Can the Proof of Loss Requirement Be Waived in a Flood Case?

In Northgate Country Club Management, LLC v. Philadelphia Indemnity Insurance Company,¹ the Honorable Sim Lake, Senior Judge for the United States District Court for the Southern District of Texas, reaffirmed this past week the critical rule that in a FEMA flood case, the requirement for a policyholder to file a proof of loss cannot be waived even by a carrier that participates in a claim. With the hurricane and tropical season upon us along the Gulf Coast, a reminder of this mandatory rule is relevant.

Northgate was a Hurricane Harvey flood suit and the facts were basically undisputed. Plaintiff’s policy was a standard flood insurance policy (“SFIP”) whose terms are promulgated by FEMA and published in the Federal Register. Such policies are technically issued by the National Flood Insurance Program (“NFIP”) and implemented by independent insurance companies. The policies’ main requirement regarding proof of loss is that they must be submitted by the homeowner within 60 days of loss and are a mandatory condition for the filing of any lawsuit for payment allegedly owed under the policy. In the wake of Hurricane Harvey, FEMA extended the 60-day deadline to 365 days. It is undisputed that Plaintiff failed to submit any proof of loss.

Interestingly, despite the failure of Plaintiff to provide a proof of loss, the insurance company, Philadelphia Indemnity Insurance Company (“Philadelphia”), acknowledged Plaintiff’s claim and assigned an independent adjuster to investigate. Philadelphia paid over a million dollars on the claim which was a shortfall of the actual payment by the remediation services. Plaintiff filed suit to obtain the difference between Philadelphia’s payment and the cost of the remediation services.

Shortly after suit was filed, Philadelphia filed a motion for summary judgment alleging that Plaintiff’s suit was barred because Plaintiff had failed to file the required proof of loss document. Plaintiff responded that: (1) FEMA had waived its requirement and (2) Philadelphia waived the requirement by processing its claim without a proof of loss. FEMA submitted press releases throughout this process about the 60-day and 365 day extension of proof of loss deadlines and statements to the effect that policyholders should continue to work with their individual insurance companies even after the one-year deadline had passed and that if a claim was submitted, NFIP would “pay all proved and agreed-to claims even after the passing of the deadlines.”²

The court found no waiver. The court held that neither the extension of the proof of loss deadline nor the foregoing statements by NFIP waived the proof of loss requirement. Likewise, the court found that Philadelphia had not waived the requirement even though it had investigated the claim and made a payment without a proof of loss from Plaintiff. The court based its holding on the fact that because NFIP is a federal program and its policies are verbatim quoted in the Federal Code, a policyholder like Plaintiff is presumed to know and is obligated to know what legal requirements are required when applying for payment. The court wrote:

The terms of the SFIP are dictated by FEMA and cannot be waived or modified by [the private carrier]. Because Defendant [Philadelphia] lacked the legal ability to waive the SFIP’s proof-of-loss requirement, Plaintiff cannot show waiver by pointing to Defendant’s conduct.

Articles VII(J) and VII(R) of the SFIP operate as a strict requirement that precludes suit if no proof of loss is submitted. Ferraro V. Liberty Mutual Fire Insurance Co., 796 F.3d 529, 532 (5th Cir. 2015) Because Plaintiff does not dispute that it failed to meet this requirement and its legal arguments as to waiver lack merit, the court will grant Defendant’s MSJ.

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¹ Northgate Country Club Management v. Philadelphia Indemnity Ins. Co., No. 19-0144, (S.D. Tex. June 16, 2020, Memorandum Opinion and Order).
² FEMA Press Release HQ-18-107.