W-39: Private Flood Insurance- Practical Issues

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W-39: Private Flood Insurance- Practical IssuesPresenters: Greg Deimling, CPCU, ARM, CRIS, AMIM

Lauri Lydecker, CRCMEd Pasterick, FEMA

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Private Flood Insurance – Practical Issues

Private Flood Insurance

Everything you need to know in 90 minutes

An Open Discussion between Greg, Lauri, Ed

and YOU, the attendee

Questions taken anytime - between us we will

discover the answers!

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KNOWING YOU

A.Legal or Administrative

Lawyers, managers, supervisors, corporate

B. Lenders / Compliance

C. Production / Marketing

Producers, agents, brokers, marketing area

D. Underwriting / Loss Control

E. Others-not included above

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Private Flood Insurance – The Mandate

Lender Requirements

• Availability

NFIP AVAILABLE

NFIP NOT AVAILABLE

• Suitability

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Private Flood Insurance – The Criteria

FEMA CRITERIA

1. Licensure

2. Surplus Lines Recognition

3. Cancellation / Non Renewal Notice

4. Policy Coverage

5. Mortgage Clause

6. Legal Recourse

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Private Flood Insurance – The Carrier

Financial Condition

• State Insurance Departments

• Admitted vs. non-admitted insurers

• State insurance guaranty funds

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Private Flood Insurance – Cancellation

Cancellation and Non-Renewal Provisions

• Perceived increases in risk

• Loss activity

• Advance notification – borrower / lender

• Information about NFIP coverage availability

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Read the Policy – Breadth of Coverage

THE DEVIL

IS IN THE DETAILS

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NFIP Flood Definition

Flood, as used in this flood insurance policy, means: 1. A general and temporary condition of partial or complete inundation of two or more acres of normally dry land area or of two or more properties (at least one of which is your property) from:

a. Overflow of inland or tidal waters;b. Unusual and rapid accumulation or runoff of surface

waters from any source; c. Mudflow

2. Collapse or subsidence of land along the shore of a lake or similar body of water as a result of erosion or undermining caused by waves or currents of water exceeding anticipated cyclical levels that result in a flood as defined in A.1.a. above.

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ISO CP 10 30 Flood Definition

g. Water (1) Flood, surface water, waves, tides, tidal waves, overflow of any body of water, or their spray, all whether driven by wind or not;

(2) Mudslide or mudflow;

(3) Water that backs up or overflows from a sewer, drain or sump; or

(4) Water under the ground surface pressing on, or flowing or seeping through:

(a) Foundations, walls, floors or paved surfaces;

(b) Basements, whether paved or not; or

(c) Doors, windows or other openings.

But if Water, as described in g.(1) through g.(4) above, results in fire, explosion or sprinkler leakage, we will pay for the loss or damage caused by that fire, explosion or sprinkler leakage.

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Water Definition

Company A – Form 114. Water Damage means accidental discharge or leakage of water or steam as the direct result of the breaking or cracking of any part of a system or appliance containing water or steam.

Company A – Form 2

9. WATER DAMAGE

All water damage, except damage caused by or resulting from the peril of FLOOD.

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Company A Exclusions

e. Water

(1) Flood, Surface water, wave, tides, tidal wave. overflow of any body of water or their spray, whether driven by wind or not; (2) Mudslide or mudflow: (3) Water which backs up from a sewer or drain; or(4) Water under the ground surface pressing on, or flowing or

seeping through; –(a) Foundations, walls, floors, or paved surfaces; –(b) Basements, whether paved or not; or –(c) Doors, windows, or other openings.

But we will pay for direct “loss” caused by or resulting fire or explosion.This Exclusion does not apply to property in transit.

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Private Carriers Flood Definition

Definition of Flood – Carrier A

–Flood, including surface water. But if loss

or damage from fire explosion or leakage

from fire protective equipment results, we

will pay for that resulting damage.

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Private Carriers Flood Definition

Definition of Flood – Carrier B

–Flood means the overflow from a stream

or any other body of water.

–Flood also means surface water, waves,

tidal waves or movements or spray from

any of these, whether driven by wind or not.

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Private Carriers Flood Definition

Definition of Flood – Carrier C

A condition of inundation of normally dry areas, including dewatered areas, that results from;

–A. Rainfall and resultant runoff, rising water, surface water, storm surge, waves, tidal water, tidal wave or tsunami, all whether driven by wind or not, and/or;

–B. The overflowing of any breach of streams, rivers, lakes, reservoirs or other bodies or water; or spray from any of the foregoing, all whether driven by wind or not.

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Private Carriers Flood Definition

Definition of Flood – Carrier DFLOOD· means:

A. A general and temporary condition of partial or complete inundation of normally dry land areas, including dewatered areas, from:

1. The rising, overflow, or expansion beyond normal boundaries of any body of water or watercourse, whether such body of water or watercourse is natural or man made;

2. The release or breaking of the boundaries of natural or man-made bodies of water or watercourses including the release or overflow of any water impounded by a dam, dike, reservoir or any other barrier or diversionary device;

3. Tsunami, waves, tide or tidal waters;

4. The unusual and rapid accumulation or runoff of surface waters from any source;

5. Mudslides or mudflows where mudslide or mudflows means a river of liquid and flowing mud on the surfaces of normally dry land areas, as when earth is carried by a current of water and deposited along the path of the current; or the spray from any of the foregoing, whether driven by wind or not.

B. Direct physical loss or damage by fire or explosion resulting from Flood as defined above, will not be considered loss by Flood within the terms and conditions of this policy.

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Private Flood Insurance – Policy Coverage

Limits of Insurance

• NFIP vs. private – Advantages

• Higher limits

• Additional coverages

• Excess coverage

• Potential disadvantages

• Per loss and aggregate limits

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Private Flood Insurance – Policy Coverage

Specific vs. Blanket Insurance

• Multiple properties

• Proximity of locations

• Loss limits

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Private Flood Insurance – Policy Coverage

Flood as a Sub-Limit

• Flood limits may be lower

• Sub-limits may not be shown on evidence of coverage document

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Loss Settlement – Policy Coverage

NFIP

• Actual Cash Value

• Replacement Cost

Private

• Actual Cash Value

• Replacement Cost

• Functional Replacement

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Private Flood Insurance – Exclusions

Flood Zone Exclusions

• Always read the policy Exclusions and the Flood Endorsement document

• NFIP’s “Reduction and Reformation of Coverage”

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Private Flood Insurance – Exclusions

Flood Zone Exclusions - Example

“Flood coverage provided by this endorsement does not apply to any property located in the following flood zones, as determined by the Federal Emergency Management Agency’s flood insurance rating maps: V, V-1 through V-30, VE or VO.”

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Private Flood Insurance – Waiting Periods

Waiting Periods

• Many private policies – less than standard NFIP 30-days

• Lender-required policies

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Private Flood Insurance – Policy Breadth

Deductibles

• Breadth of coverage requirements

• Deductibles equal to NFIP maximum

• Percentage deductibles

• % of coverage / % of loss

• Borrower’s financial condition

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Private Flood Insurance – Other Insurance

“Other Insurance” Clauses

• Primary or Excess policies

• Payouts – Pro rata or Excess

• Only in excess of NFIP maximum

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Private Flood Insurance – Other Insurance

“Other Insurance” Clauses - Example

“We will pay that portion of the loss which is in excess of the greater of the applicable limit of the primary flood insurance for the covered property; or the maximum coverage limit available through the National Flood Insurance Program (NFIP). No loss proceeds will be paid until the primary insurer has paid their full limit of insurance for the covered property.”

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Private Flood Insurance – Mortgage Clause

The Mortgage Clause

• Continuing coverage regardless of acts or neglect by the insured

• SFIP – 30 days from Notice

• Private – May not extend past the policy expiration date

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Private Flood Insurance – Legal Recourse

Legal Action Clause

• NFIP – 1 year from claim denial or payment

• Private policies – State requirements

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Private Flood Insurance

Regulatory Examinations

• Review of General Practices and Procedures

• Proof of submission for “Notice to Borrower” Form

• Timing of requirements for notices

• Proper Coverage Amount

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Private Flood Insurance

Regulatory Examinations

• Review of Procedures for addressing reclassification by flood map revisions

• Exercises forced placement

• Review contractual obligations

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Private Flood Insurance

Regulatory Penalties Required

• Place Insurance

• Escrow Flood Insurance Premiums

• Failure to provide Notice Requirements

• Force place the insurance

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Private Flood Insurance

The Aggrieved Borrower

• Flood Damaged Property in SFHA

• No Coverage in Place

• Cause of Action Against the Lender

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Private Flood Insurance

Condominium

• Association vs. Unit Owner

• Maximum Limit Available

• Duplicate coverage

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Private Flood Insurance – Wrap Up

Private Flood Policy Considerations

• MPG 6 item “checklist”

• Are “shortcomings” significant?

• Private insurance market does have a roll

• Excess, Non-participating communities

• Lender’s ultimate responsibility to confirm suitability

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Private Flood Insurance

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Thank You