Hurricane Sandy has brought about a number of changes to New Jersey and the rest of the tri-state area. It appears to be bringing about some changes – or clarifications – at FEMA as well. This week FEMA released a bulletin concerning appraisal of flood claims under the National Flood Insurance Program (NFIP). While most insurance policies permit appraisal where the carrier and the policyholder disagree as to the basics of the claim, NFIP claims are different, as a review of the above-mentioned bulletin will reveal.

FEMA has created prerequisites to moving a claim into appraisal. These are:

  1. There must be an agreed upon scope – “This means that there must be a list of damaged items (the scope) that both parties agree were damaged by the flood event and covered by the SFIP.” A failure to agree upon a scope means that the NFIP will deny appraisal.
  2. There must be submission of a timely Proof of Loss – see my earlier posts on proof of loss that cover the disputed portions of the claim.
  3. The appraisal must be for price only. “Appraisal is available only when the dispute between the parties involves the price to be paid for an SFIP-covered flood-damaged item. No other dispute of any type (e.g., coverage, scope, or causation) can be submitted to Appraisal.”
  4. Both appraisers and the umpire must be qualified and impartial. “The Appraisers and umpire selected for the Appraisal process must be competent and impartial.” Thus as I wrote here, your public adjuster cannot serve as your appraiser.

In issuing the bulletin, FEMA states they are “issuing this bulletin to provide guidance regarding when the Appraisal clause may be used, and what the necessary conditions are for invoking it.” While the bulletin seems to speak in terms of clarifying confusion, I have spoken to some public adjusters and industry professionals who feel that this is an effort by FEMA to restrict the policyholder even further than the NFIP already does. It is too early in the game to know how the courts will treat this bulletin, but I have a feeling some litigation will arise from these issues.