SOUTHERN DISTRICT OF TEXAS FINDS THAT INSURED’S FAILURE TO TIMELY FILE ADDITIONAL PROOF OF LOSS PRECLUDES COVERAGE FOR REMAINDER OF IKE FLOOD LOSS CLAIM

The District Court for the Southern District of Texas, Galveston Division, recently granted summary judgment dismissing all claims against Texas Farmers Insurance Co.  In Fennelly v. Texas Farmers Insurance Co, 2015 WL 106061 (S.D. Tex)(January 7, 2015), Plaintiff Jason Fennelly sued Texas Farmers for flood damage to his property caused by Hurricane Ike. Fennelly submitted two timely Proof of Loss (“POL”) documents to Texas Farmers, his insurer under a Standard Flood Insurance Policy (“SFIP”) issued through the National Flood Insurance Program. In response, Farmers made a payment to Fennelly. On August 9, 2009, the FEMA-extended deadline for filing a POL expired. On January 11, 2011, Fennelly filed his third POL for about $112,000.00 more in benefits. Farmers adjusted this claim and approved it in the amount of only about $7,000.00. On January 20, 2011, the adjuster's supplemental report was sent to FEMA with a waiver request. On January 21, 2011, FEMA approved a waiver for the amount of the loss and scope of the damages outlined in the adjuster's report. On January 25, 2011, Farmers sent Fennelly a letter informing him that it had approved the $7,000.00 supplemental amount, had rejected the remaining $105,000.00 of his claim and was “reserving all rights and defenses under the policy”; the supplemental settlement check was enclosed. On March 15, 2011, Fennelly demanded an appraisal of the remainder of his claim, but Texas Farmers denied his request because, in its opinion, its disagreement with the scope of damages claimed by Fennelly made an appraisal inappropriate. On January 24, 2012, Fennelly sued Texas Farmers in an effort to recover the remainder of his POL under the policy.

The single dispositive issue considered by the Court was whether FEMA expressly waived any challenge to the entirety of the third POL or whether FEMA's waiver was limited to only the $7,000.00 portion of the POL approved by the Texas Farmers adjuster. The Court began its analysis  by noting that, absent a waiver by FEMA, a POL must be timely filed or else no benefits are recoverable and that only FEMA's Federal Insurance Administrator under the National Flood Insurance Program can waive any provision of the SFIP. Most importantly, Texas Farmers cannot waive any provision of the SFIP. In this case, the Administrator's waiver stated specifically: “This limited waiver is for only the amount of the loss and scope of the damages outlined in this request and otherwise does not waive the Proof of Loss or any other requirement of the Standard Flood Insurance Policy…” The Court concluded that when considered in conjunction with the adjuster's supplemental report it was clear that the waiver was

limited to the $7,000.00 recommendation of the adjuster. The Court also disagreed with Fennelly’s argument that Texas Farmers’ continued adjustment of the claim waived the POL provision for timely submission, finding specifically that “the mere fact that an insurer continues

to evaluate an otherwise untimely claim will not, alone, constitute a waiver of that defect.” Based on these findings, the Court granted the summary judgment and dismissed all claims against Texas Farmers.