Header graphic for print
Property Insurance Coverage Insights

Wind vs. Water Damage Allocation Debate: Congress Passes COASTAL Act, Establishing New Wind vs. Water Allocation Formula

Posted in Causation

As reported by Arthur D. Postal on PropertyCasualty360.com’s online news service, Congress’s recent extension of the National Flood Insurance Program includes a potentially significant provision intended to help resolve debates about allocation of damage between wind and water in hurricane losses.

Recently, Congress passed the Consumer Option for an Alternative System to Allocate Losses (“COASTAL Act”), as found in the Surface Transportation Extension Act of 2012, H.R.4348, Title II – Flood Insurance, Section 100253. The Act provides a future roadmap for insurers and homeowners to follow when trying to resolve the wind vs. water conflicts.

The COASTAL Act provides that the Administrator of the Federal Emergency Management Agency (FEMA) is required to establish a standard formula to determine and allocate wind losses and flood losses for claims involving indeterminate losses. The COASTAL Act defines an “indeterminate loss” as “a loss resulting from physical damage to, or loss of, property located in any coastal State arising from the combined perils of flood and wind associated with a named storm”, as “determined by an insurance claims adjuster certified under the national flood insurance program and in consultation with an engineer as appropriate”. However, the Act further provides, in relevant part, that an insurance claims adjuster certified under the national flood insurance program shall only determine that a loss is an indeterminate loss if the claims adjuster determines that (i) no material remnant of physical buildings or man-made structures remain except building foundations for the specific property for which the claim is made; and (ii) there is insufficient or no tangible evidence created, yielded, or otherwise left behind of the specific property for which the claim is made as a result of the named storm. If an insurance claims adjuster knowingly and willfully makes a false or inaccurate determination relating to an indeterminate loss , the Administrator may, after notice and opportunity for hearing, impose on the insurance claims adjuster a civil penalty of not more than $1,000.

The COASTAL Act further provides that the following factors shall be considered by FEMA when establishing that standard formula:

  • incorporate data available from the Coastal Wind and Water Event Database established under section 12312(f) of the Omnibus Public Land Management Act of 2009
  • use relevant data provided on the National Flood Insurance Program Elevation Certificate for each indeterminate loss for which the formula is used
  • consider any sufficient and credible evidence, approved by the Administrator, of the pre-event condition of a specific property, including the findings of any policyholder or insurance claims adjuster in connection with the indeterminate loss to that specific property
  • include other measures, as the Administrator considers appropriate, required to determine and allocate by mathematical formula the property damage caused by flood or storm surge associated with a named storm
  • subject to paragraph (3), for each indeterminate loss , use the post-storm assessment to allocate water damage (flood or storm surge) associated with a named storm

It is difficult to assess how the COASTAL Act will be applied to particular losses until FEMA adopts regulations establishing the formula in accordance with the statute. Given that the definition of “indeterminate loss” appears to encompass only total losses, it appears that the COASTAL Act will not aid in resolving disputes over non-total losses, which constituted a large portion of the wind vs. flood disputes that followed Hurricane Katrina.