[Federal Register Volume 85, Number 60 (Friday, March 27, 2020)]
[Notices]
[Pages 17339-17345]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-06394]


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DEPARTMENT OF HOMELAND SECURITY

Federal Emergency Management Agency

[Docket ID FEMA-2020-0003]


National Flood Insurance Program (NFIP); Assistance to Private 
Sector Property Insurers, Notice of FY 2021 Arrangement

AGENCY: Federal Emergency Management Agency, DHS.

ACTION: Notice.

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SUMMARY: The Federal Emergency Management Agency announces the Fiscal 
Year 2021 Financial Assistance/Subsidy Arrangement for private property 
insurers interested in participating in the National Flood Insurance 
Program's Write Your Own Program.

DATES: Interested insurers must submit intent to subscribe or re-
subscribe to the Arrangement by June 25, 2020.

FOR FURTHER INFORMATION CONTACT: Sarah Devaney-Ice, Branch Chief, 
Federal Insurance and Mitigation Administration, FEMA, 400 C St. SW, 
Washington, DC 20472 (mail); (202) 320-5577 (phone); or sarah.devaney-ice@fema.dhs.gov (email).

SUPPLEMENTARY INFORMATION:

I. Background

    The National Flood Insurance Act of 1968 (NFIA), as amended (42 
U.S.C. 4001 et seq.), authorizes the Administrator of the Federal 
Emergency Management Agency (FEMA) to establish and carry out a 
National Flood Insurance Program (NFIP) to enable interested persons to 
purchase insurance against loss resulting from physical damage to or 
loss of real or personal property arising from flood in the United 
States. See 42 U.S.C. 4011(a). Under the NFIA, FEMA has the authority 
to undertake arrangements to carry out the NFIP through the facilities 
of the Federal Government, utilizing, for the purposes of providing 
flood insurance coverage, insurance companies and other insurers, 
insurance agents and brokers, and insurance adjustment organizations as 
fiscal agents of the United States. See 42 U.S.C. 4071. To this end, 
FEMA may ``enter into any contracts, agreements, or other appropriate 
arrangements'' with private insurance companies to utilize their 
facilities and services in administering the NFIP on such terms and 
conditions as may be agreed upon. See 42 U.S.C. 4081(a).
    Pursuant to this authority, FEMA enters into a standard Financial 
Assistance/Subsidy Arrangement (Arrangement) with private sector 
property insurers, also known as Write Your Own (WYO) companies, to 
sell NFIP flood insurance policies under their own names and adjust and 
pay claims arising under the Standard Flood Insurance Policy (SFIP). 
Each Arrangement entered into by a WYO company must be in the form and 
substance of the standard Arrangement, a copy of which is published in 
the Federal Register annually, at least 6 months prior to becoming 
effective. See 44 CFR 62.23(a).

II. Notice of Availability

    Insurers interested in participating in the WYO Program for Fiscal 
Year 2021 must contact Sarah Devaney-Ice at sarah.devaney-ice@fema.dhs.gov by June 25, 2020.
    Prior participation in the WYO Program does not guarantee that FEMA 
will approve continued participation. FEMA will evaluate requests to 
participate in light of publicly available information, industry 
performance data, and other criteria listed in 44 CFR 62.24 and the FY 
2021 Arrangement, copied below. FEMA encourages private insurance 
companies to supplement this information with customer satisfaction 
surveys, industry awards or recognition, or other objective performance 
data. In addition, private insurance companies should work with their 
vendors and subcontractors involved in servicing and delivering their 
insurance lines to ensure FEMA receives the information necessary to 
effectively evaluate the criteria set forth in its regulations.
    FEMA will send a copy of the offer for the FY 2021 Arrangement, 
together with related materials and submission instructions, to all 
private insurance companies successfully evaluated by the NFIP. If 
FEMA, after conducting its evaluation, chooses not to renew a Company's 
participation, FEMA, at its option, may require the continued 
performance of all or selected elements of the FY 2020 Arrangement for 
a period required for orderly transfer or cessation of the business and 
settlement of accounts, not to exceed 18 months. See FY 2020 
Arrangement, Article V.C. All evaluations, whether successful or 
unsuccessful, will inform both an overall assessment of the WYO Program 
and any potential changes FEMA may consider regarding the Arrangement 
in future fiscal years.
    Any private insurance company with questions may contact FEMA at: 
Sarah Devaney-Ice, Federal Insurance and Mitigation Administration, 
FEMA, 400 C St. SW, Washington, DC 20472 (mail); (202) 320-5577 
(phone); or sarah.devaney-ice@fema.dhs.gov (email).

III. Fiscal Year 2021 Arrangement

    Pursuant to 44 CFR 62.23(a), FEMA must publish the Arrangement at 
least six months prior to the Arrangement becoming effective. The FY 
2021 Arrangement provided below is substantially similar to the 
previous year's Arrangement, but includes the following substantive 
changes:
    1. Moved Article V (Commencement and Termination) to Article II to 
improve organizational clarity, and renumbered following articles.
    2. In Article II.C, WYO companies will be required to notify FEMA 
of their

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intent to not re-subscribe to the Arrangement within 30 calendar days 
of their decision. In the FY2020 Arrangement, such notification must be 
made ``promptly''.
    3. Added Article II.G, which allows FEMA to extend the FY2021 
Arrangement through December 31, 2022, but not to exceed 6 months 
following the publication of the FY2022 Arrangement.
    4. Added new requirement in Article III.A.2 (Claims Processing) 
requiring that all independent adjusters used by WYO companies must 
either have a valid Flood Control Number or participate in the Flood 
Adjuster Capacity Program, and that WYO companies must cooperate with 
reinspections.
    5. Updated Article III.A.3 to reflect terminology and procedural 
changes associated with the transition of the NFIP system of record to 
Pivot.
    6. In Article III.A.4, added requirement to include Private Flood 
Insurance Separation Plan, Privacy Protection Plan, and Technology Plan 
in the Operations Plan submitted by WYO companies.
    7. Added Article III.I (Subrogation) to confirm a WYO company's 
obligation to pursue subrogation claims or to refer such claims to 
FEMA.
    8. Amended Article IV.D.3 (Oversight of Litigation), previously 
titled ``Limitation on Litigation Costs,'' to reflect updated 
litigation oversight procedures provided in the National Flood 
Insurance Program Litigation Manual.
    9. Removed previous Article VI (Information and Annual Statements) 
and moved paragraph (A) to Article III.J and paragraph (B) to Article 
VI.D.
    10. Added paragraph to Article XII (Access to Books and Records), 
providing that FEMA will protect confidential or proprietary 
information submitted by WYO companies from disclosure to the extent 
allowed by law.
    The Fiscal Year 2021 Arrangement reads as follows:

Financial Assistance/Subsidy Arrangement

Article I. Findings, Purposes, and Authority
    Whereas, the Congress in its ``Finding and Declaration of Purpose'' 
in the National Flood Insurance Act of 1968, Public Law 90-448, Title 
XIII, as amended, (``the Act'' or ``Act'') recognized the benefit of 
having the National Flood Insurance Program (the ``Program'' or 
``NFIP'') ``carried out to the maximum extent practicable by the 
private insurance industry'' (Section 1302 of the Act [42 U.S.C. 
4001]); and
    Whereas, the Federal Emergency Management Agency (``FEMA''), which 
operates the Program through its Federal Insurance and Mitigation 
Administration (``FIMA''), recognizes this Arrangement as coming under 
the provisions of Sections 1340 and 1345 of the Act (42 U.S.C. 4071 and 
4081, respectively); and
    Whereas, the goal of FEMA is to develop a program with the 
insurance industry where the risk-bearing role for the industry will 
evolve as intended by the Congress (Section 1304 of the Act [42 U.S.C. 
4011]); and
    Whereas, Section 205 of the Bunning-Bereuter-Blumenauer Flood 
Insurance Reform Act of 2004, Public Law 108-264, as implemented by 44 
CFR 62.20, permits Program policyholders to appeal the denial of a 
claim, completely or in part, to FEMA; and
    Whereas, the NFIP is a program administered by FEMA, all 
participants of this Arrangement, and other entities operating on their 
behalf, shall align themselves toward the common purpose of helping 
survivors and their communities recover from floods by effectively 
delivering customer-focused flood insurance products and information; 
and
    Whereas, the insurer (hereinafter the ``Company'') under this 
Arrangement must charge rates established by FEMA; and
    Whereas, FEMA has promulgated regulations and guidance implementing 
the Act and the Write Your Own (WYO) Program whereby participating 
private insurance companies act in a fiduciary capacity utilizing 
Federal funds to sell and administer the Standard Flood Insurance 
Policies, and has extensively regulated the participating companies' 
activities when selling or administering the Standard Flood Insurance 
Policies; and
    Whereas, any litigation resulting from, related to, or arising from 
the Company's compliance with the written standards, procedures, and 
guidance issued by FEMA arises under the Act or regulations, and legal 
issues thereunder raise a Federal question; and
    Whereas, through this Arrangement, the United States Treasury will 
back all flood policy claim payments by the Company; and
    Whereas, FEMA developed this Arrangement to enable any interested 
qualified insurer to write flood insurance under its own name; and
    Whereas, insured survivors recover faster and more fully than 
uninsured survivors, and FEMA is committed to developing a culture of 
preparedness and closing the insurance gap across the nation; and
    Whereas, one of the primary objectives of the Program is to provide 
coverage to the maximum number of buildings at risk and because the 
insurance industry has marketing access through its existing facilities 
not directly available to FEMA, FEMA concludes that coverage will be 
extended to those who would not otherwise be insured under the Program; 
and
    Whereas, flood insurance policies issued subject to this 
Arrangement must be only that insurance written by the Company in its 
own name under prescribed policy conditions and pursuant to this 
Arrangement, the Act, and any guidance issued by FEMA; and
    Whereas, over time, the Program is designed to increase industry 
participation and, accordingly, reduce or eliminate Government as the 
principal vehicle for delivering flood insurance to the public; and
    Whereas, the sole parties under this Arrangement are the Company 
and FEMA.
    Now, therefore, the parties hereto mutually undertake the 
following:
Article II. Commencement and Termination
    A. The effective period of this Arrangement begins on October 1, 
2020 and terminates no earlier than September 30, 2021, subject to 
extension pursuant to Articles II.C and II.G. FEMA may provide 
financial assistance only for policy applications and endorsements 
accepted by the Company during this period pursuant to the Program's 
effective date, underwriting, and eligibility rules.
    B. Pursuant to 44 CFR 62.23(a), FEMA will publish the Arrangement 
and the terms for subscription or re-subscription for Fiscal Year 2022 
in the Federal Register no later than April 1, 2021. Upon such 
publication, the Company must notify FEMA of its intent to re-subscribe 
or not re-subscribe to the WYO Program for the following term within 
ninety (90) calendar days.
    C. In addition to the requirements of Article II.B, in order to 
assure uninterrupted service to policyholders, the Company must notify 
FEMA within thirty (30) days of when the Company elects not to re-
subscribe to the WYO Program during the term of this Arrangement. If so 
notified, or if FEMA chooses not to renew the Company's participation, 
FEMA, at its option, may require the continued performance of all or 
selected elements of this Arrangement for the period required for 
orderly transfer or cessation of business and settlement of accounts, 
not to exceed eighteen (18) months after the

[[Page 17341]]

end of this Arrangement (September 30, 2021), and may either require 
transfer of activities to FEMA under Article II.C.1 or allow transfer 
of activities to another WYO company under Article II.C.2:
    1. FEMA may require the Company to transfer all activities under 
this Arrangement to FEMA. Within thirty (30) calendar days of FEMA's 
election of this option, the Company must deliver to FEMA the 
following:
    a. A plan for the orderly transfer to FEMA of any continuing 
responsibilities in administering the policies issued by the Company 
under the Program including provisions for coordination assistance.
    b. All data received, produced, and maintained through the life of 
the Company's participation in the Program, including certain data, as 
determined by FEMA, in a standard format and medium.
    c. All claims and policy files, including those pertaining to 
receipts and disbursements that have occurred during the life of each 
policy. In the event of a transfer of the services provided, the 
Company must provide FEMA with a report showing, on a policy basis, any 
amounts due from or payable to insureds, agents, brokers, and others as 
of the transition date.
    d. All funds in its possession with respect to any policies 
transferred to FEMA for administration and the unearned expenses 
retained by the Company.
    e. A point of contact within the Company responsible for addressing 
issues that may arise from the Company's previous participation under 
the WYO Program.
    2. FEMA may allow the Company to transfer all activities under this 
Arrangement to one or more other WYO companies. Prior to commencing 
such transfer, the Company must submit, and FEMA must approve, a formal 
request. Such request must include the following:
    a. An assurance of uninterrupted service to policyholders.
    b. A detailed transfer plan providing for either: (1) The renewal 
of the Company's NFIP policies by one or more other WYO companies; or 
(2) the transfer of the Company's NFIP policies to one or more other 
WYO companies.
    c. A description of who the responsible party will be for 
liabilities relating to losses incurred by the Company in this or 
preceding Arrangement years.
    d. A point of contact within the Company responsible for addressing 
issues that may arise from the Company's previous participation under 
the WYO Program.
    D. Cancellation by FEMA.
    1. FEMA may cancel financial assistance under this Arrangement in 
its entirety upon thirty (30) days written notice to the Company by 
certified mail stating one or more of the following reasons for such 
cancellation:
    a. Fraud or misrepresentation by the Company subsequent to the 
inception of the Arrangement; or
    b. Nonpayment to FEMA of any amount due; or
    c. Material failure to comply with the requirements of this 
Arrangement or with the written standards, procedures, or guidance 
issued by FEMA relating to the NFIP and applicable to the Company.
    2. If FEMA cancels this Arrangement pursuant to Article II.D.1, 
FEMA may require the transfer of administrative responsibilities and 
the transfer of data and records as provided in Article II.C.1.a-d. If 
transfer is required, the Company must remit to FEMA the unearned 
expenses retained by the Company. In such event, FEMA will assume all 
obligations and liabilities owed to policyholders under such policies, 
arising before and after the date of transfer.
    3. As an alternative to the transfer of the policies to FEMA 
pursuant to Article II.D.2, FEMA will consider a proposal, if it is 
made by the Company, for the assumption of responsibilities by another 
WYO company as provided in Article II.C.2.
    E. In the event that the Company is unable or otherwise fails to 
carry out its obligations under this Arrangement by reason of any order 
or directive duly issued by the Department of Insurance of any 
jurisdiction to which the Company is subject, the Company agrees to 
transfer, and FEMA will accept, any and all WYO policies issued by the 
Company and in force as of the date of such inability or failure to 
perform. In such event FEMA will assume all obligations and liabilities 
within the scope of the Arrangement owed to policyholders arising 
before and after the date of transfer, and the Company will immediately 
transfer to FEMA all needed records and data and all funds in its 
possession with respect to all such policies transferred and the 
unearned expenses retained by the Company. As an alternative to the 
transfer of the policies to FEMA, FEMA will consider a proposal, if it 
is made by the Company, for the assumption of responsibilities by 
another WYO company as provided by Article II.C.2.
    F. In the event the Act is amended, repealed, expires, or if FEMA 
is otherwise without authority to continue the Program, FEMA may cancel 
financial assistance under this Arrangement for any new or renewal 
business, but the Arrangement will continue for policies in force that 
shall be allowed to run their term under the Arrangement.
    G. If FEMA does not publish the Fiscal Year 2022 Arrangement in the 
Federal Register on or before April 1, 2021, then FEMA may require the 
continued performance of all or selected elements of this Arrangement 
through December 31, 2022, but such extension may not exceed the 
expiration of the six (6) month period following publication of the 
Fiscal Year 2022 Arrangement in the Federal Register.
Article III. Undertakings of the Company
    A. Responsibilities of the Company.
    1. Policy Issuance and Maintenance. The Company must meet all 
requirements of the Financial Control Plan and any guidance issued by 
FEMA. The Company is responsible for the following:
    a. Compliance with the Community Eligibility/Rating Criteria.
    b. Making Policyholder Eligibility Determinations.
    c. Policy Issuances.
    d. Policy Endorsements.
    e. Policy Cancellations.
    f. Policy Correspondence.
    g. Payment of Agents' Commissions.
    h. Fund Management, including the receipt, recording, disbursement, 
and timely deposit of NFIP funds.
    2. Claims Processing.
    a. In general. The Company must process all claims consistent with 
the Standard Flood Insurance Policy, Financial Control Plan, other 
guidance adopted by FEMA, and as much as possible, with the Company's 
standard business practices for its non-NFIP policies.
    b. Adjuster registration. The Company may not use an independent 
adjuster to adjust a claim unless the independent adjuster either:
    i. Holds a valid Flood Control Number issued by FEMA; or
    ii. Participates in the Flood Adjuster Capacity Program.
    c. Claim reinspections. The Company must cooperate with any claim 
reinspection by FEMA.
    3. Reports. The Company must certify its business under the WYO 
Program through monthly financial reports in accordance with the 
requirements of the Pivot Use Procedures. The Company must follow the 
Financial Control Plan and the WYO Accounting Procedures Manual. FEMA 
will validate and audit, in detail, these data and compare the results 
against Company reports.

[[Page 17342]]

    4. Operations Plan. Within ninety (90) days of the commencement of 
this Arrangement, the Company must submit a written Operations Plan to 
FEMA describing its efforts to perform under this Arrangement. The plan 
must include the following:
    a. Private Flood Insurance Separation Plan. If applicable, a 
description of the Company's policies, procedures, and practices 
separating their NFIP flood insurance lines of business from their non-
NFIP flood insurance lines of business, including its implementation of 
Article III.E.
    b. Marketing Plan. A marketing plan describing the Company's 
forecasted growth, efforts to achieve that growth, and ability to 
comply with any marketing guidelines provided by FEMA.
    c. Distribution Plan. A description of the Company's NFIP flood 
insurance distribution network, including anticipated numbers of 
agents, efforts to train those agents, and an average rate of 
commissions paid to producers by state.
    d. Catastrophic Claims Handling Plan. A catastrophic claims 
handling plan describing how the Company will respond and maintain 
service standards in catastrophic flood events.
    e. Business Continuity Plan. A business continuity plan identifying 
threats and risks facing the Company's NFIP-related operations and how 
the Company will maintain operations in the event of a disaster 
affecting its operational capabilities.
    f. Privacy Protection Plan. A privacy protection plan that 
describes the Company's standards for using and maintaining personally 
identifiable information.
    g. Technology Plan. A technology plan describing any planned 
technology updates or refreshes in support of the NFIP and the 
Company's security update schedule.
    B. Time Standards. WYO companies must meet the time standard 
provided below. Time will be measured from the date of receipt through 
the date sent out. In addition to the standards set forth below, all 
functions performed by the Company must be in accordance with the 
highest reasonably attainable quality standards generally utilized in 
the insurance and data processing field. Continual failure to meet 
these requirements may result in limitations on the company's authority 
to write new business or the removal of the Company from the WYO 
Program. Applicable time standards are:
    1. Application Processing--fifteen (15) business days (Note: if the 
policy cannot be sent out due to insufficient or erroneous information 
or insufficient funds, the Company must send a request for correction 
or added moneys within ten business (10) days).
    2. Renewal processing--seven (7) business days.
    3. Endorsement processing--fifteen (15) business days.
    4. Cancellation processing--fifteen (15) business days.
    5. File examination--seven (7) business days.
    6. Claims draft processing--seven (7) business days from completion 
of file examination.
    7. Claims adjustment--forty-five (45) business days average from 
the receipt of Notice of Loss (or equivalent) through completion of 
examination.
    8. Upload transactions to PIVOT--one (1) business day.
    C. Policy Issuance.
    1. The flood insurance subject to this Arrangement must be only 
that insurance written by the Company in its own name pursuant to the 
Act.
    2. The Company must issue policies under the regulations prescribed 
by FEMA, in accordance with the Act, on a form approved by FEMA.
    3. The Company must issue all policies in consideration of such 
premiums and upon such terms and conditions and in such states or areas 
or subdivisions thereof as may be designated by FEMA and only where the 
Company is licensed by State law to engage in the property insurance 
business.
    D. Lapse of Authority or Appropriation. FEMA may require the 
Company to discontinue issuing policies subject to this Arrangement 
immediately in the event Congressional authorization or appropriation 
for the NFIP is withdrawn.
    E. Separation of Finances and Other Lines of Flood Insurance.
    1. The Company must separate Federal flood insurance funds from all 
other Company accounts, at a bank or banks of its choosing for the 
collection, retention and disbursement of Federal funds relating to its 
obligation under this Arrangement, less the Company's expenses as set 
forth in Article IV, and the operation of the Letter of Credit 
established pursuant to Article V. The Company must remit all funds not 
required to meet current expenditures to the United States Treasury, in 
accordance with the provisions of the WYO Accounting Procedures Manual.
    2. Other Flood Insurance. If the Company also offers flood 
insurance outside of the NFIP in any geographic area in which Program 
authorizes the purchase of flood insurance, the Company must:
    a. Ensure that all public communications (whether written, 
recorded, electronic, or other) regarding non-NFIP flood insurance 
lines would not lead a reasonable person to believe that the NFIP, 
FEMA, or the Federal Government in any way endorses, sponsors, 
oversees, regulates, or otherwise has any connection with the non-NFIP 
flood insurance line. The Company may assure compliance with this 
requirement by prominently including in such communications the 
following statement: ``This insurance product is not affiliated with 
the National Flood Insurance Program.''
    b. Ensure that data related to this Arrangement are not used to 
further or support the Company's non-NFIP flood insurance lines.
    F. Claims. The Company must investigate, adjust, settle, and defend 
all claims or losses arising from policies issued under this 
Arrangement. Payment of flood insurance claims by the Company bind 
FEMA, subject to appeal.
    G. Compliance with Agency Standards and Guidelines.
    1. The Company must comply with the Act, regulations, written 
standards, procedures, and guidance issued by FEMA relating to the NFIP 
and applicable to the Company, including, but not limited to the 
following:
    a. Financial Control Plan.
    b. Pivot Use Procedures.
    c. Flood Insurance Manual.
    d. Claims Manual.
    e. National Flood Insurance Program Litigation Manual.
    f. WYO Accounting Procedures Manual.
    g. WYO Bulletins.
    2. The Company must market flood insurance policies in a manner 
consistent with marketing guidelines established by FEMA.
    3. FEMA may require the Company to collect customer service 
information to monitor and improve their program delivery.
    4. The Company must notify its agents of the requirement to comply 
with State regulations regarding flood insurance agent education, 
notify agents of flood insurance training opportunities, and assist 
FEMA in periodic assessment of agent training needs.
    H. Compliance with Appeals Process.
    1. FEMA will notify the Company when a policyholder files an 
appeal. After notification, the Company must provide FEMA the following 
information:
    a. All records created or maintained pursuant to this Arrangement 
requested by FEMA; and
    b. A comprehensive claim file synopsis that includes a summary of 
the

[[Page 17343]]

appeal issues, the Company's position on each issue, and any additional 
relevant information. If, in the process of writing the synopsis, the 
Company determines that it can address the issue raised by the 
policyholder on appeal without further direction, it must notify FEMA. 
The Company will then work directly with the policyholder to achieve 
resolution and update FEMA upon completion. The Company may have a 
claims examiner review the file who is independent from the original 
decision and who possesses the authority to overturn the original 
decision if the facts support it.
    2. The Company must cooperate with FEMA throughout the appeal 
process until final resolution. This includes adhering to any written 
appeals guidance issued by FEMA.
    3. Resolution of Appeals. FEMA will close an appeal when:
    a. FEMA upholds the denial by the Company;
    b. FEMA overturns the denial by the Company and all necessary 
actions that follow are completed;
    c. The Company independently resolves the issue raised by the 
policyholder without further direction;
    d. The policyholder voluntarily withdraws the appeal; or
    e. The policyholder files litigation.
    4. Processing of Additional Payments from Appeal. The Company must 
follow established NFIP adjusting practices and claim handling 
procedures for appeals that result in additional payment to a 
policyholder when FEMA does not explicitly direct such payment during 
the review of the appeal.
    5. Time Standards.
    a. Provide FEMA with requested files pursuant to Article 
III.H.1.a--ten (10) business days after request.
    b. Provide FEMA with comprehensive claim file synopsis pursuant to 
Article III.H.1.b--ten (10) business days after request.
    c. Responding to inquiries from FEMA regarding an appeal--ten (10) 
business days after inquiry.
    d. Inform FEMA of any litigation filed by a policyholder with a 
current appeal--within ten (10) business days of notice.
    I. Subrogation.
    1. In general. Consistent with Federal law and guidance, the 
Company must use its customary business practices when pursuing 
subrogation.
    2. Referral to FEMA. Pursuant to 44 CFR 62.23(i)(8), in lieu of the 
Company pursuing a subrogation claim, WYO companies may refer such 
claims to FEMA.
    3. Notification. No more than ten (10) calendar days after either 
the Company identifies a possible subrogation claim or FEMA notifies 
the Company of a possible subrogation claim, the Company must notify 
FEMA of its intent to pursue the claim or refer the claim to FEMA.
    4. Cooperation. Pursuant to 44 CFR 62.23(i)(11), the Company must 
extend reasonable cooperation to FEMA's Office of the Chief Counsel on 
matters related to subrogation.
    J. Access to Records. The Company must furnish to FEMA such 
summaries and analysis of information including claim file information 
and property address, location, and/or site information in its records 
as may be necessary to carry out the purposes of the Act, in such form 
as FEMA, in cooperation with the Company, will prescribe.
Article IV. Loss Costs, Expenses, Expense Reimbursement, and Premium 
Refunds
    A. The Company is liable for operating, administrative, and 
production expenses, including any State premium taxes, dividends, 
agents' commissions or any other expense of whatever nature incurred by 
the Company in the performance of its obligations under this 
Arrangement but excluding other taxes or fees, such as municipal or 
county premium taxes, surcharges on flood insurance premium, and 
guaranty fund assessments.
    B. Payment for Selling and Servicing Policies.
    1. Operating and Administrative Expenses. The Company may withhold, 
as operating and administrative expenses, other than agents' or 
brokers' commissions, an amount from the Company's written premium on 
the policies covered by this Arrangement in reimbursement of all of the 
Company's marketing, operating, and administrative expenses, except for 
allocated and unallocated loss adjustment expenses described in Article 
IV.C. This amount will equal the sum of the average industry expenses 
ratios for ``Other Acq.'', ``Gen. Exp.'' and ``Taxes'' calculated by 
aggregating premiums and expense amounts for each of five property 
coverages using direct premium and expense information to derive 
weighted average expense ratios. For this purpose, FEMA will use data 
for the property/casualty industry published, as of March 15 of the 
prior Arrangement year, in Part III of the Insurance Expense Exhibit in 
A.M. Best Company's Aggregates and Averages for the following five 
property coverages: Fire, Allied Lines, Farmowners Multiple Peril, 
Homeowners Multiple Peril, and Commercial Multiple Peril (non-liability 
portion).
    2. Agent Compensation. The Company may retain fifteen (15) percent 
of the Company's written premium on the policies covered by this 
Arrangement as the commission allowance to meet the commissions or 
salaries of insurance agents, brokers, or other entities producing 
qualified flood insurance applications and other related expenses.
    3. Growth Bonus. FEMA may increase the amount of expense allowance 
retained by the Company depending on the extent to which the Company 
meets the marketing goals for the Arrangement year contained in 
marketing guidelines established pursuant to Article III.G.2. The total 
growth bonuses paid to companies pursuant to this Arrangement may not 
exceed two (2) percent of the aggregate net written premium collected 
by all WYO companies. FEMA will pay the Company the amount of any 
increase after the end of the Arrangement year.
    4. Reimbursement for Services of a National Rating Organization. 
The Company, with the consent of FEMA as to terms and costs, may use 
the services of a national rating organization, licensed under state 
law, to help us undertake and carry out such studies and investigations 
on a community or individual risk basis, and to determine equitable and 
accurate estimates of flood insurance risk premium rates as authorized 
under the Act, as amended. FEMA will reimburse the Company for the 
charges or fees for such services under the provisions of the WYO 
Accounting Procedures Manual.
    C. FEMA will reimburse Loss Adjustment Expenses as follows:
    1. FEMA will reimburse unallocated loss adjustment expenses to the 
Company pursuant to a ``ULAE Schedule'' coordinated with the Company 
and provided by FEMA.
    2. FEMA will reimburse allocated loss adjustment expenses to the 
Company pursuant to a ``Fee Schedule'' coordinated with the Company and 
provided by FEMA. To ensure the availability of qualified insurance 
adjusters during catastrophic flood events, FEMA may, in its sole 
discretion, temporarily authorize the use of an alternative Fee 
Schedule with increased amounts during the term of this Arrangement for 
losses incurred during a time frame and geographic area established by 
FEMA.
    3. FEMA will reimburse special allocated loss expenses to the 
Company in accordance with guidelines issued by FEMA.
    D. Loss Payments.

[[Page 17344]]

    1. The Company must make loss payments for flood insurance policies 
from federal funds retained in the bank account(s) established under 
Article III.E.1 and, if such funds are depleted, from Federal funds 
derived by drawing against the Letter of Credit established pursuant to 
Article V.
    2. Loss payments include payments because of litigation that arises 
under the scope of this Arrangement, and the Authorities set forth 
herein. All such loss payments and related expenses must meet the 
documentation requirements of the Financial Control Plan and of this 
Arrangement, and the Company must comply with the litigation 
documentation and notification requirements established by FEMA. 
Failure to meet these requirements may result in FEMA's decision not to 
provide reimbursement.
    3. Oversight of Litigation.
    a. The Company must conduct litigation arising out of the Company's 
participation in the NFIP in accordance with the National Flood 
Insurance Program Litigation Manual.
    b. FEMA will not reimburse the Company for any award or judgment 
for damages and any costs to defend litigation that is either:
    1. Grounded in actions by the Company that are significantly 
outside the scope of this Arrangement; or
    2. Involves issues of agent negligence.
    E. Refunds. The Company must make premium refunds required by FEMA 
to applicants and policyholders from Federal flood insurance funds 
referred to in Article II.E.1, and, if such funds are depleted, from 
funds derived by drawing against the Letter of Credit established 
pursuant to Article V. The Company may not refund any premium to 
applicants or policyholders in any manner other than as specified by 
FEMA since flood insurance premiums are funds of the Federal 
Government.
Article V. Undertakings of the Government
    A. FEMA must establish Letter(s) of Credit against which the 
Company may withdraw funds daily, if needed, pursuant to prescribed 
procedures implemented by FEMA. FEMA will increase the amounts of the 
authorizations as necessary to meet the obligations of the Company 
under Article IV.C-E. The Company may only request funds when net 
premium income has been depleted. The timing and amount of cash 
advances must be as close as is administratively feasible to the actual 
disbursements by the recipient organization for allowable Letter of 
Credit expenses. Request for payment on Letters of Credit may not 
ordinarily be drawn more frequently than daily. This Letter of Credit 
may be drawn by the Company for any of the following reasons:
    1. Payment of claims, as described in Article IV.D;
    2. Refunds to applicants and policyholders for insurance premium 
overpayment, or if the application for insurance is rejected or when 
cancellation or endorsement of a policy results in a premium refund, as 
described in Article IV.E; and
    3. Allocated and unallocated loss adjustment expenses, as described 
in Article IV.C.
    B. FEMA must provide technical assistance to the Company as 
follows:
    1. NFIP policy and history.
    2. Clarification of underwriting, coverage, and claims handling.
    3. Other assistance as needed.
    C. FEMA must provide the Company with a copy of all formal written 
appeal decisions conducted in accordance with Section 205 of the 
Bunning-Bereuter-Blumenauer Flood Insurance Reform Act of 2004, Public 
Law 108-264 and 44 CFR 62.20.
    D. Prior to the end of the Arrangement period, FEMA may provide the 
Company a statistical summary of their performance during the signed 
Arrangement period. This summary will detail the Company's performance 
individually, as well as compare the Company's performance to the 
aggregate performance of all WYO companies and the NFIP Direct 
Servicing Agent.
Article VI. Cash Management and Accounting
    A. FEMA must make available to the Company during the entire term 
of this Arrangement the Letter of Credit provided for in Article V 
drawn on a repository bank within the Federal Reserve System. This 
Letter of Credit may be drawn by the Company for reimbursement of its 
expenses as set forth in Article V. A that exceed net written premiums 
collected by the Company from the effective date of this Arrangement or 
continuation period to the date of the draw. In the event that adequate 
Letter of Credit funding is not available to meet current Company 
obligations for flood policy claim payments issued, FEMA must direct 
the Company to immediately suspend the issuance of loss payments until 
such time as adequate funds are available. The Company is not required 
to pay claims from their own funds in the event of such suspension.
    B. The Company must remit all funds, including interest, not 
required to meet current expenditures to the United States Treasury, in 
accordance with the provisions of the WYO Accounting Procedures Manual 
or procedures approved in writing by FEMA.
    C. In the event the Company elects not to participate in the 
Program in this or any subsequent fiscal year, or is otherwise unable 
or not permitted to participate, the Company and FEMA must make a 
provisional settlement of all amounts due or owing within three (3) 
months of the expiration or termination of this Arrangement. This 
settlement must include net premiums collected, funds drawn on the 
Letter of Credit, and reserves for outstanding claims. The Company and 
FEMA agree to make a final settlement, subject to audit, of accounts 
for all obligations arising from this Arrangement within eighteen (18) 
months of its expiration or termination, except for contingent 
liabilities that must be listed by the Company. At the time of final 
settlement, the balance, if any, due FEMA or the Company must be 
remitted by the other immediately and the operating year under this 
Arrangement must be closed.
    D. Upon FEMA's request, the Company must provide FEMA with a true 
and correct copy of the Company's Fire and Casualty Annual Statement, 
and Insurance Expense Exhibit or amendments thereof as filed with the 
State Insurance Authority of the Company's domiciliary State.
Article VII. Arbitration
    If any misunderstanding or dispute arises between the Company and 
FEMA with reference to any factual issue under any provisions of this 
Arrangement or with respect to FEMA's nonrenewal of the Company's 
participation, other than as to legal liability under or interpretation 
of the Standard Flood Insurance Policy, such misunderstanding or 
dispute may be submitted to arbitration for a determination that will 
be binding upon approval by FEMA. The Company and FEMA may agree on and 
appoint an arbitrator who will investigate the subject of the 
misunderstanding or dispute and make a determination. If the Company 
and FEMA cannot agree on the appointment of an arbitrator, then two 
arbitrators will be appointed, one to be chosen by the Company and one 
by FEMA.
    The two arbitrators so chosen, if they are unable to reach an 
agreement, must select a third arbitrator who must act as umpire, and 
such umpire's determination will become final only upon approval by 
FEMA. The Company and FEMA shall bear in equal shares all expenses of 
the arbitration. Findings, proposed awards, and determinations

[[Page 17345]]

resulting from arbitration proceedings carried out under this section, 
upon objection by FEMA or the Company, shall be inadmissible as 
evidence in any subsequent proceedings in any court of competent 
jurisdiction.
    This Article shall indefinitely succeed the term of this 
Arrangement.
Article VIII. Errors and Omissions
    A. In the event of negligence by the Company that has not resulted 
in litigation but has resulted in a claim against the Company, FEMA 
will not consider reimbursement of the Company for costs incurred due 
to that negligence unless the Company takes all reasonable actions to 
rectify the negligence and to mitigate any such costs as soon as 
possible after discovery of the negligence. The Company may choose not 
to seek reimbursement from FEMA.
    B. If the Company has made a claim payment to an insured without 
including a mortgagee (or trustee) of which the Company had actual 
notice prior to making payment, and subsequently determines that the 
mortgagee (or trustee) is also entitled to any part of said claim 
payment, any additional payment may not be paid by the Company from any 
portion of the premium and any funds derived from any Federal letter of 
credit deposited in the bank account described in Article III.E.1. In 
addition, the Company agrees to hold the Federal Government harmless 
against any claim asserted against the Federal Government by any such 
mortgagee (or trustee), as described in the preceding sentence, by 
reason of any claim payment made to any insured under the circumstances 
described above.
Article IX. Officials Not To Benefit
    No Member or Delegate to Congress, or Resident Commissioner, may be 
admitted to any share or part of this Arrangement, or to any benefit 
that may arise therefrom; but this provision may not be construed to 
extend to this Arrangement if made with a corporation for its general 
benefit.
    Article X. Offset
    At the settlement of accounts, the Company and FEMA have, and may 
exercise, the right to offset any balance or balances, whether on 
account of premiums, commissions, losses, loss adjustment expenses, 
salvage, or otherwise due one party to the other, its successors or 
assigns, hereunder or under any other Arrangements heretofore or 
hereafter entered into between the Company and FEMA. This right of 
offset shall not be affected or diminished because of insolvency of the 
Company.
    All debts or credits of the same class, whether liquidated or 
unliquidated, in favor of or against either party to this Arrangement 
on the date of entry, or any order of conservation, receivership, or 
liquidation, shall be deemed to be mutual debts and credits and shall 
be offset with the balance only to be allowed or paid. No offset shall 
be allowed where a conservator, receiver, or liquidator has been 
appointed and where an obligation was purchased by or transferred to a 
party hereunder to be used as an offset.
    Although a claim on the part of either party against the other may 
be unliquidated or undetermined in amount on the date of the entry of 
the order, such claim will be regarded as being in existence as of the 
date of such order and any credits or claims of the same class then in 
existence and held by the other party may be offset against it.
Article XI. Equal Opportunity
    The Company shall not discriminate against any applicant for 
insurance because of race, color, religion, sex, age, handicap, marital 
status, or national origin.
Article XII. Access to Books and Records
    A. FEMA, the Department of Homeland Security, and the Comptroller 
General of the United States, or their duly authorized representatives, 
for the purpose of investigation, audit, and examination shall have 
access to any books, documents, papers and records of the Company that 
are pertinent to this Arrangement. The Company shall keep records that 
fully disclose all matters pertinent to this Arrangement, including 
premiums and claims paid or payable under policies issued pursuant to 
this Arrangement. Records of accounts and records relating to financial 
assistance shall be retained and available for three (3) years after 
final settlement of accounts, and to financial assistance, three (3) 
years after final adjustment of such claims. FEMA shall have access to 
policyholder and claim records at all times for purposes of the review, 
defense, examination, adjustment, or investigation of any claim under a 
flood insurance policy subject to this Arrangement.
    FEMA, to the extent permitted by law and regulation, will safeguard 
and treat information submitted or made available by the Company 
pursuant to this Arrangement as confidential where the information has 
been marked ``confidential'' by the Company and the Company customarily 
keeps such information private or closely-held. To the extent permitted 
by law and regulation, FEMA will not release such information to the 
public pursuant to a Freedom of Information Act (FOIA) request, 5 
U.S.C. 552, without prior notification to the Company. FEMA may 
transfer documents provided by the Company to any department or agency 
within the Executive Branch or to either house of Congress if the 
information relates to matters within the organization's jurisdiction. 
FEMA may also release the information submitted pursuant to a judicial 
order from a court of competent jurisdiction.
Article XIII. Compliance With Act and Regulations
    This Arrangement and all policies of insurance issued pursuant 
thereto are subject to Federal law and regulations.
Article XIV. Relationship Between the Parties and the Insured
    Inasmuch as the Federal Government is a guarantor hereunder, the 
primary relationship between the Company and the Federal Government is 
one of a fiduciary nature, that is, to assure that any taxpayer funds 
are accounted for and appropriately expended. The Company is a fiscal 
agent of the Federal Government, but is not a general agent of the 
Federal Government. The Company is solely responsible for its 
obligations to its insured under any policy issued pursuant hereto, 
such that the Federal Government is not a proper party to any lawsuit 
arising out of such policies.

    Authority: 42 U.S.C. 4071, 4081; 44 CFR 62.23.

David I. Maurstad,
Deputy Associate Administrator for Insurance and Mitigation, Federal 
Emergency Management Agency.
[FR Doc. 2020-06394 Filed 3-26-20; 8:45 am]
 BILLING CODE 9111-52-P


