CoBRA Zones and Flood Coverage

Rapid development in coastal areas, on barrier islands and near habitat-rich wetland areas prompted the Federal government to pass the Coastal Barrier Resources Act of 1982 (CBRA). This was a legislative effort to minimize loss to human life, wasteful Federal expenditures and damage to fish, wildlife and natural resources in protected areas by discouraging further development. Coastal Barrier Resource System (CBRS) units were delineated by Congress with help from agencies within the Department of the Interior creating areas of land subject to "passive" Federal protection.

Congress expanded the CBRS units with the adoption of the Coastal Barrier Improvement Act of 1990 (CBIA). This act added CBRS units not part of the original act plus it created additional zones known as "Otherwise Protected Areas" (OPA's).

Otherwise Protected Area boundaries generally follow Federal, state or local park boundaries and include land used for recreation or conservation. However, OPA's are not always restricted to these properties. Congress intentionally incorporated undeveloped land located contiguous to defined park land into OPA's. Individuals and private entities own some of this undeveloped land.

These two acts combine to remove 3.1 million acres of land (1.3 million CBRS and 1.8 million OPA's) from eligibility for Federal flood protection through the NFIP.

Federal Funds in Protected Areas

Federal spending is strictly limited in CBRS units. Federal monies are available only to fund emergency assistance (not the same as disaster assistance), military activities necessary for national security, exploration for and removal of energy resources and the maintenance of existing Federal navigation channels. Individuals and entities within a CBRS unit cannot receive Federally-backed loans (i.e. VA, FHA, Fannie Mae or Freddie Mac loans) nor is Federal flood insurance available.

Only one restriction on Federal money applies in Otherwise Protected Areas. The only limitation on Federal funding in an OPA is Federal flood insurance. Structures located in an OPA cannot purchase flood coverage through the National Flood Insurance Program.

A 2002 US Fish and Wildlife Service study estimates that from 1983 through 2010 Federal fund restrictions mandated by these Acts will have resulted in $1.3 billion in savings to taxpayers. Restrictions on Federal spending for roads, wastewater systems, potable water supply, disaster relief and flood insurance in these restricted areas combine to create this savings.

Grandfather Laws in CBRS and OPA's

Structures existing prior to the adoption of these Acts garner grandfather status and remain eligible for Federal flood coverage provided they were built or substantially improved on or before specified dates and have not suffered substantial damage. Grandfather status is granted as follows:
• To any structure in a CBRS unit created by the CBRA of 1982 built or substantially improved on or before October 1, 1983;
• To any structure in a CBRS unit added by the CBIA of 1990 built or substantially improved on or before November 1, 1990; or
• To any structure in an OPA built or substantially improved on or before November 16, 1991.

Grandfathered buildings suffering substantial damage, from any hazard (fire, wind or flood), or substantially improved after the above dates lose eligibility under the grandfather laws and no longer qualify for flood coverage through the NFIP. Substantial damage and substantial improvement were defined in a previous article ("Flood Policy Definitions").

Passive Federal Protection

Restrictions on the availability of Federal money for loans or Federal flood coverage in these protected areas do not preclude the use of "free market" loan or open market flood insurance. Further, these laws do not disallow building and development in these areas; they just don't allow the use of Federal dollars to finance, insure, build roads to or supply potable water to such development.

Owners are allowed to develop their property as they desire (subject to building codes and laws) but without any federal money. The government did not take away property rights, just the availability of Federal funds, thus the term "Passive Federal Protection."

Determination of Coverage Eligibility

Only the US Fish and Wildlife Service can officially determine if a property is located in a CBRS unit or an OPA. Although these zones are indicated on applicable Flood Insurance Rate Maps (FIRMs), boundary lines on older FIRMs are only approximations and can be off by as much as 100 yards (affecting as many as three houses). No local surveyor, building inspector or other town official has the authority to make an official determination.

Standard flood insurance policies require that if ANY part of a structure is in a Special Flood Hazard Area (SFHA), the entire building must be rated in the higher risk zone (See "Flood Damage Not Limited to 'Flood Zones'," June 18, 2008, on MyNewMarkets.com). This rule does not necessarily apply in CBRS units or OPA's. If a building is dissected by a CBRS or OPA boundary line, provisions in the law may allow the property to remain eligible for Federal flood coverage. Decisions are made on a case-by-case basis depending on the specific details and history of the property in question.

Additions made to a structure after an eligibility ruling has been made can be problematic. Expansion on the seaward side of the dissecting boundary line could jeopardize the structure's continued eligibility. However, additions on the leeward side should not result in any coverage issues (provided there is no change in the reference level).

States Affected

Twenty-one states, Puerto Rico and the Virgin Islands are home to CBRS units or OPA's. States containing these units are: Alabama, Connecticut, Delaware, Florida, Georgia, Louisiana, Massachusetts, Maryland, Maine, Michigan, Minnesota, Mississippi, North Carolina, New Jersey, Ney York, Ohio, Rhode Island, South Carolina, Texas, Virginia and Wisconsin.

The Coastal Barrier Resources Reauthorization Act of 2000 re-codified these areas through 2010. Changes to these boundary lines and locations can only be made by an act of Congress.

Proposed Changes - Flood Insurance Reform and Modernization Act of 2007

Following is a brief synopsis of some of the proposed changes currently being debated. This is not an all-inclusive presentation of the bill's provisions; a more complete copy can be found at the FIRMA 2007 Website.

Section 4 extends the authorization for the NFIP for an additional five years through Fiscal Year 2013.

Section 5 expands the classification of properties to which the FEMA Director is required to extend flood insurance coverage. Under the legislation, coverage will be made available to "residential properties of more than four units" in a coverage amount made available to commercial properties ($500,000 on the structure).

Section 6 phases out the subsidies for many of the "pre-FIRM" properties. Currently, 25 percent of NFIP-insured properties pay subsidized rates because they were built prior to the existence of the flood rate maps (pre-FIRM). This section requires non-primary residences, severe repetitive loss properties, any properties where flood losses have exceeded the property value and any business property to pay actuarial rates. This requirement will be phased in over four years.

Plus, FEMA will be permitted to increase premiums by 15 percent per year, up from the current 10 percent cap. This section also requires that any new flood insurance policy for a property not covered by a flood insurance policy as of the date of passage must be insured at actuarial rates (affects grandfather rules).

Section 7 requires that the FEMA Director issue amended regulations defining special flood hazard areas to include residual risk areas protected from flooding by man-made structures such as levees or dams. Once all essential residual risk areas are mapped, properties in these areas will be required to purchase flood insurance.

Section 8 prohibits FEMA's current practice of allowing properties that are remapped into a Special Flood Hazard Area to indefinitely pay rates that reflect their old risk level. Under this section, any property mapped into a SFHA will be required to pay rates reflecting the new risk designation. Properties covered by flood insurance at the time of remapping will have the new rates phased in over two years at a rate of 50 percent per year. (NOTE: This, too, effectively does away with the grandfather laws).

Section 12 completely eliminates any NFIP debt obligations owed to the United States Treasury as a result of the 2005 hurricane season.

Section 13 increases minimum deductibles as follows:
• Pre-FIRM property deductibles will be increased from $1,000 to (a) $1,500 if the property is insured for $100,000 or less, or (b) $2,000 if the property has over $100,000 in coverage.
• Post-FIRM property deductibles will increase from $500 to (a) $750 for those with $100,000 of coverage or less, or (b) $1,000 if the flood insurance policy covers greater than $100,000.

Section 14 requires the NFIP to use actuarial principles in determining rates, and to consider catastrophic loss years in the calculation of average losses.

Section 17 clarifies that condominium unit owners carrying flood insurance should receive loss payments regardless of the adequacy of flood insurance coverage of the condominium association and other condominium owners.

Section 19 requires that FEMA establish an ongoing mapping program to review, update and maintain flood insurance rate maps.

Section 20 eliminates the current prohibition barring states from contributing greater than 50 percent of the cost of map modernization.

Section 23 states that while it is not mandatory to purchase flood insurance in the 500-year floodplain ("Shaded X" zones), due to the risk of flooding, it requires that communities be given notice when they are mapped into a "Shaded X," and it requires lenders to give notice to purchasers of property.

Section 26 requires that FEMA, at the request of a state commissioner of insurance, take part in state-sponsored, non-binding mediation to resolve insurance claims disputes where there are multiple insurance claims on the same property.

Section 27 reiterates the responsibilities of FEMA under the 2004 reauthorization Act to establish minimum training requirements, and requires that FEMA report to Congress within three months on the status of all reforms.

Section 32 establishes an Office of the Flood Insurance Advocate to assist policyholders with any problems they have with the NFIP and claims.

Conclusion

This ends the current series on Federal flood insurance. A Flood Insurance Checklist for use with clients will be posted shortly.