WASHINGTON--Despite a looming veto threat from the Bushadministration and anticipated opposition in the Senate, the Housepassed legislation today reforming the National Flood InsuranceProgram--including a controversial provision to add windstormcoverage to the federal policy.

H.R. 3121--the Flood Insurance Reform and Modernization Act of2007--was approved by a vote of 263-to-146. All House Democrats butone supported the legislation--Rep. Brian Higgins, D-N.Y., was theparty's lone dissenter--while 45 Republicans broke ranks and votedin favor of the bill.

The legislation reauthorizes the NFIP for five years, through2013. The NFIP is scheduled to expire on Sept. 30, 2008.

Beyond the windstorm provision, the bill would also expand thelimits and types of coverage offered under NFIP.

In addition, an amendment was approved that would prohibitinsurers involved with the NFIP from using anti-concurrentcausation language in their own homeowners policies to excludecoverage of wind damage solely because flooding also contributed tothe loss.

The amendment would also preempt state law by imposing addedregulation and oversight of industry claims practices where damageis caused by both wind and flooding.

The bill's primary purpose is to add borrowing authority for theNFIP in the event of a catastrophe, as well as reform the programso that its massive losses--approximately $20 billion has beenborrowed to cover claims stemming from various hurricanes since2005--could be accommodated.

However, the legislation faces an uphill battle. For one,administration officials said they would urge President George W.Bush to veto any bill adding windstorm coverage.

The administration also voiced constitutional concerns regardinga provision requiring claims adjustors at the Federal EmergencyManagement Agency to participate in state-sponsored mediation ifrequested by state insurance commissioners.

The Senate is also expected to take a dim view. The SenateBanking Committee works by consensus, and when he was chairman,Sen. Richard Shelby, R-Ala., pigeonholed House legislation thatwould expand the program--albeit to nowhere near the extent thecurrent legislation envisions.

But the greatest concern for supporters of the legislation mightbe that the House Rules Committee declined to allow any of a numberof amendments proposed by Republicans that would have reduced thescope of the program.

In a response to their concerns, Rep. Barney Frank,D-Mass.--floor manager of the bill and chair of the House FinancialServices Committee, which sent the bill to the floor--began debateby making a commitment to Republicans that they would have a rolein shaping any final law.

"I regret the decision not to allow a number of amendmentsoffered by Republicans to be in order," said Rep. Frank, promisingto "work with them during the legislative process."

Justin Roth, senior director and lobbyist at the NationalAssociation of Mutual Insurance Companies, said that "by addingwind to the NFIP, federal taxpayers are once again put on the hookto cover a peril that the private market is capable ofcovering."

He said NAMIC and other industry lobbyists will continue to workclosely with the Senate Banking Committee and are hopeful they takeup bipartisan flood reform similar to legislation passed lastyear.

Marc Racicot, president of the American Insurance Association,added that his group "historically supported the NFIP reformscalled for in this legislation, but we continue to object to thebill's inclusion of coverage for windstorm damage."

The bill applies a "one-size-fits-all" approach for all states,he said, "yet in non-coastal states, and even in most inland areasof coastal states, private markets are working well to providewindstorm coverage for tornadoes, winter storms, and other'non-tropical' events."

The Property Casualty Insurers Association of America alsoraised objections. "Adding wind coverage will create artificialsubsidies, which essentially means rate hikes for consumers innon-coastal parts of the country who do not face the samewind-damage risks as coastal policyholders," said Ben McKay, PCI'ssenior vice president of federal affairs.

"It is unnecessary for Congress to expand the flood program,considering that wind coverage is already available either throughthe private sector or state wind-insurance programs," he added."There is no need to have a government program competing withcoverage that already exists. We will be working with the Senate topass needed flood reform without needlessly adding wind exposure tothe NFIP."

William Symington, senior vice president for government affairsand federal relations for the Independent Insurance Agents andBrokers of America, said his group "strongly supports theunderlying bill that would make much needed reforms to the NFIP."He said IIABA is "particularly pleased" with the inclusion ofoptional business interruption coverage and additional livingexpense coverage.

In summing up the views of the Democratic majority as to why theprogram needs to be expanded, Rep. Maxine Waters, D-Calif., aprimary sponsor, said during debate that, "we need a program thatcan contend with the worst that Mother Nature can throw at us."

In summing up the problems Republicans have with the bill, Rep.John Culberson, R-Texas, called it the "blue-ribbon boondoggle ofall liberal ideas."

The additional coverage creating concerns for the Bushadministration and House Republicans was drafted by Rep. GeneTaylor, D-Miss., who filed suit against State Farm after HurricaneKatrina in a dispute over his damage claim for destruction of acoastal home he owned. The case ended with a settlement.

He also characterizes himself as a member of a uniquecongressional club, along with Sen. Trent Lott, R-Miss., called the"Slab Owner's Club"--alluding to the fact that his home, as well asthat of Sen. Lott, was swept away during Katrina. Sen. Lott alsosued State Farm in a dispute over his losses, and settled earlierthis year.

Rep. Taylor's anti-concurrent causation amendment is sure todraw industry opposition. ACC language says insurers are not liablefor damage if any cause of the loss was not covered by thepolicy--such as flooding. The language was recently upheld in adecision by a panel of the 5th U.S. Circuit Court of Appeals.

The Taylor amendment would also require adding to NFIP contractsa statement that the insurance company has a "fiduciaryresponsibility to federal taxpayers and will act in the bestinterests of NFIP."