Flood Insurance Provides Limited Coverage For Permanent Protection

Patricia Skinner  |  3/22/2007 1:06:44 AM

Flood insurance policies provide a type of coverage called Increased Cost of Compliance (ICC). This coverage is part of every policy written or renewed since June 1, 1997 (except condominium and group policies); it is not an optional "rider".

Note: In May 2004 Congress passed the Flood Insurance Reform Act of 2004 which significantly alters how ICC coverage works. It was anticipated that FEMA would take about a year to translate the legislation into changes in the Insurance Policy and insurance program. However, these changes have not been implemented broadly as of May 2011, though the legislation has created opportunities for "exceptions" in catastrophic situations.

The following describes ICC as it exists prior to implementing the 2004 Reform Act.

ICC provides up to $30,000 toward the cost of elevating, relocating or demolishing a building that is being required to come into compliance with the community’s flood damage-prevention ordinances because it has been substantially damaged by a flood.

A building is substantially damaged when the cost of restoring the building to its pre-damaged condition equals or exceeds 50% of the pre-damage market value of the building. Such a building, whether damaged by flood, fire, wind or other peril, must be elevated to the current BFE (or higher, as required by local ordinance) before it can be repaired or occupied.

Elevation under this coverage may be done in-place or by moving the building to a higher site; the building may be demolished and replaced with the new building at the required elevation. If the building is non-residential, it may meet the elevation requirement by dry floodproofing. In order for you to claim this coverage, your community official will have to declare your building to be substantially damaged and will have to issue a permit for the restoration work.

While the elevation requirement applies to all substantially damaged buildings, regardless of source of damage, ICC coverage applies only when the damage prompting compliance is caused by a current flood event. The community may have an ordinance which allows the property owner to claim this coverage when damaged by two floods -- the current flood and a flood within the preceding ten years, where the cumulative damage is 50% or the average damage is 25% per flood. As of December 1999, no Louisiana communities had cumulative substantial damage ordinances, so only buildings substantially damaged in a single flood event can qualify for the coverage.

An ICC payment is considered non-federal money. If the community obtains federal grants for flood damage reduction projects, your ICC payment may be used toward meeting the requirements for non-federal matching funds.

According to Article III.D.5 of the Standard Flood Insurance Policy (SFIP), "In the event the required mitigation measures are not completed within two years from the date of the state's or community's delcaration of substantial damage and order that mitigation measures be taken, the ICC claim cannot be paid and any advance payment received by the policyholder must be returned." David I. Maurstad, acting director of FEMA's Mitigation Division, says that because of Hurricanes Katrina and Rita, he is waiving the the provisions of III.D.5 and is granting an additional two years to complete the required mitigation measures. See the attached memorandum for more information.

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