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On Assignment: ICC Claims

All NFIP insurance policies include Increased Cost of Compliance (ICC) coverage, which pays as much as $30,000 to help a policy holder with the costs of bringing a flood-damaged building in a Special Flood Hazard Area (SFHA) into compliance with the local community's floodplain ordinance.

What happens to an ICC claim if a flood-damaged building with NFIP coverage is sold to a new owner before the claim has been processed?

Although the NFIP's Standard Flood Insurance Policy (SFIP) will allow for the assignment of the policy when the title to the property is transferred to the new owner, the SFIP does not provide for assignment of a claim.

According to the SFIP's Dwelling Form (Section VII. General Conditions D. Amendments, Waivers, Assignment):

This policy cannot be changed nor can any of its provisions be waived without the express written consent of the Federal Insurance Administrator. No action that we take under the terms of this policy constitutes a waiver of any of our rights. You may assign this policy in writing when you transfer title of your property to someone else, except under these conditions:
  1. When this policy covers only personal property; or
  2. When this policy covers a structure during the course of construction.
However, there is one condition under which an ICC claim can be assigned: when it is done in conjunction with a FEMA project such as the Hazard Mitigation Grant Program (HMGP). In this case, the assignment of claim funds is made to the local community, which most often uses these funds as the non-Federal match required for a community to participate in an HMGP project. Only that part of the ICC benefit that pertains to the project requirements is assigned to the community. The original owner of the property retains the remaining ICC benefits.

Because a building's sale from one individual to another is a contract between those individuals, it does not involve the NFIP, unless the parties specifically choose to assign the flood insurance policy. Again, the claim cannot be assigned. The NFIP's contract is with the policyholder who insured the building. The NFIP's requirement to pay the claim for a flood loss is with the policyholder insured at the time of the loss. If the new purchaser of the building knows the building must be brought into compliance with an ordinance, the purchase price should reflect that requirement.
 Last updated on September 1, 2007