Opinion on Conversion of National Flood Insurance Program from Industry-Operated Program to Government-Operated Program

Published by the Government Accountability Office on 1977-12-09.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                                            COMPTROLLER GENERAL OF THE UNITED STATES
                                                       WASHINGTON,. D.C. IOS48


                                                                                         DEC 9 1917
                                        Thomas P. t.:a91eton
                          w                   ~ t e
                               a t ell ,!<.. e,.I:!

                        Senetor Eagletonl
                    ,?hi3 re",lies to your letter ot                      ~lovember   22, 1977, reque!;tinq
          . ~"Jill o?lnion or.· sevenl a5?€:cts of the l':p.pactlfent of ·P.om:- .
            Itnd Urcan Developnent's (HUD) natcrJr.in<!tion to convect the
        ~."'1!,,1 flood Insurance Proo:'!care fror.l lIn inaustey-cfI.e eated pro-
              th E'edee~l financial assieto!!nce (l>.:rt 1\) to .,·:.;ovecnment-
    one,      d pco:jra::' "itt! ir.dustry assistance ("!Ie t S). In .a doition
    r6 ·o1:her matters, you asked us to ., ive il:':::ed lat.e cons idera:tion
    to' tl'le tollowing:
                : ~- ;::!£~.H~~'!~_Q~~~ ..§y.E.~,!?~~ •.g:QP_).~.~ _..f! sC~.L ~Z~!'.' ~.
                     Ev~luate whether EDS aualifies as a fiscal aqlnt under
                   i &ec:t1oll 1340(a) of the }iat.ional f'le~d In~unl!lcc J',ct of l%S,
                   1.42 U.S.C. 4071(g) •

                I AGUCSd   whethvr ~OD'6 cDntr~ct with res euthorizi~q the
         .'1      reinburceDent o[ .c~uisition costs [or Ep~~a. p~raonnel.
         ;1-      an~ r.iJrd\1t~re MreD!lonnol ". nr!ceset:ry to c;p.! 7t ~ tc a Par t h
             t     '         . :                                             . .
         '1,: pCD9ra~I" 15 imrle~~ntntlon of r~'t U or ', ac i:~D co~t@nds,
           _~.. ;:·D·c tlvities prclh;;inary to i:;::r l(:rr.'Snt~tion," (:l:rin9 tt1C
            i; 3u-'iay pt'riod reserved for ccn()ressional revh'.h . 42
               I        c·.z.e.     4071 (b) •

     • 7bt' G~tlonal Fleod Insurarce ~ct 01 196B (Act), 42 ~.f.C.
JOJL' ct sec., enacte~ a co~:~rettensiye oluecrint [or t~e ~stDb-
11eir~;f,ent-'o! a notio~,l £1()od inr;vctJnCt? trc·-~rG'~.• 'ihe- .!;ct autJ'ic,r-
 " ~ari, t~ie SeCCE"·tf!{V cf ;~~.::: to i{.:? le!J· t~nt ~n in~h! ::;try-~,~-:·C're.tt'";.~~
  ~lodd . in&ur~nce ~ioc:r~m ~ith Pe~cr~l agsi~t~nc~ in ~ccc)r~e~c['
.wtt.:f -part A, ~2 U.!.~~C. ';(151, anel, it the: ~~t:r>?ttlr~' :~.~~t?z: t(', ~~
 C,t ..t1trdnoHon r~cl!ir.:¢ l;n,:l€.r ::;;~CtiC'1 13~('(:l) of tr.,1 ;\ct., ·!2
 U.• S; ..~. ';071:(0'1), a ('overn'r.c nt o;:.erilt::;; .t'CQ <U<: :'l ,iit.:. illc:ustry
                                                            ~'" .... :.\...• --:-v'..
        · "'~t ftc'    .   .,r-ar t ".: ()A.~ th·                            ~ ,. , 1 I n ..:June
fIo:"91If.·~ a .. ·e unoer
"   ft . .
                                               _ £: J'.l:~,
                                                       ~.., ~   •. _.,
             -IJ: I

            aeting thro uo;h the National Floc>(! Insurance ASlOd-
               an •••oetatlon of Inau filn ce eOll:panies fore.el1 to
                           under Part" of tile Act, .1gned an
                         the Inoustry-Govecna:ent r e lationsh i p
              tile             insurance proqrlllll to be lli.plemented
           A. 'l'bla relation!ll'llp ball continued until r ecently.
            2, 1977, the Secretary of !!Ot ee lU Jl ined that the
          of the fl ood insurance pcogra;a ioou16 be IlIct.chllly
             th.     Govern~ent· • • B6~ptlon        of the operational
            ltv for t he fl ood Insurance p r09u!a. Thh deteu:d-
            6UD'. report to         COn9[e~S    on the reasons for the pro-
      cbenge ara reprinted at 42 Fed. Reg.              ~8569   (Novelllbftr 10,

     on Novel!lber 19, 1'"7, NFJA fUed II cOlllp1alnt In th e united
nat•• District Court for the tla ttict of ColulIIbh chal.lenglnq
laD'. conver.lon of lhe !'Iatio"",l 'lood Insurance Progral'l t o •
rHt                  t   ll:;:~:~il;~~!I:: in~loN.Uonal
                                                 : - '1:'2~,.a - rO:!5:-Insurers
                                                 the lawlult alleges that
                                                                         C~ ;rlle(l

                         to             to a Govern;1ient-operated flood
             pr09ras 11 unlalofCul on two grounds. Pirst, the
             argu,,,        unlells "YO deconstrates thlt the Part
                         proqr~~ with feueral financial a55iltance
    a                or that the two s idea cannot a.gree on the ten!!s
of tho Part A '9rogfa ll , or that a "'ederill takeover unGer Part
I h -n'Censlty,· the converSion to I Part e p rO'lrll.ll violates
tile congressionill l tlandLte that MU~ operate the flood insurill n~e
pUi\lralll on tho basis ot a i'art A risk-shuin~ joint venture
btotween C:Overrment and th!: insurance indus try. In this regard.
pll1ntUf ar gues that lfUO' ~ toov~ber 2, 1977, report to Con-
trUI taUe to satisfy the req uir emen t that lIOO Slilly not conver t
W a Part B Governgent-operated flood insuran ce proqrb~ absent
I detliir,ination al.lP?Orted by pertinf'nt (lndlnge. Second, the
plaintiff point. to I1UO', "nnounced intention to contr"ct on
or efter Cece:nber 3, 1977, witll EOS aa IWD', f1l;eol iI'lent under
• '"rt B rro')tSIl ilInd ar<;!U(!'. tllat ~ DS doe. not ,!ualify aa a
rhcal ilge nt since it la not an insurance cO:llpany, insurer.
'~tnt or broker. or insurenco adj ustlr.lnt or-9anhatlon, a .
rtqulred under section l340(a) of the Act , 42 U.S.C. 407l{a).
anN on the abovlt a.lle9"tiona, the p14lntlU secka the ! o llo v-
109 daclaratory and injunctive reliefl

                                      - 2 -

     --declare t.hat. the HOD report to Congre •• , dated NovelObot 2,
     1971.42 fed, r.C'g. 58569 Ct:overr.ber 10, 1971). justUyin')
     the prO<]ulII ctu.nge, laUe to p r ov i de aufficien t jU!ltUlca~
     tiC" to aat1&fy t he n c: ulter:II:~ntB of n et ion 1340 01. t he Act,
     42 D.S.C. 4071. for ccnverston to • part B GovernJlent-
     o~r.t.d    flood inau rance PtQqra&,
     -t.aue ptellJo::inary .nd perlllanent injunctlonl reatcaininq _
     the Secretary of IIUO frolll proceecUnq with the conveulon
     to • part B Govern~ent-oper.t.d inaurancI pr09r~~ 1n fe-
     lbnce upon the auc report to Conq rell dated IIovltllber 2,
     un.    42 Ved. RecJ. 58569 (!love-bet 10. 19'77)1
     -declare that the Secretary'. announc ed intention to
     contract with tOS .:I" Uselll I ge nt of nUD vioht •• sec-
     tion 1140(0) of the Act, H         U.S.C. 407llo), Illd

     - [ .. uo p nllcinary and pec:u.nent i njunction s Ielltuinlnq
     th.- Secutaty of IIUD tror.! (1)ntuctlr:g or othlHwlse
     agree 1ng vith DOS to 5trVe liS the fi ccal agent of RUC
     under $action 1340{a.) of the Act, U U.S.C. 4071(., ••
      We underatand that II. hurln9 on       ph:lntltt f!f'IA'!I -=o ti on
{OI II t.-aporary rea tr a ining order o r   pre liminary injunction
1"11 been aet for rlide)" Dece;nbec 9,       1977. ot lQIJO 11.101. in
tbe United Stat.,. niritrict court for       the Dllltrict of Col u:;::bh.
      In recog nitio n of the pdmllCY of the judic iary to pro~
.Ide a lIIe.nh!<Jfu l tGsolutlon to th e I!:.ttnrs i n litigation II.nd
beeauae ve II.re concerned that OUI upinior:3 on I;latteu: in 11ti-
,Ition It"Y interhre wit h c. r pre jud ice the interests ot II
party. it ls our policy not to CO;l'.ment on Dat t e rs t hlt II.re
Itnder judicial conslc!eratlon. In view of til e pre aent litI9::;-
tion Ind thb 10nC) .tandi ng policy, we ~ U lt thert'o r ~ llccline
to Inever your queltions. 'the GUtus of !:DS a. II. (13c1I.1 aqent
ia directly In I niJe in tho pend! n') litl!JlI.t lon. lon U e the
'ItUft, ot. the Ri.lD-er.S contract hll$ nat. as ye t been brought
to the cO\lrt'l attention, IIU[I ' e authority to ente r i nto t h i s
eontract 118Y be der>ellde nt on another hsull. thllt i6 being liti-
utedl Whether IIU[I hAd e su£[icient bads: for tlakinq the
proqra= chll.nge. An y como.nt lie lIIi9ht :all.ko re9ardln g the noture
ot. the ifUo-,C1lS contrllct ;;Ja y be o f no s i gni fic ance untU this      ,
larger blue i. re& o lved. Fot these r ClaSonl, I do not eelieve
thlt Ita .t:ould coUaterally intrude I nto tne pending litigation.

                                - J -

                         lett., also aaked a~ut the r.~ulr.Aents
                 B takeov.,. 1l1thouqh an hr,:r;edJilte re.ponse w.s not
                  Specitically. you IISked us to
                  -1. • • • Dete,..,jne ",hoth., th e tl~
               insurance proqrl:!II reacneJ th<lt 'l<lftt resort'
               where it no longer c.l!n be c.rried out under
               Part A and would be 'assIsted ~.terlally'
               by Uie GOYf'fnlllt!nt's assullp tion of opou.tioni!il
        Ttlis qUestion, In o •• ence, ado:1rell •• s the propriety of

    e~:::;::~;;~:!:p::,::o::'lrillll changeover'lie and
                               ",ccording1y.         fIIustIs lIlao
                                                                             to   under
        on                 •
                                                 Sincerely yours,

                                                 '?)G;NLD ELMER B. STAATS

                                                 CO~Ftroller General
                                                 of the United States

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