1905.6

1905.7

1905.8

Inspections and applications for in

surance.

Deemer or binder requirement.

Placement action after inspection report.

Prohibition of unnecessary reinspections.

1905.9 Notice of cancellation or nonrenewal.

1905.10 Impartial selection of adjusters. 1905.11 Coding and reports under the Plan. 1905.12 Inapplicability and waiver of regulations.

AUTHORITY: The provisions of this Part 1905 issued under sec. 7(d), 79 Stat. 670; 42 U.S.C. 3535(d); sec. 1103, 82 Stat. 566; 12 U.S.C. 1749bbb-17.

SOURCE: The provisions of this Part 1905 appear at 36 F.R. 24751, Dec. 22, 1971, unless otherwise noted.

§ 1905.1

Definitions.

As used in this part

(a) "Act" means the Urban Property Protection and Reinsurance Act of 1968, codified as title XII of the National Housing Act (12 U.S.C. 1749bbb-1749 bbb-21), which authorized the program. Section references are to the National Housing Act;

(b) "Administrator" means the Federal Insurance Administrator within the Department of Housing and Urban Development, to whom the Secretary has delegated the administration of the program (34 F.R. 2680, Feb. 27, 1969);

(c) "Applicant" means any property owner, or his authorized representative, who duly requests essential property insurance for a risk eligible under a FAIR Plan;

(d) "Binder" means a temporary and preliminary contract of insurance to protect owner against loss from the occurrence of an insurable event before a policy is issued;

(e) "Deemer provision" means a provision in a Plan whereby interim coverage for an eligible risk is deemed automatically to attach upon the ex

piration of a specified period of time after an application for inspection and insurance;

(f) "Eligible property,” “eligible risk,” or "risk eligible under the Plan" means any real property, personal property, or mixed real and personal property, potentially insurable under one or more lines of essential property insurance, subject to an inspection to ascertain insurability and applicable premium rates;

(g) "Environmental hazard" means any hazardous condition that might give rise to loss under an insurance contract, but which is beyond the control of the property owner or tenant;

(h) "Essential property insurance" means insurance against direct loss to property as defined and limited in standard fire policies and extended coverage endorsement thereon, as approved by the State insurance authority, and insurance against the perils of vandalism and malicious mischief. Such insurance shall not include automobile insurance and shall not include insurance on such type of manufacturing risks as may be excluded by the State insurance authority;

(i) "FAIR Plan" or "Plan" means a statewide Plan to assure "fair access to insurance requirements" that is approved by the Administrator as meeting the criteria of Part A of the Act, including such modifications thereof as the Administrator may promulgate from time to time under this part in accordance with subsection 1214(b) of the Act (12 U.S.C.

1749bbb-6(b));

(j) "Inspection facility," with respect to any State, means any rating bureau or other person duly authorized and designated to perform inspections under a Plan;

(k) "Insurer" includes any property insurance company, or group of companies under common ownership or common management, authorized to engage in the insurance business under the laws of at least one State;

(1) "Participating insurer" means any insurer eligible for membership in a Plan and fully participating in that Plan. The term shall not include any insurer in any State in any year in which such insurer does not participate in the Plan on a risk-bearing or potentially risk-bearing basis;

(m) "Person" includes any individual, group of individuals, corporation, partnership, association, or any other organized group of persons;

(n) "Placement facility" means the facility established under a Plan to place or provide essential property insurance to persons making application for one or more lines of such insurance under the Plan:

(o) "Pool" means any pool or association of insurance companies in any State that is formed, associated, or otherwise created for the purposes of sharing risks and of making property insurance more readily available;

(p) "Property owner" or "owner," with respect to any real property, personal property, or mixed real and personal property, means any person having an insurable interest in such property;

(q) "Secretary" means the Secretary of Housing and Urban Development;

(r) "State" means the several States, the District of Columbia, the Commonwealth of Puerto Rico, the territories and possessions, and the Trust Territory of the Pacific Islands;

(s) "State insurance authority" means the person having legal responsibility for regulating the business of insurance within a State;

(t) "Surcharge" means (1) any condition charge, and (2) any general or other charge added to the basic insurance rates or premium ordinarily applicable to the same class of property; but does not include specific rates that apply to all property in a Plan on the basis of actual self-rating experience;

(u) "Urban area" includes any municipality or other political subdivision of a State, subject to population or other limitations defined in rules and regulations of the Secretary, and such additional areas as may be designated by the State insurance authority; and

(v) "Year" means a calendar year; fiscal year of a company, association, or pool; reinsurance contract year; or such other period of 12 months as may be designated by the Administrator.

§ 1905.2 Composition and supervision of FAIR Plan.

(a) The Administrator will periodically review each State's FAIR Plan in its entirety for conformity to statutory criteria (12 U.S.C. 1749bbb-3-1749bbb-6) an dthis part. Although the number and location of the required elements in a Plan will vary according to the particular

method and procedures used by the State, the required documentation comprising each Plan could include any or all of the following, as relevant:

(1) The State law, where one has been enacted;

(2) The industry agreement or program, if any;

(3) The approval action by the State insurance authority with respect to the industry agreement or program, or by court order or other approval authority, if applicable; and

(4) Implementing rules, regulations, and orders, together with operating procedures and forms.

(b) The Plan shall include a certification by the State insurance authority of the date on which the Plan was placed in effect and on which any amendments to the Plan are effective.

(c) The Plan shall evidence that it has been approved by, and is to be administered under the supervision of, the State insurance authority.

(d) The Plan shall provide for a continuing public education program by participating insurers, agents, and brokers, in order to assure that the Plan receives adequate public attention. For example, a brochure or other publication should be made widely available for distribution through all agents, brokers, and other producers. All participating insurers, agents, and brokers should include such a publication with each notice of cancellation or nonrenewal in order to provide policyholders with the required information concerning the placement of insurance under the Plan.

(a) At a minimum, the Plan shall provide for insurance against direct loss to property as defined and limited in standard fire policies and in (1) extended coverage, and (2) vandalism and malicious mischief endorsements thereon, as approved by the State insurance authority. It shall not include automobile insurance nor such types of manufacturing risks as may be excluded by the State insurance authority. The Plan shall specifically provide for insurance against direct loss to property that is being constructed or rehabilitated (including builder's risk coverage). To avoid the need for amendment to the Plan and delays in securing new approval action, the Plan should provide for the inclusion of such additional lines of property insurance as from

time to time may be designated essential by the Administrator pursuant to section 1203 (a) (2) of the Act, 12 U.S.C. 1749bbb2(a)(2).

(b) The Plan shall specify its geographic area of coverage. If the entire State is not designated as the area of coverage, the Plan must specify-by name, by population size, or by classthe political subdivisions and other areas eligible under the Plan. The area of coverage may not be limited to communities that have a blighted or deteriorating area or an area approved by the Secretary for an urban renewal project.

(c) Each State insurance authority under whose jurisdiction a Plan has been put into operation shall keep the Administrator fully and currently informed of any modifications or changes in the organization or operation of the Plan in his State, whether or not such changes directly affect the availability of coverage under the Plan.

§ 1905.4 Insurer participation and placement program.

(a) The Plan's placement program may take any of a variety of forms; for example, it may involve a syndicated or direct writing pool, an assigned risk facility, a reinsurance pool or association, or combinations of the foregoing.

(b) The Plan shall not discriminate against, shall provide for full cooperation with, and shall seek cooperation from all agents and brokers licensed to write property lines in the State. The inclusion of agents and brokers on FAIR Plan governing boards is encouraged.

(c) The Plan shall include one or more all-industry placement facilities, doing business with every insurer participating in the Plan, to perform the following functions for properties meeting reasonable underwriting standards:

(1) Upon request by or on behalf of a property owner requesting an inspection under the Plan, distribute the placement or risks equitably among the insurers with which it does business; and

(2) Place insurance up to the full insurable value of the risk to be insured with one or more insurers with which it is doing business, except to the extent that deductibles, percentage participation clauses, and other underwriting devices are employed to meet special problems of insurability. In the case of very large risks not accommodated by the Plan (e.g., those whose full insurable value exceeds $1,500,000), the Plan shall

provide that the placement facility shall assist in seeking to place the excess portion.

(d) As soon after May 1 of each year as practicable, each State insurance authority under whose jurisdiction a Plan has been put into operation shall notify the Administrator of the names of all insurers that are fully participating (on a risk-bearing basis) in the FAIR Plan of such State on that date in accordance with the conditions of the Standard Reinsurance Contract in effect at that time. For a Plan in which participation by insurers is voluntary, the notification shall include an estimate by the authority of the aggregate premium volume of essential property insurance written by participating insurers in relation to the total premium volume in such lines written by all property insurers in the State.

(e) Federal riot reinsurance will be offered only to those insurers that (1) have direct writings in one or more lines of essential property insurance and (2) are actually or potentially risk-bearing members of any pool organized under the Plan, as certified by the State insurance authority.

§ 1905.5 Inspections and applications for

insurance.

(a) The Plan shall designate one or more inspection facilities, which may also operate as placement facilities if desirable.

(b) The Plan shall make its inspection and placement facilities readily available and accessible to the general public by providing a central source of information on the services it provides and on the manner of application. To assure the public's access to such information, the telephone information number of the Plan shall be listed alphabetically as "FAIR Plan" (1) in the white sections and (2) under "Insurance" in the classified sections of the telephone directories of each city where these facilities maintain an office.

(c) The Plan shall require that there will be an inspection of any eligible risk that is submitted to a placement facility or to a servicing insurer if such facility or insurer is unwilling to write coverage at regular rates. The Plan may not require as a precondition for obtaining an inspection that the property owner make a showing or certification that he has been unable to obtain insurance in the regular market.

(d) The Plan shall provide that inspections may be requested by the property owner or his authorized representative, the insurer, or the insurance agent, broker, or other producer. The Plan shall also provide that the request for an inspection need not be in writing, although it can provide for the transcribing of the pertinent information on a form.

(e) An inspection under the Plan shall be without cost to the property owner. Payment of a deposit premium may not be required as a precondition to inspection. However, the Plan may allow a property owner, at his option, to pay a deposit or provisional premium at the time of application, rather than at the time insurance under a deemer or binder provision becomes effective.

(f) The Plan may not require the presence of the owner of the building for a tenant to obtain an inspection, but the inspection facility must be provided access to the relevant portions of the building in which the property to be insured is located.

§ 1905.6 Deemer or binder requirement.

(a) Each Plan shall contain either a deemer or a binder provision in order to prevent lapses of insurance coverage for risks eligible under the Plan before coverage has been provided or declined under the Plan. A Plan may contain both a deemer and a binder provision.

(b) Plans adopting a deemer provision shall provide that eligible risks are automatically deemed insured if, (1) through no fault of the applicant, coverage has not been either offered or denied within 20 calendar days after the date the request for inspection was received, and (2) the applicant, at the time of requesting the inspection or at any time prior to the receipt of an inspection report indicating that the property is uninsurable, pays either the estimated annual premium or the portion thereof that is appropriate for the period of time for which the coverage is provided. The period of coverage provided under any such deemer provision shall not be less than the time required to complete the inspection and to process fully in the ordinary course of business any related application for insurance of the property submitted either directly to the placement facility or first to a designated insurer and thereafter to the placement facility if necessary.

(c) Plans adopting a binder provision shall provide that an applicant may apply for and obtain temporary coverage for a risk eligible under the Plan upon payment of a provisional premium at the time of requesting the inspection. The Plan, at its option, may also provide that coverage under the binder shall be extended for a sufficient period of time, after receipt of an unfavorable inspection report, to enable the applicant to bring the property up to insurable standards, but during the period of such rehabilitation reasonable condition surcharges may be added to the normal premium rates otherwise applicable to such property.

(d) Coverage provided under the deemer or binder provisions of the Plan shall be at the normal rates for the class of property to be insured, exclusive of any surcharge, but shall be subject to an appropriate premium adjustment, if necessary, after the property has been inspected.

(e) It is expected that no policyholder will be without coverage following a cancellation or nonrenewal under the Plan or otherwise, due solely to delays in inspecting and placing the risk under the Plan, and the Plan shall set forth the manner in which the objective of maximum possible continuity of coverage is to be accomplished. Binding coverage immediately, subject to inspection, would accomplish this and is encouraged.

§ 1905.7 Placement action after inspection report.

(a) The placement facility or insurer to which a risk is referred by the inspection facility shall complete an action report and promptly notify the applicant of the following:

(1) The amount of coverage that it agrees to write; and, if the coverage is with a surcharge, the amount of such surcharges and the improvements needed for coverage at a lower surcharged rate and at an unsurcharged rate;

(2) The amount of coverage it agrees to write if specified improvements are made; or

(3) That it declines to write the coverage because the property does not meet reasonable underwriting standards, in which case it will also state the specific information from the inspection report and other sources that constitutes the basi for this determination.

(b) No surcharge shall be made on any risk unless it is based upon an ap