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First Circuit Reverses Judgment Against Flood Insurer

The First Circuit has reversed a judgment that entered on behalf of a flood insurance policyholder. The Court held that the insured failed to comply with the special requirements under federal law to recover under the policy, in particular of submitting a timely claim and a sworn proof of loss.

Plaintiff owned a home insured by a Standard Flood Insurance Policy ("SFIP") issued by Allstate Insurance Company which participates in the National Flood Insurance Program ("NFIP"). The SFIP requires that the insured's proof of loss be signed and sworn by the insured and submitted within sixty days of the loss. The insured signed and submitted two proofs of loss totaling approximately $100,000. He also submitted a sixteen page document from his adjuster that included that loss and another $112,000 in damages. The insured did not sign or swear to the document prepared by his adjuster. Allstate paid the insured for the amount in the two sworn statements of loss and informed the insured and his adjuster that it did not think the policy covered many of the losses he was claiming. It sent him additional proof of loss forms. Those forms were completed and returned more than sixty days after the losses. Allstate denied the claim for the additional losses.

The insured filed suit. Allstate moved for summary judgment arguing that the insured failed to comply with the SFIP requirement to file proofs of loss within sixty days and that the policy did not cover the damage for which he was suing. The insured moved to compel an appraisal of his damages. The district court denied Allstate's motion and granted the insured's. It found sua sponte that Allstate had waived the NFIP requirements by failing to pay the full amount claimed by the insured. The appraisers found that the insured's damages were $205,000. The district court entered judgment for that amount.

The First Circuit reviewed the law respecting the NFIP. The federal government provides subsidized flood insurance to fill a gap in the private insurance market. The Federal Emergency Management Agency ("FEMA") administers the program and has promulgated regulations that govern adjusting, approving and paying claims for flood loss. The program allows private insurers to issue flood insurance policies under the NFIP, so-called Write-Your-Own ("WYO") insurers. The FEMA regulations dictate the terms of the flood policies including the deadlines for submitting claims and the manner of making claims including a sworn statement of loss.

The Circuit Court said the United States Constitution mandates strict compliance with the regulatory requirements. This is because when WYO insurers issue flood insurance policies they are acting as the "fiscal agents" of the United States. The federal government pays the claims, not the insurers. The Supreme Court has held that the Appropriations Clause prohibits the judiciary from awarding claims against the United States that are not authorized by statute. In addition, a need for uniformity in federal law supports strict construction of the SFIP. This also ensures the long term sustainability of the NFIP. The requirement that the insured attest to the loss claim reduces fraud.

The Court held it was clear the insured did not comply with the requirement that he submit a sworn proof of loss within sixty days. It rejected that insured's argument that submitting his adjuster's statement of loss with his sworn statements sufficiently complied with the requirement. The person making a claim for federal funds is obligated to familiarize himself with the legal requirements to obtain those funds. In this case, Allstate's adjuster gave the insured a copy of the NFIP Handbook that described how to make a claim.

The First Circuit reversed the district court's finding of waiver. It noted that the SFIP has a waiver provision that says: "[t]his policy cannot be changed nor can any of its provisions be waived without the express written consent of the Federal Insurance Administrator. No action we take under the terms of this policy constitutes a waiver of any of our rights." The Court reversed and remanded with instructions that the district court enter summary judgment for Allstate.

DeCosta v. Allstate Insurance Co., No. 13-1176, 2013 WL 5290030 (1st Cir. 2013)

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