[Federal Register Volume 61, Number 65 (Wednesday, April 3, 1996)]
[Proposed Rules]
[Pages 14709-14715]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-8127]



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FEDERAL EMERGENCY MANAGEMENT AGENCY

44 CFR Part 62

RIN 3067-AC26


National Flood Insurance Program; Assistance to Private Sector 
Property Insurers

AGENCY: Federal Insurance Administration (FEMA).

ACTION: Proposed Rule.

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SUMMARY: This proposed rule would amend the National Flood Insurance 
Program (NFIP) regulations establishing the Financial Assistance/
Subsidy Arrangement that may be entered into by and between the 
Administrator and private sector insurers under the Write Your Own 
(WYO) program. The proposed amendments would: (1) Simplify the 
Arrangement by streamlining the format; (2) reflect recent policy 
changes regarding loss adjustment and financial operation of the 
private insurers in the WYO program; and (3) delete references to 
obsolete operating manuals and handbooks. The proposed amendments would 
also improve the flexibility of the Arrangement and would provide 
information to permit WYO participants to discharge their 
responsibilities for underwriting, claims adjustment, and financial 
control procedures established by the Federal Insurance Administration 
(FIA).

DATES: All comments received on or before May 20, 1996 will be 
considered before final action is taken on the proposed rule.

ADDRESSES: Please submit any written comments to the Rules Docket 
Clerk, Office of the General Counsel, Federal Emergency Management 
Agency, 500 C Street SW., room 840, Washington, DC 20472, (facsimile) 
202-646-4536.

FOR FURTHER INFORMATION CONTACT: Edward T. Pasterick, Federal Emergency 
Management Agency, Federal Insurance Administration, 500 C Street SW., 
Washington, DC 20472, (202) 646-3443.

SUPPLEMENTARY INFORMATION: The WYO program has operated for thirteen 
years. The program's operating documents reflect program experience as 
well as the FIA's ongoing dialogue with private insurers that have 
participated in the WYO program, insurance company executives, FEMA's 
Office of Financial Management, and FEMA's Office of Inspector General. 
Under the WYO Program, insurers signatory to the Financial Assistance/
Subsidy Arrangement may issue in their own names the Standard Flood 
Insurance Policy, the form and substance of which is approved by the 
Administrator. Insurers are responsible for all aspects of service, 
including policy issuance to new policyholders and to their 
policyholders insured under other lines of property insurance; 
endorsement and renewals of policies; and the adjustment of claims 
brought under the policies. The insurers pay losses and loss adjustment 
expenses, as well as the commissions of agents, out of written 
premiums. In return for discharging these responsibilities under the 
Arrangement, insurers retain a set portion of the written premium. The 
amount of retained written premium by an insurer is based in part on 
the insurer's performance in achieving marketing goals during the 
Arrangement year.
    The proposed changes to the regulations are intended therefore to 
simplify the terms and conditions of the WYO Arrangement itself in 
order to make it easier for private insurers to participate in the WYO 
program and thereby serve an underlying Congressional intent to carry 
out the NFIP ``to the maximum extent practicable by the private 
insurance industry,'' as called for in the Declaration of Purpose for 
the National Flood Insurance Act of 1968, Pub. L. 90-448, 42 U.S.C. 
4001.
    The proposed changes would offer a more flexible framework than now 
for private insurers participating in the WYO program to operate while 
maintaining the operational and financial controls and standards 
necessary to preserve program integrity and accountability--both for 
the Government and for the participating private insurers. For example, 
the adjuster's fee schedule needs to be revised to reflect program 
changes prompted by the National Flood Insurance Reform Act (NFIRA) of 
1994. Those revisions could be made, more appropriately, in a parallel 
effort and published in operating manuals rather than encumbering the 
Arrangement. Operating processes relating to the single adjuster 
program may be better handled differently from the Arrangement. Also, 
references to many documents should be deleted so that the Arrangement 
is not encumbered with details about publications that may be scheduled 
for revision during the course of the Arrangement year. Consistent with 
the proposed changes to the WYO Financial Control Plan, Appendix B to 
44 CFR Part 62 published in the Federal Register on February 1, 1996, 
61 FR 3635-3644, this proposed rule would discontinue the self-audit 
requirement for private insurers participating in the WYO program.
    In sum, the proposed changes to the regulations would produce a WYO 
Arrangement that would clearly specify the responsibilities and duties 
of the Government and the private insurers participating in the WYO 
program without burdening the Arrangement with unnecessary detail or 
references that may become obsolete before the Arrangement year 
expires.
    National Environmental Policy Act. This proposed rule would be

[[Page 14710]]
categorically excluded from the requirements of 44 CFR Part 10, 
Environmental Consideration. No environmental impact assessment has 
been prepared.
    Executive Order 12866, Regulatory Planning and Review. This 
proposed rule would not be a significant regulatory action as defined 
under Executive Order 12866 of September 30, 1993, Regulatory Planning 
and Review, 58 FR 51735, October 4, 1993. To the extent possible, this 
rule adheres to the principles of regulation set forth in Executive 
Order 12866. This rule has not been reviewed by the Office of 
Management and Budget under the provisions of Executive Order 12866.
    Paperwork Reduction Act. This proposed rule would not contain a 
collection of information and is therefore not subject to the 
provisions of the Paperwork Reduction Act of 1995.
    Executive Order 12612, Federalism. This proposed rule would involve 
no policies that have federalism implications under Executive Order 
12612, Federalism, dated October 26, 1987.
    Executive Order 12778, Civil Justice Reform. This proposed rule 
would meet the applicable standards of section 2(b)(2) of Executive 
Order 12778.

List of Subjects in 44 CFR Part 62

    Claims, Flood Insurance.

    We use certain conventions in this proposed rule to highlight the 
proposed revisions. New language is shown inside boldfaced arrows >><<, 
while language that would be deleted is set off with boldfaced brackets 
[].
    Accordingly, 44 CFR part 62 is proposed to be amended as follows:

PART 62--SALE OF INSURANCE AND ADJUSTMENT OF CLAIMS

    1. The authority citation for Part 62 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. Appendix A of part 62 would be revised to read as follows:

Appendix A to Part 62--Federal Emergency Management Agency, Federal 
Insurance Administration, Financial Assistance/Subsidy Arrangement

    Purpose: To assist the company in underwriting flood insurance 
using the Standard Flood Insurance Policy.
    Accounting Data: Pursuant to Section 1310 of the Act, a Letter of 
Credit shall be issued for payment as provided for herein from the 
National Flood Insurance Fund.
    Effective Date: [October 1, 1995.] >> October 1, 1996.<< 
    Issued By: Federal Emergency Management Agency, Federal Insurance 
Administration, Washington, DC 20472.

Article I--Findings, Purpose, and Authority

    Whereas, the Congress in its ``Finding and Declaration of Purpose'' 
in the National Flood Insurance Act of 1968, as amended, (``the Act'') 
recognized the benefit of having the National Flood Insurance Program 
(the Program) ``carried out to the maximum extent practicable by the 
private insurance industry''; and
    Whereas, the Federal Insurance Administration (FIA) recognizes this 
Arrangement as coming under the provisions of Section 1345 of the Act; 
and
    Whereas, the goal of the FIA is to develop a program with the 
insurance industry where, over time, some risk-bearing role for the 
industry will evolve as intended by the Congress (Section 1304 of the 
Act); and
    Whereas, [the Program, as presently constituted and implemented, is 
subsidized, and] the insurer (hereinafter the ``Company'') under this 
Arrangement shall charge rates established by the FIA; and
    Whereas, this Arrangement will subsidize all flood policy losses by 
the Company; and
    Whereas, this Financial Assistance/Subsidy Arrangement has been 
developed to [involve individual Companies in the Program, the initial 
step of which is to explore ways in which any interested insurer may be 
able] >> enable any interested qualified insurer<< to write flood 
insurance under its own name; and
    Whereas, one of the primary objectives of the Program is to provide 
coverage to the maximum number of structures at risk and because the 
insurance industry has marketing access through its existing facilities 
not directly available to the FIA, it has been concluded that coverage 
will be extended to those who would not otherwise be insured under the 
Program; and
    Whereas, flood insurance policies issued subject to this 
Arrangement shall be only that insurance written by the Company in its 
own name pursuant to the Act; and
    Whereas, over time, the Program is designed to increase industry 
participation, and, accordingly, reduce or eliminate Government as the 
principal vehicle for delivering flood insurance to the public; and
    Whereas, the direct beneficiaries of this Arrangement will be those 
Company policyholders and applicants for flood insurance who otherwise 
would not be covered against the peril of flood.
    Now, therefore, the parties hereto mutually undertake the 
following:

Article II--Undertakings of the Company

    A. In order to be eligible for assistance under this Arrangement 
the Company shall be responsible for:

1.0  Policy Administration, including
1.1  Community Eligibility/Rating Criteria
1.2  Policyholder Eligibility Determination
1.3  Policy Issuance
1.4  Policy Endorsements
1.5  Policy Cancellations
1.6  Policy Correspondence
1.7  Payment of Agents' Commissions

    The receipt, recording, control, timely deposit and disbursement of 
funds in connection with all the foregoing, and correspondence relating 
to the above in accordance with the Financial Control Plan 
requirements.
    2.0  Claims processing in accordance with general Company standards 
and the Financial Control Plan. [The Write Your Own Claims Manual, the 
Federal Emergency Management Agency Adjuster Manual, the FIA National 
Flood Insurance Program Policy Issuance Handbook, the Write Your Own 
Operational Overview, and other instructional material also provide 
guidance to the Company.] >> Other technical and policy material 
published by FEMA and FIA will also provide guidance to the Company. <<
    3.0  Reports
    3.1  Monthly Financial Reporting and Statistical Transaction 
Reporting shall be in accordance with the requirements of National 
Flood Insurance Program Transaction Record Reporting and Processing 
Plan for the Write Your Own (WYO) Program and the Financial Control 
Plan for business written under the WYO Program. These data shall be 
validated/edited/audited in detail and shall be compared and balanced 
against Company financial reports.
    3.2  Monthly financial reporting shall be prepared in accordance 
with the WYO Accounting Procedures.
    [3.3  The Company shall establish a program of self audit 
acceptable to the FIA or comply with the self audit program contained 
in the Financial Control Plan for business written under

[[Page 14711]]
the WYO Program. The Company shall report the results of this self-
audit to the FIA annually.]
    B. The Company shall use the following time standards of 
performance as a guide:
    1.0  Application Processing--15 days (Note: If the policy cannot be 
mailed due to insufficient or erroneous information or insufficient 
funds, a request for correction or added monies shall be mailed within 
10 days);
    1.1  Renewal Processing--7 days;
    1.2  Endorsement Processing--[7 days;] >> 15 days; <<
    1.3  Cancellation Processing--15 days;
    [1.4  Correspondence, Simple and/or Status Inquiries--7 days;]
    [1.5  Correspondence, Complex Inquiries--20 days;]
    [1.6  Supply, Materials, and Manual Requests--7 days;]
    [1.7] >> 1.4 << Claims Draft Processing--7 days from completion of 
file examination;
    [1.8] >> 1.5 << Claims Adjustment--45 days average from receipt of 
Notice of Loss (or equivalent) through completion of examination.
    [1.9] >> 1.6 << For the elements of work enumerated above, the 
elapsed time shown is from the date of receipt through the date of mail 
out. Days means working, not calendar days.
    In addition to the standards for timely performance set forth 
above, all functions performed by the Company shall be in accordance 
with the highest reasonably attainable quality standards generally 
utilized in the insurance and data processing industries.
    These standards are for guidance. Although no immediate remedy for 
failure to meet them is provided under this Arrangement, nevertheless, 
performance under these standards and the marketing guidelines provided 
for in Section G. below can be a factor considered by the Federal 
Insurance Administrator (the Administrator) in requiring corrective 
action by the Company, in determining the continuing participation of 
the Company in the Program, or in taking other action, e.g., limiting 
the Company's authority to write new business.
    C. To ensure maximum responsiveness to the National Flood Insurance 
Program's (NFIP) policyholders following a catastrophic event, e.g., a 
hurricane, involving insured wind and flood damage to policyholders, 
the Company shall agree to the adjustment of the combined flood and 
wind losses utilizing one adjuster under an NFIP-approved Single 
Adjuster Program in the following cases and under procedures issued by 
the Administrator:
    1.0  Where the flood and wind coverage is provided by the Company;
    2.0  Where the flood coverage is provided by the Company and the 
wind coverage is provided by a participating State Property Insurance 
Plan, Windpool Association, Beach Plan, Joint Underwriting Association, 
FAIR Plan, or similar property insurance mechanism;
    3.0  Where the flood coverage is provided by the Company and the 
wind coverage is provided by another WYO Company and the necessary 
information on the dual coverage is part of the Claims Coordinating 
Office (CCO) system; and
    4.0  Where the flood coverage is provided by the Company and the 
wind coverage is provided by another property insurer and the State 
Insurance Regulator has determined that such property insurer shall, in 
the interest of consumers, facilitate the adjustment of its wind loss 
by the adjuster engaged to adjust the flood loss of the Company.
    [The Government shall provide for the direct business flood losses 
to be adjusted by a single adjuster where the wind damage coverage is 
insured by a state market mechanism described in 2.0, above, or by a 
WYO Company as described in 3.0 above, or by a property insurer, as 
described in 4.0 above.]
    [Except for 1.0, above, the Company shall submit its flood losses 
that are reasonably believed to involve wind damage to the Single 
Adjuster Program's Stationary CCO in Lanham, Maryland at the following 
address:]
    [National Flood Insurance Program Stationary Claims Coordinating 
Office 10115 Senate Drive Lanham, Maryland 20706]
    [Such flood losses shall be reported on the ACORD Notice of Loss 
form, ``ACORD 1 (1/93),'' or a like form calling for the reporting of 
losses involving both flood and wind damage arising out of a single 
hurricane event under the following procedures:]
    [ Where flood losses reasonably believed to involve wind 
damage are reported by property insurance agents of brokers, the 
Company shall instruct its agents or brokers to mail or preferably send 
by facsimile the ACORD Notice of Loss form, with complete details 
regarding flood and, if available, wind insurance policies covering the 
property, to the Single Adjuster Program Stationary CCO for assignment 
to a single adjuster. The Stationary CCO will also accept loss 
information directly from the agent by modem in CCO format where the 
Company has arranged for its agents to provide the information in this 
fashion.]
    [ Where flood losses reasonably believed to involve wind 
damage are reported directly to the Company by its policyholders or 
agents, by telephone, the Company shall report the flood loss, with the 
wind property insurer information, if available, to the Single Adjuster 
Program Stationary CCO, by modem transfer in CCO format as such flood 
losses are reported to the Company. Transfer by facsimile from the 
Company can also be arranged where circumstances warrant it.]
    [Upon receipt of the Notice of Loss, the Stationary CCO shall 
effect immediate entry of all relevant data into the stand-alone CCO 
System (i.e., not part of the NFIP mainframe computer system) for 
instantaneous relay to the Catastrophe CCO established in the field. At 
the Catastrophe CCO, which will be sited and fully operational within 
24 hours of landfall, in coordination with the State Insurance 
Regulator, a qualified loss adjustment organization shall be promptly 
selected for each loss, and participating insurers shall be promptly 
advised of the selection for their assignment of the loss to that 
organization.]
    [In respect to the foregoing, the Administrator will continue to 
implement existing and future CCO Arrangements with State Insurance 
Regulators and their State Property Insurance Plans, Windpool 
Associations, Beach Plans, Joint Underwriting Associations, FAIR Plans, 
or similar property insurance mechanisms, for example, as has been done 
with the Insurance Department of the State of South Carolina.]
D. Policy Issuance
    1.0  The flood insurance subject to this Arrangement shall be only 
that insurance written by the Company in its own name pursuant to the 
Act.
    2.0  The Company shall issue policies under the regulations 
prescribed by the Administrator in accordance with the Act;
    3.0  All such policies of insurance shall conform to the 
regulations prescribed by the Administrator pursuant to the Act, and be 
issued on a form approved by the Administrator;
    4.0  All policies shall be issued in consideration of such premiums 
and upon such terms and conditions and in such States or areas or 
subdivisions thereof as may be designated by the Administrator and only 
where the Company is licensed by State law to engage in the property 
insurance business;
    5.0  The Administrator may require the Company to immediately 
discontinue issuing policies subject to

[[Page 14712]]
this Arrangement in the event Congressional authorization or 
appropriation for the National Flood Insurance Program is withdrawn.
    E. The Company shall [establish a bank account,] separate >> 
Federal flood insurance funds >> [and apart] from all other Company 
accounts, at a bank >> or banks << of its choosing for the collection, 
retention and disbursement of >> Federal << funds relating to its 
obligation under this Arrangement, less the Company's expenses as set 
forth in Article III, and the operation of the Letter of Credit 
established pursuant to Article IV. All funds not required to meet 
current expenditures shall be remitted to the United States Treasury, 
in accordance with the provisions of the WYO Accounting Procedures 
Manual.
    F. The Company shall investigate, adjust, settle and defend all 
claims or losses arising from policies issued under this Arrangement. 
Payment of flood insurance claims by the Company shall be binding upon 
the FIA.
    G. The Company shall market flood insurance policies in a manner 
consistent with the marketing guidelines established by the Federal 
Insurance Administration.

Article III--Loss Costs, Expenses, Expense Reimbursement, and Premium 
Refunds

    A. The Company shall be liable for operating, administrative and 
production expenses, including any >> State premium << taxes, 
dividends, agent's commissions [or any board, exchange or bureau 
assessments,] or any other expense of whatever nature incurred by the 
Company in the performance of its obligations under this Arrangement.
    B. The Company shall be entitled to withhold, on a provisional 
basis, as operating and administrative expenses, including agents' or 
brokers' commissions, an amount from the Company's written premium on 
the policies covered by this Arrangement in reimbursement of all of the 
Company's marketing, operating and administrative expenses, except for 
allocated and unallocated loss adjustment expenses described in Section 
C. of this Article, which amount shall be 32.6% of the Company's 
written premium on the policies covered by this Arrangement. The final 
amount retained by the Company shall be determined by an increase or 
decrease depending on the extent to which the Company meets the 
marketing goals for the [combined 1994-1995 and 1995-1996] 1996-1997 
Arrangement year[s] contained in marketing guidelines established 
pursuant to Article II.G.
    The [decrease or increase] >> adjustment << in the amount retained 
by the Company shall be made after the end of the [1995-1996] >> 1996-
1997 << Arrangement year. Any decrease from 32.6% made as a result of a 
Company not meeting its marketing goals shall be directly related to 
the extent to which the Company's goal was not achieved, but shall not 
exceed two (2) percentage points (providing for a minimum of 30.6%). 
[The amount of any decrease shall be calculated for each month, and 
each month's decrease shall be subject to interest compounded at rates 
provided for by 31 U.S.C. 3717(a)(1). Upon notice of the cumulative 
monthly decreases and interest, the Company agrees to promptly remit to 
the Government the total amount due.]
    The increase, which shall be distributed among the Companies 
exceeding their marketing goals, shall be drawn from a pool composed of 
the difference between 32.6% of all WYO Companies' written premium in 
Arrangement year[s 1994-1995 and 1995-1996,] >> 1996-1997 << and the 
total amount, prior to the increase, provided to the Companies on the 
basis of the extent to which they have met their marketing goals. A 
distribution formula will be developed and distributed to WYO Companies 
which will consider the extent to which the Company has exceeded its 
goal and the size of the Company's book of business in relation to the 
total number of WYO policies. The amount of any increase shall be paid 
promptly to the Company after the end of the [1995-1996] >> 1996-1997 
<< Arrangement year.
    [If the Company does not enter into the Arrangement for 1995-1996, 
the extent to which the Company met its goals shall be based upon its 
Arrangement year 1994-1995 performance, and the final amount retained 
shall be determined after the end of the 1994-1995 Arrangement year, 
but the Company shall not be entitled to any increase above the 
provisional amount.]
    [Premium income net of provisional reimbursement (net premium 
income) and Federal Policy Fee shall be deposited in a special account 
for the payment of losses and loss adjustment expenses (see Article II, 
Section E).]
    The Company, with the consent of the Administrator as to terms and 
costs, shall be entitled to utilize the services of a national rating 
organization, licensed under state law, to assist the FIA in 
undertaking and carrying out such studies and investigations on a 
community or individual risk basis, and in determining more equitable 
and accurate estimates of flood insurance risk premium rates as 
authorized under the National Flood Insurance Act of 1968, as amended. 
The Company shall be reimbursed in accordance with the provisions of 
the WYO Accounting Procedures Manual for the charges or fees for such 
services.
    C. Loss Adjustment Expenses shall be reimbursed as follows:
    1. Unallocated loss adjustment shall be an expense reimbursement of 
3.3% of the incurred loss (except that it does not include ``incurred 
but not reported'').
    2. Allocated loss adjustment expense shall be reimbursed to the 
Company pursuant to [Exhibit A, entitled ``Fee Schedule.''] >> a fee 
schedule established by FIA. <<
    3. Special allocated loss expenses shall be reimbursed to the 
Company [for only those expenses the Company has obtained prior 
approval of the Administrator to incur.] >> in accordance with 
guidelines issued by the Administrator. <<
    D.1. Loss payments under policies of flood insurance shall be made 
by the Company from funds retained in the bank account(s) established 
under Article II, Section E. and, if such funds are depleted, from 
funds derived by drawing against the Letter of Credit established 
pursuant to Article IV.
    2. Loss payments will include payments as a result of awards or 
judgments for damages arising under the scope of this Arrangement, 
policies of flood insurance issued pursuant to this Arrangement, and 
the claims processing standards and guides set forth at Article II, 
Section A.,2.0 of this Arrangement. Prompt notice of any claim for 
damages as to claims processing or other matters arising outside the 
scope of this Section D.2. shall be sent to the [Assistant 
Administrator of the FIA's Office of Insurance Policy Analysis and 
Technical Services (OIPATS),] >> Administrator << along with a copy of 
any material pertinent to the claim for damages arising outside of the 
scope of the matters set forth in this Section D.2.
    Following receipt of notice of such claim, the General Counsel 
(OGC), FEMA, shall review the cause and make a recommendation to FIA as 
to whether the claim is grounded in actions by the Company which are 
significantly outside the provisions of this Section D.2. After 
reviewing the General Counsel's recommendation, the Administrator will 
make her decision and the Company will be notified, in writing, within 
thirty (30) days of the General Counsel's recommendation, if the 
decision is that any award or

[[Page 14713]]
judgment for damages arising out of such actions will not be recognized 
under Article III of this Arrangement as a reimbursable loss cost, 
expense or expense reimbursement. In the event that the Company wishes 
to petition for reconsideration of the notification that it will not be 
reimbursed for the award or judgment made under the above 
circumstances, it may do so by mailing, within thirty days of the 
notice declining to recognize any such award or judgment as 
reimbursable under Article III, a written petition to the Chairman of 
the WYO Standards Committee established under the Financial Control 
Plan. The WYO Standards Committee will, then, consider the petition at 
its next regularly scheduled meeting or at a special meeting called for 
that purpose by the Chairman and issue a written recommendation to the 
Administrator, within thirty days of the meeting. The Administrator's 
final determination will be made, in writing, to the Company within 
thirty days of the recommendation made by the WYO Standards Committee.
    E. Premium refunds to applicants and policyholders required 
pursuant to rules contained in the National Flood Insurance Program 
(NFIP) ``Flood Insurance Manual'' shall be made by the Company from 
Federal flood insurance funds referred to in Article II, Section E. 
and, if such funds are depleted, from funds derived by drawing against 
the Letter of Credit established pursuant to Article IV.

Article IV--Undertakings of the Government

    A. Letter(s) of Credit shall be established by the Federal 
Emergency Management Agency (FEMA) against which the Company may 
withdraw funds daily, if needed, pursuant to prescribed procedures 
implemented by FEMA. The amounts of the authorizations will be 
increased as necessary to meet the obligations of the Company under 
Article III, Sections C., D., and E. Request for funds shall be made 
only when net premium income has been depleted. The timing and amount 
of cash advances shall be as close as is administratively feasible to 
the actual disbursements by the recipient organization for allowable 
Letter of Credit expenses.
    Request for payment on Letters of Credit shall not ordinarily be 
drawn more frequently than daily nor in amounts less than $5,000, and 
in no case more than $5,000,000 unless so stated on the Letter of 
Credit. This Letter of Credit may be drawn by the Company for any of 
the following reasons:
    1. Payment of claim as described in Article III, Section D.;
    2. Refunds to applicants and policyholders for insurance premium 
overpayment, or if the application for insurance is rejected or when 
cancellation or endorsement of a policy results in a premium refund as 
described in Article III, Section E.; and
    3. Allocated and unallocated Loss Adjustment Expenses as described 
in Article III, Section C.
    B. The FIA shall provide technical assistance to the Company as 
follows:
    1. The FIA's policy and history concerning underwriting and claims 
handling.
    2. A mechanism to assist in clarification of coverage and claims 
questions.
    3. Other assistance as needed.

Article V--Commencement and Termination

    A. Upon signature of authorized officials for both the Company and 
the FIA, this Arrangement shall be effective for the period October 1 
through September 30. The FIA shall provide financial assistance only 
for policy applications and endorsements accepted by the Company during 
this period pursuant to the Program's effective date, underwriting and 
eligibility rules.
    B. By June 1, of each year, the FIA shall publish in the Federal 
Register and make available to the Company the terms for the re-
subscription of this Financial Assistance/Subsidy Arrangement. In the 
event the Company chooses not to re-subscribe, it shall notify the FIA 
to that effect by the following July 1.
    C. In the event the Company elects not to participate in the 
Program in any subsequent fiscal year, or the FIA chooses not to renew 
the Company's participation, the FIA, at its option, may require (1) 
the continued performance of this entire Arrangement for >> a period 
not to exceed << one (1) year following the [effective expiration date 
only for those policies issued during the] original term of this 
Arrangement, or any renewal thereof, or (2) the transfer to the FIA of:
    a. All data received, produced, and maintained through the life of 
the Company's participation in the Program, including certain data, as 
determined by FIA, in a standard format and medium; and
    b. A plan for the orderly transfer to the FIA of any continuing 
responsibilities in administering the policies issued by the Company 
under the Program including provisions for coordination assistance; and
    c. All claims and policy files, including those pertaining to 
receipts and disbursements which have occurred during the life of each 
policy. In the event of a transfer of the services provided, the 
Company shall provide the FIA with a report showing, on a policy basis, 
any amounts due from or payable to insureds, agents, brokers, and 
others as of the transition date.
    D. Financial assistance under this Arrangement may be cancelled by 
the FIA in its entirety upon 30 days written notice to the Company by 
certified mail stating one of the following reasons for such 
cancellation: (1) Fraud or misrepresentation by the Company subsequent 
to the inception of the contract, or (2) nonpayment to the FIA of any 
amount due the FIA. Under these very specific conditions, the FIA may 
require the transfer of data as shown in Section C., above. If transfer 
is required, the unearned expenses retained by the Company shall be 
remitted to the FIA. >> In such event the Government will assume all 
obligations and liabilities owed to policyholders under such policies 
arising before and after the date of transfer. <<
    E. In the event the Act is amended, or repealed, or expires, or if 
the FIA is otherwise without authority to continue the Program, 
financial assistance under this Arrangement may be cancelled for any 
new or renewal business, but the Arrangement shall continue for 
policies in force which shall be allowed to run their term under the 
Arrangement.
    F. In the event that the Company is unable to, or otherwise fails 
to, carry out its obligations under this Arrangement by reason of any 
order or directive duly issued by the Department of Insurance of any 
Jurisdiction to which the Company is subject, the Company agrees to 
transfer, and the Government will accept, any and all WYO policies 
issued by the Company and in force as of the date of such inability or 
failure to perform. In such event the Government will assume all 
obligations and liabilities owed to policyholders under such policies 
arising before and after the date of transfer and the Company will 
immediately transfer to the Government all funds in its possession with 
respect to all such policies transferred and the unearned portion of 
the Company expenses for operating, administrative and loss adjustment 
on all such policies.

Article VI--Information and Annual Statements

    The Company shall furnish to [the FIA] >> FEMA << such summaries 
and analyses of information >> including claim file information << in 
its records as may be necessary to carry out the

[[Page 14714]]
purposes of the National Flood Insurance Act of 1968, as amended, in 
such form as the FIA, in cooperation with the Company, shall prescribe. 
The Company shall be a property/casualty insurer domiciled in a State 
or territory of the United States. Upon request, the Company shall file 
with the FIA a true and correct copy of the Company's Fire and Casualty 
Annual Statement, and Insurance Expense Exhibit or amendments thereof, 
as filed with the State Insurance Authority of the Company's 
domiciliary State.

Article VII--Cash Management and Accounting

    A. FEMA shall make available to the Company during the entire term 
of this Arrangement and any continuation period required by FIA 
pursuant to Article V, Section C., the Letter of Credit provided for in 
Article IV drawn on a repository bank within the Federal Reserve System 
upon which the Company may draw for reimbursement of its expenses as 
set forth in Article IV which exceed net written premiums collected by 
the Company from the effective date of this Arrangement or continuation 
period to the date of the draw.
    B. The Company shall remit all funds >> including interest, << not 
required to meet current expenditures to the United States Treasury, in 
accordance with the provisions of the WYO Accounting Procedures Manual.
    C. In the event the Company elects not to participate in the 
Program in any subsequent fiscal year, the Company and FIA shall make a 
provisional settlement of all amounts due or owing within three months 
of the termination of this Arrangement. This settlement shall include 
net premiums collected, funds drawn on the Letter of Credit, and 
reserves for outstanding claims. The Company and FIA agree to make a 
final settlement of accounts for all obligations arising from this 
Arrangement within 18 months of its expiration or termination, except 
for contingent liabilities which shall be listed by the Company. At the 
time of final settlement, the balance, if any, due the FIA or the 
Company shall be remitted by the other immediately and the operating 
year under this Arrangement shall be closed.

Article VIII--Arbitration

    A. If any misunderstanding or dispute arises between the Company 
and the FIA with reference to any factual issue under any provisions of 
this Arrangement or with respect to the FIA's non-renewal of the 
Company's participation, other than as to legal liability under or 
interpretation of the standard flood insurance policy, such 
misunderstanding or dispute may be submitted to arbitration for a 
determination which shall be binding upon approval by the FIA. The 
Company and the FIA may agree on and appoint an arbitrator who shall 
investigate the subject of the misunderstanding or dispute and make a 
determination. If the Company and the FIA cannot agree on the 
appointment of an arbitrator, then two arbitrators shall be appointed, 
one to be chosen by the Company and one by the FIA.
    The two arbitrators so chosen, if they are unable to reach an 
agreement, shall select a third arbitrator who shall act as umpire, and 
such umpire's determination shall become final only upon approval by 
the FIA.
    The Company and the FIA shall bear in equal shares all expenses of 
the arbitration. Findings, proposed awards, and determinations 
resulting from arbitration proceedings carried out under this section, 
upon objection by FIA or the Company, shall be inadmissible as evidence 
in any subsequent proceedings in any court of competent jurisdiction.
    This Article shall indefinitely succeed the term of this 
Arrangement.

Article IX--Errors and Omissions

    The parties shall not be liable to each other for damages caused by 
ordinary negligence arising out of any transaction or other performance 
under this Arrangement, nor for any inadvertent delay, error, or 
omission made in connection with any transaction under this 
Arrangement, provided that such delay, error, or omission is rectified 
by the responsible party as soon as possible after discovery.
    However, in the event that the Company has made a claim payment to 
an insured without including a mortgagee (or trustee) of which the 
Company had actual notice prior to making payment, and subsequently 
determines that the mortgagee (or trustee) is also entitled to any part 
of said claim payment, any additional payment shall not be paid by the 
Company from any portion of the premium and any funds derived from any 
Federal Letter of Credit deposited in the bank account described in 
Article II, section E. In addition, the Company agrees to hold the 
Federal Government harmless against any claim asserted against the 
Federal Government by any such mortgagee (or trustee), as described in 
the preceding sentence, by reason of any claim payment made to any 
insured under the circumstances described above.

Article X--Officials Not to Benefit

    No Member or Delegate to Congress, or Resident Commissioner, shall 
be admitted to any share or part of this Arrangement, or to any benefit 
that may arise therefrom; but this provision shall not be construed to 
extend to this Arrangement if made with a corporation for its general 
benefit.

Article XI--Offset

    At the settlement of accounts the Company and the FIA shall have, 
and may exercise, the right to offset any balance or balances, whether 
on account of premiums, commissions, losses, loss adjustment expenses, 
salvage, or otherwise due one party to the other, it successors or 
assigns, hereunder or under any other Arrangements heretofore or 
hereafter entered into between the Company and the FIA. This right of 
offset shall not be affected or diminished because of insolvency of the 
Company.
    All debts or credits of the same class, whether liquidated or 
unliquidated, in favor of or against either party to this Arrangement 
on the date of entry, or any order of conservation, receivership, or 
liquidation, shall be deemed to be mutual debts and credits and shall 
be offset with the balance only to be allowed or paid. No offset shall 
be allowed where a conservator, receiver, or liquidator has been 
appointed and where an obligation was purchased by or transferred to a 
party hereunder to be used as an offset.
    Although a claim on the part of either party against the other may 
be unliquidated or undetermined in amount on the date of the entry of 
the order, such claim will be regarded as being in existence as of the 
date of such order and any credits or claims of the same class then in 
existence and held by the other party may be offset against it.

Article XII--Equal Opportunity

    The Company shall not discriminate against any applicant for 
insurance because of race, color, religion, sex, age, handicap, marital 
status, or national origin.

Article XIII--Restriction on Other Flood Insurance

    As a condition of entering into this Arrangement, the Company 
agrees that in any area in which the Administrator authorizes the 
purchase of flood insurance pursuant to the Program, all flood 
insurance offered and sold by the Company to persons eligible to buy 
pursuant to the Program for coverages available under the Program shall 
be written pursuant to this Arrangement.

[[Page 14715]]

    However, this restriction applies solely to policies providing only 
flood insurance. It does not apply to policies provided by the Company 
of which flood is one of the several perils covered, or where the flood 
insurance coverage amount is over and above the limits of liability 
available to the insured under the Program.

Article XIV--Access to Books and Records

    The FIA and the Comptroller General of The United States, or their 
duly authorized representatives, for the purpose of investigation, 
audit, and examination shall have access to any books, documents, 
papers and records of the Company that are pertinent to this 
Arrangement. The Company shall keep records which fully disclose all 
matters pertinent to this Arrangement, including premiums and claims 
paid or payable under policies issued pursuant to this Arrangement. 
Records of accounts and records relating to financial assistance shall 
be retained and available for three (3) years after final settlement of 
accounts, and to financial assistance, three (3) years after final 
adjustment of such claims. The FIA shall have access to policyholder 
and claim records at all times for purposes of the review, defense, 
examination, adjustment, or investigation of any claim under a flood 
insurance policy subject to this Arrangement.

Article XV--Compliance With Act and Regulations

    This Arrangement and all policies of insurance issued pursuant 
thereto shall be subject to the provisions of the National Flood 
Insurance Act of 1968, as amended, the Flood Disaster Protection Act of 
1973, as amended, >> the National Flood Insurance Reform Act of 1994, 
<< and Regulations issued pursuant thereto and all Regulations 
affecting the work that are issued pursuant thereto, during the term 
hereof.

Article XVI--Relationship Between the Parties (Federal Government and 
Company) and the Insured

    Inasmuch as the Federal Government is a guarantor hereunder, the 
primary relationship between the Company and the Federal Government is 
one of a fiduciary nature, i.e., to assure that any taxpayer funds are 
accounted for and appropriately expended.
    The Company is not the agent of the Federal Government. The Company 
is solely responsible for its obligations to its insured under any 
flood policy issued pursuant hereto.
    [In witness whereof, the parties hereto have accepted this 
Arrangement on this ________ day of ________, 1993.]

________________________
[Company]

[by ________________________]

[(Title) ________________________]

[The United States of America]
[Federal Emergency Management Agency]
[by ________________________]

[(Title) ________________________]

                               [Exhibit A]                              
                             [FEE SCHEDULE]                             
------------------------------------------------------------------------
                  [Range (by covered loss)                       Fee]   
------------------------------------------------------------------------
[Erroneous Assignment......................................      $40.00]
[Closed Without Payment....................................      125.00]
[Minimum for Upton-Jones Claims............................      800.00]
[$0.01 to $600.00..........................................      150.00]
[$600.01 to $1,000.00......................................      175.00]
[$1,000.01 to $2,000.00....................................      225.00]
[$2,000.01 to $3,500.00....................................      275.00]
[$3,500.01 to $5,000.00....................................      350.00]
[$5,000.01 to $7,000.00....................................      425.00]
[$7,000.01 to $10,000.00...................................      500.00]
[$10,000.01 to $15,000.00..................................      550.00]
[$15,000.01 to $25,000.00..................................      600.00]
[$25,000.01 to $35,000.00..................................      675.00]
[$35,000.01 to $50,000.00..................................      750.00]
[$50,000.01 to $100,000.00.................................    1,000.00]
[$100,000.01 to $150,000.00................................    1,300.00]
[$150,000.01 to $200,000.00................................    1,600.00]
[$200,000.01 to limits.....................................    2,000.00]
------------------------------------------------------------------------

    [Allocated fee schedule entry value is the covered loss under the 
policy based on the standard deductibles ($500 and $500) and limited to 
the amount of insurance purchased.]

(Catalog of Federal Domestic Assistance No. 83.100, ``Flood 
Insurance'')

    Dated: March 26, 1996.
Harvey G. Ryland,
Deputy Director.
[FR Doc. 96-8127 Filed 4-2-96; 8:45 am]
BILLING CODE 6718-03-P