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

DEPARTMENT OF HOMELAND SECURITY
Federal Emergency Management Agency

Federal Register Volume 83, Issue 136 (July 16, 2018)

Page Range32956-33015
FR Document2018-13292

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

Federal Register, Volume 83 Issue 136 (Monday, July 16, 2018)
[Federal Register Volume 83, Number 136 (Monday, July 16, 2018)]
[Proposed Rules]
[Pages 32956-33015]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-13292]



[[Page 32955]]

Vol. 83

Monday,

No. 136

July 16, 2018

Part II





 Department of Homeland Security





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Federal Emergency Management Agency





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44 CFR Parts 59, 61, and 62





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

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

[[Page 32956]]


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DEPARTMENT OF HOMELAND SECURITY

Federal Emergency Management Agency

44 CFR Parts 59, 61, and 62

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


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

AGENCY: Federal Emergency Management Agency, DHS.

ACTION: Notice of proposed rulemaking.

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

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

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

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

SUPPLEMENTARY INFORMATION: 

I. Public Participation

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

II. Background and Authorities

A. National Flood Insurance Program

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

[[Page 32957]]

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

[[Page 32958]]

B. Recent Legislative Changes

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

III. Discussion of Proposed Rule

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

A. Part 59: General Provisions

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

[[Page 32959]]

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

B. Part 61: Insurance Coverage and Rates

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

[[Page 32960]]

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

[[Page 32961]]

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

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

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

[[Page 32962]]

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

[[Page 32963]]

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

[[Page 32964]]

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

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

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

[[Page 32965]]

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

    \4\ Available at https://bsa.nfipstat.fema.gov/wyobull/2016/w-16024.pdf.
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    Proposed Section G would also state that FEMA will only pay for 
damage once, and items of damage paid for under an RCBAP cannot also be 
claimed under the Dwelling Form policy. FEMA proposes to add this 
language to clarify the existing rule under current Article VII.C.2 
that if a single property is insured by both policies forms, the 
Dwelling Form will only pay what is not covered under the RCBAP policy.
2. Article II Definitions
i. General Changes
    FEMA proposes to remove the last sentence of the second paragraph 
in Article II.A which states, ``The precise definitions are intended to 
protect you.'' FEMA proposes removal of this sentence because it is an 
incorrect statement of the purpose of providing the definitions. The 
definitions are to provide clarity to the language of the

[[Page 32966]]

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

[[Page 32967]]

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

[[Page 32968]]

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

[[Page 32969]]

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

[[Page 32970]]

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

[[Page 32971]]

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

[[Page 32972]]

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

[[Page 32973]]

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

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

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

[[Page 32974]]

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

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

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

[[Page 32975]]

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

[[Page 32976]]

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

IV. Regulatory and Economic Analysis

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

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

[[Page 32977]]

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

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

[[Page 32978]]

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

[[Page 32979]]

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

[[Page 32980]]

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

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

[[Page 32981]]

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

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

---------------------------------------------------------------------------

[[Page 32982]]

[GRAPHIC] [TIFF OMITTED] TP16JY18.000

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

B. Regulatory Flexibility Act

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

[[Page 32983]]

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

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

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

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

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

C. Unfunded Mandates Reform Act

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

[[Page 32984]]

D. National Environmental Policy Act of 1969 (NEPA)

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

E. Privacy Act/E-Government Act

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

F. Paperwork Reduction Act of 1995

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

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

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

[[Page 32985]]

H. Executive Order 13132 Federalism

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

I. Executive Order 11988 Floodplain Management

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

J. Executive Order 11990 Protection of Wetlands

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

K. Executive Order 12898 Environmental Justice

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

[[Page 32986]]

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

L. Congressional Review of Agency Rulemaking

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

List of Subjects

44 CFR Parts 59 and 61

    Flood insurance, Reporting and recordkeeping requirements.

44 CFR Part 62

    Claims, Flood insurance, Reporting and recordkeeping requirements.

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

PART 59--GENERAL PROVISIONS

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

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

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


Sec.  59.1  Definitions.

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

PART 61--INSURANCE COVERAGE AND RATES

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

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

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


Sec.  61.1  Purpose of part.

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


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

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

[[Page 32987]]

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


Sec.  61.4   Special terms and conditions.

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


Sec.  61.5   Deductibles.

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


Sec.  61.6  Maximum amounts of coverage available.

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

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

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


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

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


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

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

[[Page 32988]]

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


Sec.  61.13  Standard Flood Insurance Policy.

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

Appendix A(1) to Part 61

Federal Emergency Management Agency, Federal Insurance and Mitigation 
Administration

Standard Flood Insurance Policy

Dwelling Form

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

I. Agreement

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

II. Definitions

    A. In this policy, ``you'' and ``your'' refer to the named 
insured(s) shown on the Declarations Page of this policy and the 
spouse of the named insured, if a resident of the same household. 
Insured(s) also includes: Any mortgagee and loss payee named in the 
Application and Declarations Page, as well as any other mortgagee or 
loss payee determined to exist at the time of loss, in the order of 
precedence. ``We,'' ``us,'' and ``our'' refer to the insurer.
    Some definitions are complex because they are provided as they 
appear in the law or regulations, or result from court cases.
    B. Flood, as used in this flood insurance policy, means:
    1. A general and temporary condition of partial or complete 
inundation of two or more acres of normally dry land area or of two 
or more properties (one of which is your property) from:
    a. Overflow of inland or tidal waters,
    b. Unusual and rapid accumulation or runoff of surface waters 
from any source,
    c. Mudflow.
    2. Collapse or subsidence of land along the shore of a lake or 
similar body of water as a result of erosion or undermining caused 
by waves or currents of water exceeding

[[Page 32989]]

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

III. Property Covered

A. Coverage A--Building Property

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

[[Page 32990]]

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

B. Coverage B--Personal Property

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

C. Coverage C--Other Coverages

    1. Debris Removal.
    a. We will pay the expense to remove non-owned debris that is on 
or in insured property and debris of insured property anywhere.
    b. If you or a member of your household perform the removal 
work, the value of your work will be based on the Federal minimum 
wage.
    c. This coverage does not increase the Coverage A or Coverage B 
limit of liability.
    2. Loss Avoidance Measures.
    a. Sandbags, Supplies, and Labor.
    (1) We will pay up to $1,000 for costs you incur to protect the 
insured building from a flood or imminent danger of flood, for the 
following:
    (a) Your reasonable expenses to buy:
    (i) Sandbags, including sand to fill them;
    (ii) Fill for temporary levees;
    (iii) Pumps; and
    (iv) Plastic sheeting and lumber used in connection with these 
items.
    (b) The value of work, at the Federal minimum wage, that you or 
a member of your household perform.
    (2) This coverage for Sandbags, Supplies and Labor only applies 
if damage to insured property by or from flood is imminent and the 
threat of flood damage is apparent enough to lead a person of common 
prudence to anticipate flood damage. One of the following must also 
occur:
    (a) A general and temporary condition of flooding in the area 
near the described location must occur, even if the flood does not 
reach the building; or

[[Page 32991]]

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

D. Coverage D--Increased Cost of Compliance

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

[[Page 32992]]

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

IV. Property Not Covered

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

V. Exclusions

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

[[Page 32993]]

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

VI. Deductibles

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

VII. General Conditions

A. Pair and Set Clause

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

B. Other Insurance

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

C. Amendments, Waivers, Assignment

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

D. Insufficient Premium or Rating Information

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

E. Policy Renewal

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

[[Page 32994]]

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

F. Conditions Suspending or Restricting Insurance

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

G. Requirements in Case of Loss

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

H. Our Options After a Loss

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

I. No Benefit to Bailee

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

J. Loss Payment

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

K. Abandonment

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

L. Salvage

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

M. Appraisal

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

N. Mortgage Clause

    1. The word ``mortgagee'' includes trustee.
    2. Any loss payable under Coverage A--Building Property will be 
paid to any mortgagee of whom we have actual notice, as well as any 
other mortgagee or loss payee determined to exist at the time of 
loss, and

[[Page 32995]]

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

O. Suit Against Us

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

P. Subrogation

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

Q. Continuous Lake Flooding

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

[[Page 32996]]

R. Loss Settlement

1. Introduction

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

2. Replacement Cost Loss Settlement

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

3. Special Loss Settlement

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

4. Actual Cash Value Loss Settlement

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

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

VIII. Policy Nullification, Cancellation, and Non-Renewal

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

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

B. Policy Nullification for Reasons Other Than Fraud

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

[[Page 32997]]

C. Cancellation of the Policy by You

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

D. Cancellation of the Policy by Us

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

E. Non-Renewal of the Policy by Us

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

IX. Liberalization Clause

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

X. What Law Governs

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

Appendix A(2) to Part 61

Federal Emergency Management Agency, Federal Insurance and Mitigation 
Administration

Standard Flood Insurance Policy

GENERAL PROPERTY FORM

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

I. Agreement

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

II. Definitions

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

[[Page 32998]]

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

III. Property Covered

A. Coverage A--Building Property

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

[[Page 32999]]

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

B. Coverage B--Personal Property

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

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

C. Coverage C--Other Coverages

1. Debris Removal

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

2. Loss Avoidance Measures

a. Sandbags, Supplies, and Labor

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

[[Page 33000]]

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

b. Property Removed to Safety

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

3. Pollution Damage

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

D. Coverage D--Increased Cost of Compliance

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

[[Page 33001]]

specifically related to the State or local floodplain management law 
or ordinance.
    g. Any compliance activities needed to bring additions or 
improvements made after the loss occurred into compliance with State 
or local floodplain management laws or ordinances.
    h. Loss due to any ordinance or law that you were required to 
comply with before the current loss.
    i. Any rebuilding activity to standards that do not meet the 
NFIP's minimum requirements. This includes any situation where the 
insured has received from the State or community a variance in 
connection with the current flood loss to rebuild the property to an 
elevation below the base flood elevation.
    j. Increased Cost of Compliance for a garage or carport.
    k. Any building insured under an NFIP Group Flood Insurance 
Policy.
    l. Assessments made by a condominium association on individual 
condominium unit owners to pay increased costs of repairing commonly 
owned buildings after a flood in compliance with State or local 
floodplain management ordinances or laws.
    6. Other Provisions.
    All other conditions and provisions of the policy apply.

IV. Property not Covered

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

V. Exclusions

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

VI. Deductibles

    A. When a loss is insured under this policy, we will pay only 
that part of the loss that exceeds your deductible amount, subject 
to the limit of liability that applies. The deductible amount is 
shown on the Declarations Page.
    However, when a building under construction, alteration, or 
repair does not have at least two rigid exterior walls and a fully 
secured roof at the time of loss, your deductible amount will be two 
times the

[[Page 33002]]

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

VII. General Conditions

A. Pair and Set Clause

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

B. Other Insurance

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

C. Amendments, Waivers, Assignment

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

D. Insufficient Premium or Rating Information

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

E. Policy Renewal

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

F. Conditions Suspending or Restricting Insurance

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

G. Requirements in Case of Loss

    In case of a flood loss to insured property, you must:
    1. Give prompt written notice to us;
    2. As soon as reasonably possible, separate the damaged and 
undamaged property, putting it in the best possible order so that we 
may examine it;

[[Page 33003]]

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

H. Our Options After a Loss

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

I. No Benefit to Bailee

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

J. Loss Payment

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

K. Abandonment

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

L. Salvage

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

M. Appraisal

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

N. Mortgage Clause

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

O. Suit Against Us

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

P. Subrogation

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

[[Page 33004]]

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

Q. Continuous Lake Flood

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

R. Loss Settlement

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

VIII. Policy Nullification, Cancellation, and Non-Renewal

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

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

B. Policy Nullification for Reasons Other Than Fraud

    1. This policy is void from its inception, and has no legal 
force or effect, if:
    a. The property listed on the application is located in a 
community that was not participating in the NFIP on this policy's 
inception date and did not join or reenter the program during the 
policy term and before the loss occurred;
    b. The property listed on the application is otherwise not 
eligible for coverage under the NFIP at the time of the initial 
application;
    c. You never had an insurable interest in the property listed on 
the application;
    d. You provided an agent with an application and payment, but 
the payment did not clear; or
    e. We receive notice from you, prior to the policy effective 
date, that you have

[[Page 33005]]

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

C. Cancellation of the Policy by You

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

D. Cancellation of the Policy by Us

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

E. Non-Renewal of the Policy by Us

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

IX. Liberalization Clause

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

X. What Law Governs

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

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

Appendix A(3) to Part 61

Federal Emergency Management Agency, Federal Insurance and Mitigation 
Administration

Standard Flood Insurance Policy

RESIDENTIAL CONDOMINIUM BUILDING ASSOCIATION POLICY

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

I. Agreement

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

II. Definitions

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

[[Page 33006]]

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

III. Property Covered

A. Coverage A--Building Property

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

[[Page 33007]]

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

B. Coverage B--Personal Property

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

C. Coverage C--Other Coverages

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

D. Coverage D--Increased Cost of Compliance

    1. General.
    This policy pays you to comply with a State or local floodplain 
management law or ordinance affecting repair or reconstruction of a 
building suffering flood damage. Compliance activities eligible for 
payment are: elevation, floodproofing, relocation, or demolition (or 
any combination of these activities) of your building. Eligible 
floodproofing activities are limited to:
    a. Non-residential buildings.
    b. Residential buildings with basements that satisfy FEMA's 
standards published in

[[Page 33008]]

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

IV. Property Not Covered

    We do not insure any of the following:
    1. Personal property not inside a building;
    2. A building, and personal property in it, located entirely in, 
on, or over water or seaward of mean high tide if it was constructed 
or substantially improved after September 30, 1982;
    3. Open structures, including a building used as a boathouse or 
any structure or building into which boats are floated, and personal 
property located in, on, or over water;
    4. Recreational vehicles other than travel trailers described in 
the Definitions section (see II.C.6.c) whether affixed to a 
permanent foundation or on wheels;
    5. Self-propelled vehicles or machines, including their parts 
and equipment. However, we do cover self-propelled vehicles or 
machines not licensed for use on public roads that are:
    a. Used mainly to service the described location or
    b. Designed and used to assist handicapped persons, while the 
vehicles or machines are inside a building at the described 
location;
    6. Land, land values, lawns, trees, shrubs, plants, growing 
crops, or animals;

[[Page 33009]]

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

V. Exclusions

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

VI. Deductibles

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

VII. Coinsurance

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

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

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

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

[[Page 33010]]

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

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

VIII. General Conditions

A. Pair and Set Clause

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

B. Other Insurance

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

C. Amendments, Waivers, Assignment

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

D. Insufficient Premium or Rating Information

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

E. Policy Renewal

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

[[Page 33011]]

F. Conditions Suspending or Restricting Insurance

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

G. Requirements in Case of Loss

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

H. Our Options After a Loss

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

I. No Benefit to Bailee

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

J. Loss Payment

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

K. Abandonment

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

L. Salvage

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

M. Appraisal

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

N. Mortgage Clause

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

[[Page 33012]]

O. Suit Against Us

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

P. Subrogation

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

Q. Continuous Lake Flood

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

R. Loss Settlement

1. Introduction

    This policy provides three methods of settling losses: 
Replacement Cost, Special Loss Settlement, and Actual Cash Value. 
Each method is used for a different type of property, as explained 
in a-c below.
    a. Replacement Cost Loss, Settlement described in R.2 below 
applies to buildings other than manufactured homes or travel 
trailers.
    b. Special Loss Settlement, described in R.3 below applies to a 
residential condominium building that is a travel trailer or a 
manufactured home.
    c. Actual Cash Value loss settlement applies to all other 
property covered under this policy, as outlined in R.4. below.

2. Replacement Cost Loss Settlement

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

[[Page 33013]]

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

3. Special Loss Settlement

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

4. Actual Cash Value Loss Settlement

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

IX. Policy Nullification, Cancellation, and Non-Renewal

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

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

B. Policy Nullification for Reasons Other Than Fraud

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

C. Cancellation of the Policy by You

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

D. Cancellation of the Policy by Us

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

E. Non-Renewal of the Policy by Us

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

X. Liberalization Clause

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

XI. What Law Governs

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

[[Page 33014]]

PART 62--SALE OF INSURANCE AND ADJUSTMENT OF CLAIMS

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

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

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


Sec.  62.3  Servicing Agent.

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


Sec.  62.5  Nullifications, Cancellations, and Premium Refunds.

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

[[Page 33015]]

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


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

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


Sec.  62.22   [Amended]

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

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


83_FR_33092
Current View
CategoryRegulatory Information
CollectionFederal Register
sudoc ClassAE 2.7:
GS 4.107:
AE 2.106:
PublisherOffice of the Federal Register, National Archives and Records Administration
SectionProposed Rules
ActionNotice of proposed rulemaking.
DatesSubmit comments on or before September 14, 2018.
ContactKelly Bronowicz, Director, Policyholder Services Division, Federal Insurance and Mitigation Administration, Federal Emergency Management Agency, 400 C Street SW, Washington, DC 20472, (202) 557-9488.
FR Citation83 FR 32956 
RIN Number1660-AA95
CFR Citation44 CFR 59
44 CFR 61
44 CFR 62
CFR AssociatedFlood Insurance; Reporting and Recordkeeping Requirements and Claims

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