[Federal Register Volume 65, Number 124 (Tuesday, June 27, 2000)]
[Rules and Regulations]
[Pages 39726-39758]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-16043]



[[Page 39725]]

-----------------------------------------------------------------------

Part IV





Federal Emergency Management Agency





-----------------------------------------------------------------------



44 CFR Parts 59 and 61



National Flood Insurance Program (NFIP); Inspection of Insured 
Structures by Communities; Final Rule

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

[[Page 39726]]


-----------------------------------------------------------------------

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) [email protected], or Lois 
Forster, Federal Emergency Management Agency, Mitigation Directorate, 
202-646-2720, (facsimile) 202-646-2577, (email) [email protected]. 
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

[[Page 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 flood-related 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,

[[Page 39728]]

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 storm-induced 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.

[[Page 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

[[Page 39730]]

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 post-flood 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 non-breakaway 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

[[Page 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 non-residential 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 non-residential 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

[[Page 39732]]

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 non-residential 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

[[Page 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 pre-FIRM 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 non-compliant 
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

[[Page 39734]]

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

[[Page 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 non-renewal 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.

[[Page 39736]]

    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

[[Page 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 federally-backed 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.

[[Page 39738]]

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 post-FIRM 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 non-compliant.
    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 non-insured 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 post-FIRM 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 post-FIRM 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.

[[Page 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 non-insured 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

[[Page 39740]]

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 e-mail 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

[[Page 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

[[Page 39742]]

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

[[Page 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 low-income 
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

[[Page 39744]]

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 ground-level 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 low-income population living in 
these enclosures may not be able to financially compete for available 
housing in the County. As a result, low-income 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 several-year 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

[[Page 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 non-
conforming 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 non-conforming 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

[[Page 39746]]

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 low-income 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

[[Page 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 State-
mandated 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

[[Page 39748]]

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 
Sec. 59.30, to read as follows:

Subpart C--Pilot Inspection Program


Sec. 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 pre-FIRM 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 
Sec. 60.3 for all new construction and substantial improvements within 
the community's

[[Page 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

[[Page 39750]]

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

[[Page 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

[[Page 39752]]

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

[[Page 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.

[[Page 39754]]

    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

[[Page 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;

[[Page 39756]]

    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

[[Page 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.

[[Page 39758]]

    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