FEMA Fights Mississippi Suit Against Flood Insurance Hikes

December 2, 2013

The federal government is urging a federal court to dismiss a Mississippi lawsuit seeking to halt flood insurance rate hikes until an affordability study is completed.

In arguing for the suit dismissal, the Federal Emergency Management Agency (FEMA), which administers the National Flood insurance Program (NFIP), says the controversial law forcing the rate hikes, the Biggert-Waters Flood Insurance Reform Act of 2012, “does not condition the implementation of rate increases on the completion of any studies.”

The Mississippi Insurance Department, at the direction of Commissioner Mike Chaney, filed its lawsuit on Sept. 26, 2013. The state is seeking declaratory and injunctive relief preventing FEMA from implementing rate increases that began on Oct. 1 under the Biggert-Waters (BW-12) law. Mississippi has since been joined by several other states.

Chaney claims that FEMA is in violation of a statutory mandate for it to have completed a study of the affordability of the rates changes by last April.

FEMA said that the law requires FEMA to contract with the National Academy of Sciences (NAS) for the affordability study and reports and spend no more than $750,000 on them, but that NAS told FEMA it could not do the studies within the timeframe or for the dollars allotted.

FEMA also says that even if the studies had been completed, they would not necessarily lead to any different results for property owners. “Congress did not tie the completion of any study or report to the implementation of rate increases in BW-12,” says the FEMA brief. “Plaintiff’s hypothesis that completion of these reports might affect premium rate increases in general, let alone for certain properties, requires numerous layers of pure speculation.”

The reports are to be sent to Congress, which may or may not act upon them, says FEMA.

The FEMA brief was filed Nov. 18 in U.S. District Court for the Southern District of Mississippi in Jackson.

There have been calls in Congress for legislation to delay the rate increases as members have heard from constituents who fear huge premium increases and damage to the real estate market.

Rep. Maxine Waters, D-Calif., ranking member of the House Financial Services Committee, and a principal sponsor of the BW-12 law, announced in late October that Senate and House members had reached a bipartisan legislative fix that she said will assure that “changes are implemented affordably.”

However, no fix has been voted upon yet.

Some business, taxpayer and insurance groups have urged Congress not to delay the BW-12 changes.

The FEMA brief is consistent with testimony by FEMA Director Craig Fugate in September in which he said the law does not give him the leeway to halt the rate increases because they may be unaffordable for many.

“I need help. I have not found a way to delay…without some additional legislative support. There is no provision for affordability in this law,” Fugate told the Senate Committee on Banking, Housing and Urban Affairs.

Study Provisions

BW-12 requires that the government conduct a number of studies and issue corresponding reports to Congressional committees. The Mississippi complaint focuses primarily on the “affordability” study and report meant to assess “methods for establishing an affordability framework for [NFIP], including methods to aid individuals to afford risk-based premiums under [NFIP] through targeted assistance rather than generally subsidized rates, including means-tested vouchers.”

To complete the study, the law requires FEMA to contract with the National Academy of Sciences (NAS) to conduct “an economic analysis of the costs and benefits of a flood insurance program with full risk-based premiums, combined with means tested Federal assistance to aid individuals who cannot afford coverage, through an insurance voucher program.”

FEMA says the law prohibits it from spending more than $750,000 from the National Flood Insurance Fund for the studies.

“All parties concluded that additional time and funding were needed to complete the full scope of work contemplated,” the FEMA brief says.

A report containing the results of the study and analysis was due to be submitted to committees of the House of Representatives and the Senate in early April, or 270 days after the enactment of BW-12, which happened on July 6, 2012.

Instead, NAS has proposed a two-phase approach to the analysis. The first phase would focus on the design of the analysis and the second phase would involve execution of the analysis. The first phase would be completed by March 2015.

FEMA’s brief also questions the standing of the Mississippi Insurance Department to even bring the lawsuit. It argues that Supreme Court precedent forecloses a state agency from suing the federal government on behalf of the state’s citizens to protect them from the operation of a federal law. Further, FEMA says its authority to set premiums is limited by Congress and it currently does not have the statutory authority required to implement the changes sought by the Mississippi suit.

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Insurance Journal West December 2, 2013
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