Senate Bill No. 621

(By Senators Fitzsimmons, Kessler (Mr. President),

Edgell, Yost and Cookman)

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[Introduced February 17, 2014; referred to the Committee on Banking and Insurance.]

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A BILL to amend the Code of West Virginia, 1931, as amended, by adding thereto a new article, designated §33-49-1, §33-49-2, §33-49-3, §33-49-4, §33-49-5, §33-49-6, §33-49-7, §33-49-8 and §33-49-9, all relating to authorizing insurers to offer flood insurance in this state; providing legislative findings; defining the term “flood”; establishing the minimum coverage requirements for these policies; providing coverage limitations that an insurer may include in these policies; requiring that certain limitations be noted on the policy declarations or face page; providing the insurer with rate options and the Insurance Commissioner with rate-making authority; requiring the insurer to provide notice that flood insurance is available from the National Flood Insurance Program; allowing an insurer to export a contract or endorsement of a certain amount to a surplus lines insurer without meeting certain requirements; providing prior notice requirements for cancellation or nonrenewal of a policy; requiring the insurer to notify the commissioner before writing flood insurance and to file a plan of operation with the commissioner; providing that any conflict with other provisions of the West Virginia insurance code are preempted by this article; and requiring the Insurance Commissioner to provide certification that a condition qualifies for flood insurance or disaster assistance.

Be it enacted by the Legislature of West Virginia:

    That the Code of West Virginia, 1931, as amended, be amended by adding thereto a new article, designated §33-49-1, §33-49-2, §33-49-3, §33-49-4, §33-49-5, §33-49-6, §33-49-7, §33-49-8 and §33-49-9, all to read as follows:

ARTICLE 49. FLOOD INSURANCE.

§33-49-1. Legislative findings.

    The Legislature finds that:

    (a) The National Flood Insurance Program is a federal program that enables property owners in participating communities to purchase flood insurance. A community participates in the federal program by adopting and enforcing flood plain management regulations that meet or exceed federal flood plain management criteria designed to reduce future flood risk to new construction in flood plains. The program was created by Congress in 1968 because insurance covering the peril of flood was often unavailable in the private insurance market and was intended to reduce the amount of financial aid paid by the federal government in the aftermath of flood-related disasters. After the creation of the National Flood Insurance Program (NFIP), flood insurance coverage continued to be generally unavailable for purchase from private market insurance companies.

    (b) The Biggert-Waters Flood Insurance Reform Act of 2012 reauthorized and revised the NFIP. The act increases flood insurance premiums purchased through the program for second homes, business properties, severe repetitive loss properties and substantially improved damaged properties by requiring premium increases of twenty-five percent per year until premiums meet the full actuarial cost. Most residences lose their subsidized rates if the property is sold, the policy lapses, repeated and severe flood losses occur or a new policy is purchased. Policyholders whose communities adopt a new, updated Flood Insurance Rate Map (FIRM) that results in higher rates will experience a five-year phase-in of rate increases to achieve required rate levels.

    (c) The Biggert-Waters Flood Insurance Reform Act of 2012 also encourages the use and acceptance of private market flood insurance. The Legislature finds, however, that there has been a long-term inadequacy of private market flood insurance available in this state. Such inadequacy suggests that the private market in this state is unlikely to expand unless the Legislature provides multiple options for the regulation of flood insurance. The Legislature also finds that the consumers of this state would benefit from the availability of competitively priced private market flood insurance due to the continued availability of NFIP flood insurance, the likely availability of alternative private market flood insurance coverage options, and the oversight of the Insurance Commissioner of West Virginia.

    (d) The NFIP, as amended by the Biggert-Waters Flood Insurance Reform Act of 2012, will prevent many property owners from obtaining affordable flood insurance coverage in this state. The absence of affordable flood insurance threatens the public health, safety and welfare and the economic health of this state. Therefore, the state has a compelling public purpose and interest in providing alternatives to coverage from NFIP by promoting the availability of flood insurance from private market insurers at potentially lower premium rates so as to facilitate the remediation, reconstruction and replacement of damaged or destroyed property in order to reduce or avoid harm to the public health, safety and welfare, to the economy of this state, and to the revenues of state and local governments which are needed to provide for the public welfare.

§33-49-2. Definitions.

    As used in this article, the term "flood" means a general and temporary condition of partial or complete inundation of two acres or more of normally dry land area or of two or more properties, at least one of which is the policyholder's property, from:

    (a) Overflow of waters;

    (b) Unusual and rapid accumulation or runoff of surface waters from any source;

    (c) Mudflow; or

    (d) Collapse or subsidence of land along the shore of a lake or similar body of water as a result of erosion or undermining caused by waves or currents of water exceeding anticipated cyclical levels which result in a flood.

§33-49-3. Issuance of flood insurance.

    (a) Subject to the requirements of this article, an insurer may issue an insurance policy, contract, or endorsement providing coverage for the peril of flood on any structure or on the contents of personal property on a form that has been filed with and approved by the commissioner pursuant to section eight, article six of this chapter and that may be substantially similar to the form used by the National Flood Insurance Program (NFIP).

    (b) At a minimum, coverage for the peril of flood must cover a flood as defined in this article. Coverage for the peril of flood may also include water intrusion, as defined by the policy, which originates from outside the structure and is not otherwise covered under the definition of flood.

    (c) An insurer may offer a flood coverage policy, contract, or endorsement:

    (1) That has a flood deductible based on a stated dollar amount or a percentage of the coverage amount. At a minimum, an insurer must offer deductible amounts applicable to flood losses that equal the standard deductibles offered under the National Flood Insurance Program;

    (2) That provides that any flood loss will be adjusted on the basis of:

    (A) The actual cash value of the property; or

    (B) Replacement costs up to the policy limits in the same manner as provided under section nine, article seventeen of this chapter;

    (3) That restricts flood coverage to the principal building, as defined in the applicable policy;

    (4) In an agreed-upon amount, including coverage limited to the amount of all outstanding mortgages applicable to the covered property. However, if a policy, contract, or endorsement does not limit flood coverage to the replacement cost of the covered property, the contract or endorsement may not include a provision penalizing the policyholder for not insuring the covered property up to replacement cost; or

    (5) That, as to the peril of flood, does not cover:

    (A) Additional living expenses;

    (B) Personal property or contents; or

    (C) Law and ordinance coverage. However, an insurer, must

offer law and ordinance coverage that is comparable to the law and ordinance coverage offered in the standard NFIP policy. A policy, endorsement, or contract that includes the law and ordinance coverage that must be offered under this paragraph must include the following disclosure in uppercase bold lettering of at least 12-point type: "LAW AND ORDINANCE COVERAGE UNDER THIS POLICY MIGHT HAVE LIMITATIONS ON WHAT IS COVERED IN THE EVENT OF A LOSS. YOU SHOULD CONSULT WITH YOUR AGENT IF YOU HAVE QUESTIONS ABOUT THE COVERAGE OFFERED UNDER THIS POLICY."

    (d) Any limitations on flood coverage or policy limits as

to the peril of flood, including, but not limited to, flood deductibles or flood coverage limited to the amount of all outstanding mortgages, must be prominently disclosed on the declarations page or face page of the policy in uppercase bold lettering of at least 12-point type and be sufficiently clear so as to be readily understandable by both the agent and the property owner.

§33-49-4. Notice of limits of flood insurance.

    (a) A policy that limits flood coverage to an amount less than the full replacement cost of the property must include the statement: "THIS POLICY LIMITS FLOOD COVERAGE TO LESS THAN THE FULL COST OF REPLACEMENT FOR THE PROPERTY, WHICH MAY RESULT IN HIGH OUT-OF-POCKET EXPENSES TO YOU AND MAY PUT YOUR EQUITY IN THIS PROPERTY AT RISK."

    (b) A policy that insures a dwelling on the basis of actual cash value must include the statement: "THIS POLICY PAYS YOU THE DEPRECIATED VALUE OF YOUR PROPERTY THAT IS DAMAGED BY FLOOD, WHICH MAY RESULT IN HIGH OUT-OF-POCKET EXPENSES TO YOU IF YOUR PROPERTY NEEDS TO BE REPAIRED OR REPLACED."

§33-49-5. Establishment of flood coverage rates.

    (a) An insurer shall establish and use flood coverage rates in accordance with the rate standards under section three, article twenty of this chapter: Provided, That for flood coverage rates filed with the office before July 1, 2016, the insurer may elect one or more of the following options:

    (1) In accordance with the rates, rating schedules, or rating manuals filed by the insurer with the office which allow the insurer a reasonable rate of return on flood coverage written in this state. Flood coverage rates established under this paragraph are not subject to section three, article twenty of this chapter. An insurer shall notify the office of any change in rates within thirty days after the effective date of the change. The notice must include the name of the insurer and the average statewide percentage change in rates. Actuarial data with regard to rates for flood coverage must be maintained by the insurer for two years after the effective date of such rate change and is subject to examination by the office. The commissioner may require the insurer to incur the costs associated with an examination. Upon examination, the commissioner, in accordance with generally accepted and reasonable actuarial techniques, shall consider the rate factors and standards specified in section three, article twenty of this chapter to determine if the rate is excessive, inadequate, or unfairly discriminatory.

    (2) Through individual risk rating as provided in article twenty of this chapter.

    (3) With the written consent of the insured signed before the policy inception date and filed with the insurer, using a flood coverage rate that has not been approved by the commissioner. The signed consent form must notify the insured that the rate is not subject to the approval of the commissioner. A copy of the form shall be maintained by the insurer for three years and must be available for review by the commissioner. An insurer is not required to obtain subsequent written consents upon renewal, but shall provide notice at each renewal that the rate is not subject to approval of the commissioner.

    (b) A policy, endorsement, or contract providing coverage for the peril of flood must provide notice that flood insurance coverage is available from the NFIP.

    (c) A surplus lines agent may export a contract or endorsement providing flood coverage of $1 million or more to an eligible surplus lines insurer without making a diligent effort to seek such coverage from three or more authorized insurers as provided in article twelve-c of this chapter. This subsection expires July 1, 2019.

§33-49-6. Notice of cancellation or nonrenewal.

    A policy, endorsement, or contract providing coverage for the peril of flood must require the insurer to give forty-five days' prior written notice of cancellation or nonrenewal to the insured and any regulated lending institution or federal agency that is a mortgagee. An insurer or insured may cancel during the term of the policy or upon renewal if the cancellation is for a valid reason under the NFIP.

§33-49-7. Additional requirements.

    In addition to any other applicable requirements, an insurer providing flood coverage in this state must:

    (a) Notify the office at least thirty days before writing flood insurance in this state; and

    (b) File a plan of operation and financial projections or revisions to such plan, as applicable, with the commissioner, unless the insurer maintains at least $35 million in surplus and provides coverage as an endorsement to an existing property insurance form.

§33-49-8. Conflicts insurance law and flood insurance.

    With respect to the regulation of flood insurance coverage written in this state by private insurers, this section supersedes any other provision in the West Virginia Insurance Code in the event of a conflict.

§33-49-9. Federal law requiring certification.

    If federal law or rule requires a certification by a state insurance regulatory official as a condition of qualifying for private flood insurance or disaster assistance, the Commissioner of the Office of Insurance Regulation shall provide the certification, and the certification is not subject to review under section fourteen, article two of this chapter.

    NOTE: The purpose of this bill is to authorize insurers to offer flood insurance in this state. The bill provides legislative findings and defines the term “flood”. It establishes the minimum coverage requirements for these policies. The bill has coverage limitations that an insurer may include in these policies and requires that certain limitations be noted on the policy declarations or face page. The bill gives the insurer rate options and requires the insurer to provide notice that flood insurance is available from the National Flood Insurance Program. The bill allows an insurer to export a contract or endorsement of a certain amount to a surplus lines insurer without meeting certain requirements. It requires prior notice requirements for cancellation or nonrenewal of a policy. The insurer is required to notify the Insurance Commissioner before writing flood insurance and to file a plan of operation with the Insurance Commissioner. The bill provides that any conflict with other provisions of the West Virginia insurance code are preempted by this article. And the bill requires the Insurance Commissioner to provide certification that a condition qualifies for flood insurance or disaster assistance.

    This article is new; therefore, strike-throughs and underscoring have been omitted.