Flood insurance reform continues to generate interest from Congress, particularly in the context of the National Flood Insurance Program (NFIP) reauthorization debate. (The program will expire September 30, 2017, absent reauthorization or a continuing resolution.)

In December we discussed a proposed rule to implement the statutory definition of "private flood insurance." That proposal was related to the Biggert-Waters Flood Insurance Reform Act's requirement that the agencies issue a rule directing lending institutions to accept such insurance, with the goal of stimulating the private flood insurance market.  In March, Senators Heller (R-NV) and Tester (D-MT), and Reps. Ross (R-FL) and Castro (D-TX), reintroduced legislation to further define "private flood insurance," seeking to clarify the issue, and the Senate Committee on Banking, Housing, and Urban Affairs recently held hearings on the Senate version of that legislation.

The Flood Insurance Market Parity and Modernization Act (the "Act," S. 563/H.R. 1422) separately defines "federal flood insurance" and "private flood insurance," to expand the range of acceptable private policies. The Act focuses on detailing the elements of "private flood insurance," by eliminating many of the specific requirements of the existing statute.

The new bills would require that private flood insurance must comply with the laws and regulations of the applicable state. That would be a rather significant departure from the current requirement that private flood insurance be at least as broad as a standard flood insurance policy under the NFIP, and could lead to considerable variance in a market that at the moment is rather uniform.  Notably it would also give cover to any specific state requirements that overlay the federal requirements. Massachusetts, for example, requires that flood insurance policies be subject to a $5,000 minimum deductible, which federal law does not require.

The Act also would removes from the statute several specific requirements of private flood insurance policies, including:

  • That the insurer must give 45 days written notice of cancellation or non-renewal of flood insurance coverage to both the insured and the regulated lending institution or Federal agency lender;
  • That the policy must include information about the availability of flood insurance coverage under the NFIP;
  • That the policy contain a mortgage interest clause similar to that contained in a standard flood insurance policy under the NFIP;
  • That the policy contain a provision requiring an insured to file suit not later than one year after the date of a written denial of all or part of a claim under the policy; and
  • That the policy contain cancellation provisions as restrictive as the provisions contained in a standard NFIP flood insurance policy.

The removal of those specific requirements from the statute would significantly broaden the pool of private flood insurance policies that could qualify under the statute.  When combined with the notion that private flood insurance would no longer be required to be "at least as broad" as a standard NFIP policy, the flood insurance market could begin to look completely different.

The proposed rule mentioned above, which remains outstanding, largely relied on the Biggert-Waters Flood Insurance Reform Act's definition of private flood insurance.  As such, it is likely that the new bills' significantly expanded definition would require that the federal banking agencies revisit their proposal. The House passed a prior version of its bill in the last Congress with unanimous support (419-0). Although that bill was not taken up by the Senate, and passage occurred in the absence of the current debate on the overall reauthorization of the NFIP, legislators continue to focus on expanding the private flood insurance market, and that expansion may vastly change the market.

Visit us at mayerbrown.com

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2017. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.