(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 basis for this determination.

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

propriate, objective, and identifiable physical condition of the property, as disclosed by an inspection and specified in an inspection report, and no surcharge shall be made on the basis of environmental hazards.

(c) Reasonable underwriting standards for declination of risks must be relevant to the perils against which insurance is sought. For example, they may include:

(1) Physical condition of the property; however, the mere fact that a property does not satisfy all current building code specifications would not, in itself, suffice;

(2) The property's present use, such as extended vacancy (other than for rehabilitation purposes) or the improper storage of flammable materials; or

(3) Other specific characteristics of ownership, condition, occupancy, or maintenance that are violative of law or public policy and that result in a substantially increased exposure to loss.

(d) In the event that a risk is declined on the basis that it does not meet reasonable underwriting standards, or that the coverage will be written on condition that the property be improved, the insurer or placement facility shall promptly send copies of the inspection and action reports to the applicant, advising him of the appeal procedures available, including rights of appeal to the State insurance authority under applicable State law. Appeal procedures within the Plan shall provide for prompt handling.

§ 1905.8 Prohibition of unnecessary re

inspections.

In order to avoid unduly increasing the costs of the program, no Plan shall require the annual or routine reinspection of eligible risks for which coverage has been previously obtained under the Plan. Once an eligible risk has been inspected and found insurable, the Plan may require its reinspection only (a) upon request of the property owner, (b) on a limited basis for statistical purposes, (c) upon change in type of occupancy, (d) upon a reasonable periodic schedule of not more often than once every 3 years, or (e) for cause, upon information or well-founded belief that the occupancy hazards or physical condition of the property have substantially changed since the last inspection.

§ 1905.9 Notice of cancellation or nonrenewal.

(a) Except in cases of owner or occupant incendiarism, material misrepresentation, or nonpayment of premium, each Plan shall require its participating insurers to give, and each such insurer shall give, property owners no less than 30 days prior written notice of any cancellation or nonrenewal of coverage initiated by the insurer with respect to any eligible risk, whether or not such risk is then insured under the Plan, in order to allow the affected property owner sufficient time to apply for an inspection and to obtain coverage under the Plan if necessary.

(b) For the purposes of this § 1905.9, the term cancellation or nonrenewal shall include (1) reductions in amounts of insurance and adverse modifications in coverage initiated by the insurer with respect to any owner individually, and (2) refusals by the insurer or its agents to renew any expiring coverage in any line of essential property insurance previously provided to the property owner. § 1905.10

ers.

Impartial selection of adjust

(a) No Plan or placement facility shall discriminate by providing for the primary use of services or any preferential treatment of any adjuster to the exclusion, detriment, or disadvantage of any other adjuster of equal or equivalent professional qualifications in any formal or informal arrangements made or promulgated for the adjustment of any insured losses under policies or contracts of insurance issued under the Plan.

(b) This 1905.10 shall not be construed to prohibit (1) the use by servicing insurers of their adjusting staffs, (2) the impartial appointment of a supervisory adjuster with respect to any individual loss directly insured by three or more insurers, or (3) the obtaining of qualified loss adjusters at the lowest admnistrative cost for a reasonable period of time by FAIR Plans through the adoption of an impartial and periodic public bidding procedure.

§ 1905.11 Coding and reports under the Plan.

(a) The Plan shall provide for the separate coding of policies written pursuant to the Plan.

(b) The Plan shall provide for the submitting to the State insurance authority and the Administrator of periodic reports setting forth the number of requests for inspection, the number of risks inspected, and the results of referrals by the facility, including by individual insurer the number of risks accepted, the number of risks conditionally accepted and reinspections made, the number of risks declined, and such other information as the State insurance authority or the Administrator may from time to time require.

(c) Not later than 90 days after the close of its fiscal year, each placement facility under the Plan shall furnish to the Administrator a comprehensive report on its operations during the year, which at the minimum shall include such information for the year as may be called for on Form HUD-1603, Quarterly State FAIR Plan Report. The first such report shall include copies of all previously published annual and interim reports not already furnished to the Administrator. Subsequent reports shall include any additional printed or published report under the Plan.

(d) For periods beginning on and after January 1, 1970, each placement facility under the Plan shall also provide the Administrator with quarter-annual reports of its current operations on Form HUD1603, which the Administrator shall furnish to the facility. Such reports shall be due not later than 90 days after the end of each quarter. With respect to any previous quarter for which the reports required by this paragraph have not already been furnished, reports shall be due not later than 90 days after the effective date of this § 1905.11.

§ 1905.12 Inapplicability and waiver of regulations.

(a) Notwithstanding the provisions of § 1905.3 (a) (2), no Plan shall be required to offer vandalism and malicious mischief coverage in any State where by September 1, 1970, the State insurance authority certifies that the availability of such coverage in the normal market is adequate to meet the demand for such coverage, and that such adequate market availability also extends to properties that obtain fire and extended coverage under the Plan.

(b) Notwithstanding its effective date, the application of any requirement imposed by this part to any existing Feder

ally approved statewide FAIR Plan shall automatically be deferred until the close of the first full regular session of the State legislative body following such effective date in any State where the implementation of such requirement is certified by the State insurance authority by September 1, 1970, to be inconsistent with or unauthorized by an applicable State statute in force on such effective date.

(c) In addition to the specific waiver authorized by paragraph (a), the Administrator may waive compliance with any other requirement of this part with respect to any State, temporarily or indefinitely, and in whole or in part, if the State insurance authority certifies that compliance is unnecessary or inadvisable under local conditions or State law and the Administrator concurs in such

1906.38 1906.39

Access to books and records.

Information and annual statements. 1906.40 Notice of offer of reinsurance.

AUTHORITY: The provisions of this Part 1906 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. Sec.'s delegation of authority, 34 F.R. 2680, Feb. 27, 1969.

SOURCE: The provisions of this Part 1906 appear at 36 F.R. 25754, Dec. 22, 1971, unless otherwise noted.

58-086-76- -45

tional Insurance Development Program. Pursuant to this title, the Secretary of Housing and Urban Development is authorized to offer to any insurer reinsurance against losses resulting from riots or civil disorders, in all standard lines of property insurance enumerated under subparagraphs (A) through (E) of section 1203(a) (13) of the Act taken together, and, with respect to any State in which such reinsurance is purchased, to offer reinsurance individually on the standard lines of property insurance enumerated under subparagraphs (F) through (J) of said section. Principal eligibility requirements under the Act for such reinsurance are set forth in § 1906.35.

§ 1906.21 Definitions.

As used in this part:

(a) "Aggregate losses" means the sum total of losses resulting from riots or civil disorders occurring in a State and allocable to a State in which reinsurance is provided;

(b) "Civil disorder" means:

(1) Any pattern of unlawful incidents taking place within close proximity as to time and place and involving property damage intentionally caused by persons apparently having civil disruption, civil disobedience, or civil protest as a primary motivation, at least two of which incidents result in property damage in excess of $1,000 each; or

(2) Any occurrence of property damage in excess of $2,000 caused by persons whose unlawful conduct in causing the occurrence clearly manifests their primary purpose of civil disruption, civil disobedence, or civil protest;

(c) "Company" means any company authorized to engage in the insurance business under the laws of any State, except that if there are two or more companies within a State in which reinsurance is to be provided under the contract which as determined by the reinsurer:

(1) Are under common ownership and ordinarily operate on a group basis; or (2) Are under single management direction; or

(3) Are otherwise determined by the reinsurer to have substantially common or interrelated ownership, direction, management, or control; then all such related, associated, or affiliated companies, excluding nonadmitted companies which are not specifically included by endorsement to the contract,

shall be reinsured only as one aggregate entity;

(d) "Continuing organization, pool, or association of insurers" means an industry pool created to provide direct insurance to meet special problems of insurability, such as for a particular class or type of business;

(e) "Contract" means the Standard Reinsurance Contract;

(f) “Direct premiums earned” means direct premiums earned as reported in column 2 on page 14 of the company's Fire and Casualty Annual Statement for the specified calendar year, in the form adopted by the National Association of Insurance Commissioners, subject to (1) adjustment as approved by the reinsurer for cessions to pools, facilities, and associations, and for the inclusion of participations in such pools, facilities, and associations, and (2) such other appropriate adjustments as may be approved or required by the reinsurer, which shall include adjustments for dividends paid or credited to policyholders and reported in column 3 on page 14, subject to a maximum credit of 20 per centum of direct premiums earned for any one line of insurance;

(g) "Excess aggregate losses" means that part of aggregate losses which is equal to the sum of—

(1) 90 percent of the company's aggregate losses in excess of its net retention until the company's 10-percent share of aggregate losses under this subparagraph (1) equals the amount of its net retention;

(2) 95 percent of the company's remaining aggregate losses (after deducting the reinsurer's share of aggregate losses under subparagraph (1) of this paragraph in excess of twice its net retention, until the company's 5-percent share of aggregate losses under this subparagraph (2) equals the amount of its net retention; and

(3) 98 percent of the company's remaining aggregate losses (after deducting the reinsurer's share of aggregate losses under subparagraphs (1) and (2) of this paragraph) in excess of an amount equal to three times its net retention;

(h) "Losses" means all claims proved, approved, and paid by the company under reinsured policies, resulting from riots or civil disorders occurring in a State during the period of the contract, after making proper deduction for sal

vage and for recoveries other than reinsurance together with an allowance for expense in connection therewith, hereby agreed to equal an amount per claim of eight per centum (8%) of the first $25,000 of any such claim, plus three per centum (3%) of the amount by which such claim exceeds $25,000 but is less than $100,000, plus one per centum (1%) of the amount by which the claim exceeds $100,000; it does not mean any claim excluded under the contract.

(i) "Net retention" means the amount of aggregate losses that the company must stand before the reinsurer's liability attaches under the contract and shall be one aggregate figure for each State which shall be the larger of either $1,000 or the amount determined by applying a factor of two and one-half per centum (22%) to the specified percentage of the company's direct premiums earned in the State for the calendar year in which the annual contract period commences on those lines of insurance reinsured;

(j) "Property owner" means any individual or group of individuals, corporation, partnership, or association, or any other organized groups of persons having an insurable interest in any real, personal, or mixed real and personal property;

(k) "Reinsurer" means the Federal Insurance Administrator;

(1) "Riot" means any tumultuous disturbance of the public peace by three or more persons mutually assisting one another, or otherwise acting in concert, in the execution of a common purpose by the unlawful use of force and violence resulting in property damage of any kind;

means

(m) "Specified percentage" one hundred per centum (100%) of the direct premiums earned for each line of insurance reinsured under the contract, except that the specified percentage of Homeowners multiple peril shall be eighty-five per centum (85%) and that of Commercial multiple peril shall be sixty-five per centum (65%);

(n) "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; and

(o) "State pool" means any State Fair Plan pool or other insurance placement facility which is intended to meet the requirements of Part A of the Urban Property Protection and Reinsurance

Act of 1968 (82 Stat. 558, 84 Stat. 1791, 12 U.S.C. 1749bbb-3-1749bbb-6a); [36 F.R. 24754, Dec. 22, 1971, as amended at 37 F.R. 8379, Apr. 26, 1972]

§ 1906.22 Offer to provide reinsurance.

Pursuant to the provisions of the Urban Property Protection and Reinsurance Act of 1968, and subject to the terms and conditions set forth in this part and in the contracts offered pursuant to this part, the reinsurer shall offer annually to enter into a contract to pay, as reinsurance of any eligible company, the amount of the company's excess aggregate losses resulting from riots or civil disorders in such lines of mandatory and optional coverage as may be designated by the company separately for each State.

[37 F.R. 8380, Apr. 26, 1972] § 1906.23

Effective date of offer.

The reinsurer's offer to provide reinsurance under the terms and conditions set forth in this part shall be effective upon publication in the FEDERAL REGISTER of the notice of offer to provide reinsurance required pursuant to § 1906.40. [37 F.R. 8380, Apr. 26, 1972]

§ 1906.24 Acceptance of offer.

Acceptance of the reinsurer's offer shall be in the manner specified in the notice of offer to provide reinsurance which is published in the FEDERAL REGISTER pursuant to § 1906.40.

[37 F.R. 8380, Apr. 26, 1972]

§ 1906.25 Policies reinsured.

(a) Reinsurance, under a Standard Reinsurance Contract provided pursuant to this part, shall apply to:

(1) All policies or contracts of direct property insurance issued by the company to any property owner, except for policies for which the business is handled for or through any State pool or any other continuing organization, pool, or association of insurers, and

(2) The company's participations in State pools and, as may be approved by the reinsurer, in other continuing organizations, pools, or associations of insurers,

which policies, contracts, or participations are in force on the effective date of the contract or which commence or are renewed on or after such effective date in all the mandatory and in such