Why it matters: Given the unprecedented meteorological event known colloquially as “Superstorm Sandy,” the Federal Emergency Management Agency granted multiple extensions for National Flood Insurance Program policyholders to file a Proof of Loss. However, the question then arose: Did that extension impact the one-year statute of limitations contained in the flood policies for an insured to bring a lawsuit? In a new memorandum, James A. Sadler, director of claims for the NFIP, said “no.” Because the statute of limitations was established by an act of Congress (and then incorporated into the policies), FEMA does not have the power to grant an extension on the deadline to file suit.

Detailed Discussion

Superstorm Sandy hit the Eastern Seaboard on October 29, 2012, resulting in injuries, power outages, deaths, and billions of dollars in property damage. On November 12, 2013, FEMA granted a limited waiver of the Proof of Loss requirement for those affected by the storm. Pursuant to the waiver, policyholders could receive payment of an undisputed amount based solely on an adjustor’s report and insurer’s approval without the Standard Flood Insurance Policy (SFIP) Proof of Loss.

The agency also waived the usual 60-day deadline to submit the SFIP Proof of Loss and granted a one-year extension from the date of loss to send the insurer the Proof of Loss for additional losses.

On October 1, 2013, FEMA granted an additional extension of the Proof of Loss deadline for another six months – stretching the time period from the usual 60 days to 18 months after Sandy, or to April 28, 2014. “This is an unprecedented action by FEMA that reflects FEMA’s commitment to facilitating the ability of individuals insured by the NFIP to seek payment,” according to the memorandum.

Discussing the interplay between the Proof of Loss deadline and the statute of limitations to bring suit, the memorandum explained that FEMA established the 60-day Proof of Loss deadline in its regulations for the SFIP, and therefore the agency has the authority to grant waivers and extend the deadlines.

However, when it enacted the National Flood Insurance Act of 1968, Congress established the one-year statute of limitations for an NFIP policyholder to bring a lawsuit after denial or disallowance or the partial denial or disallowance of a claim, under 42 U.S.C. § 4072. The statute of limitations was then incorporated into the SFIP by FEMA in its regulations.

“Unlike the SFIP Proof of Loss deadline, which is a regulation created by FEMA, FEMA cannot extend the time limit for NFIP-insureds to bring a lawsuit,” Sadler wrote. “This statute of limitations has never been extended.”

Although a benefit to policyholders, at the same time policyholders must be aware of the separate one-year statute of limitations for bringing suit, which is one year from the date a denial letter is issued. Regardless of other limitations, the one-year statute must be complied with or the policyholder will be left without recourse. “This situation will typically arise when the insurer has determined that the insured has not suffered a ‘direct physical loss by or from flood’ and there is no coverage under the SFIP,” such as if an insurer determines flood waters did not reach the insured building, according to the memorandum.

“The limited waiver and extension of the Proof of Loss deadline recognizes the difficulties insureds damaged by Sandy experienced evaluating damage and supporting their flood insurance claim,” Sadler wrote. “The typical dispute arises after an insured has received payment based on an adjuster’s report and the insurer’s approval and later believes there is additional uncompensated damage. The one year to sue typically will not be triggered until the required Proof of Loss for the additional amount sought is submitted and there is a complete or partial disallowance/denial of the amount sought.”

Emphasizing that FEMA “does the most it can to assist NFIP insureds,” the memorandum reiterated that it “cannot and does not waive or extend the applicable statute of limitations.” However, the “extended time to file the Proof of Loss is an effective mechanism that allows insureds to fully present their claims.”

To read the memo from FEMA, click here.