By way of update to our previous report on 8 May 2013, on 12 August 2014 the New York federal court managing the consolidated Superstorm Sandy insurance litigation deferred ruling on a crucial insurance issue pending the outcome of mediation by the Federal Emergency Management Agency (FEMA), the US agency generally tasked with coordinating disaster response at the federal level.

The more than US$50 billion in property devastation wreaked by Superstorm Sandy in October 2012 has been the subject of both litigation and mediation. An important issue in the insurance litigation is the validity of “placeholder” proofs of loss, which essentially are policyholders’ generalized estimates of loss based on an average of flood-related damage across all properties affected by the storm. FEMA considers such placeholder proofs of loss as incompatible with the Standard Flood Insurance Policy, which requires specific proof of the actual damage sustained that would permit an insurer to resolve a claim without court intervention. FEMA thus requested that the court dismiss all of the claims of plaintiffs who have not submitted actual proof of their loss.

Running parallel with the litigation, FEMA also has elected to permit private insurers that administer flood policies to request waivers of the strict requirements of the Standard Flood Insurance Policy in appropriate case-specific circumstances, and to participate in mediation of these cases. Recognizing FEMA’s and the insurers’ commitment to engage in good faith negotiations to resolve the claims through mediation, a federal magistrate judge overseeing the litigation deferred issuing a ruling on the validity of placeholder proofs of loss until the mediations conclude.