Whether the National Flood Insurance Program reimburses clients for engineering fees and permit costs has become a common question in flood disputes arising from Superstorm Sandy in the New Jersey area.
This question is addressed differently depending on whether the insured is claiming engineering fees and permit costs relating to Coverage A – Building Property, or Coverage D – Increased Cost of Compliance (ICC).
Regarding Coverage D – Increased Cost of Compliance (ICC), the Write-Your-Own carriers and FEMA allow recovery of engineering fees and permits. The ICC expenses relate to either razing the home or demolishing and rebuilding the home – both actions would require engineers and permits. However, ICC-related costs are capped at $30,000, which is usually inadequate for the work required.
In contrast, Write-Your-Own carriers and FEMA have chosen to disallow recovery for engineering fees and permit costs relating to Coverage A – Building Property. FEMA states these costs are excluded under Section (V)(A)(6) of the Standard Flood Insurance Policy, which provides:
The cost of complying with any ordinance or law requiring or regulating the construction, demolition, remodeling, renovation, or repair of property, including removal of any resulting debris. This exclusion does not apply to any eligible activities we describe in Coverage D – Increased Cost of Compliance;
The insureds’ position is that permits are required to perform any “non-minor” repair or reconstruction of the home and plans signed by an engineer or architect are required to obtain a permit. These costs are incidental and part of the costs to repair the home to the state it was in prior to the flood event.
This is yet another instance of NFIP and FEMA attempting to avoid costs due and owing to the insured. This is an issue that will have to be decided by the courts.