FEDERAL PROGRAMS · 5 MIN READ

Flood Loss Settlement and ICC Coverage

The SFIP Dwelling Form settles building losses on Actual Cash Value unless the insured earns replacement cost treatment by passing two tests at the time of loss. First, the building must be the insured's principal residence, defined as one the insured lived in for at least 80 percent of the 365 days before the loss (or 80 percent of the ownership period if owned less than a year). Second, the building coverage must equal at least 80 percent of full replacement cost, or the maximum limit available under the program ($250,000 for a single-family dwelling). Fail either test — for example, a vacation home or an underinsured primary home — and the settlement drops to ACV. Non-primary residences are always settled at ACV. The SFIP also carries a unique coverage found in no homeowners form: Coverage D, Increased Cost of Compliance (ICC), which pays up to $30,000 toward the cost of complying with state or local floodplain-management law after a qualifying flood loss. The main trigger is a substantial-damage declaration: the local floodplain administrator determines that flood repair costs equal or exceed 50 percent of the building's pre-damage market value. A qualifying repetitive-loss building can also trigger ICC where the community enforces a cumulative substantial-damage or repetitive-loss provision. ICC money pays for elevation, relocation, demolition, or floodproofing — the compliance measures the community requires before the building can be reoccupied. The 50 percent threshold does double duty. Under the Substantial Improvement / Substantial Damage rule, any improvement or repair costing 50 percent or more of the building's pre-damage market value forces the entire structure up to current standards for new construction in the SFHA — typically elevation to or above the Base Flood Elevation. A substantially damaged building that is not brought into compliance exposes the community to probation and loss of subsidized rates, and the status must be disclosed to subsequent buyers.