Flood Damage Claim

People in Weatherford, Aledo, Azle, Springtown, Hudson Oaks, Willow Park, Millsap, Brock, Mineral Wells, and other places in Parker County prone to flooding losses should be interested in a recent opinion issued by the United States Fifth Circuit Court of Appeals.
The opinion was issued on March 6, 2012, and the style of the case is, Tom Worthen v. Fidelity National Property and Casualty Insurance Company. The case is an appeal by Fidelity National regarding a summary judgment in favor of their insured, Worthen. This appeals court reversed and rendered in favor of Fidelity National.
Here is some background information.
On August 10, 2007, Worthen obtained a Standard Flood Insurance Policy (SFIP) on his property. The coverage was provided under the National Flood Insurance Program (NFIP), a federal program. The law regulating the program is found at 42 U.S.C. Section 4001 et seq. and regulated by the Federal Emergency Management Agency (FEMA).
Under the policy, coverage began at 12:01 a.m. on August 10, 2007 and expired on August 10, 2008. Worthen admits receiving the appropriate renewal notices. He ignored the notices. The final “Expiration Notice” stated that if Fidelity received the “premium payment within 30 days of the expiration date indicated above [8/10/08], [Worthen’s] policy should be renewed with no lapse in coverage. Worthen had not renewed the policy up to this point.
On the morning of September 9, 2008, while Texas residents awaited Hurricane Ike’s impending arrival, Worthen called his insurance agent regarding the renewal of his SFIP. Sometime between 8:37 a.m. and 9:20 a.m., Worthen paid the renewal premium. Then, at 9:22 a.m., Worthen’s agent forwarded Worthen a document entitled Endorsement Payment Transmittal that stated that the transaction date was “09/09/2008” and that the effective date of his renewal was “08/10/2008.”
Four days later, Worthen suffered a loss to his property.
Fidelity denied the claim saying there was no coverage. Fidelity asserted the renewal premium had not been paid within the 30 day grace period.
A lawsuit resulted and the trial court granted summary judgment in favor of Worthen and Fidelity appealed. In making the ruling, the trial court relied on Texas law.
Because the case involved an SFIP, federal law applies, not the statutory or decisional law of any particular state. Quoting other federal courts, this court said, “It is well settled that federal common law governs the interpretation of the SFIP at issue here.” “Federal common law controls the interpretation of insurance policies issued pursuant to the NFIP.”
In addition, since SFIPs are issued pursuant to the FEMA-administered NFIP, Worthen’s SFIP is also governed by FEMA’s flood insurance regulations and the NFIA. Moreover, FEMA’s interpretation of its own regulations is given “controlling weight unless it is plainly erroneous or inconsistent with the regulation.”
Furthermore, provisions of an insurance policy issued pursuant to a federal program are strictly construed and enforced. In addition, the insured (Worthen) is charged with constructive knowledge of the policy provisions and of the NFIP program “regardless of actual knowledge of what is in the regulations or of the hardships resulting from innocent ignorance.”
Here, the relevant and contested provision in Worthen’s SFIP, which is codified in the federal regulations, is the policy renewal provision:

1. This policy will expire at 12:01 a.m. on the last day of the policy term.
2. We must receive the payment of the appropriate renewal premium within 30 days of the expiration date…
III. PREMIUM PAYMENT DUE To ensure that the policy is renewed without lapse in coverage, the premium must be received by the NFIP within 30 days after the expiration date.

V. RENEWAL EFFECTIVE DATE DETERMINATION If the Final Notice and the premium payment are received by the insurer within 30 days following the expiration, the policy will be issued under the same policy number as the previous term, with no lapse in coverage. For example, if the policy expires on May 1, the Final Notice and premium payment must be received on or before May 30.

Applying the Manual’s calculation method — “use the renewal date plus 29 days to determine if the renewal premium was received within 30 days” — May 1st is the renewal date and May 30th is the 29th day after May 1st.
Here, it is undisputed that without a renewal premium payment, Worthen’s SFIP expired at 12:01 a.m. on August 10, 2008. Thus, applying the Manual’s example and counting method to Worthen’s scenario, Worthen’s renewal premium must have been received on or before the 29th day after August 10, 2008 — in other words, Worthen’s payment must have been received by September 8, 2008. Accordingly, Worthen’s renewal premium payment after 12:01 a.m. on September 9, 2008, was outside the 30-day grace period and was untimely.
The example provided by FEMA’s Manual resolves any potential ambiguity.
This case serves as an example where an experienced Insurance Law Attorney needs to be involved to prevent a waste of time and money.