Lesson 4: SFIP Quality Assurance & Adjustment Issues
Adjustment Issues - Foundation Elements
A slab under an elevated building is covered if the building is pre-FIRM. If the building is post-FIRM in a Special Flood Hazard Area as specified in Section III. Property Covered A. 8, a slab is only covered if it is a part of the foundation. In order to be a part of the foundation, it must be at least six inches thick, reinforced with rebar, and tied into the foundation posts, pilings, piers, or other foundation walls required to support the building.
Adjustment Issues - Porches
A structure may be considered a porch if it: • Is under the roofline of the home • Is within the perimeter supports of the home • Supports the roof of the home A porch is defined as a structure attached to the exterior of a building, often forming a covered entrance. Porches are covered in the SFIP.
Adjustment Issues - Use of Up-to-Date Documents
Adjusters must keep up with current materials when working flood claims. Be sure you have the most up-to-date SFIP, Adjuster Claims Manual, Flood Insurance Claims Handbook, and NFIP claim forms, if applicable. Make sure to keep abreast of the latest WYO Bulletins. (see Bookmarks Reading List) Use of current information and materials is essential to claims handling.
Adjustment Issues - Repetitive Losses... Part 2
Adjusters should always request a copy of the prior losses and should investigate to determine whether prior repairs were completed. This can be accomplished with photographs (such as prior claim photos), serial numbers, the prior estimate with different materials included (for example, drywall versus paneling), receipts showing paid repairs, or a combination of all of these.
Adjustment Issues - Duties After a Loss
After a loss the adjuster, insurer, and policyholder all have responsibilities under the SFIP: The Adjuster's Duties • Investigate the claim • Evaluate the damages • Explain coverage and distribute the Flood Insurance Claims Handbook and ICC Brochure to the policyholder • Report and recommend payment or denial of the claim • Provide litigation support • Document the file
Adjustment Issues - Duties After a Loss...Part 2
After a loss the adjuster, insurer, and policyholder all have responsibilities under the SFIP: The Insurer's Duties • Process the claim • Uphold the Flood Insurance Reform Act (FIRA) of 2004 requirements • Process policy reformation, if applicable • Approve or deny the claim • Advise policyholder of their duties after loss
Adjustment Issues - Duties After a Loss...Part 3
After a loss the adjuster, insurer, and policyholder all have responsibilities under the SFIP: The Policyholder's Duties • Give prompt written notice of the flood loss • Mitigate the loss • Cooperate with the adjuster • Submit a Proof of Loss within 60 days of date of loss
Common Quality Assurance Findings - Insufficient Damage Documentation
Another common issue is insufficient damage documentation. Documents such as invoices and/or receipts might be needed to support the claim. The adjuster may recommend an expert to the insurer to assist with the resolution of the claim. Photos should adequately document the claimed damage; photos of undamaged building elements and contents are also very important.
Adjustment Issues - Water Depth
As an adjuster you are responsible for documenting interior and exterior water depths. Water depths are recorded in inches on the Preliminary Report. When measuring water depth in a basement below ground level, the water depth is recorded as a negative number. Water depth on the main level is recorded as a positive number.
Identifying and Resolving Adjustment Issues - Overview
As an adjuster, you must be able to identify and resolve common adjustment issues. The next section examines adjustment issues and what you can do to handle them.
Quality Assurance in the NFIP (Part 1)
Because the NFIP DSA is a Federal program, it is subject to the scrutiny of the Department of Homeland Security (DHS) and other Federal agencies, including the Government Accountability Office (GAO), the DHS Office of Inspector General (OIG), and the Office of Management and Budget (OMB).
Remediation Issues
Before engaging a professional service, which includes structural drying, the policyholder should consult with the assigned flood adjuster, and the adjuster should inform the policyholder that an itemized room-by-room invoice and a properly completed drying log are required per both industry standards and the SFIP.
It is imperative that adjusters use the tips provided in the bulletins listed above. It might be necessary to recommend the use of an engineer to help make the determination.
Bulletin W-10060 provides important guidance for effective communication of the wind versus water distinction in your Narrative Reports and other documentation. Adjusters should pay close attention to the Wind vs. Water - Adjusting Practices included in Bulletin W-10017. Also, Wind/Water Investigative Tips are attached to Bulletin W-08008.
Remediation Issues...Part 3
Bulletin W-13025a (Claims Guidance - Structural Drying and Other Related Items) explains how allowances for drying as well as other related items may be included in an SFIP-insured claim payment.
Common Quality Assurance Findings - Case Loss Reserving
Case loss reserve is the insurer's estimate of the value of future payments for an individual claim. It is imperative—and the adjuster's responsibility—to inform the insurer regarding changes in reserves. The reserving system mandates that reports be timely and reflect true reserves. Bulletin W-10100 provides more information on NFIP case loss reserving procedures.
Adjustment Issues - Foundation Issues and Pre-Existing Damage
Document interior damage such as: • Cracks in drywall on walls and ceilings • Doors that are out of plumb • Gaps between walls and ceilings • Nails that are protruding from the drywall • Windows that are not square or are sticking • Floors that are cracked or not level • Gaps between walls and floors Document exterior damage such as: • Cracks in the masonry • Gaps between bricks, doors, and windows • Chimney leaning or cracking • Gaps between fireplace and house • Sagging roof line • Paint, caulking, or vegetation in cracks Involve experts if necessary.
Adjustment Issues - Personal Property in a Shed...Part 2
Does it have two or more outside rigid walls and a fully secured roof, and is it "affixed" to a permanent site? If the shed is not affixed to a permanent site, it is not considered a building and therefore, the contents within are not covered. The adjuster should take good photos to show whether or not this is in fact a building by definition of the policy.
Adjustment Issues - Elevators
Elevators, dumbwaiters, and related equipment are covered items in basements and below the lowest elevated floor of a Post-FIRM elevated building in specified flood zones, except for related equipment installed below the Base Flood Elevation (BFE) after September 30, 1987. Note: The elevator car itself is covered; the coverage limitation applies only to related equipment below the BFE. It is important to obtain accurate and complete information to be certain proper coverage is applied. Reference Section III, Property Covered, Item 8 of the SFIP.
Common Quality Assurance Findings - Incorrect Estimate or Worksheet Calculation
Ensuring the accuracy of the following information can help prevent incorrect estimates and worksheet calculations: • Material unit cost • Labor and sales tax • Applicable depreciation on both building and contents • Overhead and profit (if a general contractor is involved) Descriptions of rooms: These should be accurate and all rooms identified. Estimates should be itemized and broken down by room, including square foot specifications
Adjustment Issues - Debris Removal - Let's look at two examples:
Example 1: A neighbor's boat is washed up against an insured building. The policy pays to move the boat far enough to effect repairs. If the boat washed up onto the policyholder's lawn, but not the insured building, the policy would not pay to move it. Example 2: Large amounts of sand washed up onto the insured building. The policy pays to move the sand far enough away to effect repairs to the insured building, but will not pay to remove the sand from the described location.
Adjustment Issues - Water, Moisture, Mildew, and Mold...Part 2
Example 2 On the other side of town another policyholder's home floods with three feet of water. Officials did not allow residents back into the area due to dangerous conditions. When the policyholder is able to get back into the area, the mold has grown up to and including the ceiling.
Adjustment Issues - Is it Wind or Water? Part 2
FEMA encourages adjusters to use all bulletin tips and proven investigative methods while handling these types of claims. A few of these tips include: • Research local newspapers, local weather service, etc. • Check highest wind speeds, barometric pressure, amount of rainfall • Check tidal heights, storm surge heights • Canvas the neighborhood for eyewitnesses, not hearsay or opinion
Adjustment Issues - Experts
FEMA encourages the use of experts—such as licensed engineers, certified public accountants (CPAs), or salvage companies—when needed. As soon as you believe an expert is needed, make the recommendation to the insurer through your chain of command.
Adjustment Issues - Heating, Ventilation, and Air Conditioning (HVAC)
HVAC is the only equipment outside the building perimeter that is covered. However, it is not always necessary to replace an air conditioner when it gets wet. Keep in mind that air conditioner condensing units sit outside in the exterior elements and are exposed to water and moisture all the time.
Common Quality Assurance Findings
Here are some of the common findings that adjusters should be mindful of when handling NFIP claims: • Incorrect estimates or worksheet calculations • Insufficient damage documentation • Payment processing errors • Covered loss exceeds the value of certain items
Adjusters Tip (Adjustment Issues - Heating, Ventilation, and Air Conditioning (HVAC))
If there is a question about the extent of damage, or if the unit is functional at the time of the inspection, the adjuster should advise the policyholder to have a qualified technician inspect the unit and provide a written report.
Adjuster Tip (Common Quality Assurance Findings - Incorrect Estimate or Worksheet Calculation)
It is imperative that only building items are included on the building estimate, and only contents items on the contents estimate. The policy deductibles for both building and contents must be applied separately. Refrigerators are building items as reflected in the SFIP Dwelling Form, Section III, A. Coverage A - Building Property, Item 7. However, a refrigerator may be afforded coverage under the SFIP Dwelling Form, Section III, B. Coverage B - Personal Property if the policyholder is a tenant of the building and owns the refrigerator
Adjustment Issues - Repetitive Losses
It is imperative that the adjuster be alert to any claims for which there might have been prior losses. The policyholder must prove that prior repairs were made before any current flood claims for the same or similar items can be considered.
Quality Assurance in the NFIP (Part 3)
In addition, WYO companies engage Certified Public Accountant (CPA) firms to perform biennial audits that include the claims section of the WYO. It is in the interest of all stakeholders, including adjusters, to be aware of findings from the following audits: DHS IPERIA of 2012, IPERA of 2010, the IPIA of 2002, DHS Financial Audit, and various GAO studies and reports, as well as the Operation Reviews, re-inspections, and biennial audits.
Adjustment Issues - Remediation Issues
It is not uncommon for a remediation service provider or the contractor to include charges within their invoice that: • Are not covered under the SFIP • Duplicate another charge • Should be priced within another SFIP-covered line item allowance
Adjustment Issues - Water, Moisture, Mildew, and Mold...Part 3
In the second example, the policy pays for a gut up to and including the ceiling as warranted. In this case the damage was not within the control of the policyholder. NOTE: Damage resulting from water, moisture, mildew, or mold is excluded in the policy if it results primarily from any condition substantially confined to the dwelling or within the policyholder's control. This includes failure to maintain and inspect the property after the flood recedes. The policyholder must mitigate damages.
Adjustment Issues - Water Depth...Part 3
Instructions for Recording Water Depth Basement. To find the water depth for Non-Basement: To find the water depth for a non-basement: locate the watermark height from the lowest floor and record as a positive number.
Adjustment Issues - Water Depth...Part 2
Instructions for Recording Water Depth Basement. To find the water depth for a basement: • Locate the lowest floor (including basement) • Measure the height from the lowest floor to the ceiling • Add 12 inches to account for the joist • Convert the ceiling height to a negative number, subtract the watermark height, and record as a negative number
Adjustment Standards and Requirements - Contents Claims Adjustment/Personal Property
It is the adjuster's responsibility to assist the policyholder with preparing the contents claim and verifying that contents being claimed are covered under the SFIP, and to verify accurate local replacement costs and apply appropriate depreciation. The adjuster must show photos of the damaged contents items. It is also a good practice to photograph undamaged items
Adjustment Issues - Repetitive Losses... Part 3
Items to pay particular attention to include, but are not limited to: kitchen appliances, boilers, water heaters, HVAC systems, and furnaces.
Adjuster Tip (Common Quality Assurance Findings - Incorrect Estimate or Worksheet Calculation)...continued
Qualifications for replacement cost loss settlement should be clearly documented, including noting the building's status as a single-family principal residence, which is insured 80 percent to value or at the maximum coverage amount available.
Adjustment Issues - Water Depth...Part 3: Question...
Question: A basement is 8 feet high (including joist) and has 5 feet of floodwater. How would you record the water depth? In the example given here, the water depth is reflected as -36": 8' minus 5' = 3' (-36") Note that in this example, the water depth is recorded as a negative number because it is for a basement.
Adjustment Issues - Debris Removal
Section III, Property Covered, C. Coverage C of the SFIP addresses debris removal covered by the policy as it relates to non-owned debris on or in the insured property and owned debris anywhere. The policy pays to move debris that is on the insured building far enough away to effect repairs, but does not pay to remove debris from the described location.
Adjustment Issues - Debris Removal...continued
The Debris Removal section of the SFIP states that when contents must be removed from the risk for health or safety reasons or to mitigate damage, the policyholder is required to substantiate the loss.
Common Quality Assurance Findings - Covered Loss Exceeds the Value of Certain Items
The adjuster's final estimate should reflect the proper coverage limits: • Special Limits, which are limited to $2,500 and are the aggregate of all items claimed that fall into this category • Loss Avoidance Measures and Property Removed to Safety, which are each limited to $1,000. These claims should be supported with invoices or other documentation
Adjustment Issues - Elevated Building
The SFIP defines an elevated building as a building that has no basement and has its lowest elevated floor raised above ground level by any of the following: • Foundation walls • Posts • Piers • Pilings • Columns
Adjustment Standards and Requirements - Contents Claims Adjustment/Personal Property...Part 2
The two bulletins below discuss personal property: Bulletin W-10035 discusses Flood Insurance Guidance Concerning Contents Manipulation Bulletin W-12090 discusses Debris Removal
Adjustment Issues - Water, Moisture, Mildew, and Mold
Think back to what you learned in the Dwelling Policy, Section V, Exclusions D.4 and read each of the following examples. What do you think the policy covers in each? Example 1 A policyholder's home floods with three feet of water the day before she leaves for a two-week vacation. She chooses to lock up the house and deal with the damage when she returns. Consequently, mold grows up to and including the ceiling. In the first example, the policy only pays for what is reasonable, a 4-foot gut of the risk. Had the policyholder mitigated the damages, for instance by removing wet carpet, drywall, insulation, etc., the additional damage would not have occurred.
Quality Assurance in the NFIP (Part 2)
To ensure its integrity, the program has established protocols which include: • Re-inspections • Operation reviews • DHS - Improper Payments Elimination and Reduction Improvement Act (IPERIA) of 2012, • Improper Payments Elimination and Recovery Act (IPERA) of 2010, • Improper Payments Information Act (IPIA) of 2002 • DHS Biennial Audits
Remediation Issues...Part 2
To ensure proper claim handling, it is imperative that an adjuster become knowledgeable about which remediation measures are warranted after a flood loss and afforded coverage under the SFIP.
Quality Assurance in the NFIP
WYO companies and the NFIP Direct Servicing Agent (NFIP DSA) are responsible for administering the NFIP under the auspices of the Federal Government.
Adjustment Issues - Elevated Building...Part 2
When adjusting an elevated building claim it is important to know whether the building is in a Special Flood Hazard Area (SFHA), as specified in Section III. Property Covered, A.8, and whether the building is Pre-FIRM or Post-FIRM. Remember: • A Pre-FIRM building is a building which was built prior to the initial FIRM date and, regardless of the zone it is in, does not have Post-FIRM limitations below the lowest elevated floor • A Post-FIRM building is a building, which was built or substantially improved after December 31, 1974 or on or after the effective date of the initial FIRM, whichever is later. Limitations of the SFIP will then apply. Note: To review a list of the building and personal property covered, see Section III, Property Covered.
Adjustment Issues - Personal Property in a Shed
When handling a personal property loss under the Dwelling Form, and the policyholder has some of those personal property items located in a shed at the described location, the contents items within the shed are covered if the shed meets the definition of a building.
Adjustment Issues - Is it Wind or Water?
When handling any type of flood claim, it is very important to know if the damage is the result of wind or water. Adjusters should pay close attention to the Wind vs. Water - Adjusting Practices included in Bulletin W-10017.
Adjustment Issues - Commercial Claims
When handling commercial claims with business inventory, keep in mind that it might be important to recommend the hiring of a CPA or salvor for proper handling of the damaged inventory claimed.
Adjustment Issues - Repair vs. Replacement
When working a claim, it is very important to pay special attention to whether building or personal property damage requires repair or replacement. Not everything touched by floodwater necessarily needs replacement; repair or cleaning might be warranted. Consider the type of floodwater involved—for example, clear, muddy, fresh, salt, or contaminated—and the length of time the water remained in the building. In the case of appliances, is a service call warranted before making an allowance to replace them, or can they be repaired? Furniture can often be refinished as opposed to replacing it. Again, consider all factors before automatically making a decision to replace.
Common Quality Assurance Findings - Payment Processing Errors
You can avoid payment processing errors by making all payment recommendations clear. Include other claim documents to support your recommendations, such as the estimate, proper photos, Preliminary Report, Final Report, and Proof of Loss. The adjuster is responsible for confirming the current mortgage company, identifying any additional lien holders and any other legal interests in effect at the time of the loss, and reporting these to the insurer.