House loosens claims policy for debt-ridden flood program

Critics contend an amendment added to a recently passed House bill overhauling the federal government's flood insurance program could leave the financially troubled program in worse shape.

The House adopted an amendment last Tuesday by Rep. Jo Ann Davis, R-Va., to extend the proof of loss filing for policyholders in the National Flood Insurance Program from 60 days to 180 days. It also would prohibit federal officials from denying claims solely for failing to meet such a deadline.

The Davis amendment would make these changes retroactive to Sept. 18, 2003, the date Hurricane Isabel struck Virginia. Davis says her amendment is needed because some of her constituents whose homes were damaged by Isabel were unaware of the 60-day deadline. Others, she said, were pressured to sign an adjusters' proof of loss before the deadline even though they believed the adjusters had underestimated the damage and cost of rebuilding their homes.

"A lot of these people didn't know. They were without power for three to four weeks," Davis said. "I have people in my district that have not been able to rebuild. They have not been made whole." The amendment was adopted by voice vote with little debate.

Insurance industry groups have major concerns about the Davis language, arguing that it could further damage the program's financial footing. Congress already has allowed Federal Emergency Management Agency to borrow $20.8 billion from the Treasury to pay claims from hurricanes Katrina and Rita.

The House-passed bill would increase that limit to $25 billion. The NFIP is funded by premiums from 4.7 million policyholders and administered by insurance companies, but the program has run an operating deficit because of claims from Katrina and Rita.

The insurance groups contend that allowing the retroactive filing of claims would create greater liabilities. "We don't like it because it's retroactive," said Dennis Kelly, a spokesman for the American Insurance Association.

Another insurance lobbyist was blunter.

"The NFIP is in enough financial mess without having to worry about suddenly dealing with 'new' claims resulting from a flood two years ago," said the lobbyist. "Finally, the amendment would prohibit NFIP from denying claims solely for failing to meet the deadline. That's tantamount to not having a deadline at all. Does this mean someone can file a flood claim 10 years after the damage?"

The lobbyist also said the amendment could have unintended consequences, possibly slowing down the delivery of claims because of the longer deadline and lead to greater insurance fraud. In addition to the Davis amendment, conferees eventually must deal with parochial concerns of lawmakers as well as ideological positions on the nature of government subsidies in the insurance market.

The wrangling will include an amendment by Rep. Gene Taylor, D-Miss., that would require the Homeland Security Department's inspector general to investigate whether insurance companies wrongly denied claims after Hurricane Katrina tore through the Gulf Coast last year. Many insurance groups oppose that language as well.

A measure approved by the Senate Banking Committee would force more policyholders in the program to pay fair-market rates for their premiums than called for in the House-passed bill.