The National Flood Insurance Program ("NFIP") was implemented to help flood victims recover through the issuance of the Standard Flood Insurance Policy ("SFIP") under the National Flood Insurance Act ("NFIA"). The SFIPs are not grants, but they must pay insurance premiums in exchange for the coverage promised under these flood policies. Ideally, the premiums create a "pool" of money that can be withdrawn to pay off receivables. This "pool" often dries out and the federal government is urged to fund the NFIP.
The biggest problem for SFIP policyholders, and NFIP, seems to be that the insurer cooperates with NFIP's Write Your Own ("WYO") program called issuing, administering and, if necessary, defending itself against claims made according to SFIP, all from the same "pool". For WYO defense attorneys, there seems to be no limit to the falls from the "pool."
Too often, we have seen huge, unrecoverable costs for SFIP insureds when they are forced to pursue their overdue and because of benefits under SFIP policies. A recent ruling in the U.S. District Court of the Middle District of Louisiana shows the need for serious scrutiny of the NFIP.
In Nguyen v Hartford Underwriters Insurance Company 1
First, Hartford argued that the insured was not entitled to outer mantle coverage. at the home even though the parties agreed that the home was exposed to three meters of river water. Hartford denied coverage for changing the mantle and claimed that the insured must first show damage to the mantle. The court rejected Hartford's unfounded conditions for coverage and directed Hartford to the NFIP Claims Manual, which unequivocally states that the mantle is covered by evidence of "mere contact with the floodwaters." The court further pointed out to Hartford that the NFIP's requirements manual specifically states that fiberboard sheaths are not resistant to water or moisture of any kind and "cannot survive wetting and drying in connection with floods." obligations imposed on the insured, who required her to provide evidence of how she spent the original SFIP revenue for other flood damage before paying additional revenue for her additional mantle damage. The court also found that the NFIP's requirements manual was clear when it stated that insurers "may not refuse a request for additional payment simply because the policyholder has not proved that all amounts previously paid for the claim" were spent on covered flood damage.
It's been almost four and a half years since the Louisiana Great Flood in 2016, and SFIP insureds have been forced to incur huge costs due to WYO insurers' baseless denials. This should not have been a matter of coverage and payments, as the guidance was clearly set for the WYO insurer. It makes one wonder how much money was taken from the "pool" to pay defense attorneys to assert these baseless arguments for four and a half years, as opposed to how much drag it would have been to properly pay the claim.
1 Nguyen vs. Hartford Underwriters Ins. Co. No. 17-cv-1351, 2021 WL 215492 (M.D. La. January 21, 2021).