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					W-39: Private Flood Insurance- Practical Issues
Private Flood Insurance

   Everything you need to know in 90 minutes

An Open Discussion between Greg, Lauri, Ed
and YOU, the attendee

Questions taken anytime - between us we will
discover the answers!

                                               2
A.Legal or Administrative
     Lawyers, managers, supervisors, corporate
B. Lenders / Compliance
C. Production / Marketing
     Producers, agents, brokers, marketing area
D. Underwriting / Loss Control
E. Others-not included above
                                                  3
Lender Requirements

 •   Availability

          NFIP AVAILABLE

          NFIP NOT AVAILABLE

 •   Suitability

                               4
FEMA CRITERIA
1.   Licensure
2.   Surplus Lines Recognition
3.   Cancellation / Non Renewal Notice
4.   Policy Coverage
5.   Mortgage Clause
6.   Legal Recourse

                                         5
Financial Condition

• State Insurance Departments

• Admitted vs. non-admitted insurers

• State insurance guaranty funds



                                       6
Cancellation and Non-Renewal Provisions

•   Perceived increases in risk

•   Loss activity

•   Advance notification – borrower / lender

•   Information about NFIP coverage
    availability
                                               7
THE DEVIL




       IS IN THE DETAILS


                           8
       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 (at least 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 A.1.a. above.

                                                                  9
g. Water
       (1) Flood, surface water, waves, tides, tidal waves, overflow of any
       body of water, or their spray, all whether driven by wind or not;
       (2) Mudslide or mudflow;
       (3) Water that backs up or overflows from a sewer, drain or sump; or
       (4) Water under the ground surface pressing on, or flowing or
       seeping through:
               (a) Foundations, walls, floors or paved surfaces;
               (b) Basements, whether paved or not; or
               (c) Doors, windows or other openings.
       But if Water, as described in g.(1) through g.(4) above, results in fire,
       explosion or sprinkler leakage, we will pay for the loss or damage
       caused by that fire, explosion or sprinkler leakage.


                                                                          10
Company A – Form 1
  14. Water Damage means accidental discharge or
  leakage of water or steam as the direct result of the
  breaking or cracking of any part of a system or appliance
  containing water or steam.

Company A – Form 2
  9. WATER DAMAGE
     All water damage, except damage caused by or
     resulting from the peril of FLOOD.

                                                          11
e. Water
       (1) Flood, Surface water, wave, tides, tidal wave. overflow of any
       body of water or their spray, whether driven by wind or not;
       (2) Mudslide or mudflow:
       (3) Water which backs up from a sewer or drain; or
       (4) Water under the ground surface pressing on, or flowing or
       seeping through;
            –(a) Foundations, walls, floors, or paved surfaces;
            –(b) Basements, whether paved or not; or
            –(c) Doors, windows, or other openings.

    But we will pay for direct “loss” caused by or resulting fire or
    explosion.
    This Exclusion does not apply to property in transit.


                                                                        12
Definition of Flood – Carrier A
  –Flood, including surface water. But if loss
  or damage from fire explosion or leakage
  from fire protective equipment results, we
  will pay for that resulting damage.


                                               13
Definition of Flood – Carrier B
  –Flood means the overflow from a stream
  or any other body of water.
  –Flood also means surface water, waves,
  tidal waves or movements or spray from
  any of these, whether driven by wind or not.


                                            14
Definition of Flood – Carrier C
A condition of inundation of normally dry areas,
including dewatered areas, that results from;
  –A. Rainfall and resultant runoff, rising water, surface
  water, storm surge, waves, tidal water, tidal wave or
  tsunami, all whether driven by wind or not, and/or;
  –B. The overflowing of any breach of streams, rivers,
  lakes, reservoirs or other bodies or water; or spray from
  any of the foregoing, all whether driven by wind or not.


                                                        15
                        Private Carriers Flood Definition


Definition of Flood – Carrier D
FLOOD· means:
A. A general and temporary condition of partial or complete inundation of normally dry land
    areas, including dewatered areas, from:
     1. The rising, overflow, or expansion beyond normal boundaries of any body of water or
        watercourse, whether such body of water or watercourse is natural or man made;
     2. The release or breaking of the boundaries of natural or man-made bodies of
           water or watercourses including the release or overflow of any water impounded
        by a dam, dike, reservoir or any other barrier or diversionary device;
     3. Tsunami, waves, tide or tidal waters;
     4. The unusual and rapid accumulation or runoff of surface waters from any source;
     5. Mudslides or mudflows where mudslide or mudflows means 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 and deposited along the path of the current; or the spray from any
        of the foregoing, whether driven by wind or not.

B. Direct physical loss or damage by fire or explosion resulting from Flood as defined above,
    will not be considered loss by Flood within the terms and conditions of this policy.

                                                                                          16
Limits of Insurance
•   NFIP vs. private – Advantages
    • Higher limits
    • Additional coverages
    • Excess coverage

•   Potential disadvantages
    • Per loss and aggregate limits
                                      17
Specific vs. Blanket Insurance

•   Multiple properties

•   Proximity of locations

•   Loss limits




                                 18
Flood as a Sub-Limit

•   Flood limits may be lower

•   Sub-limits may not be shown on
    evidence of coverage document




                                     19
NFIP
•   Actual Cash Value
•   Replacement Cost
Private
•   Actual Cash Value
•   Replacement Cost
•   Functional Replacement
                             20
Flood Zone Exclusions

•   Always read the policy Exclusions and
    the Flood Endorsement document

•   NFIP’s “Reduction and Reformation of
    Coverage”



                                            21
Flood Zone Exclusions - Example
“Flood coverage provided by this endorsement
does not apply to any property located in the
following flood zones, as determined by the
Federal Emergency Management Agency’s flood
insurance rating maps: V, V-1 through V-30, VE
or VO.”




                                                 22
Waiting Periods

•   Many private policies – less than
    standard NFIP 30-days

•   Lender-required policies




                                        23
Deductibles
•   Breadth of coverage requirements
•   Deductibles equal to NFIP maximum
•   Percentage deductibles
    • % of coverage / % of loss

•   Borrower’s financial condition

                                        24
“Other Insurance” Clauses

•   Primary or Excess policies

•   Payouts – Pro rata or Excess

•   Only in excess of NFIP maximum




                                     25
“Other Insurance” Clauses - Example
“We will pay that portion of the loss which is in
excess of the greater of the applicable limit of the
primary flood insurance for the covered property;
or the maximum coverage limit available through
the National Flood Insurance Program (NFIP). No
loss proceeds will be paid until the primary insurer
has paid their full limit of insurance for the covered
property.”

                                                    26
The Mortgage Clause
•   Continuing coverage regardless of
    acts or neglect by the insured
•   SFIP – 30 days from Notice
•   Private – May not extend past the
    policy expiration date



                                        27
Legal Action Clause
•   NFIP – 1 year from claim denial or
    payment
•   Private policies – State requirements




                                            28
Regulatory Examinations
•   Review of General Practices and
    Procedures
•   Proof of submission for “Notice to
    Borrower” Form
•   Timing of requirements for notices
•   Proper Coverage Amount

                                         29
Regulatory Examinations

•   Review of Procedures for addressing
    reclassification by flood map revisions

•   Exercises forced placement

•   Review contractual obligations



                                              30
Regulatory Penalties Required
•   Place Insurance
•   Escrow Flood Insurance Premiums
•   Failure to provide Notice Requirements
•   Force place the insurance


                                         31
The Aggrieved Borrower

•   Flood Damaged Property in SFHA

•   No Coverage in Place

•   Cause of Action Against the Lender




                                         32
Condominium

•   Association vs. Unit Owner

•   Maximum Limit Available

•   Duplicate coverage




                                 33
Private Flood Policy Considerations
•   MPG 6 item “checklist”
    • Are “shortcomings” significant?
•   Private insurance market does have
    a roll
    • Excess, Non-participating communities
•   Lender’s ultimate responsibility to
    confirm suitability
                                              34
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