The Hurricane Harvey floods in Texas impacted property owners (i) with sufficient flood insurance to cover the loss, (ii) with insufficient flood insurance to cover the loss, and (iii) without flood insurance all together. The different avenues of recovery and the rights of the different property owners are important issues to understand.
In short, there are two separate avenues of recovery—with some overlap—for property owners with flood damage. First, the National Flood Insurance Act of 1968 governs insurance coverage exclusively for flood insurance policyholders. Second, the Fifth Amendment Takings Clause may provide a separate avenue of recovery for some property owners with or without flood insurance. This blog post focuses on recovery under the first while my next two blogs focus on recovery under the second.
The National Flood Insurance Act of 1968 governs insurance coverage for property owners with flood insurance. 42 U.S.C. § 4011 authorizes the Federal Emergency Management Agency (“FEMA”) Administrator to establish and execute the National Flood Insurance Program (“NFIP”).1 Under the NFIP, property owners may purchase insurance to protect against physical damage or loss to physical or personal property resulting from flood. Policy limits for residential buildings include coverage for up to $250,000 for building property and up to $100,000 for personal property. Flood coverage for commercial buildings include up to $500,000 for building property and up to $500,000 for personal property.
Standard Flood Insurance Policies (“SFIP”) must be purchased separately from homeowners or commercial property insurance policies. Property owners may purchase flood insurance from FEMA through the NFIP Direct servicing agent or from private insurance carriers.2 Private insurance carriers issue flood insurance on behalf of the NFIP to increase the NFIP policy base and improve service to NFIP policyholders.3 This is otherwise known as the Write Your Own (“WYO”) Program.4
Federal law allows NFIP policyholders to seek recovery against the federal government or their WYO carrier to recover replacement or repair costs following a denied or underpaid flood insurance claim. Policyholders may seek appraisal, file a direct appeal to FEMA, or file a lawsuit.
Filing a direct appeal to FEMA requires the policyholder to file a written explanation of the issues, and include a copy of the denial letter and any supporting documentation. The appeal must be filed within 60 days from the date of a partial or complete denial letter. NFIP policyholders who file a direct appeal still have the option to file a lawsuit, but suit must be filed within one-year from the date of a partial or complete denial of the claim. Filing an appeal does not extend this one-year deadline to file suit.
Filing an appeal with FEMA does not sever a policyholder’s right to file suit, but filing suit severs the right to file an appeal. Suit must be filed directly against your flood insurer, which is either FEMA or your WYO carrier.
Flood insurance will not cover damages that exceed the policy limit. If damages exceed the policy limit, some NFIP policyholders may be able to seek additional benefits through an inverse condemnation claim. Read my next blog to find out more.
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1 42 U.S.C. § 4011a
2 42 U.S.C. § 4012a
3 42 U.S.C. § 4012a; www.fema.gov
4 Federal law mandates mortgaged properties in high-risk flooding areas to have flood insurance. Borrowers are encouraged to compare the different flood insurance policies provided by insurance carriers. 42 U.S.C. § 4012a(b)(6)(iii).