[Federal Register Volume 83, Number 136 (Monday, July 16, 2018)]
[Proposed Rules]
[Pages 32956-33015]
[FR Doc No: 2018-13292]

Vol. 83

Monday,

No. 136

July 16, 2018

Part II

 Department of Homeland Security

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Federal Emergency Management Agency

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44 CFR Parts 59, 61, and 62

 National Flood Insurance Program (NFIP): Conforming Changes To Reflect
the Biggert-Waters Flood Insurance Reform Act of 2012 (BW-12) and the
Homeowners Flood Insurance Affordability Act of 2014 (HFIAA), and
Additional Clarifications for Plain Language; Proposed Rules

Federal Register / Vol. 83 , No. 136 / Monday, July 16, 2018 /
Proposed Rules

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DEPARTMENT OF HOMELAND SECURITY

Federal Emergency Management Agency

44 CFR Parts 59, 61, and 62

[Docket ID FEMA-2018-0026]
RIN 1660-AA95

National Flood Insurance Program (NFIP): Conforming Changes To
Reflect the Biggert-Waters Flood Insurance Reform Act of 2012 (BW-12)
and the Homeowners Flood Insurance Affordability Act of 2014 (HFIAA),
and Additional Clarifications for Plain Language

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, as amended, is a
voluntary program in which participating communities adopt and enforce
a set of minimum floodplain management requirements to reduce future
flood damages. This proposed rule would revise the NFIP's implementing
regulations to codify certain provisions of the Biggert-Waters Flood
Insurance Reform Act of 2012 and the Homeowner Flood Insurance
Affordability Act of 2014 that FEMA has already implemented and to
clarify certain existing NFIP rules relating to NFIP operations and the
Standard Flood Insurance Policy.

DATES: Submit comments on or before September 14, 2018.

ADDRESSES: You may submit comments, identified by Docket ID: FEMA-2018-
0026, by one of the following methods:
    Federal eRulemaking Portal: http://www.regulations.gov. Follow the
instructions for submitting comments.
    Mail/Hand Delivery/Courier: Regulatory Affairs Division, Office of
Chief Counsel, Federal Emergency Management Agency, Room 8NE, 500 C
Street SW, Washington, DC 20472-3100.
    To avoid duplication, please use only one of these methods. FEMA
will post all comments received without change to http://www.regulations.gov, including any personal information provided. For
instructions on submitting comments, see the Public Participation
portion of the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Kelly Bronowicz, Director,
Policyholder Services Division, Federal Insurance and Mitigation
Administration, Federal Emergency Management Agency, 400 C Street SW,
Washington, DC 20472,<PHONE_NUMBER>.

SUPPLEMENTARY INFORMATION:

I. Public Participation

    The Federal Emergency Management Agency encourages the public to
participate in this rulemaking by submitting comments and related
materials. The Agency will consider all comments and material received
during the comment period.
    When submitting a comment, identify the agency name and the docket
ID for this rulemaking, indicate the specific section of this document
to which each comment applies and give the reason for each comment. The
public may submit comments and materials by electronic means, mail, or
delivery to the address under the ADDRESSES section. Please submit
comments and material by only one means.
    Regardless of the method used for submitting comments or material,
all submissions will be posted without change to the Federal e-
Rulemaking Portal at http://www.regulations.gov and will include any
personal information the commenter provides. Therefore, submitting this
information makes it public. Those considering commenting may wish to
read the Privacy and Security notice that is available via a link on
the homepage of http://www.regulations.gov.
    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. Background documents
and submitted comments may also be inspected at FEMA, Office of Chief
Counsel, Room 8NE, 500 C Street SW, Washington, DC 20472-3100.
    Public Meeting: We do not plan to hold a public meeting, but you
may submit a request for one at the address under the ADDRESSSES
section explaining why one would be beneficial. If FEMA determines that
a public meeting would aid this rulemaking, it will hold one at a time
and place announced by a notice in the Federal Register.

II. Background and Authorities

A. National Flood Insurance Program

    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. 476), found at 42 U.S.C. 4001
et seq. The NFIP is a Federal program enabling property owners in
participating communities to purchase insurance as a protection against
flood losses in exchange for State and community floodplain management
requirements that reduce the risk of future flood damages. Communities
participate in the NFIP based on an agreement between the community and
FEMA. If a community adopts and enforces a floodplain management
ordinance to reduce future flood risk to new construction in
floodplains, FEMA will make flood insurance available within the
community as a financial protection against flood losses. Accordingly,
the NFIP is comprised of three key activities: Flood insurance,
floodplain management, and flood hazard mapping.
1. Flood Insurance
    The NFIP makes flood insurance available to property owners or
lessees in communities that participate in the NFIP through the
adoption and enforcement of community-wide floodplain management
requirements. If a community adopts and enforces a floodplain
management ordinance that meets certain minimum floodplain management
requirements to reduce future flood risks within an area known as the
Special Flood Hazard Area (SFHA) the Federal Government will make flood
insurance available to property owners in that community. NFIP flood
insurance indemnifies property owners from flood losses, reducing the
need for Federal disaster assistance. 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 depicting flood hazard information to create broad-based awareness
of flood hazards, to provide data for rating flood insurance policies,
and to apply the appropriate minimum floodplain management requirements
for flood-prone areas.
    Prior to enactment of the Biggert-Waters Flood Insurance Reform Act
of 2012 (BW-12), the NFIA made federally subsidized flood insurance
available to property owners or lessees of buildings in NFIP-
participating communities.\1\ Subsidized flood insurance rates were
available for policies covering existing buildings or buildings built
prior to the community's adoption of its initial Flood Insurance Rate
Maps (FIRMs),

generally referred to as ``pre-FIRM buildings.'' Subject to certain
short-term statutory exceptions, FEMA offers only actuarial rates to
all buildings constructed, or substantially damaged or improved, on or
after the effective date of the initial FIRM for the community or after
December 31, 1974, whichever is later, generally referred to as ``post-
FIRM buildings.'' See 42 U.S.C. 4014(a)(1), 4015(b). In addition,
building owners must purchase flood insurance as a condition of
receiving federally-backed or federally-regulated loans and Federal
assistance in SFHAs of participating communities. See Flood Disaster
Protection Act of 1973, sec. 103 (Pub. L. 93-234, 87 Stat. 975
(codified as amended at 42 U.S.C. 4001 et seq.)).
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    \1\ Flood insurance is also available to cover the contents
owned by tenants in a rental property.
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    As discussed in more detail below, with the passage of BW-12,
Congress mandated that FEMA phase out subsidies for certain pre-FIRM
properties. These pre-FIRM properties include non-primary residences,
business properties, severe repetitive loss properties, substantially
damaged properties, substantially improved properties, and properties
for which the cumulative claims payments exceed the fair market value
of the property.
    The Homeowner Flood Insurance Affordability Act of 2014 (Pub. L.
113-89, 128 Stat. 1020) (HFIAA) requires a phase-out of subsidies on
all pre-FIRM properties at a rate of no less than 5 percent and no more
than 15 percent premium increases per year, subject to certain
exceptions established by statute (such as the BW-12 provisions)
requiring a quicker phase-out for certain types of pre-FIRM properties.
Accordingly, FEMA will likely phase out subsidies on all pre-FIRM
properties within the next 12 to 17 years.
    A prospective policyholder may purchase an NFIP flood insurance
policy either: (1) Directly from the Federal Government through a
direct servicing agent (referred to as ``NFIP Direct''), or (2) from a
participating private insurance company through the Write Your Own
(WYO) Program. The Standard Flood Insurance Policy (SFIP) sets out the
terms and conditions of insurance. See 44 CFR part 61, Appendix A. FEMA
establishes terms, rate structures, and premium costs of SFIPs. The
terms, coverage limits, and flood insurance premiums are the same
whether purchased from the NFIP Direct or the WYO Program. See 44 CFR
62.23(a).
    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. 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. 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.
    In addition to coverage for building or contents losses, most NFIP
policies also include Increased Cost of Compliance (ICC) coverage. 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.
    FEMA publishes a Flood Insurance Manual with detailed explanations
of the terms and conditions of the SFIP and relevant program policies
and procedures. The Flood Insurance Manual is primarily used by
insurers and agents selling and servicing Federal flood insurance. FEMA
normally publishes the Flood Insurance Manual twice a year and 6 months
prior to a new manual version becoming effective. The current version
became effective on October 1, 2017. The current flood insurance
manual, as well as previous versions, is available at https://www.fema.gov/flood-insurance-manual. Page numbering restarts for each
section of the Flood Insurance Manual, so FEMA cites to both the
section and page number. For the purposes of this notice, all citations
to the Flood Insurance Manual are to the version that became effective
on October 1, 2017, which is available at https://www.fema.gov/media-library/assets/documents/133846.
    Additionally, FEMA publishes policy statements and underwriting
bulletins to further explain and clarify the coverage under the SFIP.
These are available at www.fema.gov/library and www.nfipservice.com.
2. Floodplain Management
    A local community with land use authority may elect to participate
in the NFIP. Communities participate under a voluntary agreement with
FEMA. In order to participate in the NFIP, a community must adopt and
enforce floodplain management requirements that incorporate the NFIP
minimum floodplain management requirements. See 44 CFR 59.2(b),
59.22(a)(3), 60.1(d). The intent of these standards is to reduce flood
risk and prevent loss of life and property. Communities incorporate
these requirements into their zoning codes, subdivision ordinances, and
building codes, or they adopt special purpose floodplain management
ordinances. These NFIP requirements apply to areas mapped as SFHAs. The
community ordinances must also include effective enforcement
provisions. 44 CFR 59.2(b). The NFIP will suspend a participating
community from theNFIP if the community fails to adopt the minimum NFIP
floodplain management requirements within 6 months from the date the
NFIP provides the flood map. 44 CFR 59.24(a), 60.13. Moreover, the NFIP
may suspend or put on probation any participating community that does
not adequately enforce its floodplain management ordinance. 44 CFR
59.24(b)-(c).
3. Flood Hazard Mapping
    Through its Flood Hazard Mapping Program, FEMA identifies flood
hazards, assesses flood risks, and collaborates with States and
communities to provide accurate flood hazard and risk data to guide
them to mitigation actions. Congress requires FEMA to identify flood-
prone areas and then subdivide them into flood risk zones. 42 U.S.C.
4101(a). FEMA then uses this data to support community floodplain
management requirements and rate flood insurance policies. Mapping of
flood hazards also promotes public awareness of the degree of hazard
within such areas and provides for the expeditious identification and
dissemination of flood hazard information. FEMA maintains and updates
data through FIRMs and Flood Insurance Studies (FISs).

B. Recent Legislative Changes

1. Biggert-Waters Flood Insurance Reform Act of 2012
    Congress enacted BW-12 (Title II, Subtitle A of Pub. L. 112-141,
126 Stat. 405) to extend the NFIP's authorities through September 30,
2017, and to adopt significant program reform. The law requires changes
to all major components of the program, including flood insurance,
flood hazard mapping, and the management of floodplains.
    The provisions of BW-12 relevant to this rulemaking include the
following. First, BW-12 requires FEMA to increase the maximum coverage
amount for multi-family properties to the same amount as that allowed
for commercial properties. Second, BW-12 establishes a minimum
deductible amount for NFIP polices. Third, BW-12 prohibits FEMA from
denying payment to policyholders for damage or loss to a condominium
unit under the Dwelling Form based solely on the fact that the
condominium association has inadequate flood insurance coverage on the
entire condominium. Fourth, BW-12 requires FEMA to review, among other
things, the processes and procedures for making flood in progress
determinations. See SFIP Article V.B. FEMA implemented these
requirements by updating the Flood Insurance Manual after BW-12's
enactment. The NFIP described these program changes in WYO Bulletin W-
13070 (Dec. 16, 2013). FEMA also issued WYO Bulletin W-12045 (July 10,
2012), which implemented BW-12 section 100241's waiver of the standard
30-day waiting period for coverage of flood damage due to flood on
Federal land caused, or exacerbated, by post-wildfire conditions. FEMA
now proposes to codify these changes in the NFIP regulations.
2. Homeowner Flood Insurance Affordability Act of 2014
    Congress enacted HFIAA to address flood insurance affordability
concerns related to BW-12. Accordingly, HFIAA repealed some provisions
of BW-12, mostly related to establishing premium rates. HFIAA also made
a number of new program changes. The provisions of HFIAA relevant to
this rulemaking include a requirement in Section 8 of HFIAA that FEMA
offer a high deductible option of $10,000, which FEMA discusses below.

III. Discussion of Proposed Rule

    FEMA proposes to amend parts 59, 61, and 62 of 44 CFR. These parts
contain regulations implementing the NFIP. In addition, FEMA proposes
to amend Appendices A(1)-A(3) of part 61, containing the three forms of
the SFIP: The Dwelling Policy Form, the General Property Form, and the
Residential Condominium Building Association Form. These forms are used
in NFIP polices.
    FEMA proposes this rulemaking for three purposes. First, it intends
to make several non-substantive changes designed to improve the
readability, uniformity, and clarity of the NFIP regulations. Second,
FEMA proposes to make several non-substantive updates to regulations to
align with the requirements of BW-12 and HFIAA. Third, FEMA proposes
two substantive, albeit miniminally so, changes to its regulations
codifying the requirements of BW-12 and HFIAA.

A. Part 59: General Provisions

1. Part 59 Authority Citation
    FEMA proposes to update the authority citation for Part 59 to
reflect changes to FEMA's source of authority. Currently, the authority
citation is 42 U.S.C. 4001 et seq.; Reorganization Plan No. 3 of 1978,
43 FR 41943, 3 CFR, 1978 Comp., p. 329; E.O. 12127 of Mar. 31, 1979, 44
FR 19367, 3 CFR 1979 Comp., p. 376. FEMA proposes to replace the
citations to Reorganization Plan No. 3 and Executive Order 12127 with a
citation to the current codification of the Homeland Security Act of
2002, 6 U.S.C. 101 et seq. The authority citation would therefore read,
``42 U.S.C. 4001 et seq.; 6 U.S.C. 101 et seq.'' FEMA proposes this
change because Reorganization Plan No. 3 and Executive Order 12127
originally created FEMA as an executive agency and provided the legal
basis for FEMA's existence until the passage of the Post-Katrina
Emergency Management Reform Act of 2006, Public Law 109-295, 120 Stat.
1394 (PKEMRA). PKEMRA amended the Homeland Security Act of 2002, Public
Law 107-296, 116 Stat. 2135, to establish FEMA in statute and define
the Agency's authorities and responsibilities. A citation to the
codification of the Homeland Security Act after the citation to the
NFIA is therefore more appropriate.
2. Section 59.1 Definitions
    44 CFR part 59 contains general provisions applicable to the NFIP's
regulations. Section 59.1 contains a list of definitions generally
applicable throughout the NFIP regulations. FEMA proposes to add 13 new
definitions and modify three definitions in this section to make this
section consistent with its proposed rule changes to parts 61 and 62.
    First, FEMA proposes to revise the definition of ``act.''
Currently, the regulation defines ``act'' to mean ``statutes
authorizing the National Flood Insurance Program that are incorporated
in 42 U.S.C. 4001-4128.'' However, the NFIA now extends to section
4131. Rather than revise the citation to ``42 U.S.C. 4001-4131,'' FEMA
proposes to change the citation to ``42 U.S.C. 4001 et seq.'' As the
NFIA is amended often, it makes more sense to use ``et seq.'' so that
the citation stays current and FEMA will not have to revise it every
time sections are added.
    Second, FEMA proposes to revise the definition of ``deductible.''
Currently, ``deductible'' is defined as ``the fixed amount or
percentage of any loss covered by insurance which is borne by the
insured prior to the insurer's liability.'' FEMA proposes to revise the
definition of ``deductible'' to mean ``the amount of an insured loss
that is the responsibility of the insured and that is incurred before
any amounts are paid for the insured loss under the insurance policy.''
While there is no substantive difference between the two definitions,
FEMA believes the proposed definition is clearer and more consistent
with the language in Article VI.A of the SFIP, as well as the language
in proposed section 61.5, which would provide guidance on deductibles
available for NFIP policies (discussed in further detail below).
    Third, FEMA proposes to revise the definition of ``Emergency Flood
Insurance Program or emergency program.'' Currently, ``Emergency Flood
Insurance Program or emergency program'' is defined as ``the Program as
implemented on an emergency basis in accordance with section 1336 of
the Act. It is intended as a program to provide a first layer amount of
insurance on all insurable structures before the effective date of the
initial FIRM.'' FEMA proposes to remove ``Emergency Flood Insurance
Program'' so the term only reads ``Emergency Program,'' and revise the
definition to mean ``the initial phase of a community's participation
in the National Flood Insurance Program, as prescribed by Section 1306
of the Act.'' FEMA proposes this change because although the new
definition is substantively the same as the current definition, it is
clearer and more consistent with the definition of this term in the
SFIP.
    FEMA also proposes to add definitions for several terms. These
terms are: ``condominium building,'' ``mixed use building,''
``multifamily building,'' ``non-residential building,'' ``non-
residential property,'' ``other residential building,'' ``other
residential property'' ``residential building,''

``residential property,'' ``single family dwelling,'' and ``two to four
family building.'' The NFIP already uses these terms when describing
the program to the public because they align with the terminology used
in the private insurance industry and addresses important nuances not
adequately addressed in statute and regulation. FEMA proposes defining
these terms in regulation because they support the consistent
interpretation and application of the NFIA and its regulations.
Accordingly, codifying them in regulation will support greater
uniformity and clarity for the public. FEMA provides further
explanation of these definitions elsewhere in this preamble, under
discussion of the relevant sections where these terms appear.

B. Part 61: Insurance Coverage and Rates

1. Part 61 Authority Citation
    The current authority citation for part 61 is 42 U.S.C. 4001 et
seq.; Reorganization Plan No. 3 of 1978, 43 FR 41943, 3 CFR, 1978
Comp., p. 329; E.O. 12127 of Mar. 31, 1979, 44 FR 19367, 3 CFR, 1979
Comp., p. 376. FEMA proposes to replace the citations to Reorganization
Plan No. 3 and Executive Order 12127 with a citation to the current
codification of the Homeland Security Act of 2002, 6 U.S.C. 101 et seq.
The authority citation would therefore read 42 U.S.C. 4001 et seq.; 6
U.S.C. 101 et seq. FEMA proposes this change because while
Reorganization Plan No. 3 and Executive Order 12127 originally created
FEMA as an executive agency, PKEMRA amended the Homeland Security Act
of 2002, Public Law 107-296, by establishing the Agency in statute and
defining the Agency's authorities and responsibilities. Accordingly, a
citation to the codification of the Homeland Security Act is more
appropriate.
2. Section 61.1 Purpose of Part
    Section 61.1 describes the overall purpose of part 61. It states
that part 61 describes the types of properties eligible for flood
insurance coverage under the NFIP, the limits of such coverage, and the
premium rates actually to be paid by insureds. It states that the
specific communities eligible for coverage are designated by the
Federal Insurance Administrator from time to time as applications are
approved under the Emergency Program and as ratemaking studies of
communities are completed prior to the regular program. Finally, it
states that lists of such communities are periodically published under
part 64 of this subchapter. FEMA proposes to remove the last two
sentences of Section 61.1 addressing the specific communities eligible
for coverage and publication of the list of communities because they
provide information relevant to part 64, not part 61. Removing these
sentences would therefore avoid possible confusion regarding the
subjects covered in part 61.
3. Section 61.3 Types of Coverage
    Section 61.3 states that insurance coverage under the NFIP is
available for structures and their contents, and that coverage for each
may be purchased separately.
    FEMA proposes to change the title of this section from ``Types of
coverage'' to ``Coverage and benefits provided under the Standard Flood
Insurance Policy'' because this new title provides a more accurate
description of the proposed revisions to this section.
    FEMA proposes to replace ``structure'' with ``building'' because in
current practice the program uses the term ``building'' rather than
``structure'' throughout its guidance documents and other
communications. The term ``building'' is a more precise and accurate
term, because the SFIP insures buildings, not structures. While the
term ``structure'' encompasses the term ``building,'' it also includes
things that are not buildings, such as carports and gas or liquid
storage tanks, and thus not insurable under the terms and conditions of
the SFIP. Consistent use of this terminology will improve the overall
clarity and accuracy of the regulation when viewed within the larger
context of FEMA's communications and guidance documents regarding the
NFIP, as ``building'' rather than ``structure'' is more commonly used
outside of the CFR.
    FEMA proposes to add two new provisions to this section to provide
a more accurate depiction of the coverages and benefits available under
the SFIP and to improve the Section's overall clarity. First, FEMA
proposes to add paragraph (b) stating that in addition to building and
contents coverage, each form of the SFIP provides coverage for other
flood-related expenses. The Dwelling Form of the SFIP covers debris
removal, loss avoidance measures, and condominium loss assessments. The
General Property Form of the SFIP covers debris removal, loss avoidance
measures, and pollution damage. The Residential Condominium Policy Form
of the SFIP covers debris removal and loss avoidance measures. Second,
FEMA proposes to add paragraph (c) stating that with the purchase of
building coverage, the SFIP also covers costs associated with bringing
the building into compliance with local floodplain ordinances. FEMA
believes this information may be useful to a reader of the CFR.
4. Section 61.4 Limitations on Coverage
    Section 61.4 provides that coverage obtained through the NFIP is
subject to the NFIA, relevant regulations, the SFIP, and each
individual policy's declaration page, and the maximum limits of
coverage. FEMA proposes to remove this section because it duplicates
the provisions of current section 61.5(e), which provide that the SFIP
``is authorized only under terms and conditions established by Federal
statute, the program's regulations, the Administrator's interpretations
and the express terms of the policy itself.'' As section 61.5(e)
conveys the same information as section 61.4, FEMA finds that section
61.4 is not necessary. (Note that FEMA proposes to move 61.5(e) to
proposed 61.13, discussed below.)
5. Section 61.5 Special Terms and Conditions
    Paragraph (a) of section 61.5 states that no new flood insurance or
renewal of flood insurance policies shall be written for properties
declared by a duly constituted State or local zoning or other authority
to be in violation of any flood plain, mudslide (i.e., mudflow), or
flood-related erosion area management or control law, regulation, or
ordinance. FEMA proposes to change ``shall'' to ``will'' to avoid
ambiguity.
    Paragraph (b) of section 61.5 states that to reduce the
administrative costs of the NFIP, of which the Federal Government pays
a major share, payment of the full policyholder premium must be made at
the time of application. FEMA proposes to reword ``payment of the full
policyholder premium'' to state ``applicants must pay the full policy
premium'' because premiums are associated with policies, not
policyholders. No substantive change is intended.
    FEMA proposes to retain the substance of paragraphs (a) and (b),
but proposes to move them to their own section (proposed 61.4) but
retaining the current title of the section (``Special terms and
conditions'').
    Paragraph (c) of section 61.5 states that because of the seasonal
nature of flooding, refunds of premiums upon cancellation of coverage
by the insured are permitted only if the insurer ceases to have an
ownership interest in the

covered property at the location described in the policy. It further
states that refunds of premiums for any other reason are subject to the
conditions set forth in 62.5 of this subchapter. FEMA proposes to
remove paragraph (c) and add the substance of it to paragraph (b) of
proposed 62.5 (the proposed changes to which are discussed more fully
later in this preamble). Section 62.5 addresses policy cancellations
and nullifications, and thus the substance of current section 61.5(c)
is more appropriate for section 62.5.
    Similar to current section 61.4, paragraph (e) of section 61.5
states that the SFIP is authorized only under terms and conditions
established by Federal statute, the program's regulations, the
Administrator's interpretations and the express terms of the policy
itself. Section 61.5 also states that representations regarding the
extent and scope of coverage which are not consistent with the NFIA or
with NFIP regulations are void, and the duly licensed property or
casualty agent acts for the insured and does not act as agent for the
Federal Government, the Federal Emergency Management Agency, or the
servicing agent. As noted above, FEMA proposes to move 61.5(e) to
proposed 61.13. The provisions appear in proposed paragraph (e) of
section 61.13 (``Authorized only under terms and conditions established
by the Act and Regulation'') and paragraph (f) (``Agent acts only for
policyholder''). These provisions are more appropriate for proposed
section 61.13 because the section contains general provisions about the
SFIP, and 61.5(e) also constitutes general provisions concerning the
SFIP. These changes would improve the overall organization and
cohesiveness of part 61. FEMA does not intend any substantive changes
with these proposed revisions.
6. Proposed Section 61.5 Deductibles (Formerly Paragraph (d) of Current
Section 61.5)
    Current paragraph (d) of section 61.5 states that optional
deductibles are available in all zones for four categories of
properties, and presents those categories as four tables. The Category
One table lists some of the deductible options for one to four family
building and contents coverage policies. The Category Two table lists
some of the deductible options for one to four family building coverage
only or contents coverage only policies. The Category Three table lists
some of the deductible options for ``other residential'' (residential
buildings with five or more units) and nonresidential policies. The
Category Four table lists some of the deductible options for
residential condominium building policies. A note to these tables
indicates that policyholders may submit any other deductible
combination for rating to the NFIP. This note allows FEMA to offer
deductibles listed in the deductible tables in the Rating Section of
Flood Insurance Manual, pages 17-18.
    FEMA proposes several revisions to paragraph (d). First, FEMA
proposes to remove the number for the paragraph because, as noted
above, paragraphs (a) and (b) would be moved to a new section 61.4 and
paragraph (c) would be incorporated into section 62.5. As a result,
paragraph (d) would be the only paragraph in the section, thus making
the paragraph number unnecessary.
    FEMA proposes to replace the current contents of paragraph (d)
(proposed unnumbered paragraph) with a requirement that FEMA must
provide policyholders with deductible options in various amounts, up to
and including $10,000, subject to certain minimum deductibles. FEMA
proposes this change because the current regulation's listing of
deductible options may give readers the impression that the list is
exhaustive even though the note following the Category Four table
allows for FEMA to offer deductible options not listed in the table.
The proposed text would make clear that FEMA may offer various options,
subject to other restrictions.
    The proposed text would require FEMA to offer deductible options up
to and including $10,000 to comply with the requirements of Section
1306(d) of the NFIA, as amended by section 12 of HFIAA (42 U.S.C.
4013(d)), which requires FEMA to offer deductibles up to $10,000 for
residential properties. As previously explained, current regulations
allow policyholders to request deductible amounts not currently listed
in regulation (including the $10,000 deductible option required under
HFIAA). Thus, this proposed change would clarify the regulatory text
consistent with statutory requirements, but not expand or contract the
deductible options offered by the NFIP under current regulations.
    FEMA also proposes to limit deductible options in accordance with
section 1312(b) of the NFIA, as added by section 100210 of BW-12 (42
U.S.C. 4019(b)). Per this provision, FEMA proposes to establish minimum
deductibles as follows: (1) $1,500 for policies covering pre-FIRM
buildings charged less than full-risk rates with building coverage
amounts less than or equal to $100,000; (2) $2,000 for policies
covering pre-FIRM buildings charged less than full risk rates with
building coverage amounts greater than $100,000; (3) $1,000 for
policies covering post-FIRM buildings and pre-FIRM buildings charged
full risk rates with building coverage amounts equal to or less than
$100,000; and (4) $1,250 for policies covering post-FIRM buildings and
pre-FIRM buildings charged full risk rates with building coverage
amounts greater than $100,000.
    Overall, the proposed deductible section would provide readers with
a clear understanding of available deductible options, including
minimum deductibles required under Section 1312(b) of the NFIA, as
added by Section 100210 of BW-12 (42 U.S.C. 4019(b)) and the $10,000
deductible option required by Section 1306(d) of the NFIA, as amended
by Section 12 of HFIAA (42 U.S.C. 4013(d)). However, it would not
expand or contract the deductibles available to policyholders under
current law.
    FEMA also proposes to rename the section heading of 61.5 to
``Deductibles'' because section 61.5 would only address deductible
amounts.
7. Section 61.6 Maximum Amounts of Coverage Available
    Current section 61.6 details the maximum amounts of coverage
available under the NFIA. See 42 U.S.C. 4013(b). The current table
shows varying coverage amounts available, depending on whether a policy
is under the Emergency Program or the Regular Program, the use and
occupancy of the building, and the building's location. As provided
under the NFIA, for residential occupancies, the table lists coverage
limits of $250,000 for buildings and $100,000 for contents. See id. For
nonresidential occupancies, the table lists coverage limits of $500,000
for buildings and $500,000 for contents. See id. FEMA proposes to
revise the table to more closely conform it to the one currently in the
Rating Section of the Flood Insurance Manual, page 1. The Manual more
clearly describes the different coverage limits based on occupancy by
using terminology that more accurately conveys relevant statutory
requirements. In comparison, the current table in the CFR includes
terminology and distinctions that are no longer programmatically
relevant.
i. Title of Table
    The current table does not have a title. FEMA proposes to entitle
the table ``Maximum Amounts of Coverage Available.'' While the Flood
Insurance Manual uses the title ``Amount of insurance available,'' FEMA
proposes to use ``coverage'' instead of ``insurance'' to conform to the
current section title of

section 61.6. There is no substantive difference between the two titles
in this context.
ii. Vertical Axis of Maximum Coverage Table
    The current table has one vertical axis that lists the different
categories of occupancy applicable to both building and contents
coverages. These categories are, in order: ``Single Family
Residential,'' ``Other Residential,'' ``Nonresidential,'' and
``Contents.'' Although the table provides a ``contents'' heading on
this axis, there is no corresponding label for the building coverages.
FEMA proposes to add ``Building Coverage'' to the vertical axis to
distinguish between ``building coverage'' and ``contents coverage.''
This ``Building Coverage'' category would encompass ``Single Family
Residential,'' ``Other Residential,'' and ``Nonresidential.'' FEMA
believes this change would prevent confusion by improving the table's
overall clarity and internal consistency.
    As noted above, the current table lists the different categories of
occupancy applicable to each coverage--``Single Family Residential,''
``Other Residential,'' and ``Nonresidential.'' The current table
further divides the ``Single Family Residential'' and ``Other
Residential'' categories by whether or not a subject property is
located within Hawaii, Alaska, Guam, or the U.S. Virgin Islands. It
divides the ``Nonresidential'' category into either ``Small business''
or ``Churches and other properties.'' Similarly, the ``Contents''
coverage category only distinguishes between ``Residential,'' Small
business,'' and ``Churches, other properties.'' The proposed table
would make several changes to the categorization to use standardized
terminology, improve the overall design and readability of the table,
and use occupancy categories that more accurately reflect statutory and
program differences in available coverages.
    FEMA proposes to substitute the current use of ``Single Family
Residential'' with ``Single Family Dwelling'' to describe a property.
FEMA proposes this change because although the two terms (``dwelling''
and ``residential'') are interchangeable within the NFIP, ``Single
Family Dwelling'' is the term used most often in the NFIP, as reflected
in the Rating section of the Flood Insurance Manual. The Flood
Insurance Manual has used this term for many years. See Flood Insurance
Manual (May 1, 2005).\2\
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    \2\ http://www.fema.gov/txt/nfip/manual200505.txt.
---------------------------------------------------------------------------

    Because ``single family dwelling'' is not currently defined, FEMA
proposes to define ``single family dwelling'' in section 59.1 to mean
``either (a) a residential single-family building in which the total
floor area devoted to non-residential uses is less than 50 percent of
the building's total floor area, or (b) a single-family residential
unit within a two to four family building, other residential building,
business, or non-residential building, in which commercial uses within
the unit are limited to less than 50 percent of the unit's total floor
area.'' FEMA adopted this definition in the Flood Insurance Manual as
early as 1978 to align with common industry practices in non-flood
property insurance policies and it is the same definition found in the
Definitions Section of the Flood Insurance Manual. This proposed
definition reflects current NFIP practice and will not result in any
substantive changes to the program.
    FEMA proposes to add a new occupancy category, ``two to four family
building.'' (The table would list the same maximum coverage amounts as
those for a Single Family Dwelling, $35,000 for Emergency Program and
$250,000 for the Regular Program.) FEMA proposes to include this
category because it would be clearer to provide the public with a
complete spectrum of occupancy categories so that the coverage limits
for all occupancy types are more transparent. This does not reflect a
substantive change to the program.
    Because ``two to four family building'' is not currently defined,
FEMA proposes to define it in section 59.1 to mean ``a residential
building, including an apartment building, containing two to four
residential spaces and in which commercial uses are limited to less
than 25 percent of the building's total floor area.'' FEMA proposes to
define ``two to four family building'' in this manner because it is the
same definition used in the Flood Insurance Manual. This definition
supports the NFIA's distinctions between residential and non-
residential properties.
    While FEMA proposes to maintain the ``Other Residential'' occupancy
category that is in the current table, FEMA proposes to revise the
category to read, ``Other Residential Building (including Multifamily
Building).'' FEMA proposes to do this to make clear to the reader that
``Other Residential Building'' encompasses ``Multifamily Buildings,'' a
term used in section 1305 of the NFIA, as added by section 100204 of
BW-12 (42 U.S.C 4012(d)).
    Because neither ``other residential building'' nor ``multifamily
building'' is defined, FEMA proposes to define these in section 59.1.
It proposes to define ``other residential building'' to mean ``a
residential building that is designed for use as a residential space
for 5 or more families or a mixed use building in which the total floor
area devoted to non-residential uses is less than 25 percent of the
total floor area within the building.'' It proposes to define
``multifamily building'' to mean ``an Other Residential Building that
is not a condominium building.'' FEMA proposes to define these terms in
this manner because the program currently defines them as such; these
definitions appear in the Definitions Section of the Flood Insurance
Manual. FEMA believes this definition of ``Other Residential Building''
fairly distinguishes the term from the ``single family dwelling'' and
``two to four family building'' occupancy categories, in terms of
either residential spaces or square-footage. Defining ``multifamily
building'' this way enables easier reference to condominium-building
specific policies that will be discussed below.
    FEMA proposes to add the ``Condominium Building'' occupancy
category to the table (with maximum coverage amounts of ``$250,000
times the number of units in the building'' under the Regular Program,
and nothing available under the Emergency Program). FEMA proposes this
addition to integrate into the table information contained in current
section 61.6(b). Section 61.6(b) states that ``[i]n the insuring of a
residential condominium building in a regular program community, the
maximum limit of building coverage is $250,000 times the number of
units in the building (not to exceed the building's replacement
cost).'' By adding the ``Condominium Building'' occupancy category to
the table, FEMA plans to incorporate all the information in section
61.6(b) except the language in parentheses, ``not to exceed the
building's replacement cost.'' FEMA proposes to omit this language
because Article V of the RCBAP form (44 CFR 61, Appendix A(3)) already
provides that FEMA will not pay beyond the replacement cost of the
building.
    While FEMA proposes to maintain the ``Nonresidential'' occupancy
category, FEMA proposes to revise the category to read ``Non-
Residential Building.'' This category would continue to have building
limits of $100,000 in the Emergency Program and $500,000 in the Regular
Program.
    In order to provide greater clarity, FEMA proposes to incorporate
the existing definition of ``non-residential building'' into
regulation. Current regulations and statute do not define the

extent of the term ``nonresidential'' used in maximum coverage limits
found at NFIA 1306(b)(4) (42 U.S.C. 4013(b)(4)) and 44 CFR 61.6(a).
However, 42 U.S.C. 4013(b)(3) does make clear that ``nonresidential
building'' includes churches. Accordingly, FEMA has previously defined
the term ``non-residential building'' as ``a commercial or mixed-use
building where the primary use is commercial or non-habitational.''
Definitions Section of Flood Insurance Manual, page 7. FEMA proposes to
incorporate this definition into regulation because it aligns with the
common understanding of the term and encompasses churches and other
houses of worship.
    FEMA proposes to adjust the occupancy categories under the
``Contents Coverage'' portion of the coverage limits table. Currently,
the table at section 61.6(a) divides the contents coverage portion
amongst three categories: ``Residential,'' ``Small business,'' and
``Churches, other properties.'' FEMA proposes to remove the distinction
between ``Small business'' and ``Churches, and other properties,'' and
divide contents coverage into just two categories: ``Residential
Property'' and ``Non-Residential Property.'' FEMA proposes this change
to reflect the current practice of the program. Although NFIA section
1306(b)(1)(B) (42 U.S.C. 4013(b)(1)) provides a specific method for
determining the maximum coverage available to small businesses, FEMA
has opted to provide all other non-residential properties with the same
coverage limits available to small businesses. Accordingly, while the
statute may still distinguish small businesses from all other
properties, current NFIP practice does not.
    In addition to the adjustments to the categories of occupancy
described above, FEMA proposes two changes to the footnotes. In the
current table, there are two footnotes. Footnote 1 appends ``Emergency
program'' in ``Emergency Program first layer'' and provides that
``[o]nly [the] first layer [is] available under the emergency
program.'' Footnote 2 appends the ``Contents'' label and reads, ``Per
unit.''
    FEMA proposes to revise footnote 1 by appending it to the title of
the table, ``Maximum Amount of Coverage Available,'' to describe the
table generally. It would read, ``This Table provides the maximum
coverage amounts available under the Emergency Program and the Regular
Program, and the columns cannot be aggregated to exceed the limits in
the Regular Program, which are established by statute. The aggregate
limits for building coverage are the maximum coverage amounts allowed
by statute for each building included in the relevant Occupancy
Category.'' FEMA proposes this revision because, as described in
greater detail below in subsection iv., Horizontal Axis of Maximum
Coverage Table, the current footnote 1 is associated with the ``layer''
language FEMA proposes to remove, and the revised footnote's language
more accurately reflects the NFIP's intent.
    FEMA proposes to leave footnote 2 in the same place (after
``Contents Coverage''--the term replacing ``Contents'' in the current
table), but expand it from ``Per unit'' to instead read, ``The policy
limits for contents coverage are not per building. Although a single
insured may not have more than one policy covering contents in a
building, several insureds may have separate policies of up to the
policy limits.'' FEMA proposes this revision to footnote 2 to more
clearly reflect the restriction that the current footnote 2 attempts to
convey, which is that the coverage limits apply to each unit of the
building.
    For instance, the tenants of a building with two independent living
units may obtain separate contents policies for each unit. Each policy
could have limits up to $100,000 and a contents claim for one unit
would not affect the contents claim of the other unit. However, the
existing NFIP rule--not reflected in the current footnote--is that the
owner of the building cannot obtain two separate contents policies
themselves. Instead, they could only obtain one contents policy with
coverage up to $100,000. FEMA's proposed language in footnote 2 seeks
to more clearly explain NFIP statutory authority that even though the
contents coverage limits are per unit rather than per building, an
insured cannot have more than one policy in a building.
    FEMA proposes to append a new footnote--footnote 3--to the
``Residential Property'' occupancy category under ``Contents
Coverage.'' Footnote 3 would explain that ``[t]he Residential Property
occupancy category includes the Single Family Dwelling, Two to Four
Family Building, Other Residential Building, and Condominium Building
occupancies categories.'' FEMA proposes appending this new footnote to
help improve the overall clarity of the table by linking the building
coverage occupancy categories with the contents coverage occupancy
categories.
iii. Special Provisions for Property in Hawaii, Alaska, Guam, and the
U.S. Virgin Islands
    The current maximum coverage table in section 61.6(a) lists
separate increased limits in the Emergency Program within the ``Single
Family Residential'' and ``Other Residential'' occupancy categories for
residential structures located in Hawaii, Alaska, Guam, and the U.S.
Virgin Islands. This is because the NFIP provides increased building
coverage to these structures pursuant to 42 U.S.C. 4013(b)(1)(A)(iii).
FEMA proposes to remove these lines referencing Hawaii, Alaska, Guam,
and the U.S. Virgin Islands and place them instead in asterisked
footnotes. FEMA does not intend any substantive change in these limits,
but believes this design will improve the overall readability of the
table.
iv. Horizontal Axis of Maximum Coverage Table
    FEMA also proposes to make several clarifying, nonsubstantive
changes to the horizontal axis of the table in section 61.6(a). The
current table's horizontal axis is one label, ``Regular program.''
Under that label are three sub-labels: ``Emergency program first
layer,'' ``Second layer,'' and ``Total amount available.'' As noted
above, ``Emergency program first layer'' has a footnote (footnote 1)
that reads, ``Only first layer available under emergency program.''
    FEMA's proposed replacement table would dispense with the ``layer''
language and use only two columns, ``Emergency Program'' and ``Regular
Program.'' Each column would list the applicable coverage limit for
each occupancy type under each type of program. (The values under
``Emergency Program'' and ``Regular Program'' would be independent of
each other and not subject to aggregation).
    FEMA proposes these simpler horizontal axis labels for two reasons.
The first reason is to improve overall clarity, as the ``layer''
language is unclear and inaccessible to the reader. The second reason
is to more accurately reflect the NFIP's intent. This is because the
current table reflects a previous approach for describing the NFIP's
coverage limits. The idea was that the NFIP divided the Regular
Program's coverage limits into two layers. The first layer was
available for all NFIP policies, whether under the Emergency Program or
the Regular Program. The NFIP only made the second layer of coverage
available through the Regular Program. The current table attempts to
capture this by placing the ``Emergency program

first layer'' and ``Second layer'' under the ``Regular program'' label.
However, the table also combines the two layers under the ``Total
amount available'' column, which is also under the ``Regular program''
label. A person could read this formulation as indicating that the
three sub-headings combined provided the maximum amount of coverage
under the ``Regular program.'' This is not FEMA's intent. The proposed
replacement table conveys the same limits described in the current
table, but it in a much clearer and concise way.
    Moreover, it is for this reason that FEMA proposes to revise
footnote 1, as described above, to clarify that the maximum coverage
amounts listed for the Emergency Program and the Regular Program are
not cumulative. Rather, the maximum amounts listed under the Regular
Program are the maximum amounts authorized under the NFIA and include
the amounts for the Emergency Program. (In other words, the amounts for
the Emergency Program are not in addition to the amounts for the
Regular Program).
v. Paragraph (b): Application of Limits to Additional Coverages
    As noted above, current paragraph (b) is being removed and its
contents are being incorporated into the proposed table. FEMA proposes
to add a new paragraph (b) that would state, ``[c]overage and benefits
payable under the SFIP pursuant to sections 61.3(b) and 61.3(c) are
included in, not in addition to, the coverage limits provided by the
Act or stated in paragraph (a) of this section.'' The purpose of this
new paragraph is to explain that the coverage limits described in the
table in section 61.6(a) apply to all coverages payable under the SFIP,
including mitigation, and debris removal coverage described in proposed
section 61.3(b) and ICC coverage described in proposed section 61.3(c).
    This revision would not make any substantive change to NFIP policy,
but rather would provide a clarifying link to the coverage and benefits
listed in proposed section 61.3 and how coverage limits relate to those
coverages and benefits.
    Overall, FEMA intends for the proposed changes to section 61.6 to
improve the clarity of the Section and ensure that it uses terminology
consistent with that currently used by the NFIP. The Agency does not
intend for the proposed changes to 61.6 to modify the substance of the
NFIP flood insurance policies or the maximum coverage limits available
for buildings and contents covered under such policies.
8. Section 61.10 Requirements for Issuance or Renewal of Flood
Insurance Coverage
    FEMA proposes to add a new section, 61.10, entitled ``Requirements
for Issuance or Renewal of Flood Insurance Coverage.'' The proposed
section would state that FEMA will not issue or renew flood insurance
unless FEMA receives: (1) The full amount due (including applicable
premiums, surcharges, and fees); and (2) a complete application,
including the information necessary to establish a premium rate for the
policy, or submission of corrected or additional information necessary
to calculate the premium for the renewal of the policy. FEMA proposes
this new section because these requirements are already implicitly
indicated in current sections 61.5(b) and 61.11(b), but are nowhere
explicitly stated. Pursuant to section 61.5(b), ``payment of the full
policyholder premium must be made at the time of application.'' Section
61.11(b) provides that coverage is effective at the time of loan
closing, ``provided the written request for the coverage is received by
the NFIP and flood insurance policy is applied for and the presentment
of payment of premium is made at or prior to the loan closing.''
Further, the statutory 30-day waiting period begins on the ``date that
all obligations for [flood insurance] coverage (including completion of
the application and payment of any initial premiums owed) are
satisfactorily completed.'' NFIA 1306(c)(1) (42 U.S.C. 4013(c)(1)).
FEMA believes that explicitly stating the requirements for issuance or
renewal of a policy will provide policyholders with clearer
descriptions of these requirements.
9. Section 61.11 Effective Date and Time of Coverage Under the Standard
Flood Insurance Policy--New Business Applications and Endorsements
    Section 61.11 describes the methods for calculating the effective
dates of new policies. In general, under current paragraph (c), the
effective date and time of any new policy or added coverage is ``12:01
a.m. (local time) on the 30th calendar day after the application date
and the presentment of payment of premium.'' Current paragraphs (a) and
(b) provide two exceptions to this 30-day waiting period. Section
61.11(a) provides for an effective date of 12:01 a.m. on the first
calendar day after application and payment for the initial purchase of
flood insurance pursuant to a revision or update of floodplain areas or
flood risk zones under section 1360(f) of the NFIA, if such purchase
took place within 1 year of the notice of such revision or updating
under section 1360(h). See also 42 U.S.C. 4013(c)(2). Section 61.11(b)
provides that for the initial purchase of flood insurance in connection
with the making, increasing, extension, or renewal of a loan, coverage
is effective as of the date of the loan closing as long as application
and payment were made prior to that. See also 42 U.S.C. 4013(c)(2)(A).
FEMA does not propose any changes to these exceptions in current
paragraphs (a) and (b), as neither BW-12 nor HFIAA made any changes to
these exceptions.
    FEMA proposes to add a third exception to the 30-day waiting period
relating to flooding linked to post-wildfire conditions in proposed
paragraph (c), and proposes to redesignate current paragraph (c) as
paragraph (d). The proposed provision would allow for a next-day
effective date where (1) the FEMA Administrator determines that the
property was affected by flooding on Federal land as a ``result of, or
is exacerbated by, post-wildfire conditions,'' and (2) that coverage
was purchased no later than 60 calendar days after the fire containment
date of the wildfire relating to the post-wildfire conditions described
in clause (1). FEMA proposes adding this exception pursuant to BW-12.
See NFIA section 1306 (42 U.S.C. 4013), as amended by BW-12 section
100241. FEMA has already implemented this provision, see the General
Rules Section of the Flood Insurance Manual, and now proposes to codify
the exception into regulation to provide a comprehensive list of
effective date exceptions.
    As stated above, FEMA proposes to redesignate current paragraph (c)
as paragraph (d). FEMA also proposes to make two minor changes to
current paragraph (c). First, FEMA proposes to add a reference to new
paragraph (c) to indicate that in addition to paragraphs (a) and (b),
paragraph (c) is one of the exceptions to the 30-day waiting period.
Second, FEMA proposes to change ``shall'' to ``will.'' FEMA proposes
this change to incorporate plainer language. This change would not
change the substantive meaning of the provision.
    Current paragraph (d) allows policyholders to add new coverage or
increase the amount of coverage in force during the term of any policy.
FEMA proposes to redesignate current paragraph (d) as paragraph (e),
and proposes to add the language ``subject to any applicable waiting
periods.'' FEMA proposes adding this language to make it clear that
unless the policy change qualifies under one of the exceptions in

sections 61.11(a)-(c), such changes would be subject to the 30-day
waiting period. This ensures that policyholders cannot suddenly expand
their coverage immediately before needing it, for instance before a
hurricane strikes. This requirement is already stated in current
61.11(c) (proposed 61.11(d)), but its inclusion in proposed 61.11(e)
would add additional clarity to this provision and ensure that 61.11(e)
will not be mistakenly read without the limitations imposed by proposed
61.11(d). FEMA also proposes to change ``shall'' to ``will.'' FEMA
proposes this change to incorporate plainer language.
    Current paragraph (e) states that with respect to any submission of
an application in connection with new business, the payment of the
premium by an insured to an agent or the issuance of premium payment by
the agent does not constitute payment to the NFIP. It further states
that it is important that an application for flood insurance and its
premium be mailed to the NFIP promptly to have the effective date of
coverage based on the application date plus the waiting period.
    It states that if the application and the appropriate premium
payment are received at the office of the NFIP within ten (10) calendar
days from the date of application, the waiting period will be
calculated from the date of application. FEMA proposes to revise this
paragraph slightly to state that it is important that an application
for flood insurance and the ``full amount due'' be mailed to the NFIP
promptly. FEMA proposes to change ``premium'' to ``full amount due'' in
the sentence following it as well. Making this change would make clear
that the policyholder must pay the full amount due at that time
(including any surcharges and fees), not just a portion thereof.
    FEMA proposes to redesignate current paragraph (e) as paragraph
(f). Current paragraph (f) describes the method for determining the
effective date when a WYO company receives a proper application, but
decides to refer the application to the NFIP's Direct Servicing Agent
rather than write the policy itself. FEMA proposes to remove this
paragraph because it describes the business model of a WYO company that
is no longer participating in the WYO Program. FEMA is not aware of any
other WYO company that is using this model, and therefore the provision
is unnecessary. Any new companies entering the WYO Program would need
to conform their practices to the resulting regulation. Accordingly,
FEMA proposes to remove these provisions to avoid confusion. Because
FEMA proposes to remove this paragraph, FEMA also proposes to remove
the last two clauses of the first sentence of current paragraph (e)
(proposed paragraph (f)) that addresses the application of applicable
waiting periods for this model, as it too would no longer be necessary.
Finally, FEMA proposes to make minor revisions to current paragraph (g)
to reflect the removal of current paragraph (f).
10. Section 61.13 Standard Flood Insurance Policy
    Section 61.13 describes the applicable sources of terms and
conditions associated with polices issued through the NFIP, including
the SFIP forms, endorsements, and applications.
    FEMA proposes to add new paragraphs (e) and (f), and redesignate
current paragraphs (e) and (f) as (g) and (h). FEMA's proposed new
paragraph (e) would explain that flood insurance policies issued
through the NFIP are subject to the NFIA, its regulations, and the
terms and conditions of the SFIP. As discussed previously, similar
language is in current sections 61.4(a) and (b), which FEMA proposes to
remove. Moving this language into section 61.13 provides a more logical
organization. Further, FEMA proposes to add additional language that
any representations not consistent with these sources are void. While
implicit in the current regulations, this explicit language would make
clear the sources of law applicable to NFIP policies.
    FEMA's proposed new paragraph (f) would specify that the property
or casualty agent acts on the behalf of the policyholder and never on
behalf of the Federal Government, FEMA, or the WYO company. This
language is similar to that which FEMA proposes to remove from 61.5(e),
but would cover WYO companies as well. FEMA intends that the proposed
provision would ensure that policyholders know that the representations
of agents involved in the program do not bind the NFIP. Also, while
current 61.5(e) uses the word ``insured,'' FEMA proposes to substitute
the word with ``policyholder'' in proposed section 61.13(f).
``Policyholder'' refers specifically to the individual or business
named in the policy itself, whereas the word ``insured'' can refer to
the policyholder as well as anyone who submits payment on behalf of the
policyholder and/or who has the right to a claim payment under the
policy (e.g., the mortgagee). ``Policyholder'' is the more appropriate
term in this context because FEMA is only referring to an agent's
relationship with the policyholder specifically, not any other party
who may be submitting payment on behalf of the policyholder and/or who
has a right to claims payments under the policy.
    Current paragraph (f) (proposed paragraph (h)), provides that
private sector WYO property insurance companies may issue SFIPs. FEMA
proposes to revise proposed paragraph (h) to provide that WYO companies
will issue NFIP policies in their own name, rather than the current
language providing that WYO companies may issue NFIP policies in their
own name. This change would conform to the current FEMA-WYO company
relationship described in Article I of Appendix A of 44 CFR part 62.
Further, FEMA proposes to add language at the end of the paragraph
stating that the risk of loss is borne by the NFIP, rather than the WYO
company. This language would further clarify the existing relationship
between FEMA and WYO companies.
    Overall, the proposed changes to 61.13 would provide greater
clarity to the public regarding the existing relationship between FEMA,
policyholders, and WYO companies.

C. Appendix A(1) to Part 61: Standard Flood Insurance Policy Dwelling
Form

    Appendix A(1) to part 61 contains the Dwelling Form of the SFIP.
This form, as well as the other two SFIP policy forms (the General
Property Form and the RCBAP), defines the relationship between FEMA or
the WYO company, as the insurers, and the insured.
    Throughout Appendix A(1), FEMA proposes to replace the word
``covered'' with the word ``insured'' because ``covered'' is a generic
and undefined term that does not conform to common industry or Agency
usage. The use of ``insured'' better conveys the application of the
SFIP to property.
1. Prefatory Paragraph and Article I ``Agreement''
    The prefatory paragraph states that the policy insures (1) a non-
condominium residential building designed for principal use as a
dwelling place of one to four families, or (2) a single-family dwelling
unit in a condominium building. FEMA proposes to revise (1) to read ``a
one to four family residential building, not under a condominium form
of ownership'' because this language is clearer and more consistent
with the wording used in the Definitions section for condominium
buildings. FEMA proposes to add (3) ``personal property in a building''
to clarify that personal property is also insured under this policy.
FEMA has always insured personal property under this policy, but

proposes to make this fact more explicit in this initial coverage
statement.
    In the current policy, Article I ``Agreement'' begins after the
prefatory paragraph. It states in the first paragraph that FEMA
provides flood insurance under the terms of the NFIA, its amendments,
and 44 CFR. It states in the second paragraph that FEMA will pay for
direct physical loss by or from flood to the insured property if the
insured has paid the correct premium, complied with all terms and
conditions of the policy, and furnished accurate information and
statements. It states in the last paragraph that FEMA has the right to
review the information provided by the insured at any time and to
revise the policy based on this review.
    FEMA proposes to begin Article I before the prefatory paragraph,
and to relabel the prefatory paragraph as Section A, current Article
I's first paragraph as Section B, the second paragraph as Section C,
and the third paragraph as Section D. This is to clarify that the
prefatory paragraph, which is actually an initial coverage statement,
is part of the policy and not just an introduction to the policy.
    FEMA also proposes to modify proposed Section C (currently the
second paragraph in Article I) and add three new sections to Article I
(proposed sections E, F, and G) to clarify existing rules and
limitations under the SFIP.
i. Proposed Section C
    As previously described, FEMA proposes to renumber the second
paragraph in Article I as Section C of Article I. This provision
currently states that FEMA will pay for direct physical loss by or from
flood to the insured property if (1) the insured has paid the correct
premium; (2) complied with all terms and conditions of the policy; (3)
and furnished accurate information and statements. FEMA proposes to
modify the first prong of this statement by stating that coverage is
contigent on the policyholder paying the ``full amount due (including
applicable premiums, surcharges, and fees)'' instead of ``the correct
premium.'' FEMA proposes this change to make clear that policyholders
must pay any applicable surcharges, such as the one required under 42
U.S.C 4015a, in addition to applicable premiums.
ii. Proposed Section E
    Proposed Section E would state that the policy insures only one
building. If the insured owns more than one building, coverage will
apply to the single building specifically described in the Flood
Insurance Application. While the SFIP's limitation on coverage to one
dwelling is already implied by current Article III.A, FEMA proposes to
clarify this limitation here to allow policyholders to better
understand the extent of coverage, particularly where an insured may
own more than one building on the same land.
iii. Proposed Section F
    Proposed Section F would state that multiple policies with building
coverage cannot be issued to insure a single building to one insured or
to different insureds, even if separate policies were issued through
different NFIP insurers. It would also state that payment for damages
may only be made under a single policy for building damages under
Coverage A--Building Property. This proposed section would incorporate
current Article VII.U's general language stating that there may not be
more than one NFIP policy on a property. Proposed section F would be
subject to the exception in proposed Section G involving condominiums,
which provides that a condominium unit may be covered by an RCBAP
policy and a dwelling policy.
    FEMA proposes this clarification because there have been several
instances where multiple persons have taken out multiple, overlapping
building policies. This in turn may leave policyholders to believe they
have more coverage than is allowed by the NFIA. This is most common in
instances where both a building owner and a tenant obtain building
policies. As described in WYO Bulletin W-15001 (Jan. 13, 2015),\3\ FEMA
has taken steps to identify such instances and inform policyholders as
needed. FEMA believes that the language in proposed Section F would
help avoid such situations.
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    \3\ Available at http://bsa.nfipstat.fema.gov/wyobull/2015/w-15001.pdf.
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iv. Proposed Section G
    FEMA proposes to add Section G, which would define the relationship
between a Dwelling Form policy and an RCBAP policy that insures the
same condominium unit. Section G would state that a Dwelling Form
policy with building coverage may be issued to a unit owner in a
condominium building that is also insured under an RCBAP. However, no
more than $250,000 may be paid in combined benefits for a single unit
under the Dwelling Form policy and the RCBAP. This would explicitly
state FEMA's application of the statutory maximum coverage limits for
one to four family residential buildings, found at 42 U.S.C.
4013(b)(2), as applied to condominium units.
    FEMA proposes this section to clarify instances where a condominium
unit is covered by both a Dwelling Form policy and an RCBAP policy, and
to codify its current practice (pursuant to BW-12) of waiving the
requirement found in current regulation to limit payments to affected
policyholders. Current Article VII (``Coinsurance'') of the RCBAP
policy (Appendix A(3) to Part 61) restricts payments for damage to
condominium associations that insure less than 80 percent of the full
replacement cost of the RCBAP insured condominium building, or less
than the maximum amount of insurance available. In turn, current
Article III.C.3.b.4 of the Dwelling Form policy precludes payment for a
loss assessment if the reason for the shortage is application of the
RCBAP's coinsurance penalty provision. Current Article VII.C.2 of the
Dwelling Form policy provides that where a condominium unit is covered
by both the Dwelling Form policy and an RCBAP (or other flood insurance
coverage purchased by the condominium association), the Dwelling Form
policy will be in excess over the RCBAP (or other insurance).
    Since 2007, FEMA has issued individual waivers of these provisions'
requirements to limit payments to affected policyholders. Section
100214 of BW-12 (42 U.S.C. 4019(c)) validated this policy by
prohibiting FEMA from limiting payments pursuant to Article
III.C.3.b.4. FEMA implemented this prohibition through a general
waiver. See WYO Bulletin W-16024 (April 7, 2016).\4\ Accordingly, FEMA
now seeks to codify this change in the SFIP by adding Section G.
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    \4\ Available at https://bsa.nfipstat.fema.gov/wyobull/2016/w-16024.pdf.
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    Proposed Section G would also state that FEMA will only pay for
damage once, and items of damage paid for under an RCBAP cannot also be
claimed under the Dwelling Form policy. FEMA proposes to add this
language to clarify the existing rule under current Article VII.C.2
that if a single property is insured by both policies forms, the
Dwelling Form will only pay what is not covered under the RCBAP policy.
2. Article II Definitions
i. General Changes
    FEMA proposes to remove the last sentence of the second paragraph
in Article II.A which states, ``The precise definitions are intended to
protect you.'' FEMA proposes removal of this sentence because it is an
incorrect statement of the purpose of providing the definitions. The
definitions are to provide clarity to the language of the

Dwelling Form policy so that both FEMA and the policyholder will know
the terms and conditions under which payments will be made under the
policy.
    FEMA also proposes to move the definition of ``flood,'' which is
currently in the third paragraph of Article II.A, to a separate Section
B. Accordingly, FEMA also proposes to redesignate current Section B as
Section C.
ii. Proposed Removal of Definition
    FEMA proposes to remove one definition, ``expense constant,'' from
the Dwelling Form. The term describes a flat charge assessed on all
policies to defray expenses to the Federal Government related to flood
insurance. FEMA proposes to remove this definition because FEMA no
longer charges an expense constant and FEMA does not use this term in
the Dwelling Form.
iii. Proposed Addition of Definitions
    FEMA proposes to add a definition of ``condominium building'' to
mean a type of building for which the form of ownership is one in which
each unit owner has an undivided interest in common elements of the
building. FEMA intends for this addition to conform with the addition
of the definition to 44 CFR 59.1. FEMA proposes to add this definition
because it is used throughout the Dwelling Form.
    FEMA also proposes to define the term ``deductible'' as ``the fixed
amount of an insured loss that is your responsibility and that is
incurred by you before any amounts are paid for the insured loss under
this policy.'' This definition aligns with the definition of
``deductible'' currently proposed for 44 CFR 59.1. FEMA proposes to
include this definition in the SFIP to support related provisions in
Article VI.
iv. Proposed Changes to Existing Definitions
    FEMA proposes to modify several definitions currently in the
Dwelling Form. First, FEMA proposes to revise the definition of
``application'' by striking the last sentence. FEMA proposes this
change because the last sentence is not a definition, but rather a
separate requirement. Further, the sentence does not align with
proposed Article I.C, which states that policyholders must submit ``the
full amount due'' which includes applicable premiums, surcharges, and
fees.
    FEMA proposes to revise the definition of the term ``basement.''
Currently, ``basement'' is defined as ``any area of the building,
including any sunken room or sunken portion of a room, having its floor
below ground level (subgrade) on all sides.'' FEMA proposes to replace
the word ``the'' before the word ``building'' with the word ``a'' to
correct a grammar error in the current Dwelling Form SFIP. FEMA also
proposes to remove the word ``subgrade'' because, due to the many and
varying definitions of this word, its use is causing confusion. Removal
of the term ``subgrade'' is not intended to have any substantive
effect.
    FEMA proposes to revise the term ``condominium.'' Currently,
``condominium'' is defined as ``that form of ownership of real property
in which each unit owner has an undivided interest in common
elements.'' FEMA proposes to replace the term ``real property'' with
the phrase ``one or more buildings'' because FEMA believes that this
nonsubstantive change uses plainer language that the public can more
easily understand.
    Similarly, FEMA proposes to adjust the definition of ``condominium
association.'' Currently, this term is defined as the entity made up of
the unit owners responsible for the maintenance and operation of (a)
common elements owned in undivided shares by unit owners; and (b) other
real property in which the unit owners have use rights; where
membership in the entity is a required condition of unit ownership.
FEMA proposes to replace the term ``real property'' with ``buildings''
because FEMA believes that this change uses plainer language that the
public can more easily understand while maintaining the substantive
meaning of the definition.
    FEMA proposes to revise the definition of ``dwelling.'' Currently,
``dwelling'' is defined as ``a building designed for use as a residence
for no more than four families or a single-family unit in a building
under a condominium form of ownership.'' FEMA proposes to replace the
phrase ``building under a condominium form of ownership'' with
``condominium building'' to integrate the defined term ``condominium
building'' while maintaining the substance of the current definition.
    FEMA proposes to revise the definition of ``emergency program.''
Currently, ``emergency program'' is defined as the initial phase of a
community's participation in the National Flood Insurance Program. The
definition also states that during this phase, only limited amounts of
insurance are available under the NFIA. FEMA proposes to retain this
definition but add at the end the phrase ``and the regulations
prescribed pursuant to the Act.'' FEMA proposes to add this phrase to
align the SFIP definition of this term with its definition at 44 CFR
59.1.
    FEMA proposes minor revisions to the definition of
``improvements.'' Currently, this term is defined as ``fixtures,
alterations, installations, or additions comprising a part of the
insured dwelling or the apartment in which you reside.'' FEMA proposes
to remove the word ``insured'' because it is not necessary. It proposes
to remove the word ``the'' from before the word ``apartment'' for
readability.
    FEMA proposes to move the definition of ``principal residence''
from Art. VII.V.1.a.1 (``Loss Settlement'') of the Dwelling Form to the
Definitions Section (Article II). Currently, under Article VII.V.1 a
principal residence means the single-family dwelling where the
policyholder or the policyholder's spouse has lived for at least 80
percent of (a) the 365 days immediately preceding the time of loss; or
(b) the period of ownership, if either the policyholder or
policyholder's spouse owned the dwelling for less than 365 days
immediately preceding the time of loss. FEMA proposes to move the
substantively unchanged definition to the Definitions Section of
Article II because that is the more appropriate place to define terms
used in the Dwelling Form.
    FEMA proposes to revise the definition for ``probation premium'' by
replacing the defined term ``probation premium'' with the term
``probation surcharge.'' ``Probation surcharge'' would retain the same
definition as the current definition for ``probation premium,'' which
is a flat charge the policyholder must pay on each new or renewal
policy issued covering property in a community the NFIP has placed on
probation under the provisions of 44 CFR 59.24. FEMA proposes this
revision because there is no such thing as a ``probation premium;''
this incorrect term was intended to reference the probation surcharge
that is applied to policies in NFIP communities that have been placed
on suspension from the NFIP.
    FEMA proposes to amend the definition of ``regular program.''
Currently, ``regular program'' is defined as the final phase of a
community's participation in the National Flood Insurance Program. In
this phase, a Flood Insurance Rate Map is in effect and full limits of
coverage are available under the NFIA. FEMA proposes to add the phrase
``and the regulations prescribed pursuant to the Act'' at the end to
clarify, without changing the substance of the definition, that the
coverage amounts for NFIP policies are

subject to the rules established in both statute and regulation, not
just statute.
    FEMA also proposes to modify the definition of ``Special Flood
Hazard Area'' to include the appropriate acronym, ``SFHA.''
    FEMA proposes to revise the term ``unit.'' Currently, ``unit'' is
defined as ``a single-family unit you own in a condominium building.''
FEMA proposes to replace the word ``unit'' with ``residential space''
so that the word ``unit'' would not be used to define itself.
3. Article III Property Covered
    Article III of the Dwelling Form (``Property Covered'') is divided
into four sections, each addressing different types of property:
Section A, ``Coverage A--Building Property,'' Section B, ``Coverage B--
Personal Property,'' Section C, ``Coverage C--Other Coverages,'' and
Section D, ``Coverage D--Increased Cost of Compliance.''
i. Coverage A--Building Property
    Article III.A.5.b.2 describes the zones above which the lowest
floor of a non-walled or roofed building under construction,
alteration, or repair must be to be covered. FEMA proposes to replace
``levels are'' with ``level is'' to improve readability. FEMA also
proposes to replace ``and'' with ``or,'' also to improve readability.
No substantive changes are intended.
    In Article III.A.6, FEMA proposes to replace the reference to
``II.B.6.b and II.B.6.c'' with a reference to ``II.C.6'' to reflect the
renumbering proposed for Article II.
    Article III.A.7 provides a list of items of property covered under
Coverage A only. FEMA proposes to replace ``covered'' with ``insured''
because ``covered'' is a generic and undefined term that does not
conform to common industry or Agency usage. The use of ``insured''
better conveys the application of the SFIP to property.
    Article III.A.8 limits coverage on items of property in a building
enclosure below the lowest elevated floor of an elevated post-FIRM
building in specified zones. FEMA proposes to remove the phrase ``in a
building enclosure'' to clarify that the section only insures items of
property that are below the lowest elevated floor, not the building
enclosure itself. This has always been the case, but removing this
language would make this clearer. Removing the language would also
clarify that FEMA insures any property identified in Article III.A.8
that is below the lowest elevated floor within the footprint of the
building, regardless of whether such property is located in a building
enclosure.
ii. Coverage B--Personal Property
    Article III.B.1 describes the conditions under which the policy
covers personal property inside a building. Current Article III.B.1.b
contains two unnumbered paragraphs. FEMA proposes to number these two
unnumbered paragraphs as ``1.'' and ``2.'' respectively, and to
renumber subsequent paragraphs accordingly, to improve readability and
organization.
    Article III.B.3 (renumbered B.5.in the proposed text) limits
coverage for items of property in a building enclosure below the lowest
elevated floor of an elevated post-FIRM building located in specified
zones or a basement. FEMA proposes to remove the phrase ``in a building
enclosure'' to clarify that the section only insures items of property
that are below the lowest elevated floor, not the building enclosure
itself. While FEMA has always interpreted this provision this way,
removing this language would make this clearer to policyholders. In
addition, this proposed change would also clarify that FEMA insures
certain property identified in Article III.B.3 (proposed B.5) that is
below the lowest elevated floor within the footprint of the building,
regardless of whether such property is located in a building enclosure.
iii. Coverage C--Other Coverages
    Article III.C describes other coverages under the SFIP, including
for debris removal, property relocation, and condominium loss
assessments. In III.C.2.b, FEMA proposes to number the currently
unnumbered paragraphs immedietly following III.C.2.b.2 as III.C.2.b.3
and III.C.2.b.4, respectively, to improve organization and readability.
    Article III.C.3.a describes the terms of coverage for condominium
loss assessments. FEMA proposes to revise the first sentence of Article
III.C.3.a to add the phrase ``Subject to III.C.3.b below'' to the
beginning of the sentence to clarify that the general statement in
III.C.3.a that FEMA would pay for condominium loss assessments would be
limited by the restrictions established in III.C.3.b. FEMA also
proposes to add ``condominium'' before ``unit'' in that sentence, for
the sake of clarity. The second sentence in Article III.C.3.a states
that the assessment must be made as a result of direct physical loss by
or from flood during the policy term, to the building's common
elements. FEMA proposes to replace ``as a result of'' with ``because
of'' and ``to the building's common elements'' with ``to the unit or to
the common elements of the NFIP insured condominium building in which
this unit is located.'' FEMA proposes to revise this language for
greater clarity and consistency with the ``condominium building''
definition added in Article II.
    Article III.C.3.b describes scenarios where FEMA will not pay any
loss assessment charged against the policyholder. Article III.C.3.b.1
provides that FEMA will not pay any loss assessment charged against the
policyholder ``and the condominium association by any governmental
body.'' FEMA proposes to relocate the phrase ``charged against you''
from III.C.3.b to III.C.3.b.1 to improve the sentence structure of the
provision.
    Article III.C.3.b.4 states that the NFIP would not insure any loss
assessments on units in a condominium building that were underinsured
as described in this paragraph. FEMA proposes to remove this paragraph,
as these restrictions were superseded by section 100214 of BW-12, which
prohibits FEMA from denying coverage for a condominium unit under a
Dwelling Form policy based solely, or in part, on the flood insurance
coverage of the condominium association or others on the overall
property insured by the condominium association. Accordingly, to
implement this requirement, FEMA proposes to remove Article III.C.3.b.4
as it prevents unit owners from recovering under the Dwelling Form
policy for loss assessments charged against them because the
condominium building in which the unit is located is underinsured. FEMA
has waived this provision in current practice for affected individual
policies. The proposed change would conform the language of the
Dwelling Form to FEMA's current practice and allow FEMA to discontinue
use of the individual waiver process.
    Current Article III.C.3.b.5 provides that FEMA will not pay for
loss assessments to the extent that payment under this policy for a
condominium loss, in combination with payments under any other NFIP
policies for the same building loss, exceeds the maximum amount of
insurance permitted under the NFIA for that kind of building.
Similarly, current section III.C.3.b.6 provides that FEMA will not pay
for loss assessments to the extent that payment under this policy, in
combination with any recovery available to the tenant in common under
any NFIP condominium association policies for the same building loss,
exceeds the amount of insurance permitted under the NFIA for a single
family dwelling. FEMA proposes to renumber these subsections as (4) and

(5) respectively due to FEMA's proposed removal of current subsection
(4). In addition, FEMA proposes to revise current subsection (5)
(proposed subsection (4)) to state ``[i]n which the total payment
combined under all policies exceeds the maximum amount of coverage
available under the Act for a single unit in a condominium building
where the unit is insured under both a Dwelling Policy and a RCBAP.''
FEMA also proposes to revise current subsection (6) (proposed
subsection (5)) to state ``[o]n any item of damage that has already
been paid under a RCBAP where a single unit in a condominium building
is insured by both a Dwelling Policy and a RCBAP.'' FEMA proposes this
revised language to streamline these provisions and to make the same
points more clearly.
    The last sentence of current III.C.3.b.6 states that ``[l]oss
assessment coverage does not increase the Coverage A Limit of
Liability.'' FEMA proposes to renumber this sentence as III.C.3.c. FEMA
also proposes to revise the language so that it reads ``Condominium
Loss Assessment coverage does not increase the Coverage A Limit of
Liability and is subject to the maximum coverage limits available for a
single family dwelling under the Act, payable between all policies
issued and covering the unit, under the Act.'' This would clarify that
the combined payments under the Dwelling Form and the RCBAP, or any
other payment issued under the Dwelling Form to a unit owner where
there is also an RCBAP that covers the property, are subject to the
$250,000 coverage limit on the combined payments under both policies.
Congress only authorized a maximum coverage of $250,000 on a single
dwelling, and both the RCBAP and Dwelling Forms rely upon that single
authority for establishing the available policy limits. As such, the
unit owner and the condominium association each filing separate claims
under their separate policies cannot circumvent the limit imposed by
Congress. FEMA proposes to add this language to emphasize the point
that even though a condominium unit may be insured by both a Dwelling
Form policy and an RCBAP, this fact does not alter the statutory
coverage limits.
iv. Coverage D--Increased Cost of Compliance
    Article III.D (``Increased Cost of Compliance'') describes the
terms of coverage for costs associated with complying with State or
local floodplain management laws or ordinances affecting repair or
reconstruction of a structure suffering flood damage. FEMA proposes to
revise the language in this section so that the word ``structure'' is
replaced by the word ``building'' throughout the section. The reason
for this change is the NFIP insures SFIP defined ``buildings,'' not
structures. FEMA also proposes to replace the phrase ``this coverage''
with the phrase ``Coverage D in III.D.3.d and III.D.3.e'' to clarify
that the coverage referred to in these provisions is Coverage D.
4. Article V Exclusions
    Article V of the Dwelling Form (``Exclusions'') provides the terms
and conditions of the SFIP relating to what losses are excluded from
coverage under the SFIP. Article V.B excludes coverage for losses
resulting from a flood that began prior to the effective date of a
policy; this is referred to as the ``flood in progress'' exclusion. If
the SFIP covered losses for policies obtained after a flood became
imminent, people could avoid paying for insurance during the times they
did not need to make a claim. FEMA would then have to increase rates to
compensate for the lost premiums and higher losses. This would in turn
drive more people out of the program, which would require higher rates.
    Currently, the exclusion specifies that FEMA will not pay for a
loss that was ``directly or indirectly caused by a flood that is
already in progress'' prior to the effective date of the policy. FEMA
is proposing changes to Article V because the current language does not
describe how a policyholder could determine when a flood was in
progress. This ambiguous provision has historically caused significant
confusion among the public. As a result, FEMA made several attempts to
clarify the provision and apply it to the specific attributes of
certain floods. See WYO Bulletin W-11030 (May 17, 2011); WYO Bulletin
W-11034 (June 6, 2011); WYO Bulletin W-11045 (June 30, 2011);
Definitions Section of the Flood Insurance Manual, page 4.
    While these clarifications provided workable guidance on the issue,
BW-12 directed the FEMA Administrator to review ``the processes and
procedures for determining that a flood event has commenced or is in
progress for purposes of flood insurance coverage made available under
the National Flood Insurance Program.'' BW-12 section 10227(a)(1)(A)
(42 U.S.C. 4011 note). Accordingly, FEMA now proposes to modify the
Flood in Progress Exclusion to maintain its practical impact, but to
provide clearer terms for its application.
    FEMA proposes to revise the language of Article V.B to allow for
two separate exclusions for floods in progress, depending on how the
policyholder applied for the policy. If the policy became effective at
the time of a loan closing, as provided by 44 CFR 61.11(b), then FEMA
would not pay for losses caused by a flood that is a continuation of a
flood that existed prior to coverage becoming effective. In all other
circumstances, FEMA would not pay for a loss caused by a flood that is
a continuation of a flood that existed on or before the day the
policyholder submitted the application for coverage and paid the full
amount due. This exclusion would apply to new policies subject to the
30-day waiting period, as well as those for which the overnight waiting
period is applied, as provided by 42 U.S.C. 4013(c)(2)(b).
    FEMA believes the proposed formulation provides a more thorough
understanding of what constitutes a flood in progress, providing
greater clarity to policyholders, without altering the actual effect of
the provision because the proposed language captures the principles
underlying the previous agency guidance. FEMA also believes the
proposed language would successfully prevent a policyholder from
waiting until flooding becomes imminent to apply for coverage, as well
as prevent a person facing imminent flooding from obtaining a small
mortgage to avoid the otherwise 30-day effective date waiting period
required by 42 U.S.C. 4013(c)(1).
    In article V.C.6, regarding gradual erosion, FEMA proposes to
replace ``insured'' with ``covered'' because ``covered'' is a generic
and undefined term that does not conform to common industry or Agency
usage. The use of ``insured'' better conveys the application of the
SFIP to property. Also in article V.C.6, FEMA proposes to update the
reference to the definition of flood to articles II.B.1.c and II.B.2.
5. Article VII General Conditions
    Article VII (``General Conditions'') provides the general terms and
conditions of the Dwelling Form SFIP, such as provisions related to
other insurance; amendments, waivers, and assignments; policy
reformation; policy renewal; requirements if there is a loss; and loss
payments.
i. Section B--Concealment or Fraud and Policy Avoidance
    Article VII.B (``Concealment or Fraud and Policy Avoidance'')
provides the general terms and conditions of the Dwelling Form SFIP
related to concealment or fraud and policy avoidance. FEMA proposes to
move Article VII.B to a new Article VIII.A (``Policy Nullification for
Fraud,

Misrepresentation, or Making False Statements'') and make some
revisions, which are explained in the discussion of new Article VIII
below.
ii. Section C--Other Insurance
    Article VII.C (``Other Insurance'') discusses terms related to
instances where property is covered by more than one insurance policy
with flood coverage. FEMA proposes to redesignate Article VII.C as
Article VII.B due to FEMA's proposed removal of VII.B. Current Article
VII.C.2 (proposed VII.B.2) states that where there is other insurance
in the name of the policyholder's condominium association covering the
same property covered by this policy, then this policy will be in
excess over the other insurance. FEMA proposes to replace the word
``covered'' with ``insured.'' FEMA proposes to replace the word
``covered'' with the word ``insured'' because ``covered'' is a generic
and undefined term that does not conform to common industry or Agency
usage. The use of ``insured'' better conveys the application of the
SFIP to property. FEMA also proposes to add the phrase ``issued under
the Act'' directly following the phrase ``other insurance'' to clarify
that the language referring to other insurance is referring to other
NFIP insurance, not other non-NFIP insurance.
    FEMA proposes to add language to Article VII.C.2 (proposed VII.B.2)
to provide that the section does not apply where a condominium loss
assessment to the unit owner results from a loss sustained by the
condominium association that was not reimbursed under an RCBAP because
the building was not insured for an amount equal to the lesser of: (a)
80 percent or more of its full replacement cost; or (b) the maximum
amount of insurance permitted under the NFIA. FEMA proposes to add this
exception to codify the existing implemention of section 100214 of BW-
12. Under the terms and conditions of the Dwelling Form policy and the
RCBAP, the RCBAP is primary, and the Dwelling Form policy acts as an
excess flood insurance policy. In order to allow the Dwelling Form to
respond as if the RCBAP coverage has in fact been exhausted, FEMA must
revise Article VII.C.2 (proposed VII.B.2) so that it does not apply in
those situations in which the coinsurance provision of the RCBAP has
been triggered.
    FEMA also proposes to add language to proposed Article VII.B.2
clarifying that even when a condominium unit is insured by two
policies, the maximum statutory coverage limit available under the NFIA
of $250,000 still applies. FEMA proposes to add this language to
emphasize that the fact that a condominium unit is insured by both a
Dwelling Form policy and an RCBAP does not alter or permit payments to
exceed the statutory coverage limits.
iii. Section D--Amendments, Waivers, Assignment
    Article VII.D ('' Amendments, Waivers, Assignment'') provides that
any amendments or waivers to the policy require express written consent
of the Federal Insurance Administrator. It allows a policyholder to
assign this policy when transferring title of his or her property
except when the policy (1) covers only personal property, or (2) covers
a structure during the course of construction. FEMA proposes to
redesignate Article VII.D as Article VII.C due to the proposed removal
of VII.B and subsequent renumbering discussed above. FEMA proposes to
replace the phrase ``structure during the course of construction'' with
``building under construction'' both to correspond with the replacement
of the word ``structure'' with ``building'' throughout Article V of the
policy, and also because ``building under construction'' is the proper
term of art, as used in Article III.A.5.a and Article VI.A. Also, FEMA
proposes to replace ``covers'' with ``insures'' because ``covered'' is
a generic and undefined term that does not conform to common industry
or Agency usage. The use of ``insured'' better conveys the application
of the SFIP to property.
iv. Section E--Cancellation of the Policy by You
    Article VII.E (``Cancellation of the Policy by You'') authorizes a
policyholder to cancel the policy in accordance with the applicable
rules and regulations of the NFIP and provides that a policyholder who
cancels may be entitled to a full or partial refund of premium. FEMA
proposes to move Article VII.E to a new Article VIII discussing policy
nullifications, cancellations, and non-renewals. The new Article VIII
is discussed below.
v. Section F--Non-Renewal of the Policy by Us
    Article VII.F (``Non-Renewal of the Policy by Us'') states that a
policy will not be renewed if the community where the covered property
is located stops participating in the NFIP, or the building has been
declared ineligible under section 1316 of the NFIA. FEMA proposes to
move Article VII.F to a new Article VIII discussing policy
nullifications, cancellations, and non-renewals. The new Article VIII
is discussed below.
vi. Section G--Reduction and Reformation of Coverage
    Article VII.G (``Reduction and Reformation of Coverage'') describes
the terms and conditions of the policy related to situations in which
it is discovered that the premium paid on an annual policy, or the
information used to rate the policy, is insufficient. Specifically,
this section details how coverage under the policy would be reformed in
such situations and the policyholder's options upon reformation.
    FEMA proposes to redesignate Article VII.G as Article VII.D to
conform to the relocation and redesignation of preceding sections
described above. FEMA proposes to change the title of the section from
``Reduction and Reformation of Coverage'' to ``Insufficient Premium or
Rating Information.'' FEMA proposes this change to the title because it
is clearer than the current section title. Additionally, FEMA proposes
to add the term ``insufficient'' before ``rating information'' to make
it clear that this provision applies to both cases: Where the
information needed to rate the policy is incomplete and where it is
incorrect. With respect to the premium, the term ``insufficient''
applies to situations in which the premium paid is incorrect. With
respect to the rating information, the term ``insufficient'' applies to
situations in which the rating information provided for determining the
premium rate is incomplete, such as when an elevation certificate is
not provided or is incorrect. FEMA proposes to make corresponding
language changes throughout this section to ensure that the provisions
of this section are applied in both of these situations.
    FEMA proposes to add a new Article VII.D.1, entitled
``Applicability.'' The proposed Article would state that the provisions
in proposed Article VII.D, Insufficient Premium or Rating Information,
apply to all instances where the premium paid on a policy is
insufficient or where the rating information is insufficient, such as
where an Elevation Certificate is not provided. This change reflects
FEMA's current policies and would not substativently impact the NFIP.
    Current Article VII.G.1 provides that if the premium received was
not enough to buy the kind and amount of coverage requested, FEMA will
provide only the amount of coverage that can be purchased for the
premium payment received. FEMA proposes to redesignate

this section as Article VII.D.2 to correspond to the redesignations
described above, and add a title, ``Reforming the Policy with Reduced
Coverage,'' for improved clarity. FEMA proposes to add the phrase
``Except as otherwise provided in VII.D.1'' at the beginning of the
paragraph. FEMA proposes this change to correspond to the exception
established in the new proposed language at VII.D.1. FEMA also proposes
to replace the phrase ``not enough'' with the phrase ``not
sufficient,'' the word ``amount'' to ``amounts,'' and replace ``only
the amount of coverage'' with ``only the kinds and amounts of
coverage.'' FEMA believes that these non-substative changes would
improve readability.
    FEMA proposes to add three paragraphs to this section. Proposed
paragraph D.2.a clarifies that, for determining whether the premium is
sufficient to buy the kinds and amounts of coverage requested, FEMA
will first deduct all applicable fees and surcharges. Proposed
paragraph D.2.b clarifies that if the amount paid, after deducting the
costs of all applicable fees and surcharges, is not sufficient to buy
any amount of coverage, the Program will refund the policyholder's
payment and there will be no coverage under the policy. FEMA proposes
to add these clarifications because they are not explicitly stated in
the current regulations, although FEMA has previously interpreted
regulations to require this. Thus this is not a substantive change but
merely reflects existing practice. Proposed paragraph D.2.c states that
``[c]overage limits on the reformed policy will be based upon the
amount of premium submitted per type of coverage, but will not exceed
the amount originally requested.'' FEMA proposes this paragraph to
codify its current practice. When FEMA calculates the total policy
cost, it knows how much of the total cost will be allocated to premium,
surcharges, fees, etc. Under FEMA's current practice, it tries to
preserve the ratio of building coverage to contents coverage,
regardless of how much premium the policyholder intended to allocate to
each type of coverage. For example, if a policyholder originally
requested $200,000 in building coverage and $100,000 in contents, FEMA
would try to preserve the 2 to 1 ratio when reducing the coverage
through reformation. The proposed rule seeks to clarify that FEMA's
practice is to reflect the policyholder's intent by considering the
amount of premium the policyholder intended to allocate to each type of
coverage. Using the example above, therefore, if the policyholder paid
a total of $600 premium, wishing to allocate $500 for the $200,000 in
building coverage and $100 for the $100,000 in contents, FEMA would
provide the amount of building coverage that $500 would purchase under
the reformed rate, and the amount of contents coverage that $100 would
purchase under the reformed rate.
    Current Article VII.G.2 discusses how a policy can be reformed to
increase the amount of coverage where insufficient premium or
incomplete rating information is discovered before a loss (current
paragraph (a)), and where insufficient premium or incomplete rating
information is discovered after a loss (current paragraph (b)). FEMA
proposes to redesignate current Article VII.G.2 as VII.D.3 and to
restructure it to improve organization and readability. Specifically,
FEMA proposes to combine the provisions on discovery of insufficient
premium or rating information before a loss and discovery of
insufficient premium or rating information after a loss. To that end,
the Agency proposes to title proposed Article VII.D.3 as ``Discovery of
Insufficient Premium or Rating Information.'' The proposed subsection
would state that if the Program discovers that the premium or rating
information is insufficient, the Program would reform the policy as
described in proposed Article VII.D.2. The proposed subsection also
gives policyholders the option of increasing the amount of coverage
resulting from the reformation to the amount he or she requests in
accordance with the rest of the section. This does not constitute a
substantive change from the current regulations and procedure; rather,
it is a streamlining of the current regulations without altering the
substance.
    Proposed Article VII.D.3.a would be entitled ``Insufficient
Premium'' and would address situations where FEMA discovers that the
premium is insufficient. This section would retain the first sentence
in current VII.G.2.a.1 providing that where FEMA discovers the
policyholder has not paid enough premium, the policyholder, and any
mortgagee or trustee of which the insurer has written notice, will be
sent a bill for the required additional premium for the current policy
term (or that portion of the current policy term following any
endorsement changing the amount of coverage). From the current
language, FEMA proposes to replace ``enough'' with ``sufficient'' to
align with current program usage and proposes to add commas after
``you'' and ``us'' to improve readability.
    The last sentence in current VII.G.2.a.1 provides that where the
policyholder pays the additional premium within 30 days from the date
the bill is sent, the Program will reform the policy to the originally
requested amount of coverage. FEMA proposes to relocate this last
sentence to its own separate subsection (proposed VII.D.3.a.1) and
replace it with language stating that if it is discovered that the
initial amount charged for any fees or surcharges is incorrect, the
difference will be added or deducted, as applicable, to the total
amount in this bill. FEMA proposes this sentence because in addition to
the premium, policyholders must pay additional fees and surcharges,
which can vary based on the characteristics of the property and its
use; this language reflects its existing practice that FEMA adjusts the
total bill for overpayment or underpayment of fees and surcharges.
    As mentioned above, FEMA proposes to relocate the last sentence in
current Article VII.G.2.a.1 to its own separate subsection (proposed
VII.D.3.a.1). Because this language only addresses what happens if the
policyholder pays the additional premium within 30 days from the date
the bill is sent, FEMA proposes to add additional language (proposed
VII.D.3.a.2) clarifying that if the policyholder does not pay the
premium within 30 days from the date of the bill, the Program would
settle any flood insurance claim based on the reduced amount of
coverage (as reduced pursuant to Article VII.D.2). This is already
implicitly in the current regulation and FEMA's current practice, but
FEMA proposes to add it to improve the clarity of the regulation.
    FEMA proposes to add a third subsection (proposed VII.D.3.a.3)
allowing the policyholder the option of paying all or part of the
amount due out of a claim payment based on the originally requested
amount of coverage. Though not explicitly anticipated in the SFIP, FEMA
currently provides this option to policyholders through coordination of
disbursement of claim proceeds and additional premium collections with
the insurer. FEMA proposes to incorporate this option into the SFIP to
provide policyholders with a comprehensive understanding of their
options after FEMA discovers a misrating after a loss.
    Proposed Article VII.D.3.b would be entitled ``Insufficient Rating
Information'' and would address situations where it is discovered that
the rating information is insufficient. This section would retain the
substance of the first sentence in VII.G.2.a. stating that if it is
determined that the rating

information for the policy is insufficient and prevents the insurer
from calculating the additional premium, the policyholder would be
required to provide this information within 60 days of a request by the
insurer. The last sentence in current VII.G.2.a.2 provides that once
the amount of additional premium for the current policy term is
determined, the procedures outlined in G.2.a.1 will be followed. FEMA
proposes to relocate this sentence to its own subsection (proposed
VII.D.3.b.1) and revise it to state that where information is received
within 60 days, the amount of additional premium for the current policy
term would be determined and the procedures in VII.D.3.a would be
followed.
    Current VII.G.2.a.3 and G.2.b.3 address situations where the
additional premium or information is not received by the date it is
due. FEMA proposes to replace these sections with proposed VII.D.3.b.2
to state that where information is not received within 60 days of the
request, no claims would be paid until the requested information is
provided. Coverage would be limited to the amount of coverage that
could be purchased for the payments received, as determined when the
requested information is provided. The proposed provision reflects
FEMA's existing interpretation of the SFIP, as reflected in the General
Rules Section of the Flood Insurance Manual, page 13. FEMA proposes
this provision to clearly reflect FEMA's policy.
    FEMA proposes to add a new Article VII.D.4, entitled ``Coverage
Increases,'' which would incorporate the language in current Articles
VII.G.2.a.3 and VII.G.2.b.3. The proposed language states that if the
policyholder does not submit the amounts requested in Article VII.D.3.a
or the additional information requested in Article VII.D.3.b by the
date it is due, the amount of coverage could only be increased by
endorsement subject to the appropriate waiting period. However, no
coverage increases would be allowed until the information requested in
Article VII.D.3.b is provided. FEMA proposes this additional language
to explicitly state the currently implied consequence of not providing
the necessary payment or information.
    Finally, FEMA proposes to redesignate current Article VII.G.3 as
Article VII.D.5, which would be entitled ``Falsifying Information.''
Currently, this paragraph states that if the policyholder or their
agent intentionally did not tell FEMA about, or falsified, any
important fact or circumstance or did anything fraudulent relating to
this insurance, the provisions allowing policy cancellations for fraud
will apply. FEMA proposes to update the references to other policy
provisions to align with the citations as revised under this proposed
rule.
    In section J (proposed section G) (``Requirements in Case of
Loss''), section L (proposed section I) (``No Benefit to Bailee''), and
section T (propsed section Q) (``Continious Lake Flooding''), FEMA
proposes to replace ``covers'' with ``insures'' because ``covered'' is
a generic and undefined term that does not conform to common industry
or Agency usage. The use of ``insured'' better conveys the application
of the SFIP to property.
    As a consequence of the changes proposed above, FEMA also proposes
to renumber sections H through T as sections E through Q. No other
changes were made to these sections other than conforming cross-
references.
vii. Section U--Duplicate Policies Not Allowed
    Article VII.U (``Duplicate Policies Not Allowed'') currently
describes restrictions on insuring property with more than one NFIP
policy. FEMA proposes to remove the Section and incorporate the
language into the new language at Articles I.F and VIII.D (discussed in
III.C.1.ii and III.C.6.iv of this document, respectively). FEMA further
proposes to redesignate all subsequent sections in Article VII,
starting with section ``VII.V'' as ``VII.R.''
viii. Section V--Loss Settlement
    Current Article VII.V (``Loss Settlement'') (proposed VII.R)
describes the three methods for settling losses under the SFIP:
Replacement cost loss settlement, special loss settlement, and actual
cash value loss settlement. Article VII.V.1.a.1 (proposed VII.R.1.a.1)
provides that replacement cost loss settlement applies to a single-
family dwelling provided that it is the policyholder's principal
residence within the meaning described further in the paragraph. As
discussed in III.C.2, FEMA proposes to remove the definition of
``principal residence'' currently embedded in this provision and move
it to the Definitions article of the SFIP. This change would improve
readability of the provision without substantive impact.
    Throughout proposed section VII.R, FEMA proposes to update internal
references to this section (i.e., replacing ``V'' with ``R'').
ix. Internal Citation Updates Within Article VII
    FEMA proposes to redesignate the letter identifiers for the
following sections due to the resdesignation of earlier sections of
Article VII. The changes are as follows: Current Article VII.J
(proposed VII.G), Requirements in Case of Loss; current Article VII.M
(proposed VII.J), Loss Payment; current Article VII.T (proposed VII.Q),
Continuous Lake Flooding; and current Article VII.V (proposed VII.R),
Loss Settlement.
6. Article VIII Policy Nullification, Cancellation, and Non-Renewal
    As discussed above, FEMA proposes to add a new Article VIII
(``Policy Nullification, Cancellation, and Non-Renewal''), which would
address in one place all the current reasons for which a policy may be
nullified, cancelled, or non-renewed. This would consolidate the policy
nullification, cancellation, and non-renewal reasons currently in the
Dwelling Form at Article VII.B (``Concealment or Fraud and Policy
Voidance''), VII.E (``Cancellation of the Policy by You''), and VII.F
(``Non-Renewal of the Policy by Us''), and VII.U (``Duplicate Policies
Not Allowed''). It would also incorporate the reasons that are being
codified into regulation at 44 CFR 62.5 (discussed below). This
consolidation would improve the organization and structure of the
document. This new article would also improve transparency to the
policyholder regarding the reasons for which a policy may be nullified,
cancelled, or non-renewed.
i. Section A--Policy Nullification for Fraud, Misrepresentation, or
Making False Statements
    Current Article VII.B.1-3 provides that a policy is void, has no
legal force or effect, cannot be renewed, and cannot be replaced by a
new NFIP policy if the policyholder (or another insured or agent) has
intentionally concealed or misrepresented any material fact or
circumstance, engaged in fraudulent conduct, or made false statements
related to this or any other NFIP policy. It also provides that the
policy would be void as of the date the wrongful acts were committed,
and that fines, civil penalties, and imprisonment may also apply. FEMA
proposes to move these sections to Article VIII.A, rename it ``Policy
Nullification for Fraud, Misrepresentation, or Making False
Statements,'' and reorganize it without substantive change for greater
clarity.
ii. Section B--Policy Nullification for Reasons Other Than Fraud
    Current Article VII.B.4 provides that the policy is void and has no
legal force where the property is located in a community not
participating in the NFIP on the policy's inception date and

did not join or reenter the program during the policy term and before
the loss occurred, or if the property is not otherwise eligible for
NFIP coverage. FEMA proposes to establish a new Article VIII.B,
entitled ``Policy Nullification for Reasons Other Than Fraud'' which
would incorporate the provisions of current VII.B.4 but add additional
reasons that a policy may be void. These are: (1) The applicant or
policyholder never had an insurable interest (proposed VIII.B.1.c); (2)
the policyholder provided an agent with an application and payment, but
the payment did not clear (proposed VIII.B.1.d); and (3) the insurer
received notice from the policyholder, prior to the policy effective
date, that the policyholder has decided not to take the policy and the
policyholder is not subject to a requirement to obtain and maintain
flood insurance pursuant to any statute, regulation, or contract. These
added reasons for policy voidance reflect current agency
interpretations and practices, as reflected in the Cancellation/
Nullification Section of the Flood Insurance Manual.
    FEMA proposes to add Article VIII.B to state that the applicant or
policyholder would be entitled to a full refund of all premium, fees,
and surcharges received, but if a claim was paid for a policy that is
void, the claim payment must be returned to FEMA or offset from the
premiums to be refunded before the refund will be processed. This
reflects current agency interpretations and procedures, as reflected in
the Cancellation/Nullification Section of the Flood Insurance Manual.
iii. Section C--Cancellation of the Policy by You
    Current Article VII.E (``Cancellation of the Policy by You'')
provides that a policyholder may cancel the policy in accordance with
the NFIP's rules and regulations, in which event they may be entitled
to a full or partial refund of premium under those same rules and
regulations. FEMA proposes to incorporate the provisions of current
Article VII.E into a new Article VIII.C, entitled ``Cancellation of the
Policy by You.'' The proposed section C would retain the same language
except for two changes. First, instead of stating ``in accordance with
the applicable rules and regulations of the NFIP,'' it would state ``in
accordance with the terms and conditions of this policy and the
applicable rules and regulations of the NFIP.'' Second, it would
replace the phrase ``premium also under the applicable rules and
regulations of the NFIP'' with ``premium, surcharges, or fees under the
terms and conditions of this policy and the applicable rules and
regulations of the NFIP.'' No substantive change is intended.
iv. Section D--Cancellation of the Policy by Us
    FEMA proposes to establish a new Article VIII.D, entitled
``Cancellation of the Policy by Us,'' which would state four reasons
for which a policy may be cancelled by the insurer: 1. Cancellation for
underpayment of amounts owed on the policy, 2. cancellation due to lack
of an insurable interest, 3. cancellation of duplicate policies, and 4.
cancellation due to physical alteration of property.
    The first reason for which the insurer may cancel a policy is in
proposed Article VIII.D.1, entitled ``Cancellation for Underpayment of
Amounts Owed on Policy.'' This provision would state that the insurer
may cancel the policy if, pursuant to VII.D.2, it is determined that
the amounts paid by the policyholder were not sufficient to buy any
amount of coverage, and the policyholder did not pay the additional
amount of premium owed to increase the coverage to the originally
requested amount within the required time period. FEMA proposes to add
this cancellation reason to align with current practice, as reflected
in proposed VII.D.2, that FEMA will cancel a policy where the
policyholder has paid a premium that is insufficient to buy a policy
with the lowest available coverage limits.
    FEMA proposes to add the second reason for which the insurer may
cancel a policy in proposed Article VIII.D.2, entitled ``Cancellation
Due to Lack of an Insurable Interest.'' Proposed Article VIII.D.2.a
would state that if the policyholder no longer has an insurable
interest in the insured property, the insurer will cancel the policy,
and that the policyholder would cease to have an insurable interest if
(1) for building coverage, the building was sold, destroyed, or
removed, and (2) for contents coverage, the contents were sold or
transferred ownership, or the contents were completely removed from the
described location. Proposed Article III.D.2.b would state that if a
policy is cancelled for these reasons, the policyholder may be entitled
to a partial refund of premium under the applicable rules and
regulations of the NFIP. This reflects FEMA's current practice and
interpretations, as shown in the Cancellation/Nullification section of
the Flood Insurance Manual, pages 1-2 (``1. Building Sold or Removed,
Destroyed or Physically Altered to no Longer Meet the Definition of an
Eligible Building'').
    FEMA proposes to add the third reason for which the insurer may
cancel a policy in proposed Article VIII.D.3, entitled ``Cancellation
of Duplicate Policies.'' Article VIII.D.3 would have three subsections.
Subsection (a) would state that except as allowed under Article I.G
(i.e., for a Dwelling Form policy on a condominium unit that is also
insured by an RCBAP policy), property may not be insured by more than
one NFIP policy. This would incorporate the language in the current
Article VII.U, stating that duplicate policies are not allowed under
the NFIP, as well as the exception to that rule created in Article I.G.
FEMA also proposes to add that payment for damages will only be made
under one policy. This would align with current Article VII.U, which
prevents coverage under more than one NFIP policy and VII.U.2, which
states which one policy will pay for a loss in the case of duplicate
policies. This proposed language would improve the clarity of the
policy by explicitly stating what is currently strongly implied in the
SFIP.
    Subsection (b) would state that except as allowed under Article
I.G, if the property is insured by more than one NFIP policy, all but
one of the policies will be cancelled, and that the policy, or
policies, will be selected for cancellation in accordance with 44 CFR
62.5 and the applicable rules and guidance of the NFIP. FEMA proposes
to add this provision in conjunction with its proposed revisions to the
cancellation provisions at 44 CFR 62.5 (discussed below).
    Subsection (c) would state that if a policy is cancelled pursuant
to VIII.D.4.b, the policyholder may be entitled to a full or partial
refund of premium, surcharges, or fees. FEMA proposes to add the third
subsection in conjunction with the refund rules proposed at 44 CFR
62.5.
    FEMA proposes to add the fourth reason for which the insurer may
cancel a policy in proposed Article VIII.D.4, entitled ``Cancellation
Due to Physical Alteration of Property.'' The proposed provision states
that the insurer may cancel the policy if the insured building has been
physically altered in such a manner that it is no longer eligible for
flood insurance coverage, and that if the policy is cancelled for this
reason, the policyholder may be entitled to a partial refund of premium
under the terms and conditions of the policy and the applicable
regulations of the NFIP. This reflects current agency practice and
interpretations, as shown in the Cancellation/Nullification section of
the Flood Insurance Manual, pages 1-2.

v. Section E--Non-Renewal of the Policy by Us
    Current Article VII.F (``Non-Renewal of the Policy by Us'')
provides that a policy will not be renewed if the community where the
covered property is located stops participating in the NFIP, or if the
building has been declared ineligible under the section 1316 of the