A conflict within the insurance industry over how to deal with the sensitive flood-exclusion issue is holding up House action on legislation that would reauthorize the National Flood Insurance Program.

The issue is critical because a compromise that would split liability 50-50 between insurers and the NFIP has strong support in the Senate, though it has limited support within the industry, which has strong influence among dominant House Republicans.

The current thinking, according to industry officials who asked not to be named, is that draft legislation unveiled two weeks ago by Rep. Judy Biggert, R-Ill., chairperson of the Subcommittee on Insurance, Housing and Community Opportunity of the House Financial Services Committee, will be the committee print.

In comments late last week at an industry conference on the agenda of House Financial Services Committee Republicans, Rep. Biggert did not provide a date for committee action on the bill, although the industry is hopeful that action could occur within weeks.

However, the thinking goes, an amendment will be ruled in order when the bill is marked up, either by the subcommittee or the full House Financial Services Committee, on the compromise amendment, which would split the difference on wind-vs.-water and flood claims 50-50.

That compromise is contained in a bill unveiled last year by Sen. Roger Wicker, R-Miss.

Under the Wicker bill, should a wind-vs.-water claim arise and the NFIP and wind insurers—either a private carrier or state wind pool—not agree on how to divide the claim, then the policyholder would immediately receive 50 percent of the claim payout from the NFIP and 50 percent from the insurer.

The bill would then mandate that the claim go to an arbitration panel to settle the differences between the NFIP and the wind insurer.

The concern is that unwillingness within the industry to accept the Senate compromise could prompt the need for another short-term reauthorization of the program. The current reauthorization expires Sept. 30.

The current House bill also contains no language that would preempt the anti-concurrent causation provision that Mississippi homeowners-insurance underwriters include in insurance contracts sold in that state.

Anti-concurrent causation provisions, however labeled, allow homeowners-insurance underwriters to escape liability for any part of a claim caused by flood.

Louisiana has a similar provision—the valued policy law.

The provision became a cause célèbre after Hurricanes Rita and Katrina, when homeowners-insurance underwriters enforced it to escape any liability for claims.

Claimants affected included former Sen. Trent Lott, R-Miss., and former Rep. Gene Taylor, D-Miss.

Their claims were finally settled in 2008 by State Farm, but resent lingered.

Mr. Taylor was able to get an amendment banning the provision added to NFIP long-term reauthorization legislation that passed the House last July, but the bill failed to win support in the Senate. That prompted a series of short-term reauthorizations that included a period last year when the program lapsed.

The amendment he added on the House floor, which caused industry officials to withdraw support for the bill, would have required write-your-own insurers to agree that they will not use "anti-concurrent causation" language to exclude coverage of wind damage simply because there is also flood damage to the property.

Mr. Taylor was defeated for re-election last year. The Republican wave played a key role in his defeat. The insurance industry also provided campaign funds to his opponent, Steven Palazzo—who now represents the district—and welcomed Mr. Taylor's political demise.

Mr. Taylor also earned industry ire by seeking to add wind coverage to the NFIP.

In comments last week, Rep. Palazzo said the "ship has sailed" on Mr. Taylor's plans, noting that Congress is too concerned about programs that could add additional costs to the federal government to consider adding wind to the NFIP.

The fact that the NFIP would then be competing with private insurers also played a role.

In her comments at the industry conference, Ms. Biggert said the priority of House Republicans is to "decrease the government role and increase private-market involvement."

Special Reports /

Wind Vs. Water Issue Could Hold Up NFIP Reauthorization Bill

Related Stories

Recommended For You