Flood Insurance Statute of Limitations Clarified by FEMA (and It’s Not Good)
In a stunning announcement, FEMA declared that although the Proof of Loss deadline for victims of Superstorm Sandy has been extended to 18 months (April 28, 2014), FEMA’s interpretation of the statute of limitations is one year from the date of “first” denial. Effectively FEMA has eliminated the extension that it granted for Sandy victims to file a Proof of Loss and will cause thousands of Sandy victims to miss filing a lawsuit if they are dissatisfied with the amount of money paid by their flood insurance.
On November 21, 2013, FEMA issued memorandum W-13069, which clarifies the interplay between the extension of the proof of loss deadline for Sandy victims and the one-year statute of limitations. According to FEMA, unlike the Standard Flood Insurance Policy (“SFIP”) Proof of Loss deadline, which is a regulation created by FEMA, FEMA cannot extend the time limit for National Flood Insurance Program (“NFIP”)-insureds to bring a lawsuit because the applicable time limit to file a lawsuit was set by statute, not FEMA.
FEMA further states that the Proof of Loss is not the claim. The claim is the assertion by the insured that they are entitled to be paid for a covered loss under their SFIP (i.e., the demand for money). An NFIP policyholder whose insured property is damaged by an event such as Sandy only has one claim arising from that event, regardless of the number of Proofs of Loss that the insured may submit in support of that claim.
The SFIP sets forth the process that the insured has to follow in supporting his or her claim in the General Conditions section of the policy. FEMA’s position is that that if the insured does not comply with “all” of the terms and conditions of the SFIP prior to filing a lawsuit (including the Proof of Loss requirements), then the necessary conditions for the insured to be able to bring a lawsuit have not been met. What this means is that, in those instances in which a denial letter has been issued such that the statutory one year to bring the lawsuit will run before the Proof of Loss extended deadline runs, the insured has to both file the lawsuit and have the required Proof of Loss requirements completed within one year of the date of the denial or partial denial of the claim. For example, if the insurer refuses to pay for foundation damage and a denial letter was sent, then the insured has one year from the date of that letter to file a lawsuit, even if a Proof of Loss was not filed with the insurance company.
In my experience the typical Sandy dispute arises after an insured has received payment based on an adjuster’s report and the insurer’s approval and later believes there is additional uncompensated damage. Under this scenario, once there is a written disallowance/denial (either complete or partial) of the amount sought, the statute of limitations starts to run. This 1-year deadline will start to run as early as November 2012, with some claims having expired already.
But according to FEMA’s memorandum, “Even in those claims where a denial letter was issued within the first six months after ME Sandy, the insured still had a full year from the date of that denial letter to collect all required documentation, file the proof of loss, and then file a lawsuit if such is believed necessary.” Easy to say if your home and everything you own hasn’t been destroyed, and you are not homeless. FEMA should be embarrassed.
About the Author: Christopher W. Gerold is an attorney in Wolff & Samson’s Disaster Recovery Claims Group. Chris represents homeowners and businesses with their Sandy-related insurance claims with a special focus on flood insurance. For more information on flood insurance and ways Wolff & Samson can help you with your flood insurance claim, please contact Chris at (973) 530-2061.