39726 Federal Register / Vol. 65, No. 124 / Tuesday, June 27, 2000 / Rules and Regulations

FEDERAL EMERGENCY

MANAGEMENT AGENCY

44 CFR Parts 59 and 61

RIN 3067–AC79

National Flood Insurance Program

(NFIP); Inspection of Insured

Structures by Communities

AGENCY: Federal Emergency

Management Agency (FEMA).

ACTION: Final rule.

SUMMARY: This final rule establishes an

inspection procedure under the

National Flood Insurance Program

(NFIP) to help verify that structures

comply with the community’s

floodplain management ordinance and

to ensure that property owners pay

flood insurance premiums

commensurate with their flood risk. The

inspection procedure requires owners of

insured buildings to obtain an

inspection from community floodplain

management officials as a condition of

renewing the Standard Flood Insurance

Policy (SFIP) on the building. We,

FEMA, will undertake the inspection

procedure on a pilot basis in two

communities, Monroe County, Florida,

and the Village of Islamorada located in

Monroe County. We will make any

decision to implement the inspection

procedure in other NFIP communities

outside Monroe County, Florida only

after completing the pilot inspection

procedure within the selected

communities and after an evaluation to

determine the procedure’s effectiveness.

EFFECTIVE DATE: July 27, 2000.

FOR FURTHER INFORMATION CONTACT:

Donald Beaton, Federal Emergency

Management Agency, Federal Insurance

Administration, 202–646–3442,

(facsimile) 202–646–4327, (email)

donald.beaton@fema.gov, or Lois

Forster, Federal Emergency

Management Agency, Mitigation

Directorate, 202–646–2720, (facsimile)

202–646–2577, (email)

lois.forster@fema.gov. Mailing address:

500 C Street, SW., Washington, DC

20472.

SUPPLEMENTARY INFORMATION:

Throughout the preamble and the rule

we use the terms ‘‘we’’, ‘‘our’’ and ‘‘us’’

to mean and refer to FEMA. The term

‘‘you’’ refers to the reader.

Scope of Public Participation

We received over 65 letters and e-mail

messages about the proposed rule, (64

FR 24256, May 5, 1999), many of which

contained multiple comments. A

number of these comments arrived after

the closing date for comments, but

because these comments were specific

to the inspection procedure, we

included them as part of the official

record. Most of the letters represented

local interests from Monroe County and

the Village of Islamorada. Those

submitting formal comments on the

proposed rule included: one member of

the Florida State House of

Representatives, community officials

and representatives of local

governments within Monroe County,

Florida and from communities outside

of Florida, Florida State and regional

agencies, a State of Louisiana agency,

private citizens, representatives from

local businesses and business

associations, and representatives from

lending institutions and associations

and insurance companies.

Eight individuals participated in a

meeting at FEMA Headquarters on

August 31, 1999, including three

representatives from the Village of

Islamorada, Florida, a representative

from the State of Florida, a private

citizen, and three congressional staff

members. We recorded oral comments

at this meeting and included them as

part of the official record.

Nine individuals participated in a

meeting at FEMA Headquarters on

September 10, 1999, including four

representatives from Monroe County,

Florida, two representatives from the

Key West Chamber of Commerce, and

three congressional staff members. We

also recorded oral comments at this

meeting and included them as part of

the official record.

Introduction

We selected Monroe County and the

Village of Islamorada for this inspection

procedure due to the unique

circumstances in the communities.

Almost the entire County, including the

Village of Islamorada, could be

inundated by the 100-year flood (a flood

having a one-percent chance of being

equaled or exceeded in any given year).

A number of factors make the

conditions in Monroe County and

Islamorada unique, including:

• The nature of the flood hazard,

• The number of possible violations

(an estimated 2,000–4,000 illegally built

enclosures in the communities),

• The exposure of these buildings to

flood damages,

• The potential for loss of life in the

event of a flood,

• The factors that have limited the

community’s ability to determine

whether a building with an enclosure

complies with the local floodplain

management ordinance as documented

in the proposed rule, and

• The communities’ willingness to

participate in this procedure.

We are providing the inspection

procedure to these communities as a

tool for addressing their unique

situation.

Risk of Flooding

Comments on the Flood Risk

We received ten comments

questioning the need for the inspection

procedure on the basis that there is

infrequent flooding and a low flood risk

in the Florida Keys compared to other

areas of the United States. Several

people questioned FEMA’s

determination of the flood risk in the

Florida Keys. One person specifically

stated that FEMA is unfairly applying

the rules that are used to determine the

flood elevations along the Mississippi

River to the Florida Keys. This person

added that the Florida Keys will flood

only a mile or two near the eyewall of

a storm on the onshore quadrant and

that floodwaters will rise and fall gently

as the storm moves across similar to

Hurricane Andrew in the Kings Bay and

Saga Bay area where water was only a

few feet high in homes.

Several people commented that most

storm-induced damages to buildings in

the Florida Keys would be due to wind

loads and not from flooding or waves

hitting the building since waves occur

only near the coast. In similar

comments, several people stated that

there is no basis for the FEMA enclosure

requirement since there was little, if

any, evidence from Hurricane Mitch and

Hurricane Georges that these enclosures

were damaged or that they damaged the

main portion of the building or nearby

buildings.

Some stated that FEMA’s reasoning

for the inspection procedure is flawed

in reference to our statements in the

proposed rule that people living in

lower level enclosures may not be aware

of the danger of hurricanes and that

there will be costly outlays for flood

fighting. As an example, one commenter

stated that people are aware of

hurricanes because the Florida Keys are

surrounded by water. This person

remarked that people living in lower

level enclosures are aware of the danger

of a hurricane approaching and will

evacuate and be protected since they

will have advance warning.

Response

We identify and map flood hazard

areas in communities nationwide by

conducting a Flood Insurance Study

(FIS) and publishing maps referred to as

Flood Insurance Rate Maps (FIRMs). We

do this in close coordination with the

Federal Register / Vol. 65, No. 124 / Tuesday, June 27, 2000 / Rules and Regulations 39727

community that we are studying. We

base these flood hazard areas, which we

refer to as Special Flood Hazard Areas

(SFHAs), on a flood that would have a

1-percent chance of being equaled or

exceeded in any given year, also

referred to as the 100-year flood or base

flood. The NFIP adopted the 1-percent

annual chance flood after considering

various alternatives. The 1-percent

annual chance flood is the standard for

floodplain management in all of the

approximately 19,000 participating

communities in the NFIP. Federal

agencies and most State agencies use the

1-percent chance flood as their standard

for floodplain management. The

standard is a reasonable compromise

between the need for establishing

building regulations to minimize

potential loss of life and property and

the economic benefits to be derived

from floodplain development. A 1-

percent annual chance flood has a 26-

percent (or 1 in 4) chance of occurring

over the life of a 30-year mortgage.

We determine the 1-percent annual

chance flood, shown on the FIRMs as A

Zones or V Zones, from information that

we obtain through consultation with the

community, floodplain topographic

surveys, detailed hydrologic and

hydraulic analyses, and historic records.

We (and our contractors) use commonly

accepted computer models that estimate

hydrologic and hydraulic conditions to

determine the 1% annual chance flood

event, to determine Base Flood

Elevations, and to designate flood risk

zones. The procedures and models that

we use to map the SFHA and determine

Base Flood Elevations along the coast

are very different from the procedures

and models that we use for rivers and

small lakes. In both cases, we use

industry-accepted practices.

Along rivers, streams, and lakes

within the United States, we compute

flood elevations using computer models,

statistical techniques, or both. These

elevations are a function of the amount

of water expected to enter a particular

system by means of precipitation and

runoff. The SFHAs in riverine

environments are primarily identified as

A Zones on the FIRM.

Along the coast, we determine SFHAs

by an analysis of storm surge, wind

direction and speed, wave heights, and

other factors. We designate these areas

along the coast as both V Zones and A

Zones on the FIRM. V Zones are the

more hazardous coastal flood zones

because they are subject to high velocity

wave action. We apply the V Zone

designation to those areas along the

coast where water depth and other

conditions would support at least a 3-

foot wave height. We also consider other

factors in identifying V Zones, such as

wave run-up. We usually designate A

Zones in coastal areas landward of the

V Zone. Coastal flood hazard areas

mapped as A zones can be subject to

storm surge and damaging waves;

however, the waves are less than 3 feet

in height.

Monroe County and the Village of

Islamorada, Florida have a serious flood

risk that includes storm surges, wave

action, and high velocity flows. As

stated in the proposed rule, we have

designated almost the entire area of

Monroe County, including the Village of

Islamorada, as an SFHA. We have

identified velocity zones (V Zones)

along the coastline of Monroe County

and the Village of Islamorada and

designated the remaining portion of the

SFHAs as coastal A Zones. Only a small

area of Key Largo, Cotton Key, and

Upper Matecumbe Key have areas with

ground elevations high enough to be

outside of the SFHA. You can find

details regarding storm surge and wave

height analyses used to delineate the

SFHAs and to determine Base Flood

Elevations in the Flood Insurance

Study, March 1997, for Monroe County

and incorporated areas including the

Village of Islamorada.

Overwash flooding and wave action

from Hurricane Georges and Tropical

Storm Mitch were very limited, well

below the elevation of the 1-percent

annual chance flood. The National

Hurricane Forecast Center categorized

Hurricane Mitch as a Tropical Storm by

the time it reached the Florida Keys

with sustained winds estimated near 45

MPH. Hurricane Georges was a Category

2 storm when it passed the Florida

Keys. When Hurricane Georges passed

the Florida Keys, the highest measured

sustained wind reported was 91-mph

with peak gusts to 107-mph at Sombrero

Key. Cudjoe and Big Pine Key sustained

higher gusts. In the Florida Keys, the

storm surge elevations from Hurricane

Georges ranged from 3 feet to 6 feet

above Mean Sea Level (MSL) [National

Weather Service, 1998], well below the

elevation of the 1-percent annual chance

flood, with a total rainfall amount of 8.5

inches in Key West (NWS, 1998).

Although the storm surge and wave

action from Hurricane Georges were not

severe, we paid approximately 3,500

flood-related claims of over $40 million

dollars in the Florida Keys as a result of

this storm. In some areas of the County,

flooding of several inches to several feet

remained at building sites from 12 to 20

hours after the storm event.

Approximately 80% of the claims were

for pre-FIRM buildings. In Monroe

County and the Village of Islamorada

buildings are considered pre-FIRM if the

starting date of construction or

substantial improvements of buildings

occurred on or before December 31,

1974.

The remaining 20 percent of the

claims were for post-FIRM construction.

By statute we consider all new

construction in Monroe County and the

Village of Islamorada built after

December 31, 1974, and substantial

improvements to pre-FIRM buildings to

be post-FIRM. Under the NFIP, these

post-FIRM buildings must meet the

requirements of the community’s

floodplain management ordinance to

protect them from flood damages. We

would expect that most of the floodrelated damage and flood claims would

be to pre-FIRM buildings, which have

not been protected to the minimum

floodplain management requirements of

the NFIP.

However, in reviewing a number of

post-FIRM claims from Hurricane

George in Monroe County, we found

several post-FIRM buildings with

ground level enclosures below the

lowest floor of the elevated building that

sustained flood-related damages from a

few hundred dollars to several thousand

dollars. We could not determine

precisely whether these enclosures were

built to the minimum requirements of

the NFIP or were completely built with

finished living space. The flood-related

damages to these enclosures and the

contents are, for the most part, not

covered under the Standard Flood

Insurance Policy (see section below on

Flood Insurance).

The residents of Monroe County have

been fortunate that a major hurricane

with an associated 1-percent annual

chance flood has not made landfall in

recent years, but that does not mean that

one will not occur. The State of Florida

is one of the most hurricane-prone states

in the United States (U.S.). According to

the National Weather Service, from

1900–1994, Florida experienced over

297 direct and indirect landfalls from

hurricanes, the most of any mainland

area of the U.S. From 1900–1996,

Florida has experienced 57 direct

hurricane hits and of these over 24 were

major hits (Category 3, 4, or 5 on the

Saffir/Simpson scale). Florida also has

the highest incidence rate of Category 3

or greater landfalls. Within the State of

Florida from 1900–1996, southwestern

Florida and southeastern Florida have

experienced 18 and 26 direct hurricane

hits respectively (NOAA). Several of

these storms had fairly sizable storm

tide levels causing extensive flooding.

For example, Hurricane Donna, 1960,

had tide levels just south of the Village

of Islamorada in Upper Matecumbe Key

measured at 13.45 feet above MSL (FIS,

39728 Federal Register / Vol. 65, No. 124 / Tuesday, June 27, 2000 / Rules and Regulations

1997). In 1935, a Labor Day Hurricane

caused tide levels of 14 feet to 18 feet

above MSL in the Tavernier-Islamorada

area (FIS, 1997).

We agree that people living in Monroe

County are generally aware that the

Monroe County is prone to hurricanes.

However, property owners with finished

ground level enclosures or tenants who

live in these enclosures may not be

aware of the potential dangers and the

damaging effects of storm surges

commonly associated with coastal

storms and hurricanes. Although

adequate warning time may be given,

property owners or tenants may

undertake extensive efforts to protect

the finished ground level enclosure and

their contents. These flood-fighting

efforts could add significant delays in

evacuating from the Florida Keys in the

event of an approaching hurricane. As a

result, an orderly and timely evacuation

process may be hindered, which could

potentially lead to residents trapped in

the Florida Keys as the hurricane’s

rising waters and increasing winds

approach. Consequently, there is

potential for loss of life for those who

are unable to evacuate during the

critical evacuation period. We would

expect that a 100-year flood event in

Monroe County would result in

significant flood damages from storm

surge and wave action to pre-FIRM

buildings and to post-FIRM buildings

that have not been properly elevated or

have illegally-built ground level

enclosures below elevated buildings.

NFIP Floodplain Management

Requirements

Comments on the NFIP Floodplain

Management Requirements for

Enclosures

We received eighteen comments on

the NFIP Floodplain Management

requirements that ranged from general

questions of why we regulate enclosures

to specific comments concerning the

appropriateness of the NFIP

construction and building use

requirements for enclosures located

below the Base Flood Elevation.

One person suggested that instead of

being concerned about enclosures, we

should subsidize Monroe County as

well as other communities in the

program and allow them to run their

own programs. In another comment,

someone stated that the proposed rule

disregards the fact that Monroe County

is entitled to interpret its own laws as

it has by allowing finished ground level

enclosures. Several other people

questioned why the NFIP requirements

for enclosures were necessary since

non-structural elements of lower area

enclosures are not covered under the

Standard Flood Insurance Policy. In a

related question, someone asked what

our role was in the enclosure issue since

flood insurance is only required when a

mortgage is being obtained. Several

questions were also raised as to why we

are focusing on lower level enclosures

and not on buildings constructed at

ground level or on buildings with

enclosures built before 1975.

We also received recommendations

on alternatives that we should consider

in addressing enclosures. They

included: (1) Allowing homeowners to

buy a bond for the replacement cost of

the enclosure, which would be used to

repair flood damaged items; (2) allowing

property owners to self-insure against

any flood damages below the flood

level; and (3) allowing property owners

to purchase private insurance to cover

the entire structure since we do not

fully cover building elements below the

lowest floor.

Several people commented that we

have not made a case that ground level

enclosures increase the risk to loss of

life and property. Many people

commenting believe that most storminduced damages in the Florida Keys

will be caused by wind loads rather

than from flood loads. Specifically,

some asked us what we base our claim

on that lower level enclosures will be

damaged and will cause the elevated

part of the building to collapse or be

damaged, or will cause damages to

nearby buildings of a major hurricane.

One commenter stated that many of the

prohibitions pertaining to enclosures are

overly broad and appear to apply

without reason to harmless uses of

enclosures. In other comments, some

stated that lower level enclosures do not

pose any more of a threat than anything

else at ground level, such as

automobiles, boats, and recreation

equipment, and that enclosures can

serve to limit the amount of wind-blown

debris.

In several comments on the NFIP

construction requirements commenters

stated that enclosures could be made

safe. One person recommended the use

of breakaway walls. Others

recommended that rather than

constructing a building on a pile or

column foundation system required

under the NFIP in coastal areas, we

should allow buildings to be

constructed on solid reinforced concrete

block foundation since they can provide

better protection to buildings in the

Florida Keys. One questioner asked why

we believe that steel reinforced concrete

foundation walls supporting the upper

levels and enclosing the lower level

pose a threat to buildings.

One person wanted clarification on

how the proposed inspection procedure

would address the critical difference

between the requirements of a true

foundation flood vent and the air vents

that are not true flood vents.

Several people also questioned our

requirements on the use of enclosures.

Within this category of comments, one

person suggested that the use limitation

on enclosures was designed to solve a

zoning problem by creating a false

impression that finished enclosures

threaten the upper level of buildings.

Several people questioned our

requirement of prohibiting uses other

than parking, access, and storage in

which cars, boats, and garden items can

be stored that can be damaged or cause

damage to the building, but not permit

finished materials and other items. In

other comments, several asked why we

do not allow workrooms, home offices,

libraries, wine cellars, recreation rooms,

and additional storage since the finished

space is not insurable. Many suggested

that we should focus on enclosures that

are used as apartments instead of other

uses such as family rooms with

breakaway walls.

One person urged us to permit

homeowners to use an engineering

solution similar to that of commercial

buildings by allowing finished lower

level enclosures below the Base Flood

Elevation to be dry floodproofed. That

person stated that we should recognize

home offices in residences and treat

them similar to non-residential

buildings.

Response

In order to address these comments

fully, we are first providing some

background information on the NFIP in

general.

General program description.

Congress created the NFIP under the

National Flood Insurance Act of 1968,

as amended, to provide federally

supported flood insurance coverage,

which generally had not been available

from private companies. Congress

created the NFIP in response to the

escalating cost of flood damages from a

series of flood events from hurricanes

and riverine floods in the early 1960’s.

However, making flood insurance

available was not the only objective in

creating the NFIP. In addition to

indemnifying individuals for flood

losses through insurance, Congress also

created the NFIP to: (1) Reduce future

flood damages through State and

community floodplain management

regulations; and (2) reduce Federal

expenditures for disaster assistance and

flood control.

Federal Register / Vol. 65, No. 124 / Tuesday, June 27, 2000 / Rules and Regulations 39729

Section 1315 of the Act prohibits us

from providing flood insurance to

property owners unless the community

adopts and enforces a floodplain

management ordinance that meets or

exceeds the criteria found in our NFIP

regulations at 44 CFR 60.3. Community

participation in the NFIP is voluntary.

Over 19,000 communities currently

participate in the NFIP.

The National Flood Insurance Act of

1968 requires us to charge full actuarial

rates reflecting the complete flood risk

to buildings constructed or substantially

improved on or after the effective date

of the initial FIRM for the community or

after December 31, 1974, whichever is

later. We refer to these buildings as

post-FIRM. Actuarial rating assures that

those locating in flood prone areas bear

the risks associated with new buildings

in such areas and not by the taxpayers

at large. Flood insurance premiums on

pre-FIRM buildings, buildings

constructed before the effective date of

the initial FIRM, are subsidized.

In general, the NFIP minimum

floodplain management regulations

require that new construction or

substantially improved existing

buildings in A Zones must have their

lowest floor (including basement) to or

above the Base Flood Elevation. In V

Zones, the bottom of the lowest

horizontal structural member of the

lowest floor of all new construction or

substantially improved existing

buildings must be elevated to or above

the Base Flood Elevation. Using

knowledge of local conditions and in

the interest of increased safety, many

States and communities have more

restrictive requirements than those that

we established under the NFIP. We have

designed the NFIP floodplain

management regulations to protect

buildings constructed in floodplains

from flood damages; they help keep

flood insurance rates affordable, and

they minimize the need for disaster

assistance.

For Monroe County and the Village of

Islamorada, Florida, a post-FIRM

building is a building constructed or

substantially improved after December

31, 1974. When Monroe County and the

Village of Islamorada joined the NFIP,

they agreed to regulate all new

construction built after the effective date

of their initial FIRM, and substantial

improvements to pre-FIRM buildings

after this date to ensure that these

buildings meet the requirements of the

community’s floodplain management

ordinance, which meets the minimum

requirements of the NFIP Floodplain

Management Regulations.

Two other important components of

the program are: (1) That Federal

agencies are prohibited from providing

financial assistance for the acquisition

or construction of buildings in the

designated flood hazard areas of

communities that do not participate in

the NFIP; and (2) that flood insurance is

a condition of receiving federal financial

assistance or loans from federally

insured or regulated lenders in those

communities that do participate. Flood

insurance is not limited to property

owners who must purchase flood

insurance for mortgage purposes. It is

available in participating communities

to anyone, including those who live

outside the designated flood hazard

area.

We are responsible under the Act for

establishing, developing, and

implementing policies and programs in

Special Flood Hazard Areas. This

includes monitoring community

compliance with the NFIP Floodplain

Management Regulations and providing

technical assistance to communities.

NFIP requirements for enclosures. We

do not limit the NFIP floodplain

management requirements to those

building elements insured under the

Standard Flood Insurance Policy or

located above the Base Flood Elevation.

While insurance coverage for enclosures

below the lowest floor of an elevated

building is very limited (see the Flood

Insurance section below), the NFIP

floodplain management requirements

apply to all elements of a building and

apply to both insured and non-insured

buildings. Under the NFIP, communities

are required to regulate all development

in flood hazard areas, including those

building elements located below the

Base Flood Elevation such as

enclosures. ‘‘Development’’ is defined

under the NFIP as ‘‘any man-made

change to improved or unimproved real

estate, including but not limited to

buildings or other structures, mining,

dredging, filling, grading, paving,

excavation or drilling operations or

storage of equipment or materials.’’

Responding to the public’s desire to

permit an enclosed area below an

elevated building, but recognizing the

potential risks to lives and property, the

NFIP Floodplain Management

Regulations allow certain limited uses

of enclosures below the lowest floor.

Under the NFIP, the enclosed area

below an elevated building can be used

for the parking of vehicles, building

access, or storage. Storage should be

limited to items such as lawn and

garden equipment, tires, and other low

damage items. Our regulations allow

these uses below the Base Flood

Elevation because the amount of damage

caused by flooding to these areas can

easily be kept to a minimum by

following certain performance standards

that we describe below for the design

and construction of these areas in A

Zones and V Zones.

In A Zones, the NFIP allows

construction of new and substantially

improved buildings on extended

foundation walls or other enclosure

walls below the Base Flood Elevation.

Because these walls will be exposed to

flood forces, they must be designed and

constructed to withstand hydrostatic,

hydrodynamic and impact loads. If the

walls are not designed and constructed

to withstand those loads the walls can

fail and the building can be damaged.

Under the NFIP, the foundation and

enclosure walls that are subject to the 1-

percent annual chance flood must

contain openings that will permit the

automatic entry and exit of floodwaters.

These openings allow floodwaters to

reach equal levels on both sides of the

walls, which will lessen the potential

for flood damage by equalizing

hydrostatic pressure.

The inspection procedure in this

regulation does not modify the current

NFIP requirements pertaining to

openings. Under the NFIP,

• The building must provide a

minimum of two openings having a total

net area of not less than one square inch

for every square foot of enclosed area

subject to flooding.

• The bottom of all openings can be

no higher than one foot above grade.

Openings may be equipped with

screens, louvers, valves, or other

coverings or devices provided that they

permit the automatic entry and exit of

floodwaters.

• As an alternative to the openings

criteria described above, a registered

engineer or architect may design

openings that achieve the same

objective of equalizing hydrostatic

pressure.

• The design professional must

certify that the openings are designed in

accordance with accepted standards of

practice. The design professional must

submit this certification to the

community.

• Local officials must inspect

buildings with enclosures in A Zones to

ensure that the enclosure walls contain

proper openings.

In V Zones, the velocity water and

wave action associated with coastal

flooding can exert strong hydrodynamic

forces on anything that obstructs the

flow of water. Standard foundations

such as solid reinforced masonry or

concrete walls or wood-frame walls will

obstruct flow and be at risk to damage

from high-velocity flood forces, breaking

waves, and debris impact. Foundation

walls or other enclosure walls can also

39730 Federal Register / Vol. 65, No. 124 / Tuesday, June 27, 2000 / Rules and Regulations

create higher localized velocities

capable of increased scour as water

flows around the obstruction. In

addition, solid foundation walls can

direct coastal floodwaters into the

elevated portion of the building or into

adjacent buildings. The result can be

structural failure of the building. For

these reasons, buildings constructed in

V Zones—

• Must be elevated on open

foundations constructed of pile, posts,

piers, or columns,

• The area below the lowest floor of

elevated buildings must either be free of

obstruction, or

• Any enclosure must be constructed

with open wood lattice-panels or insect

screening, or

• An enclosure must be constructed

with non-supporting, non-load bearing

breakaway walls that meet applicable

NFIP criteria.

The NFIP requires that in V Zones,

the open foundation and the structure

attached to it must be anchored to resist

flotation, collapse and lateral movement

due to the effects of wind and water

loads acting simultaneously on all

building components. Open foundations

must be designed to accommodate the

base flood, wind and other loads acting

simultaneously. The designs must

comply with water loading values

associated with the 1-percent annual

chance flood. They must also comply

with the wind loads required by

applicable State or local building codes

or with the wind and flood loads

contained in the American Society of

Civil Engineers Standard for Minimum

Design Loads for Buildings and other

Structures (ASCE 7–98). Under the

NFIP, construction plans for all new and

substantially improved buildings in V

zones must be signed and sealed by a

registered design professional.

Furthermore, to minimize flood

damages in both A and V Zones, the

enclosed area below the lowest floor

must be built using flood resistant

building materials, and mechanical,

electrical, plumbing equipment, and

other service facilities must be designed

or located so as to prevent damage

during flooding conditions. The uses of

the area beneath an elevated building

are restricted to parking, access, and

storage.

Basis for these requirements. We have

over 25 years of experience, including

direct observations, flood insurance loss

data, and field investigations that

confirm that the NFIP floodplain

management requirements described

above minimize and reduce flood

damages.

We conduct field investigations

following major flood disasters to

evaluate how well the NFIP floodplain

management requirements performed.

During these investigations, a team of

experts inspect disaster-induced

damages to residential and commercial

buildings and other structures and

infrastructure; conduct forensic

engineering analyses to determine

causes of structural and building

component failures and successes; and

evaluate local design practices,

construction methods and materials,

building codes, and building inspection

and code enforcement processes. In

addition, the teams make

recommendations of actions that State

and local governments, the construction

industry, building code organizations,

and individual property owners can

take to reduce future damages and

protect lives and property in flood

hazard areas. Lessons learned by

analyzing these building performance

findings are also used by us to fine-tune

and improve NFIP Floodplain

Management Regulations related to

building performance, designs,

methods, and materials. These

assessments are documented by us in

Flood Damage Assessment Reports and

Building Performance Assessment Team

(BPAT) reports. We distribute this

information widely using a variety of

media including technical manuals,

workshops, and the Internet, and

through formal training courses.

We have conducted numerous postflood disaster damage assessments that

indicate that improperly constructed

ground level enclosures significantly

increase damages to buildings in both A

Zones and V Zones. Hurricane Alicia

was a Category 3 hurricane that made

landfall on Galveston Island, Texas in

August 1983. One of the findings from

an on-site assessment of damages

following that hurricane indicated that

severe structural damage occurred to

buildings with ground level enclosures

when the storm surge hit nonbreakaway walls in the areas where

velocity was significant (Interagency

Flood Hazard Mitigation Report,

September 2, 1983). The findings

confirmed that where water was able to

pass below the elevated structure

unobstructed, as required in V zones,

damage was limited to items such as

exterior stairways and decks. This

finding, in particular, is often cited in

assessments in coastal disasters

(Hurricane Hugo, 1989, South Carolina;

Hurricane Bob, 1991, Massachusetts).

Hurricane Hugo struck a number of

elevated coastal buildings that were

enclosed with non-breakaway walls.

Hugo’s powerful wave action and storm

surge destroyed the finished enclosed

areas, which resulted in considerable

contents losses to homeowners.

Hurricane Fran was a Category 3

hurricane that struck North Carolina in

1996. An assessment of damages

indicated design and construction flaws

in breakaway walls in V zones,

including connections between

breakaway panels and the building

foundation, interior cross-bracing

behind the breakaway walls, and

attachment of utility lines to breakaway

wall panels. These connections and

attachments inhibited velocity flows

and waves from passing freely under the

building, and resulted in extensive

damage to the building. In addition, the

assessment also found homes in A zones

and in areas outside the floodplain

landward of the coast elevated 8–9 feet

above grade to allow parking and

storage beneath the building. However,

the assessment found that where the

area beneath the elevated building had

been enclosed with non-breakaway wall

panels and were used as finished living

space, the enclosure walls had collapsed

and the affected buildings had incurred

extensive damage.

Based on our flood insurance

experience, we know that buildings

constructed to the minimum

requirements of the NFIP also minimize

insured losses. Our insureds avoid

approximately $1 billion of flood

damages every year as a result of the

NFIP and our building requirements.

We also know that structures that are

not built to NFIP requirements suffer as

much as five times the amount of flood

damages that compliant structures

suffer.

Our insurance experience further

reveals that post-FIRM buildings with

enclosures below the Base Flood

Elevation suffer twice as much flood

damage when compared to post-FIRM

buildings without enclosures. This is

particularly important to note since

coverage is limited for enclosures below

the lowest floor of elevated buildings to

what are considered to be essential

elements, namely, sump pumps, well

water tanks, oil tanks, furnaces, hot

water heaters, clothes washers and

dryers, freezers, air conditioners, heat

pumps, and electrical junction and

circuit breaker boxes. The foundation

elements that support the building are

also covered under the NFIP. We do not

cover such items as finished enclosure

walls, floors, ceilings, and personal

property such as rugs, carpets, and

furniture, which are not reflected in our

flood insurance loss data.

Dry floodproofed structures. This

section addresses the comments that we

should treat residential buildings the

same as non-residential buildings by dry

Federal Register / Vol. 65, No. 124 / Tuesday, June 27, 2000 / Rules and Regulations 39731

floodproofing homes with enclosures

below the Base Flood Elevation.

Under the NFIP, residential buildings

in A Zones must have their lowest floor

elevated to or above the Base Flood

Elevation. Non-residential buildings in

A Zones must be either elevated or

floodproofed to the Base Flood

Elevation. Since the program’s

inception, the NFIP’s emphasis has been

for people to live above the Base Flood

Elevation. We have consistently found

in our post-disaster assessments and in

our flood insurance experience that

properly elevated residential buildings

successfully minimize flood damages. In

addition to property protection,

elevation also achieves another

important objective of the program—the

protection of lives.

We do not permit dry floodproofing in

V Zones for either non-residential

buildings or residential buildings

because of high velocity flood flows and

wave action. In V zones, both residential

and non-residential buildings must have

the bottom of the lowest horizontal

structural member of the lowest floor

elevated to or above the Base Flood

Elevation.

Under the NFIP, floodproofed nonresidential buildings in an A Zone must

be designed so that below the Base

Flood Elevation, the structure and

associated utility and sanitary facilities

are watertight with walls substantially

impermeable to the passage of water.

This technique is often referred to as

‘‘dry floodproofing’’. Dry floodproofing

is a technically complex method of

flood protection, which requires

significant adjustments and additions of

features to the non-residential building

that are intended to reduce the potential

for flood damage. The structural

components of dry floodproofed

buildings must be capable of resisting

hydrostatic, hydrodynamic, and debris

impact loads. The type of adjustments

and additions that must be considered

in the design and construction of a dry

floodproofed building include:

• Anchoring of the building to resist

flotation, collapse and lateral

movement;

• Installation of watertight closures

for doors and windows;

• Reinforcement of walls to withstand

floodwater forces and impact forces

generated by floating debris;

• Use of membranes and other

sealants to reduce seepage of floodwater

through walls and wall penetrations;

• Installation of pumps with an

uninterruptible power source to control

interior water levels;

• Installation of check valves to

prevent entrance of floodwater or

sewage flows through utilities; and

• Locating electrical, mechanical,

utility, and other valuable damageable

equipment and contents above the Base

Flood Elevation.

A registered engineer or architect

must certify the design and methods of

construction used to dry floodproof the

nonresidential structure on a

Floodproofing Certificate. The owner

must submit this certification to the

community and with the Flood

Insurance Application in order for the

building to be eligible for lower flood

insurance rates.

In studies on dry floodproofing and in

post-flood disaster assessments, we have

found that the long-term viability of

floodproofed buildings depends on

other factors in addition to design and

construction. To ensure the long-term

viability of the floodproofing method,

the design professional should develop

the following plans for the nonresidential structure:

(1) A flood emergency operation plan

that addresses issues such as flood

warning and evacuation, and identifies

who has responsibility for

implementing the plan including the

installation of flood shields over the

openings if required; and

(2) An inspection and maintenance

plan for the various components and

features of the flood protection method

such as sump pumps and generators to

make sure they continuously work,

flood shields and gaskets to ensure that

they are in good condition, and walls

and joints to ensure that no cracks or

potential leaks develop.

If the business has an emergency

operation plan, the owner should file

the plan with the community so that

adequate flood warning can be provided

in order to implement the floodproofing

system and for an orderly evacuation of

employees. If there is a flood warning,

employees on site would be evacuated

before flooding occurs to minimize the

threat to their safety. These employees

are likely to return to their homes or

relocate to shelters.

Under the NFIP, we do not permit dry

floodproofing for either residential or

non-residential buildings in coastal V

zones due to loads generated by

hydrodynamic forces, including wave

impact, storm surge, and debris impact

loads. While Base Flood Elevations in

coastal A zones contain a wave height

component of less than 3 feet, the

severity of the flood hazard in coastal A

zones, such as in the Florida Keys, is

often much greater than in non-coastal

A zones due to the combination of water

velocity, wave action, and debris impact

that can occur in these areas.

Consequently, while permitted under

the NFIP for non-residential buildings,

generally we do not recommend dry

floodproofing in coastal A zones. During

base flood (1-percent annual chance

flood) conditions, buildings in both V

zones and coastal A zones can

experience some of the most extreme

loads associated with natural hazards.

This was confirmed in a recent study on

breakaway walls funded both by us and

by the National Science Foundation

(‘‘Behavior of Breakaway Wall Subjected

to Wave Forces: Analytical and

Experimental Studies’’, 1999). In the

study, laboratory wave tank tests

demonstrated that over 10,000 pounds

of pressure can be generated on an 8

foot wide test wall by waves of less than

3 feet in height, i.e., those found in

coastal A zones during base flood

conditions.

Although dry floodproofing may seem

simple, it is a technically complex flood

protection method that requires an

understanding of the possible dangers

from poor planning, design,

construction, and maintenance. Our

concerns about the limitations on the

use of dry floodproofing for residential

construction and in coastal areas are

also supported by nationally recognized

experts in the field of flood resistant

construction.

The United States Army Corps of

Engineer’s (COE) National

Floodproofing Committee has sponsored

studies and tests of materials and

systems for dry floodproofing structures,

has sponsored post-disaster field

investigations to analyze how well dry

floodproofed buildings perform during

actual flooding conditions, and has

issued guidance on dry floodproofing

(Flood Proofing Tests, 1988; Flood

Proofing Techniques, Programs, and

References, 1997; and Flood Proofing

Performance Successes and Failures,

1998). The National Flood Proofing

Committee is comprised of a group of

Corps of Engineers employees

experienced in floodplain management

and selected from various Division and

District Corps offices nationwide. The

Committee promotes the development

and use of proper floodproofing

techniques throughout the United

States. These reports discuss the critical

features of dry floodproofing, the

importance of using design

professionals to analyze hydrostatic

forces on the building, and some of the

limitations on its use in preventing

floodwaters from entering the building.

Over a period of several years, the

National Flood Proofing Committee

documented the performance of

buildings in actual flood events (Flood

Proofing Performance Successes and

Failures, 1998). Several building sites

visited included dry floodproofed

39732 Federal Register / Vol. 65, No. 124 / Tuesday, June 27, 2000 / Rules and Regulations

buildings that had been exposed to

floodwaters. Almost all of the dry

floodproofed buildings that the

Committee observed had failed for

various reasons.

Current model building codes and

national consensus standards do not

permit dry floodproofing of residential

buildings. As examples, the new

International Building Code (IBC) and

its companion, the International

Residential Code (IRC), do not allow dry

floodproofed residential buildings. No

model building codes issued before the

IBC or IRC that addressed flood resistant

construction allowed dry floodproofed

residential buildings. The American

Society of Civil Engineers national

consensus standard for Flood Resistant

Design and Construction (SEI/ASCE 24–

98) does not permit dry floodproofing of

residential buildings and for nonresidential buildings it is only permitted

outside of ‘‘high risk’’ flood hazard areas

that are subject to high velocity flows

and wave action. Furthermore, the

proposed Florida Building Code will not

permit dry floodproofing of residential

buildings either.

The combination of flood loads in a

coastal A zone is generally beyond the

design strength of standard exterior

walls of residential buildings and most

non-residential buildings. The

specialized design, engineering, and

construction requirements for dry

floodproofing a coastal A zone building

may make it cost prohibitive. Designers

of dry floodproofed coastal A Zone

buildings must know the strengths of

connections, the response of walls to

velocity flows, wave action, and debris

impact and the conditions under which

failure occurs and the potential modes

of failure. Most design professionals and

contractors of low-rise residential

buildings are not familiar with

designing and constructing buildings

with these extreme loads in mind.

Residents would be faced with

significant threats to life and damages to

property if their homes were not

properly designed, constructed, and

maintained.

However, even when design and

construction constraints can be

overcome, there are other significant

constraints associated with dry

floodproofed homes that may

compromise the level of public safety

and property protection envisioned in

the NFIP’s objectives for people who

choose to live in floodplains. These

constraints are described below.

With any flood protection measure,

residents may have a false sense of

security that they are protected from

flood events of any magnitude. Dry

floodproofing does not place the

finished living spaces of residential

buildings above the Base Flood

Elevation. If the dry floodproofed

measure for the home fails from a flood

event greater than the base flood, the

flood damages will be much greater

compared to damages to an elevated

building. The dry floodproofed area acts

as a bathtub and would fill to the level

of the flood damaging everything below

that level, whereas in an elevated

building only that area below the base

flood would be damaged.

The potential for a false sense of

security may also inhibit individuals

from heeding calls by emergency

management officials to evacuate and

may result in the use of the dry

floodproofed space during a flood event.

Consequently, the safety of the residents

living in floodproofed homes is

jeopardized should the level of

protection be overtopped or a failure of

the floodproofed wall or components

occur.

Unlike elevation, dry floodproofing

requires critical human intervention and

maintenance for it to operate properly

and effectively when flooding is

imminent or actually occurring.

Individual property owners must have

adequate warning time to implement

whatever measures are necessary to

protect the building, such as installing

flood shields over doors and windows,

checking for deterioration of gaskets,

joints, or other critical features, and

making sure drainage systems and

generators will operate. It may take

several hours to implement. If property

owners are away, they will need

someone else available to implement

and check the floodproofing measures.

In areas with a large number of second

homes or vacation homes, such as in

coastal areas, it may be difficult to find

people to undertake steps to protect

floodproofed homes if these same

people must also protect their own

homes and prepare to evacuate.

The community itself may have to

develop and implement a separate

flood-warning system for individual

property owners of dry floodproofed

buildings so that they have adequate

time to implement the floodproofing

measures. In the case of hurricanes and

other approaching coastal storms,

abrupt changes in direction may not

give property owners adequate time to

prepare, which may reduce or eliminate

the amount of time available to

implement the floodproofing measures

and prepare to evacuate. As a result,

evacuations may get delayed affecting

the entire community. In Monroe

County orderly evacuation is extremely

critical given its unique transportation

system with a single road and

connecting bridges to the mainland that

form the backbone of the entire County

transportation system.

Invariably all dry floodproofing

measures leak through the sealant,

cracks, joints, and around openings into

the interior of the building. That is why

a sump pump and drainage system are

critical components of the dry

floodproofed system. Since electrical

power will likely be interrupted during

a coastal storm, alternative sources of

power need to be provided, such as an

onsite power generator to provide

energy during a power failure.

Homeowners may decide to stay home

to make sure these systems work if there

is a flood. As a result, homeowners may

be in the floodproofed area of the home

checking pumps or other systems as

floodwaters rise, exposing themselves to

extreme danger. A homeowner’s

decision to stay and floodfight may well

be contrary to evacuation orders from

emergency management officials.

Dry floodproofing is not a simple

flood protection technique that can be

ignored once it is installed. Periodic

checking and maintenance are very

important aspects of making sure dry

floodproofing will work when it is

needed. Waterproofing compounds or

sealants and gaskets eventually

deteriorate and owners may lose flood

shields that cover critical openings. To

make sure that the floodproofing

measure will work in a flood, property

owners would need to check

periodically that floodproofing items are

on site and easily accessible, such as

bolts, gaskets, caulking, timbers, and

flood shields to cover doors, windows,

or other openings below the Base Flood

Elevation. If homeowners or tenants

become complacent about maintenance,

lack of care can result in complete

failure of the dry floodproofing method.

Homeowners would have to be diligent

in maintaining the various components

for the floodproofing measure to remain

effective.

As new homeowners replace former

homeowners, the former owners may

not disclose the importance of the

floodproofing measure to protect the

home. Moreover, if the unsuspecting

buyer is not notified that the home is

floodproofed, the former owners and

others may be liable if the home is

damaged in a flood disaster. There is

also little chance that future property

owners will receive proper guidance or

information on emergency operations

and maintenance requirements that

come along with a dry floodproofed

building.

Allowing residents to sleep, work,

recreate, or otherwise occupy the space

below the Base Flood Elevation would

Federal Register / Vol. 65, No. 124 / Tuesday, June 27, 2000 / Rules and Regulations 39733

conflict directly with sound floodplain

management practices. People who may

occupy the floodproofed space below

the Base Flood Elevation as a separate

housing unit may be subject to

significant adverse health and safety

risks should the floodproofed system

fail. Environmental justice issues for the

program are raised when dry

floodproofed housing units serve as the

primary source of affordable housing for

low-income populations in the

community. One of the basic premises

of the NFIP is that economic means

should not be the basis for the level of

protection afforded to individuals by

having those with the most limited

resources living in the most vulnerable

area of the building—below the Base

Flood Elevation. Under the National

Flood Insurance Act of 1968, as

amended, we have a responsibility to

protect both property and lives. Other

than locating outside the SFHA

elevation is the best flood protection

method for minimizing the threat to

public safety, especially for

homeowners. The 1-percent annual

chance flood (100-year flood) is a

reasonable compromise between the

cost of meeting this standard and the

resulting reduction in loss of life and

damage to property. Furthermore, the

elevation requirements for residences is

consistent with mandates in Executive

Order 11988, Floodplain Management,

current model building codes, national

consensus standards, and the proposed

Florida Building Code to reduce the risk

of flood losses and minimize the

impacts of floods on human safety,

health, and welfare.

Flood Insurance

We received fourteen comments

asking how buildings are rated under

the NFIP in general and specific

comments on the effect that the

implementation of this rule would have

on the insurance aspects of the NFIP.

Comments on NFIP Insurance Rates

One person asked that we describe the

rate making process and explain the

differences in methodology used in

determining premium rates for preFIRM buildings, post-FIRM buildings,

and non-compliant buildings. Why are

rates the same for different parts of the

country? The risk would appear to be

different. We also received a comment

that Monroe County property owners

are paying the highest flood insurance

rates in the nation even though houses

are elevated.

Response

A key provision of the National Flood

Insurance Act is section 1315, which

prohibits FEMA from providing flood

insurance unless the community adopts

and enforces a floodplain management

ordinance that meets the minimum

requirements established at 44 CFR

60.3. A major component of the program

is to identify and map the nation’s

floodplains to create broad-based

awareness of the flood hazards and to

provide the data needed for floodplain

management programs and to rate flood

insurance actuarially.

The National Flood Insurance Act of

1968, as amended, separated the flood

insurance ratemaking process into two

distinct categories. The two categories

are subsidized rates and actuarial rates.

Congress authorized the NFIP to offer

policies at less than full risk (actuarial)

premiums to existing buildings

constructed on or before December 31,

1974 or before the effective date of the

initial Flood Insurance Rate Map.

Congress concluded that these buildings

were built without the occupants’ full

knowledge and understanding of the

flood risk, and to rate them using the

actuarial rates might make the flood

insurance prohibitively expensive.

These less-than-full-risk rates are known

as subsidized rates. We estimate that

risks in this class are paying only 35 to

40 percent of what the full risk premium

should be to fund the long-term

expectation of the flood losses to the

building. Only such general rating

factors as flood risk zone, occupancy

type, and building type are used to rate

these buildings for flood insurance.

Even though premiums for policies on

existing buildings are subsidized,

floodplain occupants pay for at least

part of the cost of the insurance and no

longer need disaster assistance.

In exchange for this subsidized

insurance, participating communities

must protect new construction. The

National Flood Insurance Act requires

that we charge full actuarial rates

reflecting the complete flood risk to

buildings constructed or substantially

improved on or after the effective date

of the initial FIRM for the community or

after December 31, 1974, whichever is

later. Once we identify the flood risk

and make the information available to

communities, actuarial rating assures

that those located in such areas bear the

risks associated with buildings in flood

prone areas and not taxpayers at large.

The flood insurance rates take into

account a number of different factors

including the flood risk zone shown on

the FIRM (i.e., Zones A, AH, AO, AE,

A1–30, AR, V, VE, V1–30, B, C, X)

elevation of the lowest floor above or

below the Base Flood Elevation, the

type of building, the number of floors,

and the existence of a basement or an

enclosure.

The flood risk zone and the Base

Flood Elevation are specific factors that

can differentiate the flood risk in

various areas of the country. For

example, we designate certain shallow

flooding areas as AO and AH zones. We

designate some riverine areas and

inland areas of coastal communities as

A and AE zones, while we may

designate areas subject to damage by

waves and storm surge as V and VE

zones. The rates in the various types of

A zones are much lower than the rates

for the V and VE zones. This difference

reflects both the lower expectation of

loss and our actual loss experience for

these zones. While we print rate tables

showing all possible flood risk zones

and use them for the entire country, we

do not show the same zones on every

FIRM. For example, communities in

Utah or Kansas do not have V zones

because they are not subject to wave

action and storm surge. However, where

the same zone designation is used in

two different areas of the country, it is

because our engineering studies have

shown that the degree of risk is very

similar. Consequently, Monroe County

is not paying higher rates compared to

other parts of the country. Policyholders

in AE and VE zones in Monroe County

are paying the same rates as

policyholders in other parts of the

country, if the lowest floor elevation of

the buildings are the same in relation to

the Base Flood Elevation. This is

because their risk of flooding is

statistically the same.

Buildings that comply with

community floodplain management

regulations pay premiums based on

flood insurance rates that are in most

cases significantly lower than the

subsidized rates charged pre-FIRM

buildings. However, buildings

constructed in violation of the

community’s floodplain management

ordinance pay much higher rates, which

can exceed thousands of dollars a year

for buildings substantially below the

required elevations. We base the flood

insurance rates for structures on a

building’s exposure to flood damage.

Based on our loss experience older

structures built before establishment of

NFIP minimum building requirements,

we can generally expect that they will

suffer as much as 5 times the flood

damage that compliant new structures

experience. New buildings with noncompliant ground level enclosures in

coastal areas can actually represent risks

that are at least as poor as the average

older pre-FIRM buildings. Also,

buildings with illegally built ground

level enclosures will be damaged during

39734 Federal Register / Vol. 65, No. 124 / Tuesday, June 27, 2000 / Rules and Regulations

flooding conditions that occur more

often than those associated with the

Base Flood.

Comments on Flood Insurance and

Enclosures

We received eight comments

specifically related to the insurance

provisions pertaining to enclosures.

Some asked why there is a requirement

to purchase flood insurance when

ground level enclosures are not covered

by the NFIP. Another commented that

since we have no liability, it is

reasonable to allow enclosures below

elevated buildings to be finished with

sheet-rock, carpet, and office

equipment, and other furniture. One

recommended that instead of

implementing an inspection procedure,

we should treat buildings with

improperly built enclosures as ‘‘Submit

for Rate’’ properties so that normal

policy provisions and re-rating apply. In

a related comment, the commenter

expressed concern that we are treating

Monroe County differently from other

communities where flood insurance

rates are simply adjusted upward.

Another commenter expressed concern

that FEMA would be charging property

owners potentially punitive rates that

did not reflect the actual exposure of the

building to flood risk.

Response

In 1983 we began to limit the coverage

for enclosed areas below the lowest

floor of elevated buildings, including

basement areas, due to the financial

losses that we experienced when we

provided full coverage in these areas. In

order to provide insurance coverage for

the items that are excluded under the

NFIP Standard Flood Insurance Policy

(SFIP), we would have to charge

significantly higher flood insurance

rates, which would make flood

insurance on the building unaffordable

for many property owners.

The Article 6—Property Not Covered

provision in the Dwelling Form of the

SFIP limits coverage for enclosures,

including personal property contained

in them. However, the SFIP does

provide some coverage for enclosed

areas below the lowest floor of elevated

buildings for what are considered

essential elements; namely, sump

pumps, well water tanks, oil tanks,

furnaces, hot water heaters, clothes

washers and dryers, freezers, air

conditioners, heat pumps, and electrical

junction and circuit breaker boxes.

Foundation elements that support the

building, and foundation walls in A

Zones, are also insurable under the

NFIP. The NFIP does not cover items in

the enclosure, such as finished walls,

floors, ceilings, and personal property,

such as rugs, carpets, and furniture.

The limitation of flood insurance

coverage for the enclosed area of an

elevated building is consistent with the

NFIP floodplain management

requirements since these requirements

limit the use of the enclosed space to

parking, access, and storage, thereby

minimizing the potential for damage to

the building and its contents.

Furthermore, flood damages can easily

be kept to a minimum by following

certain performance standards for the

design and construction of enclosures in

A Zones and V Zones. We described

these in detail earlier in the section on

NFIP Floodplain Management

Requirements. Finished enclosures used

for other than parking, building access,

and storage significantly increase the

flood damage potential to the area below

the lowest floor of the elevated building.

Furthermore, finished enclosures

increase the flood damage potential to

the foundation and to the elevated

portion of the building that are insured

under the NFIP. Improperly constructed

enclosure walls and utilities can tear

away and damage the upper portions of

the elevated building exposing the

building to greater damage. Improperly

constructed enclosures can also result in

flood forces being transferred to the

foundation and to the elevated portion

of the building with the potential for

catastrophic collapse.

The resulting increased damage to

buildings with illegally built enclosures

has implications for all policyholders.

We will have to charge higher flood

insurance rates for buildings with

enclosures to reflect the higher NFIP

loss frequency and high damage

potential. The increased flood risk and

our loss experience must be reflected in

the premiums that we charge to

policyholders of buildings with ground

level enclosures below the lowest floor.

When we receive a flood insurance

application that describes an elevated

building with a finished enclosure

below the Base Flood Elevation, we rate

the building using the Submit for Rate

procedures. The flood insurance rates

that we charge for all buildings reflect

the coverage limitations in the policy

and our loss experience with this type

of building. They do not include any

rating factor designed solely as

punishment for building illegally—we

have no specifically punitive rates.

Furthermore, the resulting increased

damage to buildings with illegally built

enclosures has implications on the

financial stability of the National Flood

Insurance Fund. By increasing the

damage experienced from a single flood

event, the claim payments on these

buildings will result in slower recovery

of the Fund in rebuilding the surplus

needed to respond to subsequent flood

events.

Additionally, we are concerned about

the effect that finished ground level

enclosures have on the policyholder at

claims time. If we rate a building with

an enclosure as an elevated building,

but do not include the finished ground

level enclosure in the flood insurance

premium at the time application is

made for flood insurance, problems may

occur during a flood insurance claim. In

this case, the policyholder may not have

paid sufficient premiums that reflect the

risk to the building. The Reformation

provision in the SFIP requires the

policyholder to pay the additional

premium for the current and prior year

for the additional risk to the building

before the settlement of the claim.

Correcting misratings complicates the

loss adjustment process and can

substantially delay claim payments. If

new owners of the building are not

aware that the enclosure is illegally

built, they will likely be disappointed

when they find out the finished

enclosure is not covered by flood

insurance.

Furthermore, if there is a major flood,

there is the potential for significant

uninsured losses in a community for

buildings with illegally built enclosures.

That would shift the burden from flood

insurance coverage under the NFIP to

legitimate policyholders and potentially

to taxpayers in general in the form of

casualty loss deductions and Federal

disaster assistance, such as loans from

SBA.

This inspection procedure will

provide us with accurate rating

information on buildings with illegally

built enclosures to ensure that the

building is properly rated to reflect the

flood risk. The flood insurance rates that

we will charge policyholders that obtain

an inspection under this procedure will

reflect the actuarial principles described

above. For those policyholders that

receive a notice to obtain an inspection

before renewal of the flood insurance

policy, but choose not to obtain an

inspection from the community, we will

not renew the flood insurance policy.

These policyholders cannot reapply for

coverage under the NFIP until they

obtain an inspection report from the

community and submit a copy with

their application for coverage.

Comment Regarding Property Owner

Notification

We received a comment that the

procedure does not address the

existence of absentee owners. It

suggested that the communities were in

Federal Register / Vol. 65, No. 124 / Tuesday, June 27, 2000 / Rules and Regulations 39735

a better position to facilitate awareness

by sending the notices to the property

owners rather than to the agent or

insurer who will not have answers to

specific questions.

Response

In establishing this inspection

procedure, we were careful to separate

the responsibilities of the communities

and the insurance companies and agents

based on their normal roles. Notices to

policyholders concerning the renewal of

their insurance is normally the role of

the insurance company with any

questions about the notice being

directed to the policyholder’s insurance

agent. The community’s role is to

inspect the buildings and to complete

an inspection report detailing the

findings. We think that it would be a

major complication if we were to change

these roles with respect to this

procedure. Furthermore, questions that

insurance companies or agents receive

concerning the floodplain management

aspects of this procedure should be

directed to the respective communities,

which is no different than what is

currently done.

Comments on Windstorm and Flood

Insurance Purchase Requirements

We received three comments

expressing concern about the

requirement in Monroe County, Florida

that the purchase of flood insurance is

a condition for obtaining windstorm

insurance.

Response

The Florida Windstorm Underwriting

Association (FWUA) provides Florida

citizens adequate wind and hail

coverage when it is not available in the

insurance marketplace. In June of 1996,

the FWUA established that as a

condition of eligibility for windstorm

coverage through the FWUA owners

must maintain flood insurance. That is

the FWUA’s prerogative. We briefed the

Florida Windstorm Underwriting

Association on the details of the

inspection procedure before we

published the proposed rule and we

will provide them information on the

final rule.

Comment About the Endorsement Form

We received one comment about the

length of the proposed endorsement for

inspection procedure. It suggested that

we simplify the endorsement by

referring only to the particular change in

the policy endorsement for the

inspection and place the rest of the

endorsement in the flood insurance

manual.

Response

We considered the suggestion that we

shorten the endorsement, but for clarity

we decided to publish it as shown in the

Proposed Rule. The Endorsement

outlines the rights, obligations, and

penalties connected with the inspection

procedure. Since it has such important

consequences for the policyholder

pertaining to the renewal or nonrenewal of the policy, we felt that it

would be in the policyholder’s best

interest to repeat the policy provisions

in their entirety in the Federal Register.

The alternative was to show only the

changes that we are making in the

Federal Register. This would require

the reader to make a side-by-side

comparison of the policy before the

changes related to the inspection. We

plan to print the endorsement as an

attachment to the policy, which will

result in a much shorter version than

what appears in the Federal Register.

We will not have to include those

portions that already appear in the

policy.

Comment Regarding the Administrative

Burden to the Insurance Companies

We received a comment that the cost

of the inspection procedure to the Write

Your Own (WYO) insurers will be

extensive. The concern is that the

inspection procedure does not provide

for any compensation to the WYO

Insurance Companies for the additional

costs associated with distribution of the

endorsement, policyholder notices, and

application processing for property

owners who obtained an inspection

after the expiration date of their policy.

This person added that this procedure

contradicts the arrangement with the

WYO insurers.

Response

We have reviewed these concerns

regarding the potential costs to the WYO

companies, and we also discussed the

concern with the WYO insurance

companies on our advisory committee.

We have determined that the provisions

of our arrangement with the companies

will cover this activity and that their

compensation is adequate.

Participation in the Inspection

Procedure

Comments on Singling Out

Communities for the Inspection

Procedure

We received seven comments that we

are singling out Monroe County and the

Village of Islamorada for the inspection

procedure. Specifically, these

commenters asked why the inspection

procedure is not being done in other

communities in Monroe County, such as

Layton, Key Colony, or Key West and

elsewhere in the country. Others also

commented that we forced Monroe

County and the Village of Islamorada

into participating in the inspection

procedure by threatening to cancel flood

insurance policies if they did not

comply. We also received comments

that the County’s willingness to

participate was made based on a general

concept of the inspection procedure and

not on the specifics of how the

procedure would work. With respect to

the Village of Islamorada, some asked

why the Village must participate in the

inspection procedure since it was not

involved in the development of the

procedure and since it did not create the

problem, but inherited the problem from

Monroe County when the Village

incorporated in January of 1998. In

addition, we received four comments

that innocent property owners have

become victims as a result of the County

not enforcing the provisions of the NFIP

according to its agreement with us when

it joined the program. Those

commenting also stated that if we had

also strictly enforced this agreement

with the County there would not be

thousands of illegally built enclosures.

We also received a comment that the

argument that people did not know that

finished ground level enclosures below

the Base Flood Elevation were illegal is

without merit. The party commenting

cited the fact that the County had

indicated to them that finished

enclosures were not allowed when they

applied for a permit in 1983. This

commenter urged us to continue to

implement the inspection procedure.

Response

We are not singling out Monroe

County and the Village of Islamorada for

an enforcement action. Furthermore, the

implementation of the inspection

procedure does not create any new

floodplain management requirements

under the program. All communities in

Florida and throughout the country that

wish to participate in the NFIP must

adopt and adequately enforce the

minimum requirements of the program,

including the requirement that the

enclosed space below the lowest floor of

an elevated building meets the

minimum requirements of the NFIP.

Monroe County and the Village of

Islamorada are only being treated

differently from other communities in

the country in that we are giving them

additional assistance through an

inspection procedure to fulfill their

responsibilities under the NFIP.

Participation by the communities in the

inspection procedure is voluntary.

39736 Federal Register / Vol. 65, No. 124 / Tuesday, June 27, 2000 / Rules and Regulations

When Monroe County and the Village

of Islamorada joined the NFIP in 1970

and 1998 respectively, they agreed to

adopt and adequately enforce the

minimum floodplain management

requirements of the NFIP at 44 CFR

60.3. It is the communities’

responsibility to ensure that buildings

are properly elevated and that the

enclosed area below the lowest floor of

an elevated building meets the

minimum requirements of the NFIP and

the communities’ floodplain

management ordinances.

Under the National Flood Insurance

Act of 1968, as amended, we are

responsible to ensure that States and

communities properly and effectively

administer the NFIP floodplain

management requirements. We offer

technical assistance in a variety of forms

to assist communities in understanding

the NFIP floodplain management

requirements. It can take the form of our

staff having direct one-on-one contacts

with State and local officials through

Community Assistance Visits (CAV),

workshops, formal training courses,

telephone calls, and through other

contacts. A CAV is a comprehensive

assessment of a community’s floodplain

management program. We have found

that most program deficiencies and

problems identified through a CAV can

be resolved through technical assistance

to the community.

Staff from our Region IV office in

Atlanta, Georgia conducted Community

Assistance Visits in Monroe County in

1982, 1987, and again in August 1995.

During these visits, we offered the

community technical assistance to

address any program deficiencies that

we had identified during the visit.

During each visit in Monroe County we

identified floodplain management

program deficiencies and violations and

asked the County to take corrective

actions .

In 1995, the CAV confirmed that,

while the County had corrected

administrative problems identified

during earlier visits, the illegal

conversion of the space below the

lowest floor of an elevated building to

uses other than parking, access or

storage had become an even more

serious problem than we had identified

in earlier monitoring visits.

Because of the number and serious

nature of the violations that we

identified in Monroe County as a result

of the 1995 CAV, we determined that an

enforcement action would be necessary

in Monroe County. The primary purpose

for conducting an enforcement action is

to obtain community compliance with

the NFIP in order to reduce the potential

for future flood damages and loss of life.

When we identify communities with

program deficiencies and violations, we

work closely with communities to try to

resolve the problems in the community

before taking an enforcement action. An

enforcement action is a FEMA-initiated

measure to obtain community

compliance with NFIP floodplain

management requirements. The action is

to ensure that communities correct

program deficiencies and remedy

violations and enforce their floodplain

management ordinance for new

construction and other development.

Rather than addressing the problem

through our existing enforcement

options by placing Monroe County on

probation and potentially suspending

the County from the program, we

explored other options with County

officials on how the problem could be

addressed. Probation and program

suspension are existing enforcement

options established in NFIP Regulations

at 44 CFR 59.24(b) and (c). If the

community is not willing to correct

program deficiencies and remedy

violations, we will initiate a probation

action with a formal notification that the

community will be placed on probation

on a date certain (usually several

months) unless the community takes

measures before the probation date to

correct the identified deficiencies and

remedy all known violations.

While a probation action does not

affect the availability of flood insurance,

we would add a $50 surcharge to the

renewal of all flood insurance policies

in the community for at least one year.

During this period we would require the

community to take measures to correct

program deficiencies and to remedy

violations to the maximum extent

possible. If the community fails to take

remedial measures during the period of

probation, we might suspend the

community from the NFIP. When we

suspend a community from the NFIP it

is subject to the provision of Section

202(a) of Public law 93–234, as

amended, which prohibits Federal

officers or agencies from approving any

form of loan, grant, guaranty, insurance,

payment, rebate, subsidy, disaster

assistance loan, or grant (in connection

with a flood), for acquisition or

construction purposes within SFHAs.

Further, section 202(b) of Public Law

93–234, as amended, states that if the

community suffers a disaster caused by

a flood, Federal disaster relief assistance

will not be available to any property

located within the suspended

community.

Since 1986, we have notified over 104

NFIP communities that they would be

placed on probation if they did not

address the problems identified in the

CAV. We did not place many of these

communities on probation because they

addressed their program deficiencies

and remedied identified violations.

However, we did place over 55 of these

communities on probation and we

suspended at least 9 of those from the

NFIP for not addressing their program

deficiencies and violations during the

probationary period. Currently, 7

communities participating in the NFIP

are on probation and each policyholder

in these communities must pay an

additional $50 with their annual

premium.

In addressing the issue of illegally

built ground level enclosures, a Monroe

County Citizen Task Force, appointed

by the Monroe County Board of County

Commissioners, recommended in a

letter to us dated January 23, 1997 that

we establish a procedure to require an

inspection and a compliance report

before the renewal of any flood

insurance policy. In response to the

Task Force recommendation and

Monroe County’s interest in trying to

resolve these violations, we sent a letter

to the Mayor of Monroe County on

March 23, 1998, which provided details

of how the proposed inspection

procedure would work, including the

requirement that Monroe County

remedy any violations identified

through this process. Therefore, we

provided the details of how the

inspection procedure would work to

Monroe County almost a full year before

publication of the proposed rule in the

Federal Register.

On June 11, 1998, the Board of County

Commissioners of Monroe County

passed a resolution that asked us to

establish an inspection procedure for

the County as a means of verifying that

buildings insured under the NFIP

comply with the County’s floodplain

management ordinance. Our Region IV

staff attended the June 11, 1998 meeting

and made a presentation on how the

inspection procedure would work. Our

Region IV staff also had a number of

conversations and meetings with local

officials in both communities about the

communities’ implementation of their

floodplain management ordinance.

The Village of Islamorada

incorporated as a separate community

within Monroe County in January 1998

and became a participating NFIP

community on October 1, 1998. The

Village encompasses four of the Florida

Keys that would have been included in

the inspection procedure for Monroe

County. Because of the amount of land

area incorporated, there are possible

illegal enclosures within the Village’s

jurisdiction. The Village of Islamorada

was not a party to the early

Federal Register / Vol. 65, No. 124 / Tuesday, June 27, 2000 / Rules and Regulations 39737

development of this inspection

procedure since it was still a part of

Monroe County when we and the

County discussed the development of

the proposal before the Village

incorporated. We notified the Village of

the Islamorada of the proposed

inspection procedure before it applied

to join the NFIP. The community

indicated its interest in participating in

the pilot inspection procedure in a letter

dated September 24, 1998. Community

incorporation within Monroe County

does not absolve the Village from its

responsibility under the NFIP to address

existing floodplain management

violations. Therefore, the Village of

Islamorada assumes responsibility for

any violations under the NFIP that

occurred while it was part of the

County. We are giving the Village of

Islamorada the same assistance that we

are providing to Monroe County to

address these violations. In the

supplementary information to the

proposed rule we stated that ‘‘[w]e

would require that areas in Monroe

County that incorporate and become a

separate community on or after January

1, 1999 to participate in the inspection

procedure as a condition of joining the

NFIP.’’

Florida State Statute Governing

Inspections

We received nine comments about the

State statute governing property

inspections and using the insurance

mechanism to require inspections.

Specifically, we received comments that

the inspection procedure circumvents

Florida State law, which exempts

owner-occupied single family

residences from administrative

inspection warrants for possible code

violations. Some of these commenters

expressed concern that the inspection

procedure results in an illegal search of

property owners’ homes. One also

suggested that if an enclosure did

contain an illegal apartment that it

should be addressed through existing

zoning laws. Two commenters

suggested that since the communities

are limited in enforcing ordinances

because of inadequacies in State law,

the remedy should be sought with the

State to give communities the ability to

enforce their ordinances.

Response

The NFIP is a voluntary program.

When they join the program

communities are obtaining the right for

their citizens to obtain otherwise

unavailable flood insurance in exchange

for regulating floodplain development.

The inspection procedure does not

change the fundamental premise of the

program or establish or require any new

land use measures or criteria in

floodplains. With respect to the

requirements that owners of insured

buildings obtain an inspection from

local officials and submit an inspection

report as a condition of renewing flood

insurance on the building, we believe

that it is a reasonable condition on the

recipients of Federal financial assistance

to ensure that flood insurance policies

are properly rated. Under the terms of

the flood insurance policy, insureds

have full contracting powers to agree to

those conditions. Furthermore, property

owners must still give their consent to

the community to inspect their property

under the inspection procedure.

Comment on Disclosure of Enclosures

We received a comment that many

people bought their homes in good faith

without the benefit of disclosure from

contractors, insurance agents, banks,

real estate agents, the County, or us that

the enclosure was non-compliant with

the community’s floodplain

management ordinance.

Response

In response to the concern that

property owners were not given

adequate disclosure of the existence of

illegally built enclosures before the

property was purchased, we do not have

authority to establish or require the

disclosure of properties that are built in

violation of the community’s floodplain

management ordinance. State or local

laws and regulations will govern

establishment of property disclosure

requirements. In the final rule, we have

provided for several notices to

policyholders on the inspection

procedure. We will provide these

notices before implementation as well

as during implementation of the

inspection procedure.

Comments on Giving Amnesty to

Enclosures

One person commented that the

citizen’s Task Force, established to

address the issue of illegally built

enclosures, recommended that we grant

complete amnesty for all buildings built

between January 1, 1975 and December

31, 1986 based on the contention that

the citizens were not aware of the NFIP

requirements and the County had not

developed an effective permit and

inspection program. Another person

also recommended that we grant

amnesty for illegal enclosures built

before 1995.

Response

We have no authority under the

National Flood Insurance Act of 1968

and the NFIP Floodplain Management

Regulations to grant amnesty to illegally

built enclosures that violate the

minimum requirements of the NFIP and

the community’s floodplain

management ordinance. As stated

above, we are responsible to ensure that

the community effectively carries out

the program requirements. Ignoring the

problem of illegally built enclosures

below elevated buildings has serious

implications for exposing buildings to

flood damages and impacting the safety

of residents. Allowing uses other than

parking, building access, or storage in

the enclosed area below the Base Flood

Elevation significantly increases the

flood damage potential for the area

below the lowest floor of the elevated

building and to the elevated portion of

the building. It can undermine:

• Any efforts by the two communities

to administer and enforce their

floodplain management ordinances

effectively and to protect their citizens

from the devastating effects of flooding;

• Our efforts to ensure that

communities throughout the country

effectively administer and enforce the

minimum requirements of the NFIP;

• What we are trying to achieve under

the Community Rating System, which

provides incentives to communities to

take measures beyond the minimum

requirements of the NFIP to reduce

flood damages; and

• The purpose of promoting federallybacked flood insurance as an alternative

to disaster assistance and other forms of

federally subsidized financial assistance

by continued construction of buildings

in the floodplains that do not meet the

minimum requirements of the NFIP.

Number of Illegal Enclosures

Comments

We received four comments asking

how we estimated the number of

possible illegal enclosures (2,000–

4,000). In particular, a commenter

referred to a March 21, 1996 letter from

our Region IV office to Monroe County

in which we stated that there are an

estimated 8,000–12,000 illegal

enclosures. Another referred to a letter

from Monroe County to our Region IV

office dated January 23, 1997 in which

the County placed the number of

affected structures at 11,590. Since we

currently estimate that only 2,000–4,000

buildings will be inspected, it seems to

these commenters that the procedure is

being applied to a small percentage of

the problem, and that, therefore, the

inspection procedure will be ineffective

and misguided.

39738 Federal Register / Vol. 65, No. 124 / Tuesday, June 27, 2000 / Rules and Regulations

Response

After the August 1995 Community

Assistance Visit, we had estimated that

there were potentially up to 4,000–5,000

buildings with possible illegally built

enclosures. Our estimate of 8,000–

12,000 buildings with possible illegally

built enclosures referenced in our

March 21, 1996 letter to the County was

based on a local estimate provided to us,

which we now believe overestimates the

problem. The County’s estimate of

11,590 buildings was based on the

following breakdown: 5,795 pre-FIRM

residential structures (built before

January 1, 1975) with the lowest floor

below the Base Flood Elevation and

approximately 5,795 post-FIRM

residential structures (built after 1975)

with potentially some type of finished

ground level enclosure that may not

comply with the County’s floodplain

management ordinance.

Before we published the proposed

rule, we discussed the potential number

of illegal enclosures in post-FIRM

buildings with Monroe County officials.

We believe that the County’s estimate of

2,000–4,000 insured buildings that have

illegally built enclosures is a reasonable

estimate. This inspection procedure

only applies to insured post-FIRM

buildings. Since publication of the

proposed rule, local officials from

Islamorada indicated to us during their

visit in August 1999 that there were

approximately 3,600 residential

buildings in the entire Village and that

2,300 of these buildings had some type

of enclosures. We believe that many of

the 2,300 buildings are either pre-FIRM

buildings or are post-FIRM buildings

with compliant ground level enclosures

that will not be subject to inspection.

At the present time we cannot

specifically determine the number of

illegally built enclosures since most of

these enclosures were built without the

benefit of a floodplain development

permit. However, the number of postFIRM flood insurance policies in force

in each community is an indication that

the 2,000–4,000 estimated number of

insured buildings with possible illegal

enclosures is a reasonable estimate.

In Monroe County and the Village of

Islamorada combined, there are over

29,000 flood insurance policies in force.

Respectively, there are approximately

3,500 flood insurance policies in force

in the Village of Islamorada and

approximately 25,500 flood insurance

policies in force in Monroe County. Of

these totals, Monroe County has

approximately 11,000 post-FIRM

policies and the Village of Islamorada

has approximately 1,700 post-FIRM

policies. The estimate of 8,000–12,000

illegal enclosures would mean that most

of the communities’ post-FIRM insured

buildings are non-compliant. While this

would be an extremely serious

compliance problem, we do not believe

that most of the post-FIRM insured

buildings in Monroe County and the

Village of Islamorada are noncompliant.

Therefore, only a small percentage

(approximately 7–14 percent) of the

total number of policyholders

(approximately 29,000) would be

affected by the proposed inspection

procedure. We do not believe that the

implementation of the inspection

procedure would be adversely affected

if the number of illegally built

enclosures were somewhat less or

somewhat greater than the estimated

2,000–4,000 buildings with possible

illegal enclosures. Some of these

enclosures may even comply, in which

case the community would take no

further action. With respect to noninsured buildings, which are not subject

to the inspection procedure, the

communities still have responsibility to

remedy violations in these buildings to

the maximum extent possible, including

illegally built enclosures.

Procedural Comments

We received a number of comments

and questions on procedural aspects of

the inspection process.

Comments on Identifying Possible

Violations.

We were asked how the possible

violations would be identified.

Response

It is the communities’ responsibility

under their floodplain management

ordinance to investigate possible

violations of illegally built enclosures.

We will give the communities several

months before the effective start date for

the inspection procedure to investigate

and research the history of buildings to

determine whether a possible violation

exists using permit records, tax records

and other community information. We

will encourage the communities to share

permit and other pertinent information

about the buildings particularly since

the County previously had land use

authority over the area that is now

within the Village of Islamorada. We

will also provide a complete list to the

communities of pre-FIRM and postFIRM flood insurance policy

information as additional information.

In addition to these reviews, the

communities would conduct a visual

street inspection of the building to

further identify a list of insured postFIRM buildings that are possible

violations. Through a process of reviews

and visual street inspections,

communities would identify those

buildings that would need an

inspection. The communities would

submit a list of insured buildings that

are possible violations to us.

Comment on the Frequency of

Inspections

One person asked how frequently the

inspections were to take place for each

property. Specifically, the person asked

whether inspections will be required on

an annual basis and will they be

required every time a new policy is

written.

Response

Only buildings identified as possible

violations by Monroe County and the

Village of Islamorada would be required

to obtain an inspection. For those

buildings identified with possible

violations, we expect that the notice that

an inspection is required will be sent to

the policyholder generally once during

the timeframe established for

implementing the inspection procedure.

There may be circumstances where a

building may be required to be

inspected more than once in a case such

as when the policyholder removes an

illegally built enclosure, then sells the

property, and the subsequent

policyholder illegally builds an

enclosure during the time period in

which the inspection procedure is

implemented. If the community

identifies this insured building as a

possible violation, the community will

provide information on this building to

us along with other possible violations.

New flood insurance policies issued

after the effective date for implementing

the inspection procedure will also

contain the established endorsement in

Appendices (A)(4), (A)(5), and (A)(6). If

the communities identify buildings with

illegally built enclosures for any new

policies that we issue during

implementation of the inspection

procedure, these new policies will also

receive a notice 6 months before the

policy expiration date that the owner

must obtain an inspection from local

officials and the owner must submit an

inspection report to the insurer as a

condition of renewing flood insurance

on the building.

Comment on Time Frame To Obtain an

Inspection

One commenter expressed concern

that homeowners may not have enough

time to obtain an inspection before the

policy expiration date.

Federal Register / Vol. 65, No. 124 / Tuesday, June 27, 2000 / Rules and Regulations 39739

Response

There are two notices that we will

provide when an inspection is required.

We will provide the first notice six

months before the policy renewal

advising the policyholder that an

inspection is required in order to renew

the policy. The insurer will provide the

second notice with the renewal

premium notice, approximately 45-days

before the policy expiration date,

reminding the policyholder that an

inspection is required for policy

renewal. We believe that the two notices

provide ample time for a policyholder to

request an inspection by the

community. To further extend the

notification period would not increase

the likelihood that a policyholder would

obtain an inspection within the time

frame established. The six-month notice

and 45-day reminder will state that the

current flood insurance policy cannot be

renewed until the policyholder obtains

an inspection and submits the

inspection report along with the

renewal premium payment to the

insurer by the end of the renewal grace

period (30 days after the date of the

policy expiration).

Comments on the Added Community

Workload

We received comments expressing

concern about the potential added

workload on the communities to

implement the inspection procedure in

addition to the large number of

inspections currently done as part of

ongoing permit requests for new

construction or improvements to

existing buildings. One person stated

that many buildings can be brought into

compliance through the natural

permitting process rather than through

an inspection procedure.

Response

We will coordinate and consult

closely with each community on the

start date and the termination date for

implementing the inspection procedure.

We expect that the communities will

factor in staffing and other resource

issues when they determine the number

of possible inspections that they can

conduct each year and the follow-up

actions that may be required to remedy

the violations to the maximum extent

possible. If the community identifies

violations of illegally built enclosures

through its normal permit and

enforcement process unrelated to the

inspection procedure, we would expect

the community to remedy the violation

to the maximum extent possible. Only

insured buildings are subject to the

inspection procedure. Therefore, under

the NFIP, the community still has a

responsibility under its normal

processes to identify violations of noninsured buildings and insured buildings

where the policyholder did not obtain

an inspection report under the

inspection procedure and to remedy

these violations to the maximum extent

possible. Actions that the community

takes to address any violations of

insured buildings through its normal

permit and enforcement processes will

reduce the number of buildings that

would need to be addressed through the

inspection procedure.

Comments on the Time Frame To

Remedy Violations

Several commenters were concerned

about the time frame in which the

communities must remedy the

violations. Their concern was expressed

in the context of needing more time to

make sure new housing is available to

replace those illegally built enclosures

that contain a full housing unit that

must be removed. We were asked to

modify the final rule to extend the time

for compliance up to one additional

year for illegally built enclosures that

contain affordable housing. One

question asked was why the community

must exhaust all legal remedies

including notices to the property

owners and appropriate legal action.

Response

In the preamble of the proposed rule,

we stated that ‘‘[f]or each violation

identified, the community would have

to demonstrate to us that it is

undertaking all possible actions to

remedy the violation. If, after one year,

the community demonstrated that it has

taken all enforcement actions within its

authority to remedy the violation to the

maximum extent possible, including a

notice to the property owner to remedy

the violation and appropriate legal

action, and the property owner had not

corrected the violation, the community

would submit a declaration of a

violation and request a denial of flood

insurance under 44 CFR 73,

Implementation of Section 1316 of the

National Flood Insurance Act of 1968.’’

We recognize that there may be illegally

built enclosures that the communities

will identify through the inspection

procedure where the community may

need additional time to remedy the

violation. We expect that most of the

owners will be able to remedy violations

within the first year after the inspection.

However, we will give the communities

flexibility to remedy a violation beyond

the first year when they need additional

time. The communities will notify us

when they need additional time beyond

the one year to remedy a violation

before the one year anniversary date of

the inspection of the building.

We are asking Monroe County and the

Village of Islmorada to demonstrate to

us that they have taken all enforcement

actions within their authority to remedy

the violation. One of the primary

purposes of conducting the inspection

procedure is to help the communities

verify that buildings comply with each

community’s floodplain management

ordinance. Once an inspection reveals a

violation of the community’s floodplain

management ordinance, the responsible

local official will notify the property

owner of actions they must take to

remedy the violation. We expect

communities to remedy a violation to

the maximum extent possible.

Comments on Contracting Inspections

One person asked whether the

community participating in the

inspection procedure can contract out

the inspections or must use local

government staff conduct the

inspections.

Response

The responsibility for carrying out the

inspections rests with the communities.

It is up to the communities of Monroe

County and the Village of Islamorada to

determine how they intend to staff

implementation of the inspection

procedure. Whether the communities

hire outside contractors, use existing

staff resources, or hire additional

inspectors is a community decision. Our

primary concern is that each community

adequately staff the inspection

procedure according to the time frame

(start date and termination date)

established for implementing the

inspection procedure.

Comment on the Inspection Report

Someone asked how insurance

companies would know that they have

received a legitimate inspection report.

Response

As indicated in the proposed rule, the

policyholder would be responsible for

contacting the community to arrange for

the inspection. The community would

inspect the building to determine

whether it complies with the

community’s floodplain management

ordinance and document the findings of

its inspection on an inspection report.

The community would provide two

copies of the inspection report to the

property owner. Communities have

existing procedures and forms in place

for documenting inspections under their

floodplain management ordinance,

which can be adapted for purposes of

39740 Federal Register / Vol. 65, No. 124 / Tuesday, June 27, 2000 / Rules and Regulations

implementing this inspection

procedure. We will coordinate closely

with the communities to ensure that

these inspection reports will be easily

identifiable to the insurance companies

such as on community letterhead,

signed by an authorized local official,

and that they contain information for

the insurer to properly rate the building.

Comments on the Cost of Inspections

Several commenters asked how much

the inspections would cost. One person

stated that our estimate of $35 to $50 for

each inspection is significantly

understated. This person further stated

that property inspections are more

likely to be closer to $125 if they are

performed by third parties.

Response

We sought information from officials

from each community on what they

intended to charge for an inspection and

addressed the fee to be charged for an

inspection in the proposed rule that we

published on May 5, 1999 in the

Federal Register. The communities

provided a general estimate of the cost

for an inspection that ranged from $35

to $50 per inspection. The decision

whether to charge and how much to

charge for an inspection is the

community’s decision. In terms of third

party services, the decision whether the

community will use its own staff to

conduct inspections or contract out the

inspections is also a local decision.

We also sought information from the

communities on their annual cost to

implement this procedure. The County

indicated that the annual cost for

implementing the inspection fee is

approximately $48,292 per year, which

covers primarily the costs associated

with conducting the inspection,

administration, and research by county

staff and indirect costs. We anticipate

that the inspection fee Monroe County

intends to charge for the inspection

would cover much of these annual

costs. The County also indicated that

permit fees and fines would cover costs

associated with any follow-up actions to

address the violations identified

through the inspection procedure. The

Village of Islamorada indicated that the

annual cost for implementing the

inspection fee is approximately

$250,000 per year, which includes the

inspections, administration, research,

follow-up actions by Village staff to

address the violations, and indirect

costs. The Village indicated that it

intends to charge an inspection fee as

well as a permit fee and fines to cover

some of the costs associated with the

inspection procedure.

We understand that the differences in

the budgets between the two

communities are largely attributable to

the fact that much of the basic

infrastructure and processes are already

in place in Monroe County to

implement the inspection procedure,

and that the County does not intend to

hire additional staff but intends to use

existing building and code enforcement

staff and resources. We also understand

that the Village of Islamorada will need

to hire additional staff. Furthermore,

because it recently incorporated (1998),

the Village will need to put basic

systems and procedures in place that are

associated with administration and

enforcement of this inspection

procedure. However, whatever systems

and procedures the Village puts in place

can also be used to implement their

building code and floodplain

management program in general; the

systems and procedures are not just

related to the pilot inspection program.

The fees that the communities intend

to charge for the inspection, permits to

bring the building into compliance, and

any fines associated with enforcement

are in line with what a community

would normally charge property owners

that violate a floodplain management

ordinance, zoning ordinance, or

building code.

Comment

A person asked whether we would

suspend the community from the NFIP

if owners of illegal enclosures opted not

to participate in the inspection

procedure.

Response

If the policyholder does not obtain

and submit a community inspection

report the insurer will not renew the

policy. The community is responsible

under the NFIP to enforce floodplain

management regulations that meet the

minimum requirements of the program

for all new and substantially improved

structures within the SFHAs. This

includes the insured buildings where

the policyholder did not obtain an

inspection report, and non-insured

buildings that this procedure does not

cover.

Starting and Termination Dates

We did not receive comments on the

establishment of the starting date or

termination date established at 44 CFR

59.30(c)(1). That section states that the

Associate Director for Mitigation and

the Federal Insurance Administrator

will establish the starting date and the

termination date for implementing the

pilot inspection procedure upon the

recommendation of the Regional

Director. The Regional Director will

consult with each community. However,

we recognize that there may be unique

circumstances that may warrant an

extension of the termination date such

as a major disaster declaration under

The Robert T. Stafford Disaster Relief

and Emergency Assistance Act, as

amended. We have added in subsection

(c)(2) that the Associate Director for

Mitigation and the Federal Insurance

Administrator may extend the

implementation of the inspection

procedure with a new termination date

upon the recommendation of the

Regional Director. The Regional Director

will consult with the community. The

Associate Director for Mitigation and

the Federal Insurance Administrator

would grant an extension based on good

cause, such as a presidentially declared

disaster. The termination date means

that all notices have been sent to

policyholders stating that we require an

inspection in order to renew the flood

insurance policy and that the

communities have completed all

inspections for the notices that have

been sent to policyholders.

Lender Involvement

We received four letters and one email message containing multiple

comments concerning lender

involvement with respect to the

inspection procedure.

Comments on Notification Process

Three commenters questioned how

lending institutions and loan servicers

for loans on the affected properties

would be notified of inspections. They

stated that community outreach efforts

must go beyond the community level

since lenders and servicers can be

located outside of the State of Florida.

Response

The Federal Insurance Administration

will instruct the insurers to notify the

insured and all mortgagees of record six

months in advance of the policy

renewal for which the policyholder

must obtain an inspection. The National

Flood Insurance Reform Act of 1994

mandates that if the secured property is

in an SFHA a regulated lender must

notify our designee of the identity of the

loan servicer at any time a change

occurs. We have designated the various

insurers, or the NFIP’s Servicing Agent,

as our representatives to receive the

notice regarding change of servicer. If

the lender follows the notice

procedures, this will facilitate the

inspection notification process. We will

provide notice to the Federal Agencies

regulating lenders of the start date for

implementing the inspection procedure

Federal Register / Vol. 65, No. 124 / Tuesday, June 27, 2000 / Rules and Regulations 39741

to enable them to notify their lending

institutions that may have loans on

affected properties.

Comment on Requiring Corrective

Measures

One commenter questioned whether a

lender could use its rights under the

mortgage contract to require corrective

measures if the enclosure is determined

to be in violation of the community

floodplain management ordinance or

require an inspection of the property if

the homeowner refuses to obtain an

inspection.

Response

The question of the legal rights of

lending institutions to compel

borrowers to undertake corrective

actions or to force non-consenting

borrowers to submit to a property

inspection by community officials is

outside our authority to answer. The

terms and conditions of the mortgage

agreement fully describe the rights and

conditions of the parties. Therefore, we

defer questions of this nature to the

mortgage lenders and to the Federal

regulatory agencies for lenders to

address.

Comment on Lender-Related

Inspections

Another commenter questioned

whether the inspection by the

community is the type contemplated by

the mortgage, or does the mortgage only

permit the lender to inspect the

property for waste and other hazards

specifically stated in the mortgage.

Response

We cannot comment on whether the

inspection with respect to enclosures is

the type contemplated by the mortgage

agreement or whether the mortgage

contract only permits a lender to inspect

the property for specific hazards. The

terms and conditions of the mortgage

agreement fully describe the rights and

conditions of the parties. Again, this is

a matter that would be better addressed

by mortgage lenders and the Federal

regulatory agencies for lenders.

Comments on the Standard Flood

Hazard Determination (SFHD) Form

Procedures

Some commenters asked whether

completing the existing Standard Flood

Hazard Determination form would

include reviewing inspection records

and whether current contracts for flood

determinations with national vendors

would include this service. We were

also asked whether we would require

lending institutions to renegotiate these

contracts.

Response

The Standard Flood Hazard

Determination form documents the

process of determining whether lenders

should require flood insurance in

connection with a given mortgage loan

transaction, while Federal banking

entities use it to monitor compliance by

lenders. The form documents that the

lender made a determination for a

building or mobile home, whether the

building or mobile home is in or out of

the Special Flood Hazard Area, whether

flood insurance is required, and

whether Federal flood insurance is

available. The flood determination

depicts the location of the building and

is separate from the inspection

procedure. The determination process

and inspection procedure are used for

very different purposes. We will not

revise the Standard Flood Hazard

Determination form to include

information about the inspection

procedure. Therefore, we do not

perceive a need for contracts with Flood

Zone Determination companies to be

renegotiated in response to the

inspection procedure.

Comments on the Effect of Denying

Flood Insurance Coverage

We received two comments that the

denial of flood insurance might cause a

bank to be viewed as non-compliant

with the mandatory flood insurance

purchase requirement and consequently

assessed a civil monetary penalty by a

Federal regulatory agency. Additionally,

comments stated that the banks would

have an increased credit risk that could

result in loan defaults and eventually

foreclosures if flood insurance has been

denied.

Response

The statute mandates coverage only

when ‘‘the sale of flood insurance has

been made available,’’ 42 U.S.C.

4012a(b). We interpret this to mean that

a lender would not be in violation of the

law if the structure were deemed

ineligible for NFIP coverage. Therefore,

we are of the opinion that a lender

would not be compelled to call a loan

on a building that is ineligible for NFIP

coverage because it violates a

community’s floodplain management

ordinance and we have denied NFIP

insurance under Section 1316 of the

National Flood Insurance Act of 1968.

The Mandatory Purchase of Flood

Insurance Guidelines, which we

published, addresses the issue of

buildings ineligible for NFIP insurance

under Section 1316. The fact that a

property subsequently becomes

ineligible for NFIP coverage does not

mean that the lender is non-compliant

for a conventional loan. Of course, the

lender could force-place private flood

insurance (non-NFIP) as an alternative if

the term of the mortgage permitted this

and the lender wanted to have flood

insurance even though the statute does

not require it. However, the lender

should be aware that the building is at

a greater risk of flood damages than

buildings that are compliant with the

community’s floodplain management

ordinance. Each lender must tailor its

flood insurance risk management

procedures to suit its particular

circumstances. We encourage lenders to

evaluate and modify their flood

insurance programs to comply both with

the mandatory purchase requirements

and with principles of safe and sound

banking that may be unique to a

particular lender. The lack of available

NFIP coverage in a participating

community does not prohibit a lender

from making a conventional loan. We

believe that the same rules that apply to

buildings in violation also apply to a

building not eligible for NFIP insurance

because the required inspection was not

done.

Comment on the Recourse for Buildings

in Violation

One commenter questioned what

happens to existing loans if a building

enclosure is determined to be in

violation of the community’s floodplain

management ordinance and whether

time is allowed to make the necessary

corrections to the structure.

Response

We expect that owners will be able to

fix violations within the first year after

the inspection. However, we will give

the communities flexibility to remedy a

violation beyond the first year if time is

needed. If, after one year, the

community has taken all enforcement

actions within its authority to remedy

the violation to the maximum extent

possible, and the property owner does

not correct the violation, the community

will submit a declaration of a violation

to us. This will result in denial of flood

insurance under 44 CFR 73,

Implementation of Section 1316 of the

National Flood Insurance Act of 1968.

However, as we stated before there is no

impact for conventional loans as a result

of denial of NFIP insurance under

Section 1316.

Comments on the Need for Guidance

Two commenters recommend that

FEMA include the lending and servicing

community in devising procedures that

will support the inspection procedure

should we implement it. One comment

39742 Federal Register / Vol. 65, No. 124 / Tuesday, June 27, 2000 / Rules and Regulations

was made that not enough attention has

been paid in the proposal on the

potential impact on the mortgage

lenders.

Response

We will continue to strengthen and

maintain the partnership already

established with the mortgage lending

community and Federal agencies

regulating lenders. We will undertake

activities to coordinate with the lending

and servicing industry for

implementation of this procedure. We

will have detailed information and

sources of reference available on our

website. We will also offer printed

articles for publication in lender trade

magazines and issue bulletins

addressing the inspection procedure.

Comments on Escrow Provisions

We received two questions asking

what happens when the premium is

paid under escrow arrangements and, if

the insurance is cancelled or ineffective,

will the lender or insurance company be

required to rebate a portion of the

premium or the funds in the escrow

account that would pay the premium.

We were also asked what impact the

disclosure requirements under the Real

Estate Settlement Procedures Act

(RESPA) of 1974 and Section 21 of HUD

Regulation X, would have on existing

escrow accounts.

Response

The mandatory purchase law

expressly states that escrow accounts

established under the Flood Disaster

Protection Act of 1973 are subject to the

escrow account provisions of Section 10

of RESPA, which imposes accounting

and notice obligations on a lender for

consumer loans. We would expect that

the rules adhered to for issuing refunds

when excess escrow funds have

accumulated under standard practices

would apply. The 1994 Reform Act

mandates the escrowing of flood

insurance premiums if the lender is

escrowing for other reasons, i.e., for

insurance or taxes. While we administer

the NFIP, we are not a regulatory agency

for lending institutions and we do not

have authority over any settlement

activities performed by lending

institutions. Therefore, the matter of

RESPA and escrow provisions should be

referred to the Department of Housing

and Urban Development or to a Federal

agency regulating lenders for guidance.

Comments on Forced Placement

Insurance

We received two comments on the

force placement process that takes place

if the servicer does not receive evidence

of renewal and whether we have

considered the outcome. One

commenter asked whether forced

placement policies would cover the

lender during periods when the

borrower’s policy is ineffective.

Response

We have considered the outcome of

force placement coverage. Force

placement under the NFIP will not be

available for structures deemed to be in

violation of State or local laws under

Section 1316 of the 1968 Act or for

structures where policyholders do not

obtain an inspection and submit an

inspection report under this procedure.

The insurers and the NFIP Bureau and

Statistical Agent will maintain a list of

all structures found to be ineligible for

flood insurance coverage. The NFIP

Bureau and Statistical Agent will review

the policies issued and renewed by

insurers to make sure that any policies

inadvertently issued for structures on

this list are voided. Only private flood

insurance coverage may be available for

these structures.

Implementation in Other Communities

and Evaluation of the Inspection

Procedure

Comments on Implementation in Other

Communities

We received four comments

concerning implementation of the

proposed inspection procedure outside

of Monroe County, Florida. Specifically,

we received several comments from

communities and a State outside of

Florida stating their objection to the

implementation of the inspection

procedure within their jurisdiction,

citing primarily the impact that the

inspection procedure would have on

manpower and workload.

Response

We designed the proposed inspection

procedure specifically to help the

communities of Monroe County, Florida

and the Village of Islamorada, located in

Monroe County, to verify that structures

are built in compliance with their

floodplain management ordinance. The

intent of this procedure is to assist these

two communities materially to identify

and correct violations of illegally built

ground level enclosures below elevated

buildings. We will undertake the

inspection procedure on a pilot basis

only in these two communities, and any

other community within Monroe

County, Florida that incorporated after

January 1, 1999. We would make any

decision to implement the inspection

procedure in other NFIP participating

communities outside of Monroe County,

Florida only after completing the pilot

inspection procedure within the

selected communities and after we

evaluate the procedure’s effectiveness. If

we decide to implement this procedure

outside of Monroe County, Florida after

we complete the evaluation, we would

have to issue a proposed rule and then

a final rule so that interested parties

could comment.

Comments on the Evaluation

We also received two comments

concerning the evaluation of the

inspection procedure. Specifically, the

commenters expressed concern about

the impact that the inspection

procedure would have on property

owners if we evaluate it and find that it

is ineffective. One person specifically

asked how we would gauge the

effectiveness of the inspection

procedure.

Response

We designed the proposed inspection

procedure to assist the communities of

Monroe County and the Village of

Islamorada, Florida verify that

structures comply with their floodplain

management ordinances. We also

designed it to ensure that property

owners pay flood insurance premiums

commensurate with their flood risk. The

evaluation will include the extent to

which we achieve these objectives.

Other factors that we will evaluate

include:

• The extent to which policyholders

do not obtain an inspection,

• The extent to which buildings are

brought into compliance with the

minimum requirements of the NFIP,

• Whether other enforcement options

can be used to achieve the same

objective,

• Whether the benefits derived from

this procedure outweigh the associated

costs, and

• The extent to which manual

processes are required to implement the

inspection procedure and the extent that

such manual processes affect the

implementation.

We would monitor and evaluate the

inspection procedure and we would

closely coordinate with each

community throughout implementation

of this procedure. The FEMA Region IV

office would review the status of

implementation with each community

on activities such as the number of

inspections conducted, the results of the

inspections, and the follow-up actions

being taken to remedy the violations to

the maximum extent practicable. This

review would be undertaken on at least

a monthly basis for the first several

months of implementation and on at

Federal Register / Vol. 65, No. 124 / Tuesday, June 27, 2000 / Rules and Regulations 39743

least a quarterly basis thereafter. The

FEMA Region IV office would also make

site visits on at least a semi-annual basis

and more frequently if needed.

The results of any evaluation on the

effectiveness of the inspection

procedure does not modify or relieve

Monroe County or the Village of

Islamorada’s responsibility under the

NFIP to enforce their floodplain

management ordinance and to bring

noncompliant enclosures below

elevated buildings into compliance with

the community’s floodplain

management ordinance.

Economic Impact and Loss of

Affordable Housing

Comments

We received 25 comments on the

economic impact and loss of affordable

housing. Many of those commenting on

the inspection procedure stated that the

inspection procedure would result in a

much more devastating impact on the

local economy and on housing

compared to a major hurricane that

would strike the Florida Keys. Many

expressed concern that the inspection

procedure and the removal of

enclosures will create an economic

disaster for homeowners, particularly

those living on fixed incomes and those

who supplement their income from

renting these enclosures. Others also

expressed concern that this procedure

will have a serious impact on the value

of property with as much as 25–30

percent of the value affected and will

result in a significant loss in the local

tax base. One commenter estimated that

the County could lose as much as $2.47

million per year in property taxes.

Some suggested that since the County

created the problem, it should

reimburse homeowners half the

assessed value of their property and

adjust the property taxes accordingly. In

addition, several people indicated that

this procedure is unfair with regard to

the rights of unsuspecting purchasers

who bought their property in good faith

and now must remove a substantial

investment in the property.

A number of those commenting on the

proposed rule expressed concern over

the impact that the inspection

procedure would have on the

availability of affordable housing in

Monroe County. Many people stated

that the procedure would exacerbate an

already existing housing crisis in the

County. Several of those commenting

indicated that these enclosures provide

much needed housing particularly for

low and moderate-income residents and

that these enclosures provide much

needed housing for the employees who

work in the service industry, a major

employer in the County. Commenters

stated that these enclosures also provide

housing for senior citizens or other

family members and housing for

seasonal workers and vacationers.

One person recommended that no

tenant-occupied enclosure be

demolished until there is an agreed

upon plan by all the governmental

agencies involved to increase the

affordable housing stock and that an

affordable unit be built prior to

eliminating any existing units.

Response

As stated before, we have estimated

that there are 2,000–4,000 illegally built

enclosures in Monroe County and the

Village of Islamorada. Since any

finished enclosures were built illegally

in the first place and do not comply

with the community’s floodplain

management ordinance and the

minimum requirements of the NFIP, we

do not know precisely how many

illegally built enclosures below elevated

buildings exist and whether they are

being used as rental units or additional

living space. Our estimate is based on

the 1995 CAV conducted by our Region

IV office, a review of post-FIRM

policies, and discussions with local

officials from both communities. A

December 1999 Memorandum of

Agreement between the State of Florida

Department of Community Affairs and

Monroe County gives some indication of

the number of possible illegal

enclosures. It states that ‘‘County staff

estimates that these illegal downstairs

enclosures may contain hundreds of

below base flood dwellings serving as

living quarters for Monroe County

households’’ and that ‘‘an unknown

portion of these illegal downstairs

enclosures has traditionally provided

housing for low and moderate income

and working class households’’.

Based on these estimates, we have

conservatively estimated that there are

between 500–800 out of the 2,000–4000

illegally built enclosures that may be

occupied by low-income households in

Monroe County and the Village of

Islamorada. The impact on low-income

populations is documented in our

‘‘Record of Environmental Review’’ on

the proposed rule. These estimates

indicate that there should not be a

disproportionately adverse impact on

low-income populations. While we do

not have an exact estimate within each

of the two communities, we estimate

that Monroe County, which has the

larger land area and greater number of

post-FIRM buildings, has a significantly

larger portion of the illegally built

enclosures including enclosures used as

a housing unit than the Village of

Islamorada. Furthermore, based on the

statement in the Memorandum of

Agreement cited above, we believe that

the owners of a majority of the illegally

built enclosures use them as additional

living space for their immediate family

rather than as full living quarters for

separate full-time households.

We do not dispute the fact that there

will be some impacts as a result of

implementing the inspection procedure.

There will be some impacts on the

estimated 500–800 low-income

households living in a housing unit

within an illegally built enclosure. The

impact on low-income populations

would result from the removal of the

illegal enclosure under the inspection

procedure. Consequently, the lowincome renter will need to find

replacement housing. However, finding

available replacement housing may be a

problem for the low-income households.

Local officials as well as people

commenting on the proposed rule

indicated to us that availability of

affordable housing is a problem

throughout the County. There are also

limitations on the amount of housing

that can be built in the communities in

any given year. Communities in Monroe

County, including the County, are under

a State mandated Rate of Growth

Ordinance (ROGO). This ordinance

establishes the number of residential

dwelling units, including the number of

affordable housing dwelling units that

can be built in a given year. The

purpose of the ROGO is to protect

property owners and others from the

devastating effects of a natural disaster

and to establish a rate of growth that is

commensurate with the County’s ability

to maintain a reasonable and safe

hurricane evacuation clearance time.

There are other market conditions that

have also had an impact on the

availability of affordable housing, such

as availability of land and financing as

documented in the Monroe County Year

2010, Comprehensive Plan Technical

Document, dated April 15, 1993. Under

these conditions, the low-income

household may have difficulty finding

appropriate replacement housing.

Additionally, there will be some

impacts on the property owners.

Impacts on the property owners may

include loss of additional living space

or rental income if a housing unit is

located in the ground level enclosure,

the cost of removing the additional

living space to bring the building into

compliance with the community’s

floodplain management ordinance, and

the potential loss in property value

depending on the size and extent of the

improvements to the enclosure. The

39744 Federal Register / Vol. 65, No. 124 / Tuesday, June 27, 2000 / Rules and Regulations

community may also experience a loss

in property tax revenue due to the loss

in value in some structures.

However, these effects are created as

a direct result of building these illegal

enclosures in the first place and not as

a result of community enforcement of its

floodplain management ordinance. If

these illegal enclosures had not been

built, there would be no need for this

inspection procedure or any other

enforcement actions under the NFIP.

Any impacts associated with this

inspection procedure should be

minimized since it will be implemented

over a multi-year period with the actual

inspections staggered throughout the

year.

Moreover, this inspection procedure

will not cause more harm and

devastation than a major hurricane as

comments purported. As described

earlier in this rule, South Florida is one

of the most hurricane prone regions of

the country. Almost the entire County,

including the Village of Islamorada,

could be inundated by a flood having a

1-percent chance of being equaled or

exceeded in any given year. Buildings in

these communities that are not properly

protected are extremely vulnerable to

flood damage. If a major hurricane were

to strike Monroe County, there would be

a much more devastating impact

especially to the low-income

households living in the illegally built

enclosures when compared to the effects

resulting from implementation of this

procedure over a multi-year period.

Allowing uses for something other

than parking, access, or storage in the

enclosed area below the Base Flood

Elevation significantly increases flood

damages to the building. If the groundlevel enclosure is finished as a separate

housing unit or other finished living

spaces, there is an increased risk to

lives. Residents, who live in these

ground-level enclosures, may not be

fully aware of the severity of the flood

risk.

Further, while the shortage of housing

will be a significant problem in a major

hurricane, it could become a crisis

situation for those households living in

illegally built ground level enclosures.

The impact on housing even became

evident in Hurricane Georges, a

Category 2 hurricane. We provided over

1400 households with rental assistance

in Monroe County in response to this

event. We learned in comments that

businesses throughout the County

closed for several days following

Hurricane Georges because they could

not find enough people to work in them

because housing was unavailable.

Flooding and the coastal storm surges

resulting from a major hurricane event

could damage or destroy a number of

illegally built enclosures used as full

living units, compounding the problem

of available housing. Since flood

insurance is very limited for enclosures,

property owners as well as any affected

households living in these enclosures

will not have the financial support of

flood insurance to replace their personal

belongings. Property owners will not be

able to repair the illegal enclosures as

finished living space or the housing unit

since the community’s floodplain

management ordinance does not allow

such enclosures. Households living in

these enclosures will be dependent on

federal and other disaster assistance and

temporary housing in the short-term. If

the property is not a primary residence,

the property owner may be ineligible for

Federal disaster assistance in the form

of grants or loans.

With limited financial assistance

available, the impact will be especially

devastating to the low-income

households living in these illegal

ground level enclosures. The lowincome population living in these

enclosures may not be able to

financially compete for available

housing in the County. As a result, lowincome households may be left without

replacement housing in the long-term

and they may have to relocate outside

the County thereby placing additional

economic and other burdens on the

household. In the event of a major

hurricane, the loss of housing units

within illegally built ground level

enclosures will only compound an

already existing affordable housing

shortage in Monroe County.

While we recognize the investment

that property owners may have in these

lower level enclosures, the increase in

any value to the property is the direct

result of violating the community’s

floodplain management ordinance.

Property owners will also lose this value

in a major hurricane. When a major

hurricane strikes, the loss in property

value will likely have more significant

financial consequences to individual

property owners and any tenants living

in the enclosures than the inspection

procedure will have. Property owners

will not receive compensation for the

loss of enclosures through flood

insurance or through disaster assistance.

There may be other financial

repercussions if property owners still

have outstanding mortgages on their

buildings.

Communities should not rely on

illegally built enclosures as a

dependable source of tax revenue. In the

event of a major hurricane, the loss of

a number of illegally built enclosures

would result in a more dramatic loss in

the tax base and would impact the

community as a whole more severely

than through the removal of illegally

built enclosures under the inspection

procedure over a multi-year period.

In comparison to a major hurricane

striking the County, the proposed

inspection procedure will actually have

a beneficial affect by eliminating

illegally built enclosures over a severalyear period. Because the inspection

procedure will be implemented over

several years and the inspections

themselves will be staggered throughout

the year as flood insurance policies are

renewed, it will have the added benefit

of giving the property owners time to

remedy the violation and to give any

tenants living in these illegal enclosures

time to find appropriate alternative

housing. Over time, buildings will

comply with a greater level of flood

protection.

We will make every effort to ensure

that we and the communities provide

effective outreach and public

information on the inspection

procedure. The communities will have

several months before the actual starting

date of the inspection procedure to

undertake outreach and to provide

information to the public about the

procedure. The final rule provides

criteria for several notices to be given to

property owners about the inspection

procedure.

• Before the starting date of the

inspection procedure, each community

must publish a notice in a prominent

local newspaper and publish other

notices as appropriate.

• We will also publish a notice in the

Federal Register that the communities

will undertake an inspection procedure.

• Published notices will include the

purpose of implementing the inspection

procedure.

• Policyholders of insured structures

will receive at least three specific

notices established in the final rule.

—The first notice will be after the

starting date, the policyholder will

receive an endorsement to their

Standard Flood Insurance Policy that

an inspection may be required;

—The second notice will be for

buildings that the communities

identify as possible violations—the

insurer will send a notice to

policyholders approximately 6

months before the policy expiration

date. This notice will state that the

policyholder must obtain an

inspection from the community and

submit the results of the inspection as

part of the renewal of the flood

insurance policy by the end of the

renewal grace period (30 days after

the date that the policy expires); and

Federal Register / Vol. 65, No. 124 / Tuesday, June 27, 2000 / Rules and Regulations 39745

—Third, the insurer will send a

reminder notice to the policyholder

with the Renewal Notice about 45–60

days before the policy expires.

We will closely coordinate with the

communities to ensure that there is

adequate notification to the public in

general and to the affected population

throughout the implementation phase of

the inspection procedure.

The inspection procedure also

supports ROGO, which is tied to the

County’s hurricane evacuation plan.

ROGO establishes a rate of growth that

is commensurate with the County’s

ability to maintain a reasonable and safe

hurricane evacuation clearance time.

Illegally built enclosures that have full

housing units may effectively exceed

the permit allocation system of ROGO

for new residential development,

thereby jeopardizing the County’s goal

of safeguarding the public against the

effects of hurricanes and tropical

storms.

The impacts created by the inspection

procedure will be further minimized

through steps that Monroe County is

undertaking to address affordable

housing. The Monroe County Board of

County Commissioners approved an

Affordable Housing Action Plan at its

November 10, 1999 meeting. The first

part of the action plan directs the

County Planning Department to prepare

a Memorandum of Agreement (MOA)

between the County and the Department

of Community Affairs (DCA) that would

allow the County to receive credit for

those affordable housing units that were

counted in the ROGO, and could be lost

due to the removal of illegal ground

level enclosures.

On December 27, 1999, the DCA

signed this MOA, thereby enabling

Monroe County to add 90 ROGO credit

units to its year 8 allocations. The

agreement allows Monroe County to add

up to 90 housing unit credits through

July 13, 2002 to its ROGO allocation as

replacement housing for affordable

housing units in enclosures removed as

a result of the implementation of the

proposed inspection procedure.

The 90 credits can only be applied to

those units that qualify as ‘‘affordable

housing’’ as defined by the Monroe

County Code. The Agreement provides

for an amendment to adjust the number

of ROGO credits should the County’s

inspection report document the removal

of more than 30 housing units in

illegally built enclosures. We

understand that any housing units

illegally created after 1990 do not

qualify for the ROGO credits since they

were not included in the 1991

Hurricane Evacuation Study upon

which the ROGO annual residential

dwelling unit allocation is based.

However, under the general annual

ROGO allocation, at least 20% of the

annual allocation is for affordable

housing. This annual allocation for

affordable housing could be used for

those low-income households living in

an illegal enclosure created after 1990.

The second part of the action plan

directs the County Planning Department

to identify potential suitable sites for the

construction of attached affordable

housing. In addition, the County is

looking at other considerations to

improve the availability of affordable

housing, such as developing

partnerships with private developers to

encourage development of affordable

housing and evaluating zoning

regulations to increase opportunities to

build affordable housing units.

The Village of Islamorada

incorporated in 1998 and joined the

National Flood Insurance Program as a

participating community on October 1,

1998. The Village is currently working

to put in place plans, programs, and

procedures affecting land use. We will

work with the Village of Islamorada to

pursue similar efforts for additional

ROGO credits with the State Florida

Department of Community Affairs

should it be necessary.

We encourage both communities to

continue efforts to develop plans,

programs and procedures to provide

affordable housing in order to minimize

impacts resulting from the

implementation of the proposed

inspection procedure.

Previously Issued Permits

Comments

We received six comments and

questions concerning the finished

ground level enclosures for which

permits were purported to have been

issued by Monroe County. Specifically,

the commenters asked why we did not

make a distinction in the proposed rule

between the finished enclosures for

which a permit was issued and those

that had been built without the benefit

of a permit.

They also asked why we did not

recognize in the proposed rule the

settlement agreement between Monroe

County and the plaintiffs, which was

signed on April 13, 1999 in the Circuit

Court of the Sixteenth Judicial Circuit in

and for Monroe County, Florida. This

settlement agreement stipulated that,

‘‘the Court acknowledges that plaintiffs

have agreed to a dismissal of their

putative class action based upon

Monroe County’s agreement that all

below Base Flood Elevation nonconforming enclosed space that was

authorized by permit from Monroe

County shall not be cited for violating

County ordinances setting forth

floodplain regulations.’’ With respect to

this settlement, one commenter stated

that the final rule must explicitly

recognize the settlement and resultant

Order and that the final rule must

provide that: (1) permitted enclosed

(below) Base Flood Elevation space

shall not be considered to violate the

floodplain management ordinance; and

(2) flood insurance renewals shall be

available to all such permitted but nonconforming structures.

Based on this settlement, some asked

how the settlement affects the County’s

role in the inspection procedure. Some

also asked how the settlement

agreement affects the Village of

Islamorada’s role in the inspection

procedure. In this regard, several

commenters said that it would be unfair

to require the Village of Islamorada to

enforce its floodplain management

ordinance on previously permitted

finished enclosures that the County

approved since the County does not

intend to enforce its ordinance on

permitted finished enclosures based on

the settlement agreement. Some asked

us to provide guidance on whether the

Village could also enter into a similar

agreement and to confirm that the

Village would not be excluded from the

NFIP if it enters into a similar

agreement.

Response

When the communities of Monroe

County and the Village of Islamorada

applied to join the NFIP, each

community adopted a resolution

committing itself to recognize and

evaluate flood hazards in all official

actions and to take such other officials

actions as reasonably necessary to carry

out the objectives of the program [44

CFR 59.22(a)(8)]. This commitment is in

addition to the requirement that the

community takes into account flood

hazards to the extent that they are

known in all official actions relating to

land management and use [44 CFR

60.1(c)]. In order to participate in the

NFIP, all communities must adopt a

floodplain management ordinance that

meets or exceeds the minimum

requirements of the program at 44 CFR

60.3. A community eligible for the sale

of flood insurance shall be subject to

suspension from the program for failing

to submit copies of adequate floodplain

management regulations meeting the

minimum NFIP requirements in

accordance with 44 CFR 59.24(a).

Similarly, a community eligible for the

sale of flood insurance shall be subject

39746 Federal Register / Vol. 65, No. 124 / Tuesday, June 27, 2000 / Rules and Regulations

to probation and potentially to

suspension from the program for failing

to enforce floodplain management

regulations adequately meeting the

minimum NFIP requirements in

accordance with 44 CFR 59.24(b) and

(c).

While communities participating in

the NFIP have flexibility to adopt more

restrictive criteria and to enforce their

floodplain management ordinances,

communities cannot enforce floodplain

management requirements in a way that

would contravene those requirements

that they agreed to adopt and enforce at

44 CFR 60.3 when they joined the

program. In that regard, communities

are not allowed to permit finished

ground level enclosures below the Base

Flood Elevation since they would

violate the requirements in 44 CFR 60.3.

Nor are communities allowed to give

amnesty to a building or a class of

buildings that violate the communities’

floodplain management ordinance. To

do so, would jeopardize the

communities’ participation in the NFIP.

With respect to the April 13, 1999

settlement agreement between Monroe

County and the plaintiff in which the

County agreed that it would not enforce

its floodplain management ordinance on

previously permitted finished

enclosures, we were not a party to that

agreement nor were we aware that the

County was entering into the agreement

with the plaintiffs in the case. It would

be contrary to the National Flood

Insurance Act of 1968, as amended, and

to the NFIP Floodplain Management

Regulations at 44 CFR Parts 59 and 60

for us to grant amnesty for certain

classes of buildings because the

community failed to enforce its

floodplain management ordinance

adequately or the community granted

permits for construction that violate the

community’s ordinance. Nor can we

advise communities to grant amnesty for

buildings or certain classes of buildings

that would violate the community’s

floodplain management ordinance.

The illegally built enclosures for

which the County had previously issued

permits are still subject to the

inspection procedure. Monroe County is

still responsible for obtaining a level of

flood loss reduction for these buildings

given practical and legal constraints. In

this case, the settlement agreement may

be a possible legal constraint with

respect to enforcement on the actual

items that were permitted previously by

Monroe County. However, the County

must inspect the enclosure to ensure

that it has not been improved beyond

what had been previously permitted. If

so, the County must take an

enforcement action on those

improvements that go beyond the

previously issued permit for the

finished enclosure and bring those

improvements into compliance. As part

of the inspection report to the

policyholder, the County must notify

the policyholder of the flood hazard and

that the finished ground level enclosure

cannot be expanded or improved or

repaired from damages of any origin in

accordance with the requirements in 44

CFR 59.22(a)(8), 60.1(c), and 60.3.

Furthermore, for any finished ground

level enclosure in which a permit was

issued, the policyholder must obtain

and submit an inspection report before

the flood insurance policy renewal date.

The settlement agreement has no

impact on the rating of insured

structures. The National Flood

Insurance Act of 1968, as amended,

requires us to rate structures according

to the risk and accepted actuarial

principles for any types and classes of

properties for which insurance coverage

is available under the Act. The Village

of Islamorada would be subject to

similar requirements described above

should it enter into a similar settlement

agreement.

National Environmental Policy Act

We have reviewed the proposed rule

under the requirements of 44 CFR 10,

Environmental Considerations, and

under the mandates of the National

Environmental Policy Act. We

determined that the action in the

proposed rule qualifies for the exclusion

on rulemaking relating to actions that

themselves are excludable. The

exclusions are in 44 CFR 10.8(d)(2)(ii)

and (iv) regarding inspections,

monitoring activities, and actions to

enforce local regulations.

The rule does not establish any new

requirements that Monroe County and

the Village of Islamorada must adopt

and enforce under the NFIP. Rather, it

provides the communities with an

additional tool to enforce existing

requirements in their floodplain

management ordinance. This existing

ordinance requires that all new and

substantially improved structures must

be elevated to or above the Base Flood

Elevation (BFE), and must be adequately

anchored to prevent flotation, collapse,

or lateral movement of the structure

resulting from hydrodynamic and

hydrostatic loads.

We also determined that no

extraordinary circumstances exist

regarding this rule, as defined in 44 CFR

10.8(d)(3). We considered these

potential extraordinary circumstances:

Greater scope or size than normally

experienced for a particular category

action; high level of public controversy;

presence of endangered or threatened

species and their critical habitat;

presence of hazardous substances; and

actions with the potential to affect

special status areas adversely or other

critical resources.

We provided a copy of the Record of

the Environmental Review documenting

the findings to Monroe County and the

Village of Islamorada. A copy may be

obtained through our website at

www.FEMA.gov, or by writing to the

Federal Emergency Management Agency

at 500 C Street, SW., Washington, DC

20472, Attention: Lois Forster.

Executive Order 12898, Environmental

Justice

We have reviewed the proposed rule

under E.O. 12898, Environmental

Justice, and have determined that the

inspection procedure will not have a

disproportionate adverse impact on lowincome populations and minority

populations. We also determined that

this action will have some adverse

effects on low-income populations

because some of the illegal enclosures

are used as a full-living unit and the

residents will have to find replacement

housing. The effect is caused by the

illegal activity, not by this regulatory

action. We have determined, further,

that there would be a much more

significant adverse health and safety

impact on the affected low-income

populations if they stayed in these

illegally built ground level enclosures.

The enclosures are located in flood

hazard areas below the Base Flood

Elevation where there is a significant

risk of flooding.

We provided a copy of the Record of

the Environmental Review documenting

the findings to Monroe County and the

Village of Islamorada. A copy of the

Record of the Environmental Review

may be obtained through our website at

www.FEMA.gov or by writing to the

Federal Emergency Management Agency

at 500 C Street, SW., Washington, DC

20472, Attention: Lois Forster.

Executive Order 12866, Regulatory

Planning and Review

We have prepared and reviewed this

final rule under the provisions of E.O.

12866, Regulatory Planning and Review.

For the reasons that follow we have

concluded that the rule is neither an

economically significant nor a

significant regulatory action under the

executive order:

• The rule is a pilot program that

applies only to two communities to

address flood insurance and floodplain

management issues required by statute

for the communities to remain eligible

for flood insurance and to avoid

Federal Register / Vol. 65, No. 124 / Tuesday, June 27, 2000 / Rules and Regulations 39747

probation and potential suspension

from the NFIP;

• We estimate that the costs to the

two communities to enforce the rule

will be in the range of $48,000 to

$250,000 per year, over a few years;

• This rule raises no novel legal or

policy issues arising out of legal

mandates of the NFIP, presidential

priorities, or principles of E.O. 12866. It

creates no new requirements that the

two communities must adopt and

enforce under the NFIP, but provides

them with assistance to carry out their

responsibilities under the NFIP and to

enforce the existing requirements in

their floodplain management ordinance;

• This rule will provide these

communities with a tool to protect the

health, safety, and welfare of their

citizens and property exposed to a

significant flood risk, a tool not

otherwise available to the communities

under the current regulations of the

NFIP;

• We do not expect that the rule will

adversely or materially affect the public

directly affected by the rule. The

inspection procedure will be

implemented over a period of several

years, will give property owners time to

remedy the violations, and will give

tenants living in illegal enclosures time

to final appropriate alternative housing.

The rule also accommodates the Statemandated Rate of Growth Ordinance

(ROGO), the memorandum of agreement

between the County and the State on

ROGO allocations in order to deal with

replacement units for illegal enclosures

removed as a result of the inspection

procedure;

• The inspection procedure adopted

in the rule arises out of work done by

a Citizen’s Task Force that the Monroe

County Board of County Commissioners

appointed. We have worked closely

with County, Village and State officials

in preparing the rule [see Executive

Order 13132, Federalism, below]; and

• The inspection procedure under

this rule is the best available method to

achieve the NFIP regulatory objective

while taking into account State statutory

constraints on inspections, State rate of

growth mandates, housing limits with

the two communities, and related

factors.

The Office of Management and Budget

has reviewed this rule under the

principles of Executive Order 12866.

Executive Order 13132, Federalism

Executive Order 13132, Federalism

seeks to ensure that Executive agencies

consider principles of federalism when

developing new policies, and requires

them to consult with State and local

officials when their actions may have

federalism implications.

In the proposed rule, we stated that

this rule has no policies that have

federalism implications under E.O.

12612, Federalism. However, we

received three comments on the

proposed rule that the inspection

procedure violated the Executive Order

on Federalism. Since the publication of

the proposed rule, the President issued

E.O. 13132, Federalism, signed on

August 4, 1999. E.O. 13132 revoked E.O.

12612 and E.O. 13083.

We reviewed this rule for federalism

implications under E.O. 13132. Based

on our review, we have determined that

this rule does not have federalism

implications as defined in E.O. 13132 as

it 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. The rule

imposes no mandates on State or local

governments; participation in the

inspection procedure by Monroe County

and the Village of Islamorada is

voluntary. Moreover, we have consulted

extensively with Monroe County, the

Village of Islamorada, and the State of

Florida during the development of the

inspection procedure and the proposed

and final rule.

As a result of the 1995 Community

Assistance Visit (CAV) in which we

assessed Monroe County’s floodplain

management program, we determined

that the illegal conversion of ground

level enclosures to uses other than

parking, access, and storage had become

an even more serious problem than in

prior CAVs. In a follow-up CAV letter to

the community, we outlined steps the

County must take to remedy the

violations or we would have to take an

enforcement action in the community

because of the serious nature and extent

of the violations.

To address the issue of illegally built

enclosures, the Monroe County Board of

County Commissioners appointed a

Citizens Task Force to develop

recommendations for addressing the

problem. The Monroe County Citizen’s

Task Force initially proposed the

concept of an inspection procedure to

us in a letter dated January 23, 1997. In

their letter, the Task Force

recommended establishment of a

procedure to require an inspection and

a compliance report before renewal of a

flood insurance policy. In response to

the Task Force recommendation and

Monroe County’s interest in trying to

resolve the violations of illegally built

enclosures identified in the 1995 CAV,

we sent a letter to the Mayor of Monroe

County on March 23, 1998, in which we

agreed to develop an inspection

procedure. Our letter included a

detailed description of how the

proposed inspection procedure would

work. Through this letter we provided

to Monroe County details of how the

inspection procedure would work

almost a full year before we published

the proposed rule in the Federal

Register. On June 11, 1998, the Board of

County Commissioners of Monroe

County, Florida, passed a resolution that

asked us to establish an inspection

procedure for the County as a means to

verify that buildings insured under the

NFIP comply with the County’s

floodplain management ordinance. Our

Region IV staff attended the June 11,

1998 meeting and made a presentation

on how the inspection procedure would

work.

During this time, the Village of

Islamorada incorporated as a separate

community in January 1998 and became

a participating NFIP community on

October 1, 1998. We notified the Village

of the Islamorada about the proposed

inspection procedure before it applied

to join the NFIP. The community

indicated its interest in participating in

the inspection procedure in a letter

dated September 24, 1998, when it

applied to join the NFIP. The Village

encompasses four of the Florida Keys

that would have been included as part

of the inspection procedure in Monroe

County.

Our Region IV staff consulted with the

Florida Department of Community

Affairs (DCA), Division of Emergency

Management, which is responsible for

coordinating the NFIP for the State, on

the proposal by the Citizen’s Task Force

and steps that we were taking to

develop the inspection procedure. This

was part of our normal process in

coordinating with our State NFIP

coordinators on floodplain management

issues in communities. This includes

consulting with the State NFIP

coordinators before we conduct a CAV,

inviting the State NFIP coordinators to

participate in the CAV with us, and

consulting with them on the findings of

the CAV and follow-up actions that the

community needs to take to address any

floodplain management program

deficiencies and violations.

Before we published the proposed

rule, we consulted with several state

agencies on the proposed rule for the

inspection procedure. On May 3, 1999,

our FEMA Region IV staff met with

several Florida State agencies to explain

how the inspection procedure would

work. In addition to the Secretary of the

Florida Department of Community

Affairs (DCA), representatives from the

39748 Federal Register / Vol. 65, No. 124 / Tuesday, June 27, 2000 / Rules and Regulations

following State offices and agencies

participated in the meeting: Executive

Office of the Governor; the Office of the

Attorney General; the Florida DCA,

Division of Emergency Management,

Division of Community Planning,

Division of Housing and Community

Development, and Division of Coastal

Management, and DCA staff from the

Florida Keys Field Office; the

Department of Insurance; and the

Florida Windstorm Underwriting

Association. Also present during this

meeting were representatives from

Monroe County. Officials from the

Village of Islamorada were unable to

attend, but were provided a separate

briefing on the inspection procedure.

We received only one set of comments

from the State of Florida. The Florida

State Clearinghouse coordinated a

review of the proposed rule. The

responses received from the 17 State

agencies and offices that reviewed the

proposed rule indicated that they had

‘‘no comments’’ or made a ‘‘consistency

determination’’.

Paperwork Reduction Act

We submitted the information

collection requirements in the proposed

rule to the Office of Management and

Budget (OMB) for approval under the

Paperwork Reduction Act, 44 U.S.C.

3501 et seq. The information collection

requirements were approved by the

OMB under Control Number 3067–0275.

Executive Order 12778, Civil Justice

Reform

This final rule meets the applicable

standards of subsections 2(a) and 2(b)(2)

of Executive Order 12778.

List of Subjects in 44 CFR Parts 59 and

61

Flood Insurance, Reporting and

recordkeeping requirements.

Accordingly, we amend 44 CFR Parts

59 and 61 as follows:

PART 59—GENERAL PROVISIONS

1. The authority citation for Part 59

continues to read as follows:

Authority: 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.

2. We amend Part 59 by adding a new

subpart C consisting of § 59.30, to read

as follows:

Subpart C—Pilot Inspection Program

§ 59.30 A Pilot inspection procedure.

(a) Purpose. This section sets forth the

criteria for implementing a pilot

inspection procedure in Monroe County

and the Village of Islamorada, Florida.

These criteria will also be used to

implement the pilot inspection

procedure in any area within Monroe

County, Florida that incorporates on or

after January 1, 1999 and is eligible for

the sale of flood insurance. The purpose

of this inspection procedure is to

provide the communities participating

in the pilot inspection procedure with

an additional means to identify whether

structures built in Special Flood Hazard

Areas (SFHAs) after the date of the

effective Flood Insurance Rate Map

(FIRM) comply with the community’s

floodplain management regulations. The

pilot inspection procedure will also

assist FEMA in verifying that structures

insured under the National Flood

Insurance Program’s Standard Flood

Insurance Policy are properly rated.

(b) Procedures and requirements for

implementation. Each community must

establish procedures and requirements

for implementing the pilot inspection

procedure consistent with the criteria

established in this section.

(c) Inspection procedure—(1) Starting

and termination dates. The Associate

Director for Mitigation and the Federal

Insurance Administrator will establish

the starting date and the termination

date for implementing the pilot

inspection procedure upon the

recommendation of the Regional

Director. The Regional Director will

consult with each community.

(2) Extension. The Associate Director

for Mitigation and the Federal Insurance

Administrator may extend the

implementation of the inspection

procedure with a new termination date

upon the recommendation of the

Regional Director. The Regional Director

will consult with the community. An

extension will be granted based on good

cause.

(3) Notices. Before the starting date of

the inspection procedure, each

community must publish a notice in a

prominent local newspaper and publish

other notices as appropriate. The

Associate Director for Mitigation and

the Federal Insurance Administrator

will publish a notice in the Federal

Register that the community will

undertake an inspection procedure.

Published notices will include the

purpose for implementing the

inspection procedure and the effective

period of time that the inspection

procedure will cover.

(4) Community reviews. The

communities participating in the pilot

inspection procedure must review a list

of all pre-FIRM and post-FIRM flood

insurance policies in SFHAs to confirm

that the start of construction or

substantial improvement of insured preFIRM buildings occurred on or before

December 31, 1974, and to identify

possible violations of insured post-FIRM

buildings. The community will provide

to FEMA a list of insured buildings

incorrectly rated as pre-FIRM and a list

of insured post-FIRM buildings that the

community identifies as possible

violations.

(5) SFIP endorsement. In the

communities that undertake the pilot

inspection procedure, all new and

renewed flood insurance policies that

become effective on and after the date

that we and the community establish for

the start of the inspection procedure

will contain an endorsement to the

Standard Flood Insurance Policy that an

inspection may be necessary before a

subsequent policy renewal [see Part 61,

Appendices A(4), (5), and (6)].

(6) Notice from insurer. For a building

identified as a possible violation under

paragraph (c)(4) of this section, the

insurer will send a notice to the

policyholder that an inspection is

necessary in order to renew the policy

and that the policyholder must submit

a community inspection report as part

of the policy renewal process, which

includes the payment of the premium.

The insurer will send this notice about

6 months before the Standard Flood

Insurance Policy expires.

(7) Conditions for renewal. If a

policyholder receives a notice under

paragraph (c)(6) of this section that an

inspection is necessary in order to

renew the Standard Flood Insurance

Policy the following conditions apply:

(i) If the policyholder obtains an

inspection from the community and the

policyholder sends the community

inspection report to the insurer as part

of the renewal process, which includes

the payment of the premium, the insurer

will renew the policy and will verify the

flood insurance rate, or

(ii) If the policyholder does not obtain

and submit a community inspection

report the insurer will not renew the

policy.

(8) Community responsibilities. For

insured post-FIRM buildings that the

community inspects and determines to

violate the community’s floodplain

management regulations, the

community must demonstrate to FEMA

that the community is undertaking

measures to remedy the violation to the

maximum extent possible. Nothing in

this section modifies the community’s

responsibility under the NFIP to enforce

floodplain management regulations

adequately that meet the minimum

requirements in § 60.3 for all new

construction and substantial

improvements within the community’s

Federal Register / Vol. 65, No. 124 / Tuesday, June 27, 2000 / Rules and Regulations 39749

SFHAs. The community’s responsibility

also includes the insured buildings

where the policyholder did not obtain

an inspection report, and non-insured

buildings that this procedure does not

cover.

(d) Restoration of flood insurance

coverage. Insurers will not provide new

flood insurance on any building if a

property owner does not obtain a

community inspection report or if the

property owner obtains a community

inspection report but does not submit

the report with the renewal premium

payment. Flood insurance policies sold

on a building ineligible in accordance

with paragraph (c)(6)(ii) of this section

are void under the Standard Flood

Insurance Policy inspection

endorsements [44 CFR Part 61,

Appendices (A)(4), (A)(5), and (A)(6)].

When the property owner applies for a

flood insurance policy and submits a

completed community inspection report

by the community with an application

and renewal premium payment, the

insurer will issue a flood insurance

policy.

(Approved by the Office of Management and

Budget under Control Number 3067–0275)

PART 61—INSURANCE COVERAGE

AND RATES

3. The authority citation for part 61

continues to read as follows:

Authority: 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.

4. We amend Part 61 by adding

Appendix A(4) to Part 61 to read as

follows:

Appendix A(4) to Part 61

Federal Emergency Management Agency,

Federal Insurance Administration

Standard Flood Insurance Policy

Endorsement to Dwelling Form

[Issued under the National Flood Insurance

Act of 1968, as amended (Act), and

applicable Federal Regulations in Title 44 of

the Code of Federal Regulations, Subchapter

B. The provisions of this endorsement

replace the provisions of Article 9 of the

Standard Flood Insurance Policy, Dwelling

Form, only in applicable policies in Monroe

County and the Village of Islamorada,

Florida].

Article 9—General Conditions and Provisions

A. Pair and Set Clause: If you lose an

article that is part of a pair or set, we will

have the option of paying you an amount

equal to the cost of replacing the lost article,

less depreciation, or an amount that

represents the fair proportion of the total

value of the pair or set that the lost article

bears to the pair or set.

B. Concealment, Fraud: We will not cover

you under this policy, which will be void,

nor can this policy be renewed or any new

flood insurance coverage be issued to you if:

1. You have sworn falsely, or willfully

concealed or misrepresented any material

fact; or

2. You have done any fraudulent act

concerning this insurance (see paragraph

F.1.d. below); or

3. You have willfully concealed or

misrepresented any fact on a ‘‘Recertification

Questionnaire,’’ that causes us to issue a

policy to you based on a premium amount

that is less than the premium amount that

would have been payable by you were it not

for the misstatement of fact (see paragraph G.

below).

C. Other Insurance. If a loss covered by this

policy is also covered by other insurance

whether collectible or not, except insurance

in the name of the Condominium Association

issued pursuant to the Act, we will pay only

the proportion of the loss that the limit of

liability that applies under this policy bears

to the total amount of insurance covering the

loss. If there is other insurance in the name

of the Condominium Association covering

the same property covered by this policy, this

insurance will be excess over the other

insurance.

D. Amendments, Waivers, Assignment:

This policy cannot be amended 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 can constitute

a waiver of any of our rights. Except in the

case of 1. a contents only policy, and 2. a

policy issued to cover a building in the

course of construction, assignment of this

policy, in writing, is allowed upon transfer

of title.

E. Cancellation of Policy By You: You may

cancel this policy at any time but a refund

of premium money will only be made to you

when:

1. You cancel because you have transferred

ownership of the described building or unit

to someone else. In this case, we will refund

to you, once we receive your written request

for cancellation (signed by you), the excess

of premiums paid by you that apply to the

unused portion of the policy’s term, pro rata

but with retention of the expense constant

and the Federal policy fee.

2. You cancel a policy having a term of 3

years, on an anniversary date, and the reason

for the cancellation is:

a. A policy of flood insurance has been

obtained or is being obtained in substitution

for this policy and we have received a

written concurrence in the cancellation from

any mortgagee of which we have actual

notice; or

b. You have extinguished the insured

mortgage debt and are no longer required by

the mortgagee to maintain the coverage.

Refund of any premium, under this

subparagraph 2., will be pro rata but with

retention of the expense constant and the

Federal policy fee.

3. You cancel because we have determined

that your property is not, in fact, in a special

hazard area; and you were required to

purchase flood insurance coverage by a

private lender or Federal agency pursuant to

the Act; and the lender or Federal agency no

longer requires the retention by you of the

coverage. In this event, if no claims have

been paid or are pending, your premium

payments will be refunded to you in full,

according to our applicable regulations.

F. Voidance, Reduction or Reformation of

the Coverage By Us:

1. Voidance: This policy will be void and

of no legal force and effect in the event that

any one of the following conditions occurs:

a. The property listed on the application is

not eligible for coverage, in which case the

policy is void from its inception;

b. The community in which the property

is located was not participating in the

National Flood Insurance Program on the

policy’s inception date and did not qualify as

a participating community during the

policy’s term and before the occurrence of

any loss for which you may receive

compensation under the policy;

c. If, during the term of the policy, the

participation in the National Flood Insurance

Program of the community in which your

property is located ceases, in which case the

policy will be deemed void effective at the

end of the last day of the policy year in

which such cessation occurred and will not

be renewed.

If the voided policy included 3 policy

years in a contract term of 3 years, you will

be entitled to a pro rata refund of any

premium applicable to the remainder of the

policy’s term;

d. If you or your agent have:

(1) Sworn falsely, or

(2) Fraudulently or willfully concealed or

misrepresented any material fact including

facts relevant to the rating of this policy in

the application for coverage, or upon any

renewal of coverage, or in connection with

the submission of any claim brought under

the policy, in which case this entire policy

will be void as of the date the wrongful act

was committed or from its inception if this

policy is a renewal policy and the wrongful

act occurred in connection with an

application for or renewal or endorsement of

a policy issued to you in a prior year and

affects the rating of or premium amount

received for this policy. Refunds of

premiums, if any, will be subject to offsets for

our administrative expenses (including the

payment of agent’s commissions for any

voided policy year) in connection with the

issuance of the policy;

e. The premium you submit is less than the

minimum set forth in 44 CFR 61.10 in

connection with any application for a new

policy or policy renewal, in which case the

policy is void from its inception date.

f. You have not submitted a community

inspection report, cited in ‘‘G. Policy

Renewal’’ below that was required in a notice

sent to you in conjunction with the

community inspection procedure established

under National Flood Insurance Program

Regulations (44 CFR 59.30).

2. Reduction of Coverage Limits or

Reformation: If the premium payment

received by us is not sufficient (whether

evident or not) to purchase the amount of

coverage requested by an application,

renewal, endorsement, or other form and

39750 Federal Register / Vol. 65, No. 124 / Tuesday, June 27, 2000 / Rules and Regulations

paragraph F.1.d. does not apply, then the

policy will be deemed to provide only such

coverage as can be purchased for the entire

term of the policy, for the amount of

premium received, subject to increasing the

amount of coverage pursuant to 44 CFR

61.11; provided, however:

a. If the insufficient premium is discovered

by us before a loss and we can determine the

amount of insufficient premium from

information in our possession at the time of

our discovery of the insufficient premium,

we will give a notice of additional premium

due, and if you remit and we receive the

additional premium required to purchase the

limits of coverage for each kind of coverage

as was initially requested by you within 30

days from the date we give you written notice

of additional premium due, the policy will be

reformed, from its inception date, or, in the

case of an endorsement, from the effective

date of the endorsement, to provide flood

insurance coverage in the amount of coverage

initially requested.

b. If the insufficient premium is discovered

by us at the time of a loss under the policy,

we will give a notice of premium due, and

if you remit and we receive the additional

premium required to purchase (for the

current policy term and the previous policy

term, if then insured) the limits of coverage

for each kind of coverage as was initially

requested by you within 30 days from the

date we give you written notice of additional

premium due, the policy will be reformed,

from its inception date, or, in the case of an

endorsement, from the effective date of the

endorsement, to provide flood insurance

coverage in the amount of coverage initially

requested.

c. Under subparagraphs a. and b. as to any

mortgagee or trustee named in the policy, we

will give a notice of additional premium due

and the right of reformation will continue in

force for the benefit only of the mortgagee or

trustee, up to the amount of your

indebtedness, for 30 days after written notice

to the mortgagee or trustee.

G. Policy Renewal: The term of this policy

begins on its inception date and ends on its

expiration date, as shown on the declarations

page that is attached to the policy. We are

under no obligation to:

1. Send you any renewal notice or other

notice that your policy term is coming to an

end and the receipt of any such notice by you

will not be deemed to be a waiver of this

provision on our part.

2. Assure that policy changes reflected in

endorsements submitted by you during the

policy term and accepted by us are included

in any renewal notice or new policy that we

send to you. Policy changes include the

addition of any increases in the amounts of

coverage.

This policy will not be renewed and the

coverage provided by it will not continue

into any successive policy term unless the

renewal premium payment, and when

applicable, the community inspection report

referred to below, is received by us at the

office of the National Flood Insurance

Program within 30 days of the expiration

date of this policy, subject to Article 9,

paragraph F. above. If the renewal premium

payment, and when applicable, the

community inspection report referred to

below, is mailed by certified mail to the

National Flood Insurance Program before the

expiration date, it will be deemed to have

been received within the required 30 days.

The coverage provided by the renewal policy

is in effect for any loss occurring during the

30-day period even if the loss occurs before

the renewal premium payment, and when

applicable, the community inspection report

referred to below, is received within the

required 30 days. In all other cases, this

policy will end as of the expiration date of

the last policy term for which the premium

payment, and when applicable, the

community inspection report referred to

below, was timely received at the office of

the National Flood Insurance Program and, in

that event, we will not be obligated to

provide you with any cancellation,

termination, policy lapse, or policy renewal

notice.

In connection with the renewal of this

policy, you may be requested during the

policy term to recertify, on a Recertification

Questionnaire we will provide you, the rating

information used to rate your most recent

application for or renewal of insurance.

Your community has been approved by the

Federal Emergency Management Agency to

participate in a special inspection procedure

set forth in National Flood Insurance

Regulations (44 CFR 59.30) that requires the

submission of a community inspection report

completed by local officials as one condition

for policy renewal. As a property owner in

such a community, you may be required to

submit such an inspection report by a

community official certifying whether your

insured property is in compliance with the

community’s floodplain management

ordinance. You will be notified in writing of

this requirement approximately 6 months

before your renewal date and again at the

time your renewal bill is sent.

Notwithstanding your responsibility to

submit the appropriate renewal premium in

sufficient time to permit its receipt by us

before the expiration of the policy being

renewed, we have established a business

procedure for mailing renewal notices to

assist Insureds in meeting their

responsibility. Regarding our business

procedure, evidence of the placing of any

such notices into the U.S. Postal Service,

addressed to you at the address appearing on

your most recent application or other

appropriate form (received by the National

Flood Insurance Program before the mailing

of the renewal notice by us), does, in all

respects for purposes of the National Flood

Insurance Program, presumptively establish

delivery to you for all purposes irrespective

of whether you actually received the notice.

However, if we determine that, through

any circumstances, any renewal notice was

not placed into the U.S. Postal Service, or, if

placed, was prepared or addressed in a

manner that we determine could preclude

the likelihood of its being actually and timely

received by you before the due date for the

renewal premium, the following procedures

will be followed:

If you or your agent notified us, not later

than 1 year after the date on which the

payment of the renewal was due, of a

nonreceipt of a renewal notice before the due

date for the renewal premium, which we

determine was attributable to the above

circumstance, 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.

If the renewal payment requested by reason

of the second bill is not received by the

revised due date, no renewal will occur and

the policy will remain as an expired policy

as of the expiration date prescribed on the

policy.

H. Conditions Suspending or Restricting

Insurance: Unless otherwise provided in

writing added hereto, we will not be liable

for loss occurring while the hazard is

increased by any means within your control

or knowledge.

I. Alterations and Repairs: You may, at any

time and at your own expense, make

alterations, additions and repairs to the

insured property, and complete structures in

the course of construction.

J. Requirements in Case of Loss: Should a

flood loss occur to your insured property,

you must:

1. Notify us in writing as soon as

practicable;

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; and

3. Within 60 days after the loss, send us

a proof of loss, which is your statement as

to the amount you are claiming under the

policy signed and sworn to by you and

furnishing us with the following information:

a. The date and time of the loss;

b. A brief explanation of how the loss

happened;

c. Your interest in the property damaged

(for example, ‘‘owner’’) and the interest, if

any, of others in the damaged property;

d. The actual cash value or replacement

cost, whichever is appropriate, of each

damaged item of insured property and the

amount of damages sustained;

e. Names of mortgagees or anyone else

having a lien, charge or claim against the

insured property;

f. Details as to any other contracts of

insurance covering the property, whether

valid or not;

g. Details of any changes in ownership,

use, occupancy, location or possession of the

insured property since the policy was issued;

h. Details as to who occupied any insured

building at the time of loss and for what

purpose; and

i. The amount you claim is due under this

policy to cover the loss, including statements

concerning:

(1) The limits of coverage stated in the

policy; and

(2) The cost to repair or replace the

damaged property (whichever costs less).

4. Cooperate with our adjuster or

representative in the investigation of the

claim;

5. Document the loss with all bills,

receipts, and related documents for the

amount being claimed;

6. 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

Federal Register / Vol. 65, No. 124 / Tuesday, June 27, 2000 / Rules and Regulations 39751

you to 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.

In completing the proof of loss, you must

use your own judgment concerning the

amount of loss and the justification for that

amount.

The adjuster is not authorized to approve

or disapprove claims or tell you whether

your claim will be approved by us.

7. We may, at our option, waive the

requirement for the completion and filing of

a proof of loss in certain cases, in which

event you will be required to sign and, at our

option, swear to an adjuster’s report of the

loss that includes information about your

loss and the damages sustained, which is

needed by us in order to adjust your claim.

8. Any false statements made in the course

of presenting a claim under this policy may

be punishable by fine or imprisonment under

the applicable Federal Laws.

K. Our Options After a Loss: Options we

may, in our sole discretion, exercise after loss

include the following:

1. Evidence of Loss: If we specifically

request it, in writing, you may be required to

furnish us with a complete inventory of the

destroyed, damaged and undamaged

property, including details as to quantities,

costs, actual cash values or replacement cost

(whichever is appropriate), amounts of loss

claimed, and any written plans and

specifications for repair of the damaged

property that you can make reasonably

available to us.

2. Examination Under Oath and Access to

Insured Property Ownership Records and

Condominium Documents: We may require

you to:

a. Show us, or our designee, the damaged

property, to be examined under oath by our

designee and to sign any transcripts of such

examinations; and

b. At such reasonable times and places as

we may designate, permit us to examine and

make extracts and copies of any policies of

property insurance insuring you against loss;

and the deed establishing your ownership of

the insured real property; and the

condominium documents including the

Declarations of the condominium, its Articles

of Association or Incorporation, Bylaws,

rules and regulations, and other

condominium documents if you are a unit

owner in a condominium building; and all

books of accounts, bills, invoices and other

vouchers, or certified copies thereof if the

originals are lost, pertaining to the damaged

property.

3. Options to Replace: We may take all or

any part of the damaged property at the

agreed or appraised value and, also, repair,

rebuild or replace the property destroyed or

damaged with other of like kind and quality

within a reasonable time, on giving you

notice of our intention to do so within 30

days after the receipt of the proof of loss

herein required under paragraph J.3. above.

4. Adjustment Options: We may adjust loss

to any insured property of others with the

owners of such property or with you for their

account. Any such insurance under this

policy will not inure directly or indirectly to

the benefit of any carrier or other bailee for

hire.

L. When Loss Payable: Loss is payable

within 60 days after you file your proof of

loss (or within 90 days after the insurance

adjuster files an adjuster’s report signed and

sworn to by you in lieu of a proof of loss)

and ascertainment of the loss is made either

by agreement between us and you expressed

in writing or by the filing with us of an award

as provided in paragraph N. below.

If we reject your proof of loss in whole or

in part, you may accept such denial of your

claim, or exercise your rights under this

policy, or file an amended proof of loss as

long as it is filed within 60 days of the date

of the loss or any extension of time allowed

by the Administrator.

M. Abandonment: You may not abandon

damaged or undamaged insured property to

us. However, we may permit you to keep

damaged, insured property (‘‘salvage’’) 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.

N. Appraisal: If at any time after a loss, we

are unable to agree with you as to the actual

cash value or, if applicable, replacement cost

of the damaged property so as to determine

the amount of loss to be paid to you, then,

on the written demand of either one of us,

each of us will select a competent and

disinterested appraiser and notify the other

of the appraiser selected within 20 days of

such demand. The appraisers will first select

a competent and disinterested umpire; and

failing, after 15 days, to agree upon such

umpire, then, on your request or our request,

such umpire will be selected by a judge of

a court of record in the State in which the

insured property is located. The appraisers

will then appraise the loss, stating separately

replacement cost, actual cash value and loss

to each item; and, failing to agree, will

submit their differences, only, to the umpire.

An award in writing, so itemized, of any two

(appraisers or appraiser and umpire) when

filed with us will determine the amount of

actual cash value and loss or, should this

policy’s replacement cost provisions apply,

the amount of replacement cost and loss.

Each appraiser will be paid by the party

selecting him or her and the expenses of

appraisal and umpire will be paid by both of

us equally.

O. Loss Clause: If we pay you for damage

to property sustained in a flood loss, you are

still eligible, during the term of the policy,

to collect for a subsequent loss due to another

flood. Of course, all loss arising out of a

single, continuous flood of long duration will

be adjusted as one flood loss.

P. Mortgage Clause: (Applicable to

building coverage only and effective only

when the policy is made payable to a

mortgagee or trustee named in the

application and declarations page attached to

this policy or of whom we have actual notice

before the payment of loss proceeds under

this policy).

Loss, if any, under this policy, will be

payable to the aforesaid as mortgagee or

trustee as interest may appear under all

present or future mortgages upon the

property described in which the aforesaid

may have an interest as mortgagee or trustee,

in order of precedence of said mortgages, and

this insurance, as to the interest of the

mortgagee or trustee only therein, will not be

invalidated by any act or neglect of the

mortgagor or owner of the described

property, nor by any foreclosure or other

proceedings or notice of sale relating to the

property, nor by any change in the title or

ownership of the property, nor by the

occupation of the premises for purposes more

hazardous than are permitted by this policy;

provided, that in case the mortgagor or owner

will neglect to pay any premium due under

this policy, the mortgagee or trustee will, on

demand, pay the same.

Provided, also, that the mortgagee or

trustee will notify us of any change of

ownership or occupancy or increase of

hazard that will come to the knowledge of

said mortgagee or trustee and, unless

permitted by this policy, it will be noted

thereon and the mortgagee or trustee will, on

demand, pay the premium for such increased

hazard for the term of the use thereof;

otherwise, this policy will be null and void.

If we cancel this policy, it will continue in

force for the benefit only of the mortgagee or

trustee for 30 days after written notice to the

mortgagee or trustee of such cancellation and

will then cease, and we will have the right,

on like notice, to cancel this agreement.

Whenever we will pay the mortgagee or

trustee any sum for loss under this policy

and will claim that, as to the mortgagor or

owner, no liability therefor existed, we will,

to the extent of such payment, be thereupon

legally subrogated to all the rights of the

party to whom such payment will be made,

under all securities held as collateral to the

mortgage debt, or may, at our option, pay to

the mortgagee or trustee the whole principal

due or to grow due on the mortgage with

interest, and will thereupon receive a full

assignment and transfer of the mortgage and

of all such other securities; but no

subrogation will impair the right of the

mortgagee or trustee to recover the full

amount of said mortgagee’s or trustee’s claim.

Q. Mortgagee Obligations: If you fail to

render proof of loss, the named mortgagee or

trustee, upon notice, will render proof of loss

in the form herein specified within 60 days

thereafter and will be subject to the

provisions of this policy relating to appraisal

and time of payment and of bringing suit.

R. Conditions for Filing a Lawsuit: 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 12 months from the

date we mailed you notice that we have

denied your claim, or part of your 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.

S. 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

39752 Federal Register / Vol. 65, No. 124 / Tuesday, June 27, 2000 / Rules and Regulations

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.

T. Continuous Lake Flooding: Where the

insured building has been inundated by

rising lake waters continuously for 90 days

or more and it appears reasonably certain

that a continuation of this flooding will result

in damage, reimbursable under this policy, to

the insured building equal to or greater than

the building policy limits plus the

deductible(s) 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:

1. To make no further claim under this

policy;

2. Not to seek renewal of this policy; and

3. Not to apply for any flood insurance

under the Act for property at the property

location of the insured building.

If the policy term ends before the insured

building has been flooded continuously for

90 days, the provisions of this paragraph T.

still apply so long as the first building

damage reimbursable under this policy from

the continuous flooding occurred before the

end of the policy term.

U. Duplicate Policies Not Allowed:

Property may not be insured under more than

one policy issued under the Act. When we

find that duplicate policies are in effect, we

will by written notice give you the option of

choosing which policy is to remain in effect

under the following procedures:

1. If you choose to keep in effect the policy

with the earlier effective date, we will by the

same written notice give you an opportunity

to add the coverage limits of the later policy

to those of the earlier policy, as of the

effective date of the later policy.

2. If you choose to keep in effect the policy

with the later effective date, we will by the

same written notice give you the opportunity

to add the coverage limits of the earlier

policy to those of the later policy, as of the

effective date of the later policy.

In either case, you must pay the pro rata

premium for the increased coverage limits

within 30 days of the written notice. In no

event will the resulting coverage limits

exceed the statutorily permissible limits of

coverage under the Act or your insurable

interests, whichever is less.

We will make a refund to you, according

to applicable National Flood Insurance

Program rules, of the premium for the policy

not being kept in effect. For purposes of this

paragraph U., the term effective date means

the date coverage that has been in effect

without any lapse was first placed in effect.

In addition to the provisions of this

paragraph U. for increasing policy limits, the

usual procedures for increasing policy limits,

by mid-term endorsement or at renewal time,

with the appropriate waiting period, are

applicable to the policy you choose to keep

in effect.

5. We amend Part 61 by adding

Appendix A(5) to Part 61 as follows:

Appendix A(5) to Part 61

Federal Emergency Management Agency,

Federal Insurance Administration

Standard Flood Insurance Policy

Endorsement to General Property Form

[Issued under the National Flood Insurance

Act of 1968, as amended (Act), and

Applicable Federal Regulations in Title 44 of

the Code of Federal Regulations, Subchapter

B. The provisions of this endorsement

replace the provisions of Article 8 of the

Standard Flood Insurance Policy, General

Property Form, only in applicable policies in

Monroe County and the Village of

Islamorada, Florida].

Article 8—General Conditions and Provisions

A. Pair and Set Clause: If there is loss of

an article that is part of a pair or set, the

measure of loss will be a reasonable and fair

proportion of the total value of the pair or set,

giving consideration to the importance of

said article, but such loss will not be

construed to mean total loss of the pair or set.

B. Concealment, Fraud: This policy will be

void, nor can this policy be renewed or any

new flood insurance coverage be issued to

the Insured if any person insured under

Article 1, paragraph A., whether before or

after a loss, has:

1. Sworn falsely, or willfully concealed or

misrepresented any material fact; or

2. Done any fraudulent act concerning this

insurance (See paragraph E.1.d. below); or

3. Willfully concealed or misrepresented

any fact on a ‘‘Recertification Questionnaire,’’

which causes the Insurer to issue a policy

based on a premium amount that is less than

the premium amount that would have been

payable were it not for the misstatement of

fact (see paragraph F. below).

C. Other Insurance: If a loss covered by this

policy is also covered by other insurance,

whether collectible or not, the Insurer will

pay only the proportion of the loss that the

limit of liability that applies under this

policy bears to the total amount of insurance

covering the loss, provided, if at the time of

loss, there is other insurance made available

under the Act, in the name of a unit owner

that provides coverage for the same loss

covered by this policy, this policy’s coverage

will be primary and not contributing with

such other insurance.

D. Amendments and Waivers, Assignment:

This Standard Flood Insurance Policy cannot

be amended nor can any of its provisions be

waived without the express written consent

of the Federal Insurance Administrator. No

action the Insurer takes under the terms of

this policy can constitute a waiver of any of

its rights. Except in the case of 1. a contents

only policy and 2. a policy issued to cover

a building in the course of construction,

assignment of this policy, in writing, is

allowed upon transfer of title.

E. Voidance, Reduction or Reformation of

the Coverage:

1. Voidance: This policy will be void and

of no legal force and effect if any one of the

following conditions occurs:

a. The property listed on the application is

not eligible for coverage, in which case the

policy is void from its inception;

b. The community in which the property

is located was not participating in the

National Flood Insurance Program on the

policy’s inception date and did not qualify as

a participating community during the

policy’s term and before the occurrence of

any loss;

c. If, during the term of the policy, the

participation in the National Flood Insurance

Program of the community in which the

property is located ceases, in which case the

policy will be deemed void effective at the

end of the last day of the policy year in

which such cessation occurred and will not

be renewed.

If the voided policy included 3 policy

years in a contract term of 3 years, the

Insured will be entitled to a pro-rata refund

of any premium applicable to the remainder

of the policy’s term;

d. If any Insured or its agent has:

(1) Sworn falsely; or

(2) Fraudulently or willfully concealed or

misrepresented any material fact including

facts relevant to the rating of this policy in

the application for coverage, or upon any

renewal of coverage, or in connection with

the submission of any claim brought under

the policy, in which case this entire policy

will be void as of the date the wrongful act

was committed or from its inception if this

policy is a renewal policy and the wrongful

act occurred in connection with an

application for or renewal or endorsement of

a policy issued to the Insured in a prior year

and affects the rating of or premium amount

received for this policy. Refunds of

premiums, if any, will be subject to offsets for

the Insurer’s administrative expenses

(including the payment of agent’s

commissions for any voided policy year) in

connection with the issuance of the policy;

e. The premium submitted is less than the

minimum set forth in 44 CFR 61.10 in

connection with any application for a new

policy or policy renewal, in which case the

policy is void from its inception date.

f. The insured has not submitted a

community inspection report, cited in ‘‘F.

Policy Renewal’’ below and required in any

notice that may have been sent to the Insured

previously in conjunction with the

community inspection procedure established

under National Flood Insurance Program

Regulations (44 CFR 59.30).

2. Reduction of Coverage Limits or

Reformation: If the premium payment is not

sufficient (whether evident or not) to

purchase the amount of coverage requested

by an application, renewal, endorsement, or

other form and paragraph E.1.d. does not

apply, then the policy will be deemed to

provide only such coverage as can be

purchased for the entire term of the policy,

for the amount of premium received, subject

to increasing the amount of coverage

pursuant to 44 CFR 61.11; provided,

however:

a. If the insufficient premium is discovered

by the Insurer prior to a loss and the Insurer

can determine the amount of insufficient

premium from information in its possession

at the time of its discovery of the insufficient

premium, the Insurer will give a notice of

additional premium due, and if the Insured

remits and the Insurer receives the additional

Federal Register / Vol. 65, No. 124 / Tuesday, June 27, 2000 / Rules and Regulations 39753

premium required to purchase the limits of

coverage for each kind of coverage as was

initially requested by the Insured within 30

days from the date the Insurer gives the

Insured written notice of additional premium

due, the policy will be reformed, from its

inception date, or, in the case of an

endorsement, from the effective date of the

endorsement, to provide flood insurance

coverage in the amount of coverage initially

requested.

b. If the insufficient premium is discovered

by the Insurer at the time of a loss under the

policy, the Insurer will give a notice of

premium due, and if the Insured remits and

the Insurer receives the additional premium

required to purchase (for the current policy

term and the previous policy term, if then

insured) the limits of coverage for each kind

of coverage as was initially requested by the

Insured within 30 days from the date the

Insurer gives the Insured written notice of

additional premium due, the policy will be

reformed, from its inception date, or, in the

case of an endorsement, from the effective

date of the endorsement, to provide flood

insurance coverage in the amount of coverage

initially requested.

c. Under subparagraphs a. and b. as to any

mortgagee or trustee named in the policy, the

Insurer will give a notice of additional

premium due and the right of reformation

will continue in force for the benefit only of

the mortgagee or trustee, up to the amount of

the Insured’s indebtedness, for 30 days after

written notice to the mortgagee or trustee.

F. Policy Renewal: The term of this policy

begins on its inception date and ends on its

expiration date, as shown on the declarations

page that is attached to the policy. The

Insurer is under no obligation to:

1. Send the Insured any renewal notice or

other notice that the policy term is coming

to an end and the receipt of any such notice

by the Insured will not be deemed to be a

waiver of this provision on the Insurer’s part.

2. Assure that policy changes reflected in

endorsements submitted during the policy

term are included in any renewal notice or

new policy sent to the Insured. Policy

changes include the addition of any increases

in the amounts of coverage.

This policy will not be renewed and the

coverage provided by it will not continue

into any successive policy term unless the

renewal premium payment, and when

applicable, the community inspection report

referred to below, is received by the Insurer

at the office of the National Flood Insurance

Program within 30 days of the expiration

date of this policy, subject to paragraph E.

above. If the renewal premium payment, and

when applicable, the community inspection

report referred to below, is mailed by

certified mail to the Insurer before the

expiration date, it will be deemed to have

been received within the required 30 days.

The coverage provided by the renewal policy

is in effect for any loss occurring during the

30-day period even if the loss occurs before

the renewal premium payment, and when

applicable, the community inspection report

referred to below, is received within the

required 30 days. In all other cases, this

policy will terminate as of the expiration

date, of the last policy term for which the

premium payment, and when applicable, the

community inspection report referred to

below, was timely received and, in that

event, the Insurer will not be obligated to

provide the Insured with any cancellation,

termination, policy lapse, or policy renewal

notice.

In connection with the renewal of this

policy, the Insured may be requested during

the policy term to recertify, on a

Recertification Questionnaire that the Insurer

will provide, the rating information used to

rate the most recent application for or

renewal of insurance.

The community in which the insured

property is located has been approved by the

Federal Emergency Management Agency to

participate in a special inspection procedure

set forth in National Flood Insurance

Program Regulations (44 CFR 59.30) that

requires the submission of a community

inspection report completed by local officials

as one condition for policy renewal. The

Insured may be required to submit such an

inspection report completed by a community

official to certify whether the insured

property is in compliance with the

community’s floodplain management

ordinance. The Insured will be notified in

writing of this requirement approximately 6

months before the renewal date and again at

the time the renewal bill is sent.

Notwithstanding the Insured’s

responsibility to submit the appropriate

renewal premium in sufficient time to permit

its receipt by the Insurer before the

expiration of the policy being renewed, the

Insurer has established a business procedure

for mailing renewal notices to assist Insureds

in meeting their responsibility. Regarding the

business procedure, evidence of the placing

of any such notices into the U.S. Postal

Service, addressed to the Insured at the

address appearing on its most recent

application or other appropriate form

(received by the Insurer before the mailing of

the renewal notice), does, in all respects, for

purposes of the National Flood Insurance

Program, presumptively establish delivery to

the Insured for all purposes irrespective of

whether the Insured actually received the

notice.

However, if the Insurer determines that,

through any circumstances, any renewal

notice was not placed into the U.S. Postal

Service, or, if placed, was prepared or

addressed in a manner that the Insurer

determines could preclude the likelihood of

its being actually and timely received by the

Insured before the due date for the renewal

premium, the following procedures will be

followed:

If the Insured or its agent notified the

Insurer, not later than 1 year after the date

on which the payment of the renewal

premium was due, of a nonreceipt of a

renewal notice before the due date for the

renewal premium, which the Insurer

determines was attributable to the above

circumstance, the Insurer will mail a second

bill providing a revised due date, which will

be 30 days after the date on which the bill

is mailed.

If the renewal payment requested by reason

of the second bill is not received by the

revised due date, no renewal will occur and

the policy will remain as an expired policy

as of the expiration date prescribed on the

policy.

G. Conditions Suspending or Restricting

Insurance: Unless otherwise provided in

writing added hereto, the Insurer will not be

liable for loss occurring while the hazard is

increased by any means within the control or

knowledge of the Insured.

H. Liberalization clause: If during the

period that insurance is in force under this

policy or within 45 days before the inception

date thereof, should the Insurer have adopted

under the Act, any forms, endorsements,

rules or regulations by which this policy

could be extended or broadened, without

additional premium charge, by endorsement

or substitution of form, then, such extended

or broadened insurance will inure to the

benefit of the Insured as though such

endorsement or substitution of form had been

made. Any broadening or extension of this

policy to the Insured’s benefit will only

apply to losses occurring on or after the

effective date of the adoption of any forms,

endorsements, rules or regulations affecting

this policy. Alterations and Repairs: The

Insured may, at the Insured’s own expense,

make alterations, additions and repairs, and

complete structures in the course of

construction.

I. Cancellation of Policy by Insured: The

Insured may cancel this policy at any time

but a refund of premium money will only be

made when:

1. Except with respect to a condominium

building or a building that has a

condominium form of ownership, the

Insured cancels because the Insured has

transferred ownership of the insured

property to someone else. In this case, the

Insurer will refund to the Insured, once the

Insurer receives the Insured’s written request

for cancellation (signed by the Insured) the

excess of premiums paid by the Insured that

apply to the unused portion of the policy’s

term, pro rata but with retention of the

expense constant and the Federal policy fee.

2. The Insured cancels a policy having a

term of 3 years, on an anniversary date, and

the reason for the cancellation is that:

a. A policy of flood insurance has been

obtained or is being obtained in substitution

for this policy and the Insurer has received

a written concurrence in the cancellation

from any mortgagee of which the Insurer has

actual notice, or

b. The Insured has extinguished the

insured mortgage debt and is no longer

required by the mortgagee to maintain the

coverage. Refund of any premium, under this

subparagraph 2., will be pro rata but with

retention of the expense constant and the

Federal policy fee.

3. The Insured cancels because the Insurer

has determined that the property is not, in

fact, in a special hazard area; and the Insured

was required to purchase flood insurance

coverage by a private lender or Federal

agency pursuant to Public Law 93–234,

section 102 and the lender or agency no

longer requires the retention of the coverage.

In this event, if no claims have been paid or

are pending, the premium payments will be

refunded in full, according to applicable

National Flood Insurance Program

regulations.

39754 Federal Register / Vol. 65, No. 124 / Tuesday, June 27, 2000 / Rules and Regulations

J. Loss Clause: Payment of any loss under

this policy will not reduce the amount of

insurance applicable to any other loss during

the policy term that arises out of a separate

occurrence of the peril insured against

hereunder; provided, that all loss arising out

of a continuous or protracted occurrence will

be deemed to constitute loss arising out of a

single occurrence.

K. Mortgage Clause: (Applicable to

building coverage only and effective only

when the policy is made payable to a

mortgagee or trustee named in the

application and declarations page attached to

this policy or of whom the Insurer has actual

notice before the payment of loss proceeds

under this policy.)

Loss, if any, under this policy, will be

payable to the aforesaid as mortgagee or

trustee as interest may appear under all

present or future mortgages upon the

property described in which the aforesaid

may have an interest as mortgagee or trustee,

in order of precedence of said mortgages, and

this insurance, as to the interest of the

mortgagee or trustee only therein, will not be

invalidated:

1. By any act or neglect of the mortgagor

or owner of the described property; nor

2. By any foreclosure or other proceedings

or notice of sale relating to the property; nor

3. By any change in the title or ownership

of the property; nor

4. By the occupation of the premises for

purposes more hazardous than are permitted

by this policy, provided, that in case the

mortgagor or owner will neglect to pay any

premium due under this policy, the

mortgagee or trustee will, on demand, pay

the same.

Provided, also, that the mortgagee or

trustee will notify the Insurer of any change

of ownership or occupancy of the building or

increase of hazard that will come to the

knowledge of said mortgagee or trustee and,

unless permitted by this policy, it will be

noted thereon and the mortgagee or trustee

will, on demand, pay the premium for such

increased hazard for the term of the use

thereof; otherwise, this policy will be null

and void.

If this policy is cancelled by the Insurer,

it will continue in force for the benefit of the

mortgagee or trustee for 30 days after written

notice to the mortgagee or trustee of such

cancellation and will then cease.

Whenever the Insurer will pay the

mortgagee or trustee any sum for loss under

this policy and will claim that, as to the

mortgagor or owner, no liability therefor

existed, the Insurer will, to the extent of such

payment, be thereupon legally subrogated to

all the rights of the party to whom such

payment will be made, under all securities

held as collateral to the mortgage debt, or

may, at its option, pay to the mortgagee or

trustee the whole principal due or to grow

due on the mortgage with interest, and will

thereupon receive a full assignment and

transfer of the mortgage and of all such other

securities, but no subrogation will impair the

right of the mortgagee or trustee to recover

the full amount of said mortgagee’s or

trustee’s claim.

L. Mortgagee Obligations: If the Insured

fails to render proof of loss, the named

mortgagee or trustee, upon notice, will render

proof of loss in the form herein specified

within 60 days thereafter and will be subject

to the provisions of this policy relating to

appraisal and time of payment and of

bringing suit.

M. Loss Payable Clause (Applicable to

contents items only): Loss, if any, will be

adjusted with the Insured and will be

payable to the Insured and loss payee as their

interests may appear.

N. Requirements in Case of Loss: Should a

flood loss occur to the insured property, the

Insured must:

1. Notify the Insurer in writing as soon as

practicable;

2. As soon as reasonably possible, separate

the damaged and undamaged property,

putting it in the best possible order so that

the Insurer may examine it; and

3. Within 60 days after the loss, send the

Insurer a proof of loss, which is the Insured’s

statement as to the amount it is claiming

under the policy signed and sworn to by the

Insured and furnishing the following

information:

a. The date and time of the loss;

b. A brief explanation of how the loss

happened;

c. The Insured’s interest in the property

damaged (for example, ‘‘owner’’) and the

interests, if any, of others in the damaged

property;

d. The actual cash value of each damaged

item of insured property and the amount of

damages sustained;

e. The names of mortgagees or anyone else

having a lien, charge or claim against the

insured property;

f. Details as to any other contracts of

insurance covering the property, whether

valid or not;

g. Details of any changes in ownership,

use, occupancy, location or possession of the

insured property since the policy was issued;

h. Details as to who occupied any insured

building at the time of loss and for what

purpose; and

i. The amount the Insured claims is due

under this policy to cover the loss, including

statements concerning:

(1) The limits of coverage stated in the

policy; and

(2) The cost to repair or replace the

damaged property (whichever costs less).

4. Cooperate with the Insurer’s adjuster or

representative in the investigation of the

claim;

5. Document the loss with all bills,

receipts, and related documents for the

amount being claimed;

6. The insurance adjuster whom the

Insurer hires to investigate the claim may

furnish the Insured with a proof of loss form,

and she or he may help the Insured to

complete it. However, this is a matter of

courtesy only, and the Insured must still

send the Insurer a proof of loss within 60

days after the loss even if the adjuster does

not furnish the form or help the Insured

complete it. In completing the proof of loss,

the Insured must use its own judgment

concerning the amount of loss and the

justification for the amount.

The adjuster is not authorized to approve

or disapprove claims or to tell the Insured

whether the claim will be approved by the

Insurer.

7. The Insurer may, at its option, waive the

requirement for the completion and filing of

a proof of loss in certain cases, in which

event the Insured will be required to sign

and, at the Insurer’s option, swear to an

adjuster’s report of the loss that includes

information about the loss and the damages

needed by the Insurer in order to adjust the

claim.

8. Any false statements made in the course

of presenting a claim under this policy may

be punishable by fine or imprisonment under

the applicable Federal laws.

O. Options After a Loss: Options the

Insurer may, in its sole discretion, exercise

after loss include the following:

1. Evidence of Loss: If the Insurer

specifically requests it, in writing, the

Insured may be required to furnish a

complete inventory of the destroyed,

damaged and undamaged property, including

details as to quantities, costs, actual cash

values, amount of loss claims, and any

written plans and specifications for repair of

the damaged property that can reasonably be

made available to the Insurer.

2. Examination Under Oath and Access to

the Condominium Association’s Articles of

Association or Incorporation, Property

Insurance Policies, and Other Condominium

Documents: The Insurer may require the

Insured to:

a. Show the Insurer, or its designee, the

damaged property;

b. Be examined under oath by the Insurer

or its designee;

c. Sign any transcripts of such

examinations; and

d. At such reasonable times and places as

the Insurer may designate, permit the Insurer

to examine and make extracts and copies of

any condominium documents, including the

Articles of Association or Incorporation,

Bylaws, rules and regulations, Declarations of

the condominium, property insurance

policies, and other condominium documents;

and all books of accounts, bills, invoices and

vouchers, or certified copies thereof if the

originals are lost, pertaining to the damaged

property.

3. Options to Repair or Replace: The

Insurer may take all or any part of the

damaged property at the agreed or appraised

value and, also, repair, rebuild or replace the

property destroyed or damaged with other of

like kind and quality within a reasonable

time, on giving the Insured notice of the

Insurer’s intention to do so within 30 days

after the receipt of the proof of loss herein

required under paragraph O. above.

4. Adjustment Options: The Insurer may

adjust loss to any insured property of others

with the owners of such property or with the

Insured for their account. Any such

insurance under this policy will not inure

directly or indirectly to the benefit of any

carrier or other bailee for hire.

P. When Loss Payable: Loss is payable

within 60 days after the Insured files its proof

of loss (or within 90 days after the insurance

adjuster files an adjuster’s report signed and

sworn to by the Insured in lieu of a proof of

loss) and ascertainment of the loss is made

either by agreement between the Insured and

Federal Register / Vol. 65, No. 124 / Tuesday, June 27, 2000 / Rules and Regulations 39755

the Insurer in writing or by the filing with

the Insurer of an award as provided in

paragraph R. below.

If the Insurer rejects the Insured’s proof of

loss in whole or in part, the Insured may

accept such denial of its claim, or exercise its

rights under this policy, or file an amended

proof of loss as long as it is filed within 60

days of the date of the loss or any extension

of time allowed by the Administrator.

Q. Abandonment: The Insured may not

abandon damaged or undamaged insured

property to the Insurer.

However, the Insurer may permit the

Insured to keep damaged, insured property

(‘‘salvage’’) after a loss and reduce the

amount of the loss proceeds payable to the

Insured under the policy by the value of the

salvage.

R. Appraisal: In case the Insured and the

Insurer will fail to agree as to the actual cash

value of the amount of loss, then:

1. On the written demand of either the

Insurer or the Insured, each will select a

competent and disinterested appraiser and

notify the other of the appraiser selected

within 20 days of such demand.

2. The appraisers will first select a

competent and disinterested umpire and

failing, after 15 days, to agree upon such

umpire, then on the Insurer’s request or the

Insured’s request, such umpire will be

selected by a judge of a court of record in the

State in which the insured property is

located.

3. The appraisers will then appraise the

loss, stating separately actual cash value and

loss to each item; and, failing to agree, will

submit their differences, only, to the umpire.

4. An award in writing, so itemized, of any

two (appraisers or appraiser and umpire)

when filed with the Insurer will determine

the amount of actual cash value and loss.

5. Each appraiser will be paid by the party

selecting him or her and the expenses of

appraisal and umpire will be paid by both

parties equally.

S. Action Against the Insurer: No suit or

action on this policy for the recovery of any

claim will be sustainable in any court of law

or equity unless all the requirements of this

policy will have been complied with, and

unless commenced within 12 months next

after the date of mailing of notice of

disallowance or partial disallowance of the

claim. An action on such claim against the

Insurer must be instituted, without regard to

the amount in controversy, in the United

States District Court for the district in which

the property will have been situated.

T. Subrogation: If any payment is made

under this policy, the Insurer will be

subrogated to all the Insured’s rights of

recovery therefor against any party, and the

Insurer may require from the Insured an

assignment of all rights of recovery against

any party for loss to the extent that payment

therefor is made by the Insurer. The Insured

will do nothing after loss to prejudice such

rights; however, this insurance will not be

invalidated should the Insured waive in

writing prior to a loss any or all rights of

recovery against any party for loss occurring

to the described property.

U. Continuous Lake Flooding: Where the

insured building has been inundated by

rising lake waters continuously for 90 days

or more and it appears reasonably certain

that a continuation of this flooding will result

in damage, reimbursable under this policy, to

the insured building equal to or greater than

the building policy limits plus the

deductible(s) or the maximum payable under

the policy for any one building loss, the

Insurer will pay the Insured the lesser of

these two amounts without waiting for the

further damage to occur if the Insured signs

a release agreeing to:

1. Make no further claim under this policy;

and

2. Not seek renewal of this policy; and

3. Not apply for any flood insurance under

the Act for property at the property location

of the insured building.

If the policy term ends before the insured

building has been flooded continuously for

90 days, the provisions of this paragraph U

still apply so long as the first building

damage reimbursable under this policy from

the continuous flooding occurred before the

end of the policy term.

V. Duplicate Policies Not Allowed:

Property may not be insured under more than

one policy issued under the Act. When the

Insurer finds that duplicate policies are in

effect, the Insurer will by written notice give

the Insured the option of choosing which

policy is to remain in effect, under the

following procedures:

1. If the Insured chooses to keep in effect

the policy with the earlier effective date, the

Insurer will by the same written notice give

the Insured an opportunity to add the

coverage limits of the later policy to those of

the earlier policy, as of the effective date of

the later policy.

2. If the Insured chooses to keep in effect

the policy with the later effective date, the

Insurer will by the same written notice give

the Insured the opportunity to add the

coverage limits of the earlier policy to those

of the later policy, as of the effective date of

the later policy.

In either case, the Insured must pay the pro

rata premium for the increased coverage

limits within 30 days of the written notice.

In no event will the resulting coverage limits

exceed the statutorily permissible limits of

coverage under the Act or the Insured’s

insurable interest, whichever is less.

The Insurer will make a refund to the

Insured, according to applicable National

Flood Insurance Program rules, of the

premium for the policy not being kept in

effect.

For purposes of this paragraph V, the term

effective date means the date coverage that

has been in effect without any lapse was first

placed in effect. In addition to the provisions

of this paragraph V. for increasing policy

limits, the usual procedures for increasing

limits by mid-term endorsement or at

renewal time, with the appropriate waiting

period, are applicable to the policy the

Insured chooses to keep in effect.

6. We amend Part 61 by adding

Appendix A(6) as follows:

Appendix A(6) to Part 61

Federal Emergency Management Agency,

Federal Insurance Administration

Standard Flood Insurance Policy

Endorsement to Residential Condominium

Building Association Policy

[Issued under the National Flood Insurance

Act of 1968, as amended (Act), and

Applicable Federal Regulations in Title 44 of

the Code of Federal Regulations, Subchapter

B. The provisions of this endorsement

replace the provisions of Article 10 of the

Standard Flood Insurance Policy, Residential

Condominium Building Association Policy,

only in applicable policies in Monroe County

and the Village of Islamorada, Florida].

Article 10—General Conditions and

Provisions

A. Pair and Set Clause: If there is loss of

an article that is part of a pair or set, the

measure of loss will be a reasonable and fair

proportion of the total value of the pair or set,

giving consideration to the importance of

said article, but such loss will not be

construed to mean total loss of the pair or set.

B. Concealment, Fraud: This policy will be

void, nor can this policy be renewed or any

new flood insurance coverage be issued to

the Insured if any person insured under

Article 1, paragraph A., whether before or

after a loss, has:

1. Sworn falsely, or willfully concealed or

misrepresented any material fact; or

2. Done any fraudulent act concerning this

insurance (see paragraph E.1.d. below); or

3. Willfully concealed or misrepresented

any fact on a ‘‘Recertification Questionnaire,’’

which causes the Insurer to issue a policy

based on a premium amount that is less than

the premium amount that would have been

payable were it not for the misstatement of

fact (see paragraph F. below).

C. Other Insurance: If a loss covered by this

policy is also covered by other insurance,

whether collectible or not, the Insurer will

pay only the proportion of the loss that the

limit of liability that applies under this

policy bears to the total amount of insurance

covering the loss, provided, if at the time of

loss, there is other insurance made available

under the Act, in the name of a unit owner

that provides coverage for the same loss

covered by this policy, this policy’s coverage

will be primary and not contributing with

such other insurance.

D. Amendments and Waivers, Assignment:

This Standard Flood Insurance Policy cannot

be amended nor can any of its provisions be

waived without the express written consent

of the Federal Insurance Administrator. No

action the Insurer takes under the terms of

this policy can constitute a waiver of any of

its rights. Except in the case of 1. a contents

only policy, and 2. a policy issued to cover

a building in the course of construction,

assignment of this policy, in writing, is

allowed upon transfer of title.

E. Voidance, Reduction or Reformation of

the Coverage:

1. Voidance: This policy will be void and

of no legal force and effect if any one of the

following conditions occurs:

a. The property listed on the application is

not eligible for coverage, in which case the

policy is void from its inception;

39756 Federal Register / Vol. 65, No. 124 / Tuesday, June 27, 2000 / Rules and Regulations

b. The community in which the property

is located was not participating in the

National Flood Insurance Program on the

policy’s inception date and did not qualify as

a participating community during the

policy’s term and before the occurrence of

any loss;

c. If, during the term of the policy, the

participation in the National Flood Insurance

Program of the community in which the

property is located ceases, in which case the

policy will be deemed void effective at the

end of the last day of the policy year in

which such cessation occurred and will not

be renewed. If the voided policy included 3

policy years in a contract term of 3 years, the

Insured will be entitled to a pro-rata refund

of any premium applicable to the remainder

of the policy’s term;

d. If any Insured or its agent has:

(1) Sworn falsely; or

(2) Fraudulently or willfully concealed or

misrepresented any material fact including

facts relevant to the rating of this policy in

the application for coverage, or upon any

renewal of coverage, or in connection with

the submission of any claim brought under

the policy, in which case this entire policy

will be void as of the date the wrongful act

was committed or from its inception if this

policy is a renewal policy and the wrongful

act occurred in connection with an

application for or renewal or endorsement of

a policy issued to the Insured in a prior year

and affects the rating of or premium amount

received for this policy. Refunds of

premiums, if any, will be subject to offsets for

the Insurer’s administrative expenses

(including the payment of agent’s

commissions for any voided policy year) in

connection with the issuance of the policy;

e. The premium submitted is less than the

minimum set forth in 44 CFR 61.10 in

connection with any application for a new

policy or policy renewal, in which case the

policy is void from its inception date.

f. The Insured has not submitted a

community inspection report, cited in ‘‘F.

Policy Renewal’’ below that was required in

a notice sent to the Insured previously in

conjunction with the community inspection

procedure established under National Flood

Insurance Program Regulations (44 CFR

59.30).

2. Reduction of Coverage Limits or

Reformation: If the premium payment is not

sufficient (whether evident or not) to

purchase the amount of coverage requested

by an application, renewal, endorsement, or

other form and paragraph E.1.d. does not

apply, then the policy will be deemed to

provide only such coverage as can be

purchased for the entire term of the policy,

for the amount of premium received, subject

to increasing the amount of coverage

pursuant to 44 CFR 61.11; provided,

however:

a. If the insufficient premium is discovered

by the Insurer before a loss and the Insurer

can determine the amount of insufficient

premium from information in its possession

at the time of its discovery of the insufficient

premium, the Insurer will give a notice of

additional premium due, and if the Insured

remits and the Insurer receives the additional

premium required to purchase the limits of

coverage for each kind of coverage as was

initially requested by the Insured within 30

days from the date the Insurer gives the

Insured written notice of additional premium

due, the policy will be reformed, from its

inception date, or, in the case of an

endorsement, from the effective date of the

endorsement, to provide flood insurance

coverage in the amount of coverage initially

requested.

b. If the insufficient premium is discovered

by the Insurer at the time of a loss under the

policy, the Insurer will give a notice of

premium due, and if the Insured remits and

the Insurer receives the additional premium

required to purchase (for the current policy

term and the previous policy term, if then

insured) the limits of coverage for each kind

of coverage as was initially requested by the

Insured within 30 days from the date the

Insurer gives the Insured written notice of

additional premium due, the policy will be

reformed, from its inception date, or, in the

case of an endorsement, from the effective

date of the endorsement, to provide flood

insurance coverage in the amount of coverage

initially requested.

c. Under subparagraphs a. and b. as to any

mortgagee or trustee named in the policy, the

Insurer will give a notice of additional

premium due and the right of reformation

will continue in force for the benefit only of

the mortgagee or trustee, up to the amount of

the Insured’s indebtedness, for 30 days after

written notice to the mortgagee or trustee.

F. Policy Renewal: The term of this policy

begins on its inception date and ends on its

expiration date, as shown on the declarations

page that is attached to the policy. The

Insurer is under no obligation to:

1. Send the Insured any renewal notice or

other notice that the policy term is coming

to an end and the receipt of any such notice

by the Insured will not be deemed to be a

waiver of this provision on the Insurer’s part.

2. Assure that policy changes reflected in

endorsements submitted during the Policy

term are included in any renewal notice or

new policy sent to the Insured. Policy

changes include the addition of any increases

in the amounts of coverage.

This policy will not be renewed and the

coverage provided by it will not continue

into any successive policy term unless the

renewal premium payment, and when

applicable, the community inspection report

referred to below, is received by the Insurer

at the office of the National Flood Insurance

Program within 30 days of the expiration

date of this policy, subject to paragraph E.

above. If the renewal premium payment, and

when applicable, the community inspection

report referred to below, is mailed by

certified mail to the Insurer before the

expiration date, it will be deemed to have

been received within the required 30 days.

The coverage provided by the renewal policy

is in effect for any loss occurring during the

30-day period even if the loss occurs before

the renewal premium payment, and when

applicable, the community inspection report

referred to below, is received within the

required 30 days. In all other cases, this

policy will terminate as of the expiration

date, of the last policy term for which the

premium payment, and when applicable, the

community inspection report referred to

below, was timely received and, in that

event, the Insurer will not be obligated to

provide the Insured with any cancellation,

termination, policy lapse, or policy renewal

notice.

In connection with the renewal of this

policy, the Insured may be requested during

the policy term to recertify, on a

Recertification Questionnaire the Insurer will

provide, the rating information used to rate

the most recent application for or renewal of

insurance. The community in which the

insured property is located has been

approved by the Federal Emergency

Management Agency to participate in a

special inspection procedure set forth in

National Flood Insurance Program

Regulations (44 CFR 59.30) that requires the

submission of a community inspection report

completed by local officials as one condition

for policy renewal. The Insured may be

required to submit such an inspection report

completed by a community official certifying

whether the insured property is in

compliance with the community’s floodplain

management ordinance. The Insured will be

notified in writing of this requirement

approximately 6 months before the renewal

date and again at the time the renewal bill

is sent.

Notwithstanding the Insured’s

responsibility to submit the appropriate

renewal premium in sufficient time to permit

its receipt by the Insurer before the

expiration of the policy being renewed, the

Insurer has established a business procedure

for mailing renewal notices to assist Insureds

in meeting their responsibility. Regarding the

business procedure, evidence of the placing

of any such notices into the U.S. Postal

Service, addressed to the Insured at the

address appearing on its most recent

application or other appropriate form

(received by the Insurer before the mailing of

the renewal notice), does, in all respects, for

purposes of the National Flood Insurance

Program, presumptively establish delivery to

the Insured for all purposes irrespective of

whether the Insured actually received the

notice.

However, if the Insurer determines that,

through any circumstances, any renewal

notice was not placed into the U.S. Postal

Service, or, if placed, was prepared or

addressed in a manner that the Insurer

determines could preclude the likelihood of

its being actually and timely received by the

Insured before the due date for the renewal

premium, the following procedures will be

followed:

If the Insured or its agent notified the

Insurer, not later than 1 year after the date

on which the payment of the renewal

premium was due, of a nonreceipt of a

renewal notice before the due date for the

renewal premium, which the Insurer

determines was attributable to the above

circumstance, the Insurer will mail a second

bill providing a revised due date, which will

be 30 days after the date on which the bill

is mailed.

If we do not receive the renewal payment

requested by reason of the second bill by the

revised due date, no renewal will occur and

the policy will remain as an expired policy

Federal Register / Vol. 65, No. 124 / Tuesday, June 27, 2000 / Rules and Regulations 39757

as of the expiration date prescribed on the

policy.

G. Conditions Suspending or Restricting

Insurance: Unless otherwise provided in

writing added hereto, the Insurer will not be

liable for loss occurring while the hazard is

increased by any means within the control or

knowledge of the Insured.

H. Liberalization clause: If during the

period that insurance is in force under this

policy or within 45 days prior to the

inception date thereof, should the Insurer

have adopted under the Act, any forms,

endorsements, rules or regulations by which

this policy could be extended or broadened,

without additional premium charge, by

endorsement or substitution of form, then,

such extended or broadened insurance will

inure to the benefit of the Insured as though

such endorsement or substitution of form had

been made. Any broadening or extension of

this policy to the Insured’s benefit will only

apply to losses occurring on or after the

effective date of the adoption of any forms,

endorsements, rules or regulations affecting

this policy.

I. Alterations and Repairs: The Insured

may, at the Insured’s own expense, make

alterations, additions and repairs, and

complete structures in the course of

construction.

J. Cancellation of Policy By Insured: The

Insured may cancel this policy at any time

but a refund of premium money will only be

made when:

1. The Insured cancels a policy having a

term of 3 years, on an anniversary date, and

the reason for the cancellation is that:

a. A policy of flood insurance has been

obtained or is being obtained in substitution

for this policy and the Insurer has received

a written concurrence in the cancellation

from any mortgagee of which the Insurer has

actual notice, or

b. The Insured has extinguished the

insured mortgage debt and is no longer

required by the mortgagee to maintain the

coverage. Refund of any premium, under this

subparagraph 1., will be pro rata but with

retention of the expense constant and the

Federal policy fee.

2. The Insured cancels because the Insurer

has determined that the property is not, in

fact, in a special hazard area; and the Insured

was required to purchase flood insurance

coverage by a private lender or Federal

agency pursuant to Public Law 93–234,

section 102 and the lender or agency no

longer requires the retention of the coverage.

In this event, if no claims have been paid or

are pending, the premium payments will be

refunded in full, according to applicable

National Flood Insurance Program

regulations.

K. Loss Clause: Payment of any loss under

this policy will not reduce the amount of

insurance applicable to any other loss during

the policy term that arises out of a separate

occurrence of the peril insured against

hereunder; provided, that all loss arising out

of a continuous or protracted occurrence will

be deemed to constitute loss arising out of a

single occurrence.

L. Mortgage Clause: (Applicable to

building coverage only and effective only

when the policy is made payable to a

mortgagee or trustee named in the

application and declarations page attached to

this policy or of whom the Insurer has actual

notice prior to the payment of loss proceeds

under this policy.)

Loss, if any, under this policy, will be

payable to the aforesaid as mortgagee or

trustee as interest may appear under all

present or future mortgages upon the

property described in which the aforesaid

may have an interest as mortgagee or trustee,

in order of precedence of said mortgages, and

this insurance, as to the interest of the

mortgagee or trustee only therein, will not be

invalidated:

1. By any act or neglect of the mortgagor

or owner of the described property; nor

2. By any foreclosure or other proceedings

or notice of sale relating to the property; nor

3. By any change in the title or ownership

of the property; nor

4. By the occupation of the premises for

purposes more hazardous than are permitted

by this policy, provided, that it in case the

mortgagor or owner will neglect to pay any

premium due under this policy, the

mortgagee or trustee will, on demand, pay

the same.

5. Provided, also, that the mortgagee or

trustee will notify the Insurer of any change

of ownership or occupancy of the building or

increase of hazard that will come to the

knowledge of said mortgagee or trustee and,

unless permitted by this policy, it will be

noted thereon and the mortgagee or trustee

will, on demand, pay the premium for such

increased hazard for the term of the use

thereof; otherwise, this policy will be null

and void.

If this policy is cancelled by the Insurer,

it will continue in force for the benefit of the

mortgagee or trustee for 30 days after written

notice to the mortgagee or trustee of such

cancellation and will then cease.

Whenever the Insurer will pay the

mortgagee or trustee any sum for loss under

this policy and will claim that, as to the

mortgagor or owner, no liability therefor

existed, the Insurer will, to the extent of such

payment, be thereupon legally subrogated to

all the rights of the party to whom such

payment will be made, under all securities

held as collateral to the mortgage debt, or

may, at its option, pay to the mortgagee or

trustee the whole principal due or to grow

due on the mortgage with interest, and will

thereupon receive a full assignment and

transfer of the mortgage and of all such other

securities, but no subrogation will impair the

right of the mortgagee or trustee to recover

the full amount of said mortgagee’s or

trustee’s claim.

M. Mortgagee Obligations: If the Insured

fails to render proof of loss, the named

mortgagee or trustee, upon notice, will render

proof of loss in the form herein specified

within 60 days thereafter and will be subject

to the provisions of this policy relating to

appraisal and time of payment and of

bringing suit.

N. Loss Payable Clause (Applicable to

contents items only): Loss, if any, will be

adjusted with the Insured and will be

payable to the Insured and loss payee as their

interests may appear.

O. Requirements in Case of Loss: Should a

flood loss occur to the insured property, the

Insured must:

1. Notify the Insurer in writing as soon as

practicable;

2. As soon as reasonably possible, separate

the damaged and undamaged property,

putting it in the best possible order so that

the Insurer may examine it; and

3. Within 60 days after the loss, send the

Insurer a proof of loss, which is the Insured’s

statement as to the amount it is claiming

under the policy signed and sworn to by the

Insured and furnishing the following

information:

a. The date and time of the loss;

b. A brief explanation of how the loss

happened;

c. The Insured’s interest in the property

damaged (for example, ‘‘owner’’) and the

interests, if any, of others in the damaged

property;

d. The actual cash value or replacement

cost, whichever is appropriate, of each

damaged item of insured property and the

amount of damages sustained;

e. The names of mortgagees or anyone else

having a lien, charge or claim against the

insured property;

f. Details as to any other contracts of

insurance covering the property, whether

valid or not;

g. Details of any changes in ownership,

use, occupancy, location or possession of the

insured property since the policy was issued;

h. Details as to who occupied any insured

building at the time of loss and for what

purpose; and

i. The amount the Insured claims is due

under this policy to cover the loss, including

statements concerning:

(1) The limits of coverage stated in the

policy; and

(2) The cost to repair or replace the

damaged property (whichever costs less).

Cooperate with the Insurer’s adjuster or

representative in the investigation of the

claim;

4. Document the loss with all bills,

receipts, and related documents for the

amount being claimed;

5. The insurance adjuster whom the

Insurer hires to investigate the claim may

furnish the Insured with a proof of loss form,

and she or he may help the Insured to

complete it. However, this is a matter of

courtesy only, and the Insured must still

send the Insurer a proof of loss within 60

days after the loss even if the adjuster does

not furnish the form or help the Insured

complete it. In completing the proof of loss,

the Insured must use its own judgment

concerning the amount of loss and the

justification for the amount.

The adjuster is not authorized to approve

or disapprove claims or to tell the Insured

whether the claim will be approved by the

Insurer.

6. The Insurer may, at its option, waive the

requirement for the completion and filing of

a proof of loss in certain cases, in which

event the Insured will be required to sign

and, at the Insurer’s option, swear to an

adjuster’s report of the loss that includes

information about the loss and the damages

needed by the Insurer in order to adjust the

claim.

39758 Federal Register / Vol. 65, No. 124 / Tuesday, June 27, 2000 / Rules and Regulations

7. Any false statements made in the course

of presenting a claim under this policy may

be punishable by fine or imprisonment under

the applicable Federal laws.

P. Options After a Loss: Options the Insurer

may, in its sole discretion, exercise after a

loss include the following:

1. Evidence of Loss: If the Insurer

specifically requests it, in writing, the

Insured may be required to furnish a

complete inventory of the destroyed,

damaged and undamaged property, including

details as to quantities, costs, actual cash

values or replacement cost (whichever is

appropriate), amount of loss claims, and any

written plans and specifications for repair of

the damaged property that can reasonably be

made available to the Insurer.

2. Examination Under Oath and Access to

the Condominium Association’s Articles of

Association or Incorporation, Property

Insurance Policies, and Other Condominium

Documents: The Insurer may require the

Insured to:

a. Show the Insurer, or its designee, the

damaged property;

b. Be examined under oath by the Insurer

or its designee;

c. Sign any transcripts of such

examinations; and

d. At such reasonable times and places as

the Insurer may designate, permit the Insurer

to examine and make extracts and copies of

any condominium documents, including the

Articles of Association or Incorporation,

Bylaws, rules and regulations, Declarations of

the condominium, property insurance

policies, and other condominium documents;

and all books of accounts, bills, invoices and

vouchers, or certified copies thereof if the

originals are lost, pertaining to the damaged

property.

3. Options to Repair or Replace: The

Insurer may take all or any part of the

damaged property at the agreed or appraised

value and, also, repair, rebuild or replace the

property destroyed or damaged with other of

like kind and quality within a reasonable

time, on giving the Insured notice of the

Insurer’s intention to do so within 30 days

after the receipt of the proof of loss herein

required under paragraph O. above.

Adjustment Options: The Insurer may

adjust loss to any insured property of others

with the owners of such property or with the

Insured for their account. Any such

insurance under this policy will not inure

directly or indirectly to the benefit of any

carrier or other bailee for hire.

Q. When Loss Payable: Loss is payable

within 60 days after the Insured files its proof

of loss (or within 90 days after the insurance

adjuster files an adjuster’s report signed and

sworn to by the Insured in lieu of a proof of

loss) and ascertainment of the loss is made

either by agreement between the Insured and

the Insurer in writing or by the filing with

the Insurer of an award as provided in

paragraph R. below. If the Insurer rejects the

Insured’s proof of loss in whole or in part,

the Insured may accept such denial of its

claim, or exercise its rights under this policy,

or file an amended proof of loss as long as

it is filed within 60 days of the date of the

loss or any extension of time allowed by the

Administrator.

Abandonment: The Insured may not

abandon damaged or undamaged insured

property to the Insurer. However, the Insurer

may permit the Insured to keep damaged,

insured property (‘‘salvage’’) after a loss and

reduce the amount of the loss proceeds

payable to the Insured under the policy by

the value of the salvage.

R. Appraisal: If at any time after a loss, the

Insurer is unable to agree with the Insured as

to the actual cash value—or, if applicable,

replacement cost—of the damaged property

so as to determine the amount of loss to be

paid to the Insured, then:

1. On the written demand of either the

Insurer or the Insured, each will select a

competent and disinterested appraiser and

notify the other of the appraiser selected

within 20 days of such demand.

2. The appraisers will first select a

competent and disinterested umpire and

failing, after 15 days, to agree upon such

umpire, then on the Insurer’s request or the

Insured’s request, such umpire will be

selected by a judge of a court of record in the

State in which the insured property is

located.

3. The appraisers will then appraise the

loss, stating separately replacement cost,

actual cash value and loss to each item; and,

failing to agree, will submit their differences,

only, to the umpire.

4. An award in writing, so itemized, of any

two (appraisers or appraiser and umpire)

when filed with the Insurer will determine

the amount of actual cash value and loss or,

should this policy’s replacement cost

provisions apply, the amount of the

replacement cost and loss.

5. Each appraiser will be paid by the party

selecting him or her and the expenses of

appraisal and umpire will be paid by both

parties equally.

S. Action Against the Insurer: No suit or

action on this policy for the recovery of any

claim will be sustainable in any court of law

or equity unless all the requirements of this

policy will have been complied with, and

unless commenced within 12 months next

after the date of mailing of notice of

disallowance or partial disallowance of the

claim. An action on such claim against the

Insurer must be instituted, without regard to

the amount in controversy, in the United

States District Court for the district in which

the property will have been situated.

T. Subrogation: If of any payment under

this policy, the Insurer will be subrogated to

all the Insured’s rights of recovery therefor

against any party, and the Insurer may

require from the Insured an assignment of all

rights of recovery against any party for loss

to the extent that payment therefor is made

by the Insurer. The Insured will do nothing

after loss to prejudice such rights; however,

this insurance will not be invalidated should

the Insured waive in writing prior to a loss

any or all rights of recovery against any party

for loss occurring to the described property.

U. Continuous Lake Flooding: Where the

insured building has been inundated by

rising lake waters continuously for 90 days

or more and it appears reasonably certain

that a continuation of this flooding will result

in damage, reimbursable under this policy, to

the insured building equal to or greater than

the building policy limits plus the

deductible(s) or the maximum payable under

the policy for any one building loss, the

Insurer will pay the Insured the lesser of

these two amounts without waiting for the

further damage to occur if the Insured signs

a release agreeing to:

1. Make no further claim under this policy;

and

2. Not seek renewal of this policy; and

3. Not apply for any flood insurance under

the Act for property at the property location

of the insured building. If the policy term

ends before the insured building has been

flooded continuously for 90 days, the

provisions of this paragraph U still apply so

long as the first building damage

reimbursable under this policy from the

continuous flooding occurred before the end

of the policy term.

V. Duplicate Policies Not Allowed:

Property may not be insured under more than

one policy issued under the Act. When the

Insurer finds that duplicate policies are in

effect, the Insurer will by written notice give

the Insured the option of choosing which

policy is to remain in effect, under the

following procedures:

1. If the Insured chooses to keep in effect

the policy with the earlier effective date, the

Insurer will by the same written notice give

the Insured an opportunity to add the

coverage limits of the later policy to those of

the earlier policy, as of the effective date of

the later policy.

2. If the Insured chooses to keep in effect

the policy with the later effective date, the

Insurer will by the same written notice give

the Insured the opportunity to add the

coverage limits of the earlier policy of those

of the later policy, as of the effective date of

the later policy.

In either case, the Insured must pay the pro

rata premium for the increased coverage

limits within 30 days of the written notice.

In no event will the resulting coverage limits

exceed the statutorily permissible limits of

coverage under the Act or the Insured’s

insurable interest, whichever is less.

The Insurer will make a refund to the

Insured, according to applicable National

Flood Insurance Program rules, of the

premium for the policy not being kept in

effect.

For purposes of this paragraph V the term

effective date means the date coverage that

has been in effect without any lapse was first

placed in effect. In addition to the provisions

of this paragraph V for increasing policy

limits, the usual procedures for increasing

limits by mid-term endorsement or at

renewal time, with the appropriate waiting

period, are applicable to the policy the

Insured chooses to keep in effect.

Dated: June 20, 2000.

James L. Witt,

Director.

[FR Doc. 00–16043 Filed 6–26–00; 8:45 am]

BILLING CODE 6718–05–P