[Federal Register Volume 89, Number 25 (Tuesday, February 6, 2024)]
[Proposed Rules]
[Pages 8282-8327]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-02204]



[[Page 8281]]

Vol. 89

Tuesday,

No. 25

February 6, 2024

Part II





Department of Homeland Security





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 Federal Emergency Management Agency





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44 CFR Part 61





National Flood Insurance Program: Standard Flood Insurance Policy, 
Homeowner Flood Form; Proposed Rule

  Federal Register / Vol. 89 , No. 25 / Tuesday, February 6, 2024 / 
Proposed Rules  

[[Page 8282]]


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DEPARTMENT OF HOMELAND SECURITY

Federal Emergency Management Agency

44 CFR Part 61

[Docket ID FEMA-2024-0004]
RIN 1660-AB06


National Flood Insurance Program: Standard Flood Insurance 
Policy, Homeowner Flood Form

AGENCY: Federal Emergency Management Agency, DHS.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The National Flood Insurance Program (NFIP), established 
pursuant to the National Flood Insurance Act of 1968, is a voluntary 
program in which participating communities adopt and enforce a set of 
minimum floodplain management requirements to reduce future flood 
damages. Property owners within participating communities are eligible 
to purchase NFIP flood insurance. This proposed rule would revise the 
Standard Flood Insurance Policy by adding a new Homeowner Flood Form 
and five accompanying endorsements. The new Homeowner Flood Form would 
replace the Dwelling Form as a source of coverage for homeowners of 
one-to-four family residences. Together, the new Homeowner Flood Form 
and endorsements would more closely align with property and casualty 
homeowners insurance and provide increased options and coverage in a 
more user-friendly and comprehensible format.

DATES: Comments must be received on or before April 8, 2024.

ADDRESSES: You may submit comments, identified by Docket ID FEMA-2024-
0004, via the Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.

FOR FURTHER INFORMATION CONTACT: Kelly Bronowicz, Product and Policy 
Development Division Director, Federal Insurance Directorate, 
Resilience, (202) 646-2559, [email protected].

SUPPLEMENTARY INFORMATION: 

I. Public Participation

    Interested persons are invited to participate in this rulemaking by 
submitting comments and related materials. We will consider all 
comments and material received during the comment period.
    If you submit a comment, include the Docket ID FEMA-2024-0004, 
indicate the specific section of this document to which each comment 
applies, and give the reason for each comment. All submissions may be 
posted, without change, to the Federal e-Rulemaking Portal at http://www.regulations.gov, and will include any personal information you 
provide. Therefore, submitting this information makes it public. For 
more information about privacy and the docket, visit https://www.regulations.gov/document?D=DHS-2018-0029-0001.
    Viewing comments and documents: For access to the docket to read 
background documents or comments received, go to the Federal e-
Rulemaking Portal at http://www.regulations.gov.

II. Executive Summary

    The United States is experiencing increased flooding and flood risk 
from climate change.\1\ In a recent study, researchers found that 
changes in precipitation contributed to one-third of the flooding 
financial costs in the United States over the past three decades, 
totaling almost $75 billion of the estimated $199 billion in flood 
damages from 1988 to 2017.\2\ Intensifying precipitation associated 
with climate change, and the associated increases in precipitation 
extremes and flooding, thus presents a significant financial risk to 
homeowners.\3\
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    \1\ Climate change means that flood events are on the rise. 
Climate change is increasing flood risk through (1) more ``extreme'' 
rainfall events, caused by a warmer atmosphere holding more water 
vapor and changes in regional precipitation patterns; and (2) sea-
level rise. See Rob Bailey, Claudio Saffioti, and Sumer Drall, Sunk 
Costs: The Socioeconomic Impacts of Flooding 3 and 8, MarshMcLennan 
(2021), found at https://www.marshmclennan.com/content/dam/mmc-web/insights/publications/2021/june/Sunk-Cost_Socioeconomic-impacts-of-flooding_vF.pdf (last accessed Aug. 28, 2023).
    \2\ Frances V. Davenport, Marshall Burke, and Noah S. 
Diffenbaugh, Contribution of historical precipitation change to US 
flood damages, Proceedings of the National Academy of Sciences of 
the United States of America, Jan. 2021, 118 (4) e2017524118; DOI: 
10.1073/pnas.2017524118, found at https://www.pnas.org/content/118/4/e2017524118 (last accessed Aug. 28, 2023).
    \3\ See also Don Jergler, ``Climate Change Could Push Flood 
Losses in U.S. to $40B by 2050,'' Insurance Journal (Feb. 17, 2022), 
found at https://www.insurancejournal.com/news/national/2022/02/17/654831.htm (last accessed Aug. 28, 2023) (noting annual flood losses 
forecasted to increase by 26.4% from $32B to $40.6B).
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    There are four main ways to manage any risk: (1) acceptance; (2) 
avoidance; (3) mitigation; and (4) transference. Flood risk is a 
reality. No home is completely safe from potential flooding. Just one 
inch of flood water in a home can cost more than $25,000 in damage.\4\ 
Homeowners must accept that the risk of flooding is increasing and with 
it, the potential for damage to their property. Homeowners can seek to 
reduce risk by building or purchasing homes away from natural flood 
hazards and can seek to mitigate risk by building or modifying homes to 
reduce potential damage from flooding. Homeowners can also transfer the 
risk by purchasing flood insurance.\5\
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    \4\ See http://www.floodsmart.gov/flood-insurance/why (last 
accessed Aug. 28, 2023).
    \5\ Flood insurance is one risk management tool. ``Governments 
tend to spend significantly more on disaster response than disaster 
prevention.'' Rob Bailey, Claudio Saffioti & Sumer Drall, Sunk 
Costs: The Socioeconomic Impacts of Flooding 9, MarshMcLennan 
(2021), found at https://www.marshmclennan.com/content/dam/mmc-web/insights/publications/2021/june/Sunk-Cost_Socioeconomic-impacts-of-flooding_vF.pdf (last accessed Aug. 28, 2023).
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    Congress created the National Flood Insurance Program (NFIP) in 
1968 to help share the risk of flood losses through an insurance 
program to provide flood insurance coverage to those who need such 
protection.\6\ In the context of risk, the NFIP helps communities avoid 
and mitigate flood risk through adoption of floodplain management 
ordinances and helps policyholders transfer flood risk to the Federal 
Government.
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    \6\ See 42 U.S.C. 4001(a).
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    Over the past five decades, the NFIP has been implemented primarily 
by FEMA (the ``Agency'') to provide insurance to reduce the economic 
impact of floods.\7\ The Agency seeks to update the current Standard 
Flood Insurance Policy (SFIP) Dwelling Form to better serve a growing 
percentage of the public looking for ways to manage their risk through 
insurance, as they are now threatened by the increased risk of 
flooding. Most homeowners do not have flood insurance. Some homeowners 
are required to purchase flood insurance as a condition of any federal 
financial assistance for acquisition or construction of buildings in 
the special flood hazard area (SFHA) (e.g., mortgages, flood disaster 
grants) or as a condition of a loan secured by property in the SFHA 
while some homeowners choose to purchase it of their own volition. The 
decision to purchase flood insurance is frequently driven by whether 
they are subject to the mandatory purchase requirement rather than the 
actual flood risk to the property. Homeowners generally find it 
difficult to understand low probability/high impact risks such as flood 
damage to their property.\8\ If purchasing flood

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insurance is not mandatory, then homeowners may not be convinced that 
they should purchase it. Given the cost of customer acquisition is 
high, private insurance companies generally are not focused on 
homeowners that are not required to purchase flood insurance.\9\
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    \7\ From 1968 to 1979, the Department of Housing and Urban 
Development housed the Federal Insurance Administration, which 
administered the NFIP until its transfer to FEMA in Executive Order 
12127, 44 FR 19367, 3 CFR, 1979 Comp., p. 376.
    \8\ See Peter John Robinson, W.J. Wouter Botzen, Howard 
Kunreuther, Shereen J. Chaudhry, Default Options and Insurance 
Demand, Journal of Economic Behavior and Organization at 2 (2020), 
found at https://www.sciencedirect.com/science/article/pii/S0167268120304765 (last accessed Aug. 28, 2023). See also Rachel 
Cleetus Overwhelming Risk: Rethinking Flood Insurance in a World of 
Rising Seas, found at https://www.ucsusa.org/sites/default/files/2019-09/Overwhelming-Risk-Full-Report.pdf (last accessed Aug. 28, 
2023) at 9: ``In the wake of Sandy, it was estimated that only 15 to 
25 percent of at-risk properties in Special Flood Hazard Areas 
(SFHAs) in the Northeast were insured for flood losses. Many coastal 
property owners do not carry adequate insurance or are simply not 
insured at all. It is estimated that, nationally, only 18 percent of 
households in flood zone areas, which include inland (lakeside and 
riverside) and coastal areas, have flood insurance.''
    \9\ See Rob Bailey, Claudio Saffioti & Sumer Drall, Sunk Costs: 
The Socioeconomic Impacts of Flooding 24, MarshMcLennan (2021), 
found at https://www.marshmclennan.com/content/dam/mmc-web/insights/publications/2021/june/Sunk-Cost_Socioeconomic-impacts-of-flooding_vF.pdf (last viewed accessed May 2, 2022Aug. 28, 2023). See 
also Noelwah R. Netusil, Carolyn Kousky, Shulav Neupane, Will Daniel 
& Howard Kunreuther, The Willingness to Pay for Flood Insurance at 
33. ``Among those who can afford a policy, they may not feel it 
provides value--that it is not `worth it'--if they fail to 
understand the role of insurance in their recovery, have challenges 
in assessing low probability events, or the policy terms do not meet 
their need,'' found at https://le.uwpress.org/content/wple/97/1/17.full.pdf (last accessed Aug. 28, 2023). See also Tom Hammond 
Lowering Costs of Customer Acquisition found at https://www.insurancethoughtleadership.com/customer-experience/lowering-costs-customer-acquisition (last accessed Aug. 28, 2023); Becky 
Yerak Direct insurers paying less to attract customers, found at 
https://www.chicagotribune.com/business/ct-customer-acquisition-costs-0515-biz-20150515-story.html (last accessed Aug. 28, 2023); 
How to Lower Customer Acquisition Cost in the Insurance Industry 
found at https://www.amsive.com/2021/09/14/how-to-lower-customer-acquisition-cost-in-the-insurance-industry-amsive/ (last accessed 
Aug. 28, 2023); and Insurtechs Need to Ace Customer Acquisition Cost 
(CAC) Optimization found at https://rintupatnaik.medium.com/insurtechs-need-to-ace-customer-acquisition-cost-cac-optimization-b695bc45bf7b (last accessed Aug. 28, 2023).
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    FEMA has not substantively updated its flood insurance products--
the Dwelling Form, the General Property Form, and the Residential 
Condominium Building Association Policy (RCBAP)--since 2000. While 
these products have performed ably over two decades of service, they 
are overdue for revision. Consistent with the National Flood Insurance 
Act (NFIA) of 1968, FEMA must provide by regulation the general terms 
and conditions of insurability for properties eligible for flood 
insurance coverage. 42 U.S.C. 4013(a). Further, Executive Order 13563, 
``Improving Regulation and Regulatory Review,'' requires agencies to 
complete retrospective analyses of existing rules and periodically 
review existing significant regulations to determine whether they 
should be modified, streamlined, expanded, or repealed to better 
achieve the Agency's regulatory objective. 76 FR 3821 (Jan. 21, 2011). 
FEMA seeks to make these revisions consistent with the requirements 
under the NFIA and Executive Order 13563. The proposed new Homeowner 
Flood Form would update the general terms and conditions of 
insurability under the NFIP while also modifying the existing 
regulations and policy to make the program more effective and less 
burdensome for homeowner policyholders as explained below. 
Additionally, consistent with Executive Order 14058, ``Transforming 
Federal Customer Experience and Service Delivery to Rebuild Trust in 
Government,'' \10\ FEMA seeks to improve the homeowner policyholder 
experience with the NFIP through the proposed Homeowner Flood Form, by 
simplifying coverage terms, reducing complexity, and resolving key 
challenges faced by homeowner policyholders.
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    \10\ 86 FR 71357 (Dec. 16, 2021).
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    The proposed new Homeowner Flood Form provides a more personalized, 
customizable product than the NFIP has ever offered during its more 
than 50 years in existence. Currently, the Dwelling Form serves 
homeowners, renters, landlords, mobile homeowners, and condo unit 
owners all in a single policy. The Dwelling Form also includes 
different coverage terms for certain buildings constructed, or 
substantially damaged or improved, on or after the effective date of 
the community's initial Flood Insurance Rate Map (generally referred to 
as ``post-FIRM buildings'') in an attempt to capture all possibilities. 
The current structure results in confusion for the homeowner 
policyholders looking for the specific coverage that applies directly 
to their situation, and imposes a series of choices onto consumers 
without offering an ability to change them.
    The proposed new Homeowner Flood Form offers more choices to 
policyholders who own their own homes,\11\ which help inform 
policyholders and prospective policyholders of increased risk of 
flooding and flood damage, and how best to cover their property as a 
result. The proposed new Homeowner Flood Form offers enhanced 
comprehensive default coverages. For example, while much of the default 
coverage proposed would mirror existing default coverage in the 
Dwelling Form, FEMA is proposing to shift the default loss settlement 
from actual cash value to replacement cost value to help policyholders 
more effectively and more fully recover from loss. These decisions FEMA 
made in setting coverage defaults (1) nudge homeowner policyholders 
toward the more appropriate coverage to insure against their risk, and 
(2) represent FEMA's strategic objective of positioning individuals to 
understand their risk and take well-informed actions.\12\ This 
rulemaking also proposes new endorsements for additional coverages that 
homeowner policyholders may want in order to recover from flood events. 
A homeowner policyholder may want to expand their coverage and 
therefore increase their policy's flood risk exposure (i.e., purchase 
the basement coverage endorsement) even if it means they will pay more 
for the additional coverage, or they may wish to reduce their premium 
(i.e., purchase the actual cash value endorsement) even if it means 
they stand to receive a smaller benefit post-loss. Until now, homeowner 
policyholders have been unable to make any personalized selections. 
FEMA is introducing choices consumers can make in several ways, through 
the use of endorsements that modify coverage. These choices will help 
homeowner policyholders learn about their coverages prior to loss.
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    \11\ The proposed Homeowner Flood Form would be offered to 
individuals owning a one-to-four family residential building. FEMA 
will evaluate any changes needed to forms for other types of 
policyholders (e.g., other residential and commercial) based on 
public comment associated with this rulemaking.
    \12\ FEMA, 2022-2026 FEMA Strategic Plan, found at https://www.fema.gov/about/strategic-plan (last accessed Aug. 28, 2023).
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    The proposed new Homeowner Flood Form does not presuppose that 
homeowner policyholders are knowledgeable about floodplain management 
and flood risk. By changing coverage based on pre- or post-FIRM status, 
and by having certain terms only apply to certain zones, the Dwelling 
Form presupposes a level of homeowner policyholder floodplain 
management and flood risk knowledge. Unlike in the Dwelling Form, FEMA 
is not proposing to change coverage if the building covered is not a 
primary or principal residence, or if it is pre- or post-FIRM, or for 
any other reason. Ultimately, flood insurance coverage under the 
proposed new Homeowner Flood Form is there to help the homeowner 
policyholder recover. The premiums tied to the coverage choices 
homeowner policyholders make would

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signal the underlying risk and prompt mitigation efforts.
    The proposed new Homeowner Flood Form adds directly into the policy 
terms flexibilities the Agency has had to implement via bulletin or 
other means, such as special procedures during catastrophic flood 
events and advance payments. These changes would help homeowner 
policyholders better understand the options available to them and learn 
about special procedures under the policy up front, rather than making 
them wait to find out via a bulletin after a flood event.
    The proposed new Homeowner Flood Form also allows for a single 
deductible rather than multiple deductibles, reducing unnecessary 
administrative burdens for the homeowner policyholder. Additionally, 
the proposed new Homeowner Flood Form would provide FEMA with greater 
flexibility in implementing the flood insurance program. The proposed 
new Homeowner Flood Form removes unnecessary provisions of the current 
Dwelling Form policy, reducing the reliance on lists and pushing 
certain provisions to the declarations page for clarity. The insurance 
industry recognizes that many policyholders will not read their 
insurance policy \13\ and has endeavored to put critical information 
onto the declarations page to increase policyholder understanding of 
what is and is not covered. In the context of the NFIP, policyholders 
with basements continue to be surprised that under the current Dwelling 
Form, the policy provides limited coverage in a basement. Under the 
proposed new Homeowner Flood Form, the declarations page would include 
language along the lines that ``This property includes a basement. The 
Homeowner Flood Form provides limited coverage in a basement.'' This 
upfront tailoring of the policy to suit the homeowner policyholder's 
choices and the placement of critical information on the declarations 
page would reduce the administrative sludge a homeowner policyholder 
faces during the claims process. Homeowner policyholders would better 
understand the coverages they have selected, information would be 
easily accessible on their declarations page, and their claims should 
reflect a better understanding of their coverages. This better 
understanding of their coverages should result in fewer denials, faster 
claims payments, and an improved customer experience during a difficult 
time.
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    \13\ See Louise Castoria, ``Is there a duty to read insurance 
contracts?'' available at https://www.propertycasualty360.com/2019/11/07/is-there-a-duty-to-read-insurance-contracts/ (last accessed on 
Aug. 28, 2023).
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    By making these changes and updating coverage, FEMA seeks to 
address the increased risk of flooding from climate change in several 
ways. These ways include (1) re-baselining the market, (2) introducing 
optionality, (3) creating market buzz, (4) creating the opportunity to 
build back in more resilient ways to reduce future flood risk post-
loss, and (5) revamping increased cost of compliance coverage. First, 
the proposed rule would reset the market. Currently the existing and 
small private market for flood insurance sets the Dwelling Form as a 
baseline level of coverage. By revising the coverage in the proposed 
Homeowner Form, FEMA would drive the market in the right direction to 
ensure that homeowner policyholders are able to effectively transfer 
their flood risk. By increasing coverage, people are able to recover 
faster so that the last flood does not leave them more vulnerable to 
the next flood.\14\
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    \14\ See Rob Bailey, Claudio Saffioti & Sumer Drall, Sunk Costs: 
The Socioeconomic Impacts of Flooding 3, MarshMcLennan (2021), found 
at https://www.marshmclennan.com/content/dam/mmc-web/insights/publications/2021/june/Sunk-Cost_Socioeconomic-impacts-of-flooding_vF.pdf (last accessed Aug. 28, 2023).
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    Second, FEMA has utilized the ``one size fits all'' coverage for 
policyholders for 50 years. The proposed Homeowner Form seeks to 
address specific needs of specific homeowner policyholders through the 
choices being made available. FEMA proposes to increase optionality and 
require homeowners to assess their own risks, communicating those risks 
through coverage options and the costs associated with them.
    Third, FEMA also anticipates that the changes in the proposed 
Homeowner Form would generate more interest in flood insurance as the 
last update occurred over 20 years ago. This interest could include 
insurance agents, for whom it will be easier to learn about flood 
insurance coverage. The proposed Homeowner Form would make flood 
insurance align more with other insurance products and thus more 
accessible to agents, who may then seek to sell more flood insurance as 
they better see the value of coverage for their clients.
    Fourth, FEMA proposes to create the opportunity to build more 
resiliently by introducing provisions in its loss settlement clause 
that would enable homeowner policyholders to replace their damaged 
building elements with flood damage resistant materials. In addition, 
these same provisions would enable homeowner policyholders to elevate 
flood damaged machinery and equipment to reduce the likelihood of 
future flood damage.
    Finally, FEMA proposes to revamp its increased cost of compliance 
(ICC) provision. Previously, ICC appeared in the Dwelling Form as 
Coverage D, and its inclusion there was incongruous with the other 
coverages because it set out an eligibility framework and specifically 
listed out all the covered and uncovered compliance activities. FEMA 
proposes to simplify ICC so homeowner policyholders can better 
understand their ICC coverage, adjusters can more easily advise 
homeowner policyholders to consult their local floodplain management 
requirements, and local floodplain managers have appropriate 
discretion.
    What follows below is an overview of the major changes in each 
section in the proposed Homeowner Flood Form as well as an analysis of 
the degree of change compared to the Dwelling Form. A detailed 
description of the changes is found later in this preamble.
    Section I: Insuring Agreement. This section proposes a low level of 
change from the current Dwelling Form. It would simplify the language 
and organization of the global aspects of the Form, and replace 
references to Federal laws (e.g., the Coastal Barrier Resources Act and 
section 1316 of the NFIA) with a broader statement about conflicts with 
Federal law.
    Section II: Definitions. This section proposes a moderate to high 
level of change from the current Dwelling Form. It would eliminate 
definitions for words only used once within the policy that are 
currently defined in the Dwelling Form; refine definitions for 
simplicity and clarity; make substantive changes to the definitions for 
``Basement,'' ``Building,'' and ``Flood''; and add definitions for new 
concepts such as ``Flood Damage Resistant Materials'' and ``Replacement 
Cost Value.''
    Section III: What We Cover. This section proposes a moderate to 
high level of change from the current Dwelling Form. It would combine 
sections III and IV from the Dwelling Form to present in one place all 
aspects of coverage (i.e., what is covered, what receives limited 
coverage, and what is not covered). It would also incorporate plain 
language, remove lists, and rephrase coverage currently phrased in the 
negative. In contrast to the Dwelling Form that offers different 
coverage based on flood zone and pre- or post-FIRM designation, the 
proposed Homeowner's Form provides uniform coverage. In addition:
     Coverage A. It would allow homeowner policyholders to more

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easily determine the existence of a basement for coverage purposes as 
further explained below.
     Coverage B. Similar to homeowners insurance coverage, 
Coverage B would provide coverage to restore certain other, non-
dwelling buildings to a functional level. The amount of coverage would 
be a sublimit of the amount selected for Coverage A, without requiring 
a separate insurance policy.
     Coverage C. Due to the recharacterization of Coverage B 
for other buildings, and to align with homeowners coverage, Coverage C 
would address contents coverage and would expand personal property 
coverage to contents located anywhere in the United States. It would 
also clarify that coverage for items stored in digital format (like 
cryptocurrency) is excluded given challenges with proving loss.
    Section IV: Exclusions. This section proposes a low to moderate 
level of change from the current Dwelling Form. It would limit items 
excluded from coverage in this section to those items excluded based on 
cause of the loss consistent with industry practice. It would address 
earth movement, pollutants, increase in hazard, and other excluded 
losses under the general heading of ``Excluded Losses,'' consistent 
with other lines of property coverage. It would keep ``Flood in 
Progress'' as a separate provision, and explicitly exclude coverage for 
pre-existing damage in a standalone provision.
    Section V: Policy Conditions. This section proposes a moderate to 
high level of change from the current Dwelling Form. It would separate 
out the provisions from section VII of the current Dwelling Form that 
specifically apply to how the policy is administered, the policyholder-
facing underwriting aspects of the policy. It would state in simple, 
plain language the reasons a homeowner policyholder may cancel the 
policy in accordance with current regulation.\15\ It would give FEMA 
discretion to extend the deadline to submit proof of loss to 365 days 
from the date of loss, and the deadline for policy renewal to 60 days 
from the policy's expiration date (referred to as a ``grace period''), 
following a presidentially-declared flood disaster in accordance with 
the Robert T. Stafford Disaster Relief and Emergency Assistance Act. 
FEMA has established a business practice of issuing proof of loss 
extensions for claims following a major flood event and grace period 
extensions for flood insurance renewals. The proposed Homeowner Flood 
Form would normalize this course of business and make the provision 
discretionary, not mandatory, so that these flexibilities not found in 
the current Dwelling Form can be leveraged where appropriate. It would 
also allow insurers to accept and make payment on the adjuster's 
reports and allow FEMA to issue special terms for advance payments not 
currently provided in the Dwelling Form.
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    \15\ See 44 CFR 62.5.
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    Section VI: Procedures and Duties When A Loss Occurs. This section 
proposes a moderate to high level of change from the current Dwelling 
Form. The current Dwelling Form includes various provisions under its 
section VII (General Conditions) and the proposed Homeowner Flood Form 
would separate out the provisions that specifically apply to how losses 
are proven and paid for the homeowner policyholder in this section 
(i.e., claims issues). It would simplify the options after a loss and 
extend the proof of loss deadline from the current Dwelling Form 
deadline of 60 days to 90 days. It would allow insurers to issue a de 
minimis advance payment to insureds up to five percent of the Coverage 
A limit of liability (without requiring the mortgage company to be on 
the check). The proposed Homeowner Flood Form would fold the deductible 
section from the Dwelling Form into a larger section and introduce 
language that presents the deductible as a single deductible rather 
than separate deductibles. It would also simplify loss settlement by 
removing distinctions between principal and primary residences, using 
replacement cost value as the default rather than the current Dwelling 
Form's actual cash value default, and removing all special situations 
where only actual cash value applies.
    Section VII: General Conditions. This section proposes a low to 
moderate level of change from the current Dwelling Form. It would 
reorganize the sections alphabetically and simplify language, add 
language to capture the ability to have other insurance from a private 
flood carrier not in the current Dwelling Form, and add sections on 
``Death,'' ``Headings and Captions,'' and ``Your Options After Our 
Denial.'' FEMA is proposing to add a section on death to address 
situations where there are questions regarding the household residents, 
and to help alleviate the challenges associated with claims involving a 
deceased homeowner policyholder for their survivors. Under the Dwelling 
Form, FEMA observed instances where the family of deceased 
policyholders would have their claims denied by insurers participating 
in the NFIP, on grounds that the SFIP prohibits assignment of claims. 
FEMA is therefore proposing to add a section on death to address and 
alleviate the challenges associated with claims involving a deceased 
homeowner policyholder for their survivors. FEMA proposes the ``Your 
Options After Our Denial'' section to present in one location the 
homeowner policyholder's options after denial. This proposed section 
would reaffirm to homeowner policyholders that there are additional 
administrative options to work with the insurer to reach a resolution 
to a claim, but also incorporate requirements from the Bunning-
Bereuter-Blumenauer Flood Insurance Reform Act of 2004 \16\ explaining 
the appeals process not currently found in the Dwelling Form.
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    \16\ Public Law 108-264 (June 30, 2004).
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III. Background

    Congress created the National Flood Insurance Program (NFIP) 
through enactment of the National Flood Insurance Act of 1968 (NFIA) 
(Title XIII of Pub. L. 90-448, 82 Stat. 572), found at 42 U.S.C. 4001 
et seq. The NFIP is a voluntary Federal program enabling property 
owners in participating communities to purchase flood insurance as a 
protection against flood losses. In exchange, participating communities 
must enact floodplain management regulations that incorporate the NFIP 
minimum floodplain management criteria. The minimum floodplain 
management criteria are designed to: (1) constrict the development of 
land which is exposed to flood damage where appropriate; (2) guide the 
development of proposed construction away from locations which are 
threatened by flood hazards; (3) assist in reducing damage caused by 
floods; and (4) otherwise improve the long-range land management and 
use of flood-prone areas. 42 U.S.C. 4102(c). These NFIP requirements 
apply to areas known as special flood hazard areas (SFHA) in 
participating communities.
    FEMA administers the NFIP so that the provision of insurance and 
adoption of minimum floodplain management criteria are mutually 
reinforcing. NFIP flood insurance indemnifies property owners from 
flood losses, reducing the need for Federal disaster assistance. And 
NFIP floodplain management requirements reduce future flood damages, 
thus further reducing the need for Federal disaster assistance.
    In addition to providing flood insurance and reducing flood damages 
through floodplain management, the NFIP identifies and maps the 
Nation's floodplains. FEMA disseminates maps

[[Page 8286]]

depicting flood hazard information to create broad-based awareness of 
flood hazards and to identify the areas where the minimum floodplain 
management requirements apply.
    Section 102 of the Flood Disaster Protection Act of 1973 (42 U.S.C. 
4012a) makes flood insurance mandatory for all federally-backed 
mortgages of properties located in special flood hazard areas. This is 
commonly referred to as the ``mandatory purchase requirement.'' 
Additionally, Federal agencies are prohibited from providing loans and 
grants to any property located in a special flood hazard area unless 
the property is covered by flood insurance. See 42 U.S.C. 4012a(a).
    In general, the NFIP charges premium rates sufficient to cover the 
expected claims payouts and operating expenses. Such premium rates are 
commonly referred to as risk-based or actuarial rates. See 42 U.S.C. 
4014(a)(1), 4015(b). In general, FEMA offers only actuarial rates to 
all buildings constructed, or substantially damaged or improved, on or 
after the effective date of the community's initial Flood Insurance 
Rate Map (FIRM), generally referred to as ``post-FIRM buildings.'' See 
42 U.S.C. 4015(c)(1). However, the NFIA makes available discounted 
rates for certain classes of properties. The most common discount is 
for certain policies covering buildings built or substantially improved 
prior to the community's adoption of its initial FIRM, generally 
referred to as ``pre-FIRM buildings.'' See 42 U.S.C. 4014(a)(2), 42 
U.S.C. 4015(a).
    FEMA must also provide discounted rates for properties newly mapped 
into a SFHA for the first time. See 42 U.S.C. 4015(i). FEMA gradually 
phases out these discounts within the premium increase caps set by 
statute. For the ``first policy year,'' FEMA must provide homeowner 
policyholders of newly mapped-in properties the newly mapped discount 
and increase the premium ``in accordance with'' the Act's annual 
limitation of premium increases until the premium reaches its full-risk 
rate. Id.; see also 42 U.S.C. 4014(a)(1) (full-risk rates); 42 U.S.C. 
4015(e) (annual limitation).
    The NFIA limits annual premium increases to not more than 18 
percent for any property, with limited exceptions. 42 U.S.C. 
4015(e)(1). However, this premium increase cap does not apply (1) to 
certain pre-FIRM properties for which the NFIA mandates FEMA to 
increase premiums by 25 percent a year until they reach full-risk 
rates; (2) to properties within a community which has experienced a 
downgrade in the NFIP's community rating system; \17\ (3) where the 
homeowner policyholder has changed the amount of coverage or deductible 
amounts; and (4) where the property was misrated.18 19
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    \17\ The Community Rating System (CRS) is a voluntary program 
for communities participating in the NFIP. The CRS offers NFIP 
policy premium discounts in communities that develop and execute 
extra measures beyond minimum floodplain management requirements to 
provide protection from flooding. See 42 U.S.C. 4022(b).
    \18\ A misrated policy occurs when a policy premium is incorrect 
because one or more rating characteristics are incorrect. Rating 
characteristics used to determine premium include items such as: 
loss history, building occupancy, building use, and primary 
residency status, among others. For more information, see https://www.fema.gov/sites/default/files/documents/fema_nfip-flood-insurance-manual-sections-1-6_oct2021.pdf (last accessd Aug. 28, 
2023).
    \19\ There are other exceptions, which are seldom triggered, for 
properties where the policy has lapsed (42 U.S.C. 4014(g)(1)) and 
where the owner has refused mitigation assistance (42 U.S.C. 
4014(g)(2)).
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    The NFIA requires FEMA to provide by regulation the ``general terms 
and conditions of insurability . . . applicable to properties eligible 
for flood insurance coverage.'' 42 U.S.C. 4013(a). To comply with this 
requirement, FEMA adopts the Standard Flood Insurance Policy (SFIP) in 
regulation, which sets out the terms and conditions of insurance. See 
44 CFR part 61, Appendix A. FEMA must use the SFIP for all flood 
insurance policies sold through the NFIP. See 44 CFR 61.13.
    The SFIP is a single-peril (flood) policy that pays for direct 
physical damage to insured property. There are three forms of the SFIP: 
the Dwelling Form, the General Property Form, and the Residential 
Condominium Building Association Policy (RCBAP) Form. The Dwelling Form 
insures a one-to-four family residential building or a single-family 
dwelling unit in a condominium building. See 44 CFR part 61, Appendix 
A(1). Policies under the Dwelling Form offer coverage for building 
property, up to $250,000, and personal property up to $100,000.\20\ The 
General Property Form insures a five-or-more family residential 
building or a non-residential building. See 44 CFR part 61, Appendix 
A(2). The General Property Form offers coverage for building and 
contents up to $500,000 each.\21\ The RCBAP Form insures residential 
condominium association buildings and offers building coverage up to 
$250,000 multiplied by the number of units and contents coverage up to 
$100,000 per building. See 44 CFR part 61, Appendix A(3). RCBAP 
contents coverage insures property owned by the insured condominium 
association. Individual unit owners must purchase their own Dwelling 
Form policy in order to insure their own contents.
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    \20\ See 42 U.S.C. 4013(b).
    \21\ Id.
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    In addition to coverage for building or contents losses, most NFIP 
policies also include Increased Cost of Compliance (ICC) coverage.\22\ 
ICC coverage applies when flood damages are so severe that the local 
government declares the building ``substantially damaged,'' thus 
requiring the building owner to bring the building up to current 
community standards. If a community has a repetitive loss ordinance, 
ICC coverage will also cover compliance requirements for a repetitive 
loss structure. ICC coverage provides up to $30,000 of the cost to 
elevate, demolish, floodproof, or relocate an insured building or any 
combination thereof.
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    \22\ ICC is authorized in 42 U.S.C. 4011(b).
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IV. Discussion of the Proposed Rule

    FEMA last substantively revised the SFIP in 2000. See 65 FR 60758 
(Oct. 12, 2000).\23\ In 2020, FEMA published a final rule that made 
non-substantive clarifying and plain language improvements to the SFIP. 
See 85 FR 43946 (July 20, 2020). However, many policyholders, agents, 
and adjusters continue to find the SFIP difficult to read and interpret 
compared to other, more modern, property and casualty insurance 
products found in the private market.\24\ To achieve Objective 2.2 of 
FEMA's 2022-2026 Strategic Plan of building a climate resilient nation 
(i.e.,

[[Page 8287]]

increasing the number of properties with flood insurance and ensuring 
adequate insurance coverage),\25\ FEMA consulted with property and 
casualty experts over time \26\ and received valuable suggestions on 
ways to align the SFIP's design with industry standards and practices 
and improve its readability. Accordingly, FEMA incorporated these 
suggestions into a new form of the SFIP, the Homeowner Flood Form, as 
well as several accompanying endorsements to that form.\27\ FEMA now 
proposes to adopt this new Homeowner Flood Form and its endorsements. 
FEMA intends that this new Homeowner Flood Form will be more user-
friendly and comprehensible and, as a result, will make it easier for 
agents to sell flood insurance and close the insurance gap.
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    \23\ FEMA adopted another substantive change in 2003 when it 
increased the limits for ICC coverage from $20,000 to $30,000. See 
68 FR 9895 (Mar. 3, 2003).
    \24\ See, e.g., The Institutes' Handbook of Insurance Policies, 
American Institute for Chartered Property Casualty Underwriters, 
12th ed. (2018) (containing copies of modern property casualty 
forms). The Insurance Services Office (ISO)'s template homeowners 
form (``HO-3'' form) appears on page 5 and demonstrates the 
simplicity of this policy compared to the SFIP. The NFIP receives a 
high volume of inquiries on the SFIP, further demonstrating the 
challenges in reading and interpreting the SFIP. Policy inquiries 
generally make up 43 percent of the total inquiries received by 
FEMA's ``Ask the Experts'' tracking system between 2019 and May 
2021. See also Barlow, Christine G., Personal Flood Insurance 
Coverage Guide (2018) at 51: ``The historic flooding from hurricanes 
in 2017 has only continued to highlight the issues with the current 
NFIP program and its ability to provide coverage for the claims that 
continue to occur. Because of this . . . ISO has developed a 
personal flood program to provide the industry with standalone 
private flood forms.'' The Chapter (Chapter 4) goes on to compare 
the coverage to standard homeowner coverage and reference existing 
endorsements that agents can use with their flood form. See also id. 
at chapter 6 (p. 85): ``Because [the private flood form] was 
developed by ISO it bears similarities to the ISO Homeowners Policy, 
making it easier to dovetail coverages so that the insured has no 
gaps in coverage. Because of this, many sections of the flood policy 
are identical or very similar to the homeowners policy.''
    \25\ FEMA. 2022-2026 FEMA Strategic Plan. https://www.fema.gov/sites/default/files/documents/fema_2022-2026-strategic-plan.pdf.
    \26\ FEMA conducted interviews with flood insurance 
professionals in its loaned executive officer program in spring of 
2017. FEMA procured insurance product expertise from Milliman, 
Stanley Parsons, and Hinshaw between 2017-2019. FEMA engaged with 
and sought feedback from ten Write Your Own companies in the summer 
of 2019.
    \27\ An endorsement is a written document attached to an 
insurance policy that modifies the policy by changing the coverage 
provided by the policy. Also known as a ``rider,'' ``addendum,'' or 
``attachment,'' an endorsement can add coverage for acts or things 
not covered by the original policy, limit or subtract coverage, add 
or remove exclusions or conditions, or otherwise modify the policy.
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    FEMA is committed to building a culture of preparedness, and such a 
culture necessarily includes individuals, communities, and businesses 
managing risks through proper insurance coverage. One of FEMA's roles 
is to help people understand their risk and the available options to 
best manage those risks. Flood insurance is an effective tool to 
transfer risk and enable rapid recovery. The proposed Homeowner Flood 
form would help build this culture by better advising homeowners of 
their flood risks and options to manage those risks.
    Flooding can be an emotionally and financially devastating event. 
Experience has shown repeatedly that individuals, communities, and 
businesses who manage risk through insurance accelerate their financial 
recovery after a disaster.\28\ If an individual does not have adequate 
savings to repair or replace their property, flood insurance will help 
fill that gap when a flood occurs. Flood insurance allows homeowners to 
recover quicker by providing the funds needed to repair or replace 
property after a disaster. The proposed Homeowner Flood Form would 
provide homeowners with options to more quickly receive funds to help 
accelerate their financial recovery.
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    \28\ In 2017, a costly year due to Hurricanes Harvey, Irma, and 
Maria, the NFIP paid an average claim amount of more than $90,000, 
while the average disaster assistance grant was just $9,000. See 
FEMA Fact Sheet on Flood Insurance: A Small Price to Pay for Peace 
of Mind at: https://agents.floodsmart.gov/sites/default/files/flood-insurance-small-price-pay-peace-mind_fact-sheet_jun20.pdf (last 
accessed Aug. 28, 2023).
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    With flood insurance, individuals are able to financially recover 
faster. While grants provided under the Robert T. Stafford Disaster 
Relief and Emergency Assistance Act (``Stafford Act'') \29\ may support 
survivors in the immediate aftermath of a presidentially-declared 
disaster, this Federal support is only intended to meet basic needs as 
a survivor moves forward with recovery. Federal disaster assistance 
typically comes in two forms to individuals: a loan, which must be paid 
back with interest, or a FEMA disaster grant, which averages 
approximately $5,000 per household.\30\ A disaster grant is not 
intended to make survivors whole and is not a substitute for insurance. 
The average flood insurance claim in 2019 was more than $50,000.\31\ 
Maintaining flood insurance is therefore critical to rebuilding a home 
and replacing belongings following a flood.
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    \29\ Public Law 93-288; 42 U.S.C. 5121 et seq.
    \30\ See http://www.floodsmart.gov/flood-insurance/requirements 
(last accessed Aug. 28, 2023).
    \31\ Id. See also https://www.fema.gov/data-visualization/historical-flood-risk-and-costs (last accessed Aug. 28, 2023).
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    Moreover, when a flood results in a presidentially-declared 
disaster, flood insurance not only benefits those directly affected by 
a flood, it also reduces the need for Federal disaster assistance and 
lowers costs for taxpayers. Because one of FEMA's goals is to close the 
Nation's insurance gap, and because homeowners make up the majority of 
NFIP policyholders, FEMA is working to encourage homeowners to better 
understand their risk and purchase adequate insurance coverage to 
reduce their losses from flood.\32\ FEMA is proposing this new Form for 
that purpose.
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    \32\ Although the NFIP does not maintain data on the ownership 
status of policyholders, FEMA estimates that a majority of 
policyholders are homeowners. This estimation stems from certain 
assumptions based on NFIP eligibility rules and coverage type (for 
instance, a policyholder with building coverage must own the 
building, and a policyholder with contents coverage only is likely a 
renter).
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    The new Homeowner Flood Form, which FEMA proposes to add to its 
regulations at 44 CFR 61 Appendix A(4), would protect property owners 
in a one-to-four family residence. Upon adoption, the Homeowner Flood 
Form would replace the Dwelling Form as a source of coverage for this 
class of residential properties.\33\ FEMA would continue to use the 
Dwelling Form to insure landlords, renters, and owners of mobile homes, 
travel trailers, and condominium units. (FEMA will evaluate any changes 
needed for these other types of residential policyholders, as well as 
commercial policyholders, based on public comment associated with this 
rulemaking). Compared to the current Dwelling Form, the new Homeowner 
Flood Form would clarify coverage and more clearly highlight 
conditions, limitations, and exclusions in coverage as well as add and 
modify coverages and coverage options. FEMA also proposes adding to its 
regulations five endorsements to accompany the new Form: Increased Cost 
of Compliance Coverage, Actual Cash Value Loss Settlement, Temporary 
Housing Expense, Basement Coverage, and Builder's Risk. These 
endorsements, which FEMA proposes to codify at 44 CFR 61 Appendices 
A(101)-(105), respectively, would give homeowner policyholders the 
option of amending the Homeowner Flood Form to modify coverage with a 
commensurate adjustment to premiums charged.\34\ Together, the 
Homeowner Flood Form and accompanying endorsements would increase 
options and coverage for owners of one-to-four family residences.
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    \33\ FEMA estimates that roughly 88.4% of current Dwelling Form 
policyholders are homeowners and therefore would use the proposed 
Homeowner Flood Form. Homeowners as a percentage of policyholders 
was estimated using data from the PIVOT database from 2010 through 
2019. The PIVOT database is the NFIP's official system of record 
which contains NFIP information.
    \34\ These endorsements would be available to homeowner 
policyholders to amend only the Homeowner Flood Form; they would not 
be available to amend the current SFIP forms for other types of 
policyholders.
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A. 44 CFR 61.2: Definitions

    44 CFR 61.2 provides that the definitions set forth in 44 CFR part 
59 apply to 44 CFR part 61. FEMA proposes to revise this provision to 
clarify that the definitions set forth in part 59 apply to part 61, 
including appendices, but if an appendix defines a term differently, 
that definition controls for the purposes of that appendix. FEMA 
proposes this revision for clarity and accuracy.

B. 44 CFR 61.13: Standard Flood Insurance Policy

    44 CFR 61.13 describes the Standard Flood Insurance Policy. Section 
61.13(a), ``Incorporation of forms,'' states that each of the SFIP 
forms included in Appendix A hereto (General

[[Page 8288]]

Property, Dwelling, and Residential Condominium Building Association) 
and incorporated herein shall be incorporated into the SFIP. FEMA 
proposes to remove ``(General Property, Dwelling, and Residential 
Condominium Building Association)'' so that the provision states simply 
that each of the SFIP forms included in Appendix A hereto and by 
reference incorporated herein shall be incorporated into the SFIP. The 
removal of this phrase would allow FEMA to incorporate the new 
Homeowner Flood Form, as well as any additional forms that FEMA may 
implement in the future, without having to revise this section upon 
issuance of each new form.

C. Appendix A(4): Homeowner Flood Form

    As mentioned above, FEMA has not substantively updated the SFIP 
since 2000. While the SFIP has performed ably over the last two 
decades, FEMA recognizes that changes in consumer expectations, 
technology, and the insurance industry over the last 20 years warrant 
an update to it. The new Homeowner Flood Form and its accompanying 
endorsements would provide a more personalized, customizable product 
than the NFIP has offered during its 50 years. In addition to aligning 
with property and casualty homeowners insurance, the result would 
increase consumer choice. For instance, rather than universally 
limiting basement coverage, the new Form allows homeowner policyholders 
to choose their coverage based on their understanding of flood risk and 
the coverage they desire. The Form would also simplify coverage, such 
as offering the same coverage on a building regardless of whether it is 
a primary residence or not, or pre- or post-FIRM, and removing the 
importance of flood zones for purposes of coverage.\35\ Ultimately, the 
purpose of coverage is to help homeowner policyholders recover, and 
FEMA anticipates that the premiums tied to homeowner policyholders' 
coverage choices would signal the underlying risk and prompt mitigation 
efforts.
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    \35\ Although the Form would offer the same coverage regardless 
of flood zone, the premiums charged would continue to differ based 
on risk. For instance, owners of riskier buildings, such as pre-FIRM 
buildings and buildings with the lowest level below Base Flood 
Elevation, would continue to pay more in premiums for the same level 
of coverage compared to a building carrying less risk. This is 
because the NFIP will continue charging the most accurate actuarial 
rates it can based not just on flood maps, but other information 
(such as distance to water sources and elevations) as improvements 
in technology allow, as discussed in greater detail below.
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    The following chart illustrates how homeowner policyholders could 
customize their policy at the point of sale:
BILLING CODE 9111-52-P

[[Page 8289]]

[GRAPHIC] [TIFF OMITTED] TP06FE24.021

BILLING CODE 9111-52-C
Simplifying the Policy for Homeowner Policyholders and Plain Language 
Efforts
    The Form would provide FEMA with greater flexibility in 
administering flood insurance. Unlike the Dwelling Form, which is 
highly prescriptive and includes long lists of covered items, the new 
Form would further incorporate plain language, remove unnecessary 
provisions, reduce reliance on lists, and highlight certain specifics 
on the declarations page. Moreover, the Form would add in 
flexibilities, like special procedures during catastrophic flood 
events.\36\ Altogether, the proposed products would allow FEMA to 
provide homeowners with better, more tailored coverage.
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    \36\ FEMA currently provides special procedures for catastrophic 
events through bulletins issued on a catastrophe-by-catastrophe 
basis. See e.g., Bulletin W-17030, ``Activation of NFIP Catastrophic 
Event Enhanced Claim Payment Process for Hurricane Harvey,'' (Sept. 
3, 2017), found at https://nfipservices.floodsmart.gov/sites/default/files/w-17030.pdf (last accessed Aug. 28, 2023); Bulletin W-
17031a, ``Guidance for Advance Payments for Hurricane Harvey,'' 
(Sept. 4, 2017), found at https://nfipservices.floodsmart.gov/sites/default/files/w-17031a.pdf (last accessed Aug. 28, 2023); Bulletin 
W-17035, ``Hurricane Harvey Enhanced Claim Handling for Prior Loss 
and Contents Claims under the Dwelling Form of the SFIP,'' (Sept. 9, 
2017), found at https://nfipservices.floodsmart.gov/sites/default/files/w-17035.pdf (last accessed Aug. 28 2023). FEMA proposes to 
incorporate these special procedures into the Homeowner Flood Form 
for ease of administration and to increase transparency.

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[[Page 8290]]

    As an insurance contract, the new Form has to be capable of being 
read from start to finish as well as quickly navigable to find the 
specific information in the event of an issue or a loss. To maintain 
certain decades-old foundational concepts, limit implementation errors, 
and minimize disruption to the administration of the NFIP, FEMA found 
it necessary to favor certain flood insurance terminology and/or terms 
of art even where the phrasing may seem stuffy or overworked. FEMA is 
proposing several changes with plain language in mind and seeks comment 
on whether the proposed changes result in the desired clarity. 
Specifically, FEMA proposed to change the organization of the policy, 
such that fewer sections are provided in the overall policy and similar 
concepts are grouped together to allow the reader to know what is and 
is not covered without having to review a section and then have to 
return to it again for clarity. FEMA is also proposing to add headers 
and captions to guide the reader and improve comprehension. Insurance 
professionals often ``speak by citation,'' quoting the policy 
provisions by location rather than name. The headers and captions will 
help non-insurance professionals quickly understand what is in those 
citations. FEMA proposes italicizing defined terms throughout the 
policy as a signal to the reader that this is one of those defined 
terms they read and thus allowing the reader to refer back to the 
definitions as appropriate. FEMA is also proposing to define specific 
terms not used elsewhere in the policy within the clause. For example, 
``pollutants'' is defined in the proposed III.A.3.d, rather than in the 
proposed section II. FEMA is proposing to remove technical information. 
The Dwelling Form makes reference to specific flood zones, post-FIRM 
buildings, and defines numerous terms not relevant to the policyholder 
with coverage under the SFIP. FEMA also seeks comment on other ways the 
Form can be revised to improve the policy's language and decrease 
confusion.
Potential Benefits and Impacts on Disadvantaged Communities
    FEMA believes that the proposed changes to the Homeowner Flood Form 
will reduce burdens on low-income and other disadvantaged communities 
particularly affected by changing conditions and increased flooding. 
FEMA's current authority requires actuarial rates, which can impact 
low-income and other disadvantaged communities. By offering choices 
such as options for actual cash value or replacement cost value 
coverage and basement coverage options, FEMA believes that homeowner 
policyholders can make a value judgment regarding the extent of their 
coverage.\37\ FEMA seeks specific comment on the potential benefits and 
impacts of this proposed rulemaking on various geographic regions and 
communities, including based on income, insurance access, and 
affordability.
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    \37\ FEMA believes additional equitable and affordability 
solutions require legislative change. See generally https://www.fema.gov/flood-insurance/rules-legislation/congressional-reauthorization/legislative-proposals (last accessed Aug. 28, 2023).
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Premium Rates
    The changes proposed in this rule would generally not impact the 
NFIP's premium structure. A decision to select more robust coverage, as 
with all insurance coverage, would result in increased premiums.
Homeowner Flood Form
1. Section I: Insuring Agreement
    FEMA proposes to consolidate multiple sections from the Dwelling 
Form into one larger section. Specifically, elements of sections I and 
X of the Dwelling Form appear in proposed section I.A on governing law 
to make clear that this is a Federal policy and is governed by Federal 
law.\38\ Proposed section I.A would retain the language indicating that 
Federal law governs all disputes regarding the policy and claims 
handling. Standard Flood Insurance Policies are sold by private WYO 
insurance companies and directly to the public by FEMA's direct 
servicing agent, NFIP Direct. Because the NFIP is national in scope and 
accomplishes a number of programmatic missions in addition to making 
affordable flood insurance generally available to the public, the SFIP 
provides that its terms cannot be altered, varied, or waived except by 
the written authority of the Federal Insurance Administrator.\39\ The 
Administrator intends that the same benefits should be available to all 
those insured wherever the insured property is located, or whether the 
policy is purchased from a WYO insurance company or from NFIP Direct. 
There is a continued need for uniformity in the interpretation of and 
standards applicable to the policies and their administration. FEMA is 
reiterating the policy language pertaining to applicable law to 
emphasize that matters pertaining to the SFIP are governed exclusively 
by Federal law. Proposed section I.B on conflicts with Federal law 
would eliminate the need to list specific legal authorities that 
currently or could eventually conflict with the policy.\40\ Listing all 
potentially applicable laws here is unnecessary, unwieldly, and 
constrains any future flexibility. Consistent with the goals of 
updating the SFIP, this revised section would increase readability and 
comprehensibility.
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    \38\ See generally 42 U.S.C. 4011(a), 4053, 4072; 44 CFR 59.2, 
61.5(e), 62.22, 62.23(g).
    \39\ See also Nelson v. Becton, 929 F.2d 1287, 1291 (8th Cir. 
1991) (``The purpose of the National Flood Insurance Program is to 
provide flood insurance, which otherwise would not be available, on 
a uniform nationwide basis. To apply the varying reasonable 
expectations doctrines of the insurance laws of individual states 
would `frustrate [these] specific objectives of the Federal program[ 
]' '' (citing United States v. Kimbell Foods, 440 U.S. 715, 728 
(1979))).
    \40\ For example, the current Dwelling Form contains references 
to other legal authority throughout, such as in sections IV.15 
(referencing the Coastal Barrier Resources Act, the Coastal Barrier 
Improvement Act, and related amendments) and V.E (discussing leasing 
land from the Federal Government).
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    Like the Dwelling Form at section I.C, proposed section I.C of the 
new Form would detail the terms of the agreement to pay for direct 
physical loss by or from flood and would also state that a homeowner 
policyholder would only receive compensation up to the limits of 
liability listed on the declarations page. This proposed section would 
continue to clarify that the ``full amount due'' includes applicable 
premiums, surcharges, and fees to help homeowner policyholders 
understand that the full amount due can be reduced by these outstanding 
amounts. Additionally, the section would require that the information 
furnished by the homeowner policyholder be ``complete'' and accurate to 
negate incomplete proof of loss issues that can delay claims 
processing.
    Proposed section I.D would move the policy term (currently in the 
Dwelling Form at section VII.E.1) to the front of the agreement 
section, separated from the policy renewal content, to make clear to 
the homeowner policyholder at the top of the form, how long the 
agreement lasts. Proposed section I.E would incorporate the 
liberalization clause from the Dwelling Form (article IX), authorizing 
FEMA to make changes that broaden coverage without an additional 
premium and making those changes automatically apply to the policy as 
of the date the change is implemented with certain caveats. Throughout 
the policy, FEMA proposes to modify timeframes to ensure clarity on how 
days are calculated under the policy. For example, proposed section 
I.E. would specify a 60 ``calendar'' day window prior to or during the 
policy term rather than a 60-day window as the Dwelling Form provides. 
The NFIP

[[Page 8291]]

currently operates based on calendar days, and specifying this in the 
policy promotes consistency and transparency, reducing the likelihood 
that a homeowner policyholder might wrongly assume that ``days'' are 
``business'' days. Finally, proposed section I.F would retain the right 
of review language currently in section I.D of the Dwelling Form and 
incorporate concepts from section VII.D of that form, including the 
right to request additional information and revising the amounts due 
from the homeowner policyholder based on any information reviewed. 
These revisions would ensure the homeowner policyholder is aware of the 
key terms of the agreement at the onset.
3. Section II: Definitions
    First, FEMA proposes to retain in proposed section II.A the upfront 
clarification that the pronouns ``you'' and ``your'' refer to the 
insured(s), and that ``we,'' ``us,'' and ``our'' refer to the insurer. 
This clarification concerning the use of pronouns has been in the 
current SFIP forms since 1982,\41\ and retaining this clarification 
comports with plain language guidelines.\42\ FEMA proposes to move the 
language currently in section II.A of the Dwelling Form regarding the 
policyholder's spouse and the language defining ``insured(s)'' to a new 
definition for ``Insured(s).'' FEMA also proposes not to retain the 
statement that some definitions are complex due to their presence in 
statute, regulation, or case law, because this sentence is unnecessary.
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    \41\ Prior to 1982, the forms referred to ``insurer'' and 
``insured'' throughout. See e.g., 44 CFR 61 App. A(1) (1981).
    \42\ See ``Federal Plain Language Guidelines,'' Mar. 2011, at 
30, found at https://www.plainlanguage.gov/media/FederalPLGuidelines.pdf (last accessed Aug. 28, 2023).
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    In section II.B, FEMA proposes to change the definition of 
``flood.'' FEMA proposes ``Flood'' to mean a general and temporary 
condition of partial or complete inundation of normally dry land from 
(1) overflow of inland or tidal waters; (2) unusual and rapid 
accumulation or runoff of surface waters from any source; (3) mudflow, 
defined as a river of liquid and flowing mud on the surface of normally 
dry land, as when earth is carried by a current of water; or (4) sudden 
erosion or undermining of land along the shore of a lake or similar 
body of water caused by waves or currents of water exceeding 
anticipated cyclical levels that causes collapse or subsidence of land 
resulting in a flood. FEMA proposes not to retain the language 
currently in the Dwelling Form at section II.B.1 limiting flood to two 
or more acres, or two or more properties, one of which is the 
policyholder's, because it is unnecessarily restrictive: It deviates 
from the definition at 44 CFR 59.1, which does not include this 
limitation, and flood insurance adjusters can experience issues with 
finding a second property to qualify as a flood, or accessing other 
properties to investigate whether flooding occurred. FEMA proposes to 
define ``mudflow'' where it appears (i.e., within the definition of 
flood), rather than later in the definitions, to save homeowner 
policyholders from having to reference a separate part of the policy 
for it. This is a change to the location of the definition, and not the 
meaning, as FEMA would continue to use the definition of ``mudflow'' 
from the Dwelling Form. FEMA's proposed sub-definition for ``erosion'' 
is substantively the same as the Dwelling Form's except that it 
specifies that the erosion must be sudden, making it clear that gradual 
erosion would not result in a flood under the policy. These proposed 
changes to the definition of ``Flood'' would simplify coverage; FEMA 
does not intend to broaden or narrow coverage here, and would continue 
to limit coverage where a homeowner policyholder causes a flood or 
where the cause is wind-driven rain (through a roof or window, etc.) or 
some other water source (see proposed section IV.A.5).
    FEMA proposes to relocate and revise the definition of ``Building'' 
and incorporate a revised definition of ``Basement'' and add a 
definition for ``Enclosure'' within proximity of the definition of 
``Building'' in section II.C. This relocation of terms will make it 
easier to read the definiition of the structural elements applicable to 
buildings in context of one another. ``Building'' would be defined as 
``a structure, the construction of which has been completed, that has a 
fully secured roof and solid, vertical, load-bearing walls and is 
affixed to a permanent site.'' FEMA proposes to replace the phrase 
``two or more outside rigid walls'' with ``solid, vertical, load-
bearing walls'' because this description is more accurate, and 
specifying a number is unnecessary as ``walls'' is already plural. This 
proposed definition would not include the sub-definitions for mobile 
homes or travel trailers because, as mentioned above, owners of these 
units would continue to be covered under the Dwelling Form.\43\ In 
addition, FEMA proposes to remove references to gas or liquid storage 
tanks, shipping containers, recreational vehicles, park trailers, or 
other similar vehicles--because as these are not buildings, 
specifically excluding them from the definition is unnecessary.
---------------------------------------------------------------------------

    \43\ The proposed Homeowner Flood Form may insure some 
manufactured homes. Guidance regarding this coverage will be 
detailed in future updates to the underwriting rules used by the 
Program.
---------------------------------------------------------------------------

    Under the current Dwelling Form at section II.C.5, a ``Basement'' 
is defined as ``[a]ny area of a building, including any sunken room or 
sunken portion of a room, having its floor below ground level on all 
sides.'' Sometimes this definition does not align with homeowner 
policyholder expectations that may consider what is defined in the 
Dwelling Form as a basement to be the first floor of their home.\44\ 
Under the current Dwelling Form, coverage is limited in basements to 
specific items and homeowner policyholders cannot choose to increase 
coverage if they want it for areas of their home they may not otherwise 
consider to be a ``Basement.'' The proposed definition for ``Basement'' 
would state that a basement is ``any area of a building having its 
floor level below ground level on all sides, regardless of design or 
use.'' The proposed definition would further clarify that ``An area of 
a

[[Page 8292]]

building is below ground level when the land touching the exterior of 
the building is above its floor level. An area of a building is 
presumed to be below ground level when it is necessary to walk up steps 
or a slope to reach the land surrounding the building. A professional 
land survey or report may rebut this presumption.''
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    \44\ See Donovan Finn and John Travis Marshall, Superstorm Sandy 
at Five: Lessons on Law as Catalyst and Obstacle to Long-Term 
Recovery Following Catastrophic Disasters, 48 Envtl. L. Rep. 10494 
(2018), found at https://commons.library.stonybrook.edu/cgi/viewcontent.cgi?article=1004&context=somas_articles (last accessed 
Aug. 28, 2023). ``For instance, consider flood insurance regulations 
and the seemingly simple question: what is a basement? In many parts 
of the country that would cause little confusion; according to the 
NFIP a basement is `[a]ny area of the building having its floor 
subgrade (below ground level) on all sides.' However, this seemingly 
straightforward definition became a source of significant concern 
for many building owners after Sandy. In New York City, Hoboken, 
Jersey City, and other municipalities in the region, the NFIP 
definition of a basement also technically describes many thousands 
of housing and retail units at the lowest level of attached row 
houses that are known in the local vernacular as `ground floor' or 
`garden units.' Such units may be located anywhere from a few inches 
to three feet below grade and, if conforming to stipulations in 
local laws, are legal for use as individual apartments, shops, 
offices, or fully habitable levels of a single-family home. Many 
buildings containing this kind of unit actually have an additional 
cellar or basement level underneath this `ground' level. However, 
while these units may sit above a second basement, and although they 
are discrete legal residences or commercial units according to local 
zoning and building codes, these units are classified by FEMA as 
basements and are therefore ineligible for NFIP reimbursement. One 
infamous case involved a Hoboken resident whose NFIP claim was 
denied because his apartment was determined to be 0.13 inches below 
grade.'' See also https://www.wxyz.com/news/what-does-fema-cover-if-youre-denied-help-after-floods-here-are-some-other-options (last 
accessed Aug. 28, 2023) and https://www.wxyz.com/news/why-many-people-are-being-denied-fema-flood-assistance (last accessed Aug. 
28, 2023).
---------------------------------------------------------------------------

    FEMA proposes this definition to better explain its application to 
the area in the building, to the extent the definition is not aligned 
with a homeowner policyholder's conception of a basement. This proposed 
definition would better allow homeowner policyholders and their agents 
to identify whether they have a basement at the point of sale. The 
Homeowner Flood Form offers homeowner policyholders limited coverage 
for a basement by default. FEMA seeks comment on this proposed 
definition of basements to better address the needs and understanding 
of homeowner policyholders.
    ``Enclosure'' would mean an area that exists below the dwelling and 
used in accordance with local floodplain management ordinances or law 
for the parking of vehicles, building access, or storage, and is shown 
on the declarations page. FEMA proposes this new definition to more 
clearly differentiate enclosures from basements.
    FEMA is proposing to relocate the definitions currently found in 
section II.B of the Dwelling Form to section II.D and is proposing to 
include or modify several, but not all, definitions that are currently 
in the Dwelling Form, and to add several others. First, FEMA proposes 
to retain, with minimal to no changes, the definitions for ``Act,'' 
``Described Location,'' ``National Flood Insurance Program,'' and 
``Policy.'' ``Act'' would continue to be defined as the National Flood 
Insurance Act of 1968 (42 U.S.C. 4001 et seq.). ``Described Location'' 
would be defined as the location of the insured building, as shown on 
the declarations page. The ``National Flood Insurance Program'' would 
continue to be defined as FEMA's program of flood insurance coverage 
and floodplain management administered under the ``Act.'' Lastly, the 
definition for ``Policy'' would specify that it is the entire written 
contract between the homeowner policyholder and FEMA to include: (1) 
the Homeowner Flood Form; (2) the completed application for insurance; 
(3) the declarations page; (4) any endorsements issued; and (5) any 
addenda FEMA attaches to the Form upon application or renewal.
    FEMA proposes minor, but somewhat more meaningful changes to the 
definitions for ``Actual Cash Value,'' ``Declarations Page,'' ``Direct 
Physical Loss By or From Flood,'' and ``Dwelling.'' The definition for 
``Actual Cash Value'' would continue to be the cost to replace an 
insured item of property at the time of loss, but FEMA proposes to 
replace the phrase ``less the value of its physical depreciation'' with 
``less depreciation based on its age and condition.'' FEMA proposes to 
specify that depreciation is based on the insured item's age and 
condition to explain what ``physical depreciation'' means. The 
definition for ``Declarations Page'' would state that it is a document 
provided to homeowner policyholders summarizing the coverage limit(s), 
premium, insured(s), and other information about the policy, and that 
it is a part of the policy. FEMA proposes this definition because it is 
more modern than the Dwelling Form's current definition of a 
``computer-generated summary. . . .'' FEMA proposes ``Direct Physical 
Loss By or From Flood'' to mean actual physical loss or damage to the 
insured property directly caused by a flood. FEMA chose not to retain 
the sentence currently in the Dwelling Form that ``there must be 
evidence of physical changes to the property.'' The addition of the 
words ``actual physical'' to describe loss or damage to the insured 
property obviates the need for that sentence and makes it clearer that 
FEMA may only pay for physical loss or damage directly caused by a 
flood. Lastly, FEMA proposes to define ``Dwelling'' as a building in 
use as a one-to-four family residence, and specify that it is not a 
mobile home, travel trailer, or condominium unit. FEMA proposes to 
specify that mobile homes, travel trailers, or condominium units are 
not ``dwellings'' under this Form because FEMA intends that this Form 
only cover homeowners of one-to-four family site-built residential 
buildings. At this time, the Dwelling Form would continue to serve as 
the Standard Flood Insurance Policy Form covering mobile homes, travel 
trailers, and condominium units, as well as landlords and tenants.
    FEMA proposes to add definitions for ``Administrator,'' ``Claim,'' 
``Flood Damage Resistant Materials,'' ``Insured(s),'' ``Machinery and 
Equipment,'' ``Proof of Loss,'' and ``Replacement Cost Value.'' FEMA 
proposes to specify that ``Administrator'' refers to the FEMA 
Administrator or designee for clarity. FEMA proposes to define 
``Claim'' as the homeowner policyholder's assertion that (s)he is 
entitled to payment for a covered loss under the terms and conditions 
of the policy and specify that there is only one claim per flood event. 
This definition would complement the proposed definition for ``Proof of 
Loss.'' FEMA proposes to define ``Flood Damage Resistant Materials'' as 
building materials identified by the Administrator as resistant to 
flood damage to encourage homeowner policyholders to rebuild smarter. 
Use of materials that are resistant to flood damage reduces the 
likelihood of replacement in a future flood, and the ability to clean 
and repair items instead of replacing them would likely result in net 
savings to the NFIP and its policyholders. The definition of 
``Insured(s)'' would include the homeowner policyholder and (1) any 
additional persons identified on the declarations page; (2) any 
mortgagee or loss payee named in the application for insurance, as well 
as any other mortgagee or loss payee determined to exist at the time of 
loss; and (3) the homeowner policyholder's spouse, if a resident of the 
same household. This definition is substantively the same as the 
definition of ``you'' from the Dwelling Form in II.A, but includes the 
homeowner policyholder's spouse here, to simplify and consolidate in 
one place the concept of who has an interest under the policy. FEMA 
proposes to specify that ``Machinery and Equipment,'' when contained 
within a building at the described location, would include functional 
electrical, plumbing, heating, cooling, and safety elements necessary 
for the operation of a building, and elevators. Outside of a building, 
``Machinery and Equipment'' would include a heating and air 
conditioning system's condenser unit and heat pump, solar panels, and 
permanently installed whole house standby generators when these units 
are connected to and are servicing a building at the described 
location. FEMA proposes this definition to avoid long lists of items in 
the coverage section. The coverage limitations in the Dwelling Form (at 
III.A.8) appear in a list of 17 items. This new definition would 
condense these 17 entries into a single definition. While the new 
definition would still call out some items specifically, it is FEMA's 
position that this more condensed, succinct approach would be less 
cumbersome to homeowner policyholders and give the Agency increased 
flexibility in its implementation of the NFIP.\45\ FEMA

[[Page 8293]]

also anticipates applying this definition during loss settlements to 
encourage homeowners to move these relatively costly items from their 
basements/lower enclosures to a less risky area of the property, 
increasing savings to the NFIP and its policyholders. FEMA would define 
``Proof of Loss'' as a signed and sworn statement by the homeowner 
policyholder containing documentary evidence in support of one's loss 
and the amount one is claiming. FEMA proposes to define this term to 
mitigate confusion over what a proof of loss is,\46\ further 
differentiate proof of loss from a claim, and to facilitate 
implementation of proposed V.E, ``Disaster Conditions.'' Lastly, 
``Replacement Cost Value'' would mean the necessary cost, without 
deduction of depreciation, to repair or replace an item of property at 
the time of loss with an item of like kind and quality. FEMA proposes 
to add this definition because the new Homeowner Flood Form would offer 
homeowner policyholders replacement cost value as the default, rather 
than actual cash value as the Dwelling Form does, so defining the term 
would assist FEMA in administering the Form.
---------------------------------------------------------------------------

    \45\ The NFIP Claims Manual currently explains each of the 17 
items listed in section III.A.8.a of the Dwelling Form, and the 
explanations of these items can also include several related items 
themselves. See National Flood Insurance Program Claims Manual (May 
1, 2020), found at https://www.fema.gov/sites/default/files/2020-07/fema_nfip_claims-manual_2020.pdf (last accessed Aug. 28, 2023) 
(``Claims Manual''). For instance, the Claims Manual explains that 
``nonflammable insulation in a basement'' [III.A.8.a(10)] includes 
the nonflammable insulation in walls and ceilings between joists in 
the lowest elevated floor and unfinished protective weather barriers 
affixed to floor joists and unattached protective barriers located 
in a crawlspace. Id. at 41. In addition, ``well water tanks and 
pumps'' [III.A.8.a(15)] include pressure switches, pressure valves, 
and gauges. Id. at 43. The removal of these lists would provide FEMA 
flexibility to the extent that the Agency can continue to clarify in 
the Claims Manual terms defined in the policy.
    \46\ During the aftermath of Superstorm Sandy, policyholders and 
their representatives attempted to submit ``placeholder'' proofs of 
loss where they filled out the coversheet for FEMA's Proof of Loss 
Form (FEMA Form 086-0-9) with ``TBD'' on every line. This was not 
appropriate or within the terms of the SFIP, creating problems for 
these policyholders and for FEMA. (In this case, the insurance 
carriers had to deny these claims because these policyholders failed 
to meet the requirements of the SFIP. Many of these policyholders 
pursued litigation, creating the need for FEMA's NFIP Transformation 
Task Force established in 2015). See NFIP Bulletin w-14036, found at 
https://nfipservices.floodsmart.gov/sites/default/files/w-14036.pdf 
(last accessed Aug. 28, 2023) and NFIP Bulletin w-12092a, found at 
https://nfipservices.floodsmart.gov/sites/default/files/w-12092a.pdf 
(last accessed Aug. 28, 2023).
---------------------------------------------------------------------------

    Finally, FEMA proposes not to carry over into the new Homeowner 
Flood Form three definitions currently in the Dwelling Form: ``Base 
Flood,'' ``Deductible,'' and ``Principal Residence.'' Because ``base 
flood'' would not have any impact on the terms and conditions of 
insurability in the new Form, defining it would be unnecessary. Because 
``deductible'' is a commonly understood term in the insurance industry, 
it is FEMA's position that including a definition for it would be 
unnecessary. In addition, because the Homeowner Flood Form would not 
vary coverage between principal and secondary, etc., residences, 
defining the term ``principal residence'' would likewise be 
unnecessary.
4. Section III: What We Cover
    FEMA proposes to incorporate language currently in the Dwelling 
Form with section III to improve the customer experience by presenting 
the material in a more organized manner. The Dwelling Form addresses 
property covered (article III), property not covered (article IV), and 
exclusions (article V) in different sections. In proposed section III, 
FEMA addresses in a single section what the policy covers, where 
coverage is limited, any conditional coverage, and then property that 
is not covered.\47\ The proposed changes to Coverages B and C also 
generally align with coverage specifically for homeowners, the focus of 
this proposed form. These changes also remove lists and ``hidden'' 
coverage and simplify policy language to enhance understanding and 
functionality of the policy. Relying on the definitional concepts 
instead of specific lists gives FEMA the opportunity to clarify 
coverage and improve readability of the form while also providing 
increased flexibility to implement the policy. FEMA proposes to 
rephrase coverage that is currently phrased in the negative in the 
Dwelling Form to ensure a better understanding of coverage. The 
proposed revisions would also remove all references to flood zones in 
special flood hazard areas, and instead provide universal default 
coverage that applies to all buildings regardless of flood zone. These 
revisions reduce the complexity of the policy, as homeowner 
policyholders may not immediately recall what zone they are in. These 
revisions also help alleviate concerns raised in understanding flood 
risks through mapping alone and allowing the premium to inform the 
homeowner policyholder about flood risk.
---------------------------------------------------------------------------

    \47\ FEMA includes ``property not covered'' in proposed section 
III, ``What We Cover,'' rather than proposed section IV, 
``Exclusions,'' to conform with industry standards and address in 
the same section those items for which the policyholder has the 
burden of proof. The burden of proving that property is covered 
falls on the insured, but the burden of proving that property is 
excluded falls on the insurer.
---------------------------------------------------------------------------

    FEMA proposes to remove specific dollar amounts from the policy, 
giving the Agency the ability to increase these limits based on 
statutory changes. Eliminating these specific dollar amounts also 
allows FEMA to offer different coverage limit choices to different 
homeowner policyholders by placing special limit amounts on the 
declarations page of the policy.
    FEMA proposes to allow more consumer choice by allowing homeowner 
policyholders to choose whether they want basement coverage under 
Coverage A through the Enhanced Basement Endorsement Option detailed 
below. FEMA has long presumed that homeowner policyholders would not 
want to pay for full coverage in a basement because it would be too 
expensive,\48\ but in doing so inadvertently made it more likely that 
homeowner policyholders would not realize the limitations on basement 
coverage until they experienced a loss.\49\ FEMA has offered this 
restrictive coverage in basements for four decades and the proposed new 
Homeowner Flood Form would not change that coverage absent a homeowner 
policyholder purchasing an endorsement. FEMA believes the limited 
basement coverage creates challenges in the flood insurance sales 
context for homeowner policyholders who want more coverage than the 
current Dwelling Form and new Form would allow and in the recovery 
context for homeowner policyholders who need it to more fully recover 
from a flood event. Given these challenges, FEMA considered three 
approaches to basement coverage: (1) the current Dwelling Form approach 
of retaining the current restricted coverage, with a focus on training 
agents selling flood insurance to further discuss what constitutes a 
basement under the

[[Page 8294]]

Homeowner Flood Form and the restrictions on coverage at the point of 
sale to better inform homeowner policyholders and those seeking to 
purchase new homeowner flood insurance of the coverage restrictions; 
(2) FEMA's preferred approach of offering an endorsement to the 
proposed Homeowner Flood Form that would allow homeowner policyholders 
to purchase, for an additional premium, an enhanced basement 
endorsement to remove the restrictions in basement coverage (``Enhanced 
Basement Coverage Endorsement''); and (3) a third approach of offering 
a basement endorsement to remove coverage limitations, for an 
additional premium, for (a) homeowners with split-level homes or sunken 
room(s) (approach 3.1) and (b) homeowner policyholders who need to 
occupy part of their basement (approach 3.2). Occupancy means the 
basement is being used by the homeowner as bedrooms, bathrooms, and 
kitchens/kitchettes. Each of the approaches is further detailed in 
Appendix A(104): Basement Coverage Endorsement Option below.
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    \48\ Until 1983, FEMA offered coverage in a basement. See e.g., 
44 CFR 61 App. A(1) Art. IV (1982). At that time, FEMA determined 
that it was paying out $5 for every $1 collected on buildings with 
damaged basements. See GAO Report on Flood Insurance: Federal 
Emergency Management Agency's Basement Coverage Limitations, RCED-
86-10FS (Jan. 31, 1986) found at http://www.gao.gov/assets/rced-86-10fs.pdf (last accessed Aug. 28, 2023). In the 1990s, FEMA explored 
but abandoned an effort to offer some level of basement coverage and 
throughout the entirety of the Dwelling Form (i.e., the last 20 
years), there has been no option for basement coverage.
    \49\ See Donovan Finn and John Travis Marshall, Superstorm Sandy 
at Five: Lessons on Law as Catalyst and Obstacle to Long-Term 
Recovery Following Catastrophic Disasters, 48 Envtl. L. Rep. 10494 
(2018), found at https://commons.library.stonybrook.edu/cgi/viewcontent.cgi?article=1004&context=somas_articles (last accessed 
Aug. 28, 2023). See also https://www.wxyz.com/news/what-does-fema-cover-if-youre-denied-help-after-floods-here-are-some-other-options 
(last accessed Aug. 28, 2023) and https://www.wxyz.com/news/why-many-people-are-being-denied-fema-flood-assistance (last accessed 
Aug. 28, 2023).
---------------------------------------------------------------------------

    FEMA does not expect the availability of optional basement coverage 
(approaches 2, 3.1, or 3.2 above) to encourage riskier behavior by 
homeowner policyholders. In general, policyholders do not wish to 
experience flood losses. The act of choosing an option will require the 
policyholder to envision their property being damaged by a flood. 
Accordingly, rather than encouraging risky behavior, FEMA believes the 
option would help homeowner policyholders to transfer their risk to 
better recover after a flood while also encouraging homeowner 
policyholders with basements to consider ways to mitigate their risks 
in those areas. The current inventory of housing in the United States 
contains homes built with basements. Recent studies on marginalized 
communities show that formerly redlined areas face higher flood risks, 
and several of the cities where this is most prevalent (New York, 
Boston, Chicago, Camden, Detroit, Newark) have older housing stock that 
are often built with basements.\50\ By offering options to increase 
basement coverage, FEMA is proposing to increase the ability of these 
homeowners to better protect their investment from flood risks. FEMA 
understands that the additional coverage will result in additional 
premiums for policyholders, but the pricing associated with these 
additional premiums will reflect the reality of the structure above all 
and will align with the risk. By offering choice, FEMA can better 
educate homeowner policyholders on their coverage options, discuss the 
flood risks associated with their property (i.e., through the price 
signal provided by comparing the premium options), and how they can 
better protect their property and mitigate those risks. FEMA seeks 
specific comments on the expansion of basement coverage and the 
approaches considered in this proposed rule as detailed in the basement 
coverage endorsement options below.
---------------------------------------------------------------------------

    \50\ See https://www.redfin.com/news/redlining-flood-risk/(last 
accessed Aug. 28, 2023) and https://www.njspotlightnews.org/2021/04/redlining-atlantic-city-nj-overlooked-underfunded-minority-neighborhoods-back-bay-racist-maps-superstorm-sandy/(last accessed 
Aug. 28, 2023). Note that in these areas, it is common to have a 
basement because of the necessity of building below the frost line, 
so that pipes do not burst.
---------------------------------------------------------------------------

    Proposed section III would not include ICC as Coverage D for all 
homeowner policyholders as the Dwelling Form does (in section III.D), 
but instead would make it an endorsement required to be purchased only 
by those homeowner policyholders who may be eligible for it. Proposed 
section III would also remove buildings under construction from default 
coverage (as is the case under the Dwelling Form at section III.A.5), 
as a Builder's Risk Endorsement naming the builder as an additional 
insured party (with specific business rules associated with renewals) 
would provide homeowner policyholders the option to address such 
coverage. Finally, FEMA proposes to clarify that the policy would not 
cover certain losses to items stored in a digital format or other 
intangible format due to the complexity of demonstrating proof of 
loss.\51\ Throughout the section, FEMA proposes minor edits to the Form 
for clarity. FEMA anticipates the proposed changes to section III would 
generally make the policy easier for agents to sell while also being 
more understandable and desirable for homeowner policyholders as the 
changes more closely align with other insurance policies with which 
homeowners are familiar and the changes generally provide homeowners 
with more flexibility by offering more coverage options.
---------------------------------------------------------------------------

    \51\ Digital storage was not a substantial concern when the SFIP 
was drafted in 1999. However, modern technology (allowing for 
cryptocurrency, etc.), renders it sufficiently important to include 
here.
---------------------------------------------------------------------------

a. Coverage A--Dwelling
    FEMA proposes to label Coverage A as ``Dwelling'' (rather than 
retain the Dwelling Form's title of ``Building Property'') to 
differentiate coverage for the primary building--the dwelling--as 
opposed to other buildings that may be covered. In proposed sections 
III.A.1.a, III.A.2.b, III.A.2.c, III.A.3.c(1), and III.A.4.f, FEMA 
proposes to update the language to clarify the coverage detailed in 
this section of the policy relates specifically to the dwelling and to 
distinguish between the dwelling and other buildings that may be 
covered under Coverage B. Proposed section III.A.2, ``Limited Coverage 
for Basements and Enclosures,'' would remove the differentiation of 
coverage based on flood zone type or pre- or post-FIRM status found in 
the Dwelling Form at section III.A.8. This proposed section would 
clarify the limited coverage provided for basements regardless of where 
the property is located. As explained above, FEMA is proposing to 
remove differences in coverage based on flood zone type or pre- or 
post-FIRM status and provide universal default coverage that applies to 
all structures regardless of flood zone.\52\ Maps generally create 
challenges for the application of policy coverage. In a flood event, 
the flood does not simply stop at the map boundary and a homeowner 
policyholder with property that is mapped in a higher risk zone could 
be paying more for less coverage than their neighbors across the 
street, when both are equally impacted by the flood event. By 
eliminating these distinctions in the policy, FEMA proposes to simplify 
the explanation of policy coverage for homeowner policyholders so that 
they have a full understanding of the risks associated with their 
property and can protect

[[Page 8295]]

themselves against flood peril by choosing their coverage accordingly.
---------------------------------------------------------------------------

    \52\ The Dwelling Form provides different types of coverage 
based on FIRM status and zone: basements receive limited coverage 
regardless of zone; certain post-FIRM elevated buildings receive 
limited coverage below the lowest elevated floor; and the remainder 
do not experience coverage limitations. The coverage limitations for 
post-FIRM elevated buildings are a passive enforcement mechanism for 
floodplain management rules concerning use of these spaces (i.e., 44 
CFR 60.3(c)(5), allowing parking of vehicles, building access, and 
storage). In practice, this often means policyholders do not learn 
about the coverage restrictions until they experience a loss. In the 
proposed Homeowner Flood Form, the policy would not provide 
different types of coverage based on FIRM status and zone. Basements 
continue to receive limited coverage regardless of zone. A building 
with an enclosure--meaning it is used in accordance with the 
floodplain management regulations--will continue to receive limited 
coverage. However, if a policyholder does not indicate that they 
have a basement or an enclosure at the time of application, they 
will receive full coverage, but will also pay additional premium 
based on the height of the first floor. The higher premium should 
also act as a more timely signal to the policyholder, who may then 
choose to not use the space for residential purposes. In other 
words, the insurance policy will no longer passively enforce 
floodplain management rules at the time of loss, but will complement 
those rules through risk signaling, and floodplain management 
officials may still take appropriate action on unacceptable uses of 
enclosures.
---------------------------------------------------------------------------

    The proposed changes in section III.A.2.a eliminate the list of 
covered items from current section III.A.8.a as these items are defined 
in proposed section II. Elimination of the list is intended to make the 
policy more readable. Additionally, FEMA proposes changes in section 
III.A.2.d to simplify the understanding of coverage for unfinished 
drywall in a basement or enclosure. The Dwelling Form details drywall 
coverage for walls and ceilings in a basement and the cost to nail it, 
unfinished and unfloated and not taped, to the framing (section 
III.A.8.a(3)). FEMA proposes to simplify this by covering any 
unfinished drywall in a basement and removing the restriction that the 
drywall must be unfloated and not taped. FEMA also proposes to continue 
coverage for nonflammable insulation in basements and enclosures. (See 
Dwelling Form section III.A.8.a(10)).
    FEMA proposes to add section III.A.3, ``Dwelling Limitations,'' to 
summarize the limitations throughout the policy and list them in one 
location. Proposed section III.A.3.a, ``Limitations on mold and 
mildew,'' would revise Dwelling Form section V.D.4 to restate coverage 
in positive rather than negative terms, simplifying the explanation 
that the policy covers damage to the dwelling due to mold and mildew 
caused by a flood only when it is outside of the homeowner 
policyholder's control, i.e., when it is not in the homeowner 
policyholder's control to inspect and maintain the property after a 
flood recedes. FEMA is proposing this change to help resolve current 
challenges faced with claims in this area, as the Agency has 
experienced that implementation of this coverage is more challenging 
than it should be. FEMA historically issued several bulletins to 
clarify this coverage and its limitations \53\ and believes making 
these proposed changes would reduce complexity and simplify the process 
for homeowner policyholders, insurance adjusters, and companies. FEMA 
proposes similar updates in proposed sections III.A.3.b, ``Limitations 
on power, heating, or cooling failure,'' III.A.3.c, ``Limitations on 
flood in the area,'' and III.A.3.d, ``Limitations on pollutants,'' for 
simplicity and readability, and to positively affirm coverage of 
specific items rather than stating coverage in the negative as the 
Dwelling Form does in sections V.D.7, V.D.5-6, and V.F.II.B.22 
respectively. The policy would continue to cover damage to any covered 
building electrical system, such as the building's main service or home 
security system, or to the HVAC system, when a flood physically damages 
equipment installed at the described location (proposed section 
III.A.3.b) as well as pollutant testing and monitoring after a flood 
when required by law or ordinance (proposed section III.A.3.d). FEMA 
also proposes to continue coverage for losses when there is a flood in 
the area and the flood causes a back-up of water or waterborne material 
through sewers or drains, discharge or overflow of a sump pump or 
related equipment, or seepage/leakage on or through the dwelling 
(proposed section III.A.3.c(1)) as well as losses by or from water 
pressure or weight (hydrostatic pressure) (proposed section 
III.A.3.c(2)). FEMA would also continue to cover losses to the dwelling 
by or from the pressure or weight of water on or below the land's 
surface in proposed section III.A.3.c(2).
---------------------------------------------------------------------------

    \53\ See W-13009, found at http://nfipservices.floodsmart.gov/sites/default/files/w-13009.pdf, (last accessed Aug. 28, 2023); W-
16061, found at http://nfipservices.floodsmart.gov/sites/default/files/w-16061.pdf (last accessed Aug. 28, 2023); W-20017, found at 
http://nfipservices.floodsmart.gov/sites/default/files/w-20017.pdf 
(last accessed Aug. 28, 2023); W-11062 found at http://nfipservices.floodsmart.gov/sites/default/files/w-11062.pdf (last 
accessed Aug. 28, 2023); and W-04020, found at http://nfipservices.floodsmart.gov/sites/default/files/w-04020.pdf (last 
accessed Aug. 28, 2023).
---------------------------------------------------------------------------

    Proposed section III.A.4 addresses the items not covered under the 
policy, moving several provisions from article IV of the Dwelling Form 
(Property Not Covered) to keep all ``coverage'' elements together. FEMA 
proposes not to retain references to the Coastal Barrier Resources Act 
and the Coastal Barrier Improvement Act \54\ in this section because 
the language in proposed section I concerning conflicts with Federal 
law renders it unnecessary. FEMA is incorporating into proposed section 
III.A.4.a information from the Dwelling Form at sections V.A.2, V.A.3, 
and V.A.5 to confirm that the policy does not cover loss of use at the 
described location, including any living expenses incurred while the 
dwelling is inaccessible or is unhabitable for any reason. FEMA 
proposes incorporating this into one section for simplicity and 
readability. In addition, FEMA proposes including it under this section 
rather than Section IV, ``Exclusions,'' because the new Form generally 
restricts ``exclusions'' to specific causes, and this language does not 
speak to causation. In sections III.A.4.b and III.A.4.c, FEMA proposes 
separating land and land values from lawns, trees, shrubs, plants, 
growing crops, and landscaping to clarify that land and land values are 
distinct from items that are on the land. Proposed section III.A.4.d 
restates the current requirement in section IV.3 of the Dwelling Form 
that no open structures including but not limited to those in, on, or 
over water are covered, regardless of boat usage. In the proposed form, 
FEMA retains in section III.A.4.e the substance of the language 
currently in the Dwelling Form at section IV.2 except to remove the 
reference to ``personal property'' because Coverage A of this Form 
treats dwellings, not personal property. In section III.A.4.f, FEMA 
proposes to clarify that in addition to underground structures and 
equipment like wells and septic tanks/systems, which are currently 
explicitly listed as not covered in section IV.8 of the Dwelling Form, 
sewer, plumbing supply, waste lines, gas supply lines, electrical and 
HVAC system components (not addressed in the proposed definition of 
``machinery and equipment'') that are not located in the dwelling would 
also continue to not be covered. In section III.A.4.g, FEMA proposes 
not to retain the phrase ``or the building in which the insured unit is 
located'' (found in the Dwelling Form at IV.9) for clarity of coverage 
as the new Form would not be available to condominium unit owners. FEMA 
is proposing additional minor changes in section III.A.4.h for clarity 
regarding containers and related equipment. Proposed sections III.A.4.i 
detailing fences, retaining walls, seawalls, bulkheads, wharves, piers, 
bridges, and docks and III.A.4.j detailing hot tubs and spas as well as 
swimming pools would be unchanged from Dwelling Form sections IV.12 and 
IV.14, respectively.
---------------------------------------------------------------------------

    \54\ 16 U.S.C. 3501 et seq.
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b. Coverage B--Other Buildings
    Coverage B would insure buildings other than the residence located 
at the described location.\55\ This coverage would contain fewer 
limitations than in the Dwelling Form, but with the same 10 percent 
limit (see Dwelling Form section III.A.3). FEMA is proposing to require 
the homeowner policyholder to specify the specific sublimits of this 
coverage applicable to each of the

[[Page 8296]]

buildings on the declarations page to make sure that both the homeowner 
policyholder and FEMA share an understanding of what is on the 
property, to spur the conversation between the homeowner policyholder 
and the insurance agent that higher coverage limits are available by 
separately insuring these properties, and to capture data points for 
repetitive loss purposes. The changes proposed to Coverage B would 
restore non-dwelling buildings to a functional level but would not 
fully restore these buildings. A homeowner policyholder seeking more 
robust coverage should purchase a separate policy for these other 
buildings. Coverage B is not an additional coverage, as it would reduce 
the liability limit for the main building.
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    \55\ These proposed changes would restore coverage for other 
buildings to the NFIP's 1970's approach. See 24 CFR 1911.4(f)(5) 
(1970): ``The insured may apply up to, but not in excess of, 10 
percent of the face amount of the policy to appurtenant structures 
and outbuildings (such as carports, garages, and guest houses) if 
they do not constitute a separate residence. If they do constitute a 
separate residence, or a residential structure still under 
construction, they must be insured under a separate policy.'' This 
approach insures what the homeowner policyholder has and that the 
modern consumer expects, an experience customized and tailored to 
themselves.
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    Proposed section III.B.1 would clarify that FEMA would apply the 
terms of Coverage A to other buildings at the described location except 
as modified in proposed section III.B.2. As noted above, proposed 
section III.B.1.a would require the homeowner policyholder to schedule 
the buildings on the declarations page to confirm their location on the 
property. In doing so, FEMA anticipates homeowner policyholders would 
have discussions with agents regarding higher coverage limits if these 
buildings are separately insured. By capturing the information here, 
FEMA can also gather data on buildings that are repeatedly damaged 
during flooding. Proposed section III.B.1.b would replace section 
III.A.3 of the Dwelling Form and allow other buildings--not simply a 
detached garage--to receive coverage with fewer limitations than in the 
Dwelling Form, but with the same 10 percent limit.
    FEMA proposes to add section III.B.2 to highlight the limitations 
of coverage for other buildings. FEMA is proposing to use Coverage A as 
a ``base'' layer of coverage specifically for the dwelling. Certain 
items previously covered under Coverage A related to other buildings 
are instead covered by this proposed section. Proposed section 
III.B.2.a would remind homeowner policyholders that FEMA would not 
cover anything already excluded under Coverage A. Proposed section 
III.B.2.b would state that FEMA would not cover basements or enclosures 
for any building that is not the dwelling. FEMA is proposing this 
addition as a public policy measure to ensure that the riskiest parts 
of a building that is not the property owner's residence are not 
afforded coverage. For example, homeowner policyholders may have a 
building near the beach on a coastal property containing a bathroom and 
storage space, with an outdoor shower in an enclosure for convenience. 
The proposed policy would allow for coverage of the building at the 
homeowner policyholder's request, but would not cover the enclosure 
given the enhanced risks associated with the enclosure. If a homeowner 
policyholder wants to invest in these enclosures, a separate NFIP flood 
insurance policy could be purchased to cover the other building with 
the enclosure (i.e., under Coverage A), with restricted coverage 
applied to the enclosure. Proposed section III.B.2.c would provide that 
FEMA would not cover other buildings held or used for commercial 
purposes. The purpose of Coverage B is to extend coverage to other 
buildings that may have a residential use, such as a living space built 
above a detached garage; buildings held or used for commercial purposes 
are more appropriately suited for a commercial policy. Proposed section 
III.B.2.d would provide that coverage can only extend to property the 
homeowner policyholder owns. This addition is consistent with the 
broader principle of ``insurable interest,'' which requires that the 
insured have a right or relationship to the item insured such that the 
insured can suffer a financial loss from damage, loss, or destruction 
to it. By affirming this requirement, FEMA seeks to reduce the risk of 
moral hazard, whereby a homeowner policyholder might have a financial 
incentive to allow or even cause a loss.
c. Coverage C--Personal Property
    FEMA proposes to move personal property coverage to proposed 
section III.C and to further align it with common industry practices. 
In contrast to section III.B.1 of the Dwelling Form that is conditioned 
on whether or not the homeowner policyholder has purchased contents 
coverage, FEMA proposes to change coverage in section III.C.1 to insure 
all property inside a building at the described location with coverage 
up to the limits listed on the declarations page. (Separate coverage 
for personal property not at the described location is detailed in 
proposed section III.C.2). Section III.C.1.a would remain unchanged 
from section III.B.1.a of the Dwelling Form. Proposed section III.C.1.b 
would provide that FEMA would insure property owned by non-paying 
guests or laborers. By specifying that the guests be non-paying, FEMA 
seeks to specifically exclude the possibility of short-term rentals, 
such as vacation rentals, to clarify the rental agreement would govern 
any such arrangement and ensure there is no contractual overlay, and 
also to avoid the scenario where a renter seeks payment pursuant to 
this policy. By changing ``servants'' to ``laborers,'' FEMA seeks to 
modernize the language and include more individuals that may have 
personal property in the described location.
    In section III.C.2, FEMA is proposing to provide some coverage away 
from the described location to ensure that the homeowner policyholder 
gets an additional benefit of flood coverage to protect their personal 
property. Homeowner policyholders may experience flooding while on 
travel, may experience a flood loss if they have personal property at a 
family member's house, or if they keep items in a storage unit. Under 
the Dwelling Form at section III.C.2.b, a homeowner policyholder may 
already claim this type of coverage at another location if they moved 
the property because of a reasonable threat of flood. Expanding 
coverage would eliminate the cumbersome adjudication analysis of 
whether the homeowner policyholder moved the property to safety in 
advance of a flood. With a storage unit, a homeowner policyholder could 
rent a storage locker and, following a flood event, claim that he or 
she relocated certain property from the dwelling to the storage unit 
for safety. Under the Dwelling Form, if a flood occurs at the storage 
unit, absent a dated photo showing the property located in the storage 
unit, in the same position, the insurer would be unable to determine 
when the property was placed in the storage unit. The proposed 
expansion avoids this complex adjudication by providing the homeowner 
policyholder with coverage in that situation. Moreover, expanding 
coverage to contents that are not at the described location aligns with 
industry standards for homeowners personal property coverage.
    FEMA notes that although homeowners coverage can extend to personal 
property anywhere in the world, the NFIA only authorizes flood 
insurance in the United States.\56\ Thus, FEMA proposes limited 
coverage for personal property anywhere in the United States. Under 
proposed section III.C.2.a, FEMA would pay no more than 10 percent of 
the Coverage C limits for personal property located anywhere in the 
United States if the property is in a building at a location other than 
the described location, or in a storage facility building. FEMA 
proposes these changes to reaffirm the requirement that the personal 
property be located inside a ``building'' (defined as a fully enclosed 
structure) for coverage and to align with other common insurance 
products.

[[Page 8297]]

Under proposed section III.C.2.b, the 10 percent coverage limitation 
would not apply to personal property moved to a building reasonably 
safe from flood, and not in a basement or enclosure, due to flooding 
near the described location. This provision would not retain the 
language in section III.C.2.b(3) of the Dwelling Form requiring moving 
personal property outside of a special flood hazard area, but would 
instead just require a reasonable assurance of safety to expand 
coverage beyond the 10 percent limitation. It is difficult for 
homeowner policyholders to ascertain where special flood hazard areas 
are located, and an attic in a special flood hazard area may reasonably 
be more secure than a ground floor \57\ just outside of that area. In 
section III.C.2.b(1), FEMA proposes language to clarify that it would 
cover personal property where a homeowner policyholder moves it from 
his or her home to another location for protection, but the home 
ultimately does not flood. Section III.C.2.b(2) would affirm coverage 
when an evacuation order is issued. Finally, in section III.C.2.b(3), 
FEMA proposes to extend coverage beyond the 10 percent limitation where 
the personal property was moved due to repairs, renovations, 
reconstruction, or other conditions rendering the described location 
uninhabitable or unsuitable for property storage.
---------------------------------------------------------------------------

    \56\ 42 U.S.C. 4011(a).
    \57\ Property must be placed above ground level. See Dwelling 
Form section III.C.2.b(3).
---------------------------------------------------------------------------

    In proposed section III.C.3, ``Personal Property Limitations,'' 
subsection 3.a would provide that in a basement or enclosure, the 
policy would only cover appliances installed in their functioning 
locations and, if necessary for operation, connected to a power source. 
FEMA proposes not to retain the references to flood zones and pre- or 
post-FIRM status found in the current Dwelling Form (in section 
III.B.5) to conform with other proposed changes to the policy. FEMA 
anticipates that homeowner policyholders would better understand the 
scope of the coverage available without the additional complicating 
language around the property's flood zone location and the pre- or 
post-FIRM status of the property. Additionally, rather than listing out 
specific appliances, FEMA proposes to categorize the items listed in 
section III.B.4 of the Dwelling Form as ``appliances'' for simplicity. 
Proposed section III.C.3.b would further clarify the Dwelling Form's 
requirement at section III.B.3 that personal property in any portion of 
a building that is not fully enclosed must be secured to prevent 
flotation out of the building.
    Like section III.B.8 of the Dwelling Form, proposed section III.C.4 
would provide special limits for specific kinds of personal property. 
Rather than retaining the dollar limit in this section, FEMA proposes 
instead to move it to the declarations page for readability and ease of 
understanding. While proposed sections III.C.4.a, III.C.4.b, III.C.4.c, 
III.C.4.d and III.C.4.f mirror existing provisions in the Dwelling Form 
for special limits to personal property coverage, FEMA proposes to add 
a new provision (section III.C.4.e) to specifically clarify coverage 
limits for portable electronic devices. A homeowner policyholder should 
be able to transport such personal property away from a flood and such 
property may also have separate insurance available. For instance, cell 
phones come with an offer of cell phone insurance; laptops and tablets 
often come with offers of insurance as well. The distinction between 
whether something is designed as portable or not should serve as the 
bright line rule. For example, a laptop computer is portable while a 
desktop computer is not, and a Sony PlayStation and a Microsoft Xbox 
are not designed as portable whereas a Nintendo Switch is. Proposed 
section III.C.4.f would also clarify that personal property primarily 
used ``for any commercial purposes,'' rather than the current ``in any 
business'' requirement in section III.B.6.e of the Dwelling Form, falls 
within these special limits. FEMA proposes to specify that coverage is 
limited for ``commercial purposes'' rather than ``any business'' to 
continue providing coverage for hobbyists who may occasionally sell 
what they create, but who do not operate as a business or have a 
Federal Employment Identification Number for commercial tax purposes. 
Finally, FEMA proposes to add section III.C.4.g to provide coverage for 
up to 10 percent of the special limit on the declarations page for 
valued paper, metals, or other similarly valued objects such as 
accounts, bills, coins, currency, deeds, evidences of debt, medals, 
money, scrip, stored value cards, postage stamps, securities, bullion, 
or manuscripts. FEMA proposes this additional coverage because coverage 
of these items is the industry standard. Proposed section III.C.5 would 
retain the statement currently in the Dwelling Form at section III.B.9 
that FEMA would only pay for the functional value of antiques.
    In proposed section III.C.6, FEMA seeks to consolidate all 
exclusions specific to personal property into one section to enhance 
readability and ensure that homeowner policyholders and insurance 
agents make appropriate decisions regarding how they insure the 
property. Proposed section III.C.6.a would make it clear that FEMA 
would not cover anything already excluded under Coverages A and B. FEMA 
proposes to categorically narrow the coverage for personal property in 
this respect to clarify that there can be no instance where something 
excluded from either Coverage A or Coverage B could be eligible for 
coverage under Coverage C. Proposed sections III.C.6.b and III.C.6.c 
(excluding coverage for loss of use of personal property at the 
described location, and personal property not inside a building) remain 
unchanged from existing language in the Dwelling Form. Consistent with 
coverage limitations in the current Dwelling Form, proposed section 
III.C.6.d of the Homeowner Flood Form provides that FEMA would not 
cover personal property in a basement or enclosure, except as stated in 
III.C.3 which limits coverage to appliances installed in their 
functioning locations consistent with the current Dwelling Form. FEMA 
is proposing to make a change to this section to eliminate references 
to flood zones or pre- or post-FIRM status of a building, consistent 
with other changes throughout the policy. Similarly, proposed section 
III.C.6.e, excluding coverage for personal property in a building 
constructed or substantially improved after September 30, 1982, that is 
located in, on, or over water or seaward of mean high tide, would 
include non-substantive, grammatical revisions to conform to other 
organizational changes within the policy. Proposed section III.C.6.f 
would clarify that personal property in any open structure that is in, 
on, or over water is not covered regardless of its use. FEMA proposes 
to add section III.C.6.g to exclude losses to items stored in digital 
or other intangible formats, consistent with broader industry standards 
and other insurance products. This addition would have the effect of 
excluding cryptocurrency and other such digital items, given the 
challenges with proving such losses. For example, a flood could cause a 
server or desktop computer with valuable information on it to stop 
working. The policy would not cover these losses given the challenges 
associated with proof of loss, such as demonstrating the existence of 
the information at the time of loss, the inability to access or restore 
the information through other means, the valuation of such information, 
and other concerns. In proposed section III.C.6.h, FEMA seeks to add 
items held in

[[Page 8298]]

violation of state or Federal law to the list of exclusions to clarify 
that the Agency would not pay to indemnify against inherently illegal 
activity. FEMA also proposes to add section III.C.6.i to exclude 
coverage for living things, consistent with current Agency policy, 
broader industry standards, and other insurance products. In section 
III.C.6.j, FEMA proposes a minor change to the exclusion from coverage 
of any self-propelled vehicle or machine to prohibit coverage for those 
vehicles or machines capable of transporting people or cargo while 
continuing to allow coverage for vehicles or machines not registered 
for use on public roads that are used solely to service the described 
location or to assist people with disabilities when such property is 
inside a building at the described location. FEMA is proposing this 
change to clarify that coverage would not extend to vehicles that do 
not service the property or aid those with a disability, as other 
insurance is more appropriate for those items.\58\
---------------------------------------------------------------------------

    \58\ For example, a separate automobile insurance policy would 
be more appropriate for all-terrain vehicles (ATVs) and golf carts 
because their use is not limited to servicing the location or 
assisting those with disabilities. By contrast, this policy would 
cover farm vehicles not licensed for use on a public road. See NFIP 
Claims Manual (June 2023) at COVERAGE-19, available at https://www.fema.gov/sites/default/files/documents/fema_nfip-claims-manual_062023.pdf (last accessed Aug. 28, 2023).
---------------------------------------------------------------------------

d. Coverage D--Other Coverages
    FEMA proposes organizing section III.D to align with the policy's 
organizational structure. Section III.D.1, ``Debris Removal,'' 
clarifies what debris is covered and what is not. Specifically, FEMA 
proposes in section III.D.1.a to cover labor and expense to remove 
debris from anywhere that comes onto or into the dwelling or other 
insured buildings, and debris of insured property anywhere. FEMA 
proposes the clarification in section III.D.1.a(1) to emphasize that 
labor is an element of the total covered expense. Additionally, FEMA 
proposes a slight broadening of coverage from the current Dwelling Form 
in proposed section III.D.1.a(1)(a) of the Homeowner Flood Form to 
state that the removal of any debris inside the insured buildings is 
covered. Proposed section III.D.1.a(2) would clarify that FEMA would 
pay the value of any debris removal work performed by the homeowner 
policyholder or a member of one's household using the Federal minimum 
wage, and that this coverage does not increase the coverage limit on 
the declarations page. Proposed section III.D.1.b, ``Debris Not 
Covered,'' would provide that the policy does not cover debris from 
other locations on the land surrounding the dwelling or other insured 
buildings or any non-covered items of property from the dwelling or 
buildings, even if the removal facilitates covered cleanup or repairs. 
FEMA proposes this clarifying language to ensure that homeowner 
policyholders appropriately insure their property and to avoid 
duplication of benefits to both owners of debris and the homeowner 
policyholder upon whose land the debris resides.
    FEMA proposes to slightly broaden coverage in section III.D.2, 
``Loss Prevention.'' Section III.D.2.a would provide that FEMA would 
pay up to the coverage sublimit specified on the declarations page for 
the expenses a homeowner policyholder incurs to protect one's insured 
property from a flood or imminent danger of flood. These expenses would 
be limited to: (1) reasonable expenses to buy materials to use 
temporary measures to avoid or reduce the harm from an imminent flood, 
including sandbags, fill for temporary levees, and pumps; and (2) the 
value of work, at the Federal minimum wage, that a homeowner 
policyholder or a member of her household performs to protect the 
property. Section III.D.2.b would specify that this coverage for 
materials and labor only applies if damage to the insured property by 
or from flood is imminent and the threat of flood damage is apparent 
enough to reasonably anticipate flood damage, and only if one of the 
following occurs: (1) a general and temporary condition of flooding in 
the area near the described location occurs, even if the flood does not 
reach the insured building; or (2) a legally-authorized official issues 
an evacuation order or other civil order for the community in which the 
property is located to preserve life and property from flood. FEMA 
proposes this language for increased clarity and consistency with other 
sections in the Form. For instance, while the Dwelling Form at section 
III.C.2.a(1) limits coverage to $1,000, this proposed section would 
remove the dollar limit from the Form itself, allowing it to be altered 
through the declarations page or other guidance. The proposed language 
would also limit the use of lists (compare with sections 
III.C.2.a(1)(a)(i)-(iv) of the Dwelling Form) and allow coverage where 
there may be technological or local variances in what items are used to 
prevent losses rather than restrict it to the specific items in the 
policy as is currently the case.
    Proposed section III.D.3, ``Property Removed to Safety,'' would 
provide that FEMA would pay up to the coverage limit on the 
declarations page, at the Federal minimum wage, for reasonable expenses 
and labor a homeowner policyholder or member of her household, incurs 
for moving insured property to a secure location to protect it from 
flood or the imminent danger of flood. Consistent with other sections 
in the Form, this language would simplify coverage by removing mention 
of special flood hazard areas, as well as the coverage limit, allowing 
the limit to be altered through the declarations page or other 
guidance. Proposed section III.D.4 would specify that Coverage D does 
not increase the limits of Coverages A, B, or C.
5. Section IV: Exclusions
    Proposed section IV would replace article V of the Dwelling Form. 
By continuing to address exclusions separately from coverage, FEMA 
seeks to clearly delineate between the types of property covered and 
not covered from the sources of damage excluded. This is to conform 
with industry standards, as insurance companies generally combine what 
is covered and not covered in the coverage section of their policies, 
and address excluded causation in the exclusions section. As this is a 
single peril policy, it is FEMA's position that a shorter, simplified 
exclusions section would reduce confusion on the part of the homeowner 
policyholder. Proposed section IV is structured to address three main 
concepts: excluded losses; flood in progress; and pre-existing damage.
a. Excluded Losses
    For excluded losses, FEMA proposes to exclude other perils, 
economic losses (including loss of business or losses associated with 
upgrading to code per law or ordinance), earth movement, gradual 
erosion, several non-flood but water-related causes of loss, and damage 
from defects, rot, or infestation. Many of the exclusions in the 
proposed policy mirror in substance those in the existing Dwelling 
Form. In proposed section IV.A.1, FEMA seeks to simplify the language 
to exclude other perils as this is a single-peril policy. Consistent 
with other changes in the policy, FEMA proposes to condense the list of 
economic losses excluded from coverage currently in sections V.A.1-7 of 
the Dwelling Form into section IV.A.2 for clarity.
    The proposed earth movement section at IV.A.3 would clarify what is 
and what is not considered earth movement. In proposed section 
IV.A.3.a, FEMA would retain but revise the list of items in the 
corresponding sections of V.C of the Dwelling Form for clarity; this 
list describes what earth movement includes, even if caused by flood. 
While

[[Page 8299]]

FEMA would retain earthquake, landslide, subsidence, and sinkholes on 
the list in proposed sections of IV.A.3, other changes are being 
proposed for modest clarifications. For instance, proposed section 
IV.A.3.a(5) would not retain the phrase ``movement of land that results 
from accumulation of water in subsurface land area'' from section V.C.5 
of the Dwelling Form for clarity. In addition, FEMA proposes to add 
section IV.A.3.a(6) (``Any other movement such as sinking, rising, 
shifting, expanding or contracting of the earth'') as a further catch 
all for any variety of geological phenomena not specifically listed in 
subsections (1)-(5).
    In IV.A.3.b, FEMA proposes to provide further specificity that the 
earth movement coverage exclusion does not include hydrostatic 
pressures or hydrodynamic forces, buoyancy, and frictional force from 
floodwater moving along the surface of the ground. These terms are 
subsumed in the statutory definition of a ``flood.'' \59\ These terms 
appear in the engineering reports included in claims files. The ability 
to line up an engineering report with the policy language should help 
provide policyholders with additional clarity regarding what is and is 
not excluded.
---------------------------------------------------------------------------

    \59\ See NFIA sec. 1370(b)-(c) (42 U.S.C. 4121(b)-(c)).
---------------------------------------------------------------------------

    Proposed section IV.A.4 would exclude coverage for gradual erosion 
caused by the normal water action that wears an area of land away over 
time and contains minor clarifying edits for readability. FEMA proposes 
similar clarifying edits in section IV.A.5, ``Other excluded causes of 
damage.'' These clarifying edits include combining sections V.D.1 and 
V.D.2 of the Dwelling Form into proposed section IV.A.5.a because the 
listed items relate to ice; excluding in section IV.A.5.c damage from 
exposure to water of any form other than flood (as detailed in sections 
V.D.4.b(2), V.D.5, and V.D.6 of the Dwelling Form); and excluding in 
section IV.A.5.e actions taken by homeowner policyholders or any 
members of their household that deliberately cause direct physical loss 
by or from flood (see section V.D.9 of the Dwelling Form). Proposed 
section IV.A.5.b would remain unchanged from section V.D.3 of the 
Dwelling Form. In section IV.A.5.d, FEMA proposes to add other related 
conditions to clarify that design, structural, or mechanical defects; 
deterioration, rot, or corrosion; or damage from insects and rodents 
would be excluded as these are all pre-existing conditions at the time 
of claims adjustment. Homeowner policyholders may not be aware of these 
conditions prior to experiencing a loss, but these conditions are 
generally not attributable to a single flood event and thus would not 
be covered under the policy.
    The Dwelling Form currently excludes coverage for losses that occur 
because of an alteration to the insured property that significantly 
increases the risk of flooding at section V.D.10. Proposed section 
IV.A.6 would clarify that this exclusion covers any homeowner 
policyholder actions, whether an alteration to the insured property or 
a more general change, that causes the hazard to increase by any means 
within the homeowner policyholder's control or with the homeowner 
policyholder's knowledge. FEMA is proposing this revision to streamline 
the policy by stating in one location rather than the two sections 
found in the current Dwelling Form (sections V.D.10 and VII.F) that 
FEMA would not pay for a loss where the homeowner policyholder took 
action or allowed an action to happen that increased their risk of 
flooding.
b. Flood in Progress
    In section IV.B, ``Flood in Progress,'' FEMA proposes to define 
what constitutes a flood in progress, and to address concerns where 
there is a strong moral hazard. This clarity would help ensure that 
policies are not written for a property while a flood is in progress at 
the described location. Further, this proposed revision ensures that if 
a policy is written while a flood is in progress, the exclusion is 
well-defined to help avoid disputes when the homeowner policyholder 
attempts to submit a claim. With this proposed revision, FEMA seeks to 
avoid situations where a homeowner policyholder purchases flood 
insurance as a means of ``buying a claim'' while also allowing 
homeowner policyholders to perceive their risk and take an appropriate 
action. FEMA proposes to explain in section IV.B.1 that a flood is in 
progress when (1) there is a near certainty of a flood loss at the 
described location from a flood control effort such as opening a 
spillway, breaching a levee, or releasing water from a dam, or (2) 
there is a flood at the described location. FEMA proposes to explain in 
section IV.B.2 that if the policy becomes effective in connection with 
a loan closing, FEMA would not pay for loss caused by a flood in 
progress at the time of the loan closing. Proposed section IV.B.3 would 
provide that in all other circumstances, FEMA would not pay for a loss 
caused by a flood in progress that existed on or before the day the 
homeowner policyholder submitted the application. While proposed 
sections IV.B.2 and IV.B.3 mirror in substance the language in section 
V.B of the Dwelling Form, the added clarity in proposed section IV.B.1 
would help ensure that policies are written and administered 
consistently.
c. Pre-Existing Damage
    FEMA proposes in section IV.C to explicitly exclude coverage for 
pre-existing damage. This section would specify that pre-existing 
damage includes flood loss or damage that occurred prior to the date of 
loss, whether direct physical loss or not, and whether paid or unpaid, 
and damage attributable to any non-flood peril that occurred prior to 
the date of loss. Under section VII.H.2.e of the Dwelling Form, when an 
insurance company suspects that damage existed prior to the flood 
event, it can request evidence that prior flood damage has been 
repaired. In some instances, the property may have been sold without 
disclosure of a prior flood loss.\60\ In other instances, the insurer 
may know that a homeowner policyholder had a loss from another peril 
and was paid for the same items. More explicitly excluding coverage for 
pre-existing damage would make the exclusion clearer to homeowner 
policyholders and help prevent disputes over unrepaired flood damage or 
from unrepaired items from other perils that often arise when property 
changes owners. It would also better align the policy with traditional 
insurance concepts and FEMA's longstanding practice of not paying for 
pre-existing damage. Lastly, it would reinforce proposed VI.A.3.g(5) 
(requiring proof of repairs for prior losses to ensure coverage of 
damages occurring from the current loss). Note that FEMA is proposing 
not to retain in this section language regarding ICC coverage, as that 
would be detailed in the ICC Endorsement.
---------------------------------------------------------------------------

    \60\ State laws govern disclosures of prior losses in property 
transfers and the SFIP cannot change state disclosure laws that 
apply to prior losses.
---------------------------------------------------------------------------

6. Section V: Policy Conditions
    Proposed section V would combine provisions from articles VII, 
``General Conditions,'' and VIII, ``Policy Nullification, Cancellation, 
and Non-Renewal,'' of the Dwelling Form that specifically apply to how 
FEMA administers the policy. These provisions represent homeowner 
policyholder-facing underwriting aspects of the policy.

[[Page 8300]]

a. Actions and Conditions That Can Void Your Policy
    Proposed section V.A would describe the actions and conditions that 
can void a policy. Section V.A.1, ``NFIP Ineligibility,'' would provide 
scenarios where the policy is void from inception and has no legal 
force due to underlying ineligibilities. Retaining language from 
section VIII.B.1.a of the Dwelling Form, proposed section V.A.1.a would 
provide that the policy is void if the described location is in a 
community that was not participating in the NFIP at the policy's 
inception and did not join or reenter the NFIP during the policy term 
and before loss occurred. Similarly, proposed section V.A.1.b would 
retain the substance of section VIII.B.1.b of the Dwelling Form and 
provide that the policy is void where the described location or other 
property is otherwise not eligible for coverage under the NFIA or its 
implementing regulations, for reasons of noncompliance with local 
floodplain ordinances or otherwise. Subsection A.1.c would provide that 
the policy is void where any other Federal law prevents coverage of 
property at the described location. FEMA proposes not to retain the 
language in sections VIII.B.1.c-e and VIII.B.2 of the Dwelling Form; 
because these provisions do not relate to coverage, they are better 
suited to guidance.
    Section V.A.2, ``Concealment or Fraud,'' contains much of the same 
language in the Dwelling Form, with three primary clarifications. 
Proposed section V.A.2.a provides that the policy is void and cannot be 
renewed if the insured or agent, at any time before or after a loss, 
intentionally concealed or misrepresented any material fact or 
circumstance, engaged in fraudulent conduct relating to the policy, or 
knowingly made false statements relating to the policy or any other 
NFIP insurance at any time. FEMA proposes to add the word 
``intentionally'' to clarify that a homeowner policyholder must intend 
to conceal or misrepresent in order for the policy to be void; a 
scrivener's error would not result in voidance. FEMA proposes to 
specify that the fraudulent activity must relate to the policy, because 
any fraudulent activity beyond the scope of the policy is not a cause 
for voidance. FEMA also proposes to specify that any false statements 
must have been made ``knowingly'' to ensure that the policy is only 
voided in situations involving malfeasance on the part of the insured 
or agent. Like section VIII.A.3 of the Dwelling Form, proposed section 
V.A.2.b would specify that the policy would be void as of the date the 
acts described in subsection A.2.a were committed. Proposed section 
V.A.2 would not retain the language in section VIII.A.4 of the Dwelling 
Form regarding applicable Federal laws, consistent with other changes.
b. Policy Renewal
    Proposed section V.B, ``Policy Renewal,'' would require that FEMA 
receive the renewal premium within 30 calendar days of the expiration 
date of the prior policy; it would also state the FEMA would not renew 
the policy if Federal law prevents coverage of property at the 
described location. This section is considerably shorter than the 
corresponding section in the Dwelling Form (at section VII.E) and 
conforms to modifications elsewhere in the policy. For instance, this 
section would no longer contain the policy term or right for review, as 
those would be addressed in proposed sections I.D and I.F, 
respectively. Additionally, the Dwelling Form explains the consequences 
when the insurer fails to mail the renewal notice or makes a mistake, 
such as by mailing the notice to the incorrect address. There is no 
analogous provision in other property insurance contracts, and FEMA is 
proposing to eliminate this language given the rarity of these 
situations. Lastly, section V.B.2 would reference ``Federal law'' for 
brevity, as this would include section 1316 and other relevant 
provisions of the NFIA, relevant provisions of the Coastal Barrier 
Resources Act,\61\ and any future statutory changes.
---------------------------------------------------------------------------

    \61\ 16 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

c. Cancellation of the Policy by You
    Proposed section V.C, ``Cancellation of the Policy by You,'' would 
provide that the homeowner policyholder may cancel the policy when the 
homeowner policyholder (1) no longer has an insurable interest in the 
property, (2) is no longer required to maintain flood insurance 
pursuant to Federal law or lender requirements, or (3) has a duplicate 
NFIP policy. It would also provide that if a homeowner policyholder 
cancels the policy, he or she may be entitled to a full or partial 
refund of premium for the current policy term. While the NFIP uses over 
a dozen cancellation reason codes, not all of these are for homeowner 
policyholder cancellation. FEMA isolated the reasons specific to 
homeowner policyholder cancellation, found that they fell into the 
three broad categories outlined just above, and now proposes to 
highlight those categories in the policy itself. It is FEMA's position 
that these changes offer increased clarity for the homeowner 
policyholder compared to the language in the Dwelling Form at section 
VIII.C.
d. Reduction and Reformation of Coverage
    Proposed section V.D, ``Reduction and Reformation of Coverage,'' 
would explain to homeowner policyholders what occurs when the premium 
FEMA receives is insufficient for the coverage sought, but in a shorter 
and easier to read format compared to the Dwelling Form (see section 
VII.D of the Dwelling Form). Proposed section V.D.1 would provide that 
where the premium is not enough to purchase the requested amount of 
coverage, FEMA would issue the policy, but only for the amount of 
coverage that the premium would purchase for a one-year term. This 
section would substantively mirror section VII.D.2 of the Dwelling Form 
but would be more readable. Proposed section V.D.2 would provide that 
FEMA would increase the reduced amount of coverage to the amount 
originally requested without regard to whether a loss occurred when 
FEMA bills for the additional premium, or if necessary to calculate the 
additional premium, requests information (V.D.2.a), and the homeowner 
policyholder responds to the request for additional premium within 30 
calendar days, or responds to the request for additional information 
within 60 calendar days (V.D.2.b). Proposed section V.D.2.c would 
provide that a homeowner policyholder's failure to timely respond may 
result in a waiting period for additional coverage if a loss has not 
occurred within the policy term, or the settlement of a claim under the 
reduced limit if a loss has occurred within the term. Functionally, 
there is no difference between determining that there is an 
insufficient premium before loss or after loss, so treating these 
concepts together should simplify the policy. Altogether, section V.D.2 
would condense sections VII.D.3.a and b of the Dwelling Form into one 
more concise and readable section and would conform to other changes in 
the policy (e.g., specifying ``calendar'' days).
e. Disaster Conditions
    FEMA proposes to add section V.E, ``Disaster Conditions,'' which 
would be a new section. This section would incorporate existing 
practices when a flood reaches such a magnitude that FEMA anticipates 
logistical challenges with adjusting losses and reasonably expects 
increased competition for limited contractor services in the disaster-
effected area, or where homeowner policyholders may not be in a 
position to receive and respond to

[[Page 8301]]

mail regarding the renewal of their flood insurance policy. In these 
scenarios, FEMA has, as a courtesy to homeowner policyholders, extended 
both the proof of loss deadline beyond the 60 days stated in the policy 
and the grace period to renew coverage without experiencing a lapse. 
(For example, FEMA extended the proof of loss and grace period 
deadlines for Hurricanes Harvey, Irma, and Maria in 2017 and Hurricane 
Michael in 2018). FEMA has issued these extensions via bulletin to the 
WYO companies, and via public communications to policyholders who would 
otherwise lack awareness of these extensions and the flexibility they 
bring. In the absence of policy language governing extensions, however, 
stakeholders have often requested longer proof of loss timeframes for 
smaller flooding events, or have asked FEMA to continue to extend 
deadlines indefinitely for even longer periods following major 
flooding. To provide clarity and uniformity, therefore, proposed 
section V.E.1 would provide that in the event of a flood associated 
with a major disaster or emergency declared by the President under the 
Stafford Act,\62\ the FEMA Administrator may, after written notice, 
extend the timeframes for proof of loss up to 365 calendar days from 
the date of loss, and the timeframes for policy renewal up to 60 
calendar days from the policy's expiration date. Placing an explicit, 
objective trigger in the policy would allow it to indicate when these 
``special'' provisions might apply to any homeowner policyholder. In 
addition, establishing clear upper limits for proof of loss and policy 
renewal extensions would enhance clarity and reduce requests for 
indefinite extensions. Furthermore, by making the provision 
discretionary and not mandatory, FEMA seeks to continue to offer 
flexibility. These flexibilities would allow FEMA to extend one or both 
deadlines when necessary and choose shorter timeframes when 
appropriate.
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    \62\ Public Law 93-288, as amended; 42 U.S.C. 5121 et seq.
---------------------------------------------------------------------------

    Proposed section V.E.2 would provide new flexibilities that in the 
event of a flood associated with a declared major disaster or 
emergency, the Administrator may, after written notice, conditionally 
waive the requirement in proposed sections VI.A.3 and VI.B.2 that an 
insured must sign or swear to a proof of loss or an adjuster's report. 
This would authorize the insurer to accept and make payment on the 
adjuster's report. This payment based on the adjuster's report is 
``undisputed'' which allows the insurer to accept that a covered loss 
took place without any further action needed from the policyholder. The 
flexibility provided here would not stop the homeowner policyholder 
from seeking additional payment through a proof of loss but would help 
ensure payment as quickly and safely as possible to the homeowner 
policyholder.
    Proposed section V.E.3 would provide new flexibilities that in the 
event of a flood associated with a declared major disaster or 
emergency, the Administrator may, after written notice, establish 
special procedures for advance payments to insured(s) in accordance 
with proposed section VI.C.3. (As discussed below at section III.A.7.c 
of this preamble, this section would allow the insurer to make an 
advance payment for up to 5 percent of the Coverage A limit to a 
homeowner policyholder without putting the mortgage company on the 
check). Under the current Dwelling Form, a homeowner policyholder with 
Coverage A receives a check issued to the homeowner policyholder and 
any secured interest (i.e., a mortgage or second mortgage, etc.) and 
the homeowner policyholder may have to negotiate with the secured 
interest holder before the check can be cashed to provide payment to a 
contractor for repairs. Some secured interest holders may be reluctant 
to endorse the check until they know the repairs have been made to 
protect their financial position. Doing so, however, can negatively 
impact the homeowner policyholder who is then required to secure the 
contractor with out-of-pocket funds. By allowing for advance payment, 
homeowner policyholders without contents coverage should be able to 
secure a contractor without necessarily utilizing out-of-pocket funds 
while not affecting the mortgage company's ability to file its own 
claim. FEMA understands the proposed 5 percent advance payment would 
benefit the homeowner policyholder so they can rebuild more quickly. 
FEMA believes the proposed 5 percent advance payment is an insurance 
industry standard and seeks comment from the public specifically on 
whether or not the 5 percent advance payment is standard.
    Finally, proposed section V.E.4 would provide new flexibilities 
that in the event of a flood associated with a declared major disaster 
or emergency, the Administrator may, after written notice, settle 
losses in accordance with any formula established under Federal law 
that allocates covered damages amongst multiple perils, including 
flood. This would add flexibility if a declared disaster allows the use 
of the COASTAL Formula for settling losses that allocate damages 
amongst multiple perils.\63\
---------------------------------------------------------------------------

    \63\ Section 1337(b)(1) of the National Flood Insurance Act of 
1968 (NFIA) (42 U.S.C. 4057(b)(1)), as added by section 100253 of 
the Consumer Option for an Alternative System to Allocate Losses Act 
of 2012 (also referred to as the COASTAL Act of 2012) (Pub. L. 112-
141, div. F, title II), requires FEMA to ``establish by rule a 
standard formula to determine and allocate wind losses and flood 
losses for claims involving indeterminate losses.'' This formula is 
referred to as the ``COASTAL Formula'' pursuant to NFIA sec. 
1337(a)(2) (42 U.S.C. 4057(a)(2)). Once FEMA adopts a COASTAL 
Formula in regulation, FEMA may use the formula to oversee the 
handling of claims involving indeterminate losses and, for floods 
resulting in a Federal disaster declaration, make claim payments 
based on the formula. See NFIA sec. 1337(c) (42 U.S.C. 4057(c)).
---------------------------------------------------------------------------

7. Section VI: Procedures and Duties When a Loss Occurs
    The Dwelling Form includes various provisions under article VII, 
``General Conditions.'' FEMA proposes to combine all provisions 
relating to how losses are proven and paid (traditionally claims 
issues) in proposed section VI, ``Procedures and Duties When A Loss 
Occurs.'' The organization of this section would mirror the sequence 
that a homeowner policyholder would use the policy following a loss, 
first addressing what the homeowner policyholder must do, then what 
insurer options exist, how the claims adjustment process works, what 
deductible applies, how loss is settled, and how the appraisal process 
works when required. It is FEMA's position that organizing this section 
according to the logical progression of the process would aid homeowner 
policyholders who experience a loss, helping ensure that they 
understand the policy's terms and conditions as well as the process.
a. Your Duties After a Loss
    In organizing section VI.A, ``Your Duties After a Loss,'' FEMA 
focused extensively on proof of loss. The proof of loss is an industry 
standard concept and is the foundation of payment of any claim. In the 
NFIP, the proof of loss is a crucial customer service tool, ensuring 
that the flood adjuster takes the time to explain coverage and helps 
the homeowner policyholder understand how to address situations where 
the insurance estimate and contractor estimate (or quote) deviate. 
Absent the proof of loss, an adjuster can submit a report to an 
examiner and the insurer can make payment without the homeowner 
policyholder ever understanding what they did or did not get paid for 
as part of the claim. In proposed section VI.A, FEMA seeks to simplify 
the language around proof of loss where possible and address what is

[[Page 8302]]

expected of the homeowner policyholder separately from what options the 
insurer has (proposed section VI.B). These changes align with other 
property insurance forms in the marketplace \64\ and make clear that 
certain duties exist for both parties to the insurance transaction.
---------------------------------------------------------------------------

    \64\ The changes align with the Insurance Services Office's 
``HO-3'' form, the template behind most standard homeowners 
insurance policies. See supra note 24.
---------------------------------------------------------------------------

    Proposed section VI.A would provide that if the described location 
experiences a direct physical loss by or from flood, the homeowner 
policyholder must comply with all of the duties listed in VI.A.1-7. 
This would ensure that the homeowner policyholder knows they must 
comply with these duties, and that substantial compliance would not 
suffice. Proposed section VI.A.1 outlines the first duty, which is to 
give prompt notice to the insurer. This would be a change from the 
Dwelling Form (see section VII.G) and allow for a reasonable form of 
prompt notice to the insurer when a loss occurs rather than 
specifically requiring a written notice. The critical element of the 
notice requirement is timing, not the form the notice takes. This 
proposed revision provides flexibility to the homeowner policyholder 
regarding the ways prompt notification can be given and reflects 
current practice, as some homeowner policyholders provide prompt notice 
by calling or emailing their insurance agents when a loss occurs. 
Proposed section VI.A.2 would require that the homeowner policyholder 
separate the damaged and undamaged property as soon as possible so that 
it can be examined and take all reasonable measures to protect covered 
property from any further loss. This section would not retain the 
phrase ``best possible order'' found in section VII.G.2 of the Dwelling 
Form because this language is unnecessary, as FEMA does not deny claims 
because there was a better possible order available. In addition, the 
requirement that homeowner policyholders take reasonable measures to 
protect undamaged property would help avoid scenarios where avoidable 
damage or intervening causes of loss occur, which could result in 
denial of coverage. This additional language reinforces the duty to 
mitigate loss and reduce the potential for intervening causes of loss 
which generally result in denial of insurance claims.
    Proposed section VI.A.3 makes a significant change from the 
Dwelling Form (see section VII.G.4) regarding timing of submission of 
the proof of loss. It would require that within 90 calendar days after 
the loss, the homeowner policyholder must send FEMA a signed and sworn 
proof of loss containing the date and time of loss, how the loss 
occurred, details of any other insurance, changes in title or occupancy 
of the property during the policy term, names of mortgagees or anyone 
else with a lien, charge, or claim against the property, a description 
of all damages and detailed repair estimates (if available), and an 
inventory of the lost, damaged, or destroyed property. The inventory 
must show the quantity, description, replacement cost value or actual 
cash value (whichever is applicable), amount of loss, evidence that 
prior flood damage has been repaired, any written plans for repair of 
the property that the homeowner policyholder can reasonably make 
available, and all funds the homeowner policyholder spends recovering 
from the loss. The homeowner policyholder must also attach copies of 
all bills, receipts, invoices, written estimates, and related 
documents.
    This proposed section would increase the timeframe to submit a 
proof of loss from 60 to 90 days, and, consistent with other provisions 
in the Homeowner Flood Form, specify that these are calendar days. FEMA 
has historically provided a 60-day window for providing proof of loss. 
FEMA recognizes that 60 days, the industry standard,\65\ is normally a 
sufficient timeframe for homeowner policyholders to provide the proof 
of loss information in a non-disaster scenario. FEMA proposes, however, 
to surpass the industry standard regarding this timeframe given the 
nature of the peril involved--flooding--the governmental nature of the 
NFIP,\66\ and the fact that as mentioned previously, FEMA has often 
provided homeowner policyholders with extensions of the 60-day window 
in catastrophic conditions.\67\ Flooding, often resulting from severe 
storms, can require extended evacuation periods. After a flood, 
securing contractors to determine the full scope of damage to a 
property can be challenging given the increased demand in impacted 
areas for these services. Increasing the timeframe to provide proof of 
loss should assist homeowner policyholders by providing additional time 
to return to the property after an evacuation and secure a contractor. 
FEMA anticipates that this increased timeframe would also result in 
fewer homeowner policyholder requests for additional payment that FEMA 
currently sees with the 60-day window. In a catastrophic event, 
homeowner policyholders need to coordinate with contractors to obtain 
price quotes which can take time given the volume of demand after an 
event. While the insurance policy would provide payment based on an 
adjuster's estimate, it is just that--an estimate. An occasion may 
arise where an estimate is insufficient to cover the cost of repairs 
that are within the policy's coverage that a contractor's quote would 
capture. Additionally, there may be an occasion where a contractor's 
quote may include repairs that are not covered under the policy. For 
example, a garage door is damaged by flood. The adjuster finds coverage 
and identifies the scope of the

[[Page 8303]]

covered damage and estimates the value of the covered damage at $500. 
The contractor's quote may indicate a $1,000 price to replace the 
garage door. The additional $500 in the contractor's quote may be due 
to an increase in the price of the unit following the disaster and such 
cost may be covered. The additional $500 in the contractor's quote 
could be for rewiring to conform to local building codes and such a 
code upgrade would generally not be covered. The proposed additional 
time would allow homeowner policyholders to obtain contractor services 
and resolve these questions in advance, improving the efficiency of the 
process overall.
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    \65\ See Nevada Department of Insurance Allstate Homeowner's 
Form, page 12, Section 1 Conditions 3.g (stating that signed, sworn 
proof of loss statements must be submitted within 60 days after the 
loss), found at http://docs.nv.gov/doi/documents/home_policies/AllStateForms/AP783.pdf (last accessed Aug. 28, 2023).
    \66\ As a government program, the NFIP does not have the variety 
of flexibilities available to the private sector regarding post-loss 
options. If a policyholder experiences a loss, a private industry 
insurer can send over their preferred contractors to handle 
everything for the policyholder after the payment of the deductible. 
In the NFIP, utilizing treasury funds and other governmental 
requirements generally require a greater degree of precision and 
puts an added burden on SFIP policyholders as compared to their 
general homeowners coverage through private insurance. By providing 
more time in this proposed revision, FEMA is offering SFIP customers 
extra time beyond the industry standard to help alleviate this added 
burden.
    \67\ For example, FEMA extended these deadlines for Hurricane 
Maria (see e.g., Bulletin W-17057, ``Activation of NFIP Catastrophic 
Event Enhanced Claim Payment Process and Proof of Loss Extension for 
Hurricane Maria,'' (Sept. 28, 2017), found at https://nfipservices.floodsmart.gov/sites/default/files/w-17057.pdf (last 
accessed Aug. 28, 2023)), Hurricane Irma (see e.g., Bulletin W-
17040, ``Activation of NFIP Catastrophic Event Enhanced Claim 
Payment Process and Proof of Loss Extension of Hurricane Irma,'' 
(Sept. 17, 2017), found at https://nfipservices.floodsmart.gov/sites/default/files/w-17040.pdf (last accessed Aug. 28, 2023)), and 
the August 2016 floods in Louisiana (see e.g., Bulletin W-16028, 
``Notice of the Limited Waiver of the Standard Flood Insurance 
Policy (``SFIP'') to Extend the Time for Sending Proofs of Loss in 
the States of Louisiana and Mississippi for Claims Related to Severe 
Winter Storms Commencing on March 7, 2016 through March 19, 2016,'' 
(Apr. 21, 2016), found at https://nfipservices.floodsmart.gov/sites/default/files/w-16028.pdf (last accessed Aug. 28, 2023)); Bulletin 
W-16038, ``Notice of the Limited Waiver of the Standard Flood 
Insurance Policy (``SFIP'') to Extend the Time for Sending Proofs of 
Loss in the State of Louisiana for Claims Related to Severe Spring 
Storms Commencing on April 17, 2016 through April 20, 2016,'' (Jun. 
15, 2016), found at https://nfipservices.floodsmart.gov/sites/default/files/w-16038.pdf (last accessed Aug. 28, 2023)); Bulletin 
W-16067, ``Notice of the Limited Waiver of the Standard Flood 
Insurance Policy (``SFIP'') to Extend the Time for Sending Proofs of 
Loss in the State of Louisiana for Claims Related to the Mid-Summer 
Severe Storms Commencing on August 9, 2016 through August 31, 
2016,'' (Sept. 9, 2016), found at https://nfipservices.floodsmart.gov/sites/default/files/w-16067.pdf (last 
accessed Aug. 28, 2023)), among others.
---------------------------------------------------------------------------

    FEMA proposes to retain in proposed section VI.A.3 the Dwelling 
Form's existing requirements in section VII.G.4 for documenting the 
proof of loss with a few minor adjustments. These include proposed 
VI.A.3.c's requirement that the homeowner policyholder provide details 
of any other insurance that may cover some or all of the loss, as this 
would make the insurer aware of the other insurance regardless of the 
extent of coverage it may provide for the loss. In addition, VI.A.3.f's 
requirement that the homeowner policyholder provide a description of 
all damages to the dwelling and other covered buildings with detailed 
repair estimates would help remind homeowner policyholders of the 
requirements to prepare their claim for Coverages A and B. While much 
of the required inventory list remains the same, FEMA highlights a few 
changes here. First, proposed section VI.A.3.g would require homeowner 
policyholders to list not only damaged property, but also property that 
may have been lost or destroyed, as that property may still be eligible 
for coverage. Second, proposed section VI.A.3.g(3) would add in 
replacement cost value, as Coverage C would be eligible for replacement 
cost value loss settlement instead of only actual cash value. Third, 
proposed section VI.A.3.g(7)'s requirement of information on all funds 
actually spent recovering from the loss, including copies of all bills, 
receipts, invoices, written estimates, and related documents, would 
enhance the insurer's ability to accurately and completely settle the 
loss.
    FEMA proposes minor clarifying edits in proposed sections VI.A.4, 
VI.A.5, VI.A.6, and VI.A.7. Like section VII.G.5 of the Dwelling Form, 
proposed section VI.A.4 would continue requiring homeowner 
policyholders to use their own judgment concerning the amount of loss 
and justify that amount before signing it. Like section VII.G.6 of the 
Dwelling Form, proposed section VI.A.5 would clarify that there may be 
additional parties beyond an adjuster involved in the investigation of 
a claim. In proposed section VI.A.6, FEMA would add an industry 
standard provision requiring the homeowner policyholder make the 
damaged property accessible for inspection, to ensure that the insurer 
can inspect the damaged property as appropriate for the claims review 
process. FEMA also proposes conforming changes in section VI.A.7 
(section VII.G.7 of the Dwelling Form) to the deadline for submission 
of proof of loss to 90 calendar days as reflected in proposed section 
VI.A.3.
b. Our Options After a Loss
    In proposed section VI.B, ``Our Options After a Loss,'' FEMA seeks 
to simplify and further clarify the insurer's options. Section VI.B.1. 
would provide that after a loss and at the insurer's sole discretion, 
it may require that the homeowner policyholder provide it access to the 
damaged property, submit to examination under oath upon request and 
sign the transcript from such examination, and permit the insurer to 
examine and make copies of all or any portion of any policies of 
property insurance against loss and the deed establishing ownership of 
the insured property, and all bills, invoices, receipts, and other 
records pertaining to the damaged property (or certified copies if 
originals are lost). Section VI.B.2 would allow the insurer to accept 
its adjuster's report of the loss in lieu of a proof of loss and 
require the homeowner policyholder to sign the report, and it would 
also allow the insurer to require the homeowner policyholder to swear 
to the report. This section does not mirror its counterpart in the 
Dwelling Form (at section VII.H) because the section in the Dwelling 
Form includes several concepts that the Homeowner Flood Form would 
cover in other sections (e.g., inventory requirements, which the Form 
would cover in VI.A.g, discussed above). FEMA proposes to add the 
requirement in VI.B.1.a that the homeowner policyholder provide the 
insurer access to the damaged property as this would formally enable 
the inspection of damaged property to better facilitate the claims 
review process. FEMA's proposed reorganization and restatement of the 
requirement to provide transactional and other records related to the 
damaged property in section VI.B.1.c(2) would increase clarity for 
homeowner policyholders and ensure they understand that insurers can 
examine and make copies of these records. The language in proposed 
VI.B.2 is currently in the Dwelling Form (at section VII.G.9), but FEMA 
proposes not to retain the language describing what the adjuster's 
report includes (information about the loss and damages sustained) 
because this language is unnecessary. This section would also not 
retain the option currently in section VII.H.3.a of the Dwelling Form 
for insurers to make repairs directly, as it is unnecessary. This 
repair option has been a part of the Dwelling Form for several years, 
yet FEMA data show that insurers have not invoked this option.
c. Loss Payment
    Proposed section VI.C, ``Loss Payment,'' would retain much of the 
current Dwelling Form's language at VII.J with minor changes. In 
section VI.C.1, ``Adjustment of Claims,'' paragraph a. would state that 
the insurer has not authorized the adjuster to approve or disapprove 
any claim. This language would eliminate the redundancy currently in 
the Dwelling Form and clarify that the adjuster is not authorized to 
approve or disapprove any claim. Paragraph VI.C.1.b would retain the 
language in section VII.J.1 of the Dwelling Form except for the 
clarification that the 60 and 90-day timeframes are calendar days, 
consistent with other proposed changes. Proposed section VI.C.2 would 
similarly retain the language in the Dwelling Form at section VII.J.2, 
except it would increase the timeframe a homeowner policyholder has to 
file an amended proof of loss from 60 to 90 calendar days from the date 
of loss, and would add references to the appeal, appraisal, and 
litigation sections of the policy to make clear to homeowner 
policyholders the additional rights available to them.
    FEMA proposes to add a section on ``Advance Payments'' at proposed 
VI.C.3. Section VI.C.3.a would provide that the insurer may provide the 
homeowner policyholder with an advance payment prior to the completion 
of the claim, and the homeowner policyholder may request an advance 
payment after providing the notice of loss. It would further provide 
that these payments may include amounts totaling no more than 5 percent 
of the Coverage A limit to an insured without regard to proposed 
section VII.F (``Mortgage Clause,'' discussed below). Section VI.C.3.b 
would provide that the insurer may approve or reject the request for 
advance payment, and that such approval or rejection does not affect 
the final adjustment of the claim and does not change the homeowner 
policyholder's duties or insurer's options. Section VI.C.3.c would 
state that if the insurer provides an advance

[[Page 8304]]

payment that exceeds the covered loss, the insurer would send written 
notice of the overpayment, and the homeowner policyholder must repay 
the excess amount or dispute the validity of the overpayment within 30 
calendar days. It would further provide that failure to repay any 
overpayment may result in a debt collection by the Federal Government. 
Current guidance requires the insurer to contact the homeowner 
policyholder with a description of the remedies available to the NFIP 
upon failure to repay the amount due by the deadline.\68\ Providing 
this information in the policy would ensure the homeowner policyholder 
is aware of this option in advance. FEMA proposes this section to 
increase flexibility for insurers and transparency for the homeowner 
policyholder, as giving insurers the option to issue advance payments 
comports with industry practice. The language in VI.C.3.a permitting up 
to 5 percent of the Coverage A limit of liability as an advance payment 
would allow the insurer to issue a de minimis amount of payment to an 
insured without having to include a mortgagee on the check. Lastly, 
proposed section VI.C.3.c explains that an advance payment cannot 
provide for a beneficial loss as this is an indemnity policy. Indemnity 
insurance is a contractual agreement in which the insurer guarantees 
compensation for actual losses or damages sustained and thus, the 
homeowner policyholder must repay any excess amount issued.
---------------------------------------------------------------------------

    \68\ See Claims Manual at 217.
---------------------------------------------------------------------------

d. Deductible
    The Dwelling Form addresses deductibles in a standalone article 
(``VI. Deductibles''). For the Homeowner Flood Form, however, FEMA 
proposes to place the deductible section within section VI, 
``Procedures and Duties When a Loss Occurs,'' as treating it within the 
loss context is more logical. FEMA also proposes to present the 
deductible as a single deductible instead of several deductibles for 
simplicity. Proposed section VI.D.1 would retain language in the 
Dwelling Form at VI.A, providing that when a loss is covered under the 
policy, the insured would pay only that part of the loss that exceeds 
the homeowner policyholder's deductible amount (subject to the 
applicable coverage limit), and that the deductible amount is shown on 
the declarations page. This section would not retain the additional 
language in the Dwelling Form at VI.A regarding buildings under 
construction, as the Homeowner Flood Form would treat buildings under 
construction in a separate endorsement. Proposed section VI.D.2 would 
provide that in each loss from flood, a single deductible applies to 
losses to the dwelling and all other insured property. Proposed section 
VI.D.3 would clarify that the deductible does not apply to any loss 
avoidance measures specified in proposed sections III.D.2 or III.D.3. 
Although offering separate deductibles for building and personal 
property coverage are long-time conditions of the flood insurance 
policy,\69\ it is FEMA's position that offering a single deductible for 
property and contents aligns with industry standards and customer 
expectations. A single deductible is also permissible under the NFIP's 
statutory authority, as the NFIA sets the minimum deductible for 
buildings,\70\ but no minimum deductible for personal property. Most 
claims for personal property loss also contain a building loss claim 
because personal property must be inside a building for coverage and it 
is unlikely that personal property would be damaged without 
corresponding building losses. The Biggert-Waters Flood Insurance 
Reform Act of 2012 (BW-12) \71\ requires policyholders be paid only for 
damage to property covered under their policy and a single deductible 
applying to losses from the dwelling and all other property insured by 
the policy comports with this. In proposed section VI.D.3, FEMA retains 
the reference to loss avoidance measures, but does not retain 
references to condominium loss assessments or Increased Cost of 
Compliance. As mentioned previously, the Homeowner Flood Form would not 
cover condominium units, and would include ICC coverage through an 
endorsement.
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    \69\ The National Flood Insurance Act authorizes FEMA to deliver 
the NFIP in one of two ways. The first (Part A), envisions an 
industry program supported by the Federal Government whereby FEMA 
serves as a backstop for a pool of private insurers which sell a 
flood insurance policy containing terms provided by FEMA. The second 
(Part B, under which the NFIP currently operates), envisions a 
Government program with industry support whereby FEMA leads a 
program where private insurers agree to sell and service a Federal 
flood insurance policy. When the NFIP operated under Part A, the 
Department of Housing and Urban Development (HUD) set certain flood 
insurance terms and conditions by regulation that FEMA continued to 
utilize even after the switch to operating under Part B. See 
generally 24 CFR 1911(f)(3) (1970): ``The policy contains a 
deductible clause. Each loss sustained by the insured is subject to 
a deductible provision under which the insured bears a portion of 
the loss before payment is made under the policy. The amount of this 
deductible is either $100 for each type of loss (that is, $100 on 
the structure and $100 on the contents) or 2 percent of the amount 
of insurance applicable to the type of loss, whichever is greater;'' 
and 44 CFR 61.5(d)(1980): ``Each loss sustained by the insured is 
subject to a deductible provision under which the insured bears a 
portion of the loss before payment is made under the policy. The 
amount of the deductible for each loss occurrence is (1) For 
structural losses, $200, and (2) for contents losses, $200.''
    \70\ 42 U.S.C. 4019(b).
    \71\ Public Law 112-141, 126 Stat. 916 (2012).
---------------------------------------------------------------------------

e. Loss Settlement
    FEMA proposes in section VI.E, ``Loss Settlement,'' to simplify the 
provisions regarding loss settlement compared to the Dwelling Form's 
section on the same (see section VII.R). This section would make it 
clear that replacement cost value--the method of valuation using the 
amount that it would cost to replace an asset--rather than actual cash 
value, would be the default loss settlement. (As noted previously, a 
homeowner policyholder seeking coverage at actual cash value may do so 
by endorsement.) Section VI.E.1 would explicitly state that the policy 
provides both replacement cost value and actual cash value as possible 
methods of settling losses based on whether property is insured to 
value. (1) Section VI.E.1.a would apply replacement cost value to the 
dwelling, if at the time of loss, the coverage limit that applies to 
the dwelling is 80 percent or more of full replacement cost immediately 
before the loss or is the maximum coverage limit available under the 
NFIP. It would also apply replacement cost value to claims arising 
under Coverage B or C of the policy. Extending replacement cost value 
loss settlement beyond Coverage A to Coverage B and C aligns the Form 
with customer expectations and comports with other proposed changes for 
consistency across coverages. (2) Section VI.E.1.b would apply actual 
cash value if the dwelling is not eligible for replacement cost value 
because it does not meet the conditions of VI.E.1.a, (insured to value) 
or if actual cash value is specified in an endorsement (allowing 
homeowner policyholders to elect actual cash value loss settlement at 
the time of policy inception, with an appropriately adjusted premium 
requirement reflecting the lowered expected loss).\72\ Proposed section 
VI.E.1 would not retain special loss settlement, as it is only 
applicable to

[[Page 8305]]

certain mobile homes (which would not be covered under the Form).
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    \72\ Using replacement cost value allows FEMA to pay a 
policyholder to replace what he or she had at the time of loss with 
new like and kind quality. Actual cash value allows FEMA to pay a 
policyholder to replace what he or she had at the time of loss while 
considering the quality of the item and applying depreciation. For 
example, if a floor is damaged by a flood, under replacement cost 
value, the policyholder would receive payment for the type of 
flooring at the same quality at current prices. Under actual cash 
value, the policyholder would receive payment for the type of 
flooring at the same quality less depreciation (wear and tear, 
etc.), resulting in a reduced payment.
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    Proposed section VI.E.2, ``Replacement Cost Value Settlement,'' 
would provide that if the loss is subject to replacement cost value 
under VI.E.1.a, the insurer would pay to repair or replace the damaged 
dwelling or other buildings at the described location or covered 
personal property, but not more than the lesser of (1) the coverage 
limit applicable to the loss as shown on the declarations page; (2) the 
replacement cost of the damaged part of the dwelling using materials of 
like kind and quality and for like use; or (3) the amount necessary to 
repair or replace the damaged part of the dwelling for like use. 
Proposed section VI.E.2 would also provide that where the loss is 
subject to replacement cost value and the dwelling is rebuilt at a new 
location, the insurer would pay only the cost that would have been 
incurred if the dwelling had been rebuilt at its former location. 
Proposed section VI.E.3, ``Actual Cash Value,'' would provide that if 
actual cash value loss settlement applies, the insurer would pay the 
lesser of the actual cash value of the covered property, or the policy 
limits stated on the declarations page. Compared to the Dwelling Form, 
these sections contain conforming edits (such as not retaining the 
distinction between primary and nonprimary residences), and 
nonsubstantive edits for readability. These sections would also not 
retain the special situations listed in the Dwelling Form where only 
actual cash value applies, consistent with other proposed changes.
    FEMA proposes a new section VI.E.4, ``Flood Mitigation Expenses,'' 
to give customers and those who have suffered loss additional options 
to receive payment for modest mitigation efforts.\73\ Section VI.E.4.a 
would provide that the insurer would reimburse for post-loss expenses 
that mitigate against future flood events as long as post-loss expenses 
do not exceed the policy limits. Section VI.E.4.b would allow the 
homeowner policyholder to choose to replace any damage under Coverage A 
or B with Flood Damage Resistant Materials; after completing 
installation of these materials, the homeowner policyholder may request 
reimbursement. Section VI.E.4.c would allow the homeowner policyholder 
to choose to elevate his or her machinery and equipment above a 
basement or enclosure. Such elevated machinery or equipment must be 
elevated to a height reasonably expected to avoid future direct 
physical loss by or from flood. After elevating machinery and 
equipment, the homeowner policyholder may request reimbursement. The 
NFIP is not strictly an insurance program, but rather a program that 
combines studying flood risk, mapping it, creating national minimum 
floodplain management standards, and transferring flood risk.\74\ Under 
these revisions, FEMA would not only pay to repair damaged property to 
the status quo ante, it would pay for the additional higher costs of 
flood damage resistant materials or additional labor to move machinery 
and equipment. In the same way that many insurers currently take 
efforts to reduce the likelihood or size of future claim payments pre-
loss,\75\ these revisions would allow FEMA to pay for similar actions, 
just after the loss. Ultimately, the coverage is there to help the 
homeowner policyholder recover; FEMA anticipates that the premiums tied 
to the coverage choices would signal the underlying risk and promote 
mitigation efforts.
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    \73\ Any payment for mitigation efforts must be within statutory 
limits and within the context of repairs of damaged items where 
applicable.
    \74\ See 42 U.S.C. 4001 et seq generally. Note that 42 U.S.C. 
4001 addresses the intent of Congress to create a program that is 
not strictly a flood insurance program; 42 U.S.C. 4014(a) authorizes 
the agency to conduct studies and investigation for premium rate 
estimation; 42 U.S.C. 4101b authorizes the agency to map flood risk; 
42 U.S.C. 4102 authorizes the agency to conduct studies and 
investigations for land management, floodplain management, and 
zoning; 42 U.S.C. 4122 authorizes the agency to study perils other 
than flood; and 42 U.S.C. 4127(c) authorizes the agency to utilize 
appropriations for studies.
    \75\ E.g., many insurers offer defensive driving discounts for 
automobile policies, premium credits if a policyholder installs a 
security system in his or her home, a reduction in premium for a 
commercial liability policy if the business has sprinkler systems 
installed throughout, etc. In essence, these efforts ``pay'' for 
actions pre-loss through reductions in premium collected.
---------------------------------------------------------------------------

    Lastly, proposed section VI.E.5 would provide that the Form is not 
a valued policy and would explain that a valued policy is a policy in 
which the payable amount in the event of a total loss is agreed upon by 
the insured and insurer. This reference puts the homeowner policyholder 
on notice that, in the event of a total loss, the homeowner 
policyholder would not automatically receive the policy limits. 
Although the Dwelling Form also states that it is not a valued policy, 
it contains this statement in the Definitions section. FEMA proposes to 
place this in the Form's Loss Settlement section (1) because this is 
the only location where it uses the term, and (2) to acknowledge the 
frequency with which insurers cite to the term in denial letters, so 
that homeowner policyholders would better understand the policy's loss 
parameters.
f. Appraisal
    In section VI.F, ``Appraisal,'' FEMA proposes to revise provisions 
regarding appraisal to more closely mirror the NFIP's guidance issued 
by bulletin,\76\ as appraisal carries a different meaning for the NFIP 
than it does for property insurance under some state laws.\77\ Under 
section VI.F, if the homeowner policyholder and the insurer fail to 
agree on the replacement cost value, or if applicable, actual cash 
value, and are thus unable to settle the amount of loss, either party 
may demand an appraisal of the loss. Section VI.F.1 outlines the 
conditions before a homeowner policyholder can request an appraisal. 
Before requesting an appraisal, the homeowner policyholder must agree 
with the insurer on a list of damaged items to be appraised (VI.F.1.a) 
and must have complied with proof of loss requirements (VI.F.1.b). (If 
the homeowner policyholder is uncertain about their loss and has not 
finalized a proof of loss claim, the appraisal process is not 
appropriate). Section VI.F.1.c would provide that appraisal is only 
available when the dispute involves the price to be paid for the 
covered property. Other disputes, such as disputes regarding coverage 
or causation, or the extent of the loss, would not be able to be 
resolved through the appraisal process. Section VI.F.2, ``Appraisal 
Process,'' retains the language from section VII.M of the Dwelling Form 
with minor conforming changes regarding actual cash value and 
replacement cost value, and clarifying that the timeframes are in 
calendar days, consistent with other proposed changes in the form. In 
proposed section VI.F.3, FEMA seeks to more closely mirror the guidance 
set out by previous bulletins to confirm that appraisals can only be 
used when it would result in complete resolution of the entire claim 
and

[[Page 8306]]

cannot be used to resolve only part of the claim or to determine the 
value of some items and not others.
---------------------------------------------------------------------------

    \76\ See Bulletin W-13029, ``Proper Invocation and Usage of the 
Appraisal Clause Provisions in the Standard Flood Insurance Policy'' 
(May 15, 2013), found at https://nfipservices.floodsmart.gov/sites/default/files/w-13029.pdf (last accessed Aug. 28, 2023).
    \77\ In traditional claims handling, one first addresses 
eligibility (i.e., is there a valid policy, insurable interest, 
etc.?), then coverage (i.e., is there a loss caused by flood?), then 
the scope of the loss (i.e., how much damage did floodwater cause?), 
then finally pricing (i.e., the value of the loss items). For the 
NFIP, appraisal only comes into play when there is a dispute 
regarding pricing (i.e., the insurer and policyholder agree on 
eligibility, coverage, and scope, just not on price). Many states, 
by contrast, use appraisal in a variety of other ways, such as 
determining causation (especially when there are multiple perils) or 
other aspects of the claim. Because each state has specific 
insurance laws that govern in the absence of a Federal law on point, 
appraisal often serves as a ``catch-all'' for a range of dispute 
resolution programs that exist for insurance which vary from state-
to-state.
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8. Section VII: General Conditions
    Proposed section VII, ``General Conditions,'' would contain items 
of general applicability to the policy. While article VII of the 
Dwelling Form contains most of these provisions, the Homeowner Flood 
Form would reorganize them alphabetically to make it easier for the 
policyholder to find relevant information. It would also add three new 
provisions (``Death,'' ``Headings and Captions,'' and ``Your Options 
After Our Denial'') discussed in further detail below.
    In proposed section VII.A, ``Abandonment,'' FEMA proposes to add 
the word ``unilaterally'' so that the provision would read that the 
policyholder may not unilaterally abandon to the insurer, damaged or 
undamaged property insured under the policy. This is to ensure an 
agreement for salvage, as the policyholder cannot invoke salvage for 
the insurer. Proposed section VII.B, ``Amendments, Waivers, and 
Assignment,'' would break out the first two sentences of section VII.C 
of the Dwelling Form into separate clauses for readability, and would 
change the reference to ``Federal Insurance Administrator'' to 
``Administrator'' to conform with the policy's proposed terminology. 
Although the current Dwelling Form provides conditions under which the 
policyholder may assign the policy, proposed section VII.B.3 would 
prohibit the assignment of the policy or claim to any other party in 
order to avoid claims-related issues in states that allow assignment of 
benefits.\78\ Because the increased choice and flexibility of the 
Homeowner Flood Form allows homeowner policyholders to tailor it to 
their needs, it is FEMA's position that it would not be necessary or 
desirable for a homeowner policyholder to assign the policy to another 
party.\79\ This is because the policy, as tailored by the original 
homeowner policyholder, would not necessarily provide adequate 
insurance coverage for the assignee. Eliminating the option to assign 
should result in more fulsome discussions between agents and homeowner 
policyholders regarding available options and would allow each 
homeowner policyholder to choose the options that are right for them, 
rather than having to accept a policy tailored to another individual's 
choices.
---------------------------------------------------------------------------

    \78\ FEMA notes that while the Agency does permit assignment of 
ICC benefits to a community in the context of grants, the extent to 
which the FEMA will continue to permit assignment of ICC benefits 
would be addressed in the ICC Endorsement.
    \79\ For instance, a homeowner policyholder may want actual cash 
value while an assignee might want replacement cost value coverage, 
a homeowner policyholder may want additional living expenses while 
an assignee might not, or a policyholder may not want to cover other 
buildings under Coverage B, while an assignee might want to cover 
one or more. In addition, to the extent that FEMA permits different 
values for sublimits (e.g., loss avoidance, etc.), this is another 
choice that may differ between homeowner policyholders and 
assignees.
---------------------------------------------------------------------------

    Proposed section VII.C, ``Death,'' would be a new provision and 
would provide that in the event of the homeowner policyholder's death 
during the policy term, the coverage under the policy would continue 
automatically for any other insured(s). If no other insured exists, the 
policy would insure the administrator, executor, or other legal 
representative of the homeowner policyholder's estate as previously 
determined by the homeowner policyholder or the intestacy laws of the 
state where the described location is located, but only for the 
dwelling, building(s), and personal property of the deceased at the 
time of death. Issues involving the death of a homeowner policyholder 
arise with frequency. These can include situations where insurers deny 
claims by invoking the assignment clause, questions arise over whether 
the spouse was a resident of the same household, or more simply, 
remaining family who are still grieving the loss become frustrated with 
the insurance process. Addressing this scenario in the policy would 
align it with industry practice, as homeowners' policies include a 
death clause, and would reduce complexity for the remaining insured(s) 
and/or family of the deceased.
    Proposed section VII.D, ``Duplicate Policies Not Allowed,'' would 
provide that FEMA would not insure personal property at the described 
location under more than one NFIP policy. It would further provide that 
if there is more than one NFIP policy for buildings at the described 
location, FEMA would apply the NFIP rules concerning duplicate policies 
and cancel or nullify one of the policies, whichever is applicable, 
which may result in a refund. Compared to the Dwelling Form (see 
sections I.F and VIII.D.3), the proposed language here contains updates 
to capture the ability to have other insurance from a private carrier 
(but not multiple NFIP policies), to reflect 44 CFR 62.5(e), 
``Cancelation or Nullification of Duplicate NFIP Policies,'' as well as 
other minor and conforming updates for clarity and readability.
    Proposed section VII.E, ``Headings and Captions,'' would be a new 
provision and would provide that the headings and captions used in the 
policy are for convenience of reference only and shall not affect or 
control the meaning or interpretation of any of the terms, conditions, 
or provisions of the policy. FEMA proposes this provision for clarity 
and to prevent dependence on meta-textual information.
    In sections VII.F, ``Mortgage Clause,'' VII.G, ``No Benefit to 
Bailee,'' VII.H, ``Other Insurance,'' and VII.I, ``Pair and Set 
Clause,'' FEMA proposes to retain the language from the Dwelling Form 
with minor edits. Proposed section VII.F, ``Mortgage Clause,'' would 
retain the language in the Dwelling Form at VII.N and make minor 
conforming and clarifying changes. For example, FEMA proposes 
conforming edits to proposed VII.F.1 to describe coverages of 
buildings, and edits to proposed VII.F.4 to extend to mortgagees the 
same right to access claim files as that available to the named insured 
as they both have equity in the property and both are already entitled 
to receive loss payment. Proposed section VII.G., ``No Benefit to 
Bailee,'' would retain the language from the Dwelling Form at section 
VII.I as this language is industry standard, with minor grammatical 
edits. FEMA proposes minor conforming edits to proposed section VII.H, 
``Other Insurance,'' (such as updating cross references and not 
retaining the language in the Dwelling Form at section VII.B.2 
regarding insurance for condominium associations, as the Homeowner 
Flood Form would only cover homeowners). Proposed section VII.I, ``Pair 
and Set Clause,'' would include language from the Dwelling Form at 
section VII.A with grammatical changes, except that it would not retain 
the language regarding depreciation as the loss settlement provision 
would be at replacement cost value, not actual cash value.
    Proposed section VII.J, ``Salvage,'' would retain the language from 
section VII.L of the Dwelling Form at proposed VII.J.2, but would 
include a new provision at VII.J.1 stating that after providing written 
notice, the insured may take all or any part of the damaged property at 
the value that the parties agree upon or its appraised value. (This 
provision is currently in the Dwelling Form at VII.H.3.b, ``Our Options 
After A Loss'' [proposed VI.B of the Homeowner Flood Form], and FEMA 
proposes to include this language in proposed section VII.J instead 
because it relates to salvage).
    In proposed section VII.K, ``Subrogation,'' FEMA proposes to 
rewrite the provision on subrogation because the language in the 
Dwelling Form at VII.P has been a source of

[[Page 8307]]

confusion to homeowner policyholders. Section VII.K would define 
``subrogation'' upfront to mean that the homeowner policyholder's right 
to recover for a loss that was partly or totally caused by someone else 
is automatically transferred to the insurer, to the extent the insurer 
has paid for the loss. It would state that the insurer may require the 
homeowner policyholder to acknowledge the transfer in writing. The 
provision would continue by explaining the subrogation process in more 
detail, providing that whenever the insurer pays for a loss under the 
policy, the insurer is subrogated to the homeowner policyholder's right 
to recover for that loss from any other person. After the loss, the 
homeowner policyholder must deliver all related papers to the insurer, 
must cooperate with the insurer, and may not interfere with or do 
anything that would prevent the insurer's right to recover this money. 
If the insurer pays for a loss under this policy and the homeowner 
policyholder: (1) makes a claim against any person who caused the loss; 
and (2) recovers any money from that person, the homeowner policyholder 
must return the insurer's payment before keeping the recovered funds, 
without regard to any non-covered losses occurring at the described 
location.
    Finally, FEMA proposes a new section VII.L, ``Your Options After 
Our Denial,'' to place the options that a homeowner policyholder has 
after denial in a single location within the General Conditions 
section. Proposed section VII.L.1, ``Request Additional Payment,'' 
would provide that the homeowner policyholder may request additional 
payment and amend the initial proof of loss, and must submit this 
request of amended proof of loss as set forth in proposed VI.A. It 
would further provide that a denial letter does not extend the deadline 
in proposed VI.A.3 to submit a proof of loss. This section would 
reaffirm to homeowner policyholders that there are additional 
administrative options through which they can come to a resolution with 
the insurer on a claim. Giving homeowner policyholders options to work 
with insurers in order to reach a satisfactory agreement aligns with 
industry practice and should result in fewer appeals or lawsuits. 
Proposed section VII.L.2, ``Appeal,'' would provide that if the insurer 
denies a claim, in whole or in part, the insurer would send the 
homeowner policyholder a denial letter. If the homeowner policyholder 
wishes to appeal the denial, he or she must send an appeal letter 
explaining his or her position and a copy of the denial letter to FEMA 
within 60 calendar days of the date of the insurer's letter. It would 
further provide that filing an appeal to FEMA does not limit or affect 
the homeowner policyholder's ability to file suit, or to seek an 
additional payment or file an amended proof of loss with the insurer. 
Proposed section VII.L.2 incorporates requirements from the Flood 
Insurance Reform Act of 2004 \80\ on the appeals process and other 
conforming changes (i.e., specifying ``calendar'' days). Proposed 
section VII.L.3, ``File a Lawsuit Against Us,'' would retain the 
language currently in the Dwelling Form at VII.F, ``Suit Against Us,'' 
with minor grammatical changes.
---------------------------------------------------------------------------

    \80\ Flood Insurance Reform Act of 2004, Public Law 108-264 
(2004).
---------------------------------------------------------------------------

    Finally, in the signature section, FEMA proposes to update the 
signee from ``Administrator, Federal Insurance Administration,'' 
toFederal Insurance Adminstrator, a position set in statute.\81\
---------------------------------------------------------------------------

    \81\ 42 U.S.C. 4129
---------------------------------------------------------------------------

D. Appendix A(101): Increased Cost of Compliance Coverage Endorsement

    As mentioned above, in addition to the Homeowner Flood Form, FEMA 
also proposes to offer five endorsements to expand or exclude coverage 
for various risks. The first of these endorsements is for Increased 
Cost of Compliance (ICC) coverage. Under section III.D of the Dwelling 
Form, when an insured building sustains a flood loss and the community 
declares the building substantially or repetitively damaged, ICC 
coverage will pay up to $30,000 for the cost to elevate, demolish, or 
relocate the building. FEMA proposes to offer this additional coverage 
for the cost to comply with State or community floodplain management 
laws or ordinances after a direct loss from flood not within the 
Homeowner Flood Form itself, but as an endorsement to the new Form.
    The ICC Endorsement would modify the Homeowner Flood Form in six 
locations. First, it would add to section II of the Form definitions 
for ``Community Official'' and ``Compliance Activities.'' ``Community 
Official'' would mean the non-Federal official enforcing floodplain 
management ordinances that meet or exceed the minimum standards of the 
NFIP on a damaged building. ``Compliance Activities'' would mean 
legally required mitigation activities approved by the Administrator 
that reduce or remove the risk of future flood damage to a building at 
the described location. Second, it would add to section III, ``What We 
Cover,'' a new section E, ``Increased Cost of Compliance.'' Section E 
would provide that FEMA would pay up to the ICC limit for the cost of 
compliance activities actually incurred when required by a community 
official. It would specify that use of this coverage is at the 
homeowner policyholder's option, but the combined payments from FEMA 
under Coverage A, Coverage B, and Coverage E may not exceed the maximum 
amount of coverage permitted by the NFIA. It would also require that 
when the building is repaired or rebuilt, it must be intended for the 
same occupancy as the present building unless otherwise required by 
current floodplain management ordinances or laws. It would also 
explicitly state that the Homeowner Flood Form, as modified by the ICC 
Endorsement, would not cover (1) anything already excluded anywhere in 
the policy, (2) costs of compliance activities for either flood loss 
pre-dating the current loss, or for additions or improvements to the 
dwelling made after the loss occurred, and (3) any standard that does 
not meet the minimum requirements of the NFIP. Third, the ICC 
Endorsement would add to section IV, ``Exclusions,'' a sentence to 
paragraph IV.A.2. to specify that the economic loss exclusion would not 
apply to any eligible activities described in added Coverage E. Fourth, 
it would amend section V, ``Policy Conditions,'' by adding to paragraph 
E.1 that in the event of a flood associated with a Presidentially-
declared disaster or emergency, the Administrator may extend the 
timeframe for requesting ICC for a period not to exceed 6 years from 
the date of loss. Fifth, it would amend section VI, ``Procedures and 
Duties When A Loss Occurs,'' by expanding paragraph D.3 to specify that 
the deductible would not apply to ICC coverage, and adding to paragraph 
E, ``Loss Settlement,'' a sixth subparagraph to specify that FEMA would 
pay a homeowner policyholder for eligible ICC costs when (s)he has 
completed his or her compliance activities as soon as reasonably 
possible after the loss, not to exceed 2 years. Finally, the ICC 
Endorsement would modify section VII, ``General Conditions,'' to 
provide an exception to the prohibition against assigning the policy in 
paragraph B.3 to allow a homeowner policyholder to assign a claim under 
Coverage E to a state or local government or nonprofit organization to 
apply toward the non-Federal cost share of a Federal grant.
    FEMA proposes offering ICC coverage as an endorsement to the new 
Form rather than providing it within the Form (as the Dwelling Form 
does) to streamline its implementation. Its

[[Page 8308]]

placement within the text of the current Dwelling Form has created 
transactional difficulties as ICC involves more stakeholders than the 
rest of the insurance contract. While the Dwelling Form generally 
involves just the policyholder and the WYO, ICC involves the homeowner 
policyholder, WYO, and local officials. Moreover, while the timelines 
for processing claims under Coverages A, B, and C occur relatively 
quickly under current practices, the timelines for processing ICC 
claims can extend for years. This is largely because homeowner 
policyholders must receive a letter from the relevant community 
official, permits, claims for partial and complete payments, 
certificates of occupancy, etc. Because ICC is a different coverage 
with a different process, offering it as an endorsement would help 
create a break between the two tracks and enable the NFIP to more 
easily monitor and analyze information concerning ICC coverage. For any 
homeowner policyholder who could receive ICC benefits, FEMA would 
automatically add the ICC Endorsement to the policy. (This endorsement 
is the only one out of the five proposed endorsements that would be 
``mandatory'' in this respect).\82\ In almost every possible situation 
for the Homeowner Flood Form, the homeowner policyholder will have ICC 
coverage but FEMA is still proposing that ICC coverage be available 
through an endorsement to allow for more flexibility in future flood 
policy form revisions.
---------------------------------------------------------------------------

    \82\ 42 U.S.C. 4011(b).
---------------------------------------------------------------------------

E. Appendix A(102): Actual Cash Value Loss Settlement Endorsement

    The Dwelling Form uses actual cash value rather than replacement 
cost value as the general default loss settlement.\83\ Most property 
owners, however, intend to insure buildings for replacement cost or up 
to the statutory limit of $250,000 for a single-family building in 
order to come as close as possible to being made whole. It is for this 
reason that FEMA proposes to offer replacement cost value as the 
Homeowner Flood Form's default loss settlement. Nevertheless, FEMA 
proposes to offer homeowner policyholders the choice of insuring their 
building for actual cash value for a reduced premium.
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    \83\ See section VII.R.1.c. The Dwelling Form uses actual cash 
value as the default in the following contexts: when the dwelling is 
underinsured (coverage purchased is <80% of replacement cost value 
and less than the maximum amount available under the NFIP); two-to-
four family dwellings; units not used exclusively as single-family 
dwellings; detached garages; personal property; appliances, carpets, 
carpet pads; outdoor awnings, outdoor antennas/aerials, or other 
outdoor equipment; post-loss abandoned property that remains at the 
described location; and any residence that is not a principal 
residence. Art. VII.R.4.
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    The Actual Cash Value Loss Settlement Endorsement would modify the 
Homeowner Flood Form to provide actual cash value as the only available 
valuation for settling covered losses. It would amend subparagraph E.1 
(``Loss Settlement'') in section VI to provide that the policy offers 
actual cash value loss settlement, and remove from the Homeowner Flood 
Form subparagraph E.2, ``Replacement Cost Value Loss Settlement.''

F. Appendix A(103): Temporary Housing Expense Endorsement

    The Dwelling Form expressly excludes coverage for additional living 
expenses incurred while the insured building is being repaired or is 
unable to be occupied for any reason. (See section V.A.5). The 
insurance industry, however, generally offers coverage for additional 
living expenses. Accordingly, FEMA proposes to offer homeowner 
policyholders the option of purchasing additional coverage to receive 
compensation in the event they are displaced from their insured 
property due to flood while their home is undergoing repair. This 
optional coverage would align with the NFIA's directive to provide 
coverage ``against loss resulting from physical damage to or loss of 
real property or personal property,'' 42 U.S.C. 4011(a), because it 
would protect homeowner policyholders from certain economic harms 
directly resulting from physical damage to their home. Making this 
optional coverage available would also decrease the need for post-
disaster housing assistance through FEMA's Individuals and Households 
Program.
    The Temporary Housing Expense Endorsement would cover temporary 
housing expenses actually incurred by homeowner policyholders up to the 
coverage sublimit for an additional premium when the dwelling is 
uninhabitable or the homeowner policyholder is ordered to evacuate.\84\ 
The endorsement would modify Homeowner Flood Form section III, 
paragraph A.4.a to state that the policy does not cover loss of use of 
the described location while the dwelling is inaccessible, being 
repaired, or is uninhabitable for any reason except as provided in 
III.D.4 as modified by endorsement. The endorsement would also modify 
section III by redesignating paragraph D.4 as D.5, and adding a new 
subparagraph D.4, ``Temporary Housing Expense.'' This subparagraph 
would provide two scenarios where FEMA would cover temporary housing 
expenses actually incurred by the homeowner policyholder up to the 
coverage sublimit for an additional premium received. First, FEMA would 
provide coverage when the dwelling at the described location is 
uninhabitable due to direct physical loss by or from flood. Payment in 
this scenario would be for the shortest amount of time required to 
repair or replace the damage or, if the homeowner policyholder 
permanently relocates, the shortest time required for his or her 
household to settle elsewhere. Second, FEMA would provide coverage when 
a legally authorized official has issued an evacuation or civil order 
for the community in which the dwelling is located calling for measures 
to preserve life and property from the peril of flood. Payment in this 
scenario would be for the shortest time period covered by the order. 
This subparagraph would also provide that the time period for temporary 
housing expense coverage is not limited by the expiration of the policy 
term specified in I.D, but in any case, would not exceed 24 consecutive 
months from the date of the covered flood loss.
---------------------------------------------------------------------------

    \84\ This endorsement would not cover expenses beyond those 
directly related to an inhabitable dwelling, such as tolls for an 
increased commute or childcare costs.
---------------------------------------------------------------------------

G. Appendix A(104): Basement Coverage Endorsement Approaches

    The current Dwelling Form restricts coverage in a basement. Under 
the Dwelling Form, FEMA limits basement coverage to drywall for walls 
and ceilings and the cost to nail it, unfinished and unfloated and not 
taped, to the framing (section III.A.8.a(3)); nonflammable insulation 
(section III.A.8.a(10)); foundation elements; stairways; and certain 
kinds of machinery and equipment. In addition, the Dwelling Form limits 
personal property coverage in a basement to portable or window type air 
conditioning units, clothes washers and dryers, and non-walk-in food 
freezers and food in any freezer as long as these are installed in 
their functioning locations and, if necessary for operation, connected 
to a power source (section III.B.3).
    As FEMA describes above in sections III.A.3.a and III.A.3.c of this 
preamble, FEMA includes in the proposed Homeowner Flood Form limited, 
simplified coverage for basements. FEMA recognizes, however, that 
homeowners may value their basements, and contents within, more than 
the amount covered by the policy. FEMA has offered this restrictive 
coverage for

[[Page 8309]]

four decades and the proposed new Homeowner Flood Form would not change 
that coverage absent an endorsement. FEMA believes the limited basement 
coverage creates challenges in the flood insurance sales context for 
homeowner policyholders who want more coverage than the current 
Dwelling Form allows and in the recovery context for homeowner 
policyholders who need it to more fully recover from a flood event.
    FEMA further believes that expanded basement coverage would not 
significantly impact the financial soundness of the NFIP. Basements are 
not typical in many of the areas that experience a higher frequency of 
hurricanes and catastrophic flooding, e.g., Florida and Louisiana. In 
its efforts to develop this coverage, FEMA undertook an analysis of the 
impact of expanded basement coverage on the financial soundness of the 
NFIP. Using Superstorm Sandy (2012) as a proxy for catastrophic 
flooding in an area with a higher incidence of basements, FEMA 
determined that it would have paid an additional 6 percent in loss 
payments (over $500,000,000 in expenses) if every claim involving a 
basement opted for expanded coverage. FEMA notes that it would have 
brought in additional premium to offset this amount, though it had no 
means to determine the specific amounts of premium across all policies. 
The relatively low percentage for the overall cost reflects that NFIP 
coverage already pays for multiple high-cost items typically located in 
basements (e.g., HVAC, water heaters, etc.). While a low percentage, 
there is a corresponding benefit to policyholders who would no longer 
have to make up that difference as they recovered from the flood event. 
FEMA believes that offering better coverage may attract policyholders 
in other regions of the country that do not typically face catastrophic 
hurricane risk but where basements are more prevalent; however FEMA 
seeks comment on whether offering additional basement coverage would 
attract policyholders.
    Given these factors, FEMA considered three approaches to basement 
coverage: (1) the current approach of retaining the current restricted 
coverage, with a focus on training agents selling flood insurance to 
further discuss what constitutes a basement under the Homeowner Flood 
Form and the restrictions on coverage at the point of sale to better 
inform homeowner policyholders and those seeking to purchase new 
homeowner flood insurance of the coverage restrictions; (2) FEMA's 
preferred approach of offering an endorsement to the proposed Homeowner 
Flood Form that would allow homeowner policyholders to remove the 
restrictions currently on basement coverage for an additional premium 
(``Basement Coverage Endorsement''); and (3) a third approach of 
offering an endorsement (a) to allow homeowners with split-level homes 
or sunken room(s) to remove the restrictions for additional premium, 
while also allowing limited building coverage, for additional premium, 
and (b) to homeowner policyholders who need to occupy (occupancy) part 
of their basement to remove the restrictions to allow limited coverage, 
for additional premium. Occupancy would focus additional coverage on 
rooms in the basement such as bedrooms, bathrooms, and kitchens/
kitchettes. Maintaining current basement coverage restrictions and 
providing additional training to agents under the first approach could 
better equip agents to explain the coverage and identify basements at 
the time of application. The potential benefit of this approach could 
increase basement coverage understanding for insurance agents that 
could be conveyed to homeowners during the time of application. FEMA 
rejected this basement coverage alternative approach because the 
current restricted basement coverage fails to adequately meet the 
insurance needs of the American people. FEMA does not expect additional 
insurance agent training to greatly improve homeowner policyholder 
coverage understanding because homeowners only have one standard flood 
insurance policy for selection. This lack of consumer choice limits 
policyholder engagement of coverage details and discussions with agents 
at the time of application.
    FEMA's preferred approach is the approach (approach two) to remove 
restrictions, as it would offer homeowner policyholders a Basement 
Coverage Endorsement where they can purchase coverage up to specified 
sublimits for an additional premium. For approach two, FEMA proposes 
that the endorsement to remove restrictions currently on basement 
coverage for an additional premium. (``Basement Coverage Endorsement'') 
would replace section III.A.2 (``Limited Coverage for Basements and 
Enclosures'') with a new subparagraph A.2, ``Coverage for Basements.'' 
This subparagraph would state that for an additional premium received, 
FEMA insures up to the selected Coverage A sublimit against direct 
physical loss by or from flood to the basement. FEMA further proposes 
that the endorsement for approach two would also replace III.C.3.a 
(``Limitations on Property in a Basement or in an Enclosure'') with a 
new subparagraph C.3.a providing that (1) for an additional premium, 
FEMA would insure up to the selected Coverage C limit against direct 
physical loss by or from flood to personal property in a basement; and 
(2) in an enclosure, the policy would only cover appliances installed 
in their functioning locations and, if necessary for operation, 
connected to a power source. The proposed Homeowner Flood Form enhanced 
basement coverage (approach two) addresses several deficits currently 
present in the Dwelling Form and enhances available coverage for 
homeowners. It is aligned with common industry practice, which 
standardizes available coverage to homeowners with basements, and 
coverage is clear to the homeowner policyholder, reducing asymmetric 
information. The levels of coverage and risk of damage would be 
appropriately reflected in the premiums, directly signaling to 
homeowner policyholders their level of risk. For these reasons, FEMA 
selected the Homeowner Flood Form (approach 2) for this proposed rule.
    Approach three includes two potential endorsements (approaches 3.1 
and 3.2). First, approach 3.1 would include an endorsement option for 
split-level and sunken rooms that would replace the definition of 
``Basement'' in proposed paragraph C.2 of section II to define a 
basement as any area of a building having its floor level below ground 
level on all sides, regardless of design or use and further clarify 
that an area of a building is below ground level when the land directly 
touching the exterior of the building is above its floor level; and 
that an area of a building is presumed to be below ground level when it 
is necessary to walk up steps or a slope to reach the land surrounding 
the building. A professional land survey or report may rebut this 
presumption. Further, the ``Basement'' definition under approach three 
would clarify that a sunken or recessed portion of a room or area that 
is otherwise above ground level is not a basement and that the first 
level below the main entrance to the dwelling, commonly referred to as 
a split-level home, is not a basement. Approach 3.2 would offer an 
additional endorsement option for basement occupancy. This additional 
endorsement would amend the proposed Homeowner Flood Form to replace 
paragrah A.2 of section III, specific to building coverage, on what 
FEMA covers with the following language: ``Basement occupancy. For 
additional premium received, we insure

[[Page 8310]]

a bedroom, bathroom, or kitchen in a basement when required for the 
occupancy of the dwelling, where no other room in another part of the 
dwelling meets this need.''
    The Design and Occupancy approaches (approaches 3.1 and 3.2) 
address specific deficits currently present in the Dwelling Form and 
enhances available coverage for certain homeowners. These approaches 
introduces choice and expands coverage options for homeowners that meet 
the Design or Occupancy eligibility. FEMA considers the Design and 
Occupancy alternative approaches a partial improvement but did not 
select this alternative because of the limited portion of eligible 
homeowner policyholders and the complexity of the approach for FEMA, 
homeowner policyholders, and insurance agents.
    FEMA seeks comment on the agency's current restricted coverage 
(approach one), the agency's preferred approach of removing the 
restrictions on current coverage (approach two) and the additional 
approach to basement coverage considered (approaches 3.1 and 3.2). 
Specifically, FEMA seeks comment on whether the Homeowner Flood Form 
should either (1) retain the current restricted coverage, with a focus 
on training agents selling flood insurance to further discuss what 
constitutes a basement under the Homeowner Flood Form and the 
restrictions on coverage at the point of sale to better inform 
homeowner policyholders and those seeking to purchase new homeowner 
flood insurance of the coverage restrictions; (2) offer an endorsement 
to the proposed Homeowner Flood Form that would allow homeowner 
policyholders to remove the restrictions currently on basement coverage 
for an additional premium (``Basement Coverage Endorsement''); or (3) 
offer an endorsement to allow homeowners with split-level homes or 
sunken room(s) or for basement occupancy to remove the restrictions for 
additional premium, while also allowing limited building coverage, for 
additional premium.
    In drafting this rule, FEMA undertook a preliminary analysis of its 
policies in force for properties with a basement (as of September 30, 
2022) to see how basement coverage would impact the cost of insurance 
for policyholders. The cost of insurance includes annual premiums, 
fees, assessments, and surcharges. Assuming all other rating factors 
remain the same, the analysis of the proposed rule across all policies 
with the default basement coverage, i.e., restricted, would result in a 
total annual average cost of insurance of $1,827. Fully expanded 
basement coverage, proposed by FEMA as an endorsement, would result in 
a total annual average cost of insurance of $2,756. The alternative, 
limited expansion of basement coverage, would result in a total annual 
average cost of insurance of $2,518.
    In total, for all NFIP policyholders with a basement as of 
September 30, 2022, those paying a total annual cost of insurance of 
$1,000 or less would pay an average of $648 annually with restricted 
basement coverage, $952 annually with fully expanded basement coverage, 
and $870 annually with a limited expansion of basement coverage. 
Policyholders who currently pay between $1,000 to $2,000 annually would 
see the total annual cost of insurance at $1,426, $2,140, and $1,970, 
respectively. For policyholders who currently pay between $2,000 to 
$3,000 annually, the total annual cost of insurance would be $2,451, 
$3,706, and $3,416, respectively. This is shown more fully in the chart 
directly below, which appears in FEMA's Regulatory Impact Analysis 
(located in the docket) under the heading ``Table 9.21: Cost of 
Insurance Scenarios for Single Family Home with Basements, 2022$'':

                   Table 1--Cost of Insurance Scenarios for Single Family Home With Basements
                                                     [2022$]
----------------------------------------------------------------------------------------------------------------
                                                                                Hypothetical average  risk-based
                                                                Average  risk-        cost of insurance ($)
                                 Policyholders      Average     based  cost of ---------------------------------
   Current range of cost of     in Force (PIF)    Replacement      insurance                         Limited
           insurance             distribution     Cost Value     with current   Fully  expanded    expansion of
                                      (%)          (RCV) ($)       basement         basement         basement
                                                                 coverage ($)     coverage ($)     coverage ($)
----------------------------------------------------------------------------------------------------------------
                                        Note 1          Note 2          Note 3               Note 4
                               ---------------------------------------------------------------------------------
                                                     2022$           2022$           2022$            2022$
----------------------------------------------------------------------------------------------------------------
$0-$1,000.....................              41        $596,319            $648             $952             $870
$1,000-$2,000.................              29         562,203           1,426            2,140            1,970
$2,000-$3,000.................              14         567,245           2,451            3,706            3,416
$3,000-$4,000.................               7         601,448           3,447            5,229            4,793
$4,000-$5,000.................               4         638,888           4,456            6,772            6,180
$5,000-$6,000.................               2         657,637           5,444            8,290            7,488
$6,000-$7,000.................               2         675,366           6,453            9,841            8,837
$7,000-$8,000.................              <1         755,335           7,451           11,377           10,198
$8,000-$9,000.................              <1         827,914           8,452           12,917           11,545
$9,000-$10,000................              <1         979,791           9,439           14,435           12,894
$10,000-$11,000...............              <1       1,082,634          10,462           16,008           14,310
$11,000-$12,000...............              <1       1,356,362          11,508           17,618           15,815
$12,000-$13,000...............              <1         914,762          12,388           18,972           17,075
$13,000.......................              <1       3,671,109          13,209           20,235           18,123
                               ---------------------------------------------------------------------------------
    Average...................  ..............         592,982           1,827            2,756            2,518
----------------------------------------------------------------------------------------------------------------


[[Page 8311]]

H. Appendix A(105): Builder's Risk Endorsement

    FEMA has witnessed issues arise for homeowner policyholders who are 
constructing a building, but who do not have a building (as defined by 
the SFIP) at the time of loss. The Dwelling Form covers buildings under 
construction at section III.A.5. When FEMA provides coverage for a 
building under construction, it typically issues the policy in the 
builder's name. If the builder fails to assign the policy to the 
property owner prior to loss, however, both the property owner and the 
builder would be left without coverage. (The property owner would lack 
coverage because he or she was not listed on the policy, and the 
builder would lack coverage because it would no longer have an 
insurable interest in the property). In some cases, FEMA issues the 
policy jointly to the builder and property owner. If the parties do not 
revise the policy to remove the builder's name after completion, 
however, this could cause considerable delays because FEMA would have 
to stop and void the claim payment, then reissue the payment once the 
builder's name is removed. To simplify coverage, align with property 
and casualty practices, and eliminate insurable interest issues, the 
Homeowner Flood Form would require that the building has been 
constructed, while the Builder's Risk Endorsement would cover buildings 
under construction.
    The Builder's Risk Endorsement would name the builder as an 
additional insured party and provide business rules within the 
endorsement to avoid automatic renewal billing of the policy for the 
builder. Section I of the endorsement would replace section I.D of the 
Homeowner Flood Form with language that confirms the builder's coverage 
expires on the date the dwelling is completed and occupied, the date 
the endorsement is deleted by the insurer, and the Homeowner Flood Form 
becomes effective in its entirety; or at 12:01 a.m. on the last day of 
the policy term stated on the declarations page. This change ensures 
the builder is not a named party to the policy following completion of 
construction. In addition, this endorsement would define 
``Construction'' as any new development of land at the described 
location resulting in a building or alteration or repair of a building, 
including a dwelling at the described location. This endorsement would 
also replace section III of the Form in its entirety. While generally 
mirroring the Form's language in section III, the endorsement would 
offer changes to clarify the coverage for the builder. Proposed section 
III.A.1.a of the endorsement would clarify that coverage is for the 
dwelling under construction at the described location. It would further 
specify that if the dwelling is not yet walled or roofed as described 
in the definition of ``building,'' then coverage applies (1) only while 
construction is in progress, or (2) if construction is halted only for 
a period of 90 consecutive days thereafter. This is to limit the use of 
this endorsement to a building actively under construction, as FEMA 
would not offer coverage for an incomplete building that has been 
sitting for several months. Proposed section III.A.1.b of the 
endorsement would remove the words ``alteration, or repair'' from the 
phrase ``materials and supplies to be used for construction'' because 
these words are superfluous given that they are included in this 
endorsement's definition of ``Construction.'' Proposed section III.A.2 
would make a minor organizational change. Proposed section III.C would 
clarify that unlike the proposed Homeowner Flood Form, personal 
property would not be covered until the dwelling is completed and 
occupied, the endorsement is deleted by the insurer, and the Homeowner 
Flood Form becomes effective in its entirety. The endorsement would 
also revise section V of the Form by adding a section to V.B to allow 
only one renewal for a policy with a Builder's Risk Endorsement 
attached to it. Finally, the endorsement would add language in section 
VII.F of the Form regarding mortgagees to clarify that a holder of a 
construction loan upon which draws have been paid shall be considered 
the ``mortgagee'' under the policy.

V. Regulatory and Economic Analysis

A. Executive Order 12866, Regulatory Planning and Review, as Amended, 
and Executive Order 13563, Improving Regulation and Regulatory Review

    Executive Orders 12866 (``Regulatory Planning and Review''), as 
amended by Executive Order 14094 (``Modernizing Regulatory Review'') 
and 13563 (``Improving Regulation and Regulatory Review'') direct 
agencies to assess the costs and benefits of available regulatory 
alternatives and, if regulation is necessary, to select regulatory 
approaches that maximize net benefits (including potential economic, 
environmental, public health and safety effects, distributive impacts, 
and equity). Executive Order 13563 emphasizes the importance of 
quantifying both costs and benefits, of reducing costs, of harmonizing 
rules, and of promoting flexibility.
    This proposed rule is designated as a significant regulatory action 
that is economically significant under section 3(f)(1) of Executive 
Order 12866. Accordingly, OMB has reviewed it. This Regulatory Impact 
Analysis (RIA) provides an assessment of the potential costs, benefits, 
and transfer payments resulting from the National Flood Insurance 
Program: Standard Flood Insurance Policy, Homeowner Flood Form under 
the criteria of Executive Orders 12866 and 13563.
    FEMA proposes to amend the Standard Flood Insurance Policy (SFIP) 
at 44 CFR part 61, Appendix A. The existing Dwelling Form, found at 44 
CFR part 61, Appendix A(1), and proposed Homeowner Flood Form (Appendix 
A(4)) are the subjects of this RIA. Specifically, the proposed 
Homeowner Flood Form would replace the current Dwelling Form for one-
to-four family residences, excluding mobile homes, trailers, 
condominiums, and rental properties, which would continue to use the 
Dwelling Form. The Homeowner Flood Form would include language altering 
the availability and limits of flood insurance coverage in numerous 
ways. The most substantial of these are in the areas of coverage for 
basements, enclosures, secondary buildings that are not detached 
garages, and replacing Actual Cash Value (ACV) with Replacement Cost 
Value (RCV) as the valuation method for structural property and 
contents.

[[Page 8312]]



          Table 2--Summary of the Impacts of the Proposed Rule
                                 [2019$]
------------------------------------------------------------------------
            Category                             Summary
------------------------------------------------------------------------
Proposed Changes...............  Basement Endorsement: Allows homeowner
                                  policyholder to enhanced coverage,
                                  introducing choice regarding the level
                                  of coverage.
                                 Enclosures: Reference to flood zone and
                                  FIRM status would be removed, which
                                  would extend coverage restrictions
                                  currently applicable to post-FIRM
                                  buildings in SFHAs to all enclosures,
                                  regardless of FIRM status or location.
                                 Other Buildings: Expands the definition
                                  of ``other buildings'' beyond just
                                  detached garages to all other
                                  buildings at the insured property.
                                 Property Valuation Method: Formally
                                  defines ``replacement cost value'' and
                                  makes it the default method of
                                  property valuation for both structural
                                  property and contents, thereby
                                  replacing the ``actual cash value''
                                  valuation method in most instances.
                                 Loss Mitigation: Covering Flood Damage
                                  Resistant Materials; adjusting the
                                  limits to imminent loss protection.
                                 Personal Property: Also referred to as
                                  ``contents.'' Availability of coverage
                                  changes in basements, enclosures,
                                  other buildings, other locations.
                                  Limits on certain items changed.
                                 Death of Homeowner Policyholder: Upon
                                  the death of the homeowner
                                  policyholder, automatically continues
                                  coverage provided under the policy for
                                  any other insured, or for a legal
                                  representative of the estate if
                                  another insured does not exist.
                                 Temporary Housing Expense Endorsement:
                                  Offers homeowner policyholders the
                                  option of purchasing additional
                                  coverage to receive compensation in
                                  the event they are displaced from
                                  their insured property due to flood.
                                 Other: All changes are addressed in the
                                  Marginal Analysis Table in Appendix A.
Affected Population............  Property owners of one-to-four family
                                  residences within the over 22,500
                                  communities participating in NFIP. A
                                  total of 2,806,642 distinct policies
                                  as of 2019.
Cost Savings...................  Qualitative cost savings by reductions
                                  in litigation costs, reductions of
                                  fraudulent claims, and time savings.
Costs (qualitative)............  None.
Costs (quantitative)...........  Annualized implementation and
                                  familiarization costs of $706,477 and
                                  $651,896 discounted at 3 and 7 percent
                                  respectively.
Benefits (qualitative).........  Premiums more reflective of actual
                                  risk.
                                 Environmental benefits from loss
                                  mitigation.
                                 Extending coverage beyond death of
                                  homeowner policyholder improves
                                  fairness and human dignity.
                                 Reduces the need for Federal disaster
                                  aid.
                                 More closely aligns with property
                                  insurance industry standards.
Benefits (quantitative)........  None.
Transfers......................  Transfer payments between FEMA and the
                                  homeowner policyholder are generally
                                  through premiums, claims, and fees and
                                  overhead. FEMA estimates this rule
                                  would result in annualized transfer
                                  payments of $253,321,497 and
                                  $252,835,214 from homeowner
                                  policyholders to FEMA in the form of
                                  additional premiums, discounted at 3
                                  percent and 7 percent respectively;
                                  $166,221,455 and $165,902,372 from
                                  FEMA to policy holders in the form of
                                  claims payments, discounted at 3 and 7
                                  percent; and, $87,100,042 and
                                  $86,932,843 from homeowner
                                  policyholders to States, FEMA, and
                                  insurance companies in the form of
                                  fees and overhead, discounted at 3 and
                                  7 percent respectively.
------------------------------------------------------------------------

Need for Regulation
    The National Flood Insurance Act of 1968 (NFIA) requires FEMA to 
provide by regulation the ``general terms and conditions of 
insurability . . . applicable to properties eligible for flood 
insurance coverage.'' 42 U.S.C. 4013(a). To comply with this 
requirement, FEMA adopts the Standard Flood Insurance Policy (SFIP) in 
regulation, which sets out the terms and conditions of insurance. See 
44 CFR part 61, Appendix A. FEMA must use the SFIP for all flood 
insurance policies sold through the NFIP. See 44 CFR 61.13. The SFIP is 
a single-peril (flood) policy that pays for direct physical damage to 
insured property. There are currently three forms of the SFIP: the 
Dwelling Form, the General Property Form, and the Residential 
Condominium Building Association Policy (RCBAP) Form.
    The current Dwelling Form is out of date and no longer aligned with 
insurance industry standards for homeowners of one-to-four family 
residences. It is difficult to understand and cumbersome for 
policyholders and insurance agents alike.\85\ Keeping the SFIP modern, 
unburdensome, and improving flexibility are key elements to cultivating 
and administering an effective flood insurance program. This enables 
FEMA to better meet the needs of the American people and close the 
insurance gap.\86\ Revising the regulations is necessary to implement 
these changes to the SFIP for homeowners.
---------------------------------------------------------------------------

    \85\ See, e.g., The Institutes' Handbook of Insurance Policies, 
American Institute for Chartered Property Casualty Underwriters, 
12th ed. (2018) (containing copies of modern property casualty 
forms). The Insurance Services Office's template homeowners form 
(``HO-3'' form) appears on page 5 and demonstrates the simplicity of 
this policy compared to the SFIP. The NFIP has a high volume of 
inquiries on the SFIP, further demonstrating the challenges in 
reading and interpreting the SFIP. Policy inquiries generally make 
up 43 percent of the total inquiries received by FEMA's ``Ask the 
Experts'' tracking system between 2019 and May 2021.
    \86\ NFIP has experienced significant challenges because FEMA is 
tasked with two competing goals--keeping flood insurance affordable 
and keeping the program fiscally solvent. Emphasizing affordability 
has led to premium rates that in many cases do not reflect the full 
risk of loss and produce insufficient premiums to pay for claims. In 
turn, this has transferred some of the financial burden of flood 
risk from individual property owners to the public at large. https://files.gao.gov/reports/GAO-21-119SP/index.html See ``HIGH-RISK 
Series: Dedicated Leadership Needed to Address Limited Progress in 
Most High-Risk Areas,'' found at https://www.gao.gov/assets/gao-21-
383t.pdf#:~:text=Dedicated%20agency%20leadership%20is%20essential%20t
o%20address%20the,have%20made%20to%20reduce%20the%20government%E2%80%
99s%20high-risk%20challenges (last accessed Aug. 28, 2023).
---------------------------------------------------------------------------

Affected Population
    The population of affected homeowner policyholders would be 
property owners of one-to-four family residences who were previously 
covered by the Dwelling Form and would now be covered by the Homeowner 
Flood Form. As of 2019, there were 3,174,934 residential policies 
covered using the Dwelling Form. Of that number, FEMA estimates that 
88.4%, or 2,806,642 policyholders, were property owners residing in the 
insured one-to-four family residence.\87\ FEMA would

[[Page 8313]]

continue to use the Dwelling Form to insure landlords, renters, and 
owners of mobile homes, travel trailers, and condominium units.
---------------------------------------------------------------------------

    \87\ FEMA used data from the NFIP's PIVOT database to determine 
the number of policies that would be affected by this proposed rule. 
PIVOT is a web-based system designed to help facilitate and 
consolidate in one system the NFIP's core business processes 
including, but not limited to: validation of insurance policies, 
claims, and data; complex modeling; website hosting (including 
floodsmart.gov); claims administration; policy management; claims 
review; approvals; and status inquiries. FEMA's PIVOT database can 
be found at https://www.dhs.gov/publication/dhsfemapia-050-national-flood-insurance-program-nfip-pivot-system (last accessed Aug. 28, 
2023).
---------------------------------------------------------------------------

    The population of affected Write Your Own (WYO) companies includes 
61 companies as of 2019. Of the 61 companies, 2 had fewer than 10 
policies, 15 companies had between 11 and 500 policies, 11 companies 
had between 501 and 5,000 policies, 22 companies had between 5,001 and 
50,000 policies, 8 companies had between 50,001 and 250,000 policies, 2 
companies had between 250,001 and 500,000 policies, and 1 company had 
553,187 policies.
Baseline
    Pursuant to OMB Circular A-4, FEMA assessed the impacts of this 
proposed rule against a baseline. The baseline used for this analysis 
is the ``no action'' baseline, or what the world would be like absent 
the proposed changes. The no action baseline is the scenario where no 
changes are made to the existing Dwelling Form and the projections over 
the next 10 years assuming the same climate conditions that exist 
today, and accounts for projected housing growth. It includes the value 
of claims payments and premiums estimated over the next 10 years if the 
current Dwelling Form were to continue to be used for property owners 
of one-to-four family residences. FEMA recognizes that it cannot 
precisely predict or forecast future flood events over a 10-year 
period, given their unpredictable nature and therefore a future 10-year 
period of flood insurance claims could vary drastically from the 2010-
2019 period analyzed; however, these are the best data available to 
derive the estimates.
Costs
    The policy change would have implementation and familiarization 
costs. FEMA expects that States, WYOs, and, at the time of renewal, 
policyholders would spend time familiairizing themselves with this 
rule. In addition, FEMA anticipates adding additional training over 
three years for SFIP updates to the standard annual training package 
provided to insurers. The cost of the training is borne by FEMA who is 
responsible for developing the content. The annual training is one that 
insurance agents are required to attend each year, with the training 
content changing year to year but the number of training hours required 
remaining the same. Since the training hours required for insurers is 
not impacted by the rule, FEMA assumes companies would neither expand 
the number of hours of training given to agents in response to the 
policy changes proposed here and training costs for agents would not be 
different from the baseline. The familiarization and training cost 
estimateshave been adjusted for inflation using Consumer Price Index 
(CPI-U) data and reported in the table below in year 2019 dollars.\88\ 
The familiarization cost and new training content is expected to total 
$6.4 million, or $705,963 and $791,133 annualized using a 3 percent and 
7 percent discount rate, respectively.
---------------------------------------------------------------------------

    \88\ Historical Consumer Price Index for All Urban Consumers 
(CPI-U): U.S. city average, all items, index averages. Accessed 
November 2022. https://www.bls.gov/cpi/tables/supplemental-files/historical-cpi-u-202106.pdf.
---------------------------------------------------------------------------

    FEMA does not anticipate new costs for existing homeowner 
policyholders. At the time of renewal, existing homeowner policyholders 
would have the choice to engage their agent or not engage their agent. 
The policy defaults will provide similar coverage to what they 
currently receive if the homeowner policyholder chooses to do nothing. 
NFIP outreach, whether directly by FEMA or through the WYOs, would 
highlight the availability of choices and opportunities to customize 
coverage. However, agents could also quote new options at renewal time 
and give homeowner policyholders options there, akin to how agents 
currently may suggest additional coverage amounts when not currently 
insuring to statutory limits.

                                                     Table 3--Estimated Costs Over a 10 Year Period
                                                                         [2019$]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                State and WYO
                           Year                              FEMA training     familiarization      Total costs      Discounted at 3%   Discounted at 7%
                                                                 costs              costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
1........................................................         $1,800,000            $51,483         $1,851,483         $1,797,556         $1,730,358
2........................................................          1,778,064                  0          1,778,064          1,675,996          1,553,030
3........................................................          2,784,767                  0          2,784,767          2,548,457          2,273,200
4........................................................                  0                  0                  0                  0                  0
5........................................................                  0                  0                  0                  0                  0
6........................................................                  0                  0                  0                  0                  0
7........................................................                  0                  0                  0                  0                  0
8........................................................                  0                  0                  0                  0                  0
9........................................................                  0                  0                  0                  0                  0
10.......................................................                  0                  0                  0                  0                  0
                                                          ----------------------------------------------------------------------------------------------
    Total................................................          6,362,831             51,483          6,414,315          6,026,394          5,556,588
        Annualized.......................................  .................  .................  .................            705,963            791,133
--------------------------------------------------------------------------------------------------------------------------------------------------------

Benefits
    FEMA was unable to quantify the benefits of this proposed rule 
because data does not explicitly exist for the types of benefits that 
would be incurred. The benefits of this rule would include a more 
accurate signaling of risk to homeowner policyholders through 
additional coverage choices and associated premium increases, thus 
incentivizing them to reduce their risks, environmental benefits of 
loss mitigation, reducing moral hazard, qualitative benefits of 
extending coverage beyond the death of a homeowner policyholder, 
reducing the need for Federal assistance, and collaborating with 
industry stakeholders to create a policy that meets the needs of those 
involved.

[[Page 8314]]

    The benefits of this rule would also include increasing fairness 
through clearer communication of flood risk, additional flexibility and 
choice for homeowner policyholders, and claims payments that cover a 
greater portion of loss. Additionally, this rule would allow claims 
payments when the original homeowner policyholder is deceased, causing 
less stress for surviving family members.
Transfers
    The impacts the proposed rule would have on transfer payments are 
reflected in premiums and associated claims payments resulting from the 
proposed changes in coverage. As these changes to premiums and claims 
payments are monetary payments from homeowner policyholders to FEMA or 
FEMA to homeowner policyholders that do not affect total resources 
available to society, these effects are not a cost but rather a 
transfer payment. The main areas of these proposed changes to coverage 
are in basements, enclosures, other buildings, and property valuation 
method. Several additional changes are less substantial but 
collectively impactful and also result in transfer payments.
    The policy changes would generally result in additional coverage, 
and therefore higher expected claims payments for homeowner 
policyholders in aggregate. These higher expected claims payments would 
be matched by higher premiums. Premiums are calculated by actuarial 
formulas which take into account the expected claims payments and the 
fees and overhead associated with administering flood insurance.\89\ 
FEMA estimates this proposed rule would result in annualized transfer 
payments of $253,321,497 and $252,835,214 from policyholders to FEMA in 
the form of additional premiums, discounted at 3 percent and 7 percent 
respectively; $166,221,455 and $165,902,372 from FEMA to policyholders 
in the form of claims payments, discounted at 3 and 7 percent; and 
$87,100,042 and $86,932,843 from policyholders to States, FEMA, and 
insurance companies in the form of fees and overhead, discounted at 3 
and 7 percent.
---------------------------------------------------------------------------

    \89\ For additional context about potential policyholder costs, 
FEMA calculated hypothetical insurance cost scenarios for homeowners 
with basements under the proposed endorsement coverage option 
located in the RIA document Table 6.16 of this rule.

                           Table 4--Estimated Transfer Payments Over a 10-Year Period
                                                     [2019$]
----------------------------------------------------------------------------------------------------------------
                                                                                          C.  Fees and overhead/
                                        A.  Premiums/transfers    B.  Expected losses/        transfers from
                 Year                   from policyholders to   transfers from FEMA  to  policyholders to  FEMA,
                                                 FEMA                policyholders         insurance companies,
                                                                                                and states
----------------------------------------------------------------------------------------------------------------
1....................................             $246,705,082             $161,879,976              $84,825,106
2....................................              248,234,654              162,883,631               85,351,023
3....................................              249,773,708              163,893,510               85,880,199
4....................................              251,322,305              164,909,649               86,412,656
5....................................              252,880,503              165,932,089               86,948,415
6....................................              254,448,362              166,960,868               87,487,495
7....................................              256,025,942              167,996,026               88,029,918
8....................................              257,613,303              169,037,601               88,575,703
9....................................              259,210,506              170,085,634               89,124,872
10...................................              260,817,611              171,140,164               89,677,447
                                      --------------------------------------------------------------------------
    Total............................            2,537,031,979            1,664,719,146              872,312,832
----------------------------------------------------------------------------------------------------------------


 
                                          Premiums/transfers
                 Year                   from policyholders  to      3% Discount rate         7% Discount rate
                                                 FEMA
----------------------------------------------------------------------------------------------------------------
1....................................             $246,705,082             $239,519,497             $230,565,497
2....................................              248,234,654              233,984,969              216,817,761
3....................................              249,773,708              228,578,326              203,889,748
4....................................              251,322,305              223,296,613              191,732,583
5....................................              252,880,503              218,136,943              180,300,304
6....................................              254,448,362              213,096,497              169,549,687
7....................................              256,025,942              208,172,520              159,440,089
8....................................              257,613,303              203,362,320              149,933,288
9....................................              259,210,506              198,663,269              140,993,341
10...................................              260,817,611              194,072,797              132,586,448
                                      --------------------------------------------------------------------------
    Total............................            2,537,031,976            2,160,883,752            1,775,808,745
        Annualized...................  .......................              253,321,497              252,835,214
----------------------------------------------------------------------------------------------------------------


 
                                           Expected losses/
                 Year                   transfers from FEMA to      3% Discount rate         7% Discount rate
                                            policyholders
----------------------------------------------------------------------------------------------------------------
1....................................             $161,879,976             $157,165,025             $151,289,697
2....................................              162,883,631              153,533,444              142,268,872
3....................................              163,893,510              149,985,779              133,785,924
4....................................              164,909,649              146,520,087              125,808,782
5....................................              165,932,089              143,134,478              118,307,286
6....................................              166,960,868              139,827,098              111,253,076

[[Page 8315]]

 
7....................................              167,996,026              136,596,143              104,619,482
8....................................              169,037,601              133,439,843               98,381,423
9....................................              170,085,634              130,356,476               92,515,315
10...................................              171,140,164              127,344,355               86,998,981
                                      --------------------------------------------------------------------------
    Total............................            1,664,719,148            1,417,902,728            1,165,228,838
        Annualized...................  .......................              166,221,455              165,902,372
----------------------------------------------------------------------------------------------------------------


 
                                          Fees and overhead/
                                            transfers from
                 Year                   policyholders to FEMA,      3% Discount rate         7% Discount rate
                                         insurance companies,
                                              and states
----------------------------------------------------------------------------------------------------------------
1....................................              $84,825,106              $82,354,472              $79,275,800
2....................................               85,351,023               80,451,525               74,548,889
3....................................               85,880,199               78,592,548               70,103,824
4....................................               86,412,656               76,776,526               65,923,802
5....................................               86,948,415               75,002,467               61,993,018
6....................................               87,487,495               73,269,400               58,296,612
7....................................               88,029,918               71,576,379               54,820,609
8....................................               88,575,703               69,922,478               51,551,866
9....................................               89,124,872               68,306,793               48,478,025
10...................................               89,677,447               66,728,443               45,587,467
                                      --------------------------------------------------------------------------
    Total............................              872,312,834              742,981,029              610,579,911
        Annualized...................  .......................               87,100,042               86,932,843
----------------------------------------------------------------------------------------------------------------


                             Table 5--Circular A-4 Accounting Statement, Years 1-10
                                                     [2019$]
----------------------------------------------------------------------------------------------------------------
                                           3 Percent  discount   7 Percent  discount
                Category                          rate                  rate                    Source
----------------------------------------------------------------------------------------------------------------
                                                    Benefits
----------------------------------------------------------------------------------------------------------------
Annualized Monetized....................                   N/A                   N/A  RIA Section 8.
Annualized quantified, but unmonetized                     N/A                   N/A
 benefits.
                                         --------------------------------------------
Qualitative (unquantified) benefits.....   Signaling of risk through
                                          premiums reflective of risk.
                                           Environmental benefits from loss
                                          mitigation.
                                           Social benefit of extending
                                          coverage beyond death of homeowner
                                          policyholder.
                                           Reduces need for Federal
                                          assistance.
                                           Collaborative with industry;
                                          unilaterally addresses needs.
                                           Increased fairness through
                                          clearer communication of flood risk;
                                          additional flexibility and choices for
                                          homeowner policyholders, and increased
                                          claims payments
----------------------------------------------------------------------------------------------------------------
                                                      Costs
----------------------------------------------------------------------------------------------------------------
Total annualized costs..................              $705,963              $791,133  RIA Section 8.
----------------------------------------------------------------------------------------------------------------
                                                    Transfers
----------------------------------------------------------------------------------------------------------------
Annualized Monetized from FEMA to                  166,221,455           165,902,372  RIA Section 8.
 policyholders for claims payments
 (claims payments).
Annualized Monetized from policyholders            253,321,497           252,835,215  RIA Section 8.
 to FEMA and Insurance Companies and
 States for the expected loss portion of
 premiums and the fees, taxes, and
 overhead portion of premiums (expected
 loss, fees and overhead).
----------------------------------------------------------------------------------------------------------------


 
 
----------------------------------------------------------------------------------------------------------------
Category                                                    Effects                   Source
----------------------------------------------------------------------------------------------------------------
Effects on State, local, and/or Tribal    $24,006 in year-1 familiarization costs     RIA Sections 5, 8.
 governments.                             for 56 States and Territories. $4,827,686
                                          in total additional annual tax revenue
                                          across all States and Territories due to
                                          higher premiums.
----------------------------------------------------------------------------------------------------------------


[[Page 8316]]


 
 
----------------------------------------------------------------------------------------------------------------
Category                                                    Effects                   Source
----------------------------------------------------------------------------------------------------------------
Effects on small businesses.............  Additional revenue to 12 small WYO          Regulatory Flexibility Act
                                          companies. Total annualized revenue:         Analysis (NPRM).
                                          $1,151,914 discounted at 3 percent and
                                          $1,149,703 discounted at 7 percent. $451
                                          in year-1 familiarization costs.
Effects on wages........................                     None                     N/A.
Effects on growth.......................                     None                     N/A.
----------------------------------------------------------------------------------------------------------------

B. Regulatory Flexibility Act

    The Regulatory Flexibility Act of 1980 (5 U.S.C. 601 et seq.) 
requires agency review of proposed and final rules to assess their 
impact on small entities. When an agency promulgates a notice of 
proposed rulemaking under 5 U.S.C. 553, the agency must prepare an 
Initial Regulatory Flexibility Analysis (IRFA) unless it determines and 
certifies pursuant to 5 U.S.C. 605(b) that a rule, if promulgated, will 
not have a significant impact on a substantial number of small 
entities. FEMA believes this rule does not have a significant economic 
impact on a substantial number of small entities. In accordance with 
the Regulatory Flexibility Act of 1980 (RFA), 5 U.S.C. 601 et seq., as 
amended by the Small Business Regulatory Enforcement Fairness Act of 
1996 (Pub. L. 104-121, 110 Stat. 857), FEMA examined the effects of the 
proposed changes to the SFIP Homeowner Form on small entities. A small 
entity may be: A small independent business, defined as independently 
owned and operated, is organized for profit, and is not dominant in its 
field per the Small Business Act (5 U.S.C. 632); a small organization, 
defined as any not-for-profit enterprise which is independently owned 
and operated and is not dominant in its field (5 U.S.C. 601); or a 
small governmental jurisdiction (locality with fewer than 50,000 
people) per 5 U.S.C. 601.
    This proposed rule would primarily impact individuals and 
households, which are not considered small entities under the RFA. 
However, it would impact WYO companies, some of which could be small 
entities. In 2019, there were 61 unique WYO companies. WYO companies 
serviced 83.6 percent of policies, while 16.4 percent were serviced 
directly by the NFIP. Of the 61 companies, 2 had fewer than 10 
policies, 15 companies had between 11 and 500 policies, 11 companies 
had between 501 and 5,000 policies, 22 companies had between 5,001 and 
50,000 policies, 8 companies had between 50,001 and 250,000 policies, 2 
companies had between 250,001 and 500,000 policies, and 1 company had 
553,187 policies. Most company names imply multiple lines of coverage 
(fire, casualty, auto, property, mutual). Of the 61 unique WYO 
companies,\90\ 12 meet the SBA size standard for a small entity (less 
than $16.5 million in revenue for Other Direct Insurance (except Life, 
Health, and Medical) Carriers, NAICS 524298),\91\ and 49 of them are 
large companies with greater than $16.5 million in revenue. These 12 
companies hold an estimated 1.4 percent of total flood insurance 
premiums, or 1.7 percent of premiums held by WYO companies.\92\
---------------------------------------------------------------------------

    \90\ The PIVOT database shows 61 WYOs with policies within scope 
of this analysis in 2019.
    \91\ Small Business Administration Size Standards Matched to 
North American Industry Classification System Codes, effective May 
2, 2022, found at https://www.sba.gov/document/support-table-size-standards (last accessed Aug. 28, 2023).
    \92\ Data retrieved from the PIVOT database.
---------------------------------------------------------------------------

    FEMA estimates that the changes proposed through the Homeowner 
Flood Form would, on net, expand coverage. This expansion would lead to 
increased or higher claims payment in the aggregate. These higher 
claims payments would be matched by higher premiums. Premiums are 
calculated by actuarial formulas which take into account the expected 
claims payments and the fees and overhead associated with administering 
flood insurance.
    In the RIA, FEMA estimated the fees and overhead as a percentage of 
expected losses (i.e., claims payments): 52.4 percent.\93\ Of that, 2.9 
percentage points are for State premium taxes.\94\ Accordingly, FEMA 
estimates that the fees and overhead expenses that would be paid to 
WYOs as a result of this rule are 49.5% of the estimated increase in 
claims payments.
---------------------------------------------------------------------------

    \93\ For more information about 52.4 percent, see Section 5.6 of 
the Regulatory Impact Analysis, located in the docket.
    \94\ See RIA Table 5.3: Premium Breakout.
---------------------------------------------------------------------------

    FEMA estimated the impact of this proposed rule on small entities 
by multiplying the total percentage of premiums held by the 12 WYO 
companies (1.4 percent) by the total estimated increase in Fees and 
Overhead expenses paid to WYOs as a result of this proposed rule (i.e., 
49.5 percent of the estimated increase in claims payments).

                   Table 6--Additional Fees and Overhead Expenses to Insurance Companies \95\
----------------------------------------------------------------------------------------------------------------
                                                   Increase in
                                                     fees and       Increase in    Increase for    Increase for
                                                     overhead        fees and          small           small
                      Year                         expenses for    overhead for      companies       companies
                                                  all insurance        small        (discounted     (discounted
                                                    companies        companies          3%)             7%)
----------------------------------------------------------------------------------------------------------------
1..............................................      $80,130,587      $1,121,828      $1,089,153      $1,048,437
2..............................................       80,627,398       1,128,784       1,063,987         985,924
3..............................................       81,127,287       1,135,782       1,039,401         927,136
4..............................................       81,630,276       1,142,824       1,015,384         871,855
5..............................................       82,136,384       1,149,909         991,922         819,869
6..............................................       82,645,630       1,157,039         969,002         770,984
7..............................................       83,158,033       1,164,212         946,611         725,013
8..............................................       83,673,613       1,171,431         924,738         681,784

[[Page 8317]]

 
9..............................................       84,192,389       1,178,693         903,370         641,131
10.............................................       84,714,382       1,186,001         882,496         602,903
                                                ----------------------------------------------------------------
    Total......................................      824,035,979      11,536,503       9,826,064       8,075,036
                                                ----------------------------------------------------------------
        Annualized.............................  ...............  ..............       1,151,914       1,149,703
----------------------------------------------------------------------------------------------------------------

    Applying the 1.4 percent share for small WYO companies, FEMA 
estimated an impact to small entities of $1,151,914 of additional 
annualized revenue to the small WYO companies discounted at 3 percent 
or $1,149,703 discounted at 7 percent. The 12 small WYOs had a total 
revenue of $949,140,309 in 2019. Applying the annual increase in 
transfers for fees and overhead to these WYOs, FEMA estimated an 
increase of 0.12 percent in payments to WYOs due to the proposed 
changes to the SFIP Homeowner Form. Because these payments are included 
in the premiums paid by policyholders to the WYOs to cover the cost of 
providing insurance, FEMA estimates no net impact to WYOs as a result 
of the proposed changes. As previously stated, the policyholders are 
not considered small entities under the RFA. Additionally, FEMA 
estimated a one-time familiarization cost of $451 per company to read 
and understand the changes from this proposed rule.\96\
---------------------------------------------------------------------------

    \95\ See RIA Table 8.5: 10-year Transfers Discounted at 3 and 7 
percent.
    \96\ See RIA section 8.3.2.
---------------------------------------------------------------------------

    FEMA believes that this proposed rule would not place these small 
entities at a significant competitive disadvantage, cause inefficiency, 
or lead to insolvency. All companies participating in the WYO program 
would be similarly affected by this proposed rule. Additionally, WYO 
companies are compensated for their participation in the program. WYOs 
may also choose to exit the program and transfer their book of business 
citing terms and conditions in the WYO Arrangement.
    Pursuant to 5 U.S.C. 605(b), FEMA certifies this proposed 
regulation would not have a significant economic impact on a 
substantial number of small entities. FEMA invites comments on the 
impact this rule would have on small entities.

C. Unfunded Mandates Reform Act of 1995

    Pursuant to section 201 of the Unfunded Mandates Reform Act of 1995 
(Pub. L. 104-4, 2 U.S.C. 1531), each Federal agency ``shall, unless 
otherwise prohibited by law, assess the effects of Federal regulatory 
actions on State, local, and Tribal governments, and the private sector 
(other than to the extent that such regulations incorporate 
requirements specifically set forth in law).'' Section 202 of the Act 
(2 U.S.C. 1532) further requires that ``before promulgating any general 
notice of proposed rulemaking that is likely to result in the 
promulgation of any rule that includes any Federal mandate that may 
result in expenditure by State, local, and Tribal governments, in the 
aggregate, or by the private sector, of $100 million or more (adjusted 
annually for inflation) in any one year, and before promulgating any 
final rule for which a general notice of proposed rulemaking was 
published, the agency shall prepare a written statement'' detailing the 
effect on State, local, and Tribal governments and the private sector. 
The proposed rule would not result in such an expenditure, and thus 
preparation of such a statement is not required.

D. Paperwork Reduction Act of 1995

    Under the Paperwork Reduction Act of 1995 (PRA), as amended, 44 
U.S.C. 3501-3520, an agency may not conduct or sponsor, and a person is 
not required to respond to, a collection of information unless the 
agency obtains approval from the Office of Management and Budget (OMB) 
for the collection and the collection displays a valid OMB control 
number. See 44 U.S.C. 3506, 3507. This proposed rulemaking would call 
for no new collections of information under the PRA. This proposed rule 
includes information currently collected by FEMA and approved in OMB 
information collection 1660-0006 (National Flood Insurance Policy 
Forms). With respect to this collection, this proposed rulemaking would 
not impose any additional burden and would not require a change to the 
forms, the substance of the forms, or the number of recipients who 
would submit the forms to FEMA.

E. Privacy Act/E-Government Act

    Under the Privacy Act of 1974, 5 U.S.C. 552a, an agency must 
determine whether implementation of a proposed regulation will result 
in a system of records. A ``record'' is any item, collection, or 
grouping of information about an individual that is maintained by an 
agency, including, but not limited to, his/her education, financial 
transactions, medical history, and criminal or employment history and 
that contains his/her name, or the identifying number, symbol, or other 
identifying particular assigned to the individual, such as a finger or 
voice print or a photograph. See 5 U.S.C. 552a(a)(4). A ``system of 
records'' is a group of records under the control of an agency from 
which information is retrieved by the name of the individual or by some 
identifying number, symbols, or other identifying particular assigned 
to the individual. An agency cannot disclose any record that is 
contained in a system of records except by following specific 
procedures. The E-Government Act of 2002, 44 U.S.C. 3501 note, also 
requires specific procedures when an agency takes action to develop or 
procure information technology that collects, maintains, or 
disseminates information that is in an identifiable form. This Act also 
applies when an agency initiates a new collection of information that 
will be collected, maintained, or disseminated using information 
technology if it includes any information in an identifiable form 
permitting the physical or online contacting of a specific individual.
    In accordance with DHS policy, FEMA has completed a Privacy 
Threshold Analysis (PTA) for this proposed rule. DHS/FEMA has 
determined that this proposed

[[Page 8318]]

rulemaking does not affect the 1660-0006 OMB Control Number's current 
compliance with the E-Government Act of 2002 or the Privacy Act of 
1974, as amended. DHS/FEMA has concluded that the 1660-0006 OMB Control 
Number is already covered by the following Privacy Impact Assessments 
(PIA): DHS/FEMA/PIA-050 National Flood Insurance Program PIVOT System--
March 2018. Additionally, DHS/FEMA has decided that the 1660-0006 OMB 
Control Number is already covered by the DHS/FEMA-003 National Flood 
Insurance Program Files, 79 FR 28747, May 19, 2014, System of Records 
Notice (SORN).

F. Executive Order 13175, Consultation and Coordination With Indian 
Tribal Governments

    Executive Order 13175, ``Consultation and Coordination with Indian 
Tribal Governments,'' 65 FR 67249, November 9, 2000, applies to agency 
regulations that have Tribal implications, that is, regulations that 
have substantial direct effects on one or more Indian tribes, on the 
relationship between the Federal Government and Indian Tribes, or on 
the distribution of power and responsibilities between the Federal 
Government and Indian Tribes. Under this Executive Order, to the extent 
practicable and permitted by law, no agency shall promulgate any 
regulation that has Tribal implications, that imposes substantial 
direct compliance costs on Indian Tribal governments, and that is not 
required by statute, unless funds necessary to pay the direct costs 
incurred by the Indian Tribal government or the Tribe in complying with 
the regulation are provided by the Federal Government, or the agency 
consults with Tribal officials.
    FEMA has reviewed this proposed rule under Executive Order 13175 
and has determined that it would 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 distribution of power and 
responsibilities between the Federal Government and Indian Tribes.

G. Executive Order 13132, Federalism

    Executive Order 13132, ``Federalism,'' 64 FR 43255, August 10, 
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, on the relationship between the national 
government and 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 determined that this proposed rule would not have a 
substantial direct effect 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, and 
therefore does not have federalism implications as defined by the 
Executive Order.

H. National Environmental Policy Act of 1969 (NEPA)

    Under the National Environmental Policy Act of 1969 (NEPA), as 
amended, 42 U.S.C. 4321 et seq., an agency must consider impacts of its 
actions on the environment and prepare an environmental assessment or 
environmental impact statement for any rulemaking that has potential to 
significantly affect the quality of the human environment. A 
categorical exclusion (CATEX) is a form of NEPA compliance that applies 
to actions that do not need to undergo detailed environmental analysis 
because it has been determined through experience that they typically 
do not have a significant impact on the human environment. An agency 
may apply a CATEX if the project fits within the identified criteria of 
the CATEX.
    Rulemaking is a major Federal action subject to NEPA. CATEX M1(d) 
included in the list of exclusion categories in the Department of 
Homeland Security Instruction Manual 023-01-001-01, Revision 01, 
Implementation of the National Environmental Policy Act, Appendix A, 
issued November 6, 2014, covers activities in support of FEMA's 
administration of the National Flood Insurance Program, including 
revisions to the Standard Flood Insurance Policy. This proposed rule 
for the NFIP meets CATEX M1(d) and does not require further analysis 
under NEPA.

I. Executive Order 11988 Floodplain Management

    Pursuant to Executive Order 11988, ``Floodplain Management,'' 42 FR 
26951 (May 24, 1977), each agency must provide leadership and take 
action to reduce the risk of flood loss; to minimize the impact of 
floods on human safety, health, and welfare; and to restore and 
preserve the natural and beneficial values served by floodplains in 
carrying out the agency's responsibilities for (1) acquiring, managing, 
and disposing of Federal lands and facilities; (2) providing Federally 
undertaken, financed, or assisted construction and improvements; and 
(3) conducting Federal activities and programs affecting land use, 
including but not limited to water and related land resources planning, 
regulating, and licensing activities. In carrying out these 
responsibilities, each agency must evaluate the potential effects of 
any actions it may take in a floodplain; ensure that its planning 
programs and budget requests reflect consideration of flood hazards and 
floodplain management; and prescribe procedures to implement the 
policies and requirements of the Executive Order.
    Before promulgating any regulation, an agency must determine 
whether the proposed regulations will affect a floodplain(s), and if 
so, the agency must consider alternatives to avoid adverse effects and 
incompatible development in the floodplain(s). If the head of the 
agency finds that the only practicable alternative consistent with the 
law and with the policy set forth in Executive Order 11988 is to 
promulgate a regulation that affects a floodplain(s), the agency must, 
prior to promulgating the regulation, design or modify the regulation 
in order to minimize potential harm to or within the floodplain, 
consistent with the agency's floodplain management regulations. It must 
also prepare and circulate a notice containing an explanation of why 
the action is proposed to be located in the floodplain.
    The purpose of this proposed rule is to revise the SFIP by adding a 
new Homeowner Flood Form, which would replace the current Dwelling Form 
as a source of coverage for one-to-four family residences and provide 
increased options and coverage. In accordance with 44 CFR part 9, 
``Floodplain Management and Protection of Wetlands,'' FEMA determines 
that the changes proposed in this rule would not have an effect on 
floodplains.

J. Executive Order 11990 Protection of Wetlands

    Executive Order 11990, ``Protection of Wetlands,'' 42 FR 26961 (May 
24, 1977) sets forth that each agency must provide leadership and take 
action to minimize the destruction, loss or degradation of wetlands, 
and to preserve and enhance the natural and beneficial values of 
wetlands in carrying out the agency's responsibilities. These 
responsibilities include (1) acquiring, managing, and disposing of 
Federal lands and facilities; and (2) providing Federally undertaken,

[[Page 8319]]

financed, or assisted construction and improvements; and (3) conducting 
Federal activities and programs affecting land use, including but not 
limited to water and related land resources planning, regulating, and 
licensing activities. Each agency, to the extent permitted by law, must 
avoid undertaking or providing assistance for new construction located 
in wetlands unless the head of the agency finds (1) that there is no 
practicable alternative to such construction, and (2) that the proposed 
action includes all practicable measures to minimize harm to wetlands 
which may result from such use. In making this finding, the head of the 
agency may take into account economic, environmental and other 
pertinent factors.
    In carrying out the activities described in Executive Order 11990, 
each agency must consider factors relevant to a proposal's effect on 
the survival and quality of the wetlands. These include public health, 
safety, and welfare, including water supply, quality, recharge and 
discharge; pollution; flood and storm hazards; sediment and erosion; 
maintenance of natural systems, including conservation and long term 
productivity of existing flora and fauna, species and habitat diversity 
and stability, hydrologic utility, fish, wildlife, timber, and food and 
fiber resources. They also include other uses of wetlands in the public 
interest, including recreational, scientific, and cultural uses. The 
purpose of this proposed rule is to revise the SFIP by adding a new 
Homeowner Flood Form, which would replace the current Dwelling Form as 
a source of coverage for one-to-four family residences and provide 
increased options and coverage. In accordance with 44 CFR part 9, 
``Floodplain Management and Protection of Wetlands,'' FEMA determines 
that the changes proposed in this rule would not have an effect on 
wetlands.

K. Executive Order 12898 and 14096 Environmental Justice

    Under Executive Order 12898, ``Federal Actions to Address 
Environmental Justice in Minority Populations and Low-Income 
Populations,'' 59 FR 7629 (Feb. 16, 1994), as amended by Executive 
Order 12948, 60 FR 6381, (Feb. 1, 1995), FEMA incorporates 
environmental justice into its policies and programs. The Executive 
Order requires each Federal agency to conduct its programs, policies, 
and activities that substantially affect human health or the 
environment in a manner that ensures that those programs, policies, and 
activities do not have the effect of excluding persons from 
participation in programs, denying persons the benefits of programs, or 
subjecting persons to discrimination because of race, color, or 
national origin. Further, Executive Order 14096, ``Revitalizing Our 
Nation's Commitment to Environmental Justice for All,'' 88 FR 25251 
(Apr. 26, 2023), charges Federal agencies to make achieving 
environmental justice part of their missions, consistent with statutory 
authority, by identifying, analyzing, and addressing the 
disproportionate and adverse human health and environmental effects and 
hazards of Federal activities, including those related to climate 
change and cumulative impacts of environmental and other burdens on 
communities with environmental justice concerns.
    This rulemaking would not have a disproportionately high or adverse 
effect on human health or the environment, nor would it exclude persons 
from participation in FEMA programs, deny persons the benefits of FEMA 
programs, or subject persons to discrimination because of race, color, 
or national origin.

L. Congressional Review of Agency Rulemaking

    Before a rule can take effect, the Congressional Review of Agency 
Rulemaking Act (CRA), 5 U.S.C. 801-808, requires the Federal agency 
promulgating the rule to submit to Congress and to the Government 
Accountability Office (GAO) a copy of the rule, a concise general 
statement relating to the rule, including whether it is a major rule, 
and other information.
    A ``major'' rule is one that has an annual effect on the economy of 
$100,000,000 or more; results in a major increase in costs or prices 
for consumers, individual industries, Federal, State, or local 
government agencies, or geographic regions; or has significant adverse 
effects on competition, employment, investment, productivity, 
innovation, or on the ability of United States-based enterprises to 
compete with foreign-based enterprises in domestic and export markets. 
Pursuant to the CRA, the Office of Information and Regulatory Affairs 
has designated this rule as ``major'' within the meaning of the CRA as 
defined by 5 U.S.C. 804(2), as the annual effect on the economy will be 
over $100,000,000. As such, FEMA will send this rule to the Congress 
and to GAO pursuant to the CRA at least 60 days before the effective 
date of any final rule.

List of Subjects in 44 CFR 61

    Flood insurance, Reporting and recordkeeping requirements.

    For the reasons discussed in the preamble, FEMA proposes to amend 
44 CFR part 61 as follows:

PART 61--INSURANCE COVERAGE AND RATES

0
1. The authority citation for part 61 continues to read as follows:

    Authority:  42 U.S.C. 4001 et seq.; 6 U.S.C. 101 et seq.

0
2. Revise Sec.  61.2 to read as follows:


Sec.  61.2  Definitions

    The definitions set forth in part 59 of this subchapter apply to 
this part, including the appendices. If an appendix defines a term 
differently, that definition controls for the purposes of that 
appendix.
0
3. Amend Sec.  61.13 by revising paragraph (a) to read as follows:


Sec.  61.13  Standard Flood Insurance Policy

    (a) Incorporation of forms. Each of the Standard Flood Insurance 
Policy forms included in appendix ``A'' hereto and by reference 
incorporated herein shall be incorporated into the Standard Flood 
Insurance Policy.
* * * * *
0
4. Add Appendix A(4) to Part 61 to read as follows:

Appendix A(4) to Part 61

Federal Emergency Management Agency, Federal Insurance and Mitigation 
Administration, Standard Flood Insurance Policy

Homeowner Flood Form

    Please read this policy carefully. The flood insurance provided 
under this policy is subject to limitations, conditions, and 
exclusions. This policy insures only one dwelling that is specified 
on the declarations page.

Section I: Insuring Agreement

    A. Governing Law. The Federal Emergency Management Agency 
(``FEMA'') provides this flood insurance policy under the terms of 
the National Flood Insurance Act of 1968, as amended (``Act''), and 
title 44 of the Code of Federal Regulations. The Act, applicable 
regulations, and federal common law exclusively govern this policy 
and all disputes involving this policy.
    B. Conflict With Federal Law. This policy does not insure any 
real or personal property that is not eligible for flood insurance 
pursuant to federal law.
    C. Agreement. We will pay you for direct physical loss by or 
from flood to your insured property up to the limits stated on the 
declarations page if you:
    1. Paid the full amount due (including applicable premiums, 
surcharges, and fees);

[[Page 8320]]

    2. Complied with all terms and conditions of this policy; and
    3. Furnished complete and accurate information and statements to 
us.
    D. Policy Term. This policy will expire at 12:01 a.m. on the 
last day of the policy term stated on the declarations page.
    E. Liberalization. If we make a change that broadens coverage 
under this edition of our policy and that does not require an 
additional premium charge, that change will automatically apply to 
your insurance as of the date we implement the change, provided that 
this implementation date falls within 60 calendar days prior to or 
during the policy term stated in the declarations page.
    F. Our Right of Review. We may at any time review the 
information you give us and request additional information from you. 
We may revise your policy based on such review or additional 
information, including revising the amounts due from you.

Section II: Definitions

    A. Use of Pronouns. In this policy:
    1. ``You'' and ``your'' refer to the insured(s) shown on the 
declarations page of this policy.
    2. ``We,'' ``us,'' and ``our'' refer to the insurer providing 
coverage under this policy.
    B. Flood. In this policy, flood means:
    1. A general and temporary condition of partial or complete 
inundation of normally dry land from any of the following:
    a. Overflow of inland or tidal waters;
    b. Unusual and rapid accumulation or runoff of surface waters 
from any source;
    c. Mudflow, which is a river of liquid and flowing mud on the 
surface of normally dry land, as when earth is carried by a current 
of water; or
    d. Sudden erosion or undermining of land along the shore of a 
lake or similar body of water caused by waves or currents of water 
exceeding anticipated cyclical levels that causes collapse or 
subsidence of land resulting in a flood.
    C. Buildings. In this policy, the following definitions apply:
    1. Building. A structure, the construction of which has been 
completed, that has a fully secured roof and solid, vertical, load-
bearing walls, and is affixed to a permanent site.
    2. Basement. Any area of a building having its floor level below 
ground level on all sides, regardless of design or use.
    a. An area of a building is below ground level when the land 
touching the exterior of the building is above its floor level.
    b. An area of a building is presumed to be below ground level 
when it is necessary to walk up steps or a slope to reach the land 
surrounding the building. A professional land survey or report may 
rebut this presumption.
    3. Enclosure. An area that exists below the dwelling and is used 
in accordance with local floodplain management ordinances or law for 
the parking of vehicles, building access, or storage. The enclosure 
is shown on the declarations page.
    D. Other Defined Terms.
    1. Act. The National Flood Insurance Act of 1968, as amended (42 
U.S.C. 4001 et seq.).
    2. Actual Cash Value. The cost to replace an insured item of 
property at the time of loss, less depreciation based on its age and 
condition.
    3. Administrator. The Administrator of the Federal Emergency 
Management Agency or designee.
    4. Claim. Your assertion that you are entitled to payment for a 
covered loss under the terms and conditions of this policy. There is 
only one claim per flood event.
    5. Declarations Page. A document we provide to you based on 
information that you provided to us that summarizes the coverage 
limit(s), premium, insured(s), and other information about your 
policy. The declarations page is a part of this policy.
    6. Described Location. The location of the insured building. The 
described location is shown on the declarations page.
    7. Direct Physical Loss By or From Flood. Actual physical loss 
or damage to the insured property directly caused by a flood.
    8. Dwelling. A building in use as a one-to-four family 
residence. A dwelling is not a mobile home, travel trailer, or a 
condominium unit.
    9. Flood Damage Resistant Materials. Building materials 
identified by the Administrator as resistant to flood damage.
    10. Insured(s). Includes you and:
    a. any additional persons identified on the declarations page;
    b. any mortgagee or loss payee named in your application for 
insurance, as well as any other mortgagee or loss payee determined 
to exist at the time of loss; and
    c. your spouse, if a resident of the same household.
    11. Machinery and Equipment. Machinery and equipment includes, 
only when contained within a building at the described location, 
functional electrical, plumbing, heating, cooling, and safety 
elements necessary for the operation of a building, and elevators. 
Outside of a building, machinery and equipment only includes the 
condenser unit for a central air conditioning system, heat pump unit 
for heating and air conditioning systems, solar panels, and 
permanently installed whole house standby generators when such units 
are connected to and servicing a building at the described location.
    12. National Flood Insurance Program (NFIP). The program of 
flood insurance coverage and floodplain management administered 
under the Act.
    13. Policy. The entire written contract between you and us. It 
includes:
    a. this Homeowner Flood Form;
    b. the completed application for insurance;
    c. the declarations page;
    d. any endorsement(s) issued to you by us; and
    e. any addenda attached to this form by us at the time of 
application or renewal.
    14. Proof of Loss. The proof of loss is a signed and sworn 
statement by you containing documentary evidence in support of your 
loss and the amount you are claiming.
    15. Replacement Cost Value. The necessary cost, without 
deduction of depreciation, to repair or replace an item of property 
at the time of loss with an item of like kind and quality.

Section III: What We Cover

A. Coverage A--Dwelling

    1. We insure up to the coverage limit on the declarations page 
at the described location against direct physical loss by or from 
flood to:
    a. The dwelling.
    b. Materials and supplies to be used for construction, 
alteration, or repair of the dwelling or any other building(s) 
scheduled under Coverage B at the described location. The materials 
and supplies must be stored in a building at the time of loss.
    2. Limited Coverage for Basements and Enclosures. We only cover 
direct physical loss by or from flood to the interior of all 
basements and enclosures as follows:
    a. Machinery and equipment installed and, if necessary for 
operation, connected to a power source.
    b. Footings, foundations, posts, pilings, piers, or other 
foundation walls and anchorage systems required to support a 
dwelling.
    c. Stairways and staircases directly attached to the dwelling.
    d. Unfinished drywall and nonflammable insulation.
    3. Dwelling Limitations.
    a. Limitations on mold and mildew. We cover damage to the 
dwelling due to mold or mildew caused by a flood only when it is not 
within your control to inspect and maintain the property after a 
flood recedes.
    b. Limitations on power, heating, or cooling failure. We cover 
damage caused by a power, heating, or cooling failure that is the 
result of direct physical loss by or from flood to covered power, 
heating, or cooling equipment at the described location.
    c. Limitations on flood in the area. We cover damage to the 
dwelling when there is a flood in the area and the flood causes:
    (1) water or waterborne material to back up through sewers or 
drains; to discharge or overflow from a sump, sump pump, or related 
equipment; or to seep or leak on or through the dwelling; or
    (2) losses to the dwelling by or from the pressure or weight of 
standing or resting water on or below the surface of the land.
    d. Limitations on pollutants. We pay for the testing or 
monitoring of pollutants after a flood only when required by law or 
ordinance. ``Pollutants'' refers to any substances that include, but 
are not limited to, any solid, liquid, gaseous, or thermal irritant 
or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, 
chemicals, and waste. ``Waste'' includes, but is not limited to, 
materials to be recycled, reconditioned, or reclaimed.
    4. This policy does not cover:
    a. Loss of use of the described location including any living 
expenses incurred while the dwelling is inaccessible, being 
repaired, or is uninhabitable for any reason;
    b. Land and land values;
    c. Lawns, trees, shrubs, plants, growing crops, and landscaping;
    d. Any open structures, including but not limited to a building 
used as a boathouse, when located entirely in, on, or over water.
    e. Buildings constructed or substantially improved after 
September 30, 1982, when (1)

[[Page 8321]]

they are located entirely in, on, or over water or (2) if they are 
seaward of mean high tide;
    f. Underground structures and equipment that are not located 
within the dwelling, such as wells, septic, sewer, plumbing supply, 
waste lines, gas supply lines, and electrical and HVAC system 
components;
    g. Those portions of walks, walkways, decks, driveways, patios, 
and other surfaces, all whether protected by a roof or not, located 
outside the perimeter, exterior walls of the insured building;
    h. Containers and related equipment, such as tanks containing 
gases or liquids;
    i. Fences, retaining walls, seawalls, bulkheads, wharves, piers, 
bridges, and docks; and
    j. Hot tubs and spas that are not bathroom fixtures, and 
swimming pools, and their equipment, such as heaters, filters, 
pumps, and pipes, wherever located.

B. Coverage B--Other Buildings

    1. We apply the terms of Coverage A to other buildings at the 
described location except as modified in III.B.2.
    a. For this Coverage B to apply, the other buildings must appear 
on the declarations page.
    b. Use of this coverage is at your option, but reduces the 
dwelling coverage limit provided under Coverage A. The maximum 
available coverage limit for other buildings is 10% of Coverage A 
limits, regardless of how many buildings are scheduled on the 
declarations page.
    2. We do not cover:
    a. Anything already excluded under the terms of Coverage A.
    b. Basements or enclosures for any building that is not the 
dwelling.
    c. Any building used or held for use for commercial purposes, 
such as agricultural and business use.
    d. Any building(s) at the described location that is not owned 
by the insured, such as a building owned by a homeowners 
association.

C. Coverage C--Personal Property

    1. We insure up to the coverage limit stated on the declarations 
page against direct physical loss by or from flood to personal 
property inside a building at the described location when:
    a. The property is owned by you or your household family 
members; or
    b. The property is at the described location and is owned by 
non-paying guests or laborers.
    2. We insure your personal property against direct physical loss 
by or from flood anywhere in the United States as follows:
    a. We will pay no more than 10% of Coverage C limits for:
    (1) Personal property located in a building at a location other 
than the described location; or
    (2) Personal property located in a storage facility building.
    b. The 10% coverage limit in III.C.2.a. will not apply if you 
have moved the personal property to a building reasonably safe from 
flood and not in a basement or enclosure due to:
    (1) A general and temporary condition of flooding in the area 
near the described location, even if the flood does not reach the 
described location;
    (2) An evacuation order or other civil order from an authorized 
local official; or
    (3) Repairs, renovations, or reconstruction or other conditions 
that make the described location uninhabitable or unsuitable for the 
storage of property.
    3. Personal Property Limitations.
    a. Limitations on Property in a Basement or in an Enclosure. In 
a basement or an enclosure, this policy will only cover appliances 
installed in their functioning locations and, if necessary for 
operation, connected to a power source.
    b. Limitations on Property in a Building Without Walls on All 
Sides. This policy will only cover personal property in any portion 
of a building that is not fully enclosed when it is secured to 
prevent flotation out of the building.
    4. Special Limits. We will pay no more than the coverage 
sublimit specified on the declarations page for any claim to one or 
more of the following kinds of personal property:
    a. Artwork, photographs, collectibles, or memorabilia, including 
but not limited to, porcelain or other figures, and sports cards;
    b. Rare books or autographed items;
    c. Jewelry, watches, precious and semiprecious stones, or 
articles of gold, silver, or platinum;
    d. Furs or any article containing fur for which the fur 
represents its principal value;
    e. Portable electronic devices, including cell phones, smart 
phones, video game devices, electronic tablets, and laptop 
computers; or
    f. Personal property primarily used for any commercial purposes.
    g. No more than 10% of the special limit shown on the 
declarations page may be applied to valued paper, metals, or other 
similarly valued objects such as accounts, bills, coins, currency, 
deeds, evidences of debt, medals, money, scrip, stored value cards, 
postage stamps, securities, bullion, or manuscripts.
    5. We will only pay for the functional value of antiques.
    6. We do not cover:
    a. Anything already excluded under Coverages A and B;
    b. Loss of use of any personal property at the described 
location;
    c. Personal property not inside a building;
    d. Items of personal property in a basement or an enclosure, 
except as stated in III.C.3;
    e. Personal property in a building constructed or substantially 
improved after September 30, 1982 when the building is (1) located 
entirely in, on, or over water or (2) seaward of mean high tide;
    f. Personal property located in an open structure located in, 
on, or over water;
    g. Losses to items stored in a digital or other intangible 
format, whether created, owned, licensed, or otherwise in your 
possession;
    h. Items held in violation of state or federal law;
    i. Living things; and
    j. Any self-propelled vehicle or machine capable of transporting 
a person(s) or cargo, by land, water, or by air, including any of 
its equipment and parts. However, this limitation does not apply to 
personal property inside a building at the described location that 
is not registered for use on public roads, and:
    (1) Used solely to service the described location; or
    (2) Designed and used to assist people with disabilities.

D. Coverage D--Other Coverages

    1. Debris Removal
    a. Covered Debris.
    (1) We will pay the labor and expense to remove:
    (a) debris from anywhere that comes onto or into the insured 
dwelling or other insured buildings at the described location; and
    (b) debris of insured property anywhere.
    (2) If you or a member of your household perform the debris 
removal work, we will pay you for the value of this work using the 
federal minimum wage. This coverage does not increase any coverage 
limit stated on the declarations page.
    b. Debris Not Covered. This policy does not cover the cost to 
remove:
    (1) debris from other locations on the land surrounding the 
dwelling or other building(s) at the described location, or
    (2) any non-covered items of property from the dwelling or 
building(s), even if the removal facilitates covered cleanup or 
repairs.
    2. Loss Prevention
    a. Materials and Labor. We will pay up to the coverage sublimit 
specified on the declarations page for the expenses you incur to 
protect your insured property from a flood or imminent danger of 
flood. Such expenses are limited to the following:
    (1) Your reasonable expenses to buy materials reasonably 
understood to be, or commonly used as, temporary measures to avoid 
or reduce the harm from an imminent flood, including sandbags, fill 
for temporary levees, and pumps; and
    (2) The value of work, at the federal minimum wage, that you or 
a member of your household perform to protect your property.
    b. This coverage for materials and labor only applies if:
    (1) Damage to the insured property by or from flood is imminent; 
and
    (2) The threat of flood damage is apparent enough to lead a 
reasonably prudent person to anticipate flood damage.
    (3) In addition, one of the following must occur:
    (i) A general and temporary condition of flooding in the area 
near the described location must occur, even if the flood does not 
reach the building; or
    (ii) A legally authorized official has issued an evacuation 
order or other civil order for the community in which your insured 
property is located calling for measures to preserve life and 
property from the peril of flood.
    3. Property Removed to Safety. We will pay up to the coverage 
sublimit specified on the declarations page for the reasonable 
expenses you incur to move insured property to a secure location 
other than the described location to protect it from flood or the 
imminent danger of flood. Reasonable

[[Page 8322]]

expenses include the value of work, at the federal minimum wage, 
performed by you or a member of your household.
    4. This coverage does not increase the Coverage A, Coverage B, 
or Coverage C limits.

Section IV: Exclusions

    A. Excluded Losses. We do not pay you for damage from:
    1. Other perils;
    2. Economic losses, even if caused by flood, whether direct or 
indirect, including losses from a disruption of business, or 
complying with any ordinance or law.
    3. Earth movement, even if the earth movement is caused by 
flood, as follows:
    a. Earth movement includes:
    (1) Earthquake;
    (2) Landslide;
    (3) Subsidence;
    (4) Sinkholes;
    (5) Destabilization; or
    (6) Any other movement such as sinking, rising, shifting, 
expanding, or contracting of the earth.
    b. This earth movement coverage exclusion does not include:
    (1) Hydrostatic pressure or hydrodynamic forces;
    (2) Buoyancy; or
    (3) Frictional force from floodwater moving along the surface of 
the ground.
    4. Gradual erosion caused by the normal water action that wears 
an area of land away over time.
    5. Other excluded causes of damage. We do not insure for damage 
caused directly or indirectly by any of the following:
    a. The pressure, weight, freezing, or thawing of ice;
    b. Rain, snow, sleet, hail, or water spray;
    c. The exposure to water of any form other than flood, including 
failure, stoppage, or breakage of water or sewer lines, drains, 
pumps, fixtures, or equipment;
    d. Design, structural, or mechanical defect(s); deterioration, 
rot, or corrosion; or insect or rodent infestation; and
    e. Anything you or any member of your household does or 
conspire(s) to do to deliberately cause direct physical loss by or 
from flood.
    6. Increase in hazard. We will not cover any loss that occurs 
due to any hazard that is increased by you, by any means within your 
control, or with your knowledge.
    B. Flood in Progress.
    1. A flood is in progress when one of the following is true:
    a. There is a near certainty of a flood loss at the described 
location from a flood control effort such as:
    (1) Opening of a spillway,
    (2) Breaching of a levee, or
    (3) Releasing of water from a dam.
    b. There is a flood at the described location.
    2. Loan closing. If this policy became effective in connection 
with a loan closing, we will not pay for a loss caused by a flood in 
progress at the time of loan closing.
    3. No loan closing. In all other circumstances, we will not pay 
for a loss caused by a flood in progress that existed on or before 
the day you submitted the application for coverage under this 
policy.
    C. Pre-existing Damage. We do not pay you for pre-existing 
damage. Pre-existing damage includes:
    1. Flood loss or damage that occurred prior to the date of the 
loss, whether direct physical loss or not, and whether paid or 
unpaid on a prior event; and
    2. Damage attributable to any non-flood peril that occurred 
prior to the date of loss.

Section V: Policy Conditions

    A. Actions and Conditions That Can Void Your Policy.
    1. NFIP Ineligibility. This policy is void from its inception 
and has no legal force if:
    a. The described location is in a community that was not 
participating in the NFIP on the policy's inception date and did not 
join or reenter the NFIP during the policy term and before the loss 
occurred;
    b. The described location or other property is otherwise not 
eligible for coverage under the Act or regulations of the NFIP, for 
reasons of noncompliance with local floodplain ordinances or 
otherwise; or
    c. Any other federal law prevents coverage of property at the 
described location.
    2. Concealment or Fraud. With respect to all insureds under this 
policy,
    a. This policy is void and has no legal force or effect, and 
cannot be renewed, if before or after a loss, you or any other 
insured or your agent have at any time:
    (1) Intentionally concealed or misrepresented any material fact 
or circumstance;
    (2) Engaged in fraudulent conduct relating to this policy; or
    (3) Knowingly made false statements relating to this policy or 
any other NFIP insurance when applying for coverage, when making a 
claim, or at any other time.
    b. This policy will be void as of the date acts described in 
V.A.2.a. were committed.
    B. Policy Renewal.
    1. We must receive the renewal premium from you within 30 
calendar days of the expiration date of your prior policy term.
    2. We will not renew this policy if federal law prevents 
coverage of property at the described location.
    C. Cancellation of the Policy by You.
    1. You may cancel this policy when:
    a. You no longer have an insurable interest in the subject 
property;
    b. You are no longer required to maintain a flood insurance 
policy pursuant to federal law or lender requirements; or
    c. You have a duplicate NFIP policy.
    2. If you cancel this policy, you may be entitled to a full or 
partial refund of premium for the current policy term under the 
applicable rules and regulations of the NFIP.
    D. Reduction and Reformation of Coverage.
    1. If the premium we receive from you is not enough to purchase 
the amount(s) of insurance you requested, we will issue the policy, 
but only for the amount of coverage that the premium will purchase 
for a one-year term.
    2. We will increase the reduced amount of coverage described in 
V.D.1 to the amount you originally requested without regard to 
whether a loss occurred, provided that:
    a. We will bill you for the additional premium or, if necessary 
to calculate the additional premium, request information from you.
    b. You respond to our request for:
    (1) Additional premium within 30 calendar days of the date of 
our bill; or
    (2) Additional information within 60 calendar days of the date 
of our request.
    c. Failure to timely respond may result in a waiting period for 
additional coverage if a loss has not occurred within the policy 
term, or the settlement of a claim under reduced policy limits if a 
loss has occurred within the policy term.
    E. Disaster Conditions. In the event of a flood associated with 
a major disaster or emergency declared by the President under the 
Robert T. Stafford Disaster Relief and Emergency Assistance Act, the 
Administrator may, after written notice:
    1. Extend the stated timeframes in the following sections below:
    a. Proof of Loss, VI.A.3, and VI.A.7, for a period not to exceed 
365 calendar days from the date of loss; and
    b. Policy Renewal, V.B.1, for a period not to exceed 60 calendar 
days from the expiration date.
    2. Conditionally waive the requirement in VI.A.3 and VI.B.2 that 
an insured must sign or swear to a proof of loss or an adjuster's 
report.
    3. In accordance with VI.C.3, establish special procedures for 
advance payments to insured(s).
    4. Settle losses in accordance with any formula established 
under federal law that allocates covered damages amongst multiple 
perils, including flood.

Section VI: Procedures and Duties When a Loss Occurs

    A. Your Duties After a Loss. If the described location 
experiences a direct physical loss by or from flood, you must comply 
with all of the following duties:
    1. Give prompt notice to us;
    2. As soon as possible, separate the damaged and undamaged 
property so that we may examine it. You must also take all 
reasonable measures to protect covered property from any further 
loss;
    3. Within 90 calendar days after the loss, send us a proof of 
loss, signed and sworn to by you, furnishing us with the following 
information:
    a. The date and time of loss;
    b. A brief explanation of how the loss happened;
    c. Details of any other insurance that may cover some or all of 
the loss;
    d. Changes in title or occupancy of the covered property during 
the term of the policy;
    e. Names of mortgagees or anyone else having a lien, charge, or 
claim against the covered property;
    f. A description of all damages to your dwelling and other 
covered buildings and detailed repair estimates (if estimates are 
available); and
    g. An inventory of the lost, damaged or destroyed property 
showing the
    (1) Quantity;
    (2) Description;
    (3) Replacement Cost Value or Actual Cash Value (whichever is 
applicable);

[[Page 8323]]

    (4) Amount of loss;
    (5) Evidence that prior flood damage has been repaired;
    (6) Any written plans and specifications for repair of the 
damaged property that you can reasonably make available to us; and
    (7) All funds actually spent by you recovering from the loss. 
You must attach to the inventory copies of all bills, receipts, 
invoices, written estimates, and related documents.
    4. In completing the proof of loss, you must use your own 
judgment concerning the amount of loss, justify that amount, and 
sign the proof of loss.
    5. You must cooperate with our adjuster and other 
representative(s) in the investigation of your claim.
    6. You must make the damaged property accessible for inspection.
    7. The insurance adjuster we hire to investigate your claim may 
furnish you with a proof of loss form and may help you complete it. 
However, this help is a matter of courtesy only and you must still 
send us a proof of loss within 90 calendar days after the loss even 
if the adjuster does not furnish the form or help you complete it.
    B. Our Options After a Loss. After a loss and at our sole 
discretion, we may exercise the following options:
    1. At such reasonable times and places that we may designate:
    a. You must provide us access to the damaged property;
    b. If we request, you must submit to examination under oath, 
while not in the presence of another insured, and sign the 
transcript from such examination; and
    c. Permit us to examine and make copies of all or any relevant 
portion of:
    (1) Any policies of property insurance insuring you against loss 
and the deed establishing your ownership of the insured real 
property; and
    (2) All bills, invoices, receipts and other records pertaining 
to the damaged property, or certified copies if the originals are 
lost.
    2. At our option, we may accept our adjuster's report of the 
loss in lieu of a proof of loss. You must sign the adjuster's 
report. At our option, we may also require you to swear to the 
report.
    C. Loss Payment.
    1. Adjustment of Claims.
    a. We have not authorized the adjuster to approve or disapprove 
any claim.
    b. We will adjust all losses with you. We will pay you unless 
some other person or entity is named in the policy or is legally 
entitled to receive payment. Loss will be payable 60 calendar days 
after we receive your proof of loss, or within 90 calendar days 
after the insurance adjuster files the adjuster's report signed and, 
if required by us, sworn to by you in lieu of a proof of loss, and:
    (1) We reach an agreement with you;
    (2) There is an entry of a final judgment; or
    (3) There is a filing of an appraisal award with us, as provided 
in VI.F. of this policy.
    2. If we reject your proof of loss in whole or in part, you may:
    a. Accept our denial of your claim;
    b. File an amended proof of loss (see VII.L.1) within 90 
calendar days of the date of the loss;
    c. Exercise your rights under this policy including:
    (1) Appeal (see VII.L.2)
    (2) Appraisal (see VI.F) or
    (3) Litigation (see VII.L.3).
    3. Advance Payments.
    a. At our option, we may provide you with an advance payment 
prior to the completion of your claim. You may request an advance 
payment after providing the notice of loss required in VI.A. Such 
advance payments may include amounts totaling no more than 5% of the 
Coverage A coverage limit to an insured without regard to VII.F.
    b. We may approve or reject your request for an advance payment 
at any time. Such approval or rejection does not affect the final 
adjustment of your claim and does not change your duties or our 
options under this policy.
    c. If we provide you with an advance payment that exceeds your 
covered loss, we will send you notice in writing of the overpayment. 
You must repay any excess amount to us or dispute the validity of 
the overpayment within 30 calendar days of the date on our letter. 
Failure to repay any overpayment from us may result in a debt 
collection action by the Federal Government.
    D. Deductible.
    1. When a loss is covered under this policy, we will pay only 
that part of the loss that exceeds your deductible amount (subject 
to the applicable coverage limit). Your deductible amount is shown 
on the declarations page.
    2. In each loss from flood, a single deductible applies to 
losses to your dwelling and all other property insured by this 
policy.
    3. The deductible does NOT apply to any Loss Avoidance Measures 
specified in III.D.2 or III.D.3.
    E. Loss Settlement.
    1. This policy provides two possible methods of settling losses: 
Replacement Cost Value and Actual Cash Value.
    a. Replacement Cost Value loss settlement, described in VI.E.2. 
applies:
    (1) To your dwelling, if at the time of loss, the coverage limit 
in this policy that applies to the dwelling is 80% or more of full 
replacement cost immediately before the loss or is the maximum 
coverage limit available under the NFIP.
    (2) To claims arising under Coverage B or Coverage C of this 
policy.
    b. Actual Cash Value loss settlement applies:
    (1) If your dwelling is not eligible for Replacement Cost Value 
settlement because it does not meet the conditions under VI.E.1.a.; 
or
    (2) If Actual Cash Value is specified in an endorsement.
    2. Replacement Cost Value Loss Settlement. If your loss is 
subject to Replacement Cost Value settlement under VI.E.1.a., the 
following conditions apply:
    a. We will pay to repair or replace the damaged dwelling or 
other building(s) at the described location or personal property 
covered under this policy but not more than the lesser of the 
following amounts:
    (1) The coverage limit that is applicable to the loss as shown 
on your declarations page;
    (2) The replacement cost of that part of the dwelling that is 
damaged using materials of like kind and quality and for like use; 
or
    (3) The amount necessary to repair or replace the damaged part 
of the dwelling for like use.
    b. If the dwelling is rebuilt at a new location, we will pay you 
only the cost that would have been incurred if the dwelling had been 
rebuilt at its former location.
    3. Actual Cash Value Loss Settlement. If actual cash value loss 
settlement applies, we will pay the lesser of the following amounts:
    a. The actual cash value of the covered property; or
    b. The policy limits stated on the declarations page.
    4. Flood Mitigation Expenses. We will reimburse you for post-
loss expenses that mitigate against future flood events as follows:
    a. Post-loss expenses may not exceed the policy limits stated on 
the declarations page.
    b. At your option, you may choose to replace any damage under 
Coverage A or Coverage B with Flood Damage Resistant Materials. 
After you complete installation of the Flood Damage Resistant 
Materials, you may then request reimbursement.
    c. At your option, you may choose to elevate your machinery and 
equipment above a basement or an enclosure. Such elevated machinery 
and equipment must be elevated to a height reasonably expected to 
avoid future direct physical loss by or from flood. After you 
complete elevation of the machinery and equipment, you may then 
request reimbursement.
    5. This is not a valued policy. A valued policy is a policy in 
which the payable amount in the event of a total loss is agreed upon 
by the insured and the insurer.
    F. Appraisal. If you and we fail to agree on the Replacement 
Cost Value or, if applicable, Actual Cash Value, of your damaged 
property and are thus unable to settle the amount of loss, then 
either party may demand an appraisal of the loss.
    1. Conditions Before You Can Request an Appraisal.
    a. You must agree with us on a list of damaged items to be 
appraised.
    b. You must have complied with the requirements of the proof of 
loss (see VI.A.3).
    c. Appraisal is only available when the dispute between parties 
involves the price to be paid for the property covered under this 
policy. Other disputes, such as disputes regarding coverage or 
causation, or the extent of the loss, cannot be resolved through the 
appraisal process.
    2. Appraisal Process. If the conditions under VI.F.1. are 
satisfied and an appraisal is properly invoked, you and we will each 
choose a competent and impartial appraiser within 20 calendar days 
after receiving a written request to do so from the other. The two 
appraisers will choose an umpire. If they cannot agree upon an 
umpire within 15 calendar days, you or we may request that the 
choice be made by a judge of a court of record in the State where 
the covered property is located. The appraisers will separately 
state the Actual Cash Value or the

[[Page 8324]]

Replacement Cost Value (as applicable), and the amount of loss to 
each item. If the appraisers submit a written report of an agreement 
to us, the amount agreed upon will be the amount of loss. If they 
fail to agree, they will submit their differences to the umpire. A 
decision agreed to by any two will set the amount of Actual Cash 
Value and loss, or if it applies, the Replacement Cost Value and 
loss. Each party will:
    a. Pay its own appraiser; and
    b. Bear the other expenses of the appraisal and umpire equally.
    3. Appraisal can only be used when it will result in complete 
resolution of the entire claim. Appraisal cannot be used to resolve 
only part of your claim or to determine the value of some items and 
not others.

Section VII: General Conditions

    A. Abandonment. You may not unilaterally abandon to us damaged 
or undamaged property insured under this policy.
    B. Amendments, Waivers, Assignment.
    1. This policy cannot be changed nor can any of its provisions 
be waived without the express written consent of the Administrator.
    2. No action we take under the terms of this policy constitutes 
a waiver of any of our rights.
    3. You may not assign your policy or your claim to any other 
party.
    C. Death. In the event of your death during the policy term, the 
coverage provided under this policy continues automatically for any 
other insured(s). If no other insured exists, this policy will 
insure the administrator, executor or other legal representative of 
your estate as previously determined by you or the intestacy laws of 
the state where the described location is located, but only for the 
dwelling, building(s), and personal property of the deceased at the 
time of death.
    D. Duplicate Policies Not Allowed. We will not insure your 
personal property at the described location under more than one NFIP 
policy. If there is more than one NFIP policy for buildings at the 
described location, we will apply the NFIP rules concerning 
duplicate policies and cancel or nullify one of the policies, 
whichever is applicable, which may result in a refund.
    E. Headings and Captions. The headings and captions used in this 
policy are for convenience of reference only and shall not affect or 
control the meaning or interpretation of any of the terms, 
conditions or provisions of this policy.
    F. Mortgage Clause. The word ``mortgagee'' includes trustee.
    1. Any loss payable under III.A or III.B of this policy will be 
paid to any mortgagee of whom we have actual notice, as well as any 
other mortgagee determined to exist at the time of loss, including 
you, as interests appear. If more than one mortgagee is named, the 
order of payment will be the same as the order of precedence of the 
mortgages.
    2. If we deny your claim, that denial will not apply to a valid 
claim of the mortgagee, if the mortgagee:
    a. Notifies us prior to a loss of any change in the ownership or 
occupancy, or substantial change in risk, of which the mortgagee is 
aware;
    b. Pays any premium due under this policy on demand if you have 
neglected to pay the premium; and
    c. Submits a signed, sworn proof of loss within 90 calendar days 
after receiving notice from us of your failure to do so.
    3. All of the terms of this policy apply to the mortgagee.
    4. The mortgagee has the right to access your claim file and 
receive loss payment even if the mortgagee has started foreclosure 
or similar action on the property insured under this policy.
    5. If we decide to cancel or not renew this policy, it will 
continue in effect only for the benefit of the mortgagee for 30 
calendar days after we notify the mortgagee of the cancellation or 
non-renewal.
    6. If we pay the mortgagee for any loss and deny payment to you, 
we are subrogated to all the rights of the mortgagee granted under 
the mortgage on the property. Subrogation will not impair the right 
of the mortgagee to recover the full amount of the mortgagee's 
claim.
    G. No Benefit to Bailee. No person or organization having 
custody of covered property other than you will benefit from this 
insurance.
    H. Other Insurance. Subject to the limitations and restrictions 
of VII.D., if a loss covered by this policy is also covered by other 
insurance, we will pay no more than the coverage limit you are 
entitled to for lost, damaged, or destroyed property insured under 
this policy, subject to the following:
    1. We will pay only the proportion of the loss that this 
policy's coverage limit bears to the total coverage limit covering 
the loss; unless VII.H.2. or VII.H.3. applies.
    2. If the other policy has a provision stating that it is excess 
insurance, this policy will be primary;
    3. This policy will be primary up to the other policy's 
deductible amount. After the other policy's deductible amount is 
reached, this policy will participate in the same proportion that 
this policy's amount of insurance bears to the total amount of both 
policies for the balance of the loss. This policy is subject to its 
own deductible.
    I. Pair and Set Clause. In case of loss to an item of property 
that is part of a pair or set, we will have the option to pay you 
either:
    1. The cost to replace only the lost, damaged, or destroyed 
item; or
    2. The amount that represents the fair proportion that the lost, 
damaged or destroyed item bears to the total value of the pair or 
set.
    J. Salvage.
    1. After we give you written notice, we may take all or any part 
of the damaged property at the value that we agree upon or its 
appraised value.
    2. We may permit you to keep damaged property insured under this 
policy after a loss, but we will reduce the amount of the loss 
proceeds payable to you under the policy by the value of the 
salvage.
    K. Subrogation. ``Subrogation'' 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. Whenever we pay for a loss under this policy, we are 
subrogated to your right to recover for that loss from any other 
person. After the loss, you must deliver all related papers to us, 
you must cooperate with us, and you may not interfere with or do 
anything that would prevent our right to recover this money. If we 
pay for a loss under this policy and you (1) make a claim against 
any person who caused your loss and (2) recover any money from that 
person, you must return our payment before you may keep any 
recovered funds, without regard to any non-covered losses occurring 
at the described location.
    L. Your Options After Our Denial.
    1. Request Additional Payment. You may request additional 
payment and amend your initial proof of loss. You must submit this 
request or amended proof of loss as set forth in VI.A. A denial 
letter does not extend the deadline in VI.A.3 to submit a proof of 
loss.
    2. Appeal. If we deny your claim, in whole or in part, we will 
send you a denial letter. If you wish to appeal our denial, you must 
send an appeal letter explaining your position and a copy of our 
denial letter to FEMA within 60 calendar days of the date on our 
letter. Filing an appeal to FEMA does not limit or affect your 
ability to file suit, or to seek an additional payment or file an 
amended proof of loss with us.
    3. File a Lawsuit Against Us. You may not sue us to recover 
money under this policy unless you have complied with all of the 
requirements of the policy. If you do sue, you must file the suit 
within one year after the date of the written denial of all or part 
of your claim, and you must file the suit in the United States 
District Court of the district in which the covered property or the 
major part thereof was located at the time of loss. These 
requirements apply to any claim that you may have under this policy 
and to any dispute that you may have arising out of or resulting 
from the handling of any claim under this policy.
    In witness whereof, we have signed this policy below and hereby 
enter into this Insurance Agreement.
    Federal Insurance and Mitigation Administration

0
5. Add Appendix A(101) to Part 61 to read as follows:

Appendix A(101) to Part 61

Increased Cost of Compliance Coverage Endorsement

    The terms of the policy apply to this increased cost of 
compliance coverage unless modified by this endorsement.

Definitions

    This endorsement adds the following definitions to Section II of 
the policy:
    C. Additional Defined Terms.
    1. Community Official means the non-federal official enforcing 
floodplain management ordinances that meet or exceed the minimum 
standards of the NFIP on a damaged building.
    2. Compliance Activities means legally required mitigation 
activities approved by the Administrator that reduce or remove the 
risk of future flood damage to a building at the described location.

[[Page 8325]]

Coverages

    This endorsement adds the following coverage to Section III of 
the policy:
    E. Increased Cost of Compliance
    1. We will pay you up to the Increased Cost of Compliance 
coverage limit indicated on the declarations page for the cost of 
compliance activities actually incurred when required by a community 
official.
    2. Use of this coverage is at your option, but the combined 
payments under Coverage A, Coverage B, and this increased cost of 
compliance coverage under Coverage E may not exceed the maximum 
amount of coverage permitted by the Act.
    3. Limitation. When the building is repaired or rebuilt, it must 
be intended for the same occupancy as the present building unless 
otherwise required by current floodplain management ordinances or 
laws.
    4. This policy does not cover:
    a. Anything already excluded anywhere in the policy;
    b. Costs of any compliance activities:
    I. For a flood loss that pre-dates the current loss; or
    II. Necessary for additions or improvements to the dwelling made 
after such loss occurred.
    c. Any standard that does not meet the minimum requirements of 
the NFIP.

Exclusions

    Paragraph A.2 of Section IV, Exclusions, is replaced with the 
following:
    2. Economic losses, even if caused by flood, whether direct or 
indirect, including losses from a disruption of business, or 
complying with any ordinance or law. This exclusion does not apply 
to any eligible activities we describe in Coverage E--Increased Cost 
of Compliance.

Policy Conditions

    Paragraph E.1 of Section V, Policy Conditions, is amended by 
adding the following:
    c. Increased Cost of Compliance, VI.E.6, for a period not to 
exceed six years from the date of loss.

Procedures and Duties When a Loss Occurs

    Paragraph D.3 of Section VI, Procedures and Duties When a Loss 
Occurs, is replaced with the following:
    3. The deductible does NOT apply to any Loss Avoidance Measures 
specified in III.D.2 or III.D.3. or to III.E, Increased Cost of 
Compliance coverage.
    Paragraph E of Section VI is amended by adding the following:
    6. Increased Cost of Compliance Loss Settlement. We will pay you 
for your eligible increased Cost of Compliance costs when you have 
completed your compliance activities as soon as reasonably possible 
after the loss, not to exceed two years.

General Conditions

    Paragraph B.3 of Section VII, General Conditions, is replaced 
with the following:
    3. Assignment.
    a. Except as provided in VII.B.3.b, you may not assign your 
policy or your claim to any other party.
    b. You may assign a claim under Coverage E to a state or local 
government or non-profit organization to apply towards the non-
federal cost share of a federal grant.

0
6. Add Appendix A(102) to Part 61 to read as follows:

Appendix A(102) to Part 61

Actual Cash Value Loss Settlement Endorsement

    Read the endorsement carefully for changes to the policy.
    This endorsement provides Actual Cash Value as the only 
available valuation for settling your covered losses under the 
policy.
    Paragraphs E.1 through E.5 of Section VI, Procedures and Duties 
When a Loss Occurs, are replaced with the following:
    1. This policy provides Actual Cash Value loss settlement.
    2. Actual Cash Value Loss Settlement. If actual cash value loss 
settlement applies, we will pay the lesser of the following amounts:
    a. The actual cash value of the covered property; or
    b. The policy limits stated on the declarations page.
    3. Flood Mitigation Expenses. We will reimburse you for post-
loss expenses that mitigate against future flood events as follows:
    a. Post-loss expenses may not exceed the policy limits stated on 
the declarations page.
    b. At your option, you may choose to replace any damage under 
Coverage A or Coverage B with Flood Damage Resistant Materials. 
After you complete installation of the Flood Damage Resistant 
Materials, you may then request reimbursement.
    c. At your option, you may choose to elevate your machinery and 
equipment above a basement or an enclosure. Such elevated machinery 
and equipment must be elevated to a height reasonably expected to 
avoid future direct physical loss by or from flood. After you 
complete elevation of the machinery and equipment, you may then 
request reimbursement.
    4. This is not a valued policy. A valued policy is a policy in 
which the payable amount in the event of a total loss is agreed upon 
by the insured and the insurer.

0
7. Add Appendix A(103) to Part 61 to read as follows:

Appendix A(103) to Part 61

Temporary Housing Expense Endorsement

    The terms of the policy apply to this temporary housing expense 
coverage unless modified by this endorsement.

What We Cover

    Paragraph A.4.a of Section III, What We Cover, is replaced with 
the following:
    a. Except as provided in III.D.4 as modified by endorsement, 
loss of use of the described location while the dwelling is 
inaccessible, being repaired, or is uninhabitable for any reason;
    Paragraph D.4 of Section III, What We Cover, is replaced with 
the following:
    4. Temporary Housing Expense. For additional premium received, 
we will cover temporary housing expenses actually incurred by you up 
to the coverage sublimit specified on the declarations page when:
    (i) The dwelling at the described location is uninhabitable due 
to direct physical loss by or from flood. Payment will be for the 
shortest amount of time required to repair or replace the damage or, 
if you permanently relocate, the shortest time required for your 
household to settle elsewhere.
    (ii) A legally authorized official has issued an evacuation or 
civil order for the community in which the dwelling is located 
calling for measures to preserve life and property from the peril of 
flood. Payment will be for the shortest time period covered by the 
order.
    (b) The time period for temporary housing expense coverage is 
not limited by the expiration of the policy term specified in I.D 
but in any case will not exceed 24 consecutive months from the date 
of the covered flood loss.
    5. This coverage does not increase the Coverage A, Coverage B, 
or Coverage C limits.

0
8. Add Appendix A(104) to Part 61 to read as follows:

Appendix A(104) to Part 61

Basement Coverage Endorsement

    The terms of the policy apply to this basement coverage 
endorsement unless modified by this endorsement.

What We Cover

    Paragraph A.2 of Section III, What We Cover, is replaced with 
the following:
    2. Coverage for Basements. For additional premium received, we 
insure up to the selected Coverage A sublimit on the declarations 
page against direct physical loss by or from flood to the basement.
    Paragraph C.3.a of Section III, What We Cover, is replaced with 
the following:
    a. Limitations on Property in a Basement or in an Enclosure.
    i. For additional premium received, we insure up to the selected 
Coverage C sublimit on the declarations page against direct physical 
loss by or from flood to personal property in a basement.
    ii. In an enclosure, this policy will only cover appliances 
installed in their functioning locations and, if necessary for 
operation, connected to a power source.

0
9. Add Appendix A(105) to Part 61 to read as follows:

Appendix A(105) to Part 61

Builder's Risk Endorsement

    This NFIP policy is amended to provide coverage for a building 
under construction as set forth in this endorsement. The terms of 
the policy apply to this builder's risk endorsement unless modified 
by this endorsement.

Insuring Agreement

    Paragraph D of Section I, Insuring Agreement, is replaced with 
the following:
    D. Policy term. This policy will expire at the earlier of the 
following two dates:
    1. The date your dwelling is completed and occupied by you, this 
endorsement is deleted by us, and the Homeowner Flood Form becomes 
effective in its entirety; or
    2. 12:01 a.m. on the last day of the policy term stated on the 
declarations page.

[[Page 8326]]

Definitions

    This endorsement adds the following definitions to Section II of 
the policy:
    C. Additional Defined Terms.
    1. Construction. Construction as used in this endorsement means 
any new development of land at the described location resulting in a 
building or alteration or repair of a building, including a dwelling 
at the described location.

What We Cover

    Section III, What We Cover, is replaced in its entirety with the 
following:

Section III: What We Cover

A. Coverage A--Dwelling

    1. We insure up to the coverage limit on the declarations page 
at the described location against direct physical loss by or from 
flood to:
    a. The dwelling under construction at the described location. If 
the dwelling is not yet walled or roofed as described in the 
definition of building, then coverage applies;
    (1) Only while construction is in progress; or
    (2) If construction is halted only for a period of 90 
consecutive days thereafter.
    b. Materials and supplies to be used for construction of the 
dwelling or any other building(s) scheduled under Coverage B at the 
described location. The materials and supplies must be stored in a 
building at the time of loss.
    2. Coverage for Basements and Enclosures.
    a. Limited coverage. We only cover direct physical loss by or 
from flood to the interior of all basements and enclosures as 
follows:
    (1) Machinery and equipment installed and, if necessary for 
operation, connected to a power source.
    (2) Footings, foundations, posts, pilings, piers, or other 
foundation walls and anchorage systems required to support a 
dwelling.
    (3) Stairways and staircases directly attached to the dwelling.
    (4) Unfinished drywall and nonflammable insulation.
    3. Dwelling Limitations.
    a. Limitations on mold and mildew. We cover damage to the 
dwelling due to mold or mildew caused by a flood only when it is not 
within your control to inspect and maintain the property after a 
flood recedes.
    b. Limitations on power, heating, or cooling failure. We cover 
damage caused by a power, heating, or cooling failure that is the 
result of direct physical loss by or from flood to covered power, 
heating, or cooling equipment at the described location.
    c. Limitations on flood in the area. When there is a flood in 
the area and the flood causes:
    (1) water or waterborne material to back up through sewers or 
drains; to discharge or overflow from a sump, sump pump, or related 
equipment; or to seep or leak on or through the dwelling; or
    (2) losses to the dwelling by or from the pressure or weight of 
standing or resting water on or below the surface of the land.
    d. Limitations on pollutants. We pay for the testing or 
monitoring of pollutants after a flood only when required by law or 
ordinance. ``Pollutants'' refers to any substances that include, but 
are not limited to, any solid, liquid, gaseous, or thermal irritant 
or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, 
chemicals, and waste. ``Waste'' includes, but is not limited to, 
materials to be recycled, reconditioned, or reclaimed.
    4. This policy does not cover:
    a. Loss of use of the described location including any living 
expenses incurred while the dwelling is inaccessible, being 
repaired, or is uninhabitable for any reason;
    b. Land and land values;
    c. Lawns, trees, shrubs, plants, growing crops, and landscaping;
    d. Any open structures, including but not limited to a building 
used as a boathouse, when located entirely in, on, or over water.
    e. Buildings constructed or substantially improved after 
September 30, 1982, when (1) they are located entirely in, on, or 
over water or (2) if they are seaward of mean high tide;
    f. Underground structures and equipment that are not located 
within the dwelling, such as wells, septic, sewer, plumbing supply, 
waste lines, gas supply lines, electrical and HVAC system 
components;
    g. Those portions of walks, walkways, decks, driveways, patios, 
and other surfaces, all whether protected by a roof or not, located 
outside the perimeter, exterior walls of the insured building;
    h. Containers and related equipment, such as tanks containing 
gases or liquids;
    i. Fences, retaining walls, seawalls, bulkheads, wharves, piers, 
bridges, and docks; and
    j. Hot tubs and spas that are not bathroom fixtures, and 
swimming pools, and their equipment, such as heaters, filters, 
pumps, and pipes, wherever located.

B. Coverage B--Other Buildings

    1. We apply the terms of Coverage A to other buildings at the 
described location except as modified in III.B.2.
    a. For this Coverage B to apply, the other buildings must appear 
on the declarations page.
    b. Use of this coverage is at your option, but reduces the 
dwelling coverage limit provided under Coverage A. The maximum 
available coverage limit for other buildings is 10% of Coverage A 
limits, regardless of how many buildings are scheduled on the 
declarations page.
    2. We do not cover:
    a. Anything already excluded under the terms of Coverage A.
    b. Basements or enclosures for any building that is not the 
dwelling.
    c. Any building used or held for use for commercial purposes, 
such as agricultural and business use.
    d. Any building(s) at the described location that is not owned 
by the insured, including an entity, such as a homeowners 
association.

C. Coverage C--Personal Property

    There is no personal property coverage under this policy until 
your dwelling is completed and occupied by you, this endorsement is 
deleted by us, and the Homeowner Flood Form becomes effective in its 
entirety.

D. Coverage D--Other Coverages

    1. Debris Removal
    a. Covered Debris.
    (1) We will pay the labor and expense to remove:
    (a) debris from anywhere that comes onto or into the insured 
dwelling or other insured buildings at the described location; and
    (b) debris of insured property anywhere.
    (2) If you or a member of your household perform the debris 
removal work, we will pay you for the value of this work using the 
federal minimum wage. This coverage does not increase any coverage 
limit stated on the declarations page.
    b. Debris Not Covered. This policy does not cover the cost to 
remove:
    (1) debris from other locations on the land surrounding the 
dwelling or other building(s) at the described location, or
    (2) any non-covered items of property from the dwelling or 
building(s), even if the removal facilitates covered cleanup or 
repairs.
    2. Loss Prevention
    a. Materials and Labor
    (1) We will pay up to the coverage sublimit specified on the 
declarations page for the expenses you incur to protect your insured 
property from a flood or imminent danger of flood. Such expenses are 
limited to the following:
    (a) Your reasonable expenses to buy materials reasonably 
understood to be, or commonly used as, temporary measures to avoid 
or reduce the harm from an imminent flood; including sandbags, fill 
for temporary levees, and pumps; and
    (b) The value of work, at the federal minimum wage, that you or 
a member of your household perform to protect your property.
    b. This coverage for materials and labor only applies if damage 
to the insured property by or from flood is imminent and the threat 
of flood damage is apparent enough to lead a reasonably prudent 
person to anticipate flood damage. In addition, one of the following 
must occur:
    (1) A general and temporary condition of flooding in the area 
near the described location must occur, even if the flood does not 
reach the building; or
    (2) A legally authorized official has issued an evacuation order 
or other civil order for the community in which your insured 
property is located calling for measures to preserve life and 
property from the peril of flood.
    3. Property Removed to Safety. We will pay up to the coverage 
sublimit specified on the declarations page for the reasonable 
expenses you incur to move insured property to a secure location 
other than the described location to protect it from flood or the 
imminent danger of flood. Reasonable expenses include the value of 
work, at the federal minimum wage, performed by you or a member of 
your household.
    4. This coverage does not increase the Coverage A, Coverage B, 
or Coverage C limits.

[[Page 8327]]

Policy Conditions

    The following subsection is added to paragraph B of Section V, 
Policy Conditions:
    3. Builders Risk. Notwithstanding V.B.1 or V.B.2, any NFIP 
policy written with a builder's risk endorsement is eligible for 
only one renewal.

General Conditions

    The following subsection is added to the beginning of paragraph 
F of Section VII, General Conditions:
    A holder of a construction loan upon which draws have been paid 
shall be considered the ``mortgagee.''

Deanne B. Criswell,
Administrator, Federal Emergency Management Agency.
[FR Doc. 2024-02204 Filed 2-5-24; 8:45 am]
BILLING CODE 9111-52-P