Flood Claims

Flood claims are a big part of insurance law. Knowledge of how these claims are looked at by the courts is important to an insurance lawyer. The United States 5th Circuit Court of Appeals issued an opinion in January 2016, that should be read. The style of the case is, Construction Funding, L.L.C. v. Fidelity National Indemnity Insurance Company.
Construction Funding filed a flood insurance claim against Fidelity after Hurricane Isaac struck in August 2012. The district court granted summary judgment in favor of Fidelity and Construction Funding appealed.
The National Flood Insurance Act of 1968 created the National Flood Insurance Program (“NFIP”) to provide affordable flood insurance on fair terms. The NFIP is administered and regulated by the Federal Emergency Management Agency (“FEMA”). Fidelity participates in the NFIP as a Write-Your-Own Program (“WYO”) carrier. As a WYO carrier, Fidelity issues Standard Flood Insurance Policies (“SFIP”) to NFIP participants and is responsible for handling all claims that arise under the SFIPs it issues. The terms of the SFIP are set by FEMA.
Construction Funding had a piece of property insured by Fidelity. Construction Funding alleges the property was damaged in Hurricane Isaac and submitted a claim to recover $76,218.01. Fidelity denied the claim, concluding the damages were “unsubstantiated” and there was insufficient proof to confirm the damage was caused by Hurricane Isaac and not a prior flood.
Construction Funding file suit for breach of contract and insurance code violations.
The court had jurisdiction over the dispute under 42 U.S.C. Section 1291.
In order to recover under SFIP, FEMA regulations require strict compliance with the SFIP itself. This requirement is also incorporated into the language of the SFIP. Article VII(R) of the SFIP states that a claimant “may not sure to recover money under this policy unless the claimant has complied with all the requirements of the policy.” Therefore, in order to file suit under the SFIP. the claimant must “show prior compliance with all policy requirements.” Strictly construing this provision of the SFIP, Construction Funding must comply with all the policy’s requirements in order to recover this action and therefore survive summary judgment.
Fidelity argues that Construction Funding failed to comply with Article VII(J). Under the SFIP, Construction Funding is required to “give prompt written notice” of flood damage and “prepare an inventory of damaged property showing the quantity, description, actual cash value, and amount of loss.” They are instructed to “attach all bills, receipts, and related documents” to the inventory. Additionally, they must file a timely, sworn “proof of loss,” which must include “specifications of damaged building and detailed repair estimates.” Construction Funding is instructed to use its “own judgment concerning the amount of loss and justify that amount.”
Fidelity does not dispute that Construction Funding filed a timely and sworn proof of loss claiming $76,218.01 in damages. The proof of loss form submitted to Fidelity itemized the claim into general categories, such as “ACTUAL CASH VALUE of building structures” and “ACTUAL CASH VALUE OFCONTENTS of personal property insured,” but Construction Funding failed to submit any substantiating documentation or explanation to support its claim, as required by the SFIP. Construction Funding concedes that failure to file a proof of loss is “grounds for summary judgment” but that summary judgment is improper when there is a dispute as to the sufficiency of the proof of loss submitted. But,
Construction Funding’s theory fails, as substantial compliance with the SFIP is not enough to meet the compliance requirement of Article VII(R). The “failure to provide a complete, sworn proof of loss statement … relieves the federal insurer’s obligation to pay what otherwise might be a valid claim.” Construction Funding’s failure to substantiate and justify the amount of its claim is a failure to comply with Article VII(J) of the SFIP. Accordingly, Fidelity is entitled to summary judgment.