The last two lessons reviewed what is insured under the Standard Flood Insurance Policy (SFIP). Now in this lesson, we will explore some common adjustment issues that might arise while handling National Flood Insurance Program (NFIP) claims. We will introduce the adjuster to some of the oversight methods that are part of FEMA's responsibility to ensure the integrity of the NFIP.
Remember!
“Read the policy! Know the policy!” Becoming familiar with the policy provisions is essential to fulfilling your role as an adjuster: to make recommendations to insurers on the disposition of claims and share the recommendations with the policyholder.
Lesson Objectives
In this lesson you will:
Apply key concepts of all SFIP forms
Apply NFIP knowledge when completing a Building and Contents Scope and Estimate
Prerequisites
The NFIP Claims Review comprises four lessons. You must complete all four lessons to complete the course. You should already have completed:
Introduction to Flood Claims (IS-1112)
Adjuster Customer Service (IS-1107)
NFIP Claims Review Lesson 1
NFIP Claims Review Lesson 2
NFIP Claims Review Lesson 3
Once you complete this course, you may take additional courses in specialized knowledge areas such as IS-1111 Introduction to Commercial Claims and IS-1109 Understanding Basement Coverage.
Quality Assurance in the NFIP
WYO companies and the NFIP Direct Servicing Agent (NFIP DSA) are responsible for administering the NFIP under the auspices of the Federal Government. Because the NFIP DSA is a Federal program, it is subject to the scrutiny of the Department of Homeland Security (DHS) and other Federal agencies, including the Government Accountability Office (GAO), the DHS Office of Inspector General (OIG), and the Office of Management and Budget (OMB). To ensure its integrity, the program has established protocols which include:
Re-inspections
Operation reviews
DHS - Improper Payments Elimination and Reduction Improvement Act (IPERIA) of 2012, Improper Payments Elimination and Recovery Act (IPERA) of 2010, Improper Payments Information Act (IPIA) of 2002
DHS Biennial Audits
In addition, WYO companies engage Certified Public Accountant (CPA) firms to perform biennial audits that include the claims section of the WYO. It is in the interest of all stakeholders, including adjusters, to be aware of findings from the following audits: DHS IPERIA of 2012, IPERA of 2010, the IPIA of 2002, DHS Financial Audit, and various GAO studies and reports, as well as the Operation Reviews, re-inspections, and biennial audits.
Common Quality Assurance Findings
Here are some of the common findings that adjusters should be mindful of when handling NFIP claims:
Incorrect estimates or worksheet calculations
Insufficient damage documentation
Payment processing errors
Insured loss exceeds the value of certain items
Common Quality Assurance Findings – Incorrect Estimate or Worksheet Calculation
Ensuring the accuracy of the following information can help prevent incorrect estimates and worksheet calculations:
Material unit cost
Labor and sales tax
Applicable depreciation on both building and contents
Overhead and profit (if a general contractor is involved)
Descriptions of rooms: These should be accurate and all rooms identified
Estimates should be itemized and broken down by room, including square foot specifications
Common Quality Assurance Findings – Incorrect Estimate or Worksheet Calculation (cont’d)
Refrigerators are building items as reflected in the SFIP Dwelling Form, Section III, A. Coverage A – Building Property, Item 7. However, a refrigerator may be afforded coverage under the SFIP Dwelling Form, Section III, B. Coverage B – Personal Property if the policyholder is a tenant of the building and owns the refrigerator.
Qualifications for replacement cost loss settlement should be clearly documented, including noting the building’s status as a single-family principal residence, which is insured 80 percent to value or at the maximum coverage amount available.
Common Quality Assurance Findings – Insufficient Damage Documentation
Another common issue is insufficient damage documentation. Documents such as invoices and/or receipts might be needed to support the claim. The adjuster may recommend an expert to the insurer to assist with the resolution of the claim. Photos should adequately document the claimed damage; photos of undamaged building elements and contents are also very important.
Common Quality Assurance Findings – Payment Processing Errors
You can avoid payment processing errors by making all payment recommendations clear. Include other claim documents to support your recommendations, such as the estimate, proper photos, Preliminary Report, Final Report, and Proof of Loss.
The adjuster is responsible for confirming the current mortgage company, identifying any additional lien holders and any other legal interests in effect at the time of the loss, and reporting these to the insurer.
Common Quality Assurance Findings – Insured Loss Exceeds the Value of Certain Items
The adjuster’s final estimate should reflect the proper coverage limits:
Special Limits, which are limited to $2,500 and are the aggregate of all items claimed that fall into this category
Loss Avoidance Measures and Property Removed to Safety, which are each limited to $1,000. These claims should be supported with invoices or other documentation
Common Quality Assurance Findings – Case Loss Reserving
Case loss reserve is the insurer’s estimate of the value of future payments for an individual claim. It is imperative—and the adjuster’s responsibility—to inform the insurer regarding changes in reserves. The reserving system mandates that reports be timely and reflect true reserves.
Identifying and Resolving Adjustment Issues – Overview
As an adjuster, you must be able to identify and resolve common adjustment issues. The next section examines adjustment issues and what you can do to handle them.
Adjustment Issues – Debris Removal
Section III, Property Insured, C. Coverage C of the SFIP addresses debris removal insured by the policy as it relates to non-owned debris on or in the insured property and owned debris anywhere. The policy pays to move debris that is on the insured building far enough away to effect repairs, but does not pay to remove debris from the described location. Let's look at two examples:
The Debris Removal section of the SFIP states that when contents must be removed from the risk for health or safety reasons or to mitigate damage, the policyholder is required to substantiate the loss.
Adjustment Issues – Repair vs. Replacement
When working a claim, it is very important to pay special attention to whether building or personal property damage requires repair or replacement. Not everything touched by floodwater necessarily needs replacement; repair or cleaning might be warranted.
Consider the type of floodwater involved—for example, clear, muddy, fresh, salt, or contaminated—and the length of time the water remained in the building. In the case of appliances, is a service call warranted before making an allowance to replace them, or can they be repaired? Furniture can often be refinished as opposed to replacing it. Again, consider all factors before automatically making a decision to replace.
Adjustment Issues - Repetitive Losses
It is imperative that the adjuster be alert to any claims for which there might have been prior losses. The policyholder must prove that prior repairs were made before any current flood claims for the same or similar items can be considered.
Adjusters should always request a copy of the prior losses and should investigate to determine whether prior repairs were completed. This can be accomplished with photographs (such as prior claim photos), serial numbers, the prior estimate with different materials included (for example, drywall versus paneling), receipts showing paid repairs, or a combination of all of these.
Items to pay particular attention to include, but are not limited to: kitchen appliances, boilers, water heaters, HVAC systems, and furnaces.
When measuring water depth in a basement below ground level, the water depth is recorded as a negative number. Water depth on the main level is recorded as a positive number.
Adjustment Issues – Water Depth (cont’d)
Instructions for Recording Water Depth
Basement
Locate the lowest floor (including basement)
Measure the height from the lowest floor to the ceiling
Add 12 inches to account for the joist
Convert the ceiling height to a negative number, subtract the watermark height, and record as a negative number
Non-Basement
To find the water depth for a non-basement: locate the watermark height from the lowest floor and record as a positive number.
Adjustment Issues – Remediation Issues
It is not uncommon for a remediation service provider or the contractor to include charges within their invoice that:
Are not insured under the SFIP
Duplicate another charge
Should be priced within another SFIP-insured line item allowance
Before engaging a professional service that includes structural drying, the policyholder should consult with the assigned flood adjuster, and the adjuster should inform the policyholder that an itemized room-by-room invoice and a properly completed drying log are required per both industry standards and the SFIP. To ensure proper claim handling, it is imperative that an adjuster become knowledgeable about which remediation measures are warranted after a flood loss and afforded coverage under the SFIP.
Adjustment Issues – Heating, Ventilation, and Air Conditioning (HVAC)
HVAC is the only equipment outside the building perimeter that is insured. However, it is not always necessary to replace an air conditioner when it gets wet. Keep in mind that air conditioner condensing units sit outside in the exterior elements and are exposed to water and moisture all the time.
Adjuster Tip: If there is a question about the extent of damage, or if the unit is functional at the time of the inspection, the adjuster should advise the policyholder to have a qualified technician inspect the unit and provide a written report.
Adjustment Issues – Elevators
Elevators, dumbwaiters, and related equipment are insured items in basements and below the lowest elevated floor of a Post-FIRM elevated building in specified flood zones, except for related equipment installed below the Base Flood Elevation (BFE) after September 30, 1987.
Note: The elevator car itself is insured; the coverage limitation applies only to related equipment below the BFE. It is important to obtain accurate and complete information to be certain proper coverage is applied. Reference Section III, Property Insured, Item 8 of the SFIP.
Adjustment Issues - Foundation Elements
A slab under an elevated building is insured if the building is pre-FIRM. If the building is post-FIRM in a Special Flood Hazard Area as specified in Section III. Property Insured A. 8, a slab is only insured if it is a part of the foundation. In order to be a part of the foundation, it must be at least six inches thick, reinforced with rebar, and tied into the foundation posts, pilings, piers, or other foundation walls required to support the building.
Adjustment Issues – Water, Moisture, Mildew, and Mold
Think back to what you learned in the Dwelling Policy, Section V, Exclusions D.4 and read each of the following examples. What do you think the policy covers in each?
Example 1
A policyholder's home floods with three feet of water the day before she leaves for a two-week vacation. She chooses to lock up the house and deal with the damage when she returns. Consequently, mold grows up to and including the ceiling.
Example 2
On the other side of town another policyholder's home floods with three feet of water. Officials did not allow residents back into the area due to dangerous conditions. When the policyholder is able to get back into the area, the mold has grown up to and including the ceiling.
FEMA encourages the use of experts—such as licensed engineers, certified public accountants (CPAs), or salvage companies—when needed. As soon as you believe an expert is needed, make the recommendation to the insurer through your chain of command.
Adjustment Issues – Use of Up-to-Date Documents
Adjusters must keep up with current materials when working flood claims. Be sure you have the most up-to-date SFIP, Claims Manual, Flood Insurance Claims Handbook, and NFIP claim forms, if applicable, and keep abreast of the latest WYO Bulletins.
Use of current information and materials is essential to claims handling.
Adjustment Issues – Commercial Claims
When handling commercial claims with business inventory, keep in mind that it might be important to recommend the hiring of a CPA or salvor for proper handling of the damaged inventory claimed.
Adjustment Issues – Duties After a Loss
After a loss the adjuster, insurer, and policyholder all have responsibilities under the SFIP:
Adjustment Issues – Foundation Issues and Pre-Existing Damage
Document interior damage such as:
Cracks in drywall on walls and ceilings
Doors that are out of plumb
Gaps between walls and ceilings
Nails that are protruding from the drywall
Windows that are not square or are sticking
Floors that are cracked or not level
Gaps between walls and floors
Involve experts if necessary.
Adjustment Issues – Foundation Issues and Pre-Existing Damage (cont’d)
Document exterior damage such as:
Cracks in the masonry
Gaps between bricks, doors, and windows
Chimney leaning or cracking
Gaps between fireplace and house
Sagging roof line
Paint, caulking, or vegetation in cracks
Involve experts if necessary.
Adjustment Issues – Porches
As you might recall from Lesson 2, a porch is defined as a structure attached to the exterior of a building, often forming a insured entrance. Porches are insured in the SFIP. A structure may be considered a porch if it:
Is under the roofline of the home
Is within the perimeter supports of the home
Supports the roof of the home
Adjustment Issues - Elevated Building
As you might recall from Lesson 2, the SFIP defines an elevated building as a building that has no basement and has its lowest elevated floor raised above ground level by any of the following:
Foundation walls
Posts
Piers
Pilings
Columns
When adjusting an elevated building claim it is important to know whether the building is in a Special Flood Hazard Area (SFHA), as specified in Section III. Property Insured, A.8, and whether the building is Pre-FIRM or Post-FIRM. Remember:
A Pre-FIRM building is a building which was built prior to the initial FIRM date and, regardless of the zone it is in, does not have Post-FIRM limitations below the lowest elevated floor
A Post-FIRM building is a building which was built or substantially improved after December 31, 1974 or on or after the effective date of the initial FIRM, whichever is later. Limitations of the SFIP will then apply
Note: To review a list of the building and personal property insured, see Section III, Property Insured.
Adjustment Issues – Personal Property in a Shed
When handling a personal property loss under the Dwelling Form, and the policyholder has some of those personal property items located in a shed at the described location, the contents items within the shed are insured if the shed meets the definition of a building.
Does it have two or more outside rigid walls and a fully secured roof, and is it “affixed” to a permanent site? If the shed is not affixed to a permanent site, it is not considered a building and therefore, the contents within are not insured. The adjuster should take good photos to show whether or not this is in fact a building by definition of the policy.
Adjustment Issues - Is it Wind or Water?
When handling any type of flood claim, it is very important to know if the damage is the result of wind or water.
The Claims Manual
provides important guidance for effective communication of the wind versus water
distinction in your Narrative Reports and other documentation.
FEMA encourages adjusters to use all Wind/Water Investigative Tips and proven investigative methods while handling these types of claims. A few of these tips include:
Research local newspapers, local weather service, etc.
Check highest wind speeds, barometric pressure, amount of rainfall
Check tidal heights, storm surge heights
Canvas the neighborhood for eyewitnesses, not hearsay or opinion
It might be necessary to recommend the use of an engineer to help make the determination.
Adjustment Standards and Requirements – Contents Claims Adjustment/Personal Property
It is the adjuster’s responsibility to assist the policyholder with preparing the contents claim and verifying that contents being claimed are insured under the SFIP, and to verify accurate local replacement costs and apply appropriate depreciation. The adjuster must show photos of the damaged contents items. It is also a good practice to photograph undamaged items. The two bulletins below discuss personal property:
In this lesson, we explored some common adjustment issues that might arise while handling National Flood Insurance Program (NFIP) claims. We also introduced the adjuster to some of the oversight methods that are part of FEMA's responsibility to ensure the integrity of the NFIP.
Course Summary
You have completed the NFIP Claims Review for Adjusters course. Thank you for your interest in the National Flood Insurance Program.
