House Adds Wind Risks To Flood Coverage Despite White House Veto Threat

Despite a looming veto threat from the Bush administration and anticipated opposition in the Senate, the House has passed legislation reforming the National Flood Insurance Program–including a controversial provision to add windstorm coverage to the federal policy.

H.R. 3121–the Flood Insurance Reform and Modernization Act of 2007–was approved by a vote of 263-to-146. All House Democrats but one supported the legislation–Rep. Brian Higgins, D-N.Y, was the party's lone dissenter–while 45 Republicans broke rank and voted in favor of the bill.

The legislation reauthorizes the NFIP for five years, through 2013. The NFIP is scheduled to expire on Sept. 30, 2008.

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

In addition, an amendment was approved that would prohibit insurers involved with the NFIP from using anti-concurrent causation language in their own homeowners policies to exclude coverage of wind damage solely because flooding also contributed to the loss.

The amendment would also preempt state law by imposing added regulation and oversight of industry claims practices where damage is caused by both wind and flooding.

The bill's primary purpose is to add borrowing authority for the NFIP in the event of a catastrophe, as well as reform the program so that its massive losses–approximately $20 billion has been borrowed to cover claims stemming from various hurricanes since 2005–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 regarding a provision requiring claims adjustors at the Federal Emergency Management Agency to participate in state-sponsored mediation if requested by state insurance commissioners.

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

But the greatest concern for supporters of the legislation might be that the House Rules Committee declined to allow any of a number of amendments proposed by Republicans that would have reduced the scope of the program.

In a response to their concerns, Rep. Barney Frank, D-Mass.–floor manager of the bill and chair of the House Financial Services Committee, which sent the bill to the floor–began debate by making a commitment to Republicans that they would have a role in shaping any final law.

“I regret the decision not to allow a number of amendments offered by Republicans to be in order,” said Rep. Frank, promising to “work with them during the legislative process.”

Justin Roth, senior director and lobbyist at the National Association of Mutual Insurance Companies, said that “by adding wind to the NFIP, federal taxpayers are once again put on the hook to cover a peril that the private market is capable of covering.”

He said NAMIC and other industry lobbyists will continue to work closely with the Senate Banking Committee and are hopeful they take up bipartisan flood reform similar to legislation passed last year.

Marc Racicot, president of the American Insurance Association, added that his group “historically supported the NFIP reforms called for in this legislation, but we continue to object to the bill'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 areas of coastal states, private markets are working well to provide windstorm coverage for tornadoes, winter storms, and other 'non-tropical' events.”

The Property Casualty Insurers Association of America also raised objections. “Adding wind coverage will create artificial subsidies, which essentially means rate hikes for consumers in non-coastal parts of the country who do not face the same wind-damage risks as coastal policyholders,” said Ben McKay, PCI's senior vice president of federal affairs.

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

William Symington, senior vice president for government affairs and federal relations for the Independent Insurance Agents and Brokers of America, said his group “strongly supports the underlying bill that would make much needed reforms to the NFIP.” He said IIABA is “particularly pleased” with the inclusion of optional business interruption coverage and additional living expense coverage.

In summing up the views of the Democratic majority as to why the program needs to be expanded, Rep. Maxine Waters, D-Calif., a primary sponsor, said during debate that, “we need a program that can 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 of all liberal ideas.”

The additional coverage creating concerns for the Bush administration and House Republicans was drafted by Rep. Gene Taylor, D-Miss., who filed suit against State Farm after Hurricane Katrina in a dispute over his damage claim for destruction of a coastal home he owned. The case ended with a settlement.

He also characterizes himself as a member of a unique congressional club, along with Sen. Trent Lott, R-Miss., called the “Slab Owner's Club”–alluding to the fact that his home, as well as that of Sen. Lott, was swept away during Katrina. Sen. Lott also sued State Farm in a dispute over his losses, and settled earlier this year.

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

The Taylor amendment would also require adding to NFIP contracts a statement that the insurance company has a “fiduciary responsibility to federal taxpayers and will act in the best interests of NFIP.”