[Federal Register Volume 62, Number 84 (Thursday, May 1, 1997)]
[Proposed Rules]
[Pages 23736-23740]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-11318]
=======================================================================
-----------------------------------------------------------------------
FEDERAL EMERGENCY MANAGEMENT AGENCY
44 CFR Part 62
RIN 3067-AC62
National Flood Insurance Program; Assistance to Private Sector
Property Insurers
AGENCY: Federal Insurance Administration, (FEMA).
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: This proposed rule would amend the National Flood Insurance
Program (NFIP) regulations establishing the Financial Assistance/
Subsidy Arrangement. This Arrangement may be entered into by and
between the Administrator and private sector insurers under the Write
Your Own (WYO) program. The proposed amendments would: (1) Reduce the
range between the minimum and maximum amount of premium income a
company may retain as a servicing fee as a result of its marketing
performance; (2) restructure the Arrangement so that under no
circumstance would a company have to return any portion of the expense
allowance; (3) reformat the Arrangement to make it easier to read; (4)
standardize references throughout the document, and (5) add details to
clarify responsibilities of private sector insurers under the
Arrangement with regard to reporting requirements, litigation, and
``errors and omissions.''
DATES: All comments received on or before June 16, 1997 will be
considered before final action is taken on the proposed rule.
ADDRESSES: Please submit any written comments to the Rules Docket
Clerk, Office of the General Counsel, Federal Emergency Management
Agency, 500 C Street, SW., room 840, Washington, DC 20472, (facsimile)
202-646-4536.
FOR FURTHER INFORMATION CONTACT: Edward T. Pasterick, Federal Emergency
Management Agency, Federal Insurance Administration, 500 C Street SW.,
Washington, DC 20472, 202-646-3443.
SUPPLEMENTARY INFORMATION: The Write Your Own (WYO) program has
operated for fourteen years as a cooperative venture between the
Federal Government and private insurance companies in order to make it
easier for the public to obtain flood insurance coverage. The duties
and responsibilities of the Federal Government and the private insurers
participating in the WYO program are spelled out each year in the
Financial Assistance/Subsidy Arrangement (the ``Arrangement'').
Prior to the 1994-95 Arrangement Year, the amount of premium which
the Company retained as a servicing fee or expense allowance was
adjusted based on the average of expense ratios for ``Other Acq.,''
``General Exp.,'' and ``Taxes'' as published in the latest available
``Best's'' Aggregates and Averages: Property Casualty Insurance
Underwriting-- by Lines for Fire, Allied Lines, Farmowners Multiple
Peril, Homeowners Multiple Peril combined. The average for the 1993-94
Arrangement Year was 32.6 percent, and the expense allowance has not
been adjusted for the last three years. This rule proposes an expense
allowance range between 31.6 percent and 32.9 percent depending on a
company's reaching certain policy growth goals, with 31.9 percent, the
current industry average, corresponding to a four percent growth, the
current annual growth of flood insurance under the Write Your Own
program. FIA also plans, after the implementation of the Arrangement
for 1997-98, to continue discussions with the WYO companies on the best
way to maintain in future years financial incentives for companies to
market flood insurance while minimizing financial uncertainties from
one year to the next for participating companies.
This rule proposes in ``B. Time Standards'' of Article II,
``Undertaking of the Company'' adding specific provisions regarding
``continual failure'' of a participating company to meet the time
standards of the Arrangement.
Additionally, this rule proposes adding under ``Article III-Loss
Costs, Expenses, Expense Reimbursement, and Premium Refunds'': 1.
Specific reporting requirements regarding litigation, 2. specific
criteria for reporting litigation, and 3. Authority to withhold
reimbursement for companies failing to meet the Arrangement's reporting
requirements for litigation. Also added in Article III and Article IX,
``Errors and Omissions,'' is proposed language that clarifies the
responsibilities of participating companies in connection with ``errors
and omissions.''
Finally, this rule proposes other changes that would reformat the
Arrangement by modifying the outline format and rearranging text in
order to make the document clearer and easier to read. These proposed
changes would be consistent with the changes made to the Arrangement
last year for the express purpose of making the Arrangement more
serviceable for FIA and its insurance industry partners.
National Environmental Policy Act
This proposed rule is categorically excluded from the requirements
of 44 CFR Part 10, Environmental Consideration. No environmental
assessment has been prepared.
Executive Order 12898, Environmental Justice
The socioeconomic conditions to this proposed rule were reviewed
and a finding was made that no disproportionately high and adverse
effect on minority or low income populations would result from this
final rule.
Executive Order 12866, Regulatory Planning and Review
This proposed rule is not a significant regulatory action within
the meaning of sec. 2(f) of E.O. 12866 of September 30, 1993, 58 FR
51735, and has not been reviewed by the Office of Management and
Budget. Nevertheless, this final rule adheres to the regulatory
principles set forth in E.O. 12866.
Paperwork Reduction Act
This proposed rule does not contain a collection of information and
is therefore not subject to the provisions of the Paperwork Reduction
Act.
Executive Order 12612, Federalism
This proposed rule involves no policies that have federalism
implications under Executive Order 12612, Federalism, dated October 26,
1987.
Executive Order 12778, Civil Justice Reform
This proposed rule meets the applicable standards of section
2(b)(2) of Executive Order 12778.
List of Subjects in 44 CFR Part 62
Claims, Flood insurance.
Accordingly, 44 CFR part 62 is proposed to be amended as follows:
PART 62-- SALE OF INSURANCE AND ADJUSTMENT OF CLAIMS
1. The authority citation for part 62 continues to read as follows:
Authority: 42 U.S.C. 4001 et seq.; Reorganization Plan No. 3 of
1978; 43 FR 41943, 3 CFR, 1978 Comp., p. 329; E.O. 12127 of Mar. 31,
1979, 44 FR 19367, 3 CFR, 1979 Comp., p. 376.
2. Appendix A of part 62 would be revised to read as follows:
[[Page 23737]]
Appendix A to Part 62--Federal Emergency Management Agency, Federal
Insurance Administration, Financial Assistance/Subsidy Arrangement
Purpose: To assist the company in underwriting flood insurance
using the Standard Flood Insurance Policy.
Accounting Data: Pursuant to Section 1310 of the Act, a Letter
of Credit shall be issued for payment as provided for herein from
the National Flood Insurance Fund.
Effective Date: October 1, 1996.
Issued By: Federal Emergency Management Agency, Federal
Insurance Administration, Washington, DC 20472.
Article I--Findings, Purpose, and Authority
Whereas, the Congress in its ``Finding and Declaration of
Purpose'' in the National Flood Insurance Act of 1968, as amended,
(``the Act'') recognized the benefit of having the National Flood
Insurance Program (the ``Program'' or ``NFIP'') ``carried out to the
maximum extent practicable by the private insurance industry''; and
Whereas, the Federal Insurance Administration (FIA) recognizes
this Arrangement as coming under the provisions of Section 1345 of
the Act; and
Whereas, the goal of the FIA is to develop a program with the
insurance industry where, overtime, some risk-bearing role for the
industry will evolve as intended by the Congress (Section 1304 of
the Act); and
Whereas, the insurer (hereinafter the ``Company'') under this
Arrangement shall charge rates established by the FIA; and
Whereas, this Arrangement will subsidize all flood policy losses
by the Company; and
Whereas, this Financial Assistance/Subsidy Arrangement has been
developed to enable any interested qualified insurer to write flood
insurance under its own name; and
Whereas, one of the primary objectives of the Program is to
provide coverage to the maximum number of structures at risk and
because the insurance industry has marketing access through its
existing facilities not directly available to the FIA, it has been
concluded that coverage will be extended to those who would not
otherwise be insured under the Program; and
Whereas, flood insurance policies issued subject to this
Arrangement shall be only that insurance written by the Company in
its own name under prescribed policy conditions and pursuant to this
Arrangement and the Act; and
Whereas, over time, the Program is designed to increase industry
participation, and, accordingly, reduce or eliminate Government as
the principal vehicle for delivering flood insurance to the public;
and
Whereas, the direct beneficiaries of this Arrangement will be
those Company policyholders and applicants for flood insurance who
otherwise would not be covered against the peril of flood.
Now, therefore, the parties hereto mutually undertake the
following:
Article II--Undertaking of the Company
A. Eligibility Requirements for Participation in the NFIP:
1. Policy Administration. All fund receipt, recording, control,
timely deposit requirements, and disbursement in connection with all
Policy Administration and any other related activities or
correspondences, must meet all requirements of the Financial Control
Plan. The Company shall be responsible for:
a. Compliance with the Community Eligibility/Rating Criteria
b. Making Policyholder Eligibility Determinations
c. Policy Issuance
d. Policy Endorsements
e. Policy Cancellations
f. Policy Correspondence
g. Payment of Agents' Commissions
2. Claims Processing. All claims processing must be processed in
accordance with the processing of all the companies' insurance
policies and with the Financial Control Plan. Companies will also be
required to comply with FIA Policy Issuance's and other guidance
authorized by FIA or the Federal Emergency Management Agency
(``FEMA'').
3. Reports a. Monthly Financial Reporting and Statistical
Transaction reporting requirements. All monthly financial reporting
and statistical transaction reporting shall be in accordance with
the requirements of the NFIP Transaction Record Reporting and
processing plan for the Company Program and the Financial Control
Plan for business written under the WYO (Write Your Own) Program. 44
C.F.R. Part 62, App. (B). These data shall be validated/edited/
audited in detail and shall be compared and balanced against Company
reports.
b. Monthly financial reporting procedure shall be in accordance
with the WYO Accounting Procedures.
B. Time Standards. These time standards are for guidance. Time
will be measured from the date of receipt through the date mailed
out. All dates referenced are working days, not calendar days. In
addition to the standards set forth below, all functions performed
by the company shall be in accordance with the highest reasonably
attainable quality standards generally utilized in the insurance and
data processing field. Continual failure to meet these requirements
may result in limitations on the company's authority to write new
business or the removal of the Company from the program. Applicable
time standards are:
1. Application Processing--15 days (note: if the policy cannot
be mailed due to insufficient or erroneous information or
insufficient funds, a request for correction or added moneys shall
be mailed within 10 days);
2. Renewal Processing--7 days
3. Endorsement Processing--15 days
4. Cancellation Processing--15 days
5. Claims Draft Processing--7 days from completion of file
examination
6. Claims Adjustment--45 days average from the receipt of Notice
of Loss (or equivalent) through completion of examination.
C. Single Adjuster Program. To ensure the maximum responsiveness
to the NFIP policy holders following a catastrophic event, e.g., a
hurricane, involving insured wind and flood damage to policyholders,
the Company shall agree to the adjustment of the combined flood and
wind losses utilizing one adjuster under an NFIP-approved Single
Adjuster Program using procedures issued by the Administrator. The
Single Adjuster procedure shall be followed in the following cases:
1. Where the flood and wind coverage is provided by the Company;
2. Where the flood coverage is provided by the Company and the
wind coverage is provided by a participating State Property
Insurance Plan, Windpool Association, Beach Plan, Joint Underwriting
Association, FAIR Plan, or similar property insurance mechanism; and
3. Where the flood coverage is provided by the Company and the
wind coverage is provided by another property insurer and the State
Insurance Regulator has determined that such property insurer shall,
in the interest of consumers, facilitate the adjustment of its wind
loss by the adjuster engaged to adjust the flood loss of the
Company.
D. Policy Issuance. 1. The flood insurance subject to this
Arrangement shall be only that insurance written by the Company in
its own name pursuant to the Act.
2. The Company shall issue policies under the regulations
prescribed by the Administrator in accordance with the Act.
3. All such policies of insurance shall conform to the
regulations prescribed by the Administrator pursuant to the Act, and
be issued on a form approved by the Administrator.
4. All policies shall be issued in consideration of such
premiums and upon such terms and conditions and in such States or
areas or subdivisions thereof as may be designated by the
Administrator and only where the Company is licensed by State law to
engage in the property insurance business.
5. The Administrator may require the Company to discontinue
issuing policies subject to this Arrangement immediately in the
event Congressional authorization or appropriation for the National
Flood Insurance Program is withdrawn.
E. The Company shall separate Federal flood insurance funds from
all other Company accounts, at a bank or banks of its choosing for
the collection, retention and disbursement of Federal funds relating
to its obligation under this Arrangement, less the Company's
expenses as set forth in Article III, and the operation of the
Letter of Credit established pursuant to Article IV. All funds not
required to meet current expenditures shall be remitted to the
United States Treasury, in accordance with the provisions of the WYO
Accounting Procedures Manual.
F. The Company shall investigate, adjust, settle and defend all
claims or losses arising from policies issued under this
Arrangement. Payment of flood insurance claims by the Company shall
be binding upon the FlA.
G. The Company shall market flood insurance policies in a manner
consistent with the marketing guidelines established by the Federal
Insurance Administration.
Article III--Loss Costs, Expenses, Expense Reimbursement, and Premium
Refunds
A. The Company shall be liable for operating, administrative and
production
[[Page 23738]]
expenses, including any State premium taxes, dividends, agent's
commissions or any other expense of whatever nature incurred by the
Company in the performance of its obligations under this Arrangement
but excluding other taxes or fees, such as surcharges on flood
insurance premium and guaranty fund assessments.
B. The Company shall be entitled to withhold, as operating and
administrative expenses, including agents' or brokers' commissions,
an amount from the Company's written premium on the policies covered
by this Arrangement in reimbursement of all of the Company's
marketing, operating and administrative expenses, except for
allocated and unallocated loss adjustment expenses described in
Section C. of this Article, which amount shall be a minimum of 31.6%
of the Company's written premium on the policies covered by this
Arrangement.
The amount of expense allowance retained by the company may be
increased to a maximum of 32.9%, depending on the extent to which
the company meets the marketing goals for the 1997-1998 Arrangement
year contained in marketing guidelines established pursuant to
Article II. G. The amount of any increase shall be paid to the
company after the end of the 1997-1998 Arrangement year.
The Company, with the consent of the Administrator as to terms
and costs, shall be entitled to utilize the services of a national
rating organization, licensed under state law, to assist the FIA in
undertaking and carrying out such studies and investigations on a
community or individual risk basis, and in determining more
equitable and accurate estimates of flood insurance risk premium
rates as authorized under the National Flood Insurance Act of 1968,
as amended. The Company shall be reimbursed in accordance with the
provisions of the WYO Accounting Procedures Manual for the charges
or fees for such services.
C. Loss Adjustment Expenses shall be reimbursed as follows:
1. Unallocated loss adjustment shall be an expense reimbursement
of 3.3% of the incurred loss (except that it does not include
``incurred but not reported'').
2. Allocated loss adjustment expense shall be reimbursed to the
Company pursuant to a ``Fee Schedule'' coordinated with the Company and
provided by the Administrator.
3. Special allocated loss expenses shall be reimbursed to the
Company in accordance with guidelines issued by the Administrator.
D. Loss Payments. 1. Loss payments under policies of flood
insurance shall be made by the Company from funds retained in the
bank account(s) established under Article II, Section E and, if such
funds are depleted, from funds derived by drawing against the Letter
of Credit established pursuant to Article IV.
2. Loss payments include payments as a result of litigation which
arises under the scope of this Arrangement, and the Authorities set
forth above. All such loss payments must meet the documentation
requirements of the Financial Control Plan and of this Arrangement. The
Company will be reimbursed for errors and omissions only as set forth
at Article IX of this Arrangement.
3. Notification of claims in litigation against the company. To
ensure reimbursement of costs expended to defend a claim in litigation
against the Company, the Company must promptly notify FIA and the FEMA
Office of General Counsel (OGC) of all pending and active litigation
upon receipt of notice of that litigation and/or claim.
Prompt notice of any such claim for damages within the scope of
this section (D) shall be sent to the Administrator along with a copy
of any material pertinent to the claim for damages. At the same time as
notice is sent to the Administrator, the Company must submit written
notice of all such claims to the Associate General Counsel for
Litigation, FEMA OGC, 500 C St. SW, Washington, DC 20472. Following the
initial notice of claims in litigation, the company must submit all
pertinent material and billing documentation as it becomes available.
Within 60 days of the receipt of a claim in litigation by the Company,
the company must submit an initial case analysis and legal fee
estimate. Failure to meet these notice requirements may result in the
Administrator's decision not to reimburse expenses for which FIA and
the FEMA OGC have not been notified in a timely manner.
4. Limitation on Litigation Costs. Following receipt of notice of
such claim, the Office of General Counsel (OGC), FEMA, shall review the
information submitted. If it is determined that the claim is grounded
in actions by the Company that are outside the scope of this
Arrangement, the National Flood Insurance Act, and 44 C.F.R. Part 59,
et seq., and/or involve issues of insurer/agent negligence as discussed
in Article IX of this Arrangement, the OGC shall make a recommendation
to the Administrator as to whether the claim is grounded in actions by
the Company that are significantly outside the scope of this
Arrangement. In the event the Administrator determines that the claim
is grounded in actions by the Company that are significantly outside
the scope of this Arrangement, the Company will be notified, in
writing, within thirty (30) days of the Administrator's decision, if
the decision is that any award or judgment for damages arising out of
such actions will not be recognized under Article III of this
Arrangement as a reimbursable loss cost, expense or expense
reimbursement. In the event that the Company wishes to petition for
reconsideration the determination that it will not be reimbursed for
the award or judgment made under the above circumstances, it may do so
by mailing, within thirty days of the notice declining to recognize any
such award or judgment as reimbursable under Article III, a written
petition to the Chairman of the WYO Standards Committee established
under the Financial Control Plan. The WYO Standards Committee will,
then, consider the petition at its next regularly scheduled meeting or
at a special meeting called for that purpose by the Chairman and issue
a written recommendation to the Administrator, within thirty days of
the meeting. The Administrator's final determination will be made, in
writing, to the Company within thirty days of the recommendation made
by the WYO Standards Committee.
E. Premium refunds to applicants and policyholders required
pursuant to rules contained in the National Flood Insurance Program
(NFIP) ``Flood Insurance Manual'' shall be made by the Company from
Federal flood insurance funds referred to in Article II, Section E,
and, if such funds are depleted, from funds derived by drawing against
the Letter of Credit established pursuant to Article IV.
Article IV--Undertakings of the Government
A. Letter(s) of Credit shall be established by the Federal
Emergency Management Agency (FEMA) against which the Company may
withdraw funds daily, if needed, pursuant to prescribed procedures
implemented by FEMA. The amounts of the authorizations will be
increased as necessary to meet the obligations of the Company under
Article III, Sections C, D, and E. Request for funds shall be made only
when net premium income has been depleted. The timing and amount of
cash advances shall be as close as is administratively feasible to the
actual disbursements by the recipient organization for allowable Letter
of Credit expenses.
Request for payment on Letters of Credit Shall not Ordinarily be
drawn more frequently than daily nor in amounts less than $5,000, and
in no case more than $5,000,000 unless so stated on the Letter of
Credit. This Letter of Credit may be drawn by the Company for any of
the following reasons:
1. Payment of claim as described in Article III, Section D;
2. Refunds to applicants and policyholders for insurance premium
overpayment, or if the application for insurance is rejected Or when
[[Page 23739]]
cancellation or endorsement of a policy results in a premium refund as
described in Article III, Section E; and
3. Allocated and unallocated Loss Adjustment Expenses as described
in Article III, Section C.
B. The FIA shall provide technical assistance to the Company as
follows:
1. The FIA's policy and history concerning underwriting and claims
handling.
2. A mechanism to assist in clarification of coverage and claims
questions.
3. Other assistance as needed.
Article V--Commencement and Termination
A. Upon signature of authorized officials for both the Company and
the FIA, this Arrangement shall be effective for the period October 1
through September 30. The FIA shall provide financial assistance only
for policy applications and endorsements accepted by the Company during
this period pursuant to the Program's effective date, underwriting and
eligibility rules.
B. By June 1, of each year, the FIA shall publish in the Federal
Register and make available to the Company the terms for the re-
subscription of this Financial Assistance/Subsidy Arrangement. In the
event the Company chooses not to re-subscribe, it shall notify the FIA
to that effect by the following July 1.
C. In the event the Company elects not to participate in the
Program in any subsequent fiscal year, or the FIA chooses not to renew
the Company's participation, the FIA, at its option, may require (1)
the continued performance of this entire Arrangement for a period not
to exceed one (1) year following the original term of this Arrangement,
or any renewal thereof, or (2) the transfer to the FIA of:
1. All data received, produced, and maintained through the life of
the Company's participation in the Program, including certain data, as
determined by FIA, in a standard format and medium; and
2. A plan for the orderly transfer to the FIA of any continuing
responsibilities in administering the policies issued by the Company
under the Program including provisions for coordination assistance; and
3. All claims and policy files, including those pertaining to
receipts and disbursements that have occurred during the life of each
policy. In the event of a transfer of the services provided, the
Company shall provide the FIA with a report showing, on a policy basis,
any amounts due from or payable to insureds, agents, brokers, and
others as of the transition date.
D. Financial assistance under this Arrangement may be canceled by
the FIA in its entirety upon 30 days written notice to the Company by
certified mail stating one of the following reasons for such
cancellation: (1) Fraud or misrepresentation by the Company subsequent
to the inception of the contract, or (2) nonpayment to the FIA of any
amount due the FIA. Under these very specific conditions, the FIA may
require the transfer of data as shown in Section C., above. If transfer
is required, the unearned expenses retained by the Company shall be
remitted to the FIA. In such event the Government will assume all
obligations and liabilities owed to policyholders under such policies
arising before and after the date of transfer.
E. In the event the Act is amended, or repealed, or expires, or if
the FIA is otherwise without authority to continue the Program,
financial assistance under this Arrangement may be canceled for any new
or renewal business, but the Arrangement shall continue for policies in
force that shall be allowed to run their term under the Arrangement.
F. In the event that the Company is unable to, or otherwise
fails to, carry out its obligations under this Arrangement by reason
of any order or directive duly issued by the Department of Insurance
of any Jurisdiction to which the Company is subject, the Company
agrees to transfer, and the Government will accept, any and all WYO
policies issued by the Company and in force as of the date of such
inability or failure to perform. In such event the Government will
assume all obligations and liabilities owed to policyholders under
such policies arising before and after the date of transfer and the
Company will immediately transfer to the Government all funds in its
possession with respect to all such policies transferred and the
unearned portion of the Company expenses for operating,
administrative and loss adjustment on all such policies.
Article VI--Information and Annual Statements
The Company shall furnish to FEMA such summaries and analyses of
information including claim file information, and property address,
location, and/or site information in its records as may be necessary
to carry out the purposes of the National Flood Insurance Act of
1968, as amended, in such form as the FIA, in cooperation with the
Company, shall prescribe. The Company shall be a property/casualty
insurer domiciled in a State or territory of the United States. Upon
request, the Company shall file with the FIA a true and correct copy
of the Company's Fire and Casualty Annual Statement, and Insurance
Expense Exhibit or amendments thereof as filed with the State
Insurance Authority of the Company's domiciliary State.
Article VII--Cash Management and Accounting
FEMA shall make available to the Company during the entire term
of this Arrangement and any continuation period required by FIA
pursuant to Article V, Section C., the Letter of Credit provided for
in Article IV drawn on a repository bank within the Federal Reserve
System upon which the Company may draw for reimbursement of its
expenses as set forth in Article IV that exceed net written premiums
collected by the Company from the effective date of this Arrangement
or continuation period to the date of the draw.
B. The Company shall remit all funds, including interest, not
required to meet current expenditures to the United States Treasury,
in accordance with the provisions of the WYO Accounting Procedures
Manual or procedures approved in writing by the FIA.
C. In the event the Company elects not to participate in the
Program in any subsequent fiscal year, the Company and FIA shall
make a provisional settlement of all amounts due or owing within
three months of the termination of this Arrangement. This settlement
shall include net premiums collected, funds drawn on the Letter of
Credit, and reserves for outstanding claims. The Company and FIA
agree to make a final settlement of accounts for all obligations
arising from this Arrangement within 18 months of its expiration or
termination, except for contingent liabilities that shall be listed
by the Company. At the time of final settlement, the balance, if
any, due the FIA or the Company shall be remitted by the other
immediately and the operating year under this Arrangement shall be
closed.
Article VIII--Arbitration
If any misunderstanding or dispute arises between the Company
and the FIA with reference to any factual issue under any provisions
of this Arrangement or with respect to the FIA's non-renewal of the
Company's participation, other than as to legal liability under or
interpretation of the standard flood insurance policy, such
misunderstanding or dispute may be submitted to arbitration for a
determination that shall be binding upon approval by the FIA. The
Company and the FIA may agree on and appoint an arbitrator who shall
investigate the subject of the misunderstanding or dispute and make
a determination. If the Company and the FIA cannot agree on the
appointment of an arbitrator, then two arbitrators shall be
appointed, one to be chosen by the Company and one by the FIA.
The two arbitrators so chosen, if they are unable to reach an
agreement, shall select a third arbitrator who shall act as umpire,
and such umpire's determination shall become final only upon
approval by the FIA.
The Company and the FIA shall bear in equal shares all expenses
of the arbitration. Findings, proposed awards, and determinations
resulting from arbitration proceedings carried out under this
section, upon objection by FIA or the Company, shall be inadmissible
as evidence in any subsequent proceedings in any court of competent
jurisdiction.
[[Page 23740]]
This Article shall indefinitely succeed the term of this
Arrangement.
Article IX--Errors and Omissions
The parties shall not be liable to each other for damages caused
by inadvertent delay, error, or omission made in connection with any
transaction under this Arrangement. In the event of such actions,
the responsible party must attempt to rectify that error as soon as
possible after discovery of the error and act to mitigate any costs
incurred due to that error. In the event that steps are not taken to
rectify the situation and such action leads to claims against the
company, the NFIP, or other related entities, the responsible party
shall bear all liability attached to that delay, error or omission
to the extent permissible by law.
However, in the event that the Company has made a claim payment
to an insured without including a mortgagee (or trustee) of which
the Company had actual notice prior to making payment, and
subsequently determines that the mortgagee (or trustee) is also
entitled to any part of said claim payment, any additional payment
shall not be paid by the Company from any portion of the premium and
any funds derived from any Federal Letter of Credit deposited in the
bank account described in Article II, section E. In addition, the
Company agrees to hold the Federal Government harmless against any
claim asserted against the Federal Government by any such mortgagee
(or Trustee), as described in the preceding sentence, by reason of
any claim payment made to any insured under the circumstances
described above.
Article X--Officials Not To Benefit
No Member or Delegate to Congress, or Resident Commissioner,
shall be admitted to any share or part of this Arrangement, or to
any benefit that may arise therefrom; but this provision shall not
be construed to extend to this Arrangement if made with a
corporation for its general benefit.
Article XI--Offset
At the settlement of accounts the Company and the FIA shall
have, and may exercise, the right to offset any balance or balances,
whether on account of premiums, commissions, losses, loss adjustment
expenses, salvage, or otherwise due one party to the other, its
successors or assigns, hereunder or under any other Arrangements
heretofore or hereafter entered into between the Company and the
FlA. This right of offset shall not be affected or diminished
because of insolvency of the Company.
All debts or credits of the same class, whether liquidated or
unliquidated, in favor of or against either party to this
Arrangement on the date of entry, or any order of conservation,
receivership, or liquidation, shall be deemed to be mutual debts and
credits and shall be offset with the balance only to be allowed or
paid. No offset shall be allowed where a conservator, receiver, or
liquidator has been appointed and where an obligation was purchased
by or transferred to a party hereunder to be used as an offset.
Although a claim on the part of either party against the other
may be unliquidated or undetermined in amount on the date of the
entry of the order, such claim will be regarded as being in
existence as of the date of such order and any credits or claims of
the same class then in existence and held by the other party may be
offset against it.
Article XII--Equal Opportunity
The Company shall not discriminate against any applicant for
insurance because of race, color, religion, sex, age, handicap,
marital status, or national origin.
Article XIII--Restriction on Other Flood Insurance
As a condition of entering into this Arrangement, the Company
agrees that in any area in which the Administrator authorizes the
purchase of flood insurance pursuant to the Program, all flood
insurance offered and sold by the Company to persons eligible to buy
pursuant to the Program for coverages available under the Program
Shall be written pursuant to this Arrangement.
However, this restriction applies solely to policies providing
only flood insurance. It does not apply to policies provided by the
Company of which flood is one of the several perils covered, or
where the flood insurance coverage amount is over and above the
limits of liability available to the insured under the Program
Article XIV--Access to Books and Records
The FIA and the Comptroller; General of The United States, or
their duly authorized representatives, for the purpose of
investigation, audit, and examination shall have access to any
books, documents, papers and records of the Company that are
pertinent to this Arrangement. The Company shall keep records that
fully disclose all matters pertinent to this Arrangement, including
premiums and claims paid or payable under policies issued pursuant
to this Arrangement. Records of accounts and records relating to
financial assistance shall be retained and available for three (3)
years after final settlement of accounts, and to financial
assistance, three (3) years after final adjustment of such claims.
The FIA shall have access to policyholder and claim records at all
times for purposes of the review, defense, examination, adjustment,
or investigation of any claim under a flood insurance policy subject
to this Arrangement.
Article XV--Compliance with Act and Regulations
This Arrangement and all policies of insurance issued pursuant
thereto shall be subject to the provisions of the National Flood
Insurance Act of 1968, as amended, the Flood Disaster Protection Act
of 1973, as amended, the National Flood Insurance Reform Act of
1994, and Regulations issued pursuant thereto and all Regulations
affecting the work that are issued pursuant thereto, during the term
hereof.
Article XVI--Relationship Between the Parties (Federal Government and
Company) and the Insured
Inasmuch as the Federal Government is a guarantor hereunder, the
primary relationship between the Company and the Federal Government
is one of a fiduciary nature, i.e., to assure that any taxpayer
funds are accounted for and appropriately expended.
The Company is not the agent of the Federal Government. The
Company is solely responsible for its obligations to its insured
under any flood policy issued pursuant hereto.
(Catalog of Federal Domestic Assistance No. 83.100, ``Flood
Insurance'')
Dated: April 24, 1997.
Roland E. Holland,
Acting Executive Administrator, Federal Insurance Administration.
[FR Doc. 97-11318 Filed 4-30-97; 8:45 am]
BILLING CODE 6718-03-P
