Hello all,

We are conducting a flood review and believe we may have force-placed some policies (and charged the forced placed premium) too soon on loans covered by FEMA's 3/28/2020 Memo extending the grace period for nonpayment of premiums due to COVID, because Trump invoked the Stafford Act emergency determination.

To my knowledge, no banking agencies made institutions aware of this, so we are flying blind in our interpretation. Has anyone else come across this or refunded force place premiums because of it? Thanks!

I don't recall any guidance from the agencies allowing the delay or modification of the notification cycle/timing of force-placement.

If the customer paid the premium during the extended grace period, the coverage remained in effect without lapse. If they were charged any premiums for force-placement, those should be refunded.

If they did not pay during the extended grace period, the cancellation effective date remains the policy expiration date and force-placement is justified.

Just my opinion.

I believe the FEMA extension had no effect on force-placement requirements. It gave policyholders more time to renew the policy without it being cancelled, but that doesn't change the fact that the policy expired and your Bank didn't have flood insurance in place once it expired.

The FDIC stated in the following FAQ that lenders should factor the extended grace period when working with borrowers or with respect to force placement. However, IMO, this didn't specifically state that you must not force place once the policy expired.

Frequently Asked Questions for Financial Institutions Affected by the Coronavirus Disease 2019 (Referred to as COVID-19) – As of May 27, 2020

27. [04/28/2020] Flood Insurance Coverage. Do flood insurance renewal premium payments still need to be received within 30 days of the policy’s expiration date to avoid a lapse or reduction in coverage?

For certain flood insurance policyholders, the Federal Emergency Management Agency (FEMA) announced that the grace period for making premium payments has been extended during the COVID-19 emergency. Specifically, on March 29, 2020, FEMA indicated it was taking steps to ensure flood insurance policies are not canceled for nonpayment of premiums due to the COVID-19 emergency. FEMA acknowledged that National Flood Insurance Program (NFIP) policyholders may experience serious changes to their financial situations, including loss of income, along with disruptions of normal business services.

Due to a concern about possible lapses or reduction in coverage and the subsequent denial of claims occurring during the gap in coverage, FEMA extended the grace period for receipt by the NFIP of flood insurance renewal premiums and of any additional premiums due as required by an underpayment notice from 30 days to 120 days. The announcement applies to flood insurance policies with an expiration date between February 13, 2020 and June 15, 2020. Accordingly, lenders should factor this extended grace period (or as further extended by FEMA) in working with borrowers or with respect to force placement of flood insurance.

For additional information about FEMA’s extension of the grace period for flood insurance renewal premiums, please see: https://nfipservices.floodsmart.gov/sites/default/files/w-20002.pdf; and https://www.fema.gov/news-release/2...-period-flood-insurance-renewal-premiums

I should have quoted this FAQ instead:

29. [05/03/2020] Force Place Flood Insurance. How does the Federal Emergency Management Agency (FEMA) Bulletin W-20002 affect the force placement requirement under the Flood Disaster Protection Act and the implementing regulation? If a flood insurance policy lapses during the COVID-19 emergency, should a lender force place insurance?

The FDIC understands that the effects of the COVID-19 emergency on lenders and their customers is an evolving situation that could pose significant temporary business disruptions and challenges that affect lenders, businesses, and borrowers. In accordance with the flood insurance force placement regulations, when a lender makes a determination that a designated loan is not covered by a sufficient amount of flood insurance, it must notify the borrower. If the borrower does not provide evidence of sufficient coverage within 45 days after notification, the lender must force place flood insurance in an amount to satisfy the regulatory requirements. In addition, as a result of the COVID-19 emergency, National Flood Insurance Program (NFIP) policy holders with policies that expire between February 13, 2020 and June 15, 2020 (FEMA emergency period) now have a grace period of 120 days (up from the standard 30 days) after the expiration date of a policy to reinstate flood insurance coverage.24

In light of this policy, for NFIP policies expiring during the FEMA emergency period, lenders may consider the following examples on implementing FEMA’s grace period extension:

• A lender may provide the required notice to the borrower after determining the policy has expired with an indication that the NFIP grace period has been extended for 120 days. Lenders may inform borrowers that, in light of Bulletin W-20002, force placement will not occur until the end of the 120-day period.
• Alternatively, a lender may provide the required notice to the borrower at least 45 days before the end of the 120-day grace period.
• For either example, if a flood insurance policy is insufficient or has expired or lapsed, lenders should make good faith efforts to have borrowers obtain sufficient flood insurance; otherwise, flood insurance should be force-placed on behalf of a borrower if the borrower does not pay the premium at the end of the 120-day grace period to ensure protection is in place in the event of a flood.
• FDIC examiners, under the FDIC’s discretionary examination authority, will consider lenders’ good faith efforts to comply with flood insurance requirements, provided that the circumstances were related to the COVID-19 emergency and that the institution responded to any needed corrective action.
• Lenders should be aware that if they force place flood insurance for NFIP policies that expire during the FEMA emergency period prior to the expiration of the 120-day grace period and the borrower pays the premium by the end of the 120-day grace period, the lender would be required under existing flood insurance regulations to refund the borrower for any overlapping flood insurance coverage.

Thanks! Yes, I got to remembering the COVID accommodation FAQs too, and that they likely addressed the matter. For reference sake in case others come upon this thread... The most recent version is at https://www.fdic.gov/coronavirus/faq-fi.pdf, and the most relevant one quoted above is now #34.

The big take away is making sure any FP premiums charged get refunded if the borrower paid the premium by end of the 120 day grace period. Thanks again!