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The National Flood Insurance Program's S.F.I.P. Proof of Loss Requirement: A Trap for the Unwary

By Clay Cosse

In the aftermath of Hurricanes Gustav and Ike, homeowners filing flood insurance claims under the National Flood Insurance Program’s (“NFIP’s”) Standard Flood Insurance Policy (“SFIP”) should exercise extreme caution to avoid running afoul of the SFIP’s Proof of Loss requirement.

SFIP policies require that insureds asserting a claim file a Proof of Loss within 60 days, subject to such extensions as FEMA may approve, listing “the actual cash value of each damaged item of insured property, the amount of damage sustained, and the amount claimed as due under the policy to cover the loss."

Courts have consistently enforced this requirement in an extremely strict and severe manner, holding that failure to timely file a Proof of Loss complying with the regulatory requirements is a valid basis for denying an insured's claim. If the policyholder does not strictly comply with the Proof of Loss requirement, the policyholder may not file suit to recover under its SFIP. That the insured's losses are covered under the policy is irrelevant. The conduct of the insurer/adjuster in adjusting the claim is irrelevant. Timely filing a proper proof of loss is essential to filing suit under the SFIP.
 

Proofs of Loss must be submitted within sixty days after the loss, or within any extension authorized by FEMA. On September 19, 2008, FEMA granted an extension of the period for filing Proofs of Loss for SFIP claims arising out of flood damages sustained in Hurricanes Gustav and Ike. 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. FEMA has authorized the extension of this period by 120 days.

This extension applies 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 31, 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 13, 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 Write Your Own ("WYO") Program.

An NFIP policyholder who incurred a Gustav-related flood loss on August 31, 2008, would normally have until October 30, 2008, to submit the proof of loss. With the extended deadline, the same policyholder now has until February 27, 2009, to submit the proof of loss. Similarly, an NFIP policyholder who incurred an Ike-related flood loss on September 13, 2008, would normally have until November 12, 2008, to submit the proof of loss. With the extended deadline, the same policyholder now has until March 12, 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 formal requirements for filing a Proof of Loss are set forth in Article VII(J)(4) of the SFIP. Within 60 days after the loss, insureds are directed to send a proof of loss, which is a statement of the amount claimed under the policy signed and sworn to, and which furnishes the following information:

• The date and time of loss;
• A brief explanation of how the loss happened;
• Interest (for example, “owner”) and the interest, if any, of others in the damaged property;
• Details of any other insurance that may cover the loss;
• Changes in title or occupancy of the covered property during the term of the policy;
• Specifications of damaged buildings and detailed repair estimates;
• Names of mortgagees or anyone else having a lien, charge, or claim against the insured property;
• Details about who occupied any insured building at the time of loss and for what purpose; and
• The inventory of damaged personal property described

The insurance carrier-whether it be the federal government or the private WYO carrier-may hire an adjustor to investigate the SFIP claim. The adjustor may help the insured complete the Proof of Loss form. Be forewarned, however-neither the WYO carrier nor the adjustor is authorized to waive the proof of loss requirement. There are numerous SFIP cases in which WYO carriers notified SFIP policyholders verbally or in writing that the proof of loss requirement was waived, but in which coverage was nonetheless denied for failure to comply with the Proof of Loss requirement. For example, in Wright v. Allstate Ins. Co., coverage was denied for failure to comply with the proof of loss requirement despite a letter from the WYO carrier stating that “we are accepting this proof in compliance with the policy conditions concerning the filing of a Proof of Loss.”

Simply put, the policyholder will be held to the terms of the SFIP and its Proof of Loss requirement regardless of statements to the contrary by the WYO carrier or claims adjustor. Only FEMA may waive the proof of loss requirement. No matter what they say or do, neither the WYO carrier nor the adjustor may waive the proof of loss requirement. The SFIP policyholder may not rely on spoken or written waivers of the proof of loss requirement by any party other than FEMA.

Finally, if you are uncertain about whether the September 19, 2008 FEMA extension of the Proof of Loss deadline applies to your claim, or if you are uncertain as to how to comply with the Proof of Loss requirements, you should seek the advice of an attorney.
 

Full post as published by Louisiana Law Blog on October 16, 2008 (boomark / email).