Proof of Loss Deadline: 18 Months11
The SFIP requires that policyholders submit “proof of loss” in order to present their claims as part of the claims handling, or “adjustment,” process.12 The policy describes proof of loss as “your statement of the amount you are claiming under the policy signed and sworn to by you.”13 According to FEMA, proof of loss includes the claim’s “supporting documentation” for the flood loss,14 annexed with certain forms issued by FEMA through NFIP “bulletins,”15 which are currently available on its website.16 Proof of loss has a number of traps from a practitioner’s standpoint, and, for that reason, the adequacy of proof of loss is outside of this article’s scope.
The proof of loss deadline is 60 days “after the loss” by default under the SFIP, which FEMA may extend.17 As discussed below, meeting this deadline presents several difficulties for homeowners. FEMA initially extended the proof of loss deadline to one year for Sandy claims, “[t]o allow enough time for [policyholders] to evaluate their losses and have the opportunity to seek additional . . . payments.”18 This bulletin authorized insurers to issue initial, undisputed payments based on reports by independent flood insurance adjusters assigned to the claim by FEMA or the WYO and working on their behalf, without proof of loss by policyholders.19 FEMA expected that policyholders would seek additional insurance proceeds,20 and policyholders were encouraged to accept these payments without prejudice to their statutory and policy rights to being fairly indemnified under the policy for their covered losses.21
In late September 2013, Senators Schumer and Gillibrand and a bipartisan group of House Members wrote to FEMA requesting that it further extend the proof of loss deadline for an additional six months—for a total of 18 months from the date of loss—to allow households sufficient time to present their flood claim.22 On October 1, 2013, FEMA further extended the proof of loss deadline through an NFIP bulletin.23 The bulletin states that proof of loss must be “received by” the flood insurer by April 29, 2014, if the date of loss is October 29, 2012 (or by April 28, 2014, if the date of loss is October 28, 2012).24 FEMA stated that it was granting this extension to “enable policyholders to timely present their claims.”25
Lawsuit Deadline: One Year from “Denial” of the “Claim”
The SFIP provides that policyholders must submit a timely proof of loss as a prerequisite to filing a lawsuit.26 FEMA issued a bulletin more than a month and a half later, however, stating that its 18-month proof of loss extension does not affect the lawsuit deadline.27 This bulletin indicates that FEMA will interpret the one-year lawsuit deadline as starting from the insurer’s written “denial” of the “claim,” regardless of the proof of loss deadline and whether the “denial” was even based on the policyholder’s proof of loss.28 When a “denial” predates the proof of loss extension, this bulletin indicates that the lawsuit deadline effectively accelerates the extended proof of loss deadline—i.e., homeowners must first comply with proof of loss, and then file a lawsuit, within a year of the written “denial” to preserve their rights.29
For instance, FEMA states that a client with a “denial” on some aspect of his or her claim dated December 10, 2012, must have complied with proof of loss and filed a lawsuit by one year of that date—nearly five months before the proof of loss deadline for presenting the claim. This means that a significant number of homeowners who submit proof of loss within the extended deadline for Sandy claims may be, according to FEMA, time-barred from legal recourse when they dispute their insurers’ failure to issue a fair payment. There is an obvious inconsistency if the lawsuit deadline expires before the deadline to present the claim. This sequence of deadlines is fundamental to the statutory scheme of indemnification for proved, covered losses through a fair and consistent process for presenting and handling claims. Interpreting the lawsuit deadline as trumping the proof of loss deadline is the opposite of how this process is supposed to work.
We have understandably encountered significant public confusion. Among other things, some homeowners may believe that FEMA provided an absolute deadline of late April 2014 to submit proof of loss—not recognizing that it stated that the April 29, 2014, deadline is a “received by” and not a “send by” deadline, and moreover not understanding that the lawsuit deadline may supersede the proof of loss deadline under its separate bulletin issued a month and a half later. Communicating FEMA’s inverted sequence of deadlines in “plain English” has been challenging. Determining what constitutes a “denial” also requires a comprehensive review of the claim file, which can take time to procure and may call for some exercise of judgment. Even when the deadlines are understood, the most sophisticated of homeowners often face difficulty in filling out proof of loss forms, which ask for dollar values that again require some exercise of judgment, some of which have nothing to do with the amount owed under the policy. The documentation that flood insurers expect for fair payment imposes a number of unreasonable and inconsistent demands that could serve as the basis for a separate article. The process of documenting the claim with professionals, such as contractors, building consultants, surveyors, and engineers—to correct for the insurers’ failure to do so properly from the start—is daunting. No one truly desires to file a federal lawsuit, and the need to find lawyers, in addition to multiple professionals who are in short supply, in a short time span, has intensified public frustration.
Although the exact number is unclear, we anticipate thousands of federal lawsuits in the New York and New Jersey metropolitan areas. A “race to the courthouse” has already begun. Many lawsuits could have been avoided. There are many contributing factors that have led to litigation. Most lawsuits are the result of the insurers’ ultimate lack of accountability to policyholders, and arbitrary requests for additional documentation and unreasonable delay in making fair payment for property that often everyone agrees was damaged by floodwaters. Other factors include cases in which the insurer has excluded structural/foundation damage as “preexisting” or “earth movement” or deemed the first floor as an excluded “basement” in the first six months after the storm. A recent NFIP bulletin interprets the “appraisal” clause in a manner that appears to have deterred what may have been an effective method of alternative dispute resolution.30 The fact that WYOs routinely request that FEMA indemnify their legal fees further displaces their accountability and drives up costs on the NFIP and Treasury for cases that proceed to a lawsuit.31 As a nonprofit and as practitioners, we wish to help homeowners avoid litigation. We still wish to continue to try to negotiate these claims when possible, but the lawsuit deadline pushes many clients into a litigation track. For other households, the prospect of fast-approaching deadlines, the many pieces of this complex puzzle and the often-significant expenditures that it entails, and the nagging sense that their trust has been betrayed and that they have been left to fight the federal government for their own money after losing their homes, has been too much to endure. This has redirected pressure on state and local programs.
FEMA has been successful in publicly framing this issue as the agency not having the authority to “extend” the statute of limitations. The one-year lawsuit deadline is codified as one year from the mailing of notice of “disallowance or partial disallowance” of the “claim.”32 FEMA has stated that “[t]he insurer’s letter should clearly state it is [a] denial or disallowance and alert the insured of the remedies available, including litigation within 1 year from the date of the letter.”33 This is relevant to the question of what form of “notice” should be required. The question is not what is a “denial,” however, inasmuch as what is a “claim.” There is a significant line of cases that has squarely rejected FEMA’s position, beginning with the Hurricane Katrina case, Qader v. FEMA.34 They hold that there can be no “denial” if there is no “claim,” and proof of loss is a key policyholder protection for presenting a claim. This is why members of Congress requested that the proof of loss deadline be extended. FEMA’s position that an insurer can short-circuit this deadline by issuing a “denial”—essentially, denying itself before the policyholder even presents a claim through a comprehensive and timely proof of loss—goes against published court opinions on this issue and undermines its own proof of loss extension.
1. “[I]f a community will adopt and enforce a floodplain management ordinance to reduce future flood risks to new construction in Special Flood Hazard Areas (SFHAs), the Federal Government will make flood insurance available within the community as a financial protection against flood losses.” FEMA/NFIP, Answers to Questions about the NFIP, FEMA F-084, Mar. 2011, available at http://www.fema.gov/media-library-data/20130726-1438-20490-1905/f084_atq_11aug11.pdf (last visited Feb. 2, 2014).
2. 42 U.S.C. §§ 4001 et seq.
3. Id. § 4001(c); see also id. § 4002(a)(6) (recognizing the public interest behind flood insurance coverage).
4. Id. § 4002(a)(6).
5. Mun. Ass’n of S.C. v. USAA Gen. Indem. Co., 709 F.3d 276 (4th Cir. 2013) (citing 42 U.S.C. § 4001(b); H.R. Rep. No. 90-1585 (1968), reprinted in 1968 U.S.C.C.A.N. 2873, 2965–73).
6. For homeowners, the SFIP consists of the “Dwelling Form” as set forth in 44 C.F.R. pt. 61, app. A(1). The Dwelling Form is also available on FEMA’s website, at www.fema.gov/media-library-data/20130726-1730-25045-6388/f122dwellingform0809.pdf (last visited Feb. 2, 2014).
7. FEMA, Write Your Own Flood Insurance Company List, at www.fema.gov/wyo_company (last visited Feb. 2, 2014).
8. “Prior to 1983, insurance companies did not offer flood policies; instead, insurance agents wrote flood policies directly through the federal government in exchange for a 15% commission.” Jim Moore Ins. Agency, Inc. v. State Farm Mut. Auto. Ins. Co., Inc., No. 02-80381-CIV, 2003 WL 21146714, at *1 (S.D. Fla. May 6, 2003). WYO companies receive compensation through a number of channels, including a commission tied to the value of the claims that they pay. 44 C.F.R. pt. 62, app. A; see also Bennet v. Farmers Ins. Exchange, No. 07-4539 Section I/5, 2008 WL 4443067, at *1 (E.D. La. Sept. 26, 2008) (“The federal government . . . funds the NFIP, covering the ‘cost incurred in the adjustment and payment of any claims for losses.’ 42 U.S.C. § 4017(d)(1). [WYO companies] act as ‘fiscal agents of the United States.’ 42 U.S.C. § 4071(a)(1); Gowland v. Aetna, 143 F.3d 951, 953 (5th Cir. 1998) . . . .”).
9. 44 C.F.R. §§ 62.23(d), (i)(6).
10. The SFIP cannot be “altered, varied, or waived other than by the express written consent of the Federal Insurance Administrator.” Id. § 61.13(a), (d).
11. FEMA’s position is that this 18-month proof of loss deadline does not apply for all policyholders. FEMA/NFIP Bull. W-13069. See the following section.
12. SFIP art. VII(J)(4).
14. FEMA, Proof of Loss, at www.fema.gov/media-library/assets/documents/9343?id=2545 (last visited Feb. 2, 2014).
15. National Flood Bureau and Statistical Agent, at www.nfipiservice.com/index.html (last visited Feb. 2, 2014).
16. FEMA, Forms, at www.fema.gov/forms-0.
17. SFIP arts. VII(D), (J)(4).
18. FEMA/NFIP Bull. W-12092a.
20. FEMA/NFIP Bull. W-13027a.
21. FEMA/NFIP Bull. W-12092a; 42 U.S.C. § 4002(a)(6).
22. Sen. Gillibrand Senate Website, Gillibrand, Schumer, Bipartisan Group of Congressional Members Urge FEMA to Extend Deadline for Flood Insurance Claims for Sandy Homeowners, Sept. 27, 2013, www.gillibrand.senate.gov/newsroom/press/release/gillibrand-schumer-bipartisan-group-of-congressional-members-urge-fema-to-extend-deadline-for-flood-insurance-claims-for-sandy-homeowners.
23. FEMA/NFIP Bull. W-13060a.
26. SFIP arts. VII(J)(4), (R).
27. FEMA/NFIP Bull. W-13069.
30. FEMA/NFIP Bull. W-13029. Bull. W-13029 is entitled “Proper Invocation and Usage of the Appraisal Clause Provisions in the Standard Flood Insurance Policy,” dated May 15, 2013.
31. 44 C.F.R. pt. 62, app. A.
32. 42 U.S.C. § 4072.
33. FEMA/NFIP Bull. W-13069.
34. 543 F. Supp. 2d 558 (E.D. La. 2008).