Hurricane Season: Where and When to File a Complaint in a Flood Insurance Liability Dispute.

Kyle Greene, Associate Member, University of Cincinnati Law Review

In the wake of Hurricane Florence ravaging off the coast, flooding homes, and causing substantial damage; there is sure to follow an influx of flood insurance claims. That means getting property inspections to evaluate the damages, and of course, battling with your insurance agent on the amount of money you can recover. Insurance companies and the insured frequently differ in opinion on the amount of damages owed from flood damage.. This can lead to lengthy negotiations between both parties and, if all else fails, a lawsuit.

With that in mind, it’s important to know the law and procedural rules of flood insurance causes of action. A recent case from the Fourth Circuit Court of Appeals clarified the requirements for filing a claim against a flood insurance provider. In Woodson v. Allstate Insurance Co.,[1] after Hurricane Irene flooded their coastal North Carolina home, Gary and Rebecca Woodson filed a claim under the flood insurance policy issued to them by Allstate and governed by the National Flood Insurance Program.[2] The Woodson’s property inspector found flood damage to the foundation of their home amounting to $272,473, while Allstate’s property inspector found that the foundation damage predated the flooding, and would only reimburse for replacement of washed out soil at a cost of $1,200. [3] Allstate formally denied their claim on February 28, 2012. In response, the Woodson’s filed suit in North Carolina state court on February 27, 2013, alleging breach of contract and unfair dealing in violation of the North Carolina Unfair and Deceptive Trade Practices Act.[4] On April 1, 2013, Allstate removed the case to federal court asserting that the statute of limitations barred the suit. The district court ignored the statute of limitations issue in its findings and entered a $900,000 judgement in the Woodson’s favor.[5] Allstate then promptly appealed the case to the Fourth Circuit Court of Appeals.[6]

Here is where the trouble begins. Flood insurance policies are all governed by federal law under the National Flood Insurance Act of 1968 (“NFIA”).[7] The NFIA created a standardized flood insurance policy that could be bought directly through the NFIA or through private companies as long as they follow the general terms and regulations set forth by the NFIA.[8] The relevant required provision for the Woodson’s provides that “you must start the suit one year after the date of the written denial of all or part of the claim, and you must file the suit in the United States District Court of the district in which the covered property was located at time of loss.”[9] The Fourth Circuit looked at the plain language of the Act, along with universal agreement from every other circuit court to determine that federal law preempts any state-law claims against flood insurance providers.[10] Therefore, Allstate properly removed the case to its rightful venue in federal court.[11]

The next problem the Woodson’s and many people run into is the relatively short statute of limitations for flood insurance causes of action. As shown in the quoted provision, there is a one year statute of limitations on causes of action arising under the NFIA. The Woodson’s waited just under a year, 364 days, to file their complaint in state court, and by the time it was removed to federal court, over a year had passed. Since the action commenced in federal court (the required venue) more than a year after the formal denial of coverage, the Fourth Circuit ruled that the statute of limitations should have barred the Woodson’s from bringing their claim.[12] Additionally, the Fourth Circuit denied tolling the Woodson’s statute of limitations for the time spent filed in state court. Under this reasoning the Fourth Circuit ruled that the district should have never reached a conclusion on the merits and reversed the judgement.[13] The court reversed the Woodson’s $900,000 judgement, and instead, they were only allotted $1,200 in damages.[14] A prime example of how a procedural technicality can cause an otherwise winning claim to be dead on arrival.

The Woodson’s filed in the wrong court and waited too long to bring their complaint. Poor planning and ignorance of the law caused a winning case to lose before it reached the merits; and in the end, the Woodson’s still have a foundation to fix.

The lesson here is to follow the well settled law and file the complaint in federal court. The Woodson’s attorney likely filed suit in state court with the hopes of receiving more sympathy from an elected judge, who perhaps was personally affected by flood. This wasted precious time under the one-year statute of limitations under the NFIA. If the Woodson’s filed in federal court the first time they would have $900,000 in their pocket instead of the comparatively pale $1,200 they ultimately received.

More importantly, it is a lesson for all to not sit on your hands once an insurance company denies your claim. Whether or not it’s fair that the Fourth Circuit refused to toll the limitations period is up for debate, but as it stands the one-year statute of limitations is strictly construed. You should bring your claim as soon as possible to avoid these possible problems. The Woodson’s attorney probably believed he had a state cause of action under the North Carolina Unfair Trade Act, but when it falls under the NFIA, federal law will always control.

The Bottom line: When dealing with a flood insurance policy, federal law under the NFIA preempts any state law on record. A claim arising under a flood insurance policy must be filed in federal court in the district where the damage to the property occurred. Do not be fooled if your state has a statute that articulates or implies that there is a state cause of action. The NFIA’s rules and requirements will always trump any state law that says otherwise. Also, it is important to keep in mind the strict one-year statute of limitations on causes of action arising from disputes with a flood insurance company. Moreover, the limitations period will not be tolled if you first try to file a claim in state court. It will be promptly removed to federal court by the insurance company, who will try to strategically wait until after the limitations period has run.

[1] Woodson v. Allstate Ins. Co., 855 F.3d 628 (4th Cir. 2017).

[2]  Id at 630.

[3] Id at 632.

[4] Id at 631.

[5] See Id at 632.

[6] Id at 630.

[7] 42 U.S.C. 4001(a).

[8] Woodson at 631.

[9] 44 C.F.R. Pt. 61, app. (1), art. VII(R).

[10] See e.g., Remund v. State Farm Fire & Cas. Co., 483 Fed.Appx. 403, 408–11 (10th Cir. 2012); Shuford v. Fidelity Nat’l Prop. & Cas. Ins. Co., 508 F.3d 1337, 1344 (11th Cir. 2007); Wright v. Allstate Ins. Co., 415 F.3d 384, 389–90 (5th Cir. 2005); C.E.R. 1988, Inc. v. Aetna Casualty and Surety Co., 386 F.3d 263, 268–72 (3d Cir. 2004); Cliff v. Payco Gen. Am. Credits, Inc., 363 F.3d 1113, 1122 (11th Cir. 2004); Gibson v. Am. Bankers Ins. Co., 289 F.3d 943, 948–50 (6th Cir. 2002).

[11] Woodson at 637.

[12] Id.

[13] Id.

[14] Id at 638.