GALVESTON FEDERAL COURT HOLDS A FALSE PROOF OF LOSS PROHIBITS INSURED FROM RECOVERING UNDER FLOOD POLICY

Earlier this month, Magistrate Judge John Froeschner of the Galveston Division of the Southern District of Texas issued Finding of Facts and Conclusions of Law in favor of an insurer in a Hurricane Ike lawsuit. In Donovan v. Fidelity National Property and Casualty Co., 2014 WL 50811 (S.D. Tex), Dr. William Donovan and his wife sued Fidelity National Property, their flood insurer, for damages caused by Hurricane Ike to their beach house.  The Donovan’s beach house was insured under a Standard Flood Insurance Policy (“SFIP”) issued by Fidelity—a (“Write Your Own”) WYO carrier under the National Flood Insurance Program. 

The Donovan’s notified Fidelity of their claim and an adjuster inspected the property. The adjuster estimated the recoverable building loss to be $39,766 and the recoverable contents loss of $1,200. The Donovan’s signed a Proof of Loss for the net claim amount of $38,766.88, and Fidelity paid the claim.

Unhappy with the amount, Dr. Donovan signed a second sworn Proof of Loss falsely claiming a net loss amount of $318,900, the policy limits, allegedly upon the advice of his attorney.  Fidelity refused to pay additional amounts, and Plaintiffs ultimately repaired their home for approximately $66,000. They then sued Fidelity for breach of contract in an effort to recover the difference between the actual cost to repair and the amount paid by Fidelity.  

The Policy contained numerous mandatory provisions addressing a proof of loss including the requirement not to misrepresent any material facts.  Fidelity urged the Court to consider Plaintiff’s submission of a false sworn proof of loss with falsely inflated claims.  As such, the Court noted it would have liked to have taken a more lenient approach and allow Plaintiffs to recover the amount actually spent on their home repairs; however, the Court noted that federal law requires it to strictly construe and enforce the claims presentation requirements of the SFIP. As such, the Court refused to grant Plaintiffs any additional relief because of their misrepresentations in the sworn proof of loss.