Avoiding the National Flood Statute of Limitation Trap

The great thing about public speaking and writing is the learning experience. I tell this to everybody because I find that if I keep my mind open to the audience’s comments, questions and suggestions, I get better and may even find my views wrong. I have recently “learned” an important argument to avoid the National Flood statute of limitation trap from a younger attorney.

Christopher Marshall wrote me this past Saturday morning about a national flood case Qader v. Federal Emergency Management Agency, 543 F. Supp. 2d 558 (E.D. La. 2008). It stands for the proposition that a national flood claim is not denied until the policyholder submits a proof of loss. Here is the important part of the holding:

NFIP insurers can now disallow or partially disallow flood claims even before receiving proof of loss. But in such cases, the mailing of notice of disallowance does not trigger the one-year filing period… The statute permits a claimant to sue within one year “upon the disallowance by the Director of any such claim.” .. “Such claim” refers back to “any claims for proved and approved losses.”… The one-year filing period begins to run when FEMA denies a claim that is accompanied by a proof of loss, unless proof of loss is waived. The FEMA modification contemplates and creates a two-step model. The one year time-bar does not begin, as the government claims, one year from the date FEMA denies a claim based on an adjuster’s report…Indeed, the government’s interpretation of § 4072 would render the August 31, 2005 modification to the NFIP meaningless, in that the modified procedures allow policyholders to submit proof of loss as a means of challenging FEMA’s initial notice of disallowance or partial disallowance… FEMA is then required to process the proof of loss “in normal fashion,” and if the proof of loss is rejected in whole or in part, the policyholder may file a lawsuit within one year of the date of the written denial.

Upon further research by me, at least two other federal judges agree. In Willis v. State Farm Fire & Casualty, CIV.A. 07-4862, 2008 WL 793514 (E.D. La. Mar. 24, 2008), the Court noted and then found as follows:

Plaintiffs cite Qader v. Federal Emergency Management Agency, No. 07-5461, 2008 WL 576223 (E.D.La. Feb. 29, 2008). In Qader, Judge Feldman was faced with the identical issues before the Court in the instant case, and ultimately determined that the one year filing period begins to run when FEMA denies a claim that is accompanied by a Proof of Loss, not when FEMA denies a claim based on an adjuster’s report… The Court dismissed FEMA’s motion in Qader, noting that FEMA’s position was fundamentally flawed in that it failed to recognize the “significant modification FEMA made to the NFIP in the aftermath of Hurricane Katrina” when it partially waived the Proof of Loss requirement.

…

Plaintiffs herein submitted a Proof of Loss that was received by FEMA on April 3, 2007, resulting in the issuance of a supplemental payment on April 4, 2007. Other than this supplemental payment, FEMA has not responded to the Proof of Loss. Therefore, this Court concludes that Plaintiff’s suit, filed on August 28, 2007, was timely. (emphasis added)

Then recently in Altman v. Napolitano, MISC.A. G-10-3004, 2013 WL 788452 (S.D. Tex. Mar. 1, 2013), the Court agreed with Qadar:

I have concluded that Judge Feldman’s Opinion in Qader v. FEMA, 543 F.Supp.2d 558, 561–62 (E.D.La.2008), is correct… The one-year filing period begins to run when FEMA denies a claim that is based upon the insured’s sworn proof of loss, not from the date FEMA denies a claim based upon an adjuster’s report. Until the insured submits a sworn proof of loss, FEMA has no “statement of the amount (the insured) is claiming under the policy.” Moreover, the filing of a proof of loss is a condition precedent to filing suit. Gowland v. Aetna Insurance Co., 143 F.3d 951, 954 (5th Cir.1998) In attempting to reconcile the language of the regulations and the SFIP, I have concluded that the mailing of a pre-proof of loss notice letter of disallowance by a claims examiner, which informs the insured that he may file suit “within one-year of the date of this letter,” does not trigger the one-year filing period in § 4072 or Article VII(R) of the SFIP. In this case, Plaintiffs filed their proof of loss within the allotted time. If FEMA denied the proof of loss at all, it did so on December 28, 2009. Plaintiffs filed this suit on April 8, 2010. I, therefore, “cannot conclude this lawsuit is too late.”

I also reject FEMA’s proposition that if the submission of the proof of loss triggered the limitations period, there has never been a formal denial of the proof of loss and the Plaintiff’s lawsuit is, therefore, premature. This just can’t be the proper approach. The SFIP provides that payment will be made within 60 days of the receipt of the proof of loss. If no timely payment is made, a Plaintiff should be entitled to consider non-payment as a denial of the proof of loss “in whole” and exercise his right to sue under Section VII.M.2 of the SFIP. To accept FEMA’s argument would allow FEMA to bar any suit by simply electing to withhold, forever, any written denial of the claim. (emphasis added)

So, there you have it. My prior posts and even video blog need to be updated upon corrected information. Better to admit when I am wrong and thank those that cured my ignorance then pretend to be infallible. The current National Flood Statute of Limitation Rule is:

The one-year filing period begins to run when FEMA denies a claim that is based upon the insured’s sworn proof of loss, not from the date FEMA denies a claim based upon an adjuster’s report.

Amen.