Neither the State of Alabama nor the Department of Insurance regulates flood insurance products or product rates. Flood insurance policies are written under the United States’ Government’s National Flood Insurance Program (NFIP), which is a statutorily mandated program administered by the Federal Emergency Management Agency (FEMA) under the National Flood Insurance Act of 1968. Insurance companies that write standard flood insurance policies under the NFIP are called “write your own insurers” or (WYO). The WYO simply operates as fiduciary and fiscal agent of the United States. Neither the WYO nor the State of Alabama create or regulate the terms and conditions of standard flood insurance policies. The terms and conditions of standard flood insurance policies (SFIP) are solely dictated by FEMA, and the federal treasury pays claims arising under such policies.
It is imperative that insured property owners familiarize themselves with the terms and conditions of their standard flood insurance policy. Courts have held that all citizens are charged with constructive knowledge of the provisions of federal insurance programs, and those citizens who elect to become actual participants in federal programs do so under a further legal duty to “familiarize” themselves with the requirements of those programs. A claimant may not recover under a standard flood insurance policy unless the claimant first establishes that all of the requirements of the policy have been met. Because the policy terms are dictated by FEMA, they cannot be waived or modified by the insurance company. In other words, an insured property owner cannot rely on any representations by his or her agent or claims adjuster that waive and/or in any way modify the terms and conditions of the insured property owner’s SFIP.
In the event of a loss, an insured property owner must file a signed and sworn proof of loss, and Article VII(J)(4) of the Standard Flood Insurance Policy requires that said proof of loss must be filed within 60 days of the loss. If the signed and sworn proof of loss is not filed within the aforementioned time period, the insured cannot recover as a matter of law. Every appellate court that has addressed this issue, including the 11th Circuit, has ruled in this manner. The proof of loss must include the following:
• The date and time of the loss;
• A brief explanation of how the loss happened;
• The insured’s interest in the damaged property;
• The details of other insurance that may cover the loss;
• Any changes in title or occupancy of the insured property during the term of the policy;
• Specifications of the damaged buildings and detailed repair estimates;
• The 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 the loss and for what purpose, and
• The inventory of damaged property.
It is important to remember that the proof of loss requirements cannot be waived or modified by the WYO (insurance company) the adjuster or insurance agent. Even if an insured relies on statements by the WYO’s adjuster indicating that the proof of loss requirements will not be strictly enforced, failure to comply with the requirements will forfeit coverage. The rationale is that because the policy terms are dictated solely by FEMA, they cannot be waived or modified the WYO (insurance company). In other words, no one adjusting the loss is authorized to waive or modify the requirement that a proof of loss containing the specific information listed above be timely filed.
All disputes arising from the handling of a claim for benefits under a SFIP policy are governed exclusively by the flood insurance regulations issued by FEMA, the National Flood insurance Act of 1968, and federal common law. All state law based extra contractual and tort claims related to handling of a claim under a SFIP policy are barred and preempted by federal law. In short, WYOs are not subject to bad faith liability under state law if an insured property owner’s claim for benefits is denied in bad faith. However, it is important to note that the federal courts have only addressed federal preemption as it relates to extra contractual and tort claims regarding the handling of the claim for benefits under a SFIP policy.
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