Lesson 2

Standard Flood Insurance Policy (SFIP): Overview

The SFIP specifies the terms and conditions of the agreement of insurance between either the Federal Emergency Management Agency (FEMA) as insurer, for policies issued by the NFIP Direct Servicing Agent (NFIP DSA), or the Write Your Own (WYO) company as insurer for policies issued by the WYO Program, and the named insured.

Your role in handling flood insurance claims requires a thorough and practical knowledge of the SFIP so that you can explain insured property clearly to the policyholder.

Lesson Objectives

In this lesson you will:

Receive an overview of the SFIP and its three forms
Review sections of the Dwelling Form: Section I. Agreement, Section II. Definitions, and Section III. Property Insured

You'll review each section of the SFIP in detail in this lesson and subsequent lessons.

Prerequisites

You should already have completed these courses (in addition to Lesson 1 of this course):

Introduction to Flood Claims (IS-1112)
Adjuster Customer Service (IS-1107)

The NFIP Claims Review comprises four lessons. You must complete all four lessons to complete the course.

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.

One Policy, Three Forms

There is one SFIP, but three different forms:

The Dwelling Form: This policy form covers non-condominium residential buildings designed for principal use as a dwelling place for one to four families, or a single-family dwelling unit in a condominium building
The General Property Form: This policy form covers non-residential buildings and other residential buildings, and their contents, and a condominium building in which less than 75 percent of the square footage is residential
The Residential Condominium Building Association Policy (RCBAP): This policy covers a residential condominium building, meaning that 75 percent or more of square footage of the building is residential

You will learn more about each form in detail in this lesson and in Lesson 3.

How the Forms Are Organized

The Dwelling Form and General Property Form contain the same nine (9) sections, presented in identical order. RCBAP has a tenth section, Coinsurance.

Note: As you review the policy forms, you might notice differences in the SFIP provisions, limitations, and restrictions.

Agreement:

This outlines the promise the insurer makes to the policyholder. It is one of the key sections of the policy.

Definitions:

This section specifies how terms used in the policy should be explained and understood.

Property Insured:

This section details Coverage A. Building Property, Coverage B. Personal Property, Coverage C. Other Coverages, and Coverage D. Increased Cost of Compliance.

Property Not Insured:

This section details those items that are not insured by the SFIP.

Exclusions:

This section explains hazards, circumstances, and other conditions excluded by the policy.

Deductibles:

This section discusses application of deductibles.

General Conditions:

This section outlines the general terms of the policy.

Liberalization Clause:

If a change is made to the current edition of the policy that broadens coverage, the policyholder may benefit from such changes.

What Law Governs:

This section specifies the laws that apply to the policy and take precedence.

Coinsurance:

Coinsurance is a penalty imposed on the loss payment, unless the amount of insurance carried on the damaged building is (a) at least 80 percent of its replacement cost or (b) the statutory limit available for that building under the NFIP, whichever is less. Coinsurance applies only to building coverage under the Residential Condominium Building Association Policy (RCBAP). We will review coinsurance in the next lesson.

How the Forms Vary

It's important to have a thorough and practical knowledge of all SFIP forms. There are many similarities between the forms, but there are also differences that adjusters must be aware of when adjusting NFIP claims:

The amounts of insurance available
Coverages
Definitions
Provisions, exclusions, restrictions, and limitations in coverage

How This Course is Organized

Now that you have a general idea of what the SFIP entails, we'll go into more detail about each form - section by section, starting with the Dwelling Form. Then we'll review the General Property and RCBAP forms, focusing on the differences from the Dwelling Form.

The Dwelling Form

The Dwelling Form of the policy covers only:

A non-condominium residential building designed for principal use as a dwelling place for one to four families
A single-family dwelling unit in a condominium building

The statutory limit for coverage available under the National Flood Insurance Act of 1968 is:

Coverage A - Building: $250,000
Coverage B - Personal Property: $100,000

Adjuster Tip: The Dwelling Form does not define Flood Hazard Boundary Map or Flood Insurance Rate Map. These definitions are found in the Flood Insurance Manual.

Section I. Agreement

The insuring agreement states the following:

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 (Title 44 CFR).
The insurer will pay the policyholder for direct physical loss by or from flood sustained to the insured property if the policyholder meets these conditions:
- Paid the correct premium
- Complied with all terms and conditions of the policy
- Furnished accurate information and statements

The insurer has the right to review information submitted by the policyholder at any time and revise its policy based on that review.

Section II. Definitions

As an adjuster, knowing how the terms are defined by the policy is essential to proper claims handling.

Let's take some time to review some of the definitions you will come across frequently. In addition to those listed in Section II. Definitions, we will also review other terms used in the policy.

Section II. Definitions - Policyholders and Legal Interest

The SFIP refers to the policyholder and the policyholder's spouse, if a resident of the same household, as "you" or "your" on the Declarations Page.

Policyholder, referred to in the SFIP as "insured" include any mortgagee or loss payee named in the Application and Declarations Page, or 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.

Section II. Definitions - Flood

Flood is defined in the SFIP as follows:

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 the policyholder's property) from:
- Overflow of inland or tidal waters
- Unusual and rapid accumulation or runoff of surface waters from any source
- Mudflow
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

Adjuster Tip: Understanding the general condition of flooding (GCF) is important because for a claim to be payable, a general condition of flooding—as defined in the policy—must have occurred.

Section II. Definitions - Actual Cash Value (ACV)

Actual Cash Value is the cost to replace an insured item of property at the time of loss, less the value of its physical depreciation.

Section II. Definitions - Basement

A basement is defined by the SFIP 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.

Adjuster Tip: It is important to know if the risk has a basement; all basements have restricted coverage.

Section II. Definitions - Building

The policy defines a building as:

A structure with two or more outside rigid walls and a fully secured roof that is affixed to a permanent site
A manufactured home, also known as a mobile home, built on a permanent chassis, transported to its site in one or more sections, and affixed to a permanent foundation
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 law or ordinance

Adjuster Tip: A building does not mean a gas or liquid storage tank or recreational vehicle, park trailer or other similar vehicles, except as described in Section II.B.6.c.

Section II. Definitions - Condominium

A condominium is that form of ownership of real property in which each unit owner has an undivided interest in common elements.

Section II. Definitions - Declarations Page

The Declarations Page includes a computer-generated summary of information the policyholder provided in the application for insurance. The Declarations Page also describes the term of the policy and limits of coverage and displays the premium and the insurer name. The Declarations Page is a part of the flood insurance policy.

Section II. Definitions - Described Location

The described location is the location where the insured building(s) or personal property are found. The described location is shown on the Declarations Page.

Adjuster Tip: Keep in mind that the described location is not always the policyholder's mailing address.

Section II. Definitions - Direct Physical Loss By or From Flood

The SFIP defines this as loss or damage to insured property directly caused by a flood. There must be evidence of physical changes to the property.

Section II. Definitions - Elevated Building

An elevated building is a building that:

Has no basement
Has its lowest elevated floor raised above ground level by foundation walls, shear walls, posts, piers, pilings, or columns

Section II. Definitions - Improvements

Improvements are defined in the Dwelling Form as fixtures, alterations, installations, or additions comprising a part of the insured building.

Adjuster Tip: The adjuster should be aware of the differences in coverage for improvements in the General Property Form and RCBAP, which define improvements as follows:

General Property Form: Fixtures, alterations, installations, or additions comprising a part of the insured building.

RCBAP: Fixtures, alterations, installations, or additions comprising a part of the residential condominium building, including improvements in the units.

Section II. Definitions - Mudflow

A mudflow is a river of liquid and flowing mud on the surfaces of normally dry land areas, as when earth is carried by a current of water. Other earth movements, such as landslide, slope failure, or a saturated soil mass moving by liquidity down a slope, are not mudflows.

Section II. Definitions - Pollutants

Pollutants are 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.

Adjuster Tip: Damage to insured property under the General Property Form is insured if the discharge seepage, migration, release, or escape of the pollutants is caused by flood. The maximum allowed under the General Property Form is $10,000. The SFIP does not pay for the testing for or monitoring of pollutants unless required by law or ordinance. See Section V. Exclusions.

Section II. Definitions - Post-FIRM

A Post-FIRM building is 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.

Adjuster Tip: Pre-FIRM refers to a building built or substantially improved on or before the effective date of the initial FIRM or December 31, 1974. Note that this term is not defined in the policy.

Section II. Definitions - Regular Program

The Regular Program is the final phase of a community's participation in the NFIP. In this phase, a FIRM is in effect and full limits of coverage are available under the Act.

Section II. Definitions - Special Flood Hazard Area (SFHA)

An SFHA is an area having special flood or mudflow, and/or flood-related erosion hazards, and shown on a Flood Hazard Boundary Map or FIRM 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.

FIRM Resources

The FEMA Flood Map Service Center provides tools to locate risks on the FIRM at MSC.FEMA.gov.

FEMA Flood Map Service Center resources include:

Flood Hazard Boundary Map (FHBM): Official map of a community issued by FEMA, where the boundaries of the flood, mudflow, and related erosion areas having special hazards have been designated
Flood Insurance Rate Map (FIRM): Official map of a community on which FEMA has delineated the SFHAs, Base Flood Elevations (BFEs), and risk premium zones applicable to the community
Base Flood Elevation (BFE): The elevation of surface water resulting from a flood that has a one percent chance of equaling or exceeding that level in any given year. The BFE is shown on the Flood Insurance Rate Map (FIRM) for Zones AE, AH, A1–A30, AR, AR/A, AR/AE, AR/A1–A30, AR/AH, AR/AO, V1–V30, and VE

Instructions for Creating a FIRMette

Go to the Flood Map Service Center at www.msc.fema.gov/portal
Type in an address, place, or longitude/latitude coordinates in the address window, and click Search
To view the FIRM, click the view icon on the left
Point and click with your mouse to enlarge the map
To print only a section of the map, click on the Make a FIRMette icon, drag the pink box to the area where the property is located, and click the Adobe PDF button. This creates the FIRMette
On the FIRMette, locate the effective date. This is the FIRM date

Section II. Definitions - Unit

Unit as defined in the SFIP is a single-family unit owned by the policyholder in a condominium building.

Section II. Definitions - 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 SFIP is not a valued policy.

Section III. Property Insured

Now that you are familiar with the definitions, we will review the rest of the policy. The next section, Section III. Property Insured contains four subsections:

A. Coverage A: Building Property
B. Coverage B: Personal Property
C. Coverage C: Other Coverages
D. Coverage D: Increased Cost of Compliance

A. Coverage A: Building Property

The Dwelling Form insures against direct physical loss by or from flood to:

The dwelling
Additions and extensions
A detached garage at the described location
Materials and supplies
A building under construction
A manufactured (mobile) home or travel trailer
Property insured under Coverage A only
Limitations in coverage for Post-FIRM elevated buildings and buildings constructed with basements

Let's review coverage specifications for each in more detail.

A. Coverage A: Building Property - Dwelling

The SFIP insures the dwelling at the described location against direct physical loss by or from flood or for property removed to safety for a period of 45 days at another location as set forth in Section III.C. Other Coverages, 2.b. Property Removed to Safety.

A. Coverage A: Building Property - Additions and Extensions

Coverage A covers additions and extensions attached to and in contact with the dwelling by means of a:

Roof
Elevated walkway
Exterior rigid wall
Load-bearing interior wall (solid)
Stairway

Adjuster Tip: REELS is a handy acronym you can use to remember this list. It is the first letter of each word listed.

At the policyholder's option, additions and extensions connected by any of these methods may be separately insured. For example, if two multi-unit apartment buildings are connected by a roof, the policyholder may purchase one policy for both buildings or two separate policies.

However, 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 insured separately.

A. Coverage A: Building Property - Detached Garage at the Described Location

Coverage for a detached garage at the described location is limited to no more than 10 percent of the limit of liability on the dwelling. Use of this insurance is at the policyholder's option but reduces the building limit of liability. The policy does not cover any detached garage used or held for use for residential (i.e., dwelling), business, or farming purposes.

A. Coverage A: Building Property - Materials and Supplies

Materials and supplies used to alter, repair, or construct the insured building or a insured detached garage must be in a fully enclosed building at the described location or on an adjacent property. See Section III.A Coverage A ‒ Building Property, Item 4 for more information.

A. Coverage A: Building Property - Building Under Construction

When a building is under construction, the deductible is doubled (see Dwelling Form Section VI. Deductibles, second paragraph of provision A) and, if there is no work on the building for a period of 90 continuous days, coverage ceases until such time as work is resumed. Coverage is provided for those items that will become part of the finished building. For example, rebar, footings, and concrete walls that will become part of the finished building are insured.

Note that there is no coverage for:

• A building under construction before it is walled and roofed when the building is Post-FIRM and the basement floor or lowest elevated floor is below the BFE in any of Zones AE, AH, A1–A30, AR, AR/A, AR/AE, AR/A1–A30, AR/AH, or AR/AO, or below BFE adjusted for wave action in Zones VE or V1-V30a

A. Coverage A: Building Property - Manufactured (Mobile) Home or Travel Trailer

Manufactured (mobile) homes and travel trailers are described in the Definitions section of this module under Building and in the SFIP in Definitions II.B.6.b and II.B.6.c.

If the manufactured home or travel trailer is in an SFHA, it must be anchored in the one of the following manners at the time of the loss:

By over-the-top or frame ties to ground anchors
In accordance with the manufacturer's specifications
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

A. Coverage A: Building Property - Coverage A Only Items

The items listed in the Dwelling Form in Section III.A.7 are considered building property; they cannot be paid under contents coverage unless Section III.B.4, applies. Other building items are not excluded from coverage, but only those items listed in Section III.A.7 will be insured as part of the building.

Awnings and canopies
Blinds
Built-in dishwashers
Built-in microwave ovens
Carpet permanently installed over unfinished flooring
Central air conditioners
Elevator equipment
Fire sprinkler systems
Walk-in freezers
Furnaces and radiators
Garbage disposal units
Hot water heaters, including solar water heaters
Light fixtures
Outdoor antennas and aerials fastened to buildings
Permanently installed cupboards, bookcases, cabinets, paneling, and wallpaper
Plumbing fixtures
Pumps and machinery for operating pumps
Ranges, cooking stoves, and ovens
Refrigerators
Wall mirrors, permanently installed

A. Coverage A: Building Property - Coverage A Only Items (cont'd)

Under Section III.A.8, 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, coverage is limited to any of the following items, if installed in their functioning locations and, if necessary for operation, connected to a power source:

Central air conditioners
Cisterns and the water in them
Drywall for walls and ceilings in a basement and the cost of labor to nail it, unfinished and unfloated and not taped, to the framing
Electrical junction and circuit breaker boxes
Electrical outlets and switches
Elevators, dumbwaiters, and related equipment, except for related equipment installed below the BFE after September 30, 1987
Fuel tanks and the fuel in them
Furnaces and hot water heaters

A. Coverage A: Building Property - Coverage A Only Items (cont'd)

Nonflammable insulation in a basement
Pumps and tanks used in solar energy systems
Stairways and staircases attached to the building, not separated from it by elevated walkways
Sump pumps
Water softeners and the chemicals in them, water filters, and faucets installed as an integral part of the plumbing system
Well water tanks and pumps
Required utility connections for any item in this list
Footings, foundations, posts, pilings, piers, or other foundation walls and anchorage systems required to support a building
Cleanup

Adjuster Tip: Insulation and unfinished drywall listed are insured in a basement but are not insured in a Post-FIRM elevated building located in an SFHA as listed in Section III.A.8.

Note: The adjuster should be aware of the differences in Section III. Property Insured in the Dwelling Form, General Property Form, and RCBAP.

B. Coverage B: Personal Property

If the policyholder purchases personal property coverage, the SFIP insures against direct physical loss by or from flood to personal property inside a building at the described location. Note that:

Personal property must be owned by the policyholder or family members of the policyholder's household, or at the policyholder's option, the property owned by the policyholder's guests or servants
Personal property is insured for a period of 45 days at another location as set forth in the SFIP in Section III.C. Other Coverages, 2.b. Property Removed to Safety
Personal property in a building that is not fully enclosed must be secured to prevent floatation 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

Adjuster Tip: Personal Property coverage must be purchased separately, and a separate deductible is applied.

The personal property within a detached garage is insured if the policyholder purchased Coverage B ‒ Personal Property Coverage (Dwelling Form only), even if the detached garage is used or held for use for residential (i.e., dwelling), business, or farming purposes, subject to limitations of the policy.

Adjuster Tip: The personal property within a detached garage is insured if the policyholder purchased Coverage B ‒ Personal Property Coverage (Dwelling Form only), even if the detached garage is used or held for use for residential (i.e., dwelling), business, or farming purposes, subject to limitations of the policy.

B. Coverage B: Personal Property - Coverage B Only Items

Coverage for personal property includes the following property, which is insured under Coverage B only:

Air conditioning units, portable or window type
Carpets, not permanently installed, over unfinished flooring
Carpets over finished flooring
Clothes washers and dryers
"Cook-out" grills
Food freezers, other than walk-in, and food in any freezer
Portable microwave ovens and portable dishwashers

B. Coverage B: Personal Property - Personal Property Located Below the Lowest Elevated Floor

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:

Air conditioning units, portable or window type
Clothes washers and dryers
Food freezers, other than walk-in, and food in any freezer

B. Coverage B: Personal Property - Tenants

If the policyholder is a tenant and has insured personal property under Coverage B - Personal Property, the policy covers such property, including a cooking stove or range and refrigerator, if owned by the policyholder. The policy also covers improvements made or acquired solely at the policyholder's expense in the dwelling or apartment in which the policyholder resides, but for not more than 10 percent of the limit of liability for personal property on the Declarations Page. Use of this insurance is at the policyholder's option but reduces the personal property limit of liability.

Adjuster Tip: It is important that you, the adjuster, document the ownership of the stove or range and refrigerator. With regard to improvements, the adjuster must document and confirm that improvements were made or acquired solely at the policyholder's expense, and also document and confirm that such items are not insured under the building owner's flood policy, if one exists.

B. Coverage B: Personal Property - Condominium Unit

If the owner of a condominium unit has insured personal property under Coverage B, coverage is provided for the interior walls, floor, and ceiling (not otherwise insured under a flood insurance policy purchased by the 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 the policyholder's option but reduces the personal property limit of liability.

Adjuster Tip: If there is an RCBAP in effect on the building in which the unit is located, the RCBAP is always primary. Building improvements are insured under the RCBAP, even if at the unit owner's expense. In order for such improvements to be insured under the unit owner's Dwelling Form policy, it must be confirmed and documented that there is no RCBAP in effect for the building in which the unit is located.

B. Coverage B: Personal Property - Special Limits

A total of $2,500 is the maximum payment allowed for artwork; rare books; jewelry; furs or any article containing fur which represents its principal value; as well as personal property used in any business. This maximum payment also extends to the following:

Photographs
Collectibles
Memorabilia
Porcelain or other figurines
Sports cards
Autographed items
Watches
Precious and semiprecious stones
Articles of gold, silver, or platinum

This coverage is limited to personal property owned by the named insured, household family members, servants, and guests. Note: In the case of antiques, coverage is provided only for the functional value.

C. Coverage C - Other Coverages

Other Coverages under the SFIP are:

Debris removal
Loss avoidance measures
Condominium loss assessments

Next, we'll review the coverage specifications for each in detail.

C. Coverage C - Other Coverages - Debris Removal

We will pay the expense to remove non-owned debris that is on or in insured property and debris of insured property anywhere.

If the policyholder or a member of the household performs the removal work, the value of the work will be based on the Federal minimum wage. This coverage does not increase the Coverage A or Coverage B limit of liability.

C. Coverage C: Other Coverages - Loss Avoidance Measures

Sandbags, Supplies, and Labor

The policy pays up to $1,000 for costs incurred to protect the insured building from a flood or imminent danger of flood for the following:

Reasonable expenses to buy sandbags, including the sand to fill them; fill for temporary levees; pumps; and plastic sheeting and lumber used in connection with these items
The value of work, at the Federal minimum wage, that the policyholder or a member of his or her household performs

This coverage only applies if one of these conditions occurs:

A general and temporary condition of flooding in the area near the described location must occur, even if the flood does not reach the insured building
A legally authorized official must issue an evacuation order or other civil order for the community in which the insured building is located calling for measures to preserve life and property from the peril of flood

This coverage does not increase the Coverage A or Coverage B limit of liability.

C. Coverage C: Other Coverages - Loss Avoidance Measures

Property Removed to Safety

The policy pays up to $1,000 for the reasonable expenses the policyholder incurs to move insured property to a place other than the described location in order to protect it from flood or imminent danger of flood. Reasonable expenses include the value of the work, at Federal minimum wage, that the policyholder or a member of his or her household performs.

If the insured property is moved 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, the insured property is insured at that location for a period of 45 consecutive days from the date the policyholder begins to move it there. The personal property must be placed in a fully enclosed building or otherwise reasonably protected from the elements.

Any property removed, including a moveable home as described under the policy definition of a building, must be placed above ground level or outside of the SFHA.

This coverage does not increase the Coverage A or Coverage B limit of liability.

C. Coverage C: Other Coverages - Condominium Loss Assessments

If the policy insures a unit, it pays, up to the Coverage A limit of liability, the policyholder's share of loss assessments charged against the policyholder by the condominium association in accordance with the condominium association's articles of association, declarations, and the policyholder's deed. 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.

D. Coverage D: Increased Cost of Compliance (ICC)

ICC coverage pays the policyholder for the cost to comply with a state or community floodplain management law or ordinance after a direct physical loss by flood. When a building insured by an SFIP under the NFIP sustains a flood loss and the state or community declares the building to be substantially or repetitively damaged, ICC will help pay up to $30,000 for the cost to elevate, floodproof, demolish, or relocate the building.

ICC coverage is available on residential and non-residential buildings (this category includes public or government buildings, such as schools, libraries, and municipal buildings) insured under the NFIP.

D. Coverage D: Increased Cost of Compliance (ICC) - Limit of Liability

The limit of liability under Coverage D is $30,000. This coverage is only applicable to policies with building coverage (Coverage A) and is in addition to the building limit the policyholder selected on their application, which appears on the Declarations Page. No separate deductible applies. The maximum amount collectable under this policy for both Coverage A - Building Property and Coverage D - Increased Cost of Compliance, however, cannot exceed the statutory limit permitted under the Act.

D. Coverage D: Increased Cost of Compliance (ICC) - Eligibility

A structure insured under Coverage A - Building Property sustaining a loss caused by a flood as defined by this policy must:

Be a repetitive loss structure
Be a structure insured under the NFIP
Have suffered flood damage on two occasions during a 10-year period which ends on the date of the second loss
Have incurred a cost to repair the flood damage that equaled or exceeded 25 percent of the market value of the structure at the time of each loss
Have incurred a cost to repair that equals or exceeds 50 percent of the market value of the structure at the time of the flood

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 structure.

D. Coverage D: Increased Cost of Compliance (ICC) - Eligibility (cont'd)

Coverage D pays the policyholder to comply with state or local floodplain management law or ordinances that meet the minimum standards of the NFIP found in the Code of Federal Regulations at 44 CFR 60.3. Coverage D pays for compliance activities that exceed those standards under these conditions:

Elevation or floodproofing in any risk zone to preliminary or advisory BFEs provided by FEMA which the state or local government has adopted and is enforcing for flood-damaged structures in such areas. This includes compliance activities in B, C, X, or D Zones which are being changed to zones with BFEs. This also includes compliance activities in zones where BFEs are being increased and a flood-damaged structure must comply with the higher advisory BFE. 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 structures to elevations derived solely by the community
Elevation or floodproofing above the BFE to meet state or local "freeboard" requirements (i.e., that a structure must be elevated above the BFE)

D. Coverage D: Increased Cost of Compliance (ICC) - Eligibility (cont'd)

Under the minimum NFIP criteria at 44 CFR 60.3(b)(4), states and communities must require the elevation or floodproofing of structures in unnumbered A Zones to the BFE where elevation data is obtained from a Federal, state, or other source. Such compliance activities are also eligible for Coverage D
Coverage D also pays for the incremental cost, after demolition or relocation, of elevating or floodproofing a structure during its rebuilding at the same or another site to meet state or local floodplain management law or ordinance, subject to Section 5, Exclusions.
This coverage also pays to bring a flood-damaged structure into compliance with state or local floodplain management law or ordinance even if the structure received a variance before the present loss from the applicable floodplain management requirements

Adjuster Tip: A structure is eligible for an ICC claim payment if the community determines that the structure is considered substantially damaged as defined and amended by the Flood Insurance Reform Act (FIRA) of 2004. FIRA 2004 was designed to "reduce losses to properties for which repetitive flood insurance claim payments have been made" and amends the definition of substantially damaged to include a threshold lower than 50 percent.

D. Coverage D: Increased Cost of Compliance (ICC) - Conditions

When a structure insured under Coverage A - Building Property sustains a loss caused by a flood, the Coverage D payment for the loss 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 law or ordinance. Payment for eligible demolition activities will be for the cost to demolish and clear the site of the building debris caused by the enforcement of current state or local floodplain management law or ordinance. 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.

When the building is repaired or rebuilt, it must be intended for the same occupancy as the present building unless otherwise required by current state or local floodplain management law or ordinance.

D. Coverage D: Increased Cost of Compliance (ICC) - Exclusions

The SFIP will not pay ICC coverage for any of the following:

Buildings insured under the NFIP's Emergency Program
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
The loss in value to any insured building or other structure due to the requirements of any ordinance or law
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
Any Increased Cost of Compliance under this Coverage D:
- Until the building is elevated, floodproofed, demolished, or relocated on the same or to another premises
- Unless the building is elevated, floodproofed, demolished, or relocated as soon as reasonably possible after the loss, not to exceed 6 years*
Any code upgrade requirements (e.g., plumbing or electrical wiring) not specifically related to the state or local floodplain management law or ordinance
Any compliance activities needed to bring additions or improvements made after the loss occurred into compliance with state or local floodplain management law or ordinance
Loss due to any law or ordinance that the policyholder was required to comply with before the current loss
Any rebuilding activity to standards that do not meet the NFIP's minimum requirements. This includes any situation where the policyholder 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 BFE
Increased Cost of Compliance for a garage or carport
Any structure insured under an NFIP Group Flood Insurance Policy
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 law or ordinance

D. Coverage D: Increased Cost of Compliance (ICC) - Other Provisions

The following provisions apply to ICC coverage:

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
All other conditions and provisions of this policy apply

D. Coverage D: Increased Cost of Compliance (ICC) - Date of Loss

It's important to note that:

The date of loss for an ICC claim is the date of loss for the underlying flood claim
The policyholder has six years* from the date of loss or any extension period granted by the Administrator in which to complete the mitigation measure(s)
The ICC payment amount cannot exceed the statutory limit:
- $250,000 – Single Family
- $500,000 – Non-Residential
- $250,000 ‒ Residential Condominium (multiplied by the number of units)
There is no "assignment of Coverage D" except to the community when it is in conjunction with a FEMA program such as the Hazard Mitigation Grant Program (HMGP). The HMGP provides grants to states and local governments to implement long-term hazard mitigation measures after a major disaster declaration. The purpose of the HMGP is to reduce the loss of life and property due to natural disasters and to enable mitigation measures to be implemented during the immediate recovery from a disaster. The HMGP is authorized under Section 404 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act

* Please Note: This means NFIP policyholders will now have six years to complete the approved ICC mitigation measures starting on the date of the underlying flood insurance indemnity loss if the loss occurred on or after January 1, 2011.

D. Coverage D: Increased Cost of Compliance - Assignment

The adjuster completes the Adjuster Preliminary Damage Assessment (APDA) form when there is possible “substantial damage” to the insured building directly from flood, non-covered flood damage, and damage from other perils. Only communities can determine substantial damage. Substantial damage is defined as damage from any origin where the cost to repair the structure to its before damaged condition equals or exceeds 50 percent of the market value of the building before the damage occurred. The adjuster should know that some communities have adopted a percentage threshold of less than 50 percent. Community officials can efficiently direct resources for substantial damage inspection when APDAs are received early in the flood disaster recovery process.

D. Coverage D: Increased Cost of Compliance - Adjuster Duties

All adjusters should adhere to the following:

For the purpose of claim handling, the adjuster should complete and submit an APDA when the estimated cost to repair flood damage approaches or exceeds 50 percent of the RCV of the building.
While the APDA form contains space for two separate claims, ONLY submit one claim per form. Submitting one claim per form helps to avoid confusion during the review process at the community level.
The timely submission of the APDA is important. FEMA requests that adjusters submit the APDA as soon as possible following the initial inspection. Email the APDA forms to the NFIP at NFIPClaimsMailbox@fema.dhs.gov. The subject line should read “APDA Enclosed.” Submit a copy of the APDA to the company along with the Preliminary Report.

What's Next?

Congratulations! You've completed Lesson 2: SFIP Overview & Dwelling Form Pt.1. You are halfway through the NFIP Claims Review!

Your next step is to complete Lesson 3: Dwelling Form Pt. 2, General Property, RCBAP.