[Federal Register Volume 61, Number 185 (Monday, September 23, 1996)]
[Proposed Rules]
[Pages 49717-49723]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-24319]


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FEDERAL EMERGENCY MANAGEMENT AGENCY

44 CFR Part 61

RIN 3067-AC54


National Flood Insurance Program; Standard Flood Insurance Policy

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 to add coverage under the Standard Flood 
Insurance Policy to pay for the increased cost to rebuild or otherwise 
alter flood-damaged structures to conform with State or local 
floodplain management ordinances or laws consistent with the 
requirements and guidance of the NFIP.

DATES: Comments are requested and must be received by November 7, 1996.

ADDRESSES: Comments should be sent to the Rules Docket Clerk, Office of 
the General Counsel, Federal Emergency Management Agency, 500 C Street 
SW., room 840, Washington, DC 20472, (fax) (202) 646-4536.

FOR FURTHER INFORMATION CONTACT: Charles M. Plaxico, Jr., Federal 
Insurance Administration, 500 C Street SW., Washington, DC 20472, (202) 
646-3422.

SUPPLEMENTARY INFORMATION: The National Flood Insurance Program (NFIP) 
was authorized by Congress (42 U.S.C. 4001 et seq.) to reduce the 
mounting losses of life and property from floods through sound land use 
and control practices in the Nation's floodplains and through the 
availability of flood insurance. As a condition for the availability of 
flood insurance,

[[Page 49718]]

States and local communities must adopt and enforce laws and ordinances 
that meet or exceed the minimum requirements of the NFIP's floodplain 
management regulations at 44 CFR 60.3. In fulfilling the statutory 
requirements to identify the Nation's floodprone areas and establish 
flood risk zones, the Federal Emergency Management Agency (FEMA) has 
produced various forms of flood risk maps and data for each of the 
Nation's floodprone communities. The NFIP's floodplain management 
regulations for buildings and development in special flood hazard areas 
require that new or substantially improved residential buildings be 
elevated so that the lowest floor is at or above the Base Flood 
Elevation (BFE). A substantial improvement is an improvement to a 
building, such as an addition or rehabilitation, the cost of which 
equals or exceeds 50 percent of market value. Owners of new or 
substantially improved buildings have the option of elevating the 
lowest floor to or above the BFE or dry floodproofing--non-residential 
structures only have this option--to the base flood level. The base 
flood or 100-year flood is a flood having a one percent chance of being 
equaled or exceeded in any given year.
    Most floodprone buildings that predate the existence of the NFIP 
were built in the floodplains by individuals who did not have 
sufficient knowledge of the hazard to make informed decisions. Because 
of their exposure to and risk of flooding, many of these existing 
buildings will likely be repetitively or substantially damaged during 
their lifetime. Claims paid for buildings that are repetitively or 
substantially damaged account for a significant portion of the NFIP's 
claim payments. Mitigation actions taken to protect these buildings can 
significantly reduce future claim payments and strengthen the financial 
condition of the National Flood Insurance Fund. The NFIP's minimum 
floodplain management regulations require that a repaired or rebuilt 
substantially damaged building located in a special flood hazard area 
be treated as a substantial improvement. This means that if a building 
is determined to be substantially damaged, the lowest floor, including 
basement, must be elevated or dry floodproofed--non-residential 
structures only have this option--to the BFE prior to occupancy of the 
structure. ``Substantial damage'' means damage sustained by a structure 
``whereby the cost of restoring the structure to its before damaged 
condition would equal or exceed 50 percent of the market value of the 
structure before the damage occurred'' (44 CFR 59.1).
    Under the terms and conditions of the Standard Flood Insurance 
Policy (SFIP), property owners are reimbursed for the costs to repair 
actual physical damages from flood, but not for additional 
``consequential'' costs to comply with a State or local floodplain 
management ordinance or law requiring that the damaged structure be 
elevated or floodproofed to the BFE. These requirements during 
reconstruction to mitigate flood hazards have often created financial 
hardships for property owners. This prompted Congress to authorize a 
new benefit under the SFIP to provide assistance to such property 
owners.
    Specifically, section 555 of the National Flood Insurance Reform 
Act of 1994, Title V of the Riegle Community Development and Investment 
Act of 1994 (Public Law 103-325), requires the NFIP to provide coverage 
under the SFIP for the increased costs of complying with the land use 
and control measures established under section 1361 of the National 
Flood Insurance Act of 1968, as amended. (Hereinafter this mandated 
coverage will be referred to as ``increased cost of construction'' 
(ICC) coverage.)
    To implement the mandated change in flood insurance coverage, FEMA 
formed a task force in 1995 consisting of the agency's insurance and 
mitigation experts to determine the appropriate terms and conditions of 
ICC coverage, the limits of its liability, and the amount of the 
premium surcharges for the coverage consistent with statutory intent 
and limitations. The FEMA task force also solicited comments from two 
of the NFIP's major constituent organizations--the Association of State 
Flood Plain Managers and the Insurance Institute for Property Loss 
Reduction. FEMA convened a meeting with representatives of these two 
organizations on January 17, 1996, and the contributions from that 
meeting helped shape the conceptual and technical framework for this 
proposed rule.
    In proposing this rule for ICC coverage under the SFIP, FEMA had to 
consider: (1) How the implementation of ICC coverage would conform with 
the floodplain management laws and ordinances administered by States 
and local communities participating in the NFIP; (2) how repetitive 
losses, which are not specifically included in the NFIP's land use and 
control measures, would be addressed; (3) what features of the 
insurance industry's building law and ordinance coverage under 
conventional property insurance contracts should be included under ICC 
coverage; (4) what the appropriate limits for ICC coverage would be in 
the light of the current status of the National Flood Insurance Fund 
and the $75 limit placed by Congress on the premium surcharge that the 
NFIP may add to flood insurance policies for ICC coverage (42 U.S.C. 
4011 (b)); (5) how ICC coverage would be applied to condominiums; and 
(6) how ICC coverage should be incorporated into the SFIP and the 
operations of the NFIP.
    FEMA considered how the three categories of structures eligible for 
ICC coverage should be treated in light of the NFIP's current land use 
and control standards which more than 18,450 local governments have 
adopted and are enforcing as a condition for participation in the 
program. The statute authorizes ICC coverage for three categories of 
structures: (1) Structures that have flood damage in which the cost of 
repairs equals or exceeds 50 percent of the value of the of the 
structure at the time of the flood event; (2) repetitive loss 
structures (as defined by the statute); and (3) other structures 
damaged by flood on multiple occasions where the FEMA Director has 
determined it is in the best interests of the National Flood Insurance 
Fund to require compliance with land use and control measures (42 
U.S.C. 4011(b)(1),(2), and (3)).
    The NFIP defines ``substantial damage,'' which applies to the first 
category of structures eligible by statute for ICC coverage, as 
``damage from any origin sustained by a structure whereby the cost of 
restoring the structure to its before damage condition would equal or 
exceed 50 percent of the market value of the structure before the 
damage occurred'' (44 CFR 59.1). The proposed rule is consistent with 
the existing NFIP floodplain management requirements that States and 
localities use ``market value'' as the basis for determining whether a 
structure has been substantially damaged. (Non-residential structures 
have the option of being elevated or floodproofed in order to meet the 
NFIP's requirements. Residential structures however may only be 
elevated to meet the requirement.)
    The proposed rule would limit ICC coverage to situations where the 
structure has been damaged by ``flood'' as defined in the SFIP. The 
proposed ICC coverage would not pay for the increased cost of repairing 
or altering structures substantially damaged by wind, fire, or other 
perils. This, however, is required by the statute which restricts ICC 
coverage to flood-damaged structures.

[[Page 49719]]

    The second category of structures eligible for ICC coverage is 
repetitive loss structures. In considering how the NFIP would treat ICC 
coverage for repetitive loss structures within the context of the 
program's authorities, FEMA concluded that: (1) ICC coverage is 
intended to respond to State or local ordinances or laws requiring 
damaged buildings to be rebuilt to more stringent flood protection 
measures, (2) State or local ordinances or laws must be applied 
consistently and cannot be applied selectively, i.e., independently of 
whether or not a property owner is to receive insurance payments, and 
(3) land use and building requirements are to be implemented at the 
State or local level.
    FEMA therefore proposes to implement the repetitive loss aspect of 
ICC by having the coverage respond to a State or local ordinance or law 
requiring actions based on cumulative substantial damage (i.e., two 
losses within a 10-year period causing cumulative damage totaling 50% 
or more of the building's value) in combination with the NFIP's having 
a history of paying repetitive insurance claims on the property. FEMA 
believes that this approach meets the intent of the legislation in a 
manner that preserves State or local control over building practices, 
provides ICC coverage in response to a State or local ordinance or law 
requiring property owner action, and meets the statutory definition of 
repetitive loss structure. In that connection, the proposed rule uses 
the statutory definition for repetitive losses, i.e., a structure 
``covered by a contract for flood insurance under this title that has 
incurred flood-related damage on 2 occasions during a 10-year period 
ending on the date of the event for which a second claim is made, in 
which the cost of repair, on the average, equaled or exceeded 25 
percent of the value of the structure at the time of each such flood 
event'' (42 U.S.C. 4121(a)(7)).
    The benefit of ICC under the SFIP for repetitive loss structures 
requires that two conditions be met. First the community has to have in 
place a cumulative flood damage ordinance consistent with the statutory 
definition of repetitive loss structure, i.e., involving 2 flood losses 
within a 10-year period. Secondly, the NFIP must have a history of 
claims payments for a property that match the flood losses used by the 
community in enforcing this ordinance for the structure and that 
satisfy the statutory definition of repetitive loss structure. FEMA has 
structured the proposed addition to the SFIP to incorporate both those 
criteria. While States and communities participating in the NFIP are 
not required to adopt a floodplain management ordinance or law for 
repetitive loss structures, FEMA recognizes that many NFIP communities 
may already have an existing provision in their floodplain management 
law or ordinance which addresses repetitive loss structures. States or 
communities with a repetitive or cumulative substantial damage/
improvement provision in current floodplain management laws or 
ordinances that are similar or more restrictive than the definition for 
``repetitive loss structure'' in the Act (42 U.S.C. 4121(a)(7)) are 
acceptable as long as the provision is applied consistently to all 
structure in special flood hazard areas regardless of whether or not 
the structure is covered by a contract of flood insurance. Also, for a 
State or local repetitive loss provision to be acceptable, the two 
losses, when combined, must equal or exceed 50 percent of the value of 
the structure within a 10-year period ending on the date of the event 
for which the second claim is made. Since ``repetitive loss 
structures'' are not addressed in the NFIP's minimum floodplain 
management requirements, FEMA will provide model repetitive loss law or 
ordinance language and other guidance to States and communities so that 
they may adopt such measures prior to the effective date of the final 
rule providing ICC coverage under the SFIP. FEMA expects that States 
and communities will require the first of the 2 losses meeting the 
statutory definition of ``repetitive loss structure'' to occur after 
the State or community's repetitive loss ordinance or law is in effect.
    Also, a State or community official must determine that a structure 
is substantially or repetitively damaged in accordance with the adopted 
floodplain management law or ordinance. However, the proposed ICC 
coverage does not pay for the increased cost of construction to meet 
State or community floodplain management laws or ordinances which 
exceed the minimum floodplain management criteria at 44 CFR 60.3, 
except as provided for properties that are repetitive loss structures 
in special flood hazard areas as defined in the Act (42 U.S.C. 
4121(a)(7)). For example, ICC coverage will not pay for the increased 
cost of construction to meet substantial damage thresholds which are 
less than 50 percent of the market value of the structure. Buildings in 
these communities must be damaged to 50 percent or more of their market 
value to be eligible for the ICC benefit. ICC coverage will pay for the 
elevation or floodproofing of structures up to the base flood level but 
not for elevation or floodproofing above the base flood level. For 
example, where States or local communities require 1 or 2 feet of 
freeboard above the BFE, ICC coverage will pay for costs to elevate 
only to the BFE. Also, ICC coverage will not pay for the cost to 
elevate or otherwise alter flood-damaged structures located outside of 
special flood hazard areas. The surcharge limit of $75 per policy for 
ICC coverage set by Congress prevents extending ICC benefits to damaged 
structures that must meet State or community laws or ordinances that 
are more restrictive than the minimum criteria of the NFIP. On the 
other hand, ICC coverage will not pay for rebuilding to standards that 
do not meet the NFIP's minimum requirements, i.e., when the property 
owner has received a variance from the community to rebuild the 
property to an elevation below the BFE.
    While the proposed rule responds to the first two categories of 
properties, it would not however attempt to address the third category 
of losses--``multiple losses''--which are not quantified in the 
statute. The third situation, which is discretionary, may be added to 
future proposed changes to the SFIP based on greater loss experience 
and the status of the National Flood Insurance Fund at that time.
    FEMA also considered the generic building law and ordinance 
coverage offered by the insurance industry in homeowners and other 
property insurance contracts to cover the costs to rebuild, in 
compliance with State or local ordinances or laws, a structure damaged 
by a number of covered perils. The sole ``triggering loss event'' 
however for ICC coverage proposed in this rule is a loss from ``flood'' 
(including covered flood-related erosion) as defined in the SFIP. This 
is required by the statute which restricts ICC coverage to pay for the 
increased cost of construction to comply with a State or local 
floodplain management ordinance or law requiring elevation of the 
structure to the BFE or other appropriate mitigation measure after a 
flood loss.
    The proposed rule would establish a limit of $15,000 for ICC 
coverage. The $15,000 limit considers the average range of actual costs 
to elevate, relocate, or floodproof various types of construction 
during reconstruction after a flood, e.g., from slab-on-grade 
foundations to structures already elevated but below base flood 
elevation.
    In many cases, the maximum limit of $15,000 will enable the insured 
to pay for most of the costs to elevate or floodproof an existing 
structure

[[Page 49720]]

following a flood loss. Insureds will still have to bear a portion of 
the costs to improve the structure so that it meets current State or 
local floodplain management ordinances or laws. In practically all 
cases, however, the limit of ICC coverage will make a significant 
contribution toward rebuilding flood-damaged structures in conformity 
with the NFIP's elevation and floodproofing standards.
    In arriving at a limit for ICC coverage, FEMA wanted to establish 
the highest amount possible for insureds. In light of the maximum 
surcharge for ICC coverage allowed under law ($75) and the 
Congressional intent that the program be actuarially sound, however, 
FEMA has determined that $15,000 is the maximum benefit that could be 
currently justified under the SFIP.
    Additionally, the ICC benefit would be added to the payment for 
direct loss from flood but the total reimbursement for ICC coverage and 
direct loss from flood would not be greater than the maximum limits of 
coverage for that class of structure established under the National 
Flood Insurance Act of 1968, as amended.
    FEMA also considered the appropriate scope and limits of ICC 
coverage for condominiums. Under the Dwelling Form of the SFIP, 
individual condominium unit owners may, in addition to the coverage 
purchased by the condominium association for the commonly owned 
portions of the complex, receive coverage for the portions of their 
unit not covered by the association policy and also for assessments 
placed by the association on the unit owner to pay a prorated portion 
of the physical damage from flood exceeding the association's policy 
limits. FEMA considered whether ICC coverage should be provided to 
individual unit owners in a condominium for the increased costs to 
ensure that elevation or other alterations of commonly owned portions 
of the condominium complex substantially or repetitively damaged by 
flood would comply with State or local floodplain management laws or 
ordinances. The surcharge limit of $75 per policy for ICC coverage set 
by Congress prevents extending ICC benefits to individual condominium 
unit owners for assessments.
    FEMA also considered the appropriate approach for providing ICC 
payments. On the one hand, delaying payment of the ICC benefit until 
after the flood-damaged structure had been rebuilt or otherwise altered 
to comply with State or local ordinances or laws would make it 
impossible for many insureds to initiate the extensive mitigation 
effort necessary to bring the structure into compliance with floodplain 
management ordinances or laws. On the other hand, a full payment of the 
ICC benefit before the necessary mitigation effort is undertaken 
creates the potential to abandon the structure. Given the financial 
hardships of many flood victims and the inability to pay out-of-pocket 
the costs to elevate or floodproof a building before a claim is 
adjusted, FEMA plans to provide partial payments for ICC claims. Making 
partial payments is an accepted practice under the NFIP's adjustment 
process for flood loss. This practice will enable the insured to 
initiate the mitigation activity required by the State or local 
ordinance or law. FEMA also plans holdbacks of final payments until the 
community ensures that the mitigation activity is satisfactorily 
completed.
    In that connection, FEMA believes that the property owner should 
accomplish required repairs within a reasonable period of time, i.e., 
within 2 years from the date of loss which time frame is consistent 
with insurance industry practices. Also, the property owner may decide 
which mitigation measure will be taken to accomplish the repair or 
reconstruction of the structure under ICC coverage, (i.e., elevation, 
retrofitting, floodproofing, relocation, demolition, or any combination 
thereof). It is expected however that States or communities will work 
closely with the property owner to discuss alternatives in determining 
the most technically feasible and cost effective mitigation measure for 
the damaged structure.
    It is also the State or community's responsibility to ensure that 
all other necessary Federal, State, or local permits have been received 
pertaining to laws, ordinances, building codes, or other requirements 
in conjunction with the repair, elevation, floodproofing, retrofitting, 
relocation, demolition, or other alteration to the building and site on 
which the property is or is to be located. Additionally, the State or 
community must ensure that all work is completed in accordance with 
State or local laws and ordinances prior to issuing an occupancy 
permit. States or communities must obtain an elevation certificate or 
floodproofing certificate for structures that are elevated or 
floodproofed.
    The FEMA Regional Offices are available to provide technical 
assistance to property owners and communities on technically feasible 
and cost effective mitigation measures that can be applied to the 
structure and that qualify for the ICC benefit. FEMA also has a number 
of publications to assist communities, individuals, architects, 
engineers, builders, and contractors on various mitigation measures and 
techniques including elevation, floodproofing, retrofitting, and 
relocation.
    Finally, FEMA considered how ICC coverage should be implemented 
within the context of the insurance operations of the program. Under 
the proposed rule, ICC coverage would not be subject to the 
liberalization clause of the SFIP. Rather, since a premium surcharge 
must be added to pay for the required additional ICC, policyholders 
would obtain this coverage upon renewal of their policies with 
effective dates on or after May 1, 1997--the target date for 
inauguration of this coverage. After the effective date of the final 
rule, policyholders with three-year policies in force would also have 
the option of canceling their flood insurance policy on the anniversary 
date and obtaining the coverage under a rewritten policy. All new flood 
insurance policies with effective dates on or after May 1, 1997 would 
include ICC coverage, and policyholders would be charged the premium 
surcharge appropriate for their flood risk classification.
    The proposed rule would add a new section on ICC coverage in the 
SFIP. In implementing any such changes in coverage, however, insurance 
companies participating in the Write Your Own program would have the 
option of printing a new SFIP incorporating the changes in coverage for 
ICC or attaching an endorsement to the SFIP.

National Environmental Policy Act

    This proposed rule is categorically excluded from the requirements 
of 44 CFR part 10, Environmental Consideration. No environmental 
assessment has been prepared.

Executive Order 12898, Environmental Justice

     The socioeconomic conditions to this proposed rule were reviewed 
and a finding was made that no dispropor-tionately high and adverse 
effect on minority or low income populations would result from this 
proposed rule.

Executive Order 12866, Regulatory Planning and Review

    This proposed rule would not be a significant regulatory action 
within the meaning of sec. 2(f) of E.O. 12866 of September 30, 1993, 58 
FR 51735, and has not been reviewed by the Office of Management and 
Budget. Nevertheless, this proposed rule adheres to the regulatory 
principles set forth in E.O. 12866.

[[Page 49721]]

Paperwork Reduction Act

    This proposed rule does not contain a collection of information and 
is therefore not subject to the provisions of the Paperwork Reduction 
Act.

Executive Order 12612, Federalism

    This proposed rule involves no policies that have federalism 
implications under Executive Order 12612, Federalism, dated October 26, 
1987.

Executive Order 12778, Civil Justice Reform

    This proposed rule meets the applicable standards of section 
2(b)(2) of Executive Order 12778.

List of Subjects in 44 CFR Part 61

    Flood insurance.

    Accordingly, 44 CFR part 61 is proposed to be amended as follows:

PART 61--INSURANCE COVERAGE AND RATES

    1. 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.

    2. Paragraph A. 6. of Article 3 of Appendix A (1) is proposed to be 
amended to add the following phrase at the end:
* * * * *
    * * * except as provided in Coverage D--Increased Cost of 
Construction.
* * * * **
    3. A new section is proposed to be added to Article 4 of Appendix A 
(1) to read as follows:
* * * * *

Coverage D--Increased Cost of Construction Coverage (``Building Law and 
Ordinance Coverage'')

    Increased Cost of Construction coverage (Coverage D)is for the 
consequential loss brought on by a floodplain management ordinance 
or law affecting repair and reconstruction involving elevation, 
relocation, retrofitting, or demolition of a structure (or any 
combination), after a direct loss caused by a ``flood'' as defined 
by this policy.
    The limit of liability under this Coverage D (Increased Cost of 
Construction) will not exceed $15,000. This coverage is only 
applicable to policies with building coverage (Coverage A) and is in 
addition to the Building limit you selected on your application, and 
appears on the Declaration Page. No separate deductible applies. The 
maximum amount collectible under this policy for both Coverage A 
(Building Property) and Coverage D (Increased Cost of Construction) 
cannot exceed the maximum permitted under the Act.

Eligibility

    A structure covered under Coverage A--Dwelling sustaining a loss 
caused by a ``flood'' as defined by this policy must:
    1. Be a structure that is a repetitive loss structure. A 
``repetitive loss structure'' means a structure, covered by a 
contract for flood insurance issued pursuant to the Act, that has 
incurred flood-related damage on 2 occasions during a 10-year period 
ending on the date of the event for which a second claim is made, in 
which the cost of repairing the flood damage, on the average, 
equaled or exceeded 25% of the market value of the structure at the 
time of each such flood event. The National Flood Insurance Program 
must have paid the previous qualifying claim, and the State or 
community must have a cumulative flood damage provision in its flood 
plain management law or ordinance being enforced against the 
structure.
    Or
    2. have had flood damage in which the cost to repair equals or 
exceeds 50% of the market value of the structure at the time of the 
flood event.
    This policy will not pay for Increased Cost of Construction to 
meet State or local floodplain management laws or ordinances which 
exceed the minimum criteria at 44 CFR 60.3, except as provided in 
No. 1 above.

Conditions

    1. When a structure covered under Coverage A--Dwelling sustains 
a loss caused by a ``flood'' as defined by this policy, our payment 
for the loss will be based on:
    (a) The increased cost to repair, retrofit, relocate, or 
otherwise alter the building caused by enforcement of current State 
or local floodplain management ordinances or laws;
    (b) The cost to demolish and clear the site of the building or a 
portion thereof caused by enforcement of current State or local 
floodplain management ordinances or laws. Eligible activities for 
the cost of clearing the site will include those necessary to 
discontinue utility service to the site and ensure proper 
abandonment of on-site utilities.
    2. When the building is repaired or rebuilt, it must be intended 
for the same occupancy as the present building unless otherwise 
required by current floodplain management ordinance or laws.
    3. If this coverage is concurrent with other insurance covering 
the same loss, this coverage will be prorated with the other 
insurance. This coverage is primary when the other insurance is 
expressly excess insurance.

Exclusions

    Under this Coverage D (Increased Cost of Construction), we will 
not pay for:
    (1) The cost associated with enforcement of any ordinance or law 
that requires any insured or others to test for, monitor, clean up, 
remove, contain, treat, detoxify or neutralize, or in any way 
respond to, or assess the effects of pollutants. Pollutants mean any 
solid, liquid, gaseous or thermal irritant or contaminant, including 
smoke, vapor, soot, fumes, acid, alkalis, chemicals and waste. Waste 
includes materials to be recycled, reconditioned or reclaimed.
    (2) The loss in value to any covered building or other structure 
due to the requirements of any ordinance or law;
    (3) Any increased cost of construction under this Coverage D:
    (a) Until the covered building is actually demolished, repaired, 
retrofitted, or otherwise altered at the same or another premise; 
and
    (b) Unless the covered building is demolished, repaired, 
retrofitted, or otherwise altered as soon as reasonably possible 
after the loss, not to exceed two years.
    (4) Loss due to any ordinance or law that you were required to 
comply with before the current loss.
    (5) Increased cost of construction to appurtenant structure(s).
    (6) Assessments made by a condominium association on individual 
condominium unit owners to pay increased costs of repairing commonly 
owned buildings after a flood in compliance with State or local 
floodplain management ordinances or laws.

    Note: Increased Cost of Construction coverage will not be 
included in the calculation to determine whether coverage meets the 
80% insurance-to-value requirement for replacement cost coverage 
under Article 8 or for payment under Article 3.B.3 for loss from 
land subsidence, sewer backup, or seepage of water.

    All other conditions and provisions of the policy apply.
* * * * *
    4. Paragraph A.6. of Article 3 of Appendix A (2) would be amended 
to add the following phrase at the end:
* * * * *
    * * * except as provided in Coverage D-- Increased Cost of 
Construction.
* * * * *
    5. A new section would be added to Article 4 of Appendix A (2), to 
read as follows:
* * * * *

Coverage D--Increased Cost of Construction Coverage ``Building Law and 
Ordinance Coverage'')

    Increased Cost of Construction coverage (Coverage D) is for the 
consequential loss brought on by a floodplain management ordinance 
or law affecting repair and reconstruction involving elevation, 
relocation, retrofitting, or demolition of a structure (or any 
combination), after a direct loss caused by a ``flood'' as defined 
by this policy.
    The limit of liability under this Coverage D (Increased Cost of 
Construction) will not exceed $15,000. This coverage is only 
applicable to policies with building coverage (Coverage A) and is in 
addition to the Building limit you selected on your application, and 
appears on the Declaration Page. No separate deductible applies. The 
maximum amount collectible under this policy for both Coverage A 
(Building Property) and Coverage D (Increased Cost of Construction) 
cannot exceed the maximum permitted under the Act.

[[Page 49722]]

Eligibility

    A structure covered under Coverage A--Building sustaining a loss 
caused by a ``flood'' as defined by this policy must:
    1. Be a structure that is a repetitive loss structure. A 
``repetitive loss structure'' means a structure, covered by a 
contract for flood insurance issued pursuant to the Act, that has 
incurred flood-related damage on 2 occasions during a 10-year period 
ending on the date of the event for which a second claim is made, in 
which the cost of repairing the flood damage, on the average, 
equaled or exceeded 25% of the market value of the structure at the 
time of each such flood event. The National Flood Insurance Program 
must have paid the previous qualifying claim, and the State or 
community must have a cumulative flood damage provision in its flood 
plain management law or ordinance being enforced against the 
structure.
    Or
    2. Have had flood damage in which the cost to repair equals or 
exceeds 50% of the market value of the structure at the time of the 
flood event.
    This policy will not pay for Increased Cost of Construction to 
meet State or local floodplain management laws or ordinances which 
exceed the minimum criteria at 44 CFR 60.3, except as provided in 
No. 1 above.

Conditions

    1. When a structure covered under Coverage A--Building sustains 
a loss caused by a ``flood'' as defined by this policy, our payment 
for the loss will be based on:
    (a) The increased cost to repair, retrofit, relocate, or 
otherwise alter the building caused by enforcement of current State 
or local floodplain management ordinances or laws;
    (b) The cost to demolish and clear the site of the building or a 
portion thereof caused by enforcement of current State or local 
floodplain management ordinance or laws. Eligible activities for the 
cost of clearing the site will include those necessary to 
discontinue utility service to the site and ensure proper 
abandonment of on-site utilities.
    2. When the building is repaired or rebuilt, it must be intended 
for the same occupancy as the present building unless otherwise 
required by current floodplain management ordinance or laws.
    3. If this coverage is concurrent with other insurance covering 
the same loss, this coverage will be prorated with the other 
insurance. This coverage is primary when the other insurance is 
expressly excess insurance.

Exclusions

    Under this Coverage D (Increased Cost of Construction), we will 
not pay for:
    (1) The cost associated with enforcement of any ordinance or law 
which requires any insured or others to test for, monitor, clean up, 
remove, contain, treat, detoxify or neutralize, or in any way 
respond to, or assess the effects of pollutants. Pollutants mean any 
solid, liquid, gaseous or thermal irritant or contaminant, including 
smoke, vapor, soot, fumes, acid, alkalis, chemicals and waste. Waste 
includes materials to be recycled, reconditioned or reclaimed.
    (2) The loss in value to any covered building or other structure 
due to the requirements of any ordinance or law;
    (3) Any increased cost of construction under this Coverage D:
    (a) Until the covered building is actually demolished, repaired, 
retrofitted, or otherwise altered at the same or another premise; 
and
    (b) Unless the covered building is demolished, repaired, 
retrofitted, or otherwise altered as soon as reasonably possible 
after the loss, not to exceed two years.
    (4) loss due to any ordinance or law that you were required to 
comply with before the current loss.

    Note: Increased Cost of Construction coverage will not be 
included in the calculation to determine whether coverage meets the 
80% insurance-to-value requirement for payment under Article 3. B.3 
for loss from land subsidence, sewer backup, or seepage of water.

    All other conditions and provisions of the policy apply.
* * * * *
    6. Paragraph A.6. of Article 3 of Appendix A (3) would be amended 
to add to the end the following phrase:
* * * * *
    * * * except as provided in Coverage D--Increased Cost of 
Construction.
* * * * *
    7. A new section would be added to Article 4 of Appendix A (3), to 
read as follows:
* * * * *

Coverage D--Increased Cost of Construction Coverage ``Building Law and 
Ordinance Coverage'')

    Increased Cost of Construction coverage (Coverage D) is for the 
consequential loss brought on by a floodplain management ordinance 
or law affecting repair and reconstruction involving elevation, 
relocation, retrofitting, or demolition of a structure (or any 
combination), after a direct loss caused by a ``flood'' as defined 
by this policy.
    The limit of liability under this Coverage D (Increased Cost of 
Construction) will not exceed $15,000. This coverage is only 
applicable to policies with building coverage (Coverage A) and is in 
addition to the Building limit you selected on your application, and 
appears on the Declaration Page. No separate deductible applies. The 
maximum amount collectible under this policy for both Coverage A 
(Building Property) and Coverage D (Increased Cost of Construction) 
cannot exceed the maximum permitted under the Act.

Eligibility

    A structure covered under Coverage A--Building sustaining a loss 
caused by a ``flood'' as defined by this policy must:
    1. Be a structure that is a repetitive loss structure. A 
``repetitive loss structure'' means a structure, covered by a 
contract for flood insurance issued pursuant to the Act, that has 
incurred flood-related damage on 2 occasions during a 10-year period 
ending on the date of the event for which a second claim is made, in 
which the cost of repairing the flood damage, on the average, 
equaled or exceeded 25% of the market value of the structure at the 
time of each such flood event. The National Flood Insurance Program 
must have paid the previous qualifying claim, and the State or 
community must have a cumulative flood damage provision in its flood 
plain management law or ordinance being enforced against the 
structure.
    Or
    2. Have had flood damage in which the cost to repair equals or 
exceeds 50% of the market value of the structure at the time of the 
flood event.
    This policy will not pay for Increased Cost of Construction to 
meet State or local floodplain management laws or ordinances which 
exceed the minimum criteria at 44 CFR 60.3, except as provided in 
No. 1 above.

Conditions

    1. When a structure covered under Coverage A--Building sustains 
a loss caused by a ``flood'' as defined by this policy, our payment 
for the loss will be based on:
    (a) The increased cost to repair, retrofit, relocate, or 
otherwise alter the building caused by enforcement of current State 
or local floodplain management ordinances or laws;
    (b) The cost to demolish and clear the site of the building or a 
portion thereof caused by enforcement of current State or local 
floodplain management ordinance or laws. Eligible activities for the 
cost of clearing the site will include those necessary to 
discontinue utility service to the site and to ensure proper 
abandonment of on-site utilities.
    2. When the building is repaired or rebuilt, it must be intended 
for the same occupancy as the present building unless otherwise 
required by current floodplain management ordinance or laws.
    3. If this coverage is concurrent with other insurance covering 
the same loss, this coverage will be prorated with the other 
insurance. This coverage is primary when the other insurance is 
expressly excess insurance.

Exclusions

    Under this Coverage D (Increased Cost of Construction), we will 
not pay for:
    (1) The cost associated with enforcement of any ordinance or law 
that requires any insured or others to test for, monitor, clean up, 
remove, contain, treat, detoxify or neutralize, or in any way 
respond to, or assess the effects of pollutants. Pollutants mean any 
solid, liquid, gaseous or thermal irritant or contaminant, including 
smoke, vapor, soot, fumes, acid, alkalis, chemicals and waste. Waste 
includes materials to be recycled, reconditioned or reclaimed.
    (2) The loss in value to any covered building or other structure 
due to the requirements of any ordinance or law;
    (3) Any increased cost of construction under this Coverage D:
    (a) Until the covered building is actually demolished, repaired, 
retrofitted, or otherwise altered at the same or another premise; 
and

[[Page 49723]]

    (b) Unless the covered building is demolished, repaired, 
retrofitted, or otherwise altered as soon as reasonably possible 
after the loss, not to exceed two years.
    (4) Loss due to any ordinance or law that you were required to 
comply with before the current loss.

    Note: Increased Cost of Construction coverage will not be 
included in the calculation to determine whether coverage meets the 
80% replacement cost requirement under Article 9 or for payment 
under Article 3. B.3 for loss from land subsidence, sewer backup, or 
seepage of water.

    All other conditions and provisions of the policy apply.
* * * * *
(Catalog of Federal Domestic Assistance No. 83.100,``Flood 
Insurance'')

    Dated: September 12, 1996.
James L. Witt,
Director.
[FR Doc. 96-24319 Filed 9-20-96; 8:45 am]
BILLING CODE 6718-03-P