Veto Threatened For Flood Bill

WASHINGTON–The Bush administration threatened a veto yesterday if the House includes windstorm protection in legislation to reform the National Flood Insurance Plan that is up for a vote today.

A Statement of Administration Position issued by the Office of Management and Budget said it would recommend the president veto the bill if it included windstorm provisions.

Other amendments proposed for the bill would preempt state contract law in insurance claims handling and effectively reverse recent court decisions favorable to the insurance carriers and agents.

The administration also voiced constitutional concerns regarding a provision in the bill that would require claims adjusters at the Federal Emergency Management Agency to participate in state-sponsored mediation if requested by state insurance commissioners.

“The Constitution carefully allocates power between the branches of the federal government, and between the states and the federal government,” the administration statement said. “This balance could be upset were Congress to confer on state officials the authority to compel agents of the federal executive into the state's service.”

The legislation is H.R. 3121–Flood Insurance Reform and Modernization Act of 2007. Floor debate was scheduled to begin at noon.

Its purpose was to add borrowing authority for the NFIP in the event of a catastrophe, as well as reform the program.

But, under language added to the bill by the House Financial Services Committee, windstorm coverage would be added.

In addition to opposing windstorm coverage, the administration also objected to provisions that would increase the scope of coverage offered by the NFIP.

And amendments to be offered by the key architect of the additions to the bill, Rep. Gene Taylor, D-Miss., would prohibit insurance companies involved with the NFIP program from using anti-concurrent causation language to exclude coverage of wind damage solely because flooding also contributed to the damage.

Anti-concurrent language used in homeowners' policies in Mississippi says insurance companies are not liable for damage to a contract holder if any part of the damage was not covered by the policy–for example, flood damage. The language was recently upheld in a decision by a panel of the 5th U.S. Circuit Court of Appeals.

The bill would require adding to a contract statement that the company has a “fiduciary responsibility to federal taxpayers and will act in the best interests of NFIP.”

Current NFIP regulations state that insurance companies have a fiduciary responsibility to taxpayers. The amendment requires this statement be included in the Write Your Own contract and that companies inform their agents and adjusters of their responsibility to taxpayers.

According to a Dear Colleague letter circulated yesterday by Rep. Taylor to members of the House seeking support for his amendment, after Hurricane Katrina, State Farm instructed its adjusters that “where wind acts concurrently with flooding to cause damage to the insured property, coverage for the loss exists only under flood coverage.”

Rep. Taylor after Hurricane Katrina filed suit against State Farm in a dispute over his damage claim for destruction of a coastal home he owned. The case ended with a settlement.

His letter added, “State Farm and other companies refused to pay for wind damage where there was any flooding but were very generous with the taxpayers' money.”

Rep. Taylor explained that the director of the NFIP allowed companies to pay flood insurance policies in full without determining how much damage was caused by flooding apart from wind. “This amendment would require insurance companies to represent the interests of federal taxpayers when handling flood claims,” he said.