THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Thursday, October 3, 1996 TAG: 9610030343
SECTION: LOCAL PAGE: B1 EDITION: NORTH CAROLINA
SOURCE: ASSOCIATED PRESS
DATELINE: WILMINGTON LENGTH: 65 lines
The good news: Thousands of coastal residents bought federal flood insurance before Hurricane Fran. The bad news: Dozens of those policies may not be worth the paper they're written on.
Private insurance companies are not supposed to issue federal flood insurance policies in areas deemed unsafe by the 1983 Coastal Barrier Resources Act. But the federal government has no safeguard to prevent such sales.
``We've relied on the private insurance companies to know where the CBRA zones are,'' said James Shortley, director of claims for the Federal Insurance Administration. ``I'm sure any errors made were just honest mistakes.''
In an area of storm-damaged North Topsail Beach covered by the law, 76 homes have federal flood policies, Shortley said.
Though some may be eligible because they were covered before the law took effect in October 1983, federal officials have no idea how many residents may have been issued policies erroneously.
Shortley's department is investigating and notifying insurance companies of questionable policies.
But homeowners who mistakenly received those policies and are filing claims for Hurricane Fran damage could find themselves out of luck.
If violations of the law are found, the policyholders will get refunds of their premiums instead of payment on their claims, Shortley said.
In most cases, that's a lot less money. The average yearly premium for federal flood insurance is $300. For a home built in 1983, the refund would be about $3,800.
If any claims were paid for Hurricane Bertha damage and the Insurance Administration discovers the policies were issued in error, he said, the claim money must be repaid. But he said the insurance company that issued the policy normally would make that payment.
About 90 percent of federal flood insurance policies are administered through private insurance agencies, and a mistake could happen.
But some private insurance agents say that's not likely.
Nationwide Insurance has a computer system that would immediately flag a North Topsail Beach address as a potential problem area, said Ron Herron, flood team leader.
``At that point we would require further documentation,'' he said.
Though some residents at North Topsail Beach don't fall in the CBRA zone, most of the development on the northern third of Topsail Island came after Congress passed the law. Congress was trying to discourage development on disaster-prone barrier islands.
Shortley said a team from the Federal Emergency Management Agency began working after Hurricane Bertha to determine the number of federal flood policies within the CBRA zone at North Topsail.
``When they realized there was so much building up there, they started looking closer,'' he said. ``It was a tedious task of putting street maps on flood maps.''
They were still working on the case when Hurricane Fran hit, Shortley said. The Federal Insurance Administration, which is part of FEMA, is trying to sort out the case and notify individual insurance agencies of the findings.
Though Shortley admits the system of checks and balances is flawed, he said his agency has only 40 employees and no way to check every application. The department handles 3.5 million policies nationwide.
A new computer program that lines up flood insurance rate maps with street maps is being set up, Shortley said.
``That way, we won't be waiting until claim time to figure these things out,'' he said. by CNB