Property Insurance Coverage Law Blog : Florida Insurance Lawyer & Attorney : Merlin Law Group Law Firm : Tampa, Houston, Coral Gables, Gulfport

The post quoted from a legal filing that indicates State Farm made up its own flood adjustment rules:

The NFIP Claims Manual requires that “repair estimates should be prepared room-by-room,on a unit-cost basis, clearly indicating dimensions and unit costs, except when the building has been completely destroyed.” NFIP Director David Maurstad testified that prior to Hurricane Katrina, flood claims had to be adjusted using a line-by-line stick build estimate. Maurstad also testified that following Hurricane Katrina, he tasked the NFIP Director of claims to come up with a method that “I could ultimately approve that could guide the Write Your Own Companies to handle claims in an expedited process specific to this . . . disaster, to Katrina.”

Maurstad testified that FEMA Directive W-5054 embodied the only expedited claims procedures that he authorized. That directive allowed adjusters to use a square foot value estimator instead of a line-by line estimate in two very narrow circumstances: (1) when a home “had standing water in it for an extended period of time”; or (2) when a home was “washed off its foundation by flood water.”

Discovery revealed that State Farm ignored the NFIP and Memorandum W-5054. Rather than follow the NFIP’s rules, State Farm expressly applied their own rules, which directly conflicted with Memorandum W-5054. David Maurstad testified that that in developing W-5054, he solicited ideas from various insurance companies for FEMA to consider. As part of that process, State Farm submitted a proposal to the NFIP on September 13, 2005, just one week before David Maurstad issued the actual directive. Remarkably, Juan Guevara, State Farm’s principle contact with the NFIP, testified that unlike all the other insurers, State Farm did not have to follow Memorandum 5054, but rather could play by its own rules, as stated in State Farm’s September 13th proposal.

Specifically, Guevara asserted that “5054 is different than the document we received approval to use,” and in fact, that State Farm’s claims handling practices did not change as a result of W-5054 being issued because it continued to adjust claims based on the September 13th proposal. Guevara’s admission is an enormous and dispositive indictment because there is a very important difference between State Farm’s September 13 proposal and the actual directive that was issued by FEMA.

Under the September 13 proposal, State Farm sought permission to use Xact Total “where a site visit was completed and [the damage] appeared to exceed policy limits.” But that part of State Farm’s proposal was not adopted in Maurstad’s final Memorandum. Rather, under FEMA Directive W-5054, Xact Total could be used only if the home had been in standing water for at least five days, or if the home had been washed off its foundations. In addition to his testimony, Juan Guevara’s emails reveal State Farm’s intent to ignore FEMA Directive W-5054. On September 22, 2005, the day after W-5054 was issued, Juan Guevara emailed Jim Shortley because he wondered why State Farm’s proposal regarding the use of Xact Total for policy limit losses was rejected. Mr. Guevara quoted the language in W-5054 requiring all claims (other than those related to slabs or homes in standing water) to be adjusted using the company’s “normal claims handling procedures,” and he stated, “I read this as having to write a complete line by line estimate even if the repairs will exceed the policy limits.”

The Windstorm Insurance Network has national flood adjusters classes regarding flood adjustment methodologies. Indeed, adjusters normally have to be certified as flood adjusters. I, and probably many adjusters from other firms, find it amazing that State Farm would unilaterally set its own standards for the adjustment of flood claims.

Today is the five-year anniversary of Hurricane Katrina. My experience from most hurricane disasters is that it is pretty difficult to find evidence of a storm five years afterwards. It may be difficult for many to see signs of the Katrina disaster. But when you get along the Gulf Coast, there are still many slabbed structures and obvious indications that a catastrophe occurred. Since we have not solved the wind versus water coverage issue, we can expect this to repeat in the future. 

Here is the gist of the article:

Federal fisheries experts have told the Federal Emergency Management Agency that -- by underwriting thousands of flood insurance policies in Puget Sound -- it encourages construction in floodplains in ways that harm federally protected species.

In response, FEMA is now drafting new building rules for about 122 communities in Puget Sound to minimize the harm to salmon and endangered whales that feed on them.

"We're going to see less damages caused by flooding and less lives lost due to flooding and good riparian stewardship," said John Graves, a floodplain specialist with the National Flood Insurance Program.

What FEMA is doing in Washington state is being closely watched elsewhere.

Conservation groups across the country have challenged FEMA's flood program for harming endangered sea turtles in Florida, pallid sturgeon in Missouri, jaguars in Arizona, salmon in Oregon, and the Southwestern willow flycatcher in New Mexico.

FEMA has "a national responsibility to comply with the Endangered Species Act and not harm imperiled species by allowing and even subsidizing development in floodplain habitat areas," said Dan Siemann, senior environmental policy specialist for the National Wildlife Federation.

Conservation groups say FEMA's program allows building to occur in areas where it otherwise would not, since most private insurers won't safeguard homes in such flood-prone areas. They say the agency sets minimum building standards, but those don't consider impacts of development on wildlife and their habitat.

I imagine that environmental groups could use the same logic and tactic to force federally funded or guaranteed mortgages to be written with new environmental building rules. And, maybe that is the way it should be. Construction and building codes can potentially harm or have significant impact on the environment and our fellow creatures living on earth.

There are significant federalism and public policy issues in those topics. Certainly, building codes should allow for affordable housing and there should be codes written with the environment in mind…but shouldn’t those be written and decided by the governing authorities charged with the responsibilities associated with those issues? Shouldn't mitigation be the primary concern in the National Flood Program Building Codes? 

In Industry, Taylor React To 'Compromise' Senate Wind vs. Water Bill, Taylor's position was noted:

Brian Martin, policy director for Rep. Taylor, contradicted reports that Rep. Taylor believes the Wicker bill is a good compromise between his bill and the five-year NFIP extension recently passed by the House that does not add windstorm coverage to the program.

“Wicker’s bill is not a substitute for Rep. Taylor’s legislation, H.R. 1264, the Multiple Peril Insurance Act,” Mr. Martin said. He said the Wicker bill is just an administrative procedure for resolving "wind vs. water" conflicts between the NFIP and insurance companies.

He noted that Rep. Taylor’s amendment to the five-year extension bill is “slightly similar” to the Wicker bill in that when there is a "wind vs. water" dispute, the homeowner would be paid and then the wind and flood policies would figure out how to allocate the loss.

Mr. Martin said that in Rep. Taylor’s amendment, The NFIP pays the homeowner and gets reimbursed later by the insurer for the wind share.
He explained, “I thought we would have some state and NAIC issues if we tried to make the private insurer pay the homeowner, so that is why we propose in our amendment that the NFIP pay the homeowner and then make the insurer reimburse NFIP after the allocation was decided.”

Currently, Mr. Martin and Rep. Taylor are continuing to seek floor action on the bill to add windstorm coverage to the NFIP.

Brian Martin is a very hardworking staffer working for Taylor's constituency in Mississippi. These flood insurance issues are political, social and financial. I first met Martin when we took a Rimkus engineer to meet Gene Taylor in Washington. The engineer’s original written opinion indicating that wind caused the damage had been changed without his approval to reflect that flood caused the damage. Martin and Taylor were obviously interested in meeting this engineer.

I applaud and wish good luck to Taylor and Martin in their efforts. They have a long, long way to go trying to prevent the heartbreak caused by the insurance industry selling a defective product. And that reminds of a song as our weekend is upon us:
 

In Bill Adding Wind To NFIP Introduced, May Be Discussed This Week, the National Underwriter addressed this recent development:

The House will likely consider legislation on Thursday that would add wind coverage to the National Flood Insurance Program, a plan opposed by the insurance industry.

The bill, H.R. 1264—“the Multiple Peril Insurance Act”—is sponsored by Rep. Gene Taylor, D-Miss. In discussions leading up to the House’s passage of a five-year NFIP extension last week, Rep. Taylor sought to attach an amendment adding wind coverage to the NFIP. But the House Rules Committee ruled it “non-germane” to the main bill, H.R. 5114, the “Flood Insurance Reform and Priorities Act of 2010.”

In a note to colleagues sent today urging their support, Rep. Taylor argued that the bill would save taxpayers billions of dollars by reducing future disaster assistance costs after hurricanes and tropical storms. “As long as wind and flood coverage are in separate policies, there will be gaps in coverage and lengthy disputes over causation after hurricanes,” he said. Rep. Taylor contended that almost all companies in the private property insurance market would benefit from adding wind to the program.

“The NFIP relies on insurance companies to sell federal flood insurance policies,” he said. “The companies keep about 30 percent off the top for agent commissions, administrative expenses and profits, yet bear none of the risk.” This arrangement would continue under his legislation, Rep. Taylor said.

Reflecting the property and casualty industry’s position, Blaine Rethmeier, a spokesman for the American Insurance Association, said, “The entire industry opposes the bill, and no one thinks adding wind exposure to a program that is already $19 billon in debt is a good idea.” (emphasis added)

The strong insurance industry opposition to this legislation was also echoed by the Insurance Networking News in "Insurers’ Wild Week." The article included speculation by one insurance industry lobbyist that Taylor's language was included because of the upcoming election and had little chance of ever becoming law:

"While the Senate ratification of regulatory reform was largely perfunctory, the passage of H.R. 5114, the Flood Insurance Reform Priorities Act of 2010, was replete with last-second drama.

To the consternation of insurers, one of three amendments offered by Rep. Gene Taylor (D. –Miss.), passed by a voice vote and was included in the final bill. The amendment would require private insurers participating in the NFIP “Write Your Own” (WYO) program to remove anti-current causation clauses from their policies. Taylor, whose home was destroyed during Hurricane Katrina and later reached a settlement with State Farm, says the clauses enable participating insurers to shift damage caused by wind to the NFIP.

To be sure, the issue of whether to include coverage for wind damage has been one of the primary issues blocking a long term funding resolution for the NFIP. With the defeat of two of his amendments, a multi-peril insurance bill sponsored by Taylor may come up on the floor as a standalone bill this week. “It’s never over,” jokes Ben McKay, SVP, federal government relations for the Property Casualty Insurers Association of America. Surprisingly, given the number of Republicans representing coastal districts, the vote for H.R. 5114 fell largely along party lines. “There’s a lot of extra stuff in the bill, so if you wanted to find something to love or hate, it’s in there,” McKay tells INN.

[An insurance lobbyist] says that Taylor’s efforts may be largely quixotic, noting that when a bill that included wind coverage appeared in the Senate, there was 85 votes against it. “The Senate won’t pass a bill with wind and [even if they did] the president has said he’ll veto it,” he says. “This may a bit of political gift in a tough election year for Gene Taylor—at our expense.”

Yet, in his remarks on the House floor last week, Taylor’s ardor to include wind coverage seemed genuine as he challenged his colleagues to take up the cause. "Quite honestly, I would like to see which shill for the insurance companies wants to defend what they did to individuals in the Gulf Coast and what they have done to the taxpayers as a whole," he said." (emphasis added)

In April, Slabbed updated everybody on Gene Taylor's efforts in "Let’s talk multi peril insurance and NFIP reauthorization as Slabbed updates the Washington front." That post contained a link to Gene Taylor's testimony on the issue and Anita Lee's coverage of the topic.

Having met with Taylor on this issue and other claims conduct issues following Katrina, I am glad to see he has not given up on finding a way to prevent the insanity of this coverage issue in the future. On his website, Taylor made the following observation regarding what this bill would accomplish:

Another focus of this hearing is H.R. 1264, “the Multiple Peril Insurance Act” which has been introduced by Rep. Gene Taylor (D-MS). After Hurricane Katrina, property owners with an insurance policy expected to be reimbursed for the full damage suffered. However, insurers declined to cover wind damage under the homeowner’s policy if some of the damage was deemed due to flooding, and the NFIP supplement to the policy would only cover flood-related damage. In effect, property owners who had been paying for years for this insurance were caught in the middle of a legal dispute between insurers and the NFIP.

The Multiple Peril Insurance Act would allow homeowners to buy comprehensive insurance and know that hurricane damage would be covered without lengthy legal disputes over how much damage was caused by wind and how much was caused by flooding. Premiums for the wind coverage would be risk-based and actuarially sound. Coverage would be limited. The CBO has scored the bill as budget neutral.

The bill would also reduce future property damage by requiring participating communities to adopt International Building Codes. Windstorm insurance would be available only where the local governments adopt and enforce the International Building Code or equivalent building standards. Thus the bill would not only prevent insurers from shifting liability back to the federal government, it would also save taxpayers money by increasing the number of properties that are mitigated against future wind damage and paid for by insurance premiums rather than post-disaster federal assistance.

In the long run, we will have to pay for the losses we incur. We can do this privately, through the social product of insurance which spreads losses among geographic and time parameters. Similar to the debate about the investment in an energy efficient infrastructure not dependent on carbon, we need promote investment in buildings better hardened against perils of loss. Many of these steps will help reduce the severity of loss risk to private insurers doing business in coastal states.

I hate to sound pessimistic, but I cannot imagine that many insurers would remove a fairly standard clause found in most property insurance policies just to write insurance under the National Flood Insurance Program. I would expect that any final legislation extending the National Flood Program will not require the anti-concurrent clause to be removed from Write-Your-Own policies. And that may be a shame because Taylor's bill would stop the problem many devastated coastal policyholders are forced to resolve following a significant hurricane storm surge.

It is obvious that the insurance community understands the importance of flood insurance:

The National Association of Professional Insurance Agents (PIA) sent a letter to the Senate June 18 urging prompt action on the extension and noting that the NFIP “has slipped into a hiatus.”

PIA National President-elect Brian Marino, co-chair of PIA National’s working group on natural catastrophes, said, “This is a serious situation and the lack of action by Congress is irresponsible.”

He added, “Since the NFIP lapsed, 20 people lost their lives in flash floods in Arkansas, and in May, 29 people were killed in extreme flash flooding in Tennessee, Mississippi and Kentucky. Property damage was extensive everywhere. Allowing the flood insurance program to lapse is just not an acceptable option.”

Mr. Marino added that while no new policies can be issued during a lapse in NFIP authorization, consumers with current flood insurance policies remain covered. Claims payments are not affected.

We will keep up on this important topic.

A Wall Street Journal article, As Hurricane Season Begins, Insurance Gets Harder to Find, also noted that Congress is not helping policyholders or the real estate market by its politics with the National Flood Program:

Congress's failure to extend the flood insurance program is delaying an estimated 1,200 real-estate closings a day across the U.S., according to the National Association of Mutual Insurance Companies. Federal law requires homes with federally backed mortgages in flood-hazard areas to have flood insurance.

I recently posted two items concerning the need for everybody to purchase supplemental flood insurance -- Time to Buy Flood Insurance Coverage and Oil and Hurricanes: Here Comes the One Two Punch. As indicated in the Wall Street Journal article, The Insurance Information Institute agrees with me and similarly notes that National Flood will pay for the oil damage if storm surge brings it on a flood covered property:

Of particular concern this hurricane season: flood damage. Storm surges could bring polluted floodwaters from the oil spill in the Gulf, potentially affecting property owners from Louisiana to Cape Hatteras, N.C.

But standard homeowners' policies generally don't cover pollution damage resulting from a flood; only supplemental flood insurance does. "In general, whatever is mixed in with the water is part of the flood, hence excluded from a [traditional] homeowner policy," says Robert Hartwig, president of the Insurance Information Institute, an industry nonprofit group.

Congress should stop playing politics with the National Flood Program. Since June 1, the program has been forced to stop writing new policies because of politics. This is not the time for politicians to be changing policy or needlessly harming others by holding National Flood hostage to get other legislation passed.

I am sending this post to my Representative and Senators. I suggest you take a minute to do the same.

There are some lessons from experience that all can apply as we get deeper into the summer months. First, purchase flood insurance. As noted in our Condominium Insurance Law Blog post, FEMA Clarifies Position: Flood Waters Mixed With Oil Will Be Covered, National Flood has told everybody in advance that it will pay for additional costs of oil if floods or storm surge carry oil with it during a hurricane. Do not underinsure the amount--be safe and err on the side of overinsuring your structure because my experience is that most underestimate how much repairs costs. Think of the additional costs associated with removing oil if you have a problem paying a little extra to follow my advice.

The only problem is that you might not be able to purchase flood insurance right now. As noted yesterday in Industry Groups Urge Congress To Extend NFIP, Put Politics Aside:

The official start date of the Atlantic hurricane season was June 1, but no flood policies have been issued or renewed because the National Flood Insurance Program has expired, said two insurance groups, calling for a long-term extension of the program.

The NFIP expired May 31, resulting in the third lapse in the ability to purchase flood insurance coverage this year.

As a result, no NFIP policies can be issued or renewed until Congress reauthorizes the program, and existing policyholders cannot increase their coverage limits during the program’s hiatus, which is particularly troubling for those who may be impacted by the Deepwater Horizon oil spill should a storm occur, the Property Casualty Insurers Association of America (PCI) said.

Second, review all your coverages with your agent. Insure to full value and especially consider whether you have sufficient code upgrade coverage. Discuss whether your policy covers damage from wind blown rain and whether your business policy has sufficient loss of earning coverage and forms for dependent losses. Some of these coverages are discussed in Nationwide Insurance Commercial Customers Should Check Their Policies for Dependent Property Lost Income Coverage and Oh My Cheese! What Can Dairy Farmers Teach Us About Contingent Business Coverage? -- Understanding Business Interruption Claims, Part 7.

Third, harden your structures by repairing roofs, painting, and glazing or caulking openings, doors and windows. These are the most cost effective protective measures that can be taken. They will even help prevent loss during severe rainstorms.

I am writing this post late Monday night, flying home from Destin, Florida. I was in Pensacola earlier, and debated for BP contributing to a $20 billion oil spill trust fund on Fox Business News . Cash is the lifeblood to businesses. If BP does not get money it owes to Gulf Coast businesses soon, business death in the form of bankruptcy will quickly occur to many businesses with resultant harm to employees and their families.

In Destin, the City council convened an emergency meeting which I attended. Fishermen reported oil slicks 4.5 miles from Fort Walton Beach. Given this development, Destin City Hall was the scene of democracy in action. Out of frustration, the Okaloosa County Commission defied federal officers and voted to take self help measures to preserve their water and beaches, claiming they would willingly go to jail, rather than do nothing.

For those who may be critical of President Obama for alienating the British regarding the BP Oil Spill, I suggest that the people of the Gulf Coast really don't care. The Gulf Coast way of life has been damaged and more is threatened by BP's lukewarm reaction. Earlier in the evening, elected County officials joined the angry crowd and took measures into their own hands. They voted to take action not approved by the Federal Government. One official threatened use of their own police to implement their own remedy and battle BP oil spill responders.

Others not from the southern coastal states should get the feeling that many local leaders and people of the Gulf Coast don't care who is upset. They require any action which will keep the oil out of their local waters and off their shores. They are tired of hearing nothing can be done to fight the oil. A comment was made at the emergency meeting that people from Washington D.C. and Chicago don't enjoy or go on the water or beaches, but spend their time in fancy restaurants. To say that there was "anger in the air" caused by frustration would be an understatement.

While observing this, I thought about the already warm water and the season's first tropical wave  possibly forming in the Atlantic. It has been my experience that misfortune happens at precisely the wrong time. Since the precisely wrong time for a hurricane to strike the Gulf of Mexico is over the next several months, Bob Dylan's immortal lyrics come to mind..."It does not take a weatherman to know which way the wind blows."

Prepare for the worst. Hope and pray for the best.

In a Insurance Journal story this afternoon, Federal Flood Insurance Program Closed for Weeks, the blame for this mess apparently is in a state where few flood policies are sold and real estate transactions will be unaffected:

As insurance and real estate agents and homeowners feared, Congress left Washington without extending the federal flood insurance program.

Congress adjourned until April 12 after failing to agree on an unemployment benefits bill that included a provision with an extension of the National Flood Insurance Program.

As a result, the federal flood insurance program's authority to write new policies ends on Sunday, March 28 at midnight. After that time, insurance agents will not be able to provide new or renewal flood insurance policies, which are required by lenders to close on some real estate sales.

Senator Tom Coburn, R- Okla., blocked the Senate from voting on the bill to extend the jobless benefits arguing that to do so would add to the deficit. Democrats argued that the measure qualified as emergency spending.

A similar impasse occurred at the end of February and the NFIP was closed for several days until Congress renewed it on March 2.

But this time the hiatus will be longer.

Congress could reinstate the NFIP and other affected programs retroactively when it returns on April 12.

Maybe real estate agents should plan their vacations around Congress as well.

First, when dealing with flood claims it is vital to note that you have 60 days to file a Proof of Loss. The Standard Policy states: “Within 60 days after the loss, [the insured must] send [the insurer] a proof of loss, which is [the insured’s] statement as to the amount [he/she] is claiming under the policy signed and sworn to by [the insured] and furnishing” specific information.

Submitting a Proof on even the 61st day will likely result in the claim being completely denied.

Courts in every jurisdiction have upheld specific and complete compliance with these requirements. See Dawkins v. Witt, 318 F.3d 606 (4th Cir.2003); Mancini v. Redland Ins. Co., 248 F.3d 729 (8th Cir.2001); Flick v. Liberty Mut. Fire Ins. Co., 205 F.3d 386 (9th Cir.2000); Gowland v. Aetna, 143 F.3d 951 (5th Cir.1998); Phelps v. Fed. Emergency Mgmt. Agency, 785 F.2d 13 (1st Cir.1986). These courts all concluded that there must be strict compliance with the terms and conditions of Federal Flood Insurance Policies and the failure to file a Proof of Loss prohibits a plaintiff from recovery.

Similarly, as I discussed the last few weeks, there is sometimes an argument that compliance with a Proof of Loss requirement was excused because an insurer has waived its right to a Proof based on the insurer’s actions or statements. With flood claims, you can be assured that this argument will fail.

As the policy states, the requirement of a Proof of Loss can only be waived by written authorization from FEMA. Therefore, no matter what the adjuster or Write Your Own Carrier says or does, a Proof still must be submitted for recovery to be possible.

In one of the cases mentioned above, it was undisputed that the Write Your Own Carrier had stated that the 60 day requirement would not be enforced and that the insured had relied on these representations in failing to file the Proof. The court, however, refused to find that strict compliance with the Proof of Loss provisions had been waived because there was no written waiver from the Federal Insurance Administrator. Dawkins at 610-611.

Furthermore, in one unreported Florida case, the 11th Circuit found that the insured was not excused from submitting a Proof of Loss within 60 days despite the fact that the insurer did not send an adjuster to the insured property until 90 days after the damage occurred. With a regular homeowners policy, there might be an argument that the actions of the insurer (not sending an adjuster to investigate the loss until after the period of time for submitting a Proof had expired) constituted an implied waiver of the policy provisions. Because it was a flood claim, however, the court refused to follow this line of reasoning and denied coverage for the loss. Lucien v. U.S. Sec. Ins. Corp., 143 Fed. Appx. 152 (11th Cir. 2005).

While I have mostly covered what happens if a Proof of Loss is not submitted in this post, it is important to note that even a small deviation from the flood policy requirements can result in the claim being denied. If a Proof is filed without being signed or notarized, or is submitted without the required supporting documentation, it is likely that the claim will be denied if the 60 day timeframe expires.

Everyone has heard the saying that the only two things certain in life are death and taxes, however if you fail to comply with the Proof of Loss provisions of the Standard Flood Policy you can likely add a claim denial to this list.

With that said, it is important to note that, as I discussed in a previous post, What is a Proof of Loss, and What Purpose Does it Serve?, the Proof of Loss requirement protects the insurer. It helps the insurer gain a clearer perspective on the scope of the loss and aids it in determining coverage issues. This protection, like many other policy provisions designed to protect the insurer, can sometimes be waived. When this waiver occurs, the policy is read as if the Proof requirement has been struck from the contract.

There is a split of authority on when waiver may occur, if at all. Some courts have held that for waiver to be effective the insurer must do so before the end of the time period for filing the Proof, in accordance with an applicable policy provision or statute. In other circumstances, such as when a claim has been denied, some courts have found that waiver can occur outside of the normal 60 day period. See Connecticut Fire Ins. Co. v. Fox, 361 F.2d 1 (10th Cir. 1966). Either way, anyone involved in a claim should keep a thorough timeline detailing all statements and actions which might give rise to a claim for waiver so that it can be more easily determined when the waiver was actually effectuated.

There are generally two ways by which an insurer can waive a Proof of Loss requirement. First, the insurer may expressly waive the requirement either verbally or in writing. Second, waiver may be implied from an act or pattern of conduct by the insurer or its authorized agents that reasonably tends to create a belief in the mind of the policyholder that Proofs of Loss will be unnecessary.

Because of the breadth of information on both express and implied waiver, I have decided to break this down into a two week section. This week, I will focus on express, and next week we will delve into implied.

An insurer can expressly notify the insured in writing or verbally of its intent to waive the requirement. There are many reasons why an insurer may want to waive the Proof of Loss requirement, but, as with many other aspects of a claim, it is always a good idea for the insured to obtain a written confirmation. This can help head off any attempt by the insurer to later deny that the waiver occurred. Also, many policies state that no policy provision may be waived except by written agreement or endorsement. If this is the case, you should make every effort to get the waiver in writing. Doing this follow up could make all the difference in a claim and could prevent a plethora of headaches as you go forward.

There are some jurisdictions, however, which have held that such language may not prevent an insurer from orally waiving the Proof requirements. One Colorado case, for instance, stated:

The plaintiff here has raised the issues of waiver and estoppel in his summary judgment pleadings. Although timely compliance is generally a condition precedent to the insurer's liability, a satisfactory excuse for noncompliance may be shown. Capital Fixture & Supply Co. v. National Fire Insurance Co., 131 Colo. 64, 279 P.2d 435 (1955). A subsequent waiver of the conditions would constitute a valid excuse. Thus, there exists a genuine issue of fact as to whether plaintiff was induced by an agent of defendant to delay his filings.

Defendant argues that such a result is precluded here as a matter of law because the policy required all waivers to be in writing. We disagree.

The question of whether a provision in an insurance contract requiring all waivers to be in writing applies to post-loss conditions was settled definitively as early as 1931. Concordia Insurance Co. v. School District No. 98, 282 U.S. 545, 51 S.Ct. 275, 75 L.Ed. 528 (1931). In Concordia, the Supreme Court held that non-waiver provisions “ha[ve] reference to those provisions and conditions which constitute part of the contract of insurance and [do] not apply to a waiver, after the loss occurs, of stipulations in respect of things to be done subsequent to the loss as prerequisites to adjustment and payment.” The overwhelming majority of modern cases follow the Concordia rule. See 5 S. Williston, Contracts § 766 (W. Jaeger 3d ed. 1961).

We are in accord with the Concordia rule and its rationale as expressed in the Tenth Circuit court opinion. In fact, it applies with special strength here, because the language of the non-waiver provision construed in Concordia does not differ in any significant way from the provision construed here. Thus, we hold that the contract's requirements for submitting a proof of loss statement and for filing suit could be waived, even in the absence of a writing, because they were both conditions required to be performed after the loss occurred.

Circle C Beef Co. v. Home Ins. Co., 654 P.2d 869 (Colo. Ct. App. 1982).

This case, and others like it, may afford some important protection to policyholders in various jurisdictions, however, this protection is not certain. Some jurisdictions will hold that any waiver that is not in writing is not effective, and therefore, failing to get a written confirmation of the insurer’s waiver could be problematic to a claim.

So what is the best course of action? Of course, if at all possible, file the Proof of Loss! However, be aware that there may be some circumstance where the requirement may be waived.

The case involved a number of late-filed federal proofs of loss for flood claims. The adjusters refused to grant the plaintiffs a waiver for the late filing, while allowing others. I think it is a stupid legal rule to make a piece of paper determinative of whether a proof of loss has been filed on time as an absolute condition precedent to recovery. The best rule, from the policyholder’s standpoint, regarding proofs of loss is in Louisiana, and the most draconian has been under the National Flood Program. Maybe that is about to change. After all, shouldn’t the contract be interpreted to provide coverage and recovery despite immaterial failures of filing pieces of paper? Proofs of Loss are not in the same category as Constitutions, and many documents in commercial settings and life are filed late or imperfectly without releasing the other party from an otherwise valid obligation.

In the National Flood context, most policyholders have “storm trooper” claims adjusters from an independent adjustment company controlled by a “write-your-own” insurer estimate the policyholder’s damage. Usually, the policyholder simply accepts. They may not agree, but they hope money is coming soon and that it is enough to get the structure fixed. Do any of them want to spend their own money to get an independent estimate? Usually, they do not. But, I would suggest that they hire a public adjuster; most estimators make mistakes and Flood estimators make a lot more money by churning out many estimates rather than spending the time getting a few very accurate.

In this case, the administrators for National Flood denied the appeal for the waiver. Usually, that has been the end of the story. Here, the policyholders argued that a court should decide if that decision was right. This is what the Court wrote about the situation before going into its analysis :

Under its regulatory framework, the Federal Insurance Administrator is authorized to waive the proof of loss deadline at his discretion. See 44 C.F.R. § 61.13(d) (2008). Upon receipt of a waiver request, the Administrator, or his delegates, "determine whether it is an appropriate claim to waive the [proof of loss] deadline and whether there is a legitimate reason why the [proof of loss] was not timely submitted"…

During one of several oral arguments before the Court that occurred in these proceedings during 2007, FEMA acknowledged that it had granted waivers for some insureds beyond the January 17, 2004 deadline. But when asked by the Court what criteria were used to determine whose claims might be considered after the deadline and whether such criteria had ever been publicly announced, FEMA was not able at first to articulate the criteria, except to suggest that some claims for additional compensation were deemed to be meritorious and were therefore granted late. Thereafter, per the Woods Affidavit, FEMA advised the Court of the criteria, effectively conceding that they had not theretofore been published.

Because it felt that these criteria for waiver were potentially invalid as to pending claims in that they were not previously-announced, the Court, contingent upon a subsequent finding that the criteria would indeed be held invalid for that reason, granted Plaintiffs leave to file individual requests for waiver of the proof of loss deadline.

Plaintiffs thereupon filed individual waiver requests based upon the newly announced criteria set forth by FEMA. In July and August 2008, FEMA issued a series of letters denying all but five of Plaintiffs' waiver requests. Plaintiffs now seek review of the denials. FEMA submits that the Court lacks authority to review its waiver decisions.

In a footnote, the Court noted the new criteria that FEMA made and used to determine whether a waiver should be granted:

The criteria included: the severity of the damages caused by flood; whether the damage required an expert to evaluate the extent of structural damages caused by flood; whether the damage required a Certified Public Accountant to review the stock and inventory; whether salvage is involved and if the adjuster must either sell it back to the insured or dispose of it, which would further delay the adjustment process; whether the insured experienced difficulty listing all items damaged by flood due to the extent of personal property inventory involved; whether there were settlement disputes which may have caused delay in finalizing the claim adjustments; whether the insured required additional time due to health conditions (i.e., hospitalization) and required a family member’s assistance in the presentation of their claim; whether the claim involved prior losses and the insured was required to document repairs to the structure and replacement of personal property prior to the recent flood loss; and whether the insured demonstrates that there is additional covered damage for which a supplemental payment is appropriate.

After further outlining the legal position of the parties, the Court held:

The Court agrees with Plaintiffs that it possesses authority to review the waiver decisions pursuant to 42 U.S.C. § 4072. That section authorizes judicial review of “any claims for proved and approved losses covered by flood insurance” that the Director disallows. 42 U.S.C. § 4072 (2006). Defendants concede that section 4072 is a limited waiver of sovereign immunity that applies “with respect to circumstances involving the denial of a claim submitted pursuant to a federally-issued SFIP…”

The key question is whether a request for a waiver of a proof of loss deadline to submit a claim for payment of the loss is itself a “claim.” The Court believes it is.

The term “claim” is not defined by section 4072. Is it nonetheless “unambiguous”? The Court concludes that it is not, or stating the proposition directly, that the word “claim” is ambiguous. Black’s Law Dictionary 247 (6th Ed. 1990), for instance, defines a claim inter alia as a “[m]eans by or through which claimant obtains possession or enjoyment of privilege or thing.” In that sense, one makes a “claim” for possession or enjoyment of a waiver of a proof of loss deadline as much as a claim for the loss itself …

The Court holds that a request for waiver of a proof of loss deadline is a “claim” and, as such, is reviewable by a federal district court.

Policyholders with flood insurance may not appreciate how important this ruling is. We should be vigilant that FEMA does not try to make regulations diluting it. Without a process to appeal and challenge the decision, FEMA administrators can do what they want with impunity. Now those decisions can be challenged.

The Court also set out the standard of review when challenging those decisions:

Having determined that it has authority to review FEMA’s denials of waivers of the proof of loss deadlines in this case, by what standard does the Court review the denials? Since section 4072 does not indicate that the Court’s review should be de novo, the Court accepts the basic standard of the Administrative Procedure Act that the denials not be “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” 5 U.S.C. § 706(2)(A) (2006).

This is a fair and just decision. We all make mistakes and sometimes act arbitrary or capriciously—it is human nature. It is also human to not want to admit our wrongs. Having recourse to challenge such unfairness is a basic concept of American jurisprudence upheld in this case.

"The following must be followed when completing the proofs for flood claims:

1. Use the exact Federal Form for the Proof of Loss and not a generic form. Failure to do so may jeopardize payment. It would be similar to filing a Federal Income Tax return with a state form.
2. Figure exact amounts owed. Do not put, "policy limits" or "to be determined."
3. Document the amounts owed and attach the documentation. Do not just "ballpark" or "estimate" an amount. File the proof with actual estimates, proposals, lists, or some type of documentation which "proves" and substantiates the loss amount.
4. Get it received and in the hands of the company listed on the policy by the deadline. Do not just send it to the adjuster on the deadline day.
5. Do not rely upon other oral or written extensions from the field adjuster or his supervisor. Only written extensions coming from the Director or Deputy Director can legally extend the time.

National Flood may, on appeal, rescind these requirements. If you get in this predicament, we strongly suggest you obtain legal counsel. The best course of action is to never place yourself in that position in the first place."

We have been receiving some wrongful responses to properly complete Flood Proofs of Loss and imagine many others have as well. If you submit a properly filled out Proof of Loss, the insurer either pays the claim, pays part of the claim, and if the policy allows, may even replace or repair the property. The one thing some insurance adjusters wrongfully do is reject a properly completed proof of loss. This is technically a breach of the insurance contract by the insurance company because no property insurance contract, even a Flood contract, allows that to be the response.

When I did property insurance defense early in my career over twenty-six years ago, my mentor, Paul Butler, Jr., made this point in a number of insurance seminars, but the wrongful practice of "rejecting" properly completed Proofs of Loss still exists for some reason. We have received a number of these from National Flood and the adjusters with Fidelity. We have talked with them and they are clueless about what to do when a Flood policyholder sends a properly completed and documented Proof of Loss for a claim amount which is higher than what they agree is the amount of damage. I hope Russ Tinsley and others with National Flood are reading this because it is a problem that is harming policyholders.

Most insurance companies will pay the undisputed portion of the claimed amounts and try to adjust the disputed amounts through good faith discussion. This activity goes on all the time. Most property insurance claims being handled with disagreements can end with each side giving some after consideration for the other's point of view. But, the Proof of Loss is not rejected. Instead, the good faith insurer merely indicates that it disagrees, puts in writing why it disagrees, pays the undisputed amounts, and usually asks to meet right away for a settlement or other adjustment conference trying to resolve differences in good faith.

The alternatives left to resolve the dispute are usually litigation or appraisal. The problem with litigating against National Flood is the unavailability of attorney’s fees and the usual high expense of federal litigation. The policyholder can win the lawsuit, but have no money after attorney’s fees and costs because the disputes are not usually that large.

A good example of this is in Dwyer v. Fidelity National Property and Casualty Insurance Company, 565 F.3d 284 (5th Cir., April 09, 2009). A summary of the facts were:

"...Fidelity paid the policy limit for contents and $86,629 for flooding-related building damages. After the first set of checks did not arrive, Fidelity mailed a second set, which the Dwyers received in December.

On February 21, 2006, Dwyer sent a certified letter to both Fidelity and Traveler's Insurance Company (“Traveler's”), whose homeowner's insurance policy on the Dwyer dwelling covers wind damage. The letter stated that a contractor's estimate to repair the house was roughly $100,000 more than the combined amounts paid by Fidelity and Traveler's. Dwyer wrote that neither he nor the contractor could accurately distinguish between wind and flood damage, so Dwyer recommended each company pay the additional expenses in proportion to the amount it had already paid. Based on this calculation, he requested an additional $85,471.89 from Fidelity.

Fidelity instructed the Dwyers to contact the adjuster and faxed a copy of the letter to him. Apparently no further action occurred, and the Dwyers sued Fidelity on August 25, 2006, seeking additional money under the policy and damages under federal common law for bad faith claim adjustment. The complaint does not limit its allegations to undervaluation of the Dwyers' loss nor does it disavow a claim to increase Fidelity's share of the wind/water allocation, and it includes claims such as “failing to properly train its adjusters and agents,” which could be related to valuation, coverage, or both.

In its answer, Fidelity denied liability and stated:

If these Plaintiffs' SFIP claims dispute reaches a point where it is established that there is (1) full and complete compliance with all conditions precedent to the making of a claim, and (2) resolution and agreement upon all issues of both coverage and the scope of the loss, then in that event (but not until that event) Defendant affirmatively asserts and invokes the appraisal clause of the SFIP. 44 C.F.R. Pt. 61, App. A(1), Art. VII(P).

...

...Fidelity filed a motion to compel appraisal...

Because the trial date was close at hand, the district court denied the motion as untimely. After a four-day bench trial, the court awarded the Dwyers the difference between Velez's estimate and the money already paid by Fidelity. In addition, the court awarded the Dwyers their attorneys' fees, finding that Fidelity qualified as a “federal agency” under the Equal Access to Justice Act. Fidelity appeals both rulings."

I assume there was no bad faith award because there is no federal common law bad faith. But the case is not finished and insurance monies paid because of what the Fifth Circuit did on appeal. It held that the matter had to go to appraisal despite the long time of litigating the matter and also held that no attorney’s fees and costs could be awarded against National Flood or the WYO (Write Your Own) carriers.

The appraisal analysis first noted:

"The Dwyers...argue that appraisal cannot be requested after suit has been filed. They offer no authority support their position. Nothing in the clause or the contract as a whole establishes a time limit for invoking the appraisal clause. Contractual clauses cannot be evaded by racing to the courthouse, and appraisal and arbitration clauses are routinely invoked during litigation. E.g., Hill v. G E Power Sys., Inc., 282 F.3d 343 (5th Cir.2002) (arbitration); Terra Indus., Inc. v. Commonwealth Ins. Co., 981 F.Supp. 581, 600 (N.D.Iowa 1997) (appraisal). Consequently, the appraisal clause may be invoked after suit, provided that the failure to do so has not amounted to waiver.

…The district court incorrectly homed in on the interval between the appraisal request and the trial date. The appropriate waiver inquiry examines Fidelity's knowledge and action-when Fidelity knew that the appraisal clause could be invoked, whether it reacted timely to the knowledge. Fidelity first learned that the Dwyers disputed only the amount of loss, not coverage or other issues, on January 5, when it received the Velez estimate. Five weeks later, after informal requests failed, Fidelity formally moved the court to compel appraisal. Fidelity did not sit on its rights. In the context of the ongoing litigation, Fidelity raised the issue of appraisal in a timely fashion….”

Regarding the attorneys fees, the Court found: 

“Fidelity, a private insurer, cannot be characterized as a department, commission, administration, authority, board, or bureau of the United States. For the Dwyers to recover EAJA fees, Fidelity must qualify as an “independent establishment” or a “corporation in which the United States has a proprietary interest.” An “independent establishment,” however, is “an independent entity within the executive branch.” Scott v. Fed. Reserve Bank of Kansas City, 406 F.3d 532, 535 (8th Cir.2005) (emphasis added). Fidelity is not so situated, nor is Fidelity “a corporation in which the United States has a proprietary interest.” See id.

Finally, although Fidelity acts as a fiscal agent of the United States, “it is possible to be a fiscal agent ... of the government without being a federal agency.” Id. (citing In Re Hoag Ranches, 846 F.2d 1225, 1227 (9th Cir.1988)). The SFIP regulations expressly state:

A WYO Company shall act as a fiscal agent of the Federal Government, but not as its general agent. WYO Companies are solely responsible for their obligations to their insured under any flood insurance policies issued under agreements entered into with the Administrator, such that the Federal Government is not a proper party defendant in any lawsuit arising out of such policies.

… In analyzing the definition of “federal agency” under the Federal Tort Claims Act, the Supreme Court admonished that although “[b]illions of dollars of federal money are spent each year on projects performed by people and institutions which contract with the Government” and “the Government may fix specific and precise conditions to implement federal objectives,” such contracts and regulations do not transform private actors into federal agencies. United States v. Orleans, 425 U.S. 807, 815-16, 96 S.Ct. 1971, 1976-77, 48 L.Ed.2d 390 (1976). Likewise, serving as a fiscal agent and a participant in a heavily regulated federal program did not transform Fidelity into a federal agency under the EAJA.
…

This conclusion is consistent with that reached by several district courts. See Dickerson v. State Farm Fire and Cas. Co., 2007 WL 1537631, at *4, No. 06-5181 (E.D.La. May 23, 2007) (“[W]hile State Farm is a WYO carrier participating in the NFIP as fiscal agent for the United States, it is not an agency of the United States as required by the EAJA.”); Schopen v. State Farm Ins. Co., 1996 WL 696444, at *2, No. 96-1892 (E.D.La. Dec. 2, 1996) (“Section 2412(b) only applies to civil actions which are ‘brought ... against the United States.’ State Farm is neither the United States nor an agency of the United States.”). The district court erred in awarding EAJA fees to the Dwyers.”

I feel for the Dwyers. It appeared they were awarded only another $56,963.19 which easily gets eaten up by deposition and expert costs even before the cost of their attorneys. Now, they will have to pay for an appraiser and half an umpire’s cost as well. Some may correctly figure that it may not pay to fight the National Flood bureaucracy. Something needs to be done in Congress about this because policyholders are economically forced to take less. There is no meaningful way for them to “win” and be made whole, unless they file a lawsuit to only prove a point.

Most fall into the second category. There is an epidemic of underinsured structures. I have no idea why the insurance industry is not pushing harder to correct this problem, but I suspect ninety percent of all properties do not have the coverage necessary to fully replace a structure following a catastrophe.

This problem was highlighted in 2004 congressional hearings following Hurricane Isabel in 2003. A number of Mid-Atlantic Congressional leaders had complaints from constituents following these storms. The claims handling problems were exacerbated by many not having sufficient National Flood Insurance limits. Those from major computerized construction cost estimating companies essentially testified that the construction costs in their database reflected new construction costs not following a catastrophe. If a catastrophe ensued, the costs could be up to forty percent higher.

When policyholders underinsure, it is an underwriting problem. The issue rarely arises because the vast majority of all losses are small--many are not even reported because of deductibles or the hassle of reporting and collecting upon small claims is financially not worth the effort. Some policyholders are even warned that they may become "undesirable" for reporting small losses--so they simply do not. So, the first lesson is that most losses are not total and the need for policy limit coverage seldom arises.

But what about co-insurance penalties that penalize policyholders for not insuring to value as I warned recently in "Coinsurance Penalties Await Policyholders Who Do Not Insure to Full Value?" A coinsurance penalty occurs when a policyholder purchases less coverage than is needed to insure to full replacement value. It exists just to prevent policyholders from gambling with the probabilities that a total loss will never happen.

Typically, the larger the loss, the greater the economic incentive for the insurer to investigate whether a coinsurance penalty applies. The second lesson is to avoid the financial catastrophe of having any significant loss not fully covered. Policyholders, agents, and insurers need to promote the idea that properly insuring to value is a significant part of underwriting. The wide-spread practice of promoting construction underwriting estimates that are insufficient to restore structures must stop. All of us in the insurance claim business see this underinsured to value phenomenon as a repeated problem---is anybody at underwriting listening?

If National Flood had doubled the residential limits to $500,000 and made commercial limits available to $1,000,000, with proper underwriting of insurance to value, many of the Hurricane Katrina total loss cases may never have been litigated. While there seems to be significant political reservation about the Federal Government competing with the private market, why not increase the coverage? The insurance industry cannot or will not underwrite at a limit that satisfies the vast majority of structures. Increased coverage would allow National Flood to insure to value on many structures and therefore, be more actuarially sound.

The uninsured flood policyholders need better education or "required" lending incentives to purchase flood coverage. Standard mortgage requirements at time of closing need to reflect the flood peril. Flood waters occur much further inland than many expect. While infrequent, inland floods can devastate, but the cost is so minimal in those areas of slight risk that it should almost be required--just ask those several miles from the Mississippi and Louisiana coasts. Flood limits should be the same as "all-risk" limits. Many coastal insureds had substantially less coverage for flood than under their all-risk policies. The third lesson is that the concept of insuring to value should be promoted in flood underwriting. Currently, that seems to be a foreign concept.

Some may wonder why I would call for higher National Flood limits and better underwriting of policies. After all, it would certainly decrease the need for my legal services. Many Katrina lawsuits in Mississippi would never have been filed if these few suggestions were followed. Many Hurricane Ike lawsuits in Galveston and the Bolivar Peninsula would not be needed either. Much of this madness can stop without a major disruption in the day to day operation of the way insurance currently works and without major political changes to National Flood, if today's suggestion were put into practice.

So why not do it? It seems the only people to lose are the lawyers, and we have no problem with that in this case. We have plenty of other insurance coverage disputes to keep us busy.

To calculate your proof of loss filing deadline, count 330 days from your date of loss. For example:

• A September 11, 2008, Ike-related loss must have a proof of loss submitted by August 7, 2009.
• An August 28, 2008, Gustav-related loss must have a proof of loss submitted by July 23, 2009.

Policyholders should also keep in mind that:

• Federal flood proofs of loss must be delivered, not mailed (i.e., get it received and in the hands of the company listed on the policy by the deadline. Do not just send it to the adjuster on the deadline day); and
• The proof of loss should be submitted on the standard form utilized by FEMA, and it must be completely filled out.

You can read the June 3, 2009, extension letter here.

This is what Ruck reported to me:

"I spoke to Russ Tinsley, and he confirmed that the deadline is being extended by 60 days. The letter has not yet been signed; however, he was in a meeting this morning where they were discussing the deadline and that it was being extended. The letter will be up on the Bulletin site once the letter is signed by Edward Connor [Acting Federal Insurance Administrator], but that may be a day or two.‬‪"

There you have it. For me, my paralegal filed three more proofs of loss today. I trust Russ Tinsley. I have litigated cases against him, but still have a deep respect for his views. Still, until I see that signed letter, Edward Connor could change his mind and then what would we do?

I wish that the FEMA web site worked faster, however FEMA is to be congratulated for extending the deadline.

Many policyholders believed they had to accept the amount estimated by the National Flood adjuster. This common assumption is simply wrong. Flood policyholders should get their own estimates of flood damage and submit those with a properly filled out proof of loss if they disagree with the National Flood adjuster's estimate.

The Flood insurance policies sold under the National Flood Program cover damage caused by "flood." Flood is defined in the policy as:

1. A general and temporary condition of partial or
complete inundation of two or more acres of normally
dry land area or of two or more properties (at least
one of which is your property) from:
a. Overflow of inland or tidal waters;
b. Unusual and rapid accumulation or runoff of
surface waters from any source;

A friend of mine who went through the Windstorm Network's flood training told me that the National Flood instructor gave an example of water from an open fire hydrant accumulating so much water over a city block that coverage would be afforded. The current deluge fits that definition.

Where a substantial amount of water enters into a structure during and after bad rains, we should expect to have flood claims under this policy. Where there are claims against any insurer, including National Flood, there are going to be denials and legal fights. Such events seem to be the nature of property insurance claims, and National Flood is no different.

In Donahue v. Am. Family Mut. Ins. Co., 2006 U.S. Dist. LEXIS 9501, 11-13 (D. Minn. Mar. 6, 2006), the issues concerned the definition of "flood” and the proof needed to obtain coverage following heavy rains. The Court's discussion is revealing:

"American Family asserts that Donahue's claimed losses did not result from a "flood" as defined by federal law and the Policy. American Family asserts that Donahue cannot show that two or more properties were all or partly inundated with water. American Family contends that Donahue has not offered any opinion as to the depth of the standing water she observed, other than to indicate that the water was not deep enough for her to have considered it "ponded." Further, American Family asserts that there is no evidence that the area in which Donahue describes having seen standing water is "normally dry land area." American Family contends that Donahue acknowledges that the area where she observed the water was a "swale" between her house and her neighbor's house. Additionally, American Family asserts that there is no evidence of any substantial rapid accumulation of surface waters or runoff from any source.

American Family also asserts that Donahue cannot rely on statements by casualty agents responding to her claim as evidence that her property had sustained a flood. American Family cites 44 C.F.R. § 61.5(e), which states, "accordingly, representations regarding the extent and scope of coverage which are not consistent with the National Flood Insurance Act of 1968, as amended, or the Program's regulations, are void, and the duly licensed property or casualty agent acts for the insured and does not act as agent for the Federal Government, the Federal Emergency Management Agency, or the servicing agent." Pursuant to that regulation, American Family asserts that the statements made by casualty agents upon which Donahue relies are not binding on American Family as a matter of law and should be disregarded.

Donahue, on the other hand, asserts that the fact that Edina received rainstorms between June 23 and June 25, 2003, provides sufficient evidence to conclude that heavy rains had inundated the area. Donahue also contends that she observed standing water between her home and her neighbor's home after the storm. Further, Donahue asserts that the area between the two homes is normally dry... Additionally, Donahue contends that the Court should assume that the Log entry "GFC" stands for "a general condition of flooding." ...

The parties agree that Donahue must show that "two or more properties (at least one of which is [Donahue's] property)" suffered "[a] general and temporary condition of partial or complete inundation … from … unusual and rapid accumulation or runoff of surface waters from any source[.]" ... Neither the Policy nor the regulations define "inundation." See 44 C.F.R. § 59.1. "Inundation" commonly means "a rising and spreading of water over land not usu[ally] submerged." Mathews v. Farmers Ins. Co. of Oregon, 2005 U.S. Dist. LEXIS 39848, No. 04-6117-AA, 2005 WL 1565261, *8 (D. Or. June 27, 2005) (quoting Webster's Third New Int'l Dictionary (unabridged ed. 1993))."

There were two things that worried me from the policyholder's perspective when reading the case. First, never believe the flood adjuster. The federal law presumes everybody, government employee or not, has notice of and know the federal regulations as well as the adjusters. An adjuster cannot bind the government, which is the ultimate paying entity under the National Flood Program. I know the attorneys reading this are wincing, but everybody gets the message--you rely on the federal flood adjusters at your own peril.

Second, the policyholder, after listening to the adjuster, appeared to have little evidence regarding the extent of the flood. Why should she? She was listening to the flood adjuster--BIG MISTAKE.
I had a feeling that this federal judge was about to clobber the poor lady with the flood claim. He did:

"The Court finds that, as a matter of law, Donahue cannot show that two or more properties were all or partly inundated with water. The Court rejects Donahue's assertion that because Edina received rainstorms between June 23 and June 25, 2003, the trier of fact may conclude that heavy rains had inundated the area. Here, Glanzer stated that although parts of Edina sustained storm damage, there was no reported storm damage on Park Terrace, which sits at a higher elevation than other areas...Thus, the evidence here shows that Park Terrace, where Donahue resides, did not sustain storm damage even though Park Terrace is part of Edina.

The Court rejects Donahue's assertion that the Court should assume that "GFC" stands for "a general condition of flooding" without any supporting evidence. Moreover, the Court finds that the plain language of 44 C.F.R. § 61.5(e) renders "void" any "representations regarding the extent and scope of coverage which are not consistent with the National Flood Insurance Act of 1968, as amended, or the Program's regulations." Thus, the Court finds that statements such as "GFC" in the Log do not show that Donahue demonstrated that Donahue's losses resulted from a flood as defined by the Policy.

Further, without knowing the depth of the standing water, it is unclear whether the water "inundated" the properties. Moreover, Donahue acknowledges that the area in question was a "swale" between her house and her neighbor's house. A "swale" is "a low-lying or depressed and often wet stretch of land." Merriam- Webster's Collegiate Dictionary 1189 (10th ed. 1998). Because water is expected to collect in a swale, Donahue cannot establish that the existence of standing water in a swale revealed a partial inundation even if Donahue contends that the area is normally dry. Additionally, there is no evidence of any substantial rapid accumulation of surface waters or runoff from any source. Viewing the evidence in the light most favorable to Donahue, the Court finds that Donahue cannot establish that her losses resulted from a "flood" as defined by the Policy.

B. Exclusions

American Family next asserts that the conditions which caused Donahue's damages were substantially confined to her dwelling and thus excluded by the Policy. Donahue does not rebut American Family's assertion. Additionally, American Family asserts that the cause of Donahue's damage was the overflow of a sump pump as the result of seepage caused by heavy rainfall, another exclusion under the Policy. Donahue admits that water overwhelmed her sump pump and that ground water seeped through her foundation. However, Donahue asserts that both situations are covered by the Policy if there is first a determination of "a flood in the area." ...

First, the Court finds that the conditions that caused Donahue's damage were substantially confined to her dwelling, and thus excluded by the Policy. Here, there is no evidence that the conditions that caused Donahue's damages extended beyond her own home or property. See Bull's Corner Restaurant, Inc. v. Director of FEMA, 759 F.2d 500, 503--04 (5th Cir. 1985) (affirming the district court's conclusion that the damage resulted primarily from a condition solely related to appellant's premises where only one adjacent property experienced water entry). Further, there is no evidence that her street was submerged in water or that water entered any other home on her block. Although some other areas of the Twin Cities may have been subjected to flooding as defined by the Policy, there is no evidence that Donahue's immediate neighborhood experienced flooding. See Mussoline v. Morris, 692 F. Supp. 1306, 1316 (S.D. Fla. 1987) ("the correct focus must be upon the plaintiff's immediate neighborhood, rather than the Miami area, and upon the amount of damage sustained by neighborhood premises, to determine whether a general condition of flooding was present.") On this record, the Court concludes that the conditions that caused Donahue's damages were substantially confined to her dwelling as a matter of law and are excluded from coverage under the Policy.

Second, the Court finds that the cause of Donahue's damage resulted from water that discharged or overflowed from a sump pump or that seeped or leaked on or through the covered property--additional exclusions under the Policy. Donahue correctly asserts that both situations are covered by the Policy if there is first a determination of a flood in the area. However, the Court has determined that Donahue cannot show that there was a flood in the area. Therefore, the exclusions apply to bar Donahue's claim."

Policyholders can learn from cases where coverage is denied. Getting the facts that fit the specific definitions under the policy are extremely important with National Flood Insurance claims because those claims are determined by federal codes and regulations. In those instances, forget about state insurance law and follow the flood law interpreted by federal courts.

Most important,as I indicated in a prior post, Important Reminder on Deadline for Filing Federal Flood Proofs of Loss, file your federal proof of loss on time and completely. Do not trust your flood adjuster to get the amounts right.

Proofs of loss are generally required in all insurance policies. They have been noted in insurance policies for hundreds of years. Property, automobile, health, life, and surety policies are among the many types of policies where the insured is required to submit a proof of loss.

The property insurance proof of loss usually is for the purpose of providing the insurer with the formal claim including:

• The amount;
• The parties claiming under the policy;
• Those with an interest,
• The date and cause of loss; and
• Some supporting documents of the amount of the loss.

The policy usually requires that the proof of loss be sworn to as truthful and a notarized signature by the insured.

After submittal of the property proof of loss, the insurer must raise any objections to the proof. These objections should only be technical in nature. Thus, where the policyholder has submitted a properly filled out proof of loss, an insurer should not reject the proof of loss merely because it disagrees with the insureds amount of the claim. Texas Windstorm (TWIA) and other insurers are doing this quite often regarding Hurricane Ike claims. It is a wrongful practice.

If there is a technical problem with the proof of loss, the insurer should specifically point out what the deficiency is so the insured can correct it. Usually, it is because the insured has not sworn to the proof or failed to provide supporting inventories of damage along with the proof.

The time to provide a proof of loss varies from policy to policy. Indeed, some states have regulations regarding the time to provide a proof of loss. The important aspect of this is to comply with the time requirements of submitting the proof of loss. In some instances and in some states, a late filed proof of loss may provide the insurer with a basis to deny an otherwise valid proof of loss.

National Flood Insurance has specific regulations which absolutely must be complied with. Under Federal law, the letter of the law is more important than the spirit. The proof has to be filled out timely and correctly per Federal Regulations. Oral waivers to fill out a Flood Proof of Loss are not valid. Please read my prior posts regarding the National Flood Insurance Proof of Loss issues (here and here).

Improperly and untimely filled out flood proofs of loss will be a matter of malpractice and litigation.

The insurance company generally does not have to pay within a time period after a proof is submitted. Most property insurance policies merely require the insurer to state whether it will pay or alternatively repair the property or take salvage. However, if demanded by an insurer, payment may be withheld until a proof of loss is submitted. So, the general rule is to file a proof of loss with estimates of damage and inventories as soon as possible.

If there is any question about a proof of loss, seek counsel for specific questions. Most attorneys in this field will provide such initial advice for a free consultation.

First, flood insurance is absolutely essential. Most property insurance policies specifically exclude coverage for floods and also contain an anticoncurrent causation clause, which prohibits recovery when a covered peril and a flood combine to cause a loss. For example, hurricane winds may devastate the structure of a home and then a storm surge floods it. Because the covered windstorm combined with the not-covered flood to cause the loss, the insurer will not cover it. In the litigation following Hurricane Katrina, courts routinely enforced anticoncurrent causation clauses, leaving those without flood insurance devastated, with no means of recovery.

Flood coverage is available through the National Flood Insurance Program, and can be purchased through FEMA or authorized private carriers. The premiums are relatively inexpensive and recovery is limited to $250,000. In many hurricane situations however, it could be the only recovery a homeowner can get.

Second, estimated replacement value rarely equals the actual costs of repair. A homeowner may have determined the replacement cost of his home based on the purchase price or current market value. However, after a loss, the home is to be repaired, not simply replaced, and the cost of repairing the structure can far exceed the estimated replacement costs. Debris removal, specialized work to dry out walls, and new building codes can push the repair costs well over the replacement value limit. Additional factors such as temporarily high prices in the wake of a catastrophe can also significantly increase the repair costs.

To ensure that the replacement value of a property is accurate, a homeowner could ask an expert, such as a contractor, who is knowledgeable about the current costs of construction, including current costs of materials and code requirements. The cost of recently remodeled houses in the same neighborhood could also provide a basis for a more accurate estimate of replacement costs.

Third, Additional Living Expense Coverage, which pays for temporary housing when a covered event renders the covered home uninhabitable, could make the difference for a family after a loss. Many families could not afford their mortgage, car payments, and other monthly bills if they had the added expense of rent while their home is repaired after a storm.

Again, this blog may be unexciting for daily readers or those who work in insurance, but if it helps one homeowner, it was certainly worth it.

Look for tomorrow’s blog; Chip is back from Italy.

Here is the applicable wording from the extension letter:

Due to the recent flooding associated with Hurricanes Gustav and Ike, an extension of the 60-day period within which a proof of loss must be submitted to the Insurer has been granted. Therefore, by means of this memorandum, I am authorizing the extension of this period by 120 days. This extension shall apply to all claims for flood-insured buildings:

• In the States of Alabama, Arkansas, Louisiana, and Mississippi damaged by flood resulting from Hurricane Gustav (dates of loss August 28, 2008, and continuing); and
• In the States of Alabama, Arkansas, Florida, Illinois, Indiana, Kansas, Kentucky, Louisiana, Michigan, Mississippi, Missouri, Ohio, Oklahoma, Tennessee, and Texas damaged by flood resulting from Hurricane Ike (dates of loss September 11, 2008, and continuing).

The extension applies whether the SFIP was issued directly by the NFIP Servicing Agent or through one of the private insurance companies issuing flood insurance coverage under the WYO Program.

An NFIP policyholder who incurred a Gustav-related flood loss on August 28, 2008, would normally have until October 28, 2008, to submit the proof of loss. With the extended deadline, the same policyholder now has until February 25, 2009, to submit the proof of loss. Similarly, an NFIP policyholder who incurred an Ike-related flood loss on September 11, 2008, would normally have until November 10, 2008, to submit the proof of loss. With the extended deadline, the same policyholder now has until March 10, 2009, to submit the proof of loss. In either case, eligible policyholders will be allowed a total of 180 days to submit the proof of loss.

 The following must be followed when completing the proofs for flood claims:

 1. Use the exact Federal Form for the Proof of Loss and not a generic form. Failure to do so may jeopardize payment. It would be similar to filing a Federal Income Tax return with a state form.

2. Figure exact amounts owed. Do not put, "policy limits" or "to be determined."

3. Document the amounts owed and attach the documentation. Do not just "ballpark" or "estimate" an amount. File the proof with actual estimates, proposals, lists, or some type of documentation which "proves" and substantiates the loss amount.

4. Get it received and in the hands of the company listed on the policy by the deadline. Do not just send it to the adjuster on the deadline day.

5. Do not rely upon other oral or written extensions from the field adjuster or his supervisor. Only written extensions coming from the Director or Deputy Director can legally extend the time.

National Flood may, on appeal, rescind these requirements. If you get in this predicament, we strongly suggest you obtain legal counsel. The best course of action is to never place yourself in that position in the first place.

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You can find a complete copy of the extension letter posted on my blog.
 

Of the hundreds of clients we represented following Katrina, not one came to us with an argument regarding National Flood underpaying a loss. We had some underwriting denial cases, but, from everything I reviewed and heard from the street, National Flood was motivated to get the money paid fully and as quickly as possible.  This pleased the private insurance industry because it took some financial stress off their policyholders, who were not getting the same treatment from the private insurers. 

Katrina destroyed Representative Gene Taylor's home. He also wondered whether the private insurance companies were paying the maximum they could under their flood adjustments to lower their payments under the all risk or wind policies.  I brought a Rimkus engineer to  Representative Taylor's office in Washington so he could hear first hand how reports were altered to reflect greater flood damage than the original report authored by the engineer.  After Rimkus attorneys "got to" the engineer, he stopped talking.  Representative Taylor called for this investigation. He had every reason to.  He is upset with the findings as well.  He expressed disappointment with Inspector Skinner's report because it failed to elicit information from insurers about how they allocated damages when very little physical evidence was present. Taylor noted, "If the 1.5 percent of claims the report found where the NFIP paid for some wind damage is representative of the more than 165,000 claims caused by Katrina, it would mean the NFIP may have paid for wind damage in 2,500 claims for more than $500 million." 

The report has some very obvious flaws which suggest the Inspector or the people working for him do not know anything about what they are doing. For instance, here is a quote nobody familiar with Katrina claims will agree with: 

"In addition, anti-concurrent clauses in homeowner insurance policies generally provided that wind damage will not be covered when flooding occurs concurrently. These clauses were not a major factor in denial of insurance benefits by insurance carriers." 

What? We had hundreds of these cases. One of the major legal debates and routine factual adjustment debates of Katrina concerned the meaning of that clause and how this clause worked during adjustments in the field. Only an incompetent person or one wanting to "whitewash" the past could  reach such a nonsensical conclusion.  I am stunned and saddened by this finding alone.  Not everything is wrong in the report. 

But, good propaganda has some truths to help divert and provide credibility to the false findings.  Assuming that the insurance industry lobbyists and attorneys did not help write this Federal Report, the only thing left to do is see exactly what these federal investigators actually reviewed and did so that a better analysis can be made. That task will fall upon Ruck DeMinico in my law firm.  Ruck is our "Information Manager." He is a lawyer that went back and got a library science degree. In the old days we would refer to him as a law librarian, but he is more of an information "spy" who gives us an edge for our cases.  He  will get more information through Freedom of Information requests and other avenues to discover exactly what was done by the Inspector. Something is terribly wrong, and I want to know why.

I met with Gene Taylor, a United States Representative from Bay St. Louis, Mississippi, in early 2007 regarding this problem.  Hurricane Katrina destroyed his home and those of friends.  He understood that coastal policyholders with complete destruction were only getting the flood damage paid for under the coverage purchased through the National Flood Program. Despite homes miles inland being paid significant benefits under their all risk coverage from wind damage, coastal insureds suffering from a combination of wind and flood were generally getting paid pennies on the dollar for wind related damage.  He and other coastal Representatives believe that the only solution available is to make available a policy that covers both the water and wind perils which occur during a hurricane. 

As I previously stated, the Senate voted against such coverage. The experience of Gene Taylor is accurate.  I often indicated that it was easy to determine the State Farm adjusters working the policies issued under the National Flood Program versus State Farm's own policies.  The State Farm flood adjusters were the ones dressed in red coats with very long white beards, freely giving money away.  The State Farm company adjusters dressed like funeral directors with much sympathy, but little that would really help you out of your predicament. Some in the industry may think this is a "cheap shot" taken at State Farm.  However, I had discussions with management at National Flood about this, and they indicated they were instructing adjusters to act in "good faith" and "give the benefit of the doubt" to the unfortunate flood policyholders regardless of whether the private carriers were just going to pay lip service to that very basic good faith claims handling philosophy when faced with the wind related claims. 

Most people not in the insurance business wonder why they cannot simply get one policy to cover everything caused by a hurricane and have the carrier treat them in good faith.  It is hard to explain why we can do so much in society and fail to make a working product available to so many that want and need it. The Government Accounting Office ("GAO") issued an interesting report late last month explaining our current insurance situation for coastal states in the South, and increasingly up the eastern seaboard. The report critically noted the multitude of problems associated with the government adding wind peril to the flood policy.  It also noted that most of the recurrent problems of wind peril combining with flood peril at the same time occur in Florida and along the northern Gulf Coast.

The bottom line from the GAO report is that the National Flood Program is already deeply in debt to the national treasury, with flood rates expected to rise in 2010 increasing this deficit.  Adding a "wind" peril to these policies with no actuarial support would add to to the deficit funding problem if Congress were to mandate that the government go into the wind insurance business.  With a war raging, the economy faltering, and a White House promising to veto the measure, it should be no surprise that this legislation went nowhere.  

But maybe I shouldn't be too pessimistic.  Since Katrina, Congress has made one major change regmrding insurance coverage.  The Federal Flood Program increased its coverage available to $500,000 on residential structures and $1,000,000 on commercial structures. So long as Federal flood adjusters continue to act like Santa Claus and pay liberally, the amount in controversy will be smaller next time a policyholder has to prove how much wind damage occurred before the flood washed the proof of wind damage away.