The National Flood Insurance Reform Act of 1994 added the increased Cost of Compliance (ICC) coverage to the Standard Flood Insurance Policy. This Increased Cost of Compliance coverage helps to pay for the costs the policyholder will incur in order to comply with State or local floodplain management ordinances after a building has sustained substantial damage by or from flood or is declared a repetitive loss structure.
When a community declares an insured, flood-damaged building to be substantially damaged or identifies the building as a repetitive loss structure, ICC will help to pay for at least some of the cost to floodproof, relocate, elevate, or demolish the building, (or any combination of activities thereof). The limit of liability for ICC in all policies is $30,000. There is no deductible, and this coverage is in addition to the amount of building coverage carried by the policyholder. However, the ICC claim for any given loss cannot make the total of the claim payment to exceed the statutory limits of $250,000 for a one-to-four story dwelling or other residential building, and $500,000 for a non-residential building—including public and government buildings, such as libraries, schools and municipal buildings.
The ICC coverage is provided under all forms of the Standard Flood Insurance Policy and is not optional. However, there are some situations where the ICC is not available; such as
1) If a building is flood-damaged and is located in a Special Flood Hazard Area (SFHA), they are eligible to apply for an ICC claims payment, provided the community determines that the insured building has sustained substantial damage by or from flood, i.e., the community has determined that cost of restoring the flood-damaged building to its pre-flood damage condition would equal or exceed 50 percent of the market value of the building before the damage occurred.
2) If the community determines that the flood-damaged building is a repetitive loss structure, e.g., a structure covered by a contract of flood insurance issued under the NFIP that has suffered flood damage on two occasions during a ten-year period that ends on the date of the second loss, in which the cost to repair the flood damage, on average, equaled or exceeded 25 percent of the market value of the structure at the time of each flood loss.
In additional to the basic eligibility requirements, there are two conditions that must be met in order for an ICC claim to be on a repetitive loss structure:
(1) Communities must have adopted and be currently enforcing a repetitive loss provision or a cumulated substantial damage provision that requires compliance with local floodplain management laws or ordinances. (2) These provisions must be enforced on all buildings located within the community's Special Flood Hazard Area(s). Note, however, that States and communities are not required to adopt a repetitive loss provision. Adoption of a cumulative substantial damage provision or a repetitive loss provision is voluntary.
ICC claims will be paid
- whether or not a Presidential declaration of disaster been made;
- for elevation, floodproofing, relocation, or demolition in B, C, X, or D Zones which have been adopted by the community and which they are enforcing;
- in unnumbered A Zones provided the community required the elevation of floodproofing of the structure to the Base Flood Elevation obtained from a Federal, State, or other source or is determined for the site;
- for Post-FIRM buildings when there has been an increase in Base Flood Elevations.
Mitigation Measures
When a building covered by a SFIP sustains a flood loss and the community declares the building substantially damaged or repetitively damaged, ICC will pay up to the maximum coverage of $30,000 for the increased cost to elevate the structure (common technique for protecting an existing building in a Special Flood Hazard Area), to or above the Base Flood Elevation. A claim payment under the ICC will help cover the cost of elevating the building to the Base Flood Elevation or to the community's flood protection level if the community enforces a "freeboard" requirement (additional elevation above the Base Flood Elevation) up to the maximum coverage of $30,000.
When a building that is covered under a SFIP sustains a flood loss and the community declares the building substantially damaged or repetitively damaged, ICC will pay up to the maximum coverage of $30,000 for the increased cost to floodproof the structure. This is a method which is a combination of adjustments and/or additions of features to buildings that eliminate or reduce the potential for flood damage by keeping floodwaters out of the building. Simply put, this makes the building watertight and basically impermeable to floodwaters. It should be noted that only non-residential buildings in A Zone can be floodproofed.
Further, when a building covered by a SFIP sustains a flood loss and the community declares the building substantially damaged or repetitively damages, ICC will pay up to the maximum of $30,000 for the increased cost for the relocation of the structure. This can offer the greatest protection from future flooding and involves moving the entire building to another location on the same lot or to another lot (which usually would be outside the floodplain).
The ICC coverage is not available for:
- Buildings insured with policies issued or renewed in the Emergency Program.
- Condominiums units, including townhouses and rowhouse condominium units—the condominium association is responsible for complying with mitigation requirements.
- Group Flood Insurance policies.
- A detached garage unless it is covered by a separate policy.
- Post-FIRM buildings build in compliance at the time of construction.
- Buildings located in B, C, X or D Zones, unless the Zone is being changed to one that has base flood elevations and the community is enforcing it.
- The loss in value to any insured building or other structure due to the requirements of any ordinance or law (such as damage to a seawall).
- The loss in residual value of the undamaged portion of a building demolished as a consequence of enforcement of any State of local floodplain management law or ordinance.
- Any code upgrades requirements, e.g., plumbing or electrical wiring, not specifically related to the State or local floodplain management law or ordinance. For example, if a flood damages and insured building and ruins the wiring, and the community requires an upgraded wiring system to be installed—this coverage would not apply to the upgrading.
- Any compliance activities needed to bring additions or improvement made after the loss occurred into compliance with State or local floodplain management laws or ordinances. For example, if the ICC claim paid for a building to be elevated, and the homeowner decided to install the water heater or air conditioner in a room addition on the second floor, the cost of building the room is not covered.
- Any loss due to any ordinance or law that the insured was required to comply with before the current loss. An example would be a house damaged by fire damage and which would require the building to be relocated under local ordinances. Since the fire was not caused by the flood, ICC will not cover relocation costs.
- Any rebuilding activity to standards that do not meet the NFIP's minimum requirements, including situations where the insured has received from the State or community, a variance in connection with the current flood loss to rebuild the property to an elevation below the base flood elevation. For instance, if the Base Flood Elevation for the house has been raised, and the community issued a variance for this flood damaged, Pre-FIRM building to be rebuilt as is, the ICC coverage will not pay for the mitigation costs in repairing the building.
- Condominium associations cannot assess a unit's owner for ICC mitigation costs for a commonly-owned out building after a flood, even if such assessment were in compliance with State or local floodplain management ordinances or laws.
- Buildings that are damaged by other perils, such as wind, fire and earthquake.
The Claims Adjustment process follows the process as outlined below:
- The policyholder suffers a flood loss and reports this loss to the insurer.
- The Claims Representative advises the policyholder if the building appears to be substantially damaged and of policyholder's coverage.
- The Community determines whether the building is "substantially damaged" or a "repetitive loss" that must comply with floodplain management laws and ordinances. Community and policyholder confer on mitigation options that are available under the ICC coverage.
- The policyholder notifies the insurer of the "substantial damage" or "repetitive loss" determination by the community. The Claims Representative advises the policyholder that a signed contract to undertake the mitigation measures must be provided prior to obtaining a Proof of Loss.
- The insurer establishes an ICC Claims File. The Claims Representative obtains information from the community regarding damages and market value and other information to determine the building's eligibility for an ICC claims payment. For a repetitive loss building, the current and previous damage determination must be obtained. The Claims Representative verifies that the flood-related damages for the current building claim supports community information.
- The policyholder provides a copy of a signed contract which outlines in detail the costs to undertake the mitigation measure to the Claims Representative.
- The Claims Representative provides proof of loss form to the policyholder.
- The policyholder provides the insurer with Proof of loss, and a Copy of permit from the community,
- The Claims Representative provides an initial ICC claim payment.
- When chosen mitigation option is completed, the community makes the final inspection and issues a certificate of occupancy or other written evidence that the work has been completed satisfactorily.
- The insurer makes the final ICC claim payment to the policyholder upon receiving documentation that the mitigation measure undertaken has been satisfactorily completed.
It is important that the agents become familiar with the claims process so that it can be explained to the insured. During the early stages of the claims process, the agent's principal duty is to help the policyholder.
When a claim is first reported to the agent by the policyholder, the agent must explain to the policyholder that an approved claims adjuster will be assigned to estimate the damage as the first step. The claims adjuster will be calling within 24 to 48 hours to set up an appointment for an on-site inspection of the damage. It is important that no promises be made in respect to the adjuster visiting the claimant within 24 hours. Often, particularly after a hurricane, severe story, or widespread flooding, it is not possible for the adjuster to arrive within 24 hours. Do not forget to get a daytime address and telephone number from the insured.
Ask insured for addresses, including work and/or temporary address, ask when the insured is available and how long they will be staying there. Asks for all telephone numbers, including home, cell, work and temporary numbers.
F Obtain a written Notice of Loss.
An agent may be required by the company's claims procedures to take the loss information over the telephone and then to forward it to the insurance company for handling. In other situations, the agent may assign the claim to an approved adjuster.
The policyholder will be able to discuss with the claims adjuster if there is a need for an advance of partial payment for the loss.
Every company will have their own procedures for the assignment of claims adjusters. Insurance agents are not allowed to also be claims adjusters. Even though the agent may have authority to settle small claims on personal lines, this does not apply to the Federal flood policy and the agent cannot deny or accept claims.
Actually, what a policyholder really wants at this early stage is the reassurance of a phone call. If the adjuster is not able to make the appointment within the 24-48 hour range, ask the adjuster to call the claimant to reassure him that someone has been assigned to their case.
When the agent converses with the claimant in the initial stage, there are certain things that the agent should instruct the claimant to do in order to facilitate the claims settlement. Besides making the final adjustment more efficient, it allows the policyholder to become actively involved in the claims settlement while they are awaiting the adjuster.
- First, the claimant should protect the property, clean up and dry out what can be cleaned and dried. Taking pictures of the damage is necessary and if they have lost their camera along with everything else, then can purchase a "throw-away" camera very inexpensively. Make sure that they understand that they must leave all damaged belongings on their property so the adjuster can see them. There can be a natural inclination to "throw out all of the stinking junk" immediately, but adjusters are used to wading through debris and it is much easier for an adjuster to make sure that the claimant gets paid for what was damaged if the adjuster can see the material in the damaged state. However, they should remove from the building everything that was waterlogged by the flood, including carpeting, drapes, recliners, sofas, any other upholstered furniture, bedding and clothes—but keep them on the property. If it is necessary to dispose of the wet carpets, save a piece of the carpet and padding to show the adjuster. By all means, take pictures of anything that is thrown away before the adjuster arrives. If, for instance, it will take 2 days before the adjuster can be on the scene, and since normally there is no power, contents of a freezer, refrigerator and anything else that will have to be disposed of prior to the arrival of the adjuster, should be photographed.
- Utilities should be checked and if possible, start the fans and air conditioners which will act as dehumidifiers. Open the windows, at least a little bit, as air circulation is the key to drying out the house.
- The claimant can take steps to avoid the growth of mold from a home damaged by flooding, by drying out the home as much as possible. Inform the claimant that mold is covered by the standard flood insurance policy if it was caused by the flood, however, if mold is allowed go grow after the flood and the insured could have avoided it, then the mold is not covered. The great anti-mold fighter is a 10% bleach solution. Incidentally, WD-40 works well to protect metal parts from rusting because of being submerged in water.
- Documentation of the loss with pictures, receipts, warrantees and any other such receipts should be performed as soon as possible. Note: Particularly those who live in areas particularly susceptible to flooding, when delivering the policy, encourage the insured to take pictures of the entire house and everything inside it, including pictures of open drawers that display their contents. This is always good advice, even just for fire insurance protection purposes, and then make sure that these picture are kept in a secure location, "just in case." A digital camera is perfect for this job, and then take all of the pictures and put them on a CD for storage—and to be doubly sure, make a second CD and send it to a relative or friend that resides elsewhere. Further, all account books, financial records, receipts and other documents that verify losses should be placed in a safe place until it has been examined and evaluated by the adjuster. Advise the claimant to go from room to room, methodically, and list damaged items by age and estimated replacement value.
- Take photos of the exterior of the building also, which would help to show the damage and the water level. Take pictures of damaged property and if possible, mark the high-water level mark on the exterior and interior walls and take pictures of that.
- Do not start the repairs until a building permit has been obtained. This, of course, does not apply to boarding up windows, putting a tarp on the roof, etc. (After Hurricane Charlie, for weeks afterwards in the residential areas that were heavily hit, there were "blue" roofs as far as one could see. Some of them remained on the roofs for 12-18 months after the storm.) Even if the insured is an experienced carpenter, particularly in Zones A and V, buildings that are substantially damaged by flood may be required by the community to comply with additional requirements, many quite stringent, and include such as elevation, relocation, and in some cases, demolition. The adjuster will usually be able to determine if the insured has an Increased Cost of Compliance (ICC) claim and will inform the property owner as to whom they should contact in order to make this determination.
- The claimant should contact the mortgage company, if applicable, and find out the procedure for endorsing the claims check. Some lenders will disburse the insurance proceeds as repairs are made—such information is very important when hiring contracts to make repairs. The insured's should be informed prior to making a claim that if a claim arises on mortgaged property, the insurance check is required to be delivered directly to the mortgage company.
- The insured should be cautioned that they should only hire reputable contractors. History has shown that after a major catastrophe or flooding, there will suddenly be a plethora of unlicensed, out-of-state persons who claim to be able to do the job, but demand payment up front. If at all possible, obtain three estimates. If an estimate can be received prior to visit by the claims adjuster, that will be quite helpful in speeding up the claims payment.
- The claimant should realize that they have responsibilities in case of a loss—they cannot just sit back and hope that the insurance company will take care of everything and things will then return to normal. The claimant should make a record of everyone involved, including telephone numbers, and the date that each person was contacted. Remind the insured that they must be patient, particularly if there are multiple losses; be polite and understanding with everyone that is trying to be of assistance.
- Sometimes people will become rather antagonistic with the claims adjuster, particularly if the adjuster does not believe that everything presented by the insured as damaged, is covered under the policy. It is the right of the insured, in case of a legitimate disagreement, to point out any damage covered by the policy that the adjuster may have missed.
- While the policyholder is waiting for the adjuster, this would be an opportune time to read the policy and the claims handbook. Of course, this means that anything in the policy that they do not understand, they will question the agent about. However, if the policy had been explained thoroughly when it was delivered, there should be few questions at time of claim.
With a large condominium loss, it is critical for the adjuster to contact the association representative within a maximum of 24-48 hours.
- Before the claims adjuster's on-site inspection, the agent should let the claimant know that he has 60 days from the date of the loss to file a Proof of loss. This would be particularly important if the property owner was out of town when the flooding occurred and will not be able to return to the flooded property immediately.
- Contents losses must be documented, and if items have to be thrown away, they should be photographed and if there are several small and/of inexpensive items, they can be lumped together. The NFIP Content inventory Sheet can be used to document contents losses.
- Hardwood furniture should not be placed in direct sunlight to dry as it could cause the furniture to warp and fade.
- And lastly, the policyholder should be informed that they must take an active role in the claims process—and they should be informed of this prior to a claim. FEMA has developed a list of "What you need to do when flood damage occurs," that outlines in detail the policyholder's role and responsibilities.
In times of disaster or even any loss of significant property, there can be conflict between a claimant and an insurer. Then when a third party—claims adjuster—is involved, there can be considerable differences of opinions. A wise agent will take the time to go through the steps that they must take in order to appeal a proposed claim settlement.
- The first step is for the policyholder to contact and talk to the adjuster first. The adjuster has more knowledge about the claim than anyone else, obviously. Ask for clarification and explanations of decisions that have been made.
- If the policyholder is not satisfied with the adjuster's answers, get information as how to contact the adjuster's supervisor.
- If the adjuster's supervisor cannot resolve the issues, then contact the insurance company's claim representatives.
- Then, ask the agent or the insurance company representatives for assistance.
CLAIMS HANDBOOK
The NFIP Claims Handbooks explains the steps in filing a claim and seeing it to completion, procedures for filing supplementary claims, proof of loss and information; and the claims appeal process.
STUDY QUESTIONS–CHAPTER FOUR
1. In order for the ICC to apply, the community must have determined that the cost of restoring the flood-damaged building to its pre-flood damage condition would
A. be substantial (with no particular definition of "substantial").
B. be equal, or in some cases more, than the market value of the building prior to damage.
C. equal or exceed 50 percent of the market value of the building before the damage occurred.
D. have to be accepted by a court or by arbitration.
2. The ICC coverage is not available for
A. a detached garage unless it is covered by a separate policy.
B. single family dwellings.
C. elevated buildings.
D. buildings closer than one mile from flowing water or a large body of water.
3. The insurer makes the final ICC claim payment to the policyholder
A. upon final determination by the court or arbitration panel.
B. prior to the mitigation measure being taken.
C. during the time that the mitigation process is evolving.
D. upon receiving documentation that the mitigation measure undertaken has been satisfactorily completed
4. During the early stages of the claims process, the agent's principal duty is
A. to help the policyholder.
B. to get the claimants address and telephone number only.
C. to make sure that the insurance company will be in a position to pay the minimum amount due.
D. to take sworn statements from the policyholder.
5. When a claim is first reported to the agent by the policyholder, the agent must explain to the policyholder that
A. a series of forms will be mailed to the policyholder within the next 10 days.
B. his duty is to obtain copies of policy or fire department reports that may apply.
C. that an approved claims adjuster will be assigned to estimate the damage as the first step.
D. that a claims adjuster will arrive at his property within 24 hours maximum.
6. The agent for the flood policy is also a licensed adjuster, therefore
A. the agent will receive both commission and adjuster fee.
B. an agent is not allowed to adjust the claim.
C. no formal claims form is required, just a loss estimate.
D. the policy will be cancelled and the agent must return the commission.
7. While the claimant is awaiting the adjuster, the claimant should first
A. move to another location and not take anything from the flooded premises.
B. protect the property, clean up an dry out what can be cleaned and dried.
C. make arrangements for a garage sale.
D. get an attorney.
8. The insured should be cautioned that
A. they should only hire reputable contractors.
B. a fence should be erected around the affected property.
C. all clothing, carpeting, drapes and other material that can attract mold, should be burned immediately.
D. hire the first contractor that shows up for the job as the insurer will make sure that the job is done right.
9. Before the claims adjuster's on-site inspection, the agent should let the claimant know
A. that once the adjuster shows up, the policyholder has no more business on the property.
B. adjusters can often be wrong, so be prepared to argue the case, with an attorney if needed.
C. that the typical claims payment time is 18 months.
D. that he has 60 days from the date of the loss to file a Proof of loss
10. Contents losses must be documented, so and if items have to be thrown away,
A. the policyholder should get a notarized statement from another party as to what was discarded.
B. they cannot be claimed for flood loss.
C. they should be photographed and if there are several small and/of inexpensive items, they can be lumped together
D. the policyholder should not be concerned as the policy allows full estimated value of contents.