Insurance Law Hawaii

Pre-Judgment Interest Not Awarded Under Flood Policy

    The court granted the insurer's motion to dismiss state law and extracontractual claims, including pre-judgment interest. Hurley v. Wright Nat'l Flood Ins. Co., 2022 U.S. Distl. LEXIS 203803 (W.D. La. Nov. 8, 2022).

    The insured suffered damage from Hurrican Delta. He filed suit, alleging that Wright National Flood Insurance Company breached the Standard Flood Insurance Policy (SFIP). The insured sought damages for state law claims for bad faith, diminution in value, actual repair costs, attorney's fees , litigation costs, and interest. Wright moved to dismiss the extracontractual state law causes of action for bad faith and various claims for damages, other than the damages sought for the alleged breach of the SFIP.

    The court explained that the Write-Your-Own (WYO) Program carriers issuing flood insurance under the National Flood Insurance Program (NFIP) arranged for the adjustment, settlement, payment, and defense of all claims arising from the policy. Congress underwrote all operations of the NIFP, including claims adjustment, through United States Treasury funds. A judgment against a WYO Program carrier constitued a judgment agaisnt FEMA, and consequently, a direct charge on the United States Treasury. 

    In the opposition to the motion, the insured conceded that the bad faith, general damages and attoreny fees claims were preempted by federal law. Therefore, the insured only opposed the dismissal of pre-judgment interest. A prior case from the Fifth Circuit had recognized that fair compensation to the plaintiff for his loss covered by the insurance policy issued by an insurer could only be achieved by including the award of prejudgment interst as a mandatory element of damages. West v. Harris, 573 F.2d 873, 883-84 (5th Cir. 1978). 

    Subsequently, however, the NIFP had changed so that all claims were ultimately paid by with United States Treasury funds. Cases held that an award of interest against a WYO company was precluded by the no-interest rule because it was a direct charge on the federal treasury. Therefore, the court agreed with Wright that the insured could not recover pre-judgment interest. The motion was granted as far as the extracontractual claims and claims for attorney's fees and interest. 

No Coverage For Wind And Flood Damage Suffered From Superstorm Sandy

    The court found that the policy's anti-sequential clause barred coverage for damage caused by Hurricane Sandy. Estate of Doerfler v. Fed. Ins. Co., 2020 N.J. Sup. Unpub. LEXIS 920 (May 14, 2020).

    The insureds held identical homeowners policies from Chubb and Federal Insurance Company. Damage resulting from flood was not covered. The policies' "surface water exclusion" stated,

[W]e do not cover any loss caused by: flood, surface water, waves, tidal water, overflow of water from a body of water . . . or spray from any of these even if driven by wind.

The insureds also had separate flood insurance policies, insuring the structure of each home for $250,000.

    Superstorm Sandy created wind gusts as high as eighty miles per hour. A severe storm surge caused tides to rise between nine and eleven feet. The storm surge caused surface water to flood onto plaintiffs' properties and their homes ultimately collapsed. 

    Claims were submitted to the insurers. Inspectors determined that the damage to the homes was cased by storm surge and flood waters, not wind. Plaintiffs were paid the maximum amounts under the flood policies. 

    Plaintiffs sued the insurers and cross-motions for summary judgment were filed on whether the surface water exclusion barred coverage after the homes were destroyed in the flood that inundated their properties. 

    The trial judge correctly found that the policies did not cover the losses sustained in the flood. The surface water exclusion clearly applied. 

    The trial judge correctly rejected plaintiffs' contention that wind was the initiating and efficient proximate cause of the storm surge and, because wind damage was covered under their policies, the surface water exclusions did not apply. Under the efficient proximate cause rule, recovery was allowed where the insured risk was the last step in the chain of causation set in motion by an uninsured peril, or where the insured risk itself set into operation a chain of causation in which the last step may have been an excepted risk.

    As determined by the trial judge, the efficient proximate cause rule did not apply here. Wind and flood waters were not separate events. Further, there were no sequential causes of loss. Because the policies excluded any loss contributed to, made worse by, or in any way resulting from or caused by flood, surface water, waves, tidal water, or overflow from a body of water (an anti-sequential clause), the claims were barred regardless of whether wind played any role in the loss. 

    Accordingly, the trial court properly granted summary judgment to the insurers.

Equal Access to Justice Act Fee Request Rejected in Flood Case

    The insured's claim for fees under the Equal Access to Justice Act (EAJA) for seeking coverage under a flood policy was rejected. Hampson v. Wright Nat'l Flood Ins. Co., No. 4:19-cv-10083-KMM (S.D. Fla. Aug. 11, 2019)(Order on Motion to Dismiss). The order is here. 

    The insurer did not compensate plaintiff for flood-related damages under the terms of a Standard Flood Insurance Policy (SFIP). The insurer was a Write-Your-Own (WYO) Program insurance carrier participating in the National Flood Insurance Program (NFIP). By statute, a WYO carrier acts as a "fiscal agent" and "fiduciary" of the United States. 

    The insured's property suffered damage from a hurricane. The insured sued the carrier for breach of contract and attorney's fees under EAJA. The insurer moved to dismiss the claim for fees under EAJA. A party could recover fees and costs under the EAJA as the prevailing party in a case "brought by or against the United States . . . unless the court finds the position of the United States was substantially justified." 28 U.S.C. 2412 (d) (1) (A), (b). The statute defined the "United States" to include "any agency and any official of the United States acting in his or her official capacity." However, attorney's fees were not recoverable under the EAJA in cases for breach of an SFIP brought against a WYO program insurance carrier participating in the NFIP because WYO carriers were not considered "agencies" under the EAJA. 

    Here, the insured brought a claim for breach of an SFIP against a WYO carrier participating in the NFIP. Thus, the insured's claims for attorney's fess and cases pursuant to the EAJA were dismissed. 

Insured's Commercial Property Policy Deemed Excess Over Unobtained Flood Policy

    The court granted the insurer's motion for summary judgment, deciding that there was no breach of the policy for failure to pay for flood damage when the insured failed to obtain a policy under the National Flood Insurance Program (NFIP). 570 Smith St. Realty Corp. v. Seneca Ins. Co. Inc., 2019 N.Y. Misc. LEXIS 1773 (N.Y. Sup. Ct. April 4, 2019).

    The insured's property in Brooklyn was insured by Seneca. Included in the policy was flood coverage in the amount of $1 million with a $25,000 deductible. While the policy was in effect, Hurricane Sandy hit, damaging the property. Plaintiffs timely filed a claim seeking reimbursement of up to policy limits. Seneca paid only $35,883 and later made an additional payment of $33,015. 

    The insured sued for, among other things, breach of the policy for failure to properly indemnify for the losses. Seneca moved for partial summary judgment dismissing the breach of policy claims. Seneca pointed out that the "Other Insurance" provision in the Flood Coverage Endorsement of the policy stated that if the loss was eligible to be covered under a NFIP policy, but there was no such policy in effect, the insurer would only pay for the amount of loss in excess of the maximum limit payable for flood damage under the policy. The maximum NFIP coverage was $500,000. The insured's loss caused by flood was less than $500,000.

    Therefore, the court agreed that the flood coverage under the policy, as reflected in the Other Insurance provision, was excess with respect to the NFIP eligible property. Accordingly, Seneca's motion for partial summary judgment was granted.     

Flood Claim Filed After Rejection of Proof of Loss is Too Late

    The Third Circuit affirmed the district court's dismissal of the insured's lawsuit for denial of flood coverage after the complaint was filed more than one year after the insurer rejected the proof of loss. Migliaro v. Fidelity Nat'l Indem. Ins. Co., 2018 U.S. App. LEXIS 2097 (3d Cir. Jan. 29, 2018).

    Migliaro purchased a flood policy from Fidelity. His home suffered flood damage in October 2012 after Hurricane Sandy hit. Fidelity paid $90,499.11 on Migliaro's claim. 

    Five months later Migliaro submitted a proof of loss, claiming an additional $236,702.57 in damages. On July 15, 2013, Fidelity sent Migliaro a letter titled "Rejection of Proof of Loss." The letter stated it was not a denial of the claim, and asked for additional documentation if there were other damages incurred. Migliaro did not provide additional documentation or otherwise attempt to submit a second proof of loss. He instead filed suit against Fidelity on December 13, 2013. 

    The first complaint was dismissed without prejudice at Migliaro's request. He filed a second complaint against Fidelity on July 22, 2015, alleging that Fidelity had failed and refused to pay benefits owed under the policy. Fidelity moved for summary judgment, arguing that the suit was barred by the Standard Flood Insurance Policy's (SFIP) one year statute of limitations. Fidelity urged that the July 15, 2013 letter rejecting Migliaro's proof of loss was a "written denial of all or part of the claim," which triggered the statute of limitations. Since Migliaro's second complaint was filed almost two years after he received the letter, Fidelity argued that his claim was time-barred.

    Migliaro argued that the letter rejecting his proof of loss was not a "written denial of all or part of the claim" because it explicitly said it was not a denial of his claim. The district court granted summary judgment to Fidelity and the appeal followed. 

    The Third Circuit noted that no other federal court had defined what qualified as a written denial of a claim seeking benefits under the SFIP. The Third Circuit determined that the written rejection of a proof of loss constituted a denial of the claim if, based on it, the policyholder filed suit against the carrier.

    Here, the very act of bringing suit signaled that, to Migliaro's mind, his claim had been denied. By filing suit, Migliaro himself held out the July 15, 2013 letter rejecting his proof of loss as a denial of his claim. Because the only suit a policyholder could bring against a flood carrier was one challenging the denial of a claim, by bringing suit on December 13, 2013, Migliaro acknowledged that Fidelity had denied his claim. 

    The statement in the rejection letter that it was "not a denial of the claim" was technically true at the time it was made. At that time the door to additional compensation for the claim remained open. In the July 15 letter, Fidelity invited the submission of additional information. But Migliaro closed the door by failing to file an amended proof of loss within sixty days, or submit additional documents. Instead, he sued, acknowledged that, by virtue of the letter rejecting his proof of loss, his claim had been denied. 

Debris Removal Not Available When Flood Damage Exceeds Policy Limits

    The court considered whether debris removal coverage in a surplus lines policy applied in conjunction with an endorsement limiting flood coverage for all losses "resulting from Flood to buildings, structures or property." Oxford Realty Group Cedar v. Travelers Excess and Surplus Lines Co., 2017 N.J. LEXIS 570 (N.J. May 25, 2017). 

    Oxford owned an apartment complex that was insured by Travelers. The property suffered significant flood damage from Superstorm Sandy. Oxford claimed flood damage in excess of $1,000,000 and $207,961 in debris removal costs. Travelers claimed all the damage was caused by flood and applied the $1,000,000 limitation for a flood occurrence. Consequently, Travelers paid Oxford only $1,000,000.

    Oxford sued Travelers. Both parties moved for summary judgment. The trial court granted summary judgment to Travelers. The Supplemental Coverage Declaration appeared to allow additional debris removal coverage, but the Limit of Insurance for Flood nullified any coverage for flood damage in excess of $1,000,000. The appellate division reversed. The Policy required up to $500,000 for debris removal coverage in addition to the $1,000,000 flood limit. Further, the Flood Endorsement did not limit Oxford's damages to $1,000,000 because the endorsement applied only to loss or damage to covered property caused by flood, meaning Oxford's building.

    The New Jersey Supreme Court reversed. The policy's debris removal coverage was a sublimit, but it was not a self-contained policy provision outside of the application of the $1,000,000 flood limit. The court noted that Travelers was a surplus lines carrier issuing a policy to insure risks that New Jersey insurers refused to cover due to the nature of the risk. 

    The Flood Endorsement placed a hard cap on the amount recoverable for flood damage. Under the policy, "the most Travelers will pay for the total of all loss or damage caused by Flood" is $1,000,000. Thus, the Flood Endorsement categorically denied any flood damage coverage in excess of $1,000,000. The Flood Endorsement also clarified that the $1,000,000 ceiling would apply even if more than on Limit of Insurance applied, such as the Limit of Insurance for debris removal in the Supplemental Coverage Declarations. 

    The trial court's grant of summary judgment in favor of Travelers was reinstated. 

Failure to Timely File Suit in Federal Court for Flood Loss is Fatal

   Although the insureds timely filed their suit for denial of flood benefits in state court, the Fourth Circuit found the lawsuit against the Insurer was untimely because it was not filed in federal district court. Woodson v. Allstate Ins. Co., 2017 U. S. App. LEXIS 7862 (4th Cir. May 3 , 2917). 

   Hurricane Irene struck the insureds' house in August 27, 2011. Their property was flooded and for several hours, subjected to wave action, allegedly causing further damage to the home. The insureds contacted Allstate, who retained Rimkus Consulting Group, Inc. to inspect the property. Rimkus found that, other than a substantial loss of soil washed away around the supporting portion of the house, there was no damage to the structure of the house. Rimkus recommended reimbursement of $1200 for the washed out soil. 

   The insureds retained House Engineering, P.C., which submitted a report describing substantial damage caused by the hurricane, including movement to the pilings that caused the house to no longer be level.  The insureds claimed $228,822 in damages.

    On February 28, 2012, Allstate denied the claim for foundation damage. On February 27, 2013, the insureds filed suit in state court for breach of contract and bad faith. Allstate removed to federal district court on April 1, 2013. After a bench trial, the district court found that the property damage was caused by flooding, wave action, and erosion. The court credited the testimony of the House Engineering representative. Damages of $233,398 were awarded. The court also found there was bad faith in Allstate's handling of the claim and awarded $700,194 in damages. 

    Allstate appealed, arguing that the breach of contract claim was barred by the one year statute of limitations in the federal statutes as well as under the Standard Form Insurance Policy issued pursuant to the National Flood Insurance Program. Although the insureds filed within one year of the denial of the claim, they filed in state court, not a United States District Court. Filing a claim under the National Flood Insurance Program required doing so in federal district court. Therefore, the insureds' breach of contract claim was barred by the one year statute of limitations. 

    Likewise, the bad faith claim was barred by the statute of limitations. A policy issued under the National Flood Insurance Program required that all disputes arising from the handling of any claim were governed exclusively by the flood insurance regulations issued by FEMA, the National Flood Insurance Act, and federal common law. The applicable federal law required that any claim on the policy or arising out of the insurer's handling of the claim must be filed within one year of the denial of the claim.

    Accordingly, the judgment of the district court was reversed. 

 

 

State Farm Unsuccessful In Seeking Dismissal of Qui Tam Case

    In an insurance related case, the United States Supreme Court affirmed the Fifth Circuit's decision that State Farm was not entitled to a dismissal of a qui tam case involving its claims-handling after Hurricane Katrina. State Farm Fire & Cas. Co. v. United States ex rel. Rigsby, ___ U.S. ___, 137 S. Ct. 436 (2016).

    Before Katrina, State Farm issued two types of policies to homeowners: (1) Federal Government-back flood policies and (2) its own general homeowner policies. After Hurricane Katrina, State Farm's policies were responsible for wind damage, and the government policies were responsible for flood damage. Therefore, it was in State Farm's interest to classify hurricane damage as flood-related.

    Cori and Kerri Rigsby were former claims adjusters for one of State Farm's contractors, E.A. Renfroe & Co. The adjusters were responsible for visiting the damaged homes of State Farm's customers to determine the extent to which a homeowner was entitled to an insurance payout. The Rigsbys claimed that State Farm instructed them to misclassify wind damage as flood damage in order to shift State Farm's liability to the government.

    In 2006, the Rigsbys filed their qui tam complaint under seal. Qui tam actions are filed under the Federal Claims Act (FCA). The FCA imposes civil liability on an individual who "knowingly presents . . . a false or fraudulent claim for payment or approval" to the Federal Government. One who initiates a meritorious qui tam suit receives a percentage of the ultimate damages award, plus attorney's fees and costs. The FCA requires that the complaint be filed in camera and remain under seal for at least 60 days, and is not to be served on the defendant until the court so orders.

    In January 2007, the District Court lifted the seal in part. In August 2007, the District Court lifted the seal in full. The government, which has the option to intervene in qui tam cases, declined to do so.

    In January 2011, State Farm moved to dismiss the Rigsby's suit because they had violated the seal requirements. Their former attorney, Dickie Scruggs, had e-mailed a sealed evidentiary filing that disclosed the complaint's existence to various journalists. The fraud allegations were discussed in the media, but not the existence of the FCA complaint. After the seal was lifted in part, Scruggs disclosed the existence of the suit to various other media outlets.

    The District Court decided against dismissal. State Farm did not request some lesser sanction. The case went to trial, resulting in a victory for the Rigsbys. The Fifth Circuit affirmed the denial of State Farm's motion to dismiss, determining that automatic dismissal due to the seal violation was not required by the FCA.

    The Supreme Court agreed that a violation of the FCA's seal provision did not impose the harsh rule of dismissal. Although the statute said that a complaint "shall" be kept under seal, it said nothing about the remedy for a violation of the rule. The FCA included a number of provisions that did require, in express terms, the dismissal of a realtor's action. Here, it was proper to infer that, had Congress intended to require dismissal for a violation of the seal requirement, it would have said so.

 

Adjuster's Report No Substitute for Proof of Loss Under Flood Policy

   The insured's claim for flood coverage was denied when the insurer refused to accept an adjuster's report submitted without a proof of loss. Jackson v. Fid. Nat'l Ins. Co., 2015 U.S. Dist. LEXIS 66589 (E.D. La. May 21, 2015).

   Plaintiff's property was damaged by Hurricane Isaac. Defendant Fidelity provided flood coverage for the property through the National Flood Insurance Program (NFIP). After plaintiff submitted a flood claim, she executed a proof of loss for $53,803.02. A second proof of loss for contents was submitted in the amount of $26,556.13. Fidelity paid both these claims.

   Thereafter, an adjuster's estimate of plaintiff's damages, totaling $284,332.91, was submitted to Fidelity. Plaintiff did not submit a supplemental proof of loss for this claim. Fidelity refused to pay the claim and plaintiff filed suit. 

   Fidelity's motion for summary judgment was granted because plaintiff never submitted a proof of loss for any amount beyond what she was paid. A regulation governing the NFIP stated that the insurer "may accept the adjuster's report of loss instead of your proof of loss." Fidelity could have waived the proof of loss requirement, but plaintiff offered no evidence that Fidelity exercised its discretion and waived the requirement. Further, the adjuster's estimate sent to Fidelity did not bear plaintiff's signature.

   Plaintiff next contended that the adjuster's report coupled with the initial verified proof of loss satisfied the proof of loss requirement. Again, the court disagreed. There was no genuine issue of material fact that plaintiff did not satisfy the proof of loss requirement when she submitted an adjuster's report for additional damages without an accompanying signed and sworn proof of loss. 

   This is yet another case enforcing that requirements for coverage under the NFIP are strictly construed. 

Flood Coverage Case Remanded for Procurement Claim Against Insurer

   The United States District Court in Mississippi determined a case against the flood insurer involving procurement claims were properly remanded to the state court after it had been removed to federal court. Simmons v. Miss. Farm Bureau Cas. Ins. Co., 2013 U.S. Dist. LEXIS 105932 (N.D. Miss. July 29, 2013).

   The insured homeowners filed a complaint to recover for defendant insurer's alleged misrepresentations and failure to procure a flood insurance policy that would have covered flood damage to Plaintiffs' property. The Write Your Own carrier removed the case to federal district court. There was no diversity jurisdiction, so the court considered whether it had subject matter jurisdiction based upon federal question jurisdiction. 

   Plaintiffs alleged they were not seeking coverage under the Standard Flood Insurance Policy (SFIP) issued by the insurer or recovery on the basis of a contract from National Flood Insurance Program funds, but were instead seeking tort damage from their insurance agent's own funds and/or its errors and omissions coverage for the agent's tortious conduct in failing to procure the specific coverage explicitly requested and represented to have been procured. 

   Plaintiffs alleged they had a longstanding fiduciary relationship with the insurer and its agent. Plaintiffs sought flood insurance from the insurer and its agent on property they were about to purchase. Plaintiffs submitted an application for the coverage and paid the premium payment to the insurer's agent. Plaintiffs' property then suffered flooding during Hurricane Katrina. Only after the flooding occurred did Plaintiffs receive a copy of the policy. 

   Coverage was denied because an exclusion barred coverage for a flood already in progress at the time the policy terms began. 

   Plaintiffs did not seek recovery for any denial of coverage, but rather for the conduct of the insurer in the representations made about the policy and in the procurement of the policy. Such procurement-related claims sounded in state law. Therefore, the court found that Plaintiffs' complaint did not present a federal question claim, but instead presented state-law tort claims that fell within the procurement-related SFIP claims not preempted by federal law, as the claims alleged negligence on the part of the insurer.