Federal Emergency Management Agency Authority To Provide Indemnification Under National Flood Insurance Act

The Federal Emergency Management Agency (FEMA) requested an opinion on the FEMA authority to provide indemnification to agents and brokers under the National Flood Insurance Act of 1968. The question asked whether: (1) the indemnity agreement currently in use is a valid agreement; and (2) that agreement could be expanded to resemble the indemnification authorized by the Federal Crop Insurance Act of 1980. The Act establishes two alternate means of administering the National Flood Insurance Program by: (1) authorizing the use of a pool of private insurance companies which would provide the insurance coverage, and (2) vesting discretion in the Secretary of Housing and Urban Development (HUD) to assume administration of the insurance program. As in prior decisions, GAO believes that, unless a specific statute authorizes the obligation of an indefinite amount of appropriated funds for indemnification of agents under the flood insurance program, that agreement is void. As it is currently written, the indemnity agreement purports to obligate the United States to reimburse insurance agents only for any judgment for damages entered against an agent, where the United States is legally responsible for the injury and where the agent's conduct did not contribute to the injury. While the provision creates no new liability for the United States, it is nevertheless void since no appropriation is available for payments under the provision. The provision provides little protection to agents since it is unlikely that any judgment satisfying the criteria of the indemnity clause would ever be entered. Any other indemnity agreement which purported to broaden the United States' liability similarly would be void for lack of appropriated funds. However, the agency may request specific authorization from Congress to enter into indemnity agreements similar to that contained in the Federal Crop Insurance Act.