NFIP Policies on Claims

Does the NFIP pay the policy limits under one of its issued policies, when the estimated cost of repairs plus cost of compliance with current codes amounts to a sum less than the policy limit, as regarding a primary residence that has been determined to be "substantially damaged" by the community agency charged with making that determination?

Does the NFIP make a distinction between a total loss invoking policy limits, and the designation by the appropriate community authority of "substantial damage"?


I posed these questions to the NFIP directly, through their "Ask The Expert" webpage. I heard back from Butch Kinerney. His answer follows.

For the first question:
"No. The NFIP pays for the actual damage, up to the policy limit, plus the additional $30,000 which is available for increased cost of compliance – meeting current flood codes after a substantial damage determination by local officials. So if a property is worth $250,000 and has $250k in coverage, and sustains $150k in damage (more than half the value of the property), then NFIP pays $150k in damage plus the additional $30k is available to bring the property into floodplain compliance.
For the second question: 
"NFIP bases payments on adjustments by certified insurance adjusters. The designation of "substantial damage" is that more than 50% of the value of the property has been damaged by the event, as determined by local officials (so they might not be in total agreement on damage estimates). Either way, a substantial damage determination could fall well short of the policy limits, as in the scenario above.  Once the property owner gets the paperwork from the city on the substantial damage determination, they then file the claim for the ICC benefits."
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