Policy Interpretation 1997-1
Subject: Deliberate Creation of Duplicate Policies
Backqround: The Duplicate Policies provision (Dwelling Policy, Article 9.U; General Property Policy, Article 8.W; Residential Condominium Building Association Policy, Article lO.W) of the Standard Flood Insurance Policy provides that if there are duplicate policies on the same risk, only one policy can remain in effect. In this case, the insured may decide which policy is to remain in effect and which policy is to be cancelled.
The intent of giving the insured this option in the Duplicate Policies provision is to address situations where duplicate policies are inadvertently written. If the insured's option is applied to the deliberate creation of duplicate policies, the potential for abuse exists.
For example, when a Community Rating System (CRS) credit becomes available for a community, it is to be applied at the first renewal of the policy following the effective date of the CRS credit. Agents, however, have been deliberately writing duplicate policies and using the Duplicate Policies provision to obtain the CRS credit before renewal. This is not in keeping with the NFIP's intent not to apply the CRS credit to existing policies until renewal.
With the Increased Cost of Compliance (ICC) coverage becoming effective for all new or renewed policies effective on or after June 1, 1997, there is another potential abuse of the provision. This is the deliberate creation of duplicate policies to obtain ICC coverage prior to the policy renewal date. It is the NFIP's intention not to provide ICC coverage to existing one-year policies until renewal.
Interpretation: The insured's option under the Duplicate Policy provision to elect which policy to keep in effect when there are duplicate policies does not apply when there has been a deliberate creation of duplicate policies. However, cancellation reason number three in the Flood Insurance Manual, which permits a policy to be cancelled and rewritten to establish a common expiration date with other insurance coverage, remains valid.
In the event it is determined that duplicate policies have been deliberately created, whether to obtain the CRS credit or ICC coverage, or for whatever reason, the policy with the later effective date must be cancelled. Losses occurring under such circumstances will be adjusted according to the terms and conditions of the first policy.
Last Modified: Tuesday, 23-May-2006 11:02:10 EDT