[Federal Register Volume 71, Number 198 (Friday, October 13, 2006)]
[Rules and Regulations]
[Pages 60435-60438]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-17028]


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DEPARTMENT OF HOMELAND SECURITY

Federal Emergency Management Agency

44 CFR Part 62

RIN 1660-AA41


National Flood Insurance Program; Appeal of Decisions Relating to 
Flood Insurance Claims

AGENCY: Federal Emergency Management Agency, DHS.

ACTION: Final rule.

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SUMMARY: This rule amends and finalizes the Federal Emergency 
Management Agency's (FEMA's) May 2006 interim rule establishing an 
appeals process for National Flood Insurance policyholders as required 
under section 205 of the Bunning-Bereuter-Blumenauer Flood Insurance 
Reform Act of 2004.

DATES: This final rule is effective November 13, 2006.

FOR FURTHER INFORMATION CONTACT: James Shortley, Director of Claims, 
Federal Emergency Management Agency, 500 C Street, SW., Washington, DC 
20472, (202) 646-3418 (Phone), (202) 646-2818 (facsimile), or 
[email protected] (e-mail).

SUPPLEMENTARY INFORMATION:

Background

    In the face of mounting flood losses and escalating costs of 
disaster relief to the taxpayers, the National Flood Insurance Program 
(NFIP) was established by Congress as part of the National Flood 
Insurance Act of 1968 (the Act). Pub. L. 90-448, Title XII (Aug. 1, 
1968), as amended, 42 U.S.C. 4001, et seq. The intent of the NFIP is to 
reduce future flood damage through community floodplain management 
ordinances, and to make risk-based flood insurance generally available 
for property owners. FEMA was designated by Congress to be the 
administrator of the NFIP.
    In 1983, FEMA partnered with the private insurance industry to 
expand the NFIP policy base. This partnership between FEMA and the 
private sector property insurance companies is termed the Write Your 
Own (WYO) Program.
    The WYO Program is a cooperative undertaking between the insurance 
industry and FEMA. The WYO Program allows participating property and 
casualty insurance companies to issue and service the NFIP Standard 
Flood Insurance policies (SFIPs) in their own names. FEMA also uses the 
services of contractors to process NFIP policy information from the WYO 
Companies and the agents and to service SFIPs sold directly by FEMA. 
Contractors are sometimes employed by the WYO Companies to handle and 
adjust claims.
    Section 205 of the Bunning-Bereuter-Blumenauer Flood Insurance 
Reform Act (FIRA) of 2004 (Pub. L. 108-264 (June 30, 2004), 42 U.S.C. 
4011) requires FEMA to establish by regulation a formal process for the 
appeal of decisions of flood insurance claims issued through the NFIP. 
On May 26, 2006, FEMA issued an interim rule establishing a formal 
appeals process and soliciting comments from the public. See 71 FR 
30294. The process implemented under the interim rule codifies FEMA's 
existing NFIP appeals practice and enables policyholders to formally 
appeal the decisions of any insurance agent or adjuster, or insurance 
company, or any FEMA employee or contractor with respect to their SFIP 
claims, proofs of loss, and loss estimates.
    Under the formal appeals process, FEMA will acknowledge receipt of 
a policyholder's appeal in writing and advise the policyholder if 
additional information is required in order to fully consider the 
appeal. FEMA will review the documentation submitted by the 
policyholder and conduct any necessary additional investigations. FEMA 
will then advise the policyholder and the appropriate flood insurance 
carrier of FEMA's decision regarding the appeal.

Discussion

    The Act and the SFIP authorize an insured (or policyholder) who is 
dissatisfied with an insurer's decision to deny a claim, in whole, or 
part, to file a lawsuit in Federal district court for the disallowed 
portion of the claim, or invoke the appraisal provision of the SFIP (a 
procedure to resolve disputes regarding the actual value of covered 
losses). This rule provides a formal appeals process for resolving 
flood insurance disputes prior to commencement of litigation.
    The appeals process outlined in this rule does not abolish or 
replace the right to file a lawsuit against the insurer pursuant to the 
Act (42 U.S.C. 4072), nor does it expand or change the one-year statute 
of limitation to file suit against the insurer for the disallowed 
portion of the insured's claim. To avoid potentially conflicting 
results and duplicative efforts, an insured who files suit against an 
insurer is prohibited from filing an appeal under this appeals process.
    Similarly, this appeals process is not meant to provide an insured 
with multiple contractual or administrative, pre-litigation remedies. 
Accordingly, an insured who seeks to resolve issues regarding the 
actual cash value or, if applicable, replacement cost of damaged 
property, must elect to resolve this dispute through either the 
appraisal provision in the SFIP or this appeals process. An insured 
cannot seek remedy under both processes.
    Finally, this rule does not amend or change the conditions 
necessary to recover under the SFIP. In the case of a flood loss to 
insured property, the insured must comply with the requirements set out 
in the SFIP; including, but not limited to, providing the insurer with 
prompt notice of the loss, submitting a valid proof of loss within 60 
days after the loss, cooperating with the adjuster, separating damaged 
and undamaged property so that the insurer may examine it, and 
preparing an inventory of damaged personal property. See SFIP, 44 CFR 
Part 61, App. A(1), Part 61, App. A(2), Part 61, App. A(3).
    This appeals process is available after the issuance of the 
insurer's final claim determination, which is the insurer's written 
denial, in whole or in part, of the insured's claim. Once the final 
claim determination is issued, an insured may appeal any action taken 
by the insurer, FEMA employee, FEMA contractor, insurance adjuster, or 
insurance agent. An insured must file an appeal within 60 days after 
receiving the insurer's final claim determination.

Response to Comments

    The interim rule requested public comment. FEMA received two 
written and one oral comment. A summary of the comments received, 
together with FEMA's responses, is set forth below.
    One commenter, U.S. Senator James Bunning, asked that FEMA provide 
additional information to the public during the appeals process, 
including stating the grounds for the initial denial of a claim and 
eventual resolution of any appeal; and identifying a point of contact 
for claimants so that they can speak with someone at FEMA directly. The 
Senator also recommended that FEMA provide a timeframe for issuance of 
a decision on an appeal, as well as what information and documentation 
should be included in any appeal filed.
    FEMA agrees with these comments and has amended 44 CFR 62.20 
accordingly. Specifically, FEMA agrees to provide the policyholder with 
a written acknowledgement of the receipt

[[Page 60436]]

of the appeal and include in the acknowledgement letter a point of 
contact at FEMA who can assist the policyholder with information on the 
status of his or her claim. FEMA provided more detail in this final 
rule, by listing examples of the type of information and documentation 
to be included in an appeal. FEMA also will issue a written appeal 
decision to the policyholder and insurer within 90 days from the date 
that the policyholder has submitted all required information to FEMA. 
The appeal decision will include information on the grounds for the 
initial denial of the claim and the basis for the resolution of the 
appeal. FEMA believes the addition of this information will facilitate 
the NFIP appeals process.
    FEMA will issue a bulletin to insurers and take other appropriate 
steps as part of the implementation of this rule. That bulletin will 
require that the Companies provide the denial in writing and include 
specific information as to the grounds on which the claim was denied 
initially.
    A second commenter, a representative of State Farm (a member of 
WYO), offered two comments on the interim final rule. First, that FEMA 
should consider adding language permitting appeals only after the 
policyholder has given ``management level personnel'' within the WYO 
Company an opportunity to review the policyholder's concerns in the 
case of disputes arising under a SFIP issued by a WYO Company. The 
commenter stated that such a change would encourage handling of serious 
disputes at the appropriate level within the WYO Company and should 
serve to reduce the number of appeals that must be processed by FEMA.
    While the comments are notable, FEMA has not included the language 
in this rule. FEMA agrees that there should be a management level 
review within the WYO Company of denials (in whole or in part) of which 
the policyholder is appealing. However, since each WYO Company handles 
denials differently, FEMA does not believe that it should mandate the 
level at which a denial is reviewed within individual WYO Companies. 
While FEMA believes this suggestion has merit, FEMA reserves to each 
Company the ability to conduct individual claims review process, 
including management oversight.
    State Farm also requested that FEMA require policyholders to 
commence and complete either the appraisal process provided for in the 
SFIP or the appeals process prior to seeking judicial review. The 
commenter stated that such a change should reduce total litigation 
costs under the NFIP and encourage policyholders to take advantage of 
these alternative dispute mechanisms.
    FEMA agrees it would be preferable for a policyholder to commence 
and complete either the appraisal process or the appeals process prior 
to litigation. The Act, however, expressly permits policyholders to 
file suit against the insurer and does not require a policyholder to 
exhaust available contractual or administrative remedies. See, 42 
U.S.C. 4072. Although FEMA can make contractual or administrative 
remedies, such as this appeals process, available to policyholders, 
FEMA therefore cannot require a policyholder to participate in the 
appraisal or appeal process before seeking remedy in a Federal district 
court. FEMA anticipates that having the formal appeals process in place 
will limit the number of claims brought to suit, even without making it 
a requirement prior to suit.
    In response to State Farm's comment, however, FEMA has modified the 
language in 44 CFR 62.20(e) ``Procedures,'' to add a new paragraph (2). 
This paragraph requires policyholders who have filed an appeal to 
``[p]rovide a copy of the insurer's written denial, in whole or in 
part, of the claim.'' The purpose of this modification is to further 
clarify that FEMA requires a denial of a claim in order to initiate an 
appeal. FEMA inserted the new language to ensure that a policyholder 
receives a denial from the WYO Company before the policyholder pursues 
an appeal.
    FEMA also received a comment from a private citizen who takes issue 
with the NFIP overall. That comment did not relate specifically to the 
appeals process set forth in the May 2006 interim rule and is not 
within the scope of this rulemaking. FEMA, therefore, did not consider 
that comment in the development of this final rule.

Administrative Procedure Act

    FEMA, through this final rule, is implementing changes to the 
appeals process that were not specified in the May 2006 interim rule. 
FEMA has determined that these changes are procedural in nature and do 
not alter the substantive rights of the affected parties. Therefore, 
the changes made under this final rule are exempt from the notice and 
comment rulemaking requirements under the Administrative Procedure Act 
(5 U.S.C. 553(b)(A).)

National Environmental Policy Act

    This rule falls within the exclusion category 44 CFR 
10.8(d)(2)(ii), which addresses the preparation, revision, and adoption 
of regulations, directives, and other guidance documents related to 
actions that qualify for categorical exclusions. Since this is an 
administrative action that qualifies for the exclusion category 
described in 44 CFR 10.8(d)(2)(ii) and because no other extraordinary 
circumstances have been identified, this rule will not require the 
preparation of either an environmental assessment or environmental 
impact statement as defined by the National Environmental Policy Act.

Executive Order 12866, Regulatory Planning and Review

    FEMA has prepared and reviewed this rule under the provisions of 
Executive Order 12866, Regulatory Planning and Review. Under Executive 
Order 12866, 58 FR 51735, October 4, 1993, a significant regulatory 
action is subject to Office of Management and Budget (OMB) review and 
the requirements of the Executive Order. The Executive Order defines 
``significant regulatory action'' as one that is likely to result in a 
rule that may:
    (1) Have an annual effect on the economy of $100 million or more or 
adversely affect in a material way the economy, a sector of the 
economy, productivity, competition, jobs, the environment, public 
health or safety, or State, local, or tribal governments or 
communities;
    (2) Create a serious inconsistency or otherwise interfere with an 
action taken or planned by another agency;
    (3) Materially alter the budgetary impact of entitlements, grants, 
user fees, or loan programs or the rights and obligations of recipients 
thereof; or
    (4) Raise novel legal or policy issues arising out of legal 
mandates, the President's priorities or the principles set forth in the 
Executive Order.
    This final rule has been determined to not be a significant 
regulatory action under Executive Order 12866 and therefore has not 
been reviewed by the Office of Management and Budget.

Paperwork Reduction Act

    This rule contains information collection requirements subject to 
the Paperwork Reduction Act of 1995. Under the Paperwork Reduction Act, 
a person may not be penalized for failing to comply with an information 
collection that does not display a currently valid OMB control number.
    FEMA, as part of its continuing effort to reduce paperwork and 
respondent burden, invites the general public and other Federal 
agencies to take this opportunity to comment on a proposed extension of 
a currently approved collection. In accordance with the Paperwork 
Reduction Act of 1995, this notice seeks comments concerning a

[[Page 60437]]

formal appeals process to allow policyholders to request an appeal for 
an unsatisfactory decision on their flood insurance claims.
    Section 205 of FIRA of 2004 requires FEMA to establish by 
regulation a formal process for the appeal of decisions of flood 
insurance claims issued through the NFIP. The appeals process is 
available after the issuance of the insurer's final claim 
determination, which is the insurers' written denial, in whole or in 
part, of the insured claim. An insured must file an appeal within 60 
days after receiving the insurer's final claim determination.
    Title: National Flood Insurance Claims Appeal Process.
    Type of Information Collection: Extension of a currently approved 
collection.
    OMB Number: 1660-0095.
    Forms: Forms are not used in the appeals process, but rather the 
policyholder will provide a letter requesting an appeal and any 
supporting documentation.
    Abstract: This information collection implements the mandates of 
section 205 of FIRA of 2004 to establish an appeals process for NFIP 
policyholders in cases of unsatisfactory decisions on SFIP claims. The 
policy, proof of loss, loss estimates, photographs, and any other 
supporting documentation will be reviewed by the Director of Claims, 
and claims examiners, to determine if the policyholder/claimant is 
entitled to additional remedies for his or her loss.
    Affected Public: Individuals or households and business or other 
for profit.

                                               Annual Burden Hours
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                                                                   Burden  hours
 Information collection activity     Number of     Frequency of         per           Annual       Total annual
                                    respondents      responses      respondent       responses     burden hours
                                             (A)             (B)             (C)   (D) = (A x B)   (E) = (C x D)
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Appeal Letter...................           2,000               1               2           2,000           4,000
                                 -------------------------------------------------------------------------------
    Total.......................           2,000               1               2           2,000           4,000
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    It is estimated that, in a typical year, the number of claims 
received will be approximately 68,000. However, considering the impact 
of Hurricanes Katrina, Rita, and Wilma on the number of claims 
received, the program has estimated that approximately 2,000 
respondents per year will file an appeal, each spending an average of 
two hours drafting the appeals letter and collecting the required 
information.
    Comments: Written comments are solicited to (a) evaluate whether 
the proposed data collection is necessary for the proper performance of 
the agency, including whether the information shall have practical 
utility; (b) evaluate the accuracy of the agency's estimate of the 
burden of the proposed collection of information, including the 
validity of the methodology and assumptions used; (c) enhance the 
quality, utility, and clarity of the information to be collected; 
and(d) minimize the burden of the collection of information on those 
who are to respond, including through the use of appropriate automated, 
electronic, mechanical, or other technological collection techniques or 
other forms of information technology, e.g., permitting electronic 
submission of responses. Comments must be submitted on or before 
November 6, 2006.
    Interested persons should submit written comments to Chief, Records 
Management and Privacy, Information Resources Management Branch, 
Information Technology Services Division, Federal Emergency Management 
Agency, 500 C Street, SW., Room 316, Washington, DC 20472.

Executive Order 13175, Indian Tribal Governments

    This rule does not have tribal implications under Executive Order 
13175, Consultation and Coordination with Indian Tribal Governments, 
because it does not have a substantial direct effect on one or more 
Indian tribes, on the relationship between the Federal Government and 
Indian tribes, or on the distinction of power and responsibilities 
between the Federal Government and Indian tribes. It does not have a 
substantial direct effect because the rule does not make distinctions 
of where the property insured is located, the rule will apply uniformly 
to all policyholders regardless if they live on or off Tribal lands.

Executive Order 13132, Federalism

    Executive Order 13132, Federalism, dated August 4, 1999, sets forth 
principles and criteria that agencies must adhere to in formulating and 
implementing policies that have federalism implications, that is, 
regulations that have substantial direct effects on the States, or on 
the distribution of power and responsibilities among the various levels 
of government. Federal agencies must closely examine the statutory 
authority supporting any action that would limit the policymaking 
discretion of the States, and to the extent practicable, must consult 
with State and local officials before implementing any such action.
    FEMA has reviewed this rule under Executive Order 13132 and has 
concluded the rule does not have federalism implications as defined by 
the Executive Order. FEMA has determined the rule does not 
significantly affect the rights, roles, and responsibilities of States, 
and involves no preemption of State law nor does it limit State 
policymaking discretion.

Executive Order 12898 and 12948, Environmental Justice

    Under Executive Orders 12898 and 12948, respectively, ``Federal 
Actions to Address Environmental Justice in Minority Populations and 
Low-Income Populations,'' FEMA incorporates environmental justice into 
our policies and programs. Executive Order 12898 requires each Federal 
agency to conduct its programs, policies and activities that 
substantially affect human health or the environment in a manner that 
ensures those programs, policies and activities do not have the effect 
of excluding persons from participation in, denying persons the 
benefits of, or subjecting persons to discrimination because of their 
race, color, or national origin. Executive Order 12898 also requires 
that each Federal Agency shall identify and address as appropriate, 
disproportionately high and adverse human health or environmental 
effects of its programs, policies, and activities on minority 
populations and low-income populations.

[[Page 60438]]

    FEMA does not anticipate that actions under the rule would have a 
disproportionately high and adverse human health effect on any segment 
of the population. FEMA has determined that the requirements of these 
Executive Orders do not apply to this rule.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) mandates that an agency 
conduct an RFA analysis when an agency is ``required by section 553 * * 
*, or any other law, to publish general notice of proposed rulemaking 
for any proposed rule, or publishes a notice of proposed rulemaking for 
interpretative rule involving the internal revenue laws of the United 
States * * *.'' 5 U.S.C. 603(a). RFA analysis is not required when a 
rule is exempt from notice and comment rulemaking under 5 U.S.C. 
553(b). As discussed in the interim rule, because a notice of proposed 
rulemaking was not required under the Administrative Procedure Act (5 
U.S.C. 553), FEMA was not required to conduct an RFA analysis for the 
interim rule or this final rule under 5 U.S.C. 603.

Executive Order 12988

    This final rule meets the applicable standards of Executive Order 
12988.

List of Subjects in 44 CFR Part 62

    Flood insurance.


0
Accordingly, the interim final rule amending 44 CFR part 62 of FEMA's 
regulations, which was published at 71 FR 30294, May 26, 2006 is 
adopted as a final rule with certain changes as discussed above and set 
forth as follows:

PART 62--SALE OF INSURANCE AND ADJUSTMENT OF CLAIMS

0
1. The authority citation for part 62 continues to read as follows:

    Authority: 42 U.S.C. 4001 et seq.; Reorganization Plan No. 3 of 
1978, 43 FR 41943, 3 CFR, 1978 Comp., p. 329; E.O. 12127 of Mar. 31, 
1979, 44 FR 19367, 3 CFR, 1979 Comp., p. 376.

0
2. Revise paragraphs (e)(2) through (e)(4), (f)(1), and (f)(3) to Sec.  
62.20 to read as follows:


Sec.  62.20  Claims appeals.

* * * * *
    (e) * * *
    (2) Provide a copy of the insurer's written denial, in whole or in 
part, of the claim;
    (3) Identify relevant policy and claim information and state the 
basis for the appeal; and
    (4) Submit relevant documentation to support the appeal. The 
policyholder should submit only the documentation that pertains to his 
or her claim. The following are examples of the kinds of documentation 
which FEMA will require to adjudicate the appeal: A copy of the proof 
of loss submitted to the insurer as required in the policy; room by 
room itemized estimates from the adjuster (includes contractors' 
estimates), detailing unit cost and quantities for the items needing 
repair or replacement; replacement cost proofs of loss; Preliminary 
Report; Final Report; detailed damaged personal property inventories 
that include the approximate age of the items; completed Mobile Home 
Worksheet; Mobile Home Title, including Salvage Titles; real estate 
appraisals that exclude land values; advance payment information; clear 
photographs (exterior and interior) confirming damage resulted from 
direct physical loss by or from flood; proof of prior repair; evidence 
of insurance and policy information , i.e. declarations page; Elevation 
Certificate, if the risk is an elevated building; the community's 
determination made concerning substantial damage; information regarding 
substantial improvement; zone determinations; pre-loss and post-loss 
inventories; financial statements; tax records, lease agreements, sales 
contracts, settlement papers, deed, etc.; emergency (911) address 
change information; salvage information (proceeds and sales); 
condominium association by-laws; proof of other insurance, including 
homeowners or wind policies and any claim information submitted to the 
other companies; Waiver, Letter of Map Revision (LOMR) or Letter of Map 
Amendment (LOMA) information; paid receipts and invoices including 
cancelled checks that support an insured's out-of-pocket expenses 
pertaining to the claim; underwriting decisions; architectural plans 
and drawings; death certificates; a copy of the will; divorce decree, 
power of attorney; current lienholder information; current loss payee 
information; paid receipts and invoices documenting damaged stock; 
detailed engineering reports specifically addressing flood-related 
damage and pre-existing damage; engineering surveys; market values; 
documentation of Flood Insurance Rate Maps (FIRM) dates; documentation 
reflecting date(s) of construction and substantial improvement; loan 
documents including closings; evidence of insurability as a Residential 
Condominium Association; Franchise Agreements; letters of 
representation, i.e. attorneys and public adjusters; any assignment of 
interest in a claim; and, any other pertinent information which FEMA 
may request in processing a claim.
    (f) * * *
    (1) FEMA will acknowledge, in writing, receipt of a policyholder's 
appeal and include in the acknowledgement contact information for a 
FEMA point of contact who can advise the policyholder as to the status 
of his or her claim.
* * * * *
    (3) The Administrator will review the appeal documents, including 
any reinspection report, if appropriate. The Administrator will provide 
specific information on what grounds the claim was denied initially. 
The Administrator will provide an appeal decision in writing to the 
policyholder and insurer within 90 days from the date that all 
information has been submitted by the policyholder and include specific 
information for the resolution of the appeal. No further administrative 
review will be provided to the insured.
* * * * *

    Dated: October 6, 2006.
R. David Paulison,
Under Secretary for Federal Emergency Management and Director of FEMA.
 [FR Doc. E6-17028 Filed 10-12-06; 8:45 am]
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