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Valued Policy Law Claims in FEMA Flood Zones

Nicole Lauren Wulwick | May 3, 2021

As discussed in Part One of this three-part series of articles, Florida’s Valued Policy Law is implicated when a property is determined to be a constructive total loss when the building, although it is still standing, is damaged to the extent that ordinances or regulations in effect prohibit or prevent the building's repair, such that the building has to be demolished. This issue arises frequently when the damaged property is located in a designated FEMA Special Flood Hazard Area.

What is a FEMA Flood Zone?

The Federal Emergency Management Agency (FEMA) designates certain areas according to their risk of flooding. Certain zones are designated Special Flood Hazard Areas (SFHA) where the National Flood Insurance Program (NFIP) has established floodplain management regulations that must be enforced and where flood insurance must be purchased. SFHAs are designated as Zone A, Zone AO, Zone AH, Zones A1-A30, Zone AE, Zone A99, Zone AR, Zone AR/AE, Zone AR/AO, Zone AR/A1-A30, Zone AR/A, Zone V, Zone VE, and Zones V1-V30.

FEMA’s Flood Map Service Center provides an easily searchable tool to quickly determine if a property is in a flood zone, though sometimes more detailed research is necessary where a property is only partially within a flood zone. The NFIP flood plain management regulations are often available through the local building departments, water management district and/or a specified official within the local county government.
If a “non-conforming” building is damaged, it may have to be brought into compliance with the applicable floodplain management regulations. A building in one of these zones is “non-conforming” to the SFHA’s management regulations if the lowest finished floor (i.e., space other than for parking or storage) of the building is below the required elevation for the respective zone. The required elevation can be found through FEMA’s Flood Map Service Center.

How is the Substantial Damage Determination Made in a Flood Zone?

Each set of floodplain management regulations will specify how a substantial damage determination is to be made, though most commonly, if the cost to repair the building exceeds 50% of the building’s value, the building will have to be brought into compliance with the floodplain management regulations, which may include raising the lowest finished floor above the required elevation. In most jurisdictions, the building value is set by the appraised value of the building itself as determined by the local property appraiser. The “building value” does not include the value of the land or any improvements to the land such as a swimming pool, fences, landscaping, docks, sheds, etc., only the value of the building itself.

It is important to understand how the specific floodplain management regulations and the enforcement of the regulations by local officials may affect the claim. Local officials may apply “adjustment factors” (e.g., depreciation, market conditions, etc.) on a case-by-case basis to value of a building, though there are not clear guidelines of when such a factor should be applied in the context of a substantial damage determination. Some floodplain management regulations may also include cumulative substantial improvement clauses, wherein any combination of repair, reconstruction, rehabilitation, addition, or other improvement to a building over a certain time period is taken into account to determine if the cumulative cost to repair exceeds 50% of the building’s value.

What if a Non-Conforming Building in a Flood Zone is Substantially Damaged?

If the cost to repair a non-conforming building in a flood zone exceeds 50% of the building’s value, the floodplain management regulations will require the building be brought into compliance. Typically, this means the building will have to be raised so that the lowest furnished floor is above the minimum height requirement for the SFHA zone where the building is located. Often this means the house must be demolished and raised on pilings or fill. On some occasions, it is possible to raise the property without it being demolished. However, this method may be more costly. Thus, the floodplain management regulations ultimately prevent the repair of the building as is, meaning the building is a total loss. Under Florida’s Valued Policy Law, the policy’s entire dwelling limit must then be paid.

Practice Tips

1. Check the insurance carrier’s underwriting file or FEMA’s Flood Map Service Center to determine if a damaged building is located in a flood zone.
2. If the building is located in an flood zone, additional attention needs to be paid to the cost of repairing the building relative to the building’s value.
3. Determine how the floodplain management regulations specify the building’s value is determined and what the value of the building is under the applicable regulations. Scenarios commonly arise where the insurance company’s own repair estimate puts the cost to repair the building above the threshold for a substantial damage determination and into the realm where compliance with the floodplain management regulations is mandated.

Nicole and Brian have experience researching and handling these fact-intensive Valued Policy Law claims in FEMA Special Flood Hazard Areas. It takes careful research and investigation to determine when regulations are implicated. This attention to detail helps avoid potential higher exposure to the insurance company and potential pitfalls that could lead to lawsuits and bad faith claims.




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