[Federal Register: July 30, 2004 (Volume 69, Number 146)]
[Rules and Regulations]
[Page 45607-45612]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30jy04-26]
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DEPARTMENT OF HOMELAND SECURITY
Federal Emergency Management Agency
44 CFR Part 62
RIN 1660-AA28
National Flood Insurance Program (NFIP); Assistance to Private
Sector Property Insurers
AGENCY: Federal Emergency Management Agency (FEMA),
[[Page 45608]]
Emergency Preparedness and Response Directorate, Department of Homeland
Security.
ACTION: Interim final rule.
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SUMMARY: FEMA is amending the Federal Insurance Administration,
Financial Assistance/Subsidy Arrangement (``Arrangement'') and related
regulations regarding issues of Federal jurisdiction and applicability
of Federal law for lawsuits involving Write-Your-Own (WYO) Companies
and of reimbursement to WYO Companies for the cost of litigation.
Additionally, FEMA is amending procedures for companies seeking to
become, and ceasing to be, WYO Companies.
DATES: This interim final rule takes effect on October 1, 2004. FEMA
invites comments on this interim final rule, which should be received
on or before September 28, 2004.
ADDRESSES: Please send your comments to the Rules Docket Clerk, Office
of the General Counsel, FEMA, 500 C Street, SW., Room 840, Washington,
DC 20472, (facsimile) 202-646-4536, or (e-mail) FEMA-RULES@dhs.gov.
FOR FURTHER INFORMATION CONTACT: Charles Plaxico, FEMA, 500 C Street,
SW., Washington, DC 20472, (phone) 202-646-3422, (facsimile) 202-646-
4327, or (email) Charles.Plaxico@dhs.gov.
SUPPLEMENTARY INFORMATION: Approximately 100 private sector property
insurers issue flood insurance policies and adjust flood insurance
claims under their own names, based on the Arrangement with the Federal
Insurance Administration (FIA) (44 CFR Part 62, Appendix A). The WYO
insurers receive an expense allowance and remit the remaining premium
to the Federal Government. The Federal Government pays for flood losses
incurred through WYO insurers and pays loss adjustment expenses based
on a fee schedule. Litigation costs, including court costs, attorney
fees, judgments, and settlements, are paid by FIA based on submitted
documentation. The Arrangement provides that under certain
circumstances reimbursement for litigation costs will not be made. On
October 14, 2003, FEMA published a proposed rule (68 FR 59146) that
would make several changes to the Arrangement and related regulations.
During the comment period, FEMA received comments from two
insurance agent trade associations, one insurance company trade
association, two WYO Companies, and a committee of WYO Company
representatives with whom FEMA regularly consults on WYO matters. The
two insurance agent trade associations requested an opportunity to
present oral comments during the comment period, and pursuant to 44 CFR
1.6, FEMA arranged for such a session, which was held on November 6,
2003. Also in attendance with an opportunity to comment were WYO
Company representatives, an attorney representing the committee of WYO
representatives, and representatives from an insurance company trade
association.
The two insurance agent associations in their oral and written
comments opposed FEMA's proposal to clarify 44 CFR 61.5 by creating a
new Subsection f from the current text of Subsection e to provide that
agents selling Standard Flood Insurance Policies issued by a WYO
Company, like agents selling the policies issued directly by FEMA, act
for the insured and are not agents of the WYO Company. The committee of
WYO representatives supported the change in its oral and written
comments and urged that the proposed changes in their entirety be made
final. One WYO Company also urged that the proposed changes in their
entirety be made final. Because of the issues raised, FEMA believes
this proposed change warrants further comment and review. Therefore,
FEMA is publishing this interim final rule without the change to 44 CFR
61.5. Comments on whether changes to 44 CFR 61.5 should be added to the
regulations are invited in response to this interim final rule. FEMA
will consider making changes to 61.5 in the final rule after reviewing
any further comments. FEMA is also specifically seeking comments on
whether this provision has a significant economic impact on a
substantial number of small entities. FEMA hopes to publish the final
rule in 2004.
One of the insurance trade associations, in opposing the change to
44 CFR 61.5, also opposed the change to 44 CFR 62.22 without
explanation. That change codifies the understanding of FEMA and
numerous court rulings and specifically provides that Federal
jurisdiction under 42 U.S.C. 4072 encompasses lawsuits against WYO
Companies. The association said it supports jurisdiction in Federal
Courts, but opposes Federal preemption of State law as it applies to
lawsuits between WYO Companies and independent agents and agencies. It
did not identify which portions of the proposed rule are related to
this concern. We have looked at the concerns raised but do not
understand how section 62.22 applies nor do we understand the concern
about preemption. Therefore we did not make any changes to this interim
final rule based on these comments. Rather we invite further comments,
which we will consider prior to publishing a final rule.
The remaining amendments in the proposed rule related to Appendix A
to Part 62--Federal Emergency Management Agency, Federal Insurance
Administration, Financial Assistance/Subsidy Arrangement.
The insurance company trade association opposed only allowing, at
the discretion of the Administrator, an appeal to the WYO Standards
Committee of a decision by the Administrator not to reimburse for
litigation. It also suggested that the Administrator be required to act
within 30 days, with a 30-day extension at the Administrator's
discretion. (See Article III.D.3.d.) The committee of WYO Company
representatives also expressed concern about this change, but said it
accepted it as part of the complete set of changes in the proposed
rule. FEMA believes the Administrator should have the discretion to
refer appeals to the WYO Standards Committee, so the interim final rule
does not change this provision. The 30-day deadline for the
Administrator to act has not been added. FEMA believes that a
reasonable time to act is implied, so a deadline is not necessary.
However, we have clarified that the Administrator must act within a
reasonable time.
Also, the committee of WYO Company representatives expressed
concern about the ``pattern of errors'' basis for not reimbursing for
litigation, but said it accepted it as part of the complete set of
changes in the proposed rule. One of the WYO Companies opposed the
``pattern of errors'' (Article III.D.3.b) provision as lacking
``definition and statutory authority.'' It also contended that ``at a
bare minimum to pass constitutional muster, the federal government, not
the auditor, must provide advance written notice and an opportunity to
challenge the alleged ``pattern of errors''.'' While FEMA does not
agree with the comment and continues to believe that it has broad
statutory authority to set the rules for the administration of the
NFIP, and further believes that the right to appeal any denial of
reimbursement for litigation in the Arrangement is sufficient safeguard
for the WYO Companies, FEMA is withdrawing the ``pattern of errors''
portion of the proposed rule. Rather FEMA will continue to rely on the
``significantly outside the scope of the Arrangement'' standard for
reimbursement decisions including those decisions related to a pattern
of errors.
One of the WYO Companies suggested clarifying a provision in
Article I that the WYO Companies and the Federal
[[Page 45609]]
Government are the sole parties under the Arrangement. FEMA agrees and
has made that change in the interim final rule.
This WYO Company suggested several other changes. One was to
clarify that, under the proposed revision to the procedures for a WYO
Company that is ceasing participation (Article V.C and V.E),
transferring the flood insurance book of business to another WYO
Company is an option for the company and will not be required by FIA.
This was FEMA's intent. FEMA believes that the revision to Article V.C
is clear that this is an option for the company but that it will not be
required by FIA. In light of the WYO Company's comment, FEMA has
changed Article V.E to clarify any ambiguity. Article V.D has a
provision similar to the one in V.E and has been likewise clarified.
Another suggested change was to make the 2004 Arrangement run
concurrently with Congressional reauthorization. In the past, the
reauthorization dates have been October 1 and January 1. The NFIP was
recently reauthorized by Congress through September 30, 2008 (Public
Law 108-264). In light of this reauthorization, the concern that
prompted this comment appears to have been addressed for a number of
years.
Finally, the proposed rule did not contain any change in the
reimbursement for unallocated loss adjustment expense (ULAE), which is
in Article III.C.1. However, a WYO Company proposed to increase the
reimbursement for ULAE from 3.3% to 6.0%. FEMA had been reviewing this
issue prior to the proposed rule and had requested that the WYO
Companies furnish data. However, the data received was not sufficient
to make a decision, so the proposed rule did not contain any change
regarding reimbursement for ULAE. Now, FEMA plans to make a detailed
data call to the WYO Companies, and after reviewing the responses, will
make a decision as to whether and to what extent it believes a change
is justified. Any change will require another rulemaking action. FEMA
does not believe that it will be practical to make any change effective
for the Arrangement year beginning October 1, 2004, so any change would
likely be effective October 1, 2005.
In addition to the changes discussed above, FEMA has made a few
editorial changes.
During July 2004, FEMA will send a copy of the offer for the 2004-
2005 Arrangement year, together with related materials and submission
instructions, to all private insurance companies participating under
the current 2002-2004 Arrangement. Any private insurance company not
currently participating in the WYO Program but wishing to consider
FEMA's offer for 2004-2005 may request a copy by writing: Federal
Emergency Management Agency, Mitigation Division, Attn: WYO Program,
Washington, DC 20472, (facsimile) 202-646-3445, or (e-mail)
Edward.Connor@dhs.gov.
Executive Order 12866, Regulatory Planning and Review
We have prepared and reviewed this interim final rule under the
provisions of Executive Order 12866, Regulatory Planning and Review.
Under Executive Order 12866, 58 FR 51735, Oct. 4, 1993, a significant
regulatory action is subject to review by the Office of Management and
Budget (``OMB'') and the requirements of the Executive Order. The
Executive Order defines ``significant regulatory action'' as one that
is likely to result in a rule that may:
(1) Have an annual effect on the economy of $100 million or more or
adversely affect in a material way the economy, a sector of the
economy, productivity, competition, jobs, the environment, public
health or safety, or State, local, or tribal governments or
communities;
(2) Create a serious inconsistency or otherwise interfere with an
action taken or planned by another agency;
(3) Materially alter the budgetary impact of entitlements, grants,
user fees, or loan programs or the rights and obligations of recipients
thereof; or
(4) Raise novel legal or policy issues arising out of legal
mandates, the President's priorities, or the principles set forth in
the Executive Order.
In determining whether we should move forward with this rule, we
considered three alternatives. The First Alternative was to take no
action and to allow the WYO Arrangement to expire as a result. 44 CFR
62.23 would become inoperative, the appendixes to Part 62 would expire,
and effective October 1, 2004 the companies no longer would have a
relationship with FEMA except for the runoff of existing policies and
the sale and administration of the Standard Flood Insurance Policies by
the participating private WYO Companies would cease. This alternative
would have the following adverse impact on the number of NFIP policies-
in-force, future Disaster Assistance, and on those individuals who as a
result are not insured at the time of their next flood loss.
The number of policies-in-force can be expected to drop following
the expiration of the WYO Arrangement because insurance agents would
lose their vehicle for renewing the existing policies. These agents
would be required to establish a relationship with our Direct-side
contractor and then renew their existing policyholders through that
contractor. Many agents would not make this transition. Even for those
who would make this transition, there would be a delay in completing
this change of relationship, which would result in a delayed renewal
for many policies. Any losses suffered by those policyholders in the
interim would be uninsured, causing significant economic loss to them.
The net effect once all agents who intend to continue writing flood
insurance have established the proper Direct-side relationship will be
a greatly reduced NFIP policyholder base. Any quantification of that
drop is speculative at this point, but FEMA's informed judgment is up
to a 5 percent decrease in the number of policyholders (which is about
250,000 policies). Such a decline in flood insurance policies would
create more uninsured flood victims with (1) a corresponding increase
in Disaster Assistance, (2) more individuals facing large monthly
payments as they repay their Disaster Loans, and (3) victims without
available Federal Assistance when no Presidential Disaster Declaration
is declared. Since average annual NFIP losses currently exceed $800
million, this would mean an expected reduction of NFIP losses of
between $10 million to $40 million--an amount that would be either
directly borne by the property owner, or partially shouldered by the
taxpayers through Disaster Assistance or loans.
If the Arrangement were to be implemented again in the future, it
would be unrealistic to expect that the drop in NFIP policies-in-force
would be restored quickly, and there likely would be an overall long-
term negative influence on policies in force. There also would be a
moderate to serious long-term impact on the favorable working
relationship FEMA has developed with the WYO Companies.
A Second Alternative would be to extend the current WYO Arrangement
and to delay further or eliminate the changes to the WYO Arrangement
included in this rule. Although the consequences would not be as
significant as the First Alternative, delaying the rule leaves the
Program subject to the following possible adverse developments:
The rule will clarify our current understanding and would ensure
that future NFIP litigation will be properly brought in Federal courts.
If the rule is delayed, the Program and insureds will
[[Page 45610]]
incur increased costs related to cases improperly brought in State
courts, and there is a risk of inconsistent application of laws and
inappropriate application of State law to this Federal Program.
Certain provisions of the proposed rule are intended to reduce the
litigation exposure throughout the Program. For example, the limitation
on situations where premium refunds are allowed should restrict the
number of future lawsuits on this issue. Therefore, a delay in this
rule could result in unexpected litigation costs to the WYO Companies
and FEMA.
The Third Alternative is to amend the Arrangement as outlined in
this interim final rule. We believe that doing so would prevent the
cost shifting to the Federal taxpayers outlined in the first two
alternatives. In addition, by clarifying the rule to comport with our
understanding of jurisdiction, we will ensure that cases are brought in
the appropriate Federal courts, and the provision limiting litigation
exposure to the Program and its participants would minimize unnecessary
proceedings (including those in State courts), protect the Federal
Treasury, and further the purposes of the Program. We further believe
that the clarity that this interim final rule brings to the NFIP would
make it easier for companies and agents to sell NFIP policies thereby
further transferring the costs of floods from the taxpayers to this
premium funded Program.
OMB has reviewed this rule under the principles of Executive Order
12866. This rule is a significant rule as defined under Executive Order
12866.
National Environmental Policy Act
This interim final rule falls within the exclusion category of 44
CFR Part 10.8(d)(2)(ii), which addresses the preparation, revision, and
adoption of regulations, directives, manuals, and other guidance
documents related to actions that qualify for categorical exclusions.
Because no other extraordinary circumstances have been identified, this
interim final rule will not require the preparation of either an
environmental assessment or an environmental impact statement as
defined by the National Environmental Policy Act.
Paperwork Reduction Act
This interim final rule does not contain a collection of
information and is therefore not subject to the provisions of the
Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).
Regulatory Flexibility Act
Under the Regulatory Flexibility Act, agencies must consider the
impact of their rulemakings on ``small entities'' (small businesses,
small organizations and local governments). When 5 U.S.C. 553 requires
an agency to publish a notice of proposed rulemaking, the Act requires
a regulatory flexibility analysis for both the proposed rule and the
final rule if the rulemaking could ``have a significant economic impact
on a substantial number of small entities.'' The Act also provides that
if a regulatory flexibility analysis is not required, the agency must
certify in the rulemaking document that the rulemaking will not ``have
a significant economic impact on a substantial number of small
entities.''
We believe that this rule does not have a significant economic
impact on a substantial number of small entities, and as a result at
the time of the proposed rule we issued a certification that the rule
did not.
We received a comment that indicated that the proposed change to 44
CFR 61.5 would have a significant impact on a substantial number of
small entities. In light of that comment, we have decided not to
include that provision in this interim final rule. Rather, we are
requesting additional comments on the proposed change to 44 CFR 61.5,
as outlined in the proposed rule, and in particular on whether it would
have a significant impact on a substantial number of small entities. We
request that comments on this issue be as specific as possible when
commenting on the type and scope of the impact and to provide as much
quantitative information as possible to assist us in understanding the
issue. If, after our own further evaluation and review of any
additional comments that we receive, we believe the change to 44 CFR
61.5 is still warranted and think that it may have an impact, we will
prepare an Initial Regulatory Flexibly Analysis (IFRA). If we prepare
an IFRA we will publish it and seek public comment prior to publication
of a final rule on 44 CFR 61.5.
Executive Order 13132, Federalism
Executive Order 13132, Federalism, dated August 4, 1999, sets forth
principles and criteria to which agencies must adhere in formulating
and implementing policies that have federalism implications; that is,
regulations that have substantial direct effects on the States, or on
the distribution of power and responsibilities among the various levels
of government. Federal agencies must closely examine the statutory
authority supporting any action that would limit the policymaking
discretion of the States, and must consult with State and local
officials before implementing any such action to the extent
practicable.
FEMA has reviewed this interim final rule under Executive Order
13132 and concludes that the interim final rule has no federalism
implications as defined by the Executive Order. FEMA has determined
that the rule does not significantly affect the rights, roles, and
responsibilities of States, involves no additional preemption of State
law, and does not limit State policymaking discretion.
List of Subjects in 44 CFR Part 62
Flood insurance.
0
Accordingly, we amend 44 CFR Part 62 as follows:
PART 62--SALE OF INSURANCE AND ADJUSTMENT OF CLAIMS
0
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.
0
2. Amend Sec. 62.22 by revising paragraph (a) to read as follows:
Sec. 62.22 Judicial review.
(a) Upon the disallowance by the Federal Insurance Administration,
a participating Write-Your-Own Company, or the servicing agent of any
claim on grounds other than failure to file a proof of loss, or upon
the refusal of the claimant to accept the amount allowed upon any claim
after appraisal pursuant to policy provisions, the claimant within one
year after the date of mailing by the Federal Insurance Administration,
the participating Write-Your-Own Company, or the servicing agent of the
notice of disallowance or partial disallowance of the claim may,
pursuant to 42 U.S.C. 4072, institute an action on such claim against
the insurer only in the U.S. District Court for the district in which
the insured property or the major portion thereof shall have been
situated, without regard to the amount in controversy.
* * * * *
0
3. Amend Sec. 62.23 by revising paragraph (g) to read as follows:
Sec. 62.23 WYO Companies authorized.
* * * * *
(g) A WYO Company shall act as a fiscal agent of the Federal
Government, but not as its general agent. WYO
[[Page 45611]]
Companies are solely responsible for their obligations to their insured
under any flood insurance policies issued under agreements entered into
with the Administrator, such that the Federal Government is not a
proper party defendant in any lawsuit arising out of such policies.
* * * * *
0
4. In Appendix A to part 62, revise the Effective Date to read as
follows:
Appendix A to Part 62--Federal Emergency Management Agency, Federal
Insurance Administration, Financial Assistance/Subsidy Arrangement
* * * * *
Effective Date: October 1, 2004.
* * * * *
0
5. In Appendix A to part 62, revise Article I to read as follows:
Appendix A to Part 62--Federal Emergency Management Agency, Federal
Insurance Administration, Financial Assistance/Subsidy Arrangement
* * * * *
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'' or ``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) within the
Mitigation Division recognizes this Arrangement as coming under the
provisions of Section 1345 of the Act (42 U.S.C. 4081); and
Whereas, the goal of the FIA is to develop a program with the
insurance industry where, over time, some risk-bearing role for the
industry will evolve as intended by the Congress (Section 1304 of
the Act (42 U.S.C. 4011)); and
Whereas, the insurer (hereinafter the ``Company'') under this
Arrangement shall charge rates established by the FIA; and
Whereas, FIA has promulgated regulations and guidance
implementing the Act and the Write-Your-Own Program whereby
participating private insurance companies act in a fiduciary
capacity utilizing Federal funds to sell and administer the Standard
Flood Insurance Policies, and has extensively regulated the
participating companies' activities when selling or administering
the Standard Flood Insurance Policies; and
Whereas, any litigation resulting from, related to, or arising
from the Company's compliance with the written standards,
procedures, and guidance issued by FEMA or FIA arises under the Act,
regulations, or FIA guidance, and legal issues thereunder raise a
federal question; and
Whereas, through this Arrangement, the Federal Treasury will
back all flood policy claim payments by the Company; and
Whereas, this 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 sole parties under this Arrangement are the WYO
Companies and the Federal Government.
Now, therefore, the parties hereto mutually undertake the
following:
0
6. In Appendix A to Part 62, revise Article II, Section G to read as
follows:
Article II--Undertaking of the Company
* * * * *
G. Compliance with Agency Standard and Guidelines.
1. The Company shall comply with written standards, procedures,
and guidance issued by FEMA or FIA relating to the NFIP and
applicable to the Company.
2. The Company shall market flood insurance policies in a manner
consistent with marketing guidelines established by FIA.
0
7. In Appendix A to Part 62 amend Article III to revise the second
paragraph of Section B; revise Section D; and add a sentence to the end
of Section E to read as follows:
Article III--Loss Costs, Expenses, Expense Reimbursement, and Premium
Refunds
* * * * *
B. * * *
* * * * *
The Company may retain fifteen percent (15%) of the Company's
written premium on the policies covered by this Arrangement as the
commission allowance to meet commissions or salaries of insurance
agents, brokers, or other entities producing qualified flood
insurance applications and other related expenses.
* * * * *
D. Loss Payments.
1. Loss payments under policies of flood insurance shall be made
by the Company from Federal funds retained in the bank account(s)
established under Article II, Section E and, if such funds are
depleted, from Federal funds derived by drawing against the Letter
of Credit established pursuant to Article IV.
2. Loss payments include payments as a result of litigation that
arises under the scope of this Arrangement, and the Authorities set
forth herein. All such loss payments and related expenses must meet
the documentation requirements of the Financial Control Plan and of
this Arrangement, and the Company must comply with the litigation
documentation and notification requirements established by FEMA.
Failure to meet these requirements may result in the Administrator's
decision not to provide reimbursement.
3. Limitation on Litigation Costs.
a. Following receipt of notice of such litigation, the FEMA
Office of the General Counsel (``OGC'') shall review the information
submitted. If the FEMA OGC finds that the litigation is grounded in
actions by the Company that are significantly outside the scope of
this Arrangement, and/or involves issues of agent negligence, then
the FEMA OGC shall make a recommendation to the Administrator
regarding whether all or part of the litigation is significantly
outside the scope of the Arrangement.
b. In the event the Administrator agrees with the determination
of the FEMA OGC under Article III, Section D.3.a then the Company
will be notified in writing within thirty (30) days of the
Administrator's decision that any award or judgment for damages and
any costs to defend such litigation will not be recognized under
Article III as a reimbursable loss cost, expense or expense
reimbursement.
c. In the event a question arises whether only part of a
litigation is reimbursable, the FEMA OGC shall make a recommendation
to the Administrator about the appropriate division of
responsibility, if possible.
d. In the event that the Company wishes to petition for
reconsideration of the determination that it will not be reimbursed
for any part of the award or judgment or any part of the costs
expended to defend such litigation made under Article III, Section
D.3.a-c, it may do so by mailing, within thirty (30) days of the
notice that reimbursement will not be made, a written petition to
the Administrator, who may request advice on other than legal
matters of the WYO Standards Committee established under the WYO
Financial Control Plan. The WYO Standards Committee will consider
the request 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. The Administrator's final
determination will be made in writing within a reasonable time to
the Company.
E. * * * As fiscal agent, the Company shall not refund any
premium to applicants or policyholders in any manner other than as
specified in the NFIP's ``Flood Insurance Manual'' since flood
insurance premiums are funds of the Federal Government.
8. In Appendix A to Part 62, revise Article V to read as
follows:
Article V--Commencement and Termination
A. The initial period of this Arrangement is from October 1,
2004 through September 30, 2005. Thereafter the Arrangement will be
effective on an annual basis 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
[[Page 45612]]
pursuant to the Program's effective date, underwriting and
eligibility rules.
B. Each year, the FIA shall publish in the Federal Register and
make available to the Company the terms for subscription or re-
subscription to this Financial Assistance/Subsidy Arrangement. The
Company shall notify the FIA of its intent to re-subscribe or not
re-subscribe within thirty days of publication.
C. In order to assure uninterrupted service to policyholders,
the Company shall promptly notify the FIA in the event the Company
elects not to participate in the Program during the Arrangement
year. If so notified, or if the FIA chooses not to renew the
Company's participation, the FIA, at its option, may require the
continued performance of all or selected elements of this
Arrangement for the period required for orderly transfer or
cessation of business and settlement of accounts, not to exceed 18
months, and may either require Article V.C.1 or allow Article V.C.2:
1. The delivery to the FIA of:
a. 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
b. 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
c. 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; and
d. All funds in its possession with respect to any policies
transferred to FIA for administration and the unearned expenses
retained by the Company.
2. Submission of plans for the renewal of the business by
another WYO Company or Companies or the submission of detailed plans
for another WYO Company to assume responsibility for the Company's
NFIP policies. Such plans shall assure uninterrupted service to
policyholders and shall be accompanied by a formal request for FIA
approval of such transfers.
D. Financial assistance under this Arrangement may be canceled
by the FIA in its entirety upon thirty (30) days written notice to
the Company by certified mail stating one of the following reasons
for such cancellation: (i) Fraud or misrepresentation by the Company
subsequent to the inception of the Arrangement; or (ii) Nonpayment
to the FIA of any amount due the FIA; or (iii) Material failure to
comply with the requirements of this Arrangement or with the written
standards, procedures, or guidance issued by FEMA or FIA relating to
the NFIP and applicable to the Company. Under these specific
conditions, the FIA may require the transfer of administrative
responsibilities and the transfer of data and records as provided in
Article V, Section C.1.a through d. 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. As an alternative to transfer
of the policies to the Government, the FIA will consider a proposal,
if it is made by the Company, for the assumption of responsibilities
by another WYO Company as provided in Article V, Section C.2.
E. In the event that the Company is unable 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 within the scope of the Arrangement owed
to policyholders arising before and after the date of transfer, and
the Company will immediately transfer to the Government all needed
records and data and all funds in its possession with respect to all
such policies transferred and the unearned expenses retained by the
Company. As an alternative to transfer of the policies to the
Government, the FIA will consider a proposal, if it is made by the
Company, for the assumption of responsibilities by another WYO
Company as provided by Article V, Section C.2.
F. 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.
0
9. In Appendix A, Part 62, revise Article VII Section C. to read as
follows:
Article VII--Cash Management and Accounting
* * * * *
C. In the event the Company elects not to participate in the
Program in this or any subsequent fiscal year, or is otherwise
unable or not permitted to participate, the Company and FIA shall
make a provisional settlement of all amounts due or owing within
three months of the expiration or 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, subject to audit,
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.
0
10. In Appendix A to Part 62, revise the first paragraph of Article IX
to read as follows:
Article IX--Errors and Omissions
In the event of negligence by the Company that has not resulted
in litigation but has resulted in a claim against the Company, FEMA
will not consider reimbursement of the Company for costs incurred
due to that negligence unless the Company takes all reasonable
actions to rectify the negligence and to mitigate any such costs as
soon as possible after discovery of the negligence. Further, (i) if
the claim against the Company is grounded in actions significantly
outside the scope of this Arrangement or (ii) if there is negligence
by the agent, FEMA will not reimburse any costs incurred due to that
negligence. The Company will be notified in writing within thirty
(30) days of a decision not to reimburse. In the event the Company
wishes to petition for reconsideration of the decision not to
reimburse, the procedure in Article III, Section D.3.d shall apply.
* * * * *
0
11. In Appendix A to Part 62, revise Article XVI to read as follows:
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 a
fiscal agent of the Federal Government, but is not a general agent
of the Federal Government. The Company is solely responsible for its
obligations to its insured under any policy issued pursuant hereto,
such that the Federal Government is not a proper party to any
lawsuit arising out of such policies.
Dated: July 27, 2004.
Michael D. Brown,
Under Secretary, Emergency Preparedness and Response, Department of
Homeland Security.
[FR Doc. 04-17358 Filed 7-29-04; 8:45 am]
BILLING CODE 9110-12-P