4.4 Inland Marine, Flood (NFIP) & Windstorm (TWIA)

4.4 Inland Marine, Flood (NFIP) & Windstorm (TWIA)

Standard commercial property policies strictly confine their coverage to fixed structures and business personal property located within 100 feet of the described premises. When property becomes mobile—moving across highways, operating at transient job sites, or held temporarily in the custody of service bailees—standard property forms cease to protect it. Furthermore, commercial property policies universally exclude two of the most catastrophic natural perils in Texas: Flood and coastal Windstorm/Hail.

To bridge these critical coverage gaps, claims adjusters must master three specialized property domains: Inland Marine Insurance, the National Flood Insurance Program (NFIP), and the state-backed Texas Windstorm Insurance Association (TWIA).

1. Inland Marine Insurance

Inland Marine insurance originated as an outgrowth of Ocean Marine insurance. When goods transported by sea arrived at coastal ports and continued inland via river barge, railroad, and freight wagon, ocean underwriters expanded their cargo policies to cover the inland transit. Over time, inland marine evolved into a specialized branch of property insurance insuring property in transit, mobile machinery, and instrumentalities of transportation.

The Nationwide Marine Definition (1976 NAIC Revision)

To resolve jurisdictional disputes between fire, marine, and casualty underwriters, the National Association of Insurance Commissioners (NAIC) adopted the Nationwide Marine Definition. It classifies the six categories of property eligible for marine underwriting:

1. Imports: Foreign cargo covered from foreign origin until it reaches its final domestic destination and domestic market.
2. Exports: Cargo destined for foreign shipment, covered once movement toward foreign export begins.
3. Domestic Shipments: Goods in transit across highways, railroads, airways, or inland waterways (covered under Motor Truck Cargo, Annual Transit, or Trip Transit policies).
4. Instrumentalities of Transportation and Communication: Fixed bridges, tunnels, pipelines, transmission towers, radio and television transmitters, cellular telephone towers, and harbor piers/docks.
5. Personal Property Floaters: Floaters insuring personal fine arts, jewelry, furs, musical instruments, and stamp/coin collections.
6. Commercial Property Floaters: Floaters insuring mobile business property, including contractor's heavy equipment, medical diagnostic scanners, and specialized tools.

Filed vs. Non-Filed Inland Marine Forms

Inland marine policies are categorized based on whether their forms, rules, and premium rating schedules must be submitted to state insurance departments:

• Filed Forms (Controlled Lines): Standardized policy wording and rates developed by advisory organizations like ISO and filed with state regulators. Filed forms apply to common, homogeneous risks: Accounts Receivable, Camera and Musical Instrument Dealers, Commercial Articles, Equipment Dealers, Jewelers Block, Signs, and Valuable Papers and Records.
• Non-Filed Forms (Uncontrolled Lines): Highly customized, manuscript contracts negotiated directly between underwriters and commercial insureds without filing with state regulators. Non-filed lines represent the vast majority of commercial inland marine premiums, including Contractor's Equipment Floaters, Installation Floaters, Motor Truck Cargo, Builders Risk, and Bailee's Customer Policies.

Core Inland Marine Forms for Property Adjusters

1. Contractor's Equipment Floater: The largest non-filed inland marine coverage class. It provides open-peril protection for mobile machinery—bulldozers, cranes, hydraulic excavators, backhoes, and trenchers—wherever located: at active construction job sites, in transit on flatbed trailers, or stored in contractor yards.
2. Installation Floater: Insures high-value machinery, electrical transformers, commercial HVAC rooftop units, elevators, and building materials while in transit to a job site, awaiting installation, and during the actual installation and testing process, terminating only when the owner formally accepts the completed work.
3. Bailee's Customer Policy: Protects customer property in the care, custody, or control of a service enterprise (dry cleaners, tailors, appliance repair shops, computer repair technicians, fur storage vaults). Adjusters must distinguish between two policy formats:
   • Bailee Legal Liability: Pays customer property claims only if the insured bailee was legally negligent in causing the damage (e.g., technician dropped customer computer).
   • Bailee Customer Direct Damage: Pays customer property claims regardless of legal fault whenever a covered peril (such as an accidental fire or break-in) destroys the bailed goods, preserving customer goodwill.

2. National Flood Insurance Program (NFIP)

Flooding is the most frequent and costly natural disaster in Texas, from tropical storm storm-surges along the Gulf Coast to flash flooding across the Hill Country ("Flash Flood Alley"). Because private insurers cannot absorb the catastrophic aggregation of flood losses without insolvency, standard property policies exclude flood. In 1968, Congress passed the National Flood Insurance Act, establishing the National Flood Insurance Program (NFIP), administered by the Federal Emergency Management Agency (FEMA).

Statutory Definition of "Flood"

Under federal NFIP policy terms, a Flood is strictly defined as:

A general and temporary condition of partial or complete inundation of two (2) or more acres of normally dry land area, OR of two (2) or more properties (at least one of which is the insured's property) from:

1. Overflow of inland or tidal waters;
2. Unusual and rapid accumulation or runoff of surface waters from any source;
3. Mudflow (a river of liquid and flowing mud on the surface of normally dry land areas; landslides and slope collapses are NOT mudflows);
4. Collapse or subsidence of land along the shore of a lake or body of water caused by wave or current erosion exceeding normal cyclical levels.

Adjuster Note: Water entering a structure from a broken domestic water pipe, sewer line backup without surface water flooding, or localized pooling on a single property covering less than two acres is NOT a flood under federal law.

NFIP Program Phases & Maximum Policy Limits

Communities enter the NFIP in two progressive phases based on their adoption of local floodplain management ordinances:

Critical NFIP Claim & Coverage Rules

1. The 30-Day Waiting Period: Standard NFIP flood policies have a mandatory 30-day waiting period from the application and premium payment date before coverage becomes effective. This prevents property owners from buying insurance only when a hurricane enters the Gulf of Mexico.
   • Exception 1 (Mortgage Loans): Coverage is effective immediately at the loan closing table when required in connection with making, increasing, extending, or renewing a mortgage loan.
   • Exception 2 (FEMA Map Revisions): 1-day waiting period applies during the first 13 months following a FEMA flood map revision that brings a property into a Special Flood Hazard Area (SFHA).
2. Separate Deductibles: Building and Contents coverages carry separate, distinct deductibles that must both be satisfied if both structure and personal property are damaged.
3. Basement Coverage Limitations: A "basement" is defined as any area of the building having its floor subgrade (below ground level) on all sides. NFIP coverage in basements is strictly limited to structural foundation elements, essential utility equipment (furnaces, water heaters, central air units, electrical breaker boxes, sump pumps), and stairways. Finished drywall, finished flooring, ceiling tiles, and all personal contents located in a basement are completely excluded!
4. Direct Loss Only: NFIP policies pay strictly for direct physical structural and contents loss. There is zero coverage for loss of use, additional living expense (ALE), or business interruption.

3. Texas Windstorm Insurance Association (TWIA)

Following the catastrophic destruction caused by Hurricane Celia in Corpus Christi in 1970, private insurance carriers withdrew en masse from writing wind and hail coverage along the Texas coast. In response, the Texas Legislature enacted Chapter 2210 of the Texas Insurance Code in 1971, creating the Texas Windstorm Insurance Association (TWIA).

TWIA serves as the insurer of last resort for wind and hail insurance along the Texas Gulf Coast. TWIA provides coverage for property owners who are unable to obtain windstorm and hail insurance in the voluntary private market.

Designated Catastrophe Areas (Geographic Eligibility)

TWIA coverage is not available statewide; its statutory authority is confined strictly to designated catastrophe areas:

• 14 First-Tier Coastal Counties:
  1. Aransas
  2. Brazoria
  3. Calhoun
  4. Cameron
  5. Chambers
  6. Galveston
  7. Jefferson
  8. Kenedy
  9. Kleberg
  10. Matagorda
  11. Nueces
  12. Refugio
  13. San Patricio
  14. Willacy
• Designated Part of Eastern Harris County: Properties located east of Highway 146 and within the municipal boundaries of Pasadena, Morgan's Point, Shoreacres, Seabrook, and La Porte (fronting Galveston Bay).

4. TWIA Building Codes, WPI-8 Certification & Claims Rules

Because coastal structures face hurricane-force wind velocities up to 140+ mph, TWIA maintains strict engineering standards enforced through the Texas Department of Insurance (TDI).

The WPI-8 / WPI-8-E Windstorm Inspection Process

To be eligible for TWIA insurance, any structure constructed, altered, remodeled, enlarged, or repaired on or after January 1, 1988, must comply with the windstorm building code standards adopted by TDI:

1. Form WPI-8 (Certificate of Compliance - Ongoing Construction): Issued by the Texas Department of Insurance for structures inspected during ongoing construction or alteration. Inspections are performed by TDI windstorm inspectors or appointed qualified Texas professional engineers before framing, roof decking, windows, and fasteners are covered by drywall or siding.

2. Form WPI-8-E (Certificate of Compliance - Completed Construction): Created under Texas Insurance Code § 2210.2515 for structures where construction has already been completed without a TDI ongoing inspection. A Texas-licensed professional engineer must perform a post-construction evaluation affirming that the building satisfies applicable structural wind-resistance codes, allowing TDI to issue the WPI-8-E certificate.

3. Form WPI-8-C (Certificate of Compliance issued by TWIA): Legislation passed in 2015 authorized TWIA itself — rather than TDI — to issue certificates for completed improvements, and TWIA issued WPI-8-C certificates for completed construction from January 1, 2017 through May 31, 2020. Certificates already issued remain valid, and an owner holding a WPI-8-C does not have to re-certify unless the structure is later updated. Chapter 2210 now refers to all three forms — WPI-8, WPI-8-E, and WPI-8-C — as Certificates of Compliance.

Consequence of Non-Compliance: Without a Certificate of Compliance, TWIA lacks evidence that the structure conforms to the applicable building code, and the property may be considered uninsurable and ineligible for TWIA coverage, subject to limited statutory exceptions. The exception a Texas adjuster meets most often is the 15% surcharge: residential properties with construction from 1988 to June 19, 2009 that were never certified may still be eligible for TWIA coverage, but must pay a surcharge equal to 15% of the policy premium, in addition to that premium.

Insurable Condition: Separately from certification, TWIA requires that a property be in an insurable condition — in good repair, with no unrepaired damage or hazardous conditions — and TWIA inspects properties as part of underwriting to verify it. An adjuster who documents unrepaired prior damage during a claim inspection has created an underwriting record as well as a claim record.

TWIA Claims Adjustment Rules & Deadlines

Claims adjusters handling TWIA claims operate under strict statutory timelines governed by Texas Insurance Code Chapter 2210:

• Single Peril Scope: TWIA policies cover Windstorm and Hail ONLY. If a hurricane brings both wind damage and tidal storm surge flooding, the TWIA adjuster evaluates only the wind/hail damage. The flood damage must be adjusted separately under the insured's NFIP flood policy.
• Deductibles: TWIA policies feature mandatory percentage deductibles—typically 1%, 2%, or 5% of the building or contents limit, rather than a nominal flat dollar deductible.
• Claim Filing Deadline (TIC § 2210.205): An insured must file a claim with TWIA within one year (365 days) of the date on which the wind damage occurred. The Texas Insurance Commissioner may extend this deadline by up to 180 days upon a showing of good cause.
• Carrier Response Deadline: TWIA must accept or deny the claim in full, or accept in part, within 60 days of receiving the claim and supporting documentation.
• Exclusive Statutory Remedy (Appraisal): Under TIC Chapter 2210, if an insured disputes the dollar amount of loss accepted by TWIA, the dispute cannot be filed as an ordinary lawsuit. The insured's exclusive legal remedy to challenge the valuation of a covered loss is through the mandatory statutory appraisal process, which must be formally demanded within 60 days of receiving TWIA's claim disposition notice.