or replacement cost of the damaged property, whichever is appropriate. In the event that the two appraisers appointed by the insured and insurer cannot agree, they should submit only their differences to an umpire. Mortgage Clause. We will protect the interest of any listed mortgagee or any mortgagee discovered during the investigation. Suit Against Us. The insured must file suit in federal court within 12 months from the date the denial letter was mailed. Subrogation. The insured’s right to recover for a loss in part or in whole for damages caused by someone else is transferred to the insurer if the loss is paid under the Standard Flood Insurance Policy. VII. GENERAL CONDITIONS (continued) Continuous Lake Flooding. The structure must be inundated by lake water for 90 continuous days, and it must be reasonably certain that the continuation of this flooding will result in damage equal to or greater than policy limits, or the ACV or RCV, as applicable. If it is not reasonably certain that the flooding will cause a total loss, then we will pay only for the actual damage up to the waterline. (See Section VIII. of this manual, Special Adjustment Issues, for more information about continuous lake flooding.) Closed Basin Lakes. A closed basin lake is a natural lake from which water leaves primarily through evaporation, and whose surface area now exceeds or has exceeded 1 square mile at any time in the past. If an insured building is subject to continuous closed basin lake flooding, a total loss claim can be paid if lake flood waters damage or imminently threaten to damage the building and an eventual total loss appears likely. Special reporting procedures apply to ICC claims and closed basin lake claims. Notify the NFIP Bureau and Statistical Agent upon receipt of either type of claim. VII. GENERAL CONDITIONS (continued) Duplicate Policies Not Allowed. If the insured has two policies on the same property, the insured may choose to keep either policy. However, if the insured wishes to combine coverage limits, the effective date of the policy will be that of the later of the two policies purchased. Loss Settlement. There are three methods to settle a loss under the Dwelling Form: ? Replacement Cost ? Special Loss Settlement ? Actual Cash Value VII. GENERAL CONDITIONS (continued) Replacement Cost. The insured residence must be the principal residence, meaning that, at the time of loss, the insured lived there for at least 80 percent of the preceding 365 days, or 80 percent of the period of ownership if less than 365 days. Replacement cost applies if the building is insured to 80 percent or more of its full replacement cost before a loss occurs, or if the maximum amount of insurance is purchased. Special Loss Settlement. Replacement Cost applies to a manufactured (mobile) home or travel trailer if the dwelling is at least 16 feet wide and has an area of at least 600 square feet within its walls. The structure must also be the principal residence. If a single-family dwelling that is a manufactured (mobile) home or travel trailer is a total loss or is not economically feasible to repair, then the adjustment of the property will be the lesser of: ? The replacement cost of the dwelling or 1.5 times the actual cash value, or ? The building limit of liability. Loss Settlement paragraph 1.a.(2) does not apply to manufactured (mobile) homes or travel trailers under Special Loss Settlement. Only manufactured (mobile) homes and travel trailers as described in paragraph 3.a.(2) and (3) qualify for Special Loss Settlement. All other manufactured (mobile) homes and travel trailers require Actual Cash Value Loss Settlement. If we determine that the building is repairable, the loss will be settled according to the Replacement Cost conditions stated in Dwelling Form VII.V.2. ACV or Proportional Settlement. If proportional settlement is beneficial to the insured, no depreciation is taken and Replacement Cost is used after the deductible is taken. There are two ways to do this: ? When 80 percent of the RC is less than the maximum amount of NFIP insurance available, then the proportion is figured as follows: Amount of insurance purchased x RC loss with deductible already Amount of insurance that is 80% of RC taken ? When 80 percent of the replacement cost is more than the maximum amount of NFIP insurance available, compute as follows: Amount of insurance purchased x loss less the deductible Maximum amount of NFIP insurance available The insured will receive either of the above or ACV, whichever is higher. If the insured dwelling is a total loss, there is no provision that the insured must rebuild at the same location. If the insured buys or builds another house of equal value (not including land value), we will pay the RCV upon presentment of the appropriate documentation. Proof that repairs have been completed and that the amount actually spent exceeds the ACV payment must be submitted by the insured prior to payment of the RC holdback. Items that do not have to be included in calculating the dwelling’s RCV are listed in Dwelling Form VII. V.5.a., b., and c. VII. GENERAL CONDITIONS (continued) The types of property subject to Actual Cash Value loss settlements are: ? A two-, three-, or four-family dwelling ? A unit that is not used exclusively for single-family dwelling purposes ? Detached garages ? Personal property ? Appliances, carpets, and carpet pads ? Outdoor awnings, outdoor antennas or aerials of any type, and other outdoor equipment ? Abandoned property that, after a loss, remains as debris at the described location ? A dwelling that is not the principal residence Amount of Insurance Required. When the insured, agent, and/or adjuster calculates the amount of insurance required for a dwelling before the loss, the following building components will not be considered: ? Footings, foundations, piers, or any other structures or devices that are below the undersurface of the lowest basement floor and support all or part of the dwelling ? Supports listed above that are below the surface of the ground inside the foundation walls if there is no basement ? Excavations and underground flues, pipes, wiring, and drains The ICC limit of liability is not included in the determination of the amount of insurance required. VIII. LIBERALIZATION CLAUSE This is similar to that in the homeowner’s policy. Liberalization with additional premium, such as ICC, does not fall into this category. The insured can choose the policy application that is most beneficial. The loss must be after the effective date of the liberalization. IX. WHAT LAW GOVERNS Federal law governs. This policy is not subject to state departments of insurance or state and local courts. This page is intentionally left blank. V-5 DWELLING FORM V-6 Change 1, 1/1/04 DWELLING FORM COMMENTARY V-7 DWELLING FORM V-8 DWELLING FORM COMMENTARY V-9 DWELLING FORM V-10 DWELLING FORM COMMENTARY V-11 Change 1, 1/1/04 DWELLING FORM V-12 DWELLING FORM COMMENTARY V-13 Change 1, 1/1/04 DWELLING FORM V-14 DWELLING FORM COMMENTARY V-15 Change 1, 1/1/04 DWELLING FORM V-16 Change 1, 1/1/04 DWELLING FORM COMMENTARY V-17 Change 1, 1/1/04 DWELLING FORM V-18 DWELLING FORM COMMENTARY V-19 DWELLING FORM V-20 DWELLING FORM COMMENTARY V-21 Change 1, 1/1/04 DWELLING FORM V-22 DWELLING FORM COMMENTARY V-23 Change 1, 1/1/04 DWELLING FORM V-24 DWELLING FORM COMMENTARY V-25 Change 1, 1/1/04 DWELLING FORM V-26 DWELLING FORM COMMENTARY V-27 DWELLING FORM V-28 DWELLING FORM COMMENTARY V-29 DWELLING FORM V-30 DWELLING FORM COMMENTARY V-31 DWELLING FORM V-32 DWELLING FORM COMMENTARY V-33 Change 1, 1/1/04 DWELLING FORM V-34 DWELLING FORM COMMENTARY V-35 DWELLING FORM V-36 DWELLING FORM COMMENTARY V-37 DWELLING FORM V-38 DWELLING FORM COMMENTARY V-39 Change 1, 1/1/04 DWELLING FORM V-40 Change 1, 1/1/04 DWELLING FORM COMMENTARY V-41 V-42 General Property Form GENERAL PROPERTY FORM COMMENTARY LIMITATIONS, RESTRICTIONS, AND EXCLUSIONS The General Property Form does not provide coverage for: ? A residential condominium building ? A unit in a condominium building, except for personal property coverage I. AGREEMENT The insuring agreement states the following: ? The Standard Flood Insurance Policy (SFIP) is based upon the National Flood Insurance Act of 1968 and all amendments, and Title 44 of the Code of Federal Regulations (CFR). ? The insured must pay the correct premium to get the requested amount of coverage. ? The insured or the insured’s representative must submit accurate information. II. DEFINITIONS Flood. Requires surface water inundation of normally dry land from any source, including mudflow (see mudflow definition). Two acres or two or more properties must be inundated. Actual Cash Value. Replacement cost value of the property minus depreciation (does not include antique value). Application. Part of the policy; the application paragraph states that the insured must pay the correct premium. II. DEFINITIONS (continued) Basement. Any area that is below the natural grade on all sides. Building. A building must have at least two rigid walls and a roof. Liquid storage tanks and bubbles are not covered. Grain bins and silos are covered. Travel trailers without wheels and affixed to a permanent foundation are covered if regulated by local law. Condominium. Ownership of real property in which each unit owner has an interest in the common elements. Condominium Association. This policy does not cover homeowner associations. The adjuster must check the by-laws if there is a question. Declarations Page. A summary of information provided by the policyholder on the insurance application. The adjuster must verify the accuracy of the building description, as this may affect coverage. Described Location. Shown on the Declarations Page. Direct Physical Loss By or From Flood. Floodwaters must touch the insured property with the exception of seepage/hydrostatic pressure. Elevated Building. This definition requires space between ground level and the lowest floor. Mudflow. A surface river of liquid and flowing mud. Other earth movements such as landslide, slope failure, or saturated soil moving by liquidity are not mudflows. (The word “mudslide” no longer is used in the SFIP.) Pollutants. Testing for or monitoring of pollutants is not covered unless required by law. Post-FIRM Building. Start of construction or substantial improvement after December 31, 1974, or on or after the publication of the initial Flood Insurance Rate Map (FIRM), whichever is later. II. DEFINITIONS (continued) Special Flood Hazard Area (SFHA). All zones listed are SFHAs. However, the Post-FIRM coverage limitations apply only to Zones A1-A30, AE, AH, AR, AR/A, AR/AE, AR/AH, AR/A1-A30, V1-V30, and VE. Stock. Merchandise that is stored or for sale, raw materials, and in-process or finished goods, inclusive of supplies used for their packing and shipping, are covered. However, coverage is not provided for property listed in General Property Form IV. Property Not Covered, with the exception of the following: ? Parts and equipment for self-propelled vehicles ? Furnishings and equipment for watercraft ? Spas and hot tubs, including their equipment ? Swimming pool equipment Valued Policy. This is not a valued policy, in any state. III. PROPERTY COVERED COVERAGE A – BUILDING PROPERTY If the insured building is a condominium building in the name of the condominium association, coverage is provided for all units and the improvements, if the units are owned in common by all unit owners. Additions that are attached to and in contact with the risk by a rigid exterior wall, a solid load- bearing interior wall, a stairway, an elevated walkway, or a roof are covered. A solid load-bearing interior wall cannot have any openings and must not provide access from one building or room into another (partial walls). If access is available through a doorway or opening, then the structure must be insured as one building. Other provisions are: ? At the insured’s option, the additions and extensions may be insured separately. ? A common interior wall that is not solid or load bearing necessitates one policy. Fixtures, Machinery, and Equipment. The items in this list (General Property Form III. Prop- erty Covered, A. Coverage A – Building Property, 4.) are defined as building property and cannot be paid under contents coverage. The list of items in Paragraph 4 is not exclusive. If there are other items that fit this coverage, they can be included. III. PROPERTY COVERED (continued) COVERAGE A – BUILDING PROPERTY (continued) Materials and Supplies. Those used to alter, repair, or construct the insured building must be in a fully enclosed building at the property address or an adjacent property. Building Under Construction. The deductible is doubled (see General Property Form VI. Deductibles, second paragraph of provision A.) and, if there is no work on the building for a period of 90 continuous days, coverage ceases until such time as work is resumed. Coverage is provided for those items that will become part of the finished building. For example, rebar, footings, and concrete walls that will become part of the finished building are covered. There is no coverage for the forms used to retain the concrete. There is no coverage for a building under construction before it is walled and roofed when the building is Post-FIRM and the basement floor or lowest elevated floor is below Base Flood Elevation in any of Zones AH, AE, A1-A30, AR, AR/AE, AR/AH, AR/A1-A30, AR/A, or AR/AO, or below Base Flood Elevation adjusted for wave action in any of Zones VE or V1-V30. COVERAGE B – PERSONAL PROPERTY Contents owned solely by the insured or by a condominium are covered. Contents are covered while stored in the building. Flotation of contents out of a building that has fewer than four rigid walls is not covered. The items listed in General Property Form III.B.3., Dwelling Form III.B.2., and RCBAP III.B.2. are considered personal property and cannot be paid under building coverage. The items listed in General Property Form III.B.4., when installed beneath the lowest elevated floor of an elevated Post-FIRM building or in the basement, are considered personal property items. They cannot be paid under building coverage. Also see Dwelling Form III.B.3. and RCBAP III.B.3. III. PROPERTY COVERED (continued) COVERAGE B – PERSONAL PROPERTY (continued) Coverage is extended for either household contents or commercial contents. The policy will not respond to both. Commercial contents coverage is subject to all limitations and exclusions of this policy. The policy does not cover any types of stock listed in General Property Form IV. Property Not Covered, except those specifically mentioned in the definition of stock. The list of items in Paragraph 2.b. is not exclusive. If there are other items that fit this coverage, they can be included. B.2.b.(3) Stock. Spas and hot tubs, including their equipment, are covered if held in storage or for sale. Refer to II. Definitions, 27, for covered items inside the described location. Special Limits. A total of $2,500 is the maximum payment allowed for artwork, rare books, jewelry, furs, or any article containing fur, which represents its principal value, as well as personal property used in any business. This maximum payment also extends to the following: ? Photographs ? Collectibles ? Memorabilia ? Porcelain or other figures; sports cards ? Autographed items ? Watches ? Precious and semiprecious stones ? Articles of gold, silver, or platinu These special limits apply even if the items are stock. Personal property is defined as either household personal property or other than household personal property, while within the insured building, but not both. Confusion arose when a jewelry store sustained a loss to its stock and items. The question was whether the $2,500 limit applies to stock that is not personal property (an item owned individually). Antiques. Coverage is provided only for the functional value of antiques. Improvements. For tenant-occupied properties, the tenant may apply up to 10 percent of the limit of liability for personal property to tenant-installed improvements. This includes items that the insured purchased and that are permanently installed and considered part of the building. Interior Walls, Floors, and Ceilings. If the policyholder is a condominium unit owner and has insured personal property under Coverage B, the unit’s interior walls, floors, and ceilings (not otherwise covered under a flood insurance policy purchased by the condominium association) are covered for up to 10 percent of the limit of liability shown for personal property on the Declarations Page. The use of this insurance is at the insured’s option but reduces the personal property limit of liability. The 10 percent coverage cannot be applied and no coverage is available if the RCBAP or a combination of coverages pays the statutory limit. COVERAGE C – OTHER COVERAGES Debris Removal. Insured property means property we insure—i.e., the described building and covered contents. The described premises includes the lot, which is not covered. Coverage extends to insured property anywhere and to non-owned debris from beyond the insured premises or on or in the insured property. Non-covered items such as contents in a basement are excluded from debris removal coverage. III. PROPERTY COVERED (continued) COVERAGE C – OTHER COVERAGES (continued) Loss Mitigation. Expenses are covered up to $1,000 per measure; no deductible applies. Loss mitigation measures are described below. a. Sandbags, Supplies, and Labor ? Sandbags, including sand ? Fill for temporary levees ? Pumps ? Plastic sheeting and lumber used in connection with these items ? Labor (Members of family can be paid for labor at the federal minimum wage.) This coverage applies only under Coverage A – Building Property. b. Property Removed to Safety. A maximum of $1,000 can be paid to move insured property to another place other than the described location above ground or outside the SFHA to preserve it from flood. If the property removed is a manufactured (mobile) home or travel trailer, coverage extends to it for 45 days even if it is not on a foundation. This coverage can be used for building, contents, or both; but the total of building and contents payments cannot exceed $1,000. Other provisions regarding property removed to safety are: ? Contents must be placed in a fully enclosed building or otherwise reasonably protected and moved temporarily away from the peril of flood. ? Coverage extends for 45 days at another place. ? No deductible applies. Removed property is covered for damage by flood only. Any property removed, including a moveable home described in General Property Form II.B.6.b. and c., must be placed above ground level at a location other than the described location or outside of the SFHA. See Dwelling Form III.C.2.b. and RCBAP III.C.2.b. Pollution Expenses. Damages to insured property caused by pollutants are covered if the discharge, seepage, migration, release, or escape of the pollutants is caused by flood. The maximum allowed under this coverage is $10,000. Testing for or monitoring of pollutants is excluded unless required by law or ordinance. This is not an additional amount of insurance. COVERAGE D – INCREASED COST OF COMPLIANCE The limit of liability for Increased Cost of Compliance (ICC) coverage was raised to $30,000 on May 1, 2003. Any flood loss incurred prior to May 2003 will be adjusted according to the previous limit of $20,000. ICC coverage is used for floodproofing, demolition, elevation, or relocation of the structure, or a combination of these. It is an additional amount of insurance above building limits of liability, but we cannot pay more than the law allows ($250,000 dwelling and $500,000 commercial). For further information about ICC coverage, see Section VI. of this manual. Subsection VI.D.3. specifically addresses assignment of Coverage D by the policyholder to the community III. PROPERTY COVERED (continued) COVERAGE D – INCREASED COST OF COMPLIANCE (continued) Structures that are in an SFHA and are declared by the local community to be substantially flood- damaged by 50 percent of their market value are eligible. An ICC claim must not be opened until the local official has declared in writing that the structure is substantially damaged. On ICC claims for structures in B, C, X, D, unnumbered A and V, and A99 zones, the adjuster needs to obtain a written statement explaining why the local official is requiring an ICC activity. For communities that have cumulative damage language in their ordinance, the building must have sustained two losses in 10 years, averaging 25 percent. The adjuster must verify that the community has such language in the ordinance. The adjuster must also verify that NFIP claim payments were issued to the insured for both qualifying losses. III. PROPERTY COVERED (continued) COVERAGE D – INCREASED COST OF COMPLIANCE (continued) Under ICC, even if a local ordinance or law requires the testing, monitoring, clean-up, removal, containment, treatment, detoxification, or neutralization of pollutants, there is no coverage. The 2-year limit for completing an ICC claim begins on the date of the declaration by the local community official that the insured structure has been substantially damaged by flood. This means that the 2-year period referenced in paragraph 5.e.(2) begins on that date. The two conditions in Paragraph 5.e. refer to the total payment of an ICC claim. Partial payments of ICC claims are permitted. Partial payments may be issued before completion of the mitigation activity but cannot exceed 50 percent of the estimated reimbursable cost of the mitigation activity. The adjuster must complete the Adjuster Preliminary Damage Assessment form on a daily basis as needed and fax it to the NFIP Bureau and Statistical Agent’s Claims Department at 1-800-457- 4232. IV. PROPERTY NOT COVERED Building or Personal Property Entirely in, on, or over Water or Seaward of Mean High Tide. No coverage is provided if the building was constructed or substantially improved after September 30,1982. Recreational Vehicles. Excluded from coverage except travel trailers defined in General Property Form II.B.6.c. Self-Propelled Vehicles or Machines. Excluded except those used to service the described location or designed and used to assist handicapped persons. The vehicles or machines must be located inside the building at the described location. IV. PROPERTY NOT COVERED (continued) Land, Land Values, Lawns, Trees, Shrubs, Plants, Growing Crops, or Animals. Animals are specifically excluded from coverage by the provision in General Property Form IV.6 (also Dwelling Form IV.6 and Residential Condominium Building Association Policy IV.6). This exclusion applies to live bait, such as worms or minnows, sold in fishing tackle shops. Containers. Fuel tanks and well water tanks are not covered outside a basement, elevated building enclosure, or the insured building. Tanks containing other liquids or gases are not covered. Swimming Pools, Hot Tubs, and Spas. These and their equipment are not covered, except that spas and hot tubs are covered if they are bathroom fixtures or stock and inventory held for sale. Coastal Barrier Resources Act (CBRA). It is the adjuster’s responsibility not to recommend payment for buildings and their contents made ineligible by CBRA legislation, as it is against the law to insure such buildings. These should be referred to Underwriting for a coverage determination. V. EXCLUSIONS Loss of Revenue or Profit, Loss of Access, Loss of Use, Business Interruption, and Additional Living Expenses. We will not pay for these. Coverage is not provided for the cost of complying with any ordinance or law except those described in D. Coverage D – Increased Cost of Compliance and C. Coverage C – Other Coverages, 3. Pollution Damage. Loss in Progress. Not covered (Paragraph B.). Single Peril. Paragraph C. makes it clear that this is a single-peril policy. Earth movement caused by flood is excluded. This includes but is not limited to earthquake, landslide, land subsidence, sinkholes, destabilization, or movement of land resulting from the accumulation of water in subsurface land areas, and gradual erosion. Land subsidence is covered if it is caused by erosion as specified in the definition of flood (see General Property Form II.A.2.). V. EXCLUSIONS (continued) Water, Moisture, Mildew, or Mold Damage. Not covered when caused by a condition substantially confined to the building, or within the insured’s control, which includes design, structural, or mechanical defects; failure, stoppage, or breakage of water or sewer lines, drains, pumps, fixtures, or equipment; or the insured’s failure to adequately inspect and maintain the property after the flood waters recede. (For additional information about mold damage, see Subsection VIII.C'. of this manual.) Water or Waterborne Materials. Damage from water or waterborne materials that cause sewers or drains to back up, including the discharge or overflow of water from a sump, sump pump, or any related equipment, or seeps or leaks on or through insured property, is not covered. However, if there is a general and temporary condition of flooding in the area and the flood is the proximate cause of the sewer, drain, or sump pump back-up and is the proximate cause of the seepage of water, then coverage is provided. Other Water Damage. Damage to the covered property from a roof leak or wind-driven rain is not covered. Power Failure. Only losses resulting from power, heating, or cooling equipment failure, if the failure was caused by flood and the failing equipment was located on the described location, are covered. Power failures occurring off the described location due to flood and causing damage to insured heating or cooling equipment or any other insured property are not covered. If the power is intentionally turned off by the insured, there is no coverage. Note: Federal government lease exclusion. VI. DEDUCTIBLES The deductible is doubled for a building under construction. (Per General Property Form III.A.6.a.(2), if there is no work on the building for a period of 90 continuous days, coverage ceases until such time as work is resumed.) As in the past, there are separate deductibles for the structure and personal property ranging from $500 to $5,000. Effective May 1, 2003, higher deductibles of $10,000 to $50,000 became available for nonresidential policies only. VII. GENERAL CONDITIONS Pairs and Sets. We pay for the one item damaged, or the fair proportion of the value of the pair or set. VII. GENERAL CONDITIONS (continued) Concealment or Fraud and Policy Voidance. This and any other NFIP flood policy can be voided if the insured commits fraud. The adjuster must report to the insurer any discrepancies on the Narrative Report form. If there is a misrating, this needs to be corrected and the correct premium paid before the claim can be settled. The necessary premium must be paid in order for the requested limits of liability to be applicable. Other Insurance. This policy is primary over all other policies that clearly state they are excess. If the other policy does not state it is excess, this policy is primary up to the other policy’s deductible, subject to this policy’s deductible; once our payment reaches the other deductible amount, the coverage becomes pro-rata. (See examples in Section VII. of this manual, Basic Adjustment Issues, following.) Nonrenewal of the Policy by Us. The policy will not be renewed if the community in which the insured property is located stops participating in the NFIP or if the building has been declared ineligible under Section 1316 of the National Flood Insurance Act of 1968, as amended. Reduction and Reformation of Coverage. The coverage amounts will be reduced if it is discovered that the premium was insufficient; if the amount of additional premium can be determined, the insured has 30 days to pay the additional premium. VII. GENERAL CONDITIONS (continued) Policy Renewal. The policy expires at 12:01 a.m. on the final day of the policy term. For renewal, premium must be received within 30 days of the expiration date VII. GENERAL CONDITIONS (continued) Requirements in Case of Loss. Claims should be investigated under a Reservation of Rights or Non-Waiver Agreement if the insured does not comply with Paragraphs J.1. through 9. VII. GENERAL CONDITIONS (continued) Bailee Goods. No coverage. Loss Payment. The adjuster needs to be prompt in reporting the investigation, as the insurer has only 60 days from the date of receiving the insured’s Proof of Loss to pay the claim, or within 90 days after the adjuster files a report that is signed and sworn to by the insured in lieu of the Proof of Loss. If the Proof of Loss is rejected in whole or in part or a new supplemental Proof of Loss is filed, it must be submitted and received within 60 days of the date of loss. Only FEMA has the authority to waive or extend the filing deadline. Salvage. The insured has the option to keep damaged property after a flood, and the adjuster will reduce the amount of the loss proceeds payable to the insured. Appraisal. The appraisal clause is much like that in the homeowner’s policy. There is no appraisal for coverage issues. The appraisal clause applies if the insured and adjuster fail to agree on the actual cash value or replacement cost of the damaged property, whichever is appropriate. In the event that the two appraisers appointed by the insured and insurer cannot agree, they should submit only their differences to an umpire. Mortgage Clause. We will protect the interest of any listed mortgagee or any mortgagee discovered during the investigation. Suit Against Us. The insured must file suit in federal court within 12 months from the date the denial letter was mailed. VII. GENERAL CONDITIONS (continued) Subrogation. The insured’s right to recover for a loss in part or in whole for damages caused by someone else is transferred to the insurer if the loss is paid under the Standard Flood Insurance Policy. Continuous Lake Flooding. The structure must be inundated by lake water for 90 continuous days, and it must be reasonably certain that the continuation of this flooding will result in damage equal to or greater than policy limits, or the ACV or RCV, as applicable. If it is not reasonably certain that the flooding will cause a total loss, then we will pay only for the actual damage up to the waterline. (See Section VIII. of this manual, Special Adjustment Issues, for more information about continuous lake flooding.) Closed Basin Lakes. A closed basin lake is a natural lake from which water leaves primarily through evaporation, and whose surface area now exceeds or has exceeded 1 square mile at any time in the past. If an insured building is subject to continuous closed basin lake flooding, a total loss claim can be paid if lake floodwaters damage or imminently threaten to damage the building, and an eventual total loss appears likely. Special reporting procedures apply to ICC claims and closed basin lake claims. Notify the NFIP Bureau and Statistical Agent upon receipt of either type of claim. VII. GENERAL CONDITIONS (continued) Duplicate Policies Not Allowed. If the insured has two policies on the same property, the insured may choose to keep either policy. However, if the insured wishes to combine coverage limits, the effective date of the policy will be that of the later of the two policies issued. Loss Settlement. Under the General Property Form, building and contents claims can be settled on an Actual Cash Value basis, or the adjuster can estimate the cost to repair or replace the property with material of like kind and quality. VIII. LIBERALIZATION CLAUSE This is similar to that in the homeowner’s policy. Liberalization with additional premium, such as ICC, does not fall into this category. The insured can choose the policy application that is most beneficial. The loss must be after the effective date of the liberalization. IX. WHAT LAW GOVERNS Federal law governs. This policy is not subject to state departments of insurance or state and local courts. This page is intentionally left blank. V-43 GENERAL PROPERTY FORM V-44 Change 1, 1/1/04 GEN. PROP. FORM COMMENTARY V-45 GENERAL PROPERTY FORM V-46 GEN. PROP. FORM COMMENTARY V-47 GENERAL PROPERTY FORM V-48 GEN. PROP. FORM COMMENTARY V-49 GENERAL PROPERTY FORM V-50 GEN. PROP. FORM COMMENTARY V-51 Change 1, 1/1/04 GENERAL PROPERTY FORM V-52 GEN. PROP. FORM COMMENTARY V-53 Change 1, 1/1/04 GENERAL PROPERTY FORM V-54 Change 1, 1/1/04 GEN. PROP. FORM COMMENTARY V-55 Change 1, 1/1/04 GENERAL PROPERTY FORM V-56 GEN. PROP. FORM COMMENTARY V-57 GENERAL PROPERTY FORM V-58 GEN. PROP. FORM COMMENTARY V-59 Change 1, 1/1/04 GENERAL PROPERTY FORM V-60 GEN. PROP. FORM COMMENTARY V-61 Change 1, 1/1/04 GENERAL PROPERTY FORM V-62 GEN. PROP. FORM COMMENTARY V-63 Change 1, 1/1/04 GENERAL PROPERTY FORM V-64 GEN. PROP. FORM COMMENTARY V-65 Change 1, 1/1/04 GENERAL PROPERTY FORM V-66 GEN. PROP. FORM COMMENTARY V-67 GENERAL PROPERTY FORM V-68 GEN. PROP. FORM COMMENTARY V-69 GENERAL PROPERTY FORM V-70 GEN. PROP. FORM COMMENTARY V-71 Change 1, 1/1/04 GENERAL PROPERTY FORM V-72 GEN. PROP. FORM COMMENTARY V-73 GENERAL PROPERTY FORM V-74 GEN. PROP. FORM COMMENTARY V-75 GENERAL PROPERTY FORM V-76 Change 1, 1/1/04 GEN. PROP. FORM COMMENTARY V-77 V-78 Residential Condominium Building Association Policy RESIDENTIAL CONDOMINIUM BUILDING ASSOCIATION POLICY COMMENTARY LIMITATIONS, RESTRICTIONS, AND EXCLUSIONS The Residential Condominium Building Association Policy covers only a residential condominium building in a Regular Program community. I. AGREEMENT The insuring agreement states the following: ? The Standard Flood Insurance Policy (SFIP) is based upon the National Flood Insurance Act of 1968 and all amendments, and Title 44 of the Code of Federal Regulations (CFR). ? The insured must pay the correct premium to get the requested amount of coverage. ? The insured or the insured’s representative must submit accurate information. II. DEFINITIONS Flood. Requires surface water inundation of normally dry land from any source, including mudflow (see mudflow definition). Two acres or two or more properties must be inundated. Actual Cash Value. Replacement cost value of the property minus depreciation (does not include antique value). Application. Part of the policy; the application paragraph states that the insured must pay the correct premium. II. DEFINITIONS (continued) Basement. Any area that is below the natural grade on all sides. Building. A building must have at least two rigid walls and a roof. Liquid storage tanks and bubbles are not covered. Grain bins and silos are covered. Travel trailers without wheels and affixed to a permanent foundation are covered if regulated by local law. Condominium. Ownership of real property in which each unit owner has an interest in the common elements. Condominium Association. The association is comprised of unit owners who are responsible for the maintenance and operation of the common elements owned by the unit owners and other real property. This policy does not cover homeowner associations. The adjuster must check the by-laws if there is a question. Declarations Page. A summary of information provided by the policyholder on the insurance application. The adjuster must verify the accuracy of the building description, as this may affect coverage. Described Location. Shown on the Declarations Page. Direct Physical Loss By or From Flood. Floodwaters must touch the insured property with the exception of seepage/hydrostatic pressure. Elevated Building. This definition requires space between ground level and the lowest floor. Mudflow. A surface river of liquid and flowing mud. Other earth movements such as landslide, slope failure, or saturated soil moving by liquidity are not mudflows. (The word “mudslide” no longer is used in the SFIP.) Pollutants. Testing for or monitoring of pollutants is not covered unless required by law. II. DEFINITIONS (continued) Post-FIRM Building. Start of construction or substantial improvement after December 31, 1974, or on or after the publication of the initial Flood Insurance Rate Map (FIRM), whichever is later. Special Flood Hazard Area (SFHA). All zones listed are SFHAs. However, the Post-FIRM coverage limitations apply only to Zones A1-A30, AE, AH, AR, AR/A, AR/AE, AR/AH, AR/A1-A30, V1-V30, and VE. Valued Policy. This is not a valued policy, in any state. III. PROPERTY COVERED COVERAGE A – BUILDING PROPERTY This policy covers only a residential condominium building including the units within the building and the improvements within the units. Additions that are attached to and in contact with the risk by a rigid exterior wall, a solid load- bearing interior wall, a stairway, an elevated walkway, or a roof are covered. A solid load-bearing interior wall cannot have any openings and must not provide access from one building or room into another (partial walls). If access is available through a doorway or opening, then the structure must be insured as one building. Other provisions are: ? At the insured’s option, the additions and extensions may be insured separately. ? A common interior wall that is not solid or load bearing necessitates one policy. Fixtures, Machinery, and Equipment. The items in this list (RCBAP III. Property Covered, A. Coverage A – Building Property, 4.) are defined as building property and cannot be paid under contents coverage. The list of items in Paragraph 4 is not exclusive. If there are other items that fit this coverage, they can be included. Materials and Supplies. Those used to alter, repair, or construct the insured building must be in a fully enclosed building at the property address or an adjacent property. Building Under Construction. The deductible is doubled (see RCBAP VI. Deductibles, second paragraph of provision A.) and, if there is no work on the building for a period of 90 continuous days, coverage ceases until such time as work is resumed. Coverage is provided for those items that will become part of the finished building. For example, rebar, footings, and concrete walls that will become part of the finished building are covered. There is no coverage for the forms used to retain the concrete. There is no coverage for a building under construction before it is walled and roofed when the building is Post-FIRM and the basement floor or lowest elevated floor is below Base Flood Elevation in any of Zones AH, AE, A1-A30, AR, AR/AE, AR/AH, AR/A1-A30, AR/A, or AR/AO, or below Base Flood Elevation adjusted for wave action in any of Zones VE or V1-V30. III. PROPERTY COVERED (continued) COVERAGE B – PERSONAL PROPERTY Contents coverage must be purchased separately, and a separate deductible is applied. Contents must be owned by the unit owner who has ownership interest, or be owned solely by the condominium association and used exclusively for the association’s business. Contents are covered while stored in the enclosed building at the property address. Flotation of contents out of a building that has fewer than four rigid walls is not covered. Read RCBAP III.C.2.b. Property Removed to Safety. The policy lists items that must always be considered contents (RCBAP III.B.2.). The policy also lists contents items covered in a basement or beneath the lowest elevated floor of a Post-FIRM elevated building (RCBAP III.B.3.). III. PROPERTY COVERED (continued) COVERAGE B – PERSONAL PROPERTY (continued) Special Limits. A total of $2,500 is the maximum payment allowed for artwork, rare books, jewelry, furs, or any article containing fur, which represents its principal value. This maximum payment also extends to the following: ? Photographs ? Collectibles ? Memorabilia ? Porcelain or other figures and sports cards ? Autographed items ? Watches ? Precious and semiprecious stones ? Articles of gold, silver, or platinum Antiques. Coverage is provided only for the functional value of antiques. COVERAGE C – OTHER COVERAGES Debris Removal. Insured property means property we insure—i.e., the described building and covered contents. The described premises includes the lot, which is not covered. Coverage extends to insured property anywhere and to non-owned debris from beyond the insured premises or on or in the insured property. Non-covered items such as contents in a basement are excluded from debris removal coverage. Loss Mitigation. Expenses are covered up to $1,000 per measure; no deductible applies. Loss mitigation measures are described below. a. Sandbags, Supplies, and Labor ? Sandbags, including sand ? Fill for temporary levees ? Pumps ? Plastic sheeting and lumber used in connection with these items ? Labor (Members of family can be paid for labor at the federal minimum wage.) This coverage applies only under Coverage A – Building Property. b. Property Removed to Safety. A maximum of $1,000 can be paid to move insured property to another place other than the described location above ground or outside the SFHA to preserve it from flood. If the property removed is a manufactured (mobile) home or travel trailer, coverage extends to it for 45 days even if it is not on a foundation. This coverage can be used for building, contents, or both; but the total of building and contents payments cannot exceed $1,000. III. PROPERTY COVERED (continued) COVERAGE C – OTHER COVERAGES (continued) Other provisions regarding property removed to safety are: ? Contents must be placed in a fully enclosed building or otherwise reasonably protected and moved temporarily away from the peril of flood. ? Coverage extends for 45 days at another place. ? No deductible applies. Removed property is covered for damage by flood only. Any property removed, including a moveable home described in RCBAP II.B.6.b. and c., must be placed above ground level at a location other than the described location or outside of the SFHA. See Dwelling Form III.C.2.b. and General Property Form III.C.2.b. COVERAGE D – INCREASED COST OF COMPLIANCE The limit of liability for Increased Cost of Compliance (ICC) coverage was raised to $30,000 on May 1, 2003. Any flood loss incurred prior to May 2003 will be adjusted according to the previous limit of $20,000. ICC coverage is used for floodproofing, demolition, elevation, or relocation of the structure, or a combination of these. It is an additional amount of insurance above building limits of liability, but we cannot pay more than the law allows. Structures that are in an SFHA and are declared by the local community to be substantially flood- damaged by 50 percent of their market value are eligible. An ICC claim must not be opened until the local official has declared in writing that the structure is substantially damaged. On ICC claims for structures in B, C, X, D, unnumbered A and V, and A99 zones, the adjuster needs to obtain a written statement explaining why the local official is requiring an ICC activity. For communities that have cumulative damage language in their ordinance, the building must have sustained two losses in 10 years, averaging 25 percent. The adjuster must verify that the community has such language in the ordinance. The adjuster must also verify that NFIP claim payments were issued to the insured for both qualifying losses. III. PROPERTY COVERED (continued) COVERAGE D – INCREASED COST OF COMPLIANCE (continued) Under ICC, even if a local ordinance or law requires the testing, monitoring, clean-up, removal, containment, treatment, detoxification, or neutralization of pollutants, there is no coverage. The 2-year limit for completing an ICC claim begins on the date of the declaration by the local community official that the insured structure has been substantially damaged by flood. This means that the 2-year period referenced in paragraph 5.e.(2) begins on that date. The two conditions in Paragraph 5.e. refer to the total payment of an ICC claim. Partial payments of ICC claims are permitted. Partial payments may be issued before completion of the mitigation activity but cannot exceed 50 percent of the estimated reimbursable cost of the mitigation activity. The adjuster must complete the Adjuster Preliminary Damage Assessment form on a daily basis as needed and fax it to the NFIP Bureau and Statistical Agent’s Claims Department at 1-800-457- 4232. IV. PROPERTY NOT COVERED Building or Personal Property Entirely in, on, or over Water or Seaward of Mean High Tide. No coverage is provided if the building was constructed or substantially improved after September 30,1982. Recreational Vehicles. Excluded from coverage except travel trailers defined in RCBAP II.B.6.c. Self-Propelled Vehicles or Machines. Excluded except those used to service the described location or designed and used to assist handicapped persons. The vehicles or machines must be located inside the building at the described location. Land, Land Values, Lawns, Trees, Shrubs, Plants, Growing Crops, or Animals. Animals are specifically excluded from coverage by the provision in RCBAP IV.6 (also Dwelling Form IV.6 and General Property Form IV.6). This exclusion applies to live bait, such as worms or minnows, sold in fishing tackle shops. Containers. Fuel tanks and well water tanks are not covered outside a basement, elevated building enclosure, or the insured building. Tanks containing other liquids or gases are not covered. Swimming Pools, Hot Tubs, and Spas. These and their equipment are not covered, except that spas and hot tubs are covered if they are bathroom fixtures. Coastal Barrier Resources Act (CBRA). It is the adjuster’s responsibility not to recommend payment for buildings and their contents made ineligible by CBRA legislation, as it is against the law to insure such buildings. These should be referred to Underwriting for a coverage determination. V. EXCLUSIONS Loss of Revenue or Profit, Loss of Access, Loss of Use, Business Interruption, and Additional Living Expenses. We will not pay for these V. EXCLUSIONS (continued) Coverage is not provided for the cost of complying with any ordinance or law except those described in D. Coverage D – Increased Cost of Compliance. Loss in Progress. Not covered (Paragraph B.). Single Peril. Paragraph C. makes it clear that this is a single-peril policy. Earth movement caused by flood is excluded. This includes but is not limited to earthquake, landslide, land subsidence, sinkholes, destabilization, or movement of land resulting from the accumulation of water in subsurface land areas, and gradual erosion. Land subsidence is covered if it is caused by erosion as specified in the definition of flood (see RCBAP II.A.2.). Water, Moisture, Mildew, or Mold Damage. Not covered when caused by a condition substantially confined to the building, or within the insured’s control, which includes design, structural, or mechanical defects; failure, stoppage, or breakage of water or sewer lines, drains, pumps, fixtures, or equipment; or the insured’s failure to adequately inspect and maintain the property after the flood waters recede. (For additional information about mold damage, see Subsection VIII.C'. of this manual.) Water or Waterborne Materials. Damage from water or waterborne materials that cause sewers or drains to back up, including the discharge or overflow of water from a sump, sump pump, or any related equipment, or seeps or leaks on or through insured property, is not covered. However, if there is a general and temporary condition of flooding in the area and the flood is the proximate cause of the sewer, drain, or sump pump back-up and is the proximate cause of the seepage of water, then coverage is provided. Other Water Damage. Damage to the covered property from a roof leak or wind-driven rain is not covered. Power Failure. Only losses resulting from power, heating, or cooling equipment failure, if the failure was caused by flood and the failing equipment was located on the described location, are covered. Power failures occurring off the described location due to flood and causing damage to insured heating or cooling equipment or any other insured property are not covered. If the power is intentionally turned off by the insured, there is no coverage. Note: Federal government lease exclusion. Pollutants. Testing for or monitoring of pollutants is not covered unless required by law. VI. DEDUCTIBLES The deductible is doubled for a building under construction. (Per RCBAP III.A.6.a.(2), if there is no work on the building for a period of 90 continuous days, coverage ceases until such time as work is resumed.) VI. DEDUCTIBLES (continued) As in the past, there are separate deductibles for the structure and personal property ranging from $500 to $5,000. Effective May 1, 2003, higher deductibles of $10,000 and $25,000 became available. VII. COINSURANCE Coinsurance is applied only to the building portion of the claim. We will reduce any loss payment unless the amount of insurance applicable to the damaged building is the lesser of: ? At least 80 percent of its replacement cost; or ? The maximum amount of insurance available for that building under the RCBAP. VIII. GENERAL CONDITIONS Pairs and Sets. We pay for the one item damaged, or the fair proportion of the value of the pair or set. Concealment or Fraud and Policy Voidance. This and any other NFIP flood policy can be voided if the insured commits fraud. The adjuster must report to the insurer any discrepancies on the Narrative Report form. If there is a misrating, this needs to be corrected and the correct premium paid before the claim can be settled. The necessary premium must be paid in order for the requested limits of liability to be applicable. Other Insurance. This policy is primary over all other policies that clearly state they are excess. If the other policy does not state it is excess, this policy is primary up to the other policy’s deductible, subject to this policy’s deductible; once our payment reaches the other deductible amount, the coverage becomes pro-rata. (See examples in Section VII. of this manual, Basic Adjustment Issues, following.) VIII. GENERAL CONDITIONS (continued) Nonrenewal of the Policy by Us. The policy will not be renewed if the community in which the insured property is located stops participating in the NFIP or if the building has been declared ineligible under Section 1316 of the National Flood Insurance Act of 1968, as amended. Reduction and Reformation of Coverage. The coverage amounts will be reduced if it is discovered that the premium was insufficient; if the amount of additional premium can be determined, the insured has 30 days to pay the additional premium. VIII. GENERAL CONDITIONS (continued) Requirements in Case of Loss. Claims should be investigated under a Reservation of Rights or Non-Waiver Agreement if the insured does not comply with Paragraphs J.1. through 9. VIII. GENERAL CONDITIONS (continued) Bailee Goods. No coverage. Loss Payment. The adjuster needs to be prompt in reporting the investigation, as the insurer has only 60 days from the date of receiving the insured’s Proof of Loss to pay the claim, or within 90 days after the adjuster files a report that is signed and sworn to by the insured in lieu of the Proof of Loss. If the Proof of Loss is rejected in whole or in part or a new supplemental Proof of Loss is filed, it must be submitted and received within 60 days of the date of loss. Only FEMA has the authority to waive or extend the filing deadline. Salvage. The insured has the option to keep damaged property after a flood, and the adjuster will reduce the amount of the loss proceeds payable to the insured. Appraisal. The appraisal clause is much like that in the homeowner’s policy. There is no appraisal for coverage issues. The appraisal clause applies if the insured and adjuster fail to agree on the actual cash value or replacement cost of the damaged property, whichever is appropriate. In the event that the two appraisers appointed by the insured and insurer cannot agree, they should submit only their differences to an umpire. Mortgage Clause. We will protect the interest of any listed mortgagee or any mortgagee discovered during the investigation VIII. GENERAL CONDITIONS (continued) Suit Against Us. The insured must file suit in federal court within 12 months from the date the denial letter was mailed. Subrogation. The insured’s right to recover for a loss in part or in whole for damages caused by someone else is transferred to the insurer if the loss is paid under the Standard Flood Insurance Policy. Continuous Lake Flooding. The structure must be inundated by lake water for 90 continuous days, and it must be reasonably certain that the continuation of this flooding will result in damage equal to or greater than policy limits, or the ACV or RCV, as applicable. If it is not reasonably certain that the flooding will cause a total loss, then we will pay only for the actual damage up to the waterline. (See Section VIII. of this manual, Special Adjustment Issues, for more information about continuous lake flooding.) Closed Basin Lakes. A closed basin lake is a natural lake from which water leaves primarily through evaporation, and whose surface area now exceeds or has exceeded 1 square mile at any time in the past. If an insured building is subject to continuous closed basin lake flooding, a total loss claim can be paid if lake flood waters damage or imminently threaten to damage the building and an eventual total loss appears likely. Special reporting procedures apply to ICC claims and closed basin lake claims. Notify the NFIP Bureau and Statistical Agent upon receipt of either type of claim. VIII. GENERAL CONDITIONS (continued) Duplicate Policies Not Allowed. If the insured has two policies on the same property, the insured may choose to keep either policy. However, if the insured wishes to combine coverage limits, the effective date of the policy will be that of the later of the two policies purchased. VIII. GENERAL CONDITIONS (continued) Loss Settlement. There are three methods to settle a loss under the Residential Condominium Building Association Policy: ? Replacement Cost ? Special Loss Settlement ? Actual Cash Value Replacement Cost. The insured residence must be the principal residence, meaning that, at the time of loss, the insured lived there for at least 80 percent of the preceding 365 days, or 80 percent of the period of ownership if less than 365 days. Replacement cost applies if the building is insured to 80 percent or more of its full replacement cost before a loss occurs, or if the maximum amount of insurance is purchased. Special Loss Settlement. If the residential condominium building is a manufactured (mobile) home or travel trailer, is at least 16 feet wide, and has an area of at least 600 square feet within its walls, then the loss will be settled on a Replacement Cost basis. If a single-family dwelling that is a manufactured (mobile) home or travel trailer is a total loss or is not economically feasible to repair, then the adjustment of the property will be the lesser of: ? The replacement cost of the dwelling or 1.5 times the actual cash value, or ? The building limit of liability. If we determine that the building is repairable, the loss will be settled according to the Replacement Cost conditions stated in Paragraph VIII.V.2. Actual Cash Value. The types of property that are subject to Actual Cash Value Loss Settlement are: ? The insured’s personal property ? Abandoned property that, after a loss, remains as debris at the described location ? Outside antennas and aerials, awnings, and other outdoor equipment ? Carpeting and pads ? Appliances ? A manufactured (mobile) home or travel trailer that is not at least 16 feet wide or does not have an area of at least 600 square feet within its walls IX. LIBERALIZATION CLAUSE This is similar to that in the homeowner’s policy. Liberalization with additional premium, such as ICC, does not fall into this category. The insured can choose the policy application that is most beneficial. The loss must be after the effective date of the liberalization. X. WHAT LAW GOVERNS Federal law governs. This policy is not subject to state departments of insurance or state and local courts. V-79 RCBAP V-80 Change 1, 1/1/04 RCBAP COMMENTARY V-81 RCBAP V-82 RCBAP COMMENTARY V-83 RCBAP V-84 RCBAP COMMENTARY V-85 Change 1, 1/1/04 RCBAP V-86 RCBAP COMMENTARY V-87 RCBAP V-88 RCBAP COMMENTARY V-89 Change 1, 1/1/04 RCBAP V-90 Change 1, 1/1/04 RCBAP COMMENTARY V-91 Change 1, 1/1/04 RCBAP V-92 RCBAP COMMENTARY V-93 Change 1, 1/1/04 RCBAP V-94 RCBAP COMMENTARY V-95 Change 1, 1/1/04 RCBAP V-96 RCBAP COMMENTARY V-97 Change 1, 1/1/04 RCBAP V-98 RCBAP COMMENTARY V-99 Change 1, 1/1/04 RCBAP V-100 RCBAP COMMENTARY V-101 Change 1, 1/1/04 RCBAP V-102 RCBAP COMMENTARY V-103 RCBAP V-104 RCBAP COMMENTARY V-105 RCBAP V-106 RCBAP COMMENTARY V-107 Change 1, 1/1/04 RCBAP V-108 RCBAP COMMENTARY V-109 RCBAP V-110 RCBAP COMMENTARY V-111 RCBAP V-112 RCBAP COMMENTARY V-113 Change 1, 1/1/04 RCBAP V-114 Change 1, 1/1/04 RCBAP COMMENTARY V-115 VI. INCREASED COST OF COMPLIANCE (ICC) A. PRINCIPAL FEATURES OF ICC COVERAGE The limit of liability for Increased Cost of Compliance (ICC) coverage was raised to $30,000 on May 1, 2003. Any flood loss incurred prior to May 2003 will be adjusted according to the previous limit of $20,000. When a building covered by a Standard Flood Insurance Policy (SFIP) sustains “repetitive losses” (see Subsection VI.C.3.b., following) or “substantial damage” (see Subsection VI.C.4.) caused by a flood, the NFIP will pay up to $20,000 for losses sustained prior to May 1, 2003, and up to $30,000 for losses sustained on or after May 1, 2003, for the cost to elevate, floodproof (for nonresidential buildings only), demolish, or relocate the building, or any combination thereof, when any of these actions is undertaken to comply with the enforcement of state or local floodplain management laws or ordinances. ICC coverage is available on residential and nonresidential buildings (this category includes public and government buildings, such as schools, libraries, and municipal buildings) insured under the SFIP. The National Flood Insurance Reform Act of 1994 authorizes ICC coverage only for flood- damaged buildings. Therefore, ICC coverage does not pay for the increased cost of repairing or altering buildings damaged by wind, fire, earthquake, or other perils. ICC coverage was included as Coverage D in every SFIP written or renewed on and after June 1, 1997. The premium charged for ICC coverage varies depending on the type of building, whether the building is Pre-FIRM or Post-FIRM, the flood zone, and other factors. The maximum amount collectible under the SFIP for both the ICC payment and the direct loss payment for flood cannot be greater that the maximum limits of coverage for that class of buildings authorized under the National Flood Insurance Act of 1968, as amended. The statutory limits of flood insurance building coverage are $250,000 for most residential buildings and $500,000 for nonresidential buildings. For a residential condominium building, the statutory limit of flood insurance building coverage is $250,000 times the number of insured units. B. COVERAGE QUESTIONS AND ANSWERS 1. Does ICC coverage extend beyond the building itself? No. ICC coverage is provided only on the building covered by an SFIP. Under the SFIP, a “building” is defined as a walled and roofed structure, other than a gas or liquid storage tank, that is principally above ground and affixed to a permanent site. Land, land values, lawns, trees, shrubs, plants, and growing crops are not covered. In addition, items such as portions of walks, walkways, decks, driveways, patios, and other surfaces located outside the perimeter exterior walls of the insured building or units are not covered. 2. Is ICC coverage available for appurtenant (accessory) buildings? Yes. ICC coverage is available for an appurtenant (accessory) building but only when a separate flood insurance policy is written on the appurtenant building. An appurtenant structure is one on the same parcel of property as the principal structure and the use of which is incidental to the use of the principal structure. The SFIP does not provide coverage for direct physical loss from flood for an appurtenant structure except in the Dwelling Form. The Dwelling Form extends coverage for direct physical loss from flood to a detached garage located on the premises of a one- to four-family dwelling. However, ICC coverage does not apply to these or any other appurtenant buildings indicated in the “Exclusions” section of the ICC coverage. Therefore, a separate flood insurance policy must be written on any appurtenant structure to obtain ICC coverage. 3. What buildings have ICC coverage? All buildings in Regular Program communities have ICC coverage except the following: a. Buildings insured under the Group Flood Insurance Policy, which covers recipients awarded an Individual and Family Grant for flood damage under §411 of the Stafford Act (42 U.S.C. § 5178) as a result of a Presidential major disaster declaration. b. Units insured under a condominium unit owner policy. Buildings located in communities participating in the Emergency Program do not have ICC coverage. C. ELIGIBILITY QUESTIONS AND ANSWERS 1. When is an insured building eligible for an ICC claim payment? An insured building is eligible for an ICC claim payment when a new SFIP is issued or upon the renewal of an SFIP on or after June 1, 1997. Canceling a policy to obtain ICC coverage is prohibited. 2. Will an ICC claim be paid on a building that is less than 50 percent damaged but must comply with a state or community floodplain management law or ordinance that has a substantial damage threshold below 50 percent of the market value of the building? No. Buildings must be damaged by flood to at least 50 percent of market value in order to be eligible for an ICC claim payment. The National Flood Insurance Reform Act of 1994 established the threshold at “50 percent of the value of the structure at the time of the flood event.” Because the term “substantial damage” is already defined in the NFIP Floodplain Management Regulations (at 44 CFR 59.1) and is consistent with the 1994 Act, this definition is used to determine eligibility for a claim payment under ICC coverage. 3. What conditions must be met for a repetitively damaged building to be eligible for an ICC claim payment? A building is eligible for an ICC claim payment for repetitive damage if it is in an SFHA (A and V zones), is a repetitive loss structure, and is subject to state or community floodplain management laws or ordinances. There are two additional conditions that must be met in order for an ICC claim to be paid under the SFIP for a repetitive loss structure. a. The state or community must have adopted and be currently enforcing a repetitive loss provision or a cumulative substantial damage provision requiring action by the property owner to comply with the state or community floodplain management laws or ordinances. States and communities are not required to adopt a repetitive loss provision. Adoption of a cumulative substantial damage provision or a repetitive loss provision is voluntary. In the event that a state or community adopts a repetitive loss provision or a cumulative substantial damage provision, this provision must be enforced on all buildings in the community irrespective of whether the buildings are covered by flood insurance. b. The building must have a history of NFIP claim payments that satisfies the National Flood Insurance Reform Act of 1994 definition of a “repetitive loss structure”: “a building covered by a contract for flood insurance that has incurred flood-related damages on 2 occasions during a 10-year period ending on the date of the event for which a second claim is made, in which the cost of repairing the flood damage, on the average, equaled or exceeded 25% of the market value of the building at the time of each such flood event.” The date on which the first loss occurred, even if the loss occurred before June 1, 1997, is immaterial as to eligibility for an ICC claim payment, so long as the state or community enforced a repetitive loss or cumulative substantial damage requirement and the loss occurred within the 10-year period and the insured building satisfies the definition of “repetitive loss structure” under the National Flood Insurance Reform Act of 1994. 4. What conditions must be met for a substantially damaged building to be eligible for an ICC claim payment? A building is eligible for an ICC claim payment for substantial damage if the community determines that it has been damaged by flood and the cost of restoring the building to its before-damaged condition would equal or exceed 50 percent of the market value of the building before damage occurred. The NFIP requirement to bring substantially damaged buildings into compliance, though necessary to reduce flood damages, can create financial hardships for property owners at a time that they can least afford it. ICC coverage provides an important source of financial assistance that helps property owners pay for most and in some cases all of the costs of complying with state or community floodplain management laws or ordinances pertaining to substantially damaged buildings. All states and communities participating in the NFIP must have a substantial damage provision in their floodplain management laws or ordinances in accordance with the minimum NFIP criteria at 44 CFR 59.1 and 60.3. As defined in the NFIP Floodplain Management Regulations at 44 CFR 59.1, substantial damage is deemed to have occurred when: “damage of any origin is sustained by a building whereby the cost of restoring the building to its before damaged condition would equal or exceed 50 percent of the market value of the building before the damage occurred.” The NFIP substantial damage definition applies to building damage from any origin, such as fire, wind, earthquake, etc. In cases where the damage is due to a combination of hazards, such as wind and flood, an ICC claim is paid only when the flood component of the damage equals or exceeds 50 percent of the market value of the building. In order for a payment to be made under ICC, the claim representative must verify that the damage was caused solely by flood or that the cost to repair the flood component of the damage to the building equals or exceeds 50 percent of the market value of the building. 5. Can the date when the property was declared substantially damaged serve as the date of loss for an ICC claim? The 2-year limit for completing an ICC claim begins on the date of the declaration by the local community official that the insured structure has been substantially damaged by flood. This means that the 2-year period referenced in SFIP paragraph 5.e.(2) begins on the date of loss. D. CLAIMS ADJUSTMENT QUESTIONS AND ANSWERS 1. What is the process for adjusting a claim under ICC coverage? When a flood event has occurred, an adjuster is assigned to adjust the direct physical damages. The adjuster advises the policyholder of ICC coverage in the SFIP if it appears that damages may exceed 50 percent of the value of the structure and the building is in an SFHA. Because ICC claims are paid only when the property owner is required to rebuild in compliance with a community’s substantial damage or repetitive loss provision, a determination must be made by the community whether the flood damages to the building result in substantial damage or repetitive loss that requires compliance with state or community floodplain management laws or ordinances. The adjuster must obtain the substantial damage or repetitive loss determination in writing before adjusting the ICC claim. The policyholder and the community should discuss the floodplain management requirements and the mitigation options (elevation, floodproofing, demolition, or relocation of the building, or any combination of these) once a determination by the community has been made. Once a determination has been made by the community that the building has been substantially or repetitively damaged by flooding, the policyholder notifies the insurer of the determination. The adjuster advises the property owner that a signed construction contract, an itemized cost breakdown of the work, and a start and completion date for the work will be needed. Once the policyholder has notified the adjuster of the substantial damage or repetitive loss determination, the insurer creates a claim file. The adjuster must obtain information from the community regarding the community’s substantial damage or repetitive loss determination. The adjuster uses this information to confirm that the flood-related damage for the current building claim (and prior claim, if it is a repetitive loss structure) supports the community’s substantial damage or repetitive loss determination. In addition, the adjuster will verify whether the claim meets all other eligibility requirements for payment under ICC coverage. The adjuster confirms that the damage met requirements for making an ICC claim payment and that the policyholder has provided a signed contract and three itemized cost estimates for the mitigation measure. The adjuster provides the policyholder with the ICC Proof of Loss form. The adjuster also explains to the policyholder how payments will be made and advises the policyholder that, if the mitigation measure is not completed, any payments under the ICC claim must be returned to the insurer. In addition, the adjuster advises the policyholder that a permit issued by the community to undertake the work will be needed prior to making the initial ICC claim payment. For buildings that are to be elevated or floodproofed in SFHAs, the permit must indicate the level of protection to which the building is to be elevated or floodproofed. After the ICC Proof of Loss form and a permit from the community have been returned to the adjuster, the adjuster advises the property owner that the initial payment toward the ICC claim will be issued by the company. When the mitigation measure is completed, the adjuster obtains a copy of the certificate of occupancy, letter, or written official notice from the community that the mitigation measure has been satisfactorily completed and that no variance was granted. The claim representative pays the final ICC claim payment after all documentation of satisfactory completion has been submitted. 2. Can partial payment be issued on an ICC claim? Paragraph 5.e. of SFIP Coverage D – Increased Cost of Compliance provides that an ICC claim cannot be paid (1) until the building is elevated, floodproofed, demolished, or relocated on the same or to another premises, and (2) unless the building is elevated, flood proofed, demolished, or relocated as soon as reasonably possible after the loss, not to exceed 2 years. The question has arisen as to whether this provision precludes the issuance of partial payments for ICC claims. The two conditions in SFIP paragraph 5.e. refer to the total payment of an ICC claim, which means partial payments are permitted. Partial payments may be issued in advance of completion of the mitigation activity but cannot exceed 50 percent of the total estimated reimbursable cost of the mitigation activity. 3. What does “assignment of Coverage D” mean? What is the process involved? If a community plans to pursue a FEMA-approved mitigation project, such as a project under the Hazard Mitigation Grant Program, the policyholder can assign the eligible portion of the Coverage D (ICC) claim to the community. The insured must complete the Assignment of Coverage D form and return it to the community official. The community official will submit a copy of the form and a written Declaration of Substantial Damage to the NFIP Bureau and Statistical Agent. The Bureau and Statistical Agent will enter the data into a tracking system and send both documents to the insurer, with instructions. Specific steps for assignment of the ICC claim benefit to the community are itemized below. a. Policyholder consents to assignment of the ICC claim payment. b. Community official provides the policyholder with an Assignment of Coverage D form. c. Policyholder completes the form and returns it to the community official. d. Community official sends a copy of the form, along with the community’s signed Declaration of Substantial Damage, to the NFIP Bureau and Statistical Agent at the following address: NFIP Bureau and Statistical Agent PO Box 310 Lanham MD 20706 e. Bureau and Statistical Agent enters the ICC information submitted by the community into a database. The Bureau then sends the documents to the appropriate WYO company, with instructions. The company assigns an adjuster. f. Assigned adjuster contacts the policyholder to confirm receipt of the claim, then contacts the community official to help coordinate the claim. g. Adjuster reviews the contract for demolition, elevation, relocation, or floodproofing to determine the cost. h. Adjuster has the community official sign the ICC Proof of Loss form once the claim value has been determined. i. Adjuster sends the NFIP Final Report form and the Proof of Loss to the insurance company for payment. j. Insurance company issues the check to the community and advises the NFIP Bureau and Statistical Agent of the amount of the claim payment. E. OTHER FREQUENTLY ASKED QUESTIONS AND ANSWERS 1. When an estimate for demolition of a dwelling includes the cost to demolish the garage, is coverage for the garage provided under ICC? The cost to demolish the home is covered. If the garage is detached, then coverage will not apply. The garage should have its own policy. 2. Is ICC coverage provided for the slab, walkway, and driveway? Coverage is afforded for the slab. However, there is no coverage for the walkway and driveway. 3. Fill dirt is required to stabilize the lot. Is this covered under ICC? If the cost is to grade the lot, then coverage will apply. The Interim Guidance for ICC – Part 4, Demolition, paragraph 2, states “Once the building is removed from the site, steps should be taken to clear the site of any remaining materials such as the foundation, remove any utility systems, and grade and stabilize the site in accordance with any State or local regulations.” 4. If the lot is littered with trash such as tires, cans, etc., will this be considered ICC- covered debris? No coverage applies. 5. The SFIP excludes coverage for septic systems. If the building is demolished under ICC, will the cost to remove the septic system be covered? Yes. First, all applicable permits to demolish the building must be obtained. Once the building is removed from the site, steps should be taken to clear the site of any remaining materials such as the foundation, remove any utility systems, and grade and stabilize the site in accordance with any State or local regulations. 6. Are well water plugs covered under ICC? If the well water plug is part of the abandonment of on-site utilities, the coverage will be afforded. 7. What conditions must be met for a substantially damaged building to be eligible for an ICC claim payment, and how is the date of loss determined? A building is eligible for an ICC claim payment if it is in a Special Flood Hazard Area, and the community determines that the building has been damaged by flood to such an extent that the cost of restoring the building to its pre-damage condition would equal or exceed 50 percent of its pre-damage market value. Therefore, the date of loss for an ICC claim is the date on which the community declares or submits a notification that the building has been substantially damaged by flood. 8. A flood claim was processed in accordance with the policy provisions. In the interim, the policy expired and was not renewed. The community then declared the building substantially damaged by flood. Will an ICC claim be honored even though the policy expired? No. The substantial damage declaration or notification triggers the date of loss for the ICC claim. VII. BASIC ADJUSTMENT ISSUES A. ACTUAL CASH VALUE (ACV) The NFIP defines ACV as the replacement cost of an insured item at the time of loss, less the value of physical depreciation. B. ADDITIONS AND EXTENSIONS Buildings that are connected by a rigid exterior wall, a solid load-bearing interior wall, a stairway, an elevated walkway, or a roof can be insured as part of the dwelling. Effective December 31, 2000, the insured has the option of obtaining separate coverage for these building items. Prior to this date, the additions and extensions were considered part of the building and had to be covered as such. C. DEPRECIATION To accurately determine the ACV of an item, the adjuster must consider the replacement cost along with the depreciation, as well as the average useful life of the item. The condition of the item prior to loss must also be considered. The NFIP will not accept lump-sum depreciation figures. Replacement costs on contents items need to be checked more carefully and verified when they appear high. 1. Building Depreciation If an adjuster is removing and replacing a building item that is not new, appropriate depreciation must be applied. 2. Contents Depreciation Contents depreciation must be line by line and item by item. Each item is considered on its own merit. Things to consider include replacement cost of the item, age of the item, and condition of the item prior to the flood. D. EVIDENCE OF LOSS 1. Insured’s Responsibilities The insured’s responsibilities in the event of loss (which adjusters should remind the policyholder of) are as follows: a. Immediately notify the agent or the company of the flood loss. b. As soon as reasonably possible, separate the damaged and undamaged property, putting it in the best possible order so that the adjuster can examine it and properly substantiate the loss c. Place all account books, financial records, receipts, and other loss verification material in a safe place for examination and evaluation by the adjuster. d. Within 60 days after the loss, submit an NFIP Proof of Loss form to the WYO company or the NFIP Servicing Agent. 2. Adjuster’s Responsibilities The adjuster’s responsibilities in the event of a loss are as follows: a. Determine whether there was a general condition of flooding as defined by the policy. b. Determine how the water entered the building. c. Check for exterior and interior waterlines and provide the height of each in the report as well as photographs. d. Investigate and document all other evidence of loss. E. IMPROVEMENTS AND BETTERMENTS If the insured is a tenant and has personal property coverage (Coverage B) under the Dwelling Form, the coverage extends to the insured’s cooking stove, range, and refrigerator. Also, improvements made or acquired solely at the insured’s expense are covered for up to 10 percent of the limit of liability for personal property. Improvements do not include cooking stoves, ranges, or refrigerators. F. NON-WAIVER AGREEMENT When the adjuster identifies a problem that could affect coverage or result in denial, a non- waiver agreement must be secured from the insured. Failure to secure a non-waiver agreement might hinder the company from denial of claim when denial would be in order. Examples of circumstances that require a non-waiver agreement include the following: 1. The policy has lapsed in coverage. 2. By action of the insured, the policy has become void. 3. More than one building is on a policy (except when scheduled), or there is more than one building at the property address. (Blanket coverage is not provided under the SFIP.) 4. The address of the risk is different from that listed on the policy. 5. The insured has not complied with the policy requirements. 6. Possibility of fraud. 7. Late reporting. 8. Any other situation for which the adjuster believes that a non-waiver agreement is needed G. OTHER INSURANCE CLAUSE 1. Introduction Where there is another flood insurance policy in addition to the Dwelling Form, General Property Form, or Residential Condominium Building Association Policy, and the other policy has a provision stating that it is excess insurance, and the SFIP policy limits do not equal the maximum amount available, the SFIP will pay the proportion of the loss that the amount of SFIP insurance purchased bears to the maximum amount of SFIP insurance available. When the proportion for a large loss exceeds SFIP limits plus the deductible, the SFIP limit is paid. If there is other insurance in the name of a condominium association covering the same property covered by the SFIP, the SFIP is excess over the other insurance. 2. Examples a. Where there is another insurance policy in addition to the SFIP and the other policy has a provision stating it is excess insurance, the SFIP will be primary. Loss: $ 35,000 SFIP Coverage $ 50,000 Deductible $ 1,000 Other Insurance $250,000 Deductible $50,000 The SFIP is primary and the other insurance is excess. The NFIP will pay $35,000 loss minus the $1,000 deductible. b. For any other flood insurance policy, the SFIP will be primary (subject to its own deductible) up to the deductible in the other flood policy. When the other deductible amount is reached, the SFIP will pro-rate for the remainder of the loss. Loss: $480,000 SFIP Coverage $250,000 Deductible $ 5,000 Other Insurance $500,000 Deductible $15,000 The SFIP is primary up to $15,000 of the loss. The SFIP $5,000 deductible will be deducted from the amount for which the SFIP is primary. In this case, the result of the calculation is $10,000. We will pro-rate the loss that exceeds the amount for which the SFIP is primary ($15,000). The other insurance equation will be used to pro-rate the remainder of the loss (i.e., $480,000 - $15,000 = $465,000). SFIP Coverage $250,000/$750,000 = .3333 x $465,000 = $154,984.50 Other Insurance $500,000/$750,000 = .6667 x $465,000 = $310,015.50 SFIP Pays $154,984.50 + $10,000 = $164,984.50 Total $475,000.00 c. The limit of liability under the Residential Condominium Building Association Policy (RCBAP) depends on coinsurance by the insured. Value of Building $1,500,000 Other Insurance $1,000,000 Deductible $200,000 SFIP Coverage $ 500,000 Deductible $ 5,000 Insurance Required $1,200,000 (80% of $1,500,000) Loss $ 625,000 Calculation of the coinsurance formula is as follows: $500,000 = .4167 x $625,000 = $260,437.50 $1,200,000 $260,437.50 is the RCBAP limit of liability. The RCBAP will pay the primary share, $200,000 - $5,000 = $195,000. We will pro-rate $500,000 = .3333 x $425,000 = $141,652.50. $1,500,000 The RCBAP will not pay $336,652.50 ($195,000 + $141,652.50) but will pay up to $260,437.50, which is its limit of liability under the coinsurance clause. If the loss exceeds the combined policy limits, the RCBAP deductible will disappear. H. OVERHEAD AND PROFIT The overhead and profit percentage must be applied to the depreciation total and reflected in the ACV loss figure. Overhead and profit is not applied to the following items: 1. Carpeting 2. Insured’s own labor 3. Outside service charges such as plumber, electrician, or appliance service calls 4. Repairs made by the insured (However, an allowance can be made for the insured’s time and expense in purchasing materials, not to exceed 10 percent.) Overhead and profit is warranted only if a general contractor has been hired to make repairs. The adjuster must document the general contractor’s involvement. The NFIP Servicing Agent or the WYO company has the option of withholding the overhead and profit until the repairs are completed or until a contract is signed. I. POLLUTION DAMAGE The SFIP covers direct physical loss by or from flood. Therefore, when flood waters contain pollutants or cause release of pollutants, the cleanup, repair, and mitigation costs associated with pollutants are covered under the General Property Form up to $10,000 J. PROOF OF LOSS REQUIREMENTS AND WAIVER The NFIP Proof of Loss form is required on all advance payments, as well as on any paid claim. However, the Proof of Loss may be waived on claims under $7,500. When a Proof of Loss is waived, the insured’s signature must be obtained on the NFIP Final Report form after the loss and the claim have been determined. A copy of the signed Final Report must be left with the insured. In the absence of a local witness, the adjuster may witness the form. If the loss is over $7,500, the Final Report must still be completed and a Proof of Loss must be obtained. Two forms are used for documenting losses. The Proof of Loss form is used for actual cash value claims. The Statement as to Full Cost of Repair or Replacement is used for replacement cost claims. K. REPAIR VS. REPLACEMENT This is an area where adjuster improvement is needed. Everything that becomes wet is not necessarily a total loss. In these instances, the expertise of the adjuster is essential. Consideration must be given to the type of floodwaters involved (clear, muddy, fresh, salt, contaminated) and to the length of time the water remained in the building. Many buildings and contents items will respond to cleaning and need not be replaced. Some examples of “repair vs. replacement” are presented below. 1. Appliances Always consider having the item checked and serviced rather than replaced. Even if a service technician states that the appliance will break down in the future, do not total the unit out if it is working. Advise the insured that a supplemental claim can be presented within a reasonable period of time (30-60 days) if the insured can prove that the flood caused the breakdown. 2. Furniture Refinish, rather than replace, when possible. On reinspections conducted weeks and months after losses, NFIP General Adjusters have discovered appliances and furniture that were still being used after they had been declared total losses in the adjustment. The SFIP provides up to three loss settlement methods, depending on the policy form under which the risk is insured. See Dwelling Form and General Property Form VII.V. Loss Settlement and RCBAP VIII.V. Loss Settlement. L. REPLACEMENT COST COVERAGE (RCC) For single-family residences, including doublewide manufactured (mobile) homes, RCC is applicable only to building coverage. Under the Residential Condominium Building Association Policy, a coinsurance clause requires the condominium association to insure its building to at least 80 percent of the replacement cost value, in order to avoid suffering uninsured losses and charging assessments to members M. RESERVATION OF RIGHTS LETTER A Reservation of Rights letter from the insurer to the insured is a notice that, even though the company is investigating the claim, certain losses might not be covered by the SFIP. By means of this letter, the company reserves its legal right to deny coverage later, as additional information about the loss becomes available. N. RESERVES The reserving system mandates that reports must be timely and reflect true reserves. After the NFIP Preliminary Report, each subsequent report must address reserves. Separate reserves must be established on building and contents. Any partial payment must be included in the indicated reserve. For example, if a loss is estimated at $20,000 total, and a $5,000 partial payment is being made, the reserves are $20,000, not $15,000. O. SALVAGE On residential and small mercantile losses, adequate salvage credit is taken when the insured retains possession of totally damaged items. The contents inventory must specifically denote those items that have been considered salvageable and left with the insured. An approved professional salvor must be used to handle items of significant value. Salvage on large commercial losses must be promptly identified and inventoried by an approved professional salvor. Salvage agreements are executed in all cases where the stock has been taken over by a salvage company. Permission to secure the services of a salvor must be authorized by the WYO company or NFIP Servicing Agent. P. SELF-PROPELLED VEHICLES Coverage is provided for self-propelled vehicles that service the described location and for self- propelled vehicles used to assist handicapped persons, so long as the vehicles are inside the building at the described location. Q. SPECIAL LOSS SETTLEMENT Replacement cost applies to manufactured (mobile) homes or travel trailers if the dwelling is at least 16 feet wide and has an area of at least 600 square feet within its walls. The structure must also be the principal residence. If a single-family dwelling that is a manufactured (mobile) home or travel trailer and that qualifies for replacement cost is a total loss or is not economically feasible to repair, then the adjustment of the property will be the lesser of: 1. The replacement cost of the dwelling or 1.5 times the actual cash value, or 2. The building limit of liability. Loss Settlement paragraph 1.a.(2) does not apply to manufactured (mobile) homes or travel trailers under Special Loss Settlement. Only manufactured (mobile) homes and travel trailers as described in paragraphs 3.a.(2) and (3) qualify for Special Loss Settlement. All other manufactured (mobile) homes and travel trailers require Actual Cash Value Loss Settlement. If we determine that the building is repairable, the loss will be settled according to the replacement cost conditions stated in Dwelling Form VII.V.2. and RCBAP VIII.V.2. R. SUBROGATION The identification of subrogation lies initially with the adjuster assigned to the flood loss and, ultimately, with the claims representative responsible for the file. The adjuster must identify on the NFIP Preliminary Report, in the “Origin” section, the cause of loss, whether the loss was associated with failure of a dam, pumps, storm drain system, or other flood control measure, and whether a non-natural cause contributed to the loss. The Cause of Loss and Subrogation Report then must be completed. VIII. SPECIAL ADJUSTMENT ISSUES A. AIR CONDITIONING CONDENSERS AND SOLAR HEATING ELEMENTS Building coverage extends to the insured building and additions and extensions attached to and in contact with it by means of a common wall. Air conditioning condensers and solar heating panels are considered building property even if they are located apart from the structure and are not attached in accordance with the policy definition. Condensers are eligible for replacement cost coverage if the structures they service are eligible for it. B. BAILEE GOODS Customer property held by commercial bailees, such as shoe repair shops, dry cleaners, laundries, and consignment shops, are not covered by the bailee’s Standard Flood Insurance Policy (SFIP) for personal property. Only personal property owned solely by the insured is covered by the General Property Form. The bailor can take out a separate flood policy for his property while located at the bailee’s location, provided the property location is that of the bailee. There is no coverage for property such as the neighbor’s lawn mower or the cable box under the Dwelling Form. C. BOATHOUSES: COVERAGE FOR NON-BOATHOUSE PARTS OF BUILDING INTO WHICH BOATS ARE FLOATED FEMA has determined that non-boathouse parts of a building into which boats are floated are not excluded from coverage. This means that, with respect to a building, a part of which is used for boathouse purposes and a part of which is used for other than boathouse purposes (e.g., residential, commercial, or municipal), non-covered items are limited to the following: 1. The ceiling and roof over the boathouse portion of the building into which boats are floated (unless there is an area above the boathouse used for purposes unrelated to the boathouse use, e.g., residential, in which case the upper area is covered, from the floor joists to and including the upper area walls and roof) 2. Floors, walkways, etc., within the boathouse area, or outside the area but pertaining to the boathouse use 3. Exterior walls and doors of the boathouse area not common to the rest of the building 4. Interior walls and coverings within the boathouse area (although a common wall between the boathouse area and the other part of the building is covered) 5. Contents located with the boathouse area, including furnishings and equipment, relating to the operation and storage of boats and other boathouse uses. However, when the building is entirely in, on, or over water, there is no coverage at all if it was constructed or substantially improved after September 30, 1982. D. CARPETING AND DRAPES Carpeting is considered building property if it is installed over an unfinished floor surface. Carpeting over finished floors is considered personal property (contents), even if it is wall to wall or permanently affixed to the floor. All carpet losses, whether building property coverage or personal property coverage, are adjusted on an ACV basis. When a carpet loss is paid, overhead and profit is not allowed, unless a general contractor is responsible for installation. Drapes are always treated as contents items, even if they are custom-made and fit only a specific window. However, window blinds of all kinds are considered building property. (See Dwelling Form III.A.7.) E. CISTERNS In certain communities, especially in the Virgin Islands, cisterns are fundamental parts of residential buildings. These are often the only source for storing water. Methods of construction of cisterns include beneath the structure, on the roof, above ground and physically attached to a side of a structure by a common wall, or as a separate unit detached from the structure. The SFIP provides coverage only if the cistern is an integral part of the insured building, such as above ground and connected by a common wall, on the roof, or within the perimeter walls. There is no coverage if the cistern is under ground unless it is contained in the basement. If the cistern is covered by the SFIP, the water in it also is covered. F. CLOSED BASIN LAKES AND CONTINUOUS LAKE FLOODING 1. Closed Basin Lakes A closed basin lake is a natural lake from which water leaves primarily through evaporation and whose surface area now exceeds or has exceeded 1 square mile at any time in the past. If an insured building is subject to closed basin lake flooding, a total loss claim can be paid if lake flood waters damage or imminently threaten to damage the building and an eventual total loss appears likely. 2. Continuous Lake Flooding In a few areas of the United States, lake waters have risen to long-term record levels. Devil’s Lake, North Dakota, is a primary example of this condition. The insured building must be inundated by rising lake waters continuously for 90 days or more, and it must appear reasonably certain that the loss and damage will reach or exceed the policy building limits including the deductible, or the maximum amount payable under the policy for any one building loss. The current position of the National Flood Insurance Program (NFIP) is that occurrences of long-term, continuous lake flooding, loss, and damage to property will be settled on a one-time basis by paying the lesser of the two amounts mentioned above, if the insured signs a release agreeing to the following: a. To make no further claim under the SFIP b. Not to seek renewal of the polic c. Not to apply for any NFIP flood insurance for the property at the property location of the insured building G. COASTAL BARRIER RESOURCES SYSTEM (CBRS) 1. Introduction To determine whether a building (the insurable property) is eligible for flood insurance coverage when the building appears to be located in a Coastal Barrier Resources System (CBRS) area, the adjuster should consult the community’s Flood Insurance Rate Map (FIRM) panel or a community code office (for example, the Tax Assessor’s Office or the Building and Zoning Office) to determine which coastal barriers act applies to the property in question. In CBRS areas, eligibility for flood insurance coverage depends on this determination. (See IV. Property Not Covered, 15. in the SFIP.) When handling any claim that may be in a CBRS area, the adjuster should: a. Identify the location of the risk on the FIRM; b. Determine when the risk was constructed; c. Comment on substantial improvement; and d. Provide photographs of all sides of the risk. If any building you are adjusting appears to be subject to one of the laws discussed below, write a brief summary of your findings on the NFIP Narrative Report form and send it to the NFIP Servicing Agent or the WYO company for the claims examiners to evaluate. 2. Coastal Barrier Resources Act Congress passed the Coastal Barrier Resources Act (CBRA) on October 1, 1982. The act became effective on October 1, 1983. Congress’s intent was to reduce or restrict the federal government’s direct involvement in encouraging development of certain undeveloped “coastal barriers.” The act defined a coastal barrier as “a naturally occurring island, sandbar, or other strip of land, including coastal mainland, that protects the coast from severe wave wash.” CBRA does not prohibit development of designated undeveloped coastal barrier islands; nor does it affect private funding or investment for development of such areas. Instead, the act attempts to eliminate the use of “federal funds” (specifically, loans) for such development. Under the terms of the act, FEMA is prohibited from providing NFIP flood insurance protection for structures built or substantially improved after October 1, 1983, in any area designated an undeveloped coastal barrier. However, structures in such areas that were built (walled and roofed) before October 1, 1983, remain eligible for coverage until such time as they are substantially damaged or substantially improved. 3. Coastal Barrier Improvement Act The Coastal Barrier Improvement Act (CBIA) was enacted and made effective on November 16, 1990. The CBIA greatly expanded the identified land in the Coastal Barrier Resources System established pursuant to the CBRA of 1982. 4. Substantial Improvement: The 50 Percent Rule Substantial improvement, as defined in public law (44 Code of Federal Regulations 59.1) means: “any reconstruction, rehabilitation, addition, or other improvement of a structure, the cost of which requires or exceeds 50 percent of the market value of the structure before the ‘start of construction’ of the improvement. This term includes structures which have incurred ‘substantial damage,’ regardless of the value of or actual cost of repair work performed. The term does not, however, include either (1) any project for improvement of a structure to correct existing violations of state or local health, sanitary, or safety code specifications which have been identified by the local code enforcement official and which are the minimum necessary to assure safe living conditions or (2) any alterations of a ‘historical structure,’ provided that the alteration will not preclude the structure’s continued designation as a historical structure.” In other words, if the damage or improvement equals 50 percent of the market value of the structure before damage, the insured building could be considered substantially damaged. If any building you are adjusting appears to be subject to the 50 percent rule, write a brief summary of your findings on the NFIP Narrative Report form and send it to the NFIP Servicing Agent or the WYO company for the underwriters to evaluate. In your report, use the replacement cost of the building less fair depreciation to obtain actual cash value (market value). Land values and outside improvements are not considered in the determination of market value. The community that has jurisdiction over the area is the only authority that can make the final determination as to substantial improvement or substantial damage. H. COMMERCIAL LOSSES When you encounter an unusual commodity or type of business, with which you are not familiar, notify the examiner or claims management immediately for assistance and guidance. On commercial stock losses, substantiation as to quantity and the insured’s cost must be obtained. Adjusters should not assume that all stock and business property on the premises is owned by the insured. The adjuster must verify ownership, especially for manufacturing, repairing, and high-end sales businesses. The SFIP insures only property owned solely by the insured. There is no bailee, consignment, or floor plan coverage. The SFIP does not provide coverage for property of others in the care, custody, and control of the insured under any policy form. On larger losses, the use of a CPA is encouraged. I. CONDEMNATION OF PROPERTY Communities may condemn flood-damaged properties as the result of ordinance enforcement or for loss mitigation. The SFIP covers only direct physical damage caused by flood and not loss of use or access. A flood claim for a structure with less than total damage but not repairable due to a condemnation order or ordinance receives coverage only for the direct physical loss by or from flood. J. CONSTRUCTIVE TOTAL LOSS Sometimes, when a flood-damaged building is less than a total loss, the insured will ask to be paid on the basis that a constructive total loss has occurred, so as to use the loss proceeds to move the insured building away from the peril of flood. FEMA has concluded that the SFIP does not and should not provide for such payments, unless Increased Cost of Compliance coverage applies. K. DECKS Since 1994, the SFIP has specifically excluded coverage for decks. However, stairways and staircases are still covered, if they are attached directly to the insured building. We also cover stairways or staircases attached to decks or walkways for the purpose of ingress and egress. If there are two staircases attached to the same deck or walkway, then there is coverage for only one of the staircases. The SFIP allows for payment of steps and a landing. The maximum allowable area is 16 square feet. L. ELEVATED BUILDINGS 1. Coverage Restrictions An “elevated building” is defined as a non-basement building in which the lowest elevated floor is raised above ground level by foundation walls, shear walls, posts, piers, pilings, or columns. Post-FIRM elevated buildings in certain SFHAs are subject to coverage restrictions specified in the Standard Flood Insurance Policy. A manufactured (mobile) home may be an elevated building. Some confusion has been reported about the applicability of the elevated building coverage restrictions to a non-elevated Post-FIRM building located in an SFHA and constructed with its lowest floor below the Base Flood Elevation. Such a building is not subject to the elevated building coverage restrictions. The rating of any structure must be based on the correct elevation difference between the lowest floor and the Base Flood Elevation. Any policy found to be misrated must be corrected before a claim can be paid. The restrictions apply only to Post-FIRM, Regular Program, elevated buildings in Zones A1-A30, AE, AH, AR, AR/A, AR/AE, AR/AH, AR/A1-A30, V1-V30, or VE. “Post-FIRM” means that a building was constructed or substantially improved on or after the community’s initial FIRM date or after December 31, 1974, whichever is later. The coverage restrictions apply to any area of an elevated building that is lower than the lowest elevated floor. Coverage will respond for the building and personal property items listed in the policy, provided that these items are connected to a power source and installed in their functioning locations and that the insured has purchased appropriate coverage. 2. Coverage for Garages and Contents a. Attached Garage If a building is elevated and has an attached garage with a floor lower than the lowest elevated floor, the coverage restrictions apply to that area. Any contents located above the level of the lowest elevated floor (as hanging from the ceiling or on the garage walls) are covered. b. Detached Garage If a building is elevated and has a detached garage with a floor lower than the lowest elevated floor, the garage is fully covered. Also, contents inside the garage are covered, subject to all other policy provisions (such as the requirement that they be secured against flotation if the structure is not fully enclosed). The General Property Form and RCBAP do not provide coverage for appurtenant private structures. Coverage for a detached garage responds only on one- to four-family residential buildings insured under the Dwelling Form. The insured may elect to apply 10 percent of the building coverage for an appurtenant private structure. This is not an additional amount of insurance. As indicated in the “Exclusions” section of the ICC coverage (Coverage D), ICC coverage does not apply to a detached garage or any other appurtenant buildings. To obtain ICC coverage on an appurtenant structure, a separate flood insurance policy must be written. For example, a detached garage that has been converted and contains a separate room such as a play room, home workshop, laundry room, workout room, or bathroom receives no ICC coverage unless it is insured under a separate policy. 3. Coverage for Building Property in a Building Enclosure below the Lowest Elevated Floor or in a Basement Paragraph III.A.8. of the SFIP provides coverage for certain items of building property (and related clean-up) in an enclosure below the lowest elevated floor of an elevated Post-FIRM building in any of Zones A1-A30, AE, AH, AR, AR/A, AR/AE, AR/AH, AR/A1-A30, V1-V30, or VE, or in a basement regardless of zone. Coverage is limited to: a. Clean-up expenses b. Any of the following items, if installed in their functioning locations and, if necessary for operation, connected to a power source: ? Central air conditioners ? Cisterns and the water in the ? Drywall for walls and ceilings in a basement and the cost of labor to nail it, unfinished and unfloated and not taped, to the framing ? Electrical junction and circuit breaker boxes ? Electrical outlets and switches ? Elevators, dumbwaiters, and related equipment, except for related equipment installed below the Base Flood Elevation after September 30, 1987 ? Fuel tanks and the fuel in them ? Furnaces and hot water heaters ? Heat pumps ? Nonflammable insulation in a basement ? Pumps and tanks used in solar energy systems ? Stairways and staircases attached to the building, not separated from it by elevated walkways ? Sump pumps ? Water softeners and the chemicals in them, water filters, and faucets installed as an integral part of the plumbing system ? Well water tanks and pumps ? Required utility connections for any item in this list ? Footings, foundations, posts, pilings, piers, or other foundation walls and anchorage systems required to support a building If an area below grade on all sides is within a room, such as a living room, then coverage is not provided for the “finished walls” of the area below grade. When the area extends above grade, or if there are contents located in the sunken area, coverage limitations will apply. When the entire room is below grade, even if the walls extend above grade, as in a daylight basement, there is no coverage for contents on the floor or coverage for the walls except those listed in the policy. The coverage limitations apply to the whole area, including the “finished walls.” If an elevated building has an attached garage with a floor lower than the lowest elevated floor of the building, the coverage restrictions apply to that area. Any contents located above the level of the lowest elevated floor (as hanging from the ceiling or on garage walls) are covered. M. ELEVATORS The SFIP provides coverage for elevators, dumbwaiters, and related equipment. When these items are located in a basement or the enclosed area below an elevated building, there is no coverage for the related equipment below the Base Flood Elevation unless it was installed on or before September 30, 1987. N. EROSION AND WAVE WASH The SFIP states that loss and damage from wave action along a lake or other body of water is considered direct physical loss by flood. Loss and damage from spray consequent to wash- over, whether wind driven or not, is not covered. Loss and damage to structures arising from ongoing erosion is not covered under the SFIP. However, collapse or subsidence of land along the shore of a lake or other body of water as a result of erosion or undermining caused by waves or currents of water exceeding cyclical levels which result in flooding is included in the definition of “flood” (SFIP II.A.2.) and, thus, is covered. Replacement of soil lost through erosion is covered only when the erosion results from an overflow of inland or tidal waters and not from the unusual and rapid accumulation or runoff of surface waters from any source. Soil replacement must be confined to within the perimeter of, and related to the support of, the building. Soil replacement beyond this perimeter is not payable under the SFIP. Rip-rap, armoring, and retaining walls are not covered. O. FOOD IN FREEZERS Coverage is only provided for food in food freezers. Damage to food in refrigerator/freezers is excluded from coverage. The SFIP specifically states that coverage is not provided for refrigerator/freezers located in basements and enclosures under Post-FIRM elevated buildings. P. FOUNDATIONS Floods can cause significant foundation damage, but so can settlement, improper construction, earth movement, tree roots, and sinkholes. Many times an insured will claim normal settlement cracks in slabs and foundations as flood related. The insured will indicate that he or she never noticed the foundation and slab damage until after the flood. This neither proves nor disproves that the damage resulted from flood. Most slab and foundation damage occurs because of a lack of moisture in the ground. The soil shrinks away from the foundation, allowing the grade beams to settle downward under the supported weight. This results in a bowing effect and cracks. Excess water in the ground exerts upward pressure on the slab floor and inward pressure on the subgrade foundation walls. This also results in cracks and displacement. Damage of this kind is considered the result of hydrostatic pressure and is not covered under the SFIP, unless there is a general condition of flooding in the area. Flooding with sufficient water movement to carry the subsoil away (scouring) from the slab or foundation walls generally leaves visible signs. Claims for foundation damage without any visible indication of scouring or land subsidence bear close scrutiny. Most foundation and slab damage that occurs without any visible signs of soil displacement may have resulted from causes other than flooding and is not covered by the SFIP. The adjuster must carefully check the perimeter and underneath the building for soil washout from velocity water flow. When finding no indication, the adjuster must resist a claim for foundation damage. The insured then has the responsibility to prove that the damage was caused by flood. Use of structural engineers must be limited to losses with visible indications of flood damage or of floodwaters’ having exacerbated preexisting damage. Q. FREEZERS Walk-in freezers attached to the building are considered part of the building. R. HYDROSTATIC PRESSURE The SFIP excludes damages resulting from hydrostatic pressure unless there is surface flooding in the area and the flood is the proximate cause of the damage from the pressure of water against the insured structure. S. ICE AND DEBRIS IMPACT DAMAGE Damage sustained from freezing or thawing of water, along with damage sustained from and by the weight and pressure of ice, is not covered unless the property itself is under direct contact by flood as defined in the SFIP. Damage to property elements by freeze or thaw after the surface water has receded from the property is not covered. T. MANUFACTURED (MOBILE) HOMES The replacement cost for a manufactured (mobile) home will not exceed 1.5 times its actual cash value. U. MUDFLOW Mudflow is the only form of earth movement covered by the SFIP. (The word “mudslide” no longer is used in the SFIP.) A mudflow is a “river of liquid and flowing mud on the surfaces of normally dry land areas, as when earth is carried by a current of water.” Mudflow is unforeseeable, is less common than earth movement from landslide or erosion, and has characteristics markedly similar to those of a flood. Landslide and slope failure are not covered under the policy. However, coverage is provided for subsidence of land along the shore of a lake or similar body of water which results from the erosion or undermining of the shoreline caused by waves or currents of water which results in a flood. V. PROPERTY REMOVED TO SAFETY If coverage has been purchased both for personal property (contents) and for the building, the SFIP covers direct physical loss by flood to each while the property is located at the property address shown on the application or endorsement. Coverage is available for 45 days at another place above ground or outside of a Special Flood Hazard Area to which any insured property (including a moveable building) is removed in order to protect and preserve it from a flood or from the imminent danger of flood. Personal property that has been removed must be placed in a fully enclosed building or otherwise reasonably protected from the elements to be insured against loss. The reasonable expense incurred by the insured, including the value of the insured’s own labor at prevailing federal minimum wage in moving the insured property away from the peril of flood and storing the property at the temporary location, will be reimbursed to the insured, up to $1,000. W. REPETITIVE LOSS STRUCTURES AND PREVIOUS CLAIMS 1. Repetitive Loss Structures A repetitive loss structure is one that has sustained flood damage on two occasions during a 10-year period ending on the date of the event for which a second claim is made, and for which the cost of repairing the flood damage, on the average, equaled or exceeded 25 percent of the market value of the structure at the time of each such flood event. Repetitive losses are a major challenge to the NFIP. Since 1980, $1.2 billion has been paid on risks with a repetitive loss history. 2. Previous Claims It is imperative for the adjuster to be alert to the possibility that any loss property may have been involved in previous claim activity. Where there is evidence of repetitive flood loss, the adjuster must request the prior loss file from the WYO company or the NFIP Servicing Agent. To identify the previous carrier, the adjuster should call the NFIP Bureau and Statistical Agent. In such cases, analyze prior loss file photographs and compare previous data to current conditions. Photographs from different dates of loss that show the same paneling, appliances, fixtures, machinery, and equipment indicating non-replacement for the prior flood event should be brought to the attention of the claims examiner. When investigating possible repetitive loss, always: a. Look for similarities in furniture color and style. b. Look for the same design, pattern, and texture in paneling. c. Check appliances and mechanical apparatuses for manufacturer names, model classifications, and serial numbers. (The same serial numbers between two events show non-replacement of these items after a previous flood.) X. SCRIP AND STORED VALUE CARDS Coverage is specifically excluded for these items. Y. SEEPAGE AND HIGH WATER TABLE The SFIP does not provide coverage for losses related to high water tables or seepage unless there was a general condition of flooding in the area Z. SWIMMING POOLS, HOT TUBS, AND SPAS Coverage for swimming pools, hot tubs, spas, and their equipment is excluded, except that spas and hot tubs are covered if they are bathroom fixtures. Spas and hot tubs are covered under the General Property Form if they are bathroom fixtures or stock and inventory held for sale. A'. TRAVEL TRAILERS Travel trailers without wheels, built on a chassis, affixed to a permanent foundation, and regulated under the community’s floodplain management and building ordinances or laws are covered. B'. VENETIAN BLINDS The SFIP now covers all types of window blinds. C'. WATER, MOISTURE, MILDEW, OR MOLD DAMAGE The SFIP covers reasonable costs for remediation of mold damage except when the damage results from a condition “confined to the insured building” or “within [the insured’s] control,” such as “failure to inspect and maintain the property after a flood recedes.” Four examples of SFIP coverage are provided below. 1. If a building was inundated but not evacuated, the SFIP will pay reasonable expenses for water extraction, dehumidifier and fan rental, and mildicide and anti-microbial application. 2. If, after the insured has taken the mitigation measures in example 1 above, mold reappears and causes damage to the upper portions of walls, ceilings, etc., the NFIP will honor such claims if the insured can show that mitigation attempts were made. 3. If a local official requires testing for mold, and has legal authority to do so, the SFIP will pay reasonable costs for the test. No other testing is necessary because the SFIP pays for reasonable remediation of mold damage (except as noted above). Therefore, the cost of other testing, except as described here and in example 4 below, will not be covered. 4. If, during inspection of a claim for mold damage, the adjuster believes that such damage is not the result of the recent flood but is a long-term, recurring problem, it may be necessary to obtain a testing report from a Certified or Licensed Hygienist or Microbiologist. The report must be specific as to whether the mold is a recent problem or a long-term, recurring problem. Obviously, there can be other scenarios: situations where waist-deep water has inundated the building and remained for several days, or situations where the insured was not allowed to return to the building for an extended period of time. In such cases, apply common sense and good adjusting principles. Use these examples as a guide in the handling of the more complex cases. D'. WATER SOFTENERS If the water softener is installed at the described location and connected to a power source, coverage is provided for the water softener and the chemicals in it. E'. WELL WATER PUMPS The Dwelling Form provides coverage for well pumps located below the lowest elevated floor of an elevated building and in basements. Well pumps are described as building items and therefore cannot be construed as content items. If the well pump is located in an unattached shed or building, then there is no coverage. IX. MAINTAINING THE INTEGRITY OF THE NFIP A. QUALITY ASSURANCE REINSPECTIONS The purpose of reinspections is to maintain the high quality of claims processing in the WYO program. There are two types of reinspections: ? Routine ? Special Assist 1. Routine Reinspections Routine reinspections are conducted principally on open claim files. During a flooding event, a General Adjuster from the NFIP Bureau and Statistical Agent will select a WYO company for reinspection, determine the number of claims, and select the claims to be reinspected. The General Adjuster uses the three-part Reinspection Report form. The form is completed in full and signed by both the WYO company representative and the General Adjuster. If the WYO company representative disagrees with the reinspection results, the representative must indicate the reasons for disagreement at the bottom of the form. The General Adjuster then forwards copies of the Reinspection Report for review by FEMA’s Government Technical Monitor in the offices of the NFIP Bureau and Statistical Agent. If overpayments are noted, the Monitor will correspond with the WYO company for collection. If, over time, patterns of adjustment errors or oversights are noted, Bureau and Statistical Agent staff will determine what additional training is needed. 2. Special Assist Reinspections Special assist reinspections are precipitated by a written request from the WYO company claim coordinator or direction (oral or written) from FEMA. These involve specific claim situations that require a General Adjuster’s intervention. B. FRAUD PREVENTION Fraud or misrepresentation is a continuing problem in the National Flood Insurance Program. It is the adjuster’s responsibility to detect and report fraud. Any case where it is reasonably believed that there is the possibility of fraud must immediately be reported to the NFIP Servicing Agent or WYO company. 1. Detecting Possible Fraud The following are common indications of possible fraud: a. Changes of dates or amounts on receipts b. Dated receipts or invoices that have their printed serial numbers out of sequenc c. Recent, multiple changes of ownership of real property (Check for relationship of parties involved.) d. Repeated changing of policies by insured e. Multiple waterlines in a building (This possible indicator of previous flooding may demonstrate that the insured is trying to collect for repairs not completed from a prior flood.) f. Bringing in damaged property not owned by the insured to be submitted in the claim g. Fraudulent cause of loss h. Deliberate misrating i. Photocopied receipts j. Price quotes rather than receipts of purchase 2. Reporting Possible Fraud As noted above, all instances of possible fraud must immediately be reported to the NFIP Servicing Agent or the WYO company. Other improper or wasteful practices should be reported to FEMA’s Waste and Abuse Hotline at 1-800-323-8603. VI-1 Change 1, 1/1/04 VII-1 VII-2 Change 1, 1/1/04 VII-3 VII-5 Change 1, 1/1/04 VII-6 Change 1, 1/1/04 VII-7 Change 1, 1/1/04 VIII-1 Change 1, 1/1/04 VIII-2 VIII-5 Change 1, 1/1/04 VIII-6 Change 1, 1/1/04 VIII-7 Change 1, 1/1/04 VIII-8 Change 1, 1/1/04 VIII-9 Change 1, 1/1/04 VIII-10 Change 1, 1/1/04 VIII-11 Change 1, 1/1/04 VIII-12 Change 1, 1/1/04 IX-1 Change 1, 1/1/04 IX-2 Appendix: NFIP Forms Used in Claims Adjustment This page is intentionally left blank. This form will be available pending OMB approval. Exhibit 1. Adjuster Certification Application, fron This form will be available pending OMB approval. Exhibit 1 (continued). Adjuster Certification Application, back This form will be available pending OMB approval. Exhibit 2. Adjuster Preliminary Damage Assessmen This page is intentionally left blank. This form will be available pending OMB approval. Exhibit 3. Assignment of Coverage D – Increased Cost of Compliance Coverage This page is intentionally left blank. Exhibit 4. Cause of Loss and Subrogation Repor This page is intentionally left blank. Exhibit 5. Elevation Certificate, 2003 Revision, front Exhibit 5 (continued). Elevation Certificate, 2003 Revision, back Exhibit 6. Increased Cost of Compliance (ICC) Adjuster Repor This page is intentionally left blank. Exhibit 7. Increased Cost of Compliance Proof of Los This page is intentionally left blank. Exhibit 8. Manufactured (Mobile) Home/Travel Trailer Workshee This page is intentionally left blank. Exhibit 9. NFIP Fee Schedule [Gross Loss] (Date of Loss on/after May 1, 1997 This page is intentionally left blank. Exhibit 10. NFIP ICC Fee Schedule (Date of Loss on/after May 1, 2003 This page is intentionally left blank. Exhibit 11. National Flood Insurance Program Preliminary Repor This page is intentionally left blank. Exhibit 12. National Flood Insurance Program Narrative Repor This page is intentionally left blank. Exhibit 13. National Flood Insurance Program Final Repor This page is intentionally left blank. Exhibit 14. Notice of Los This page is intentionally left blank. Exhibit 15. Proof of Los This page is intentionally left blank. Exhibit 16. Statement as to Full Cost of Repair or Replacemen This page is intentionally left blank. Exhibit 17. Worksheet – Buildin This page is intentionally left blank. Exhibit 18. Worksheet – Building (Cont’d This page is intentionally left blank. Exhibit 19. Worksheet – Contents – Personal Propert