In Woodson v. Allstate Insurance Co., the United States Court of Appeals for the Fourth Circuit recently upheld a one-year statute of limitations in flood insurance claims. Briefly, Hurricane Irene flooded the home of plaintiffs Gary and Rebecca Woodson in 2011. Allstate had issued the Woodsons a flood insurance policy under the National Flood Insurance Program. The Woodsons filed a claim under the flood policy, and following investigation, Allstate denied the claim on February 28, 2012. The Woodsons sued Allstate in state court on February 27, 2013. Allstate removed the action to federal court on April 1, 2013, asserting in part, the applicable statute of limitations. In its findings of fact and conclusions of law, the district court did not address the statute of limitations issue, but entered judgment in favor of the Woodsons.
Allstate appealed the judgment to the Fourth Circuit, asserting again the application of the one-year statute of limitations. Allstate also argued that the bad-faith handling claim was preempted by the National Flood Insurance Act of 1968. The Fourth Circuit, as a preliminary matter, held “federal law exclusively governs claims made on policies issued under the National Flood Insurance Program and to disputes arising out of the handling of those claims, thus preempting state law, and imposes a one-year statute of limitations for all such claims.”
The Fourth Circuit then reviewed the history and purposes of the National Flood Insurance Act (NFIA). The Court also noted “[t]he terms and conditions of a National Flood Insurance Policy are specified by regulation.” The policy at issue stated it “and all disputes arising from the handling of any claim under the policy are governed exclusively by the flood insurance regulations issued by FEMA, the National Flood Insurance Act of 1968, as amended, and Federal common law.” The Policy also stated an insured “you must start [a] suit within one year after the date of the written denial of all or part of the claim, and … file the suit in the United States District Court of the district in which the covered property was located at the time of loss.” Based on the regulations, history, and scope of the NFIA, the Fourth Circuit concluded, “claims under [the] Policies, and disputes relating to the handling of claims under those policies are highly regulated and subject exclusively to federal law.”
Turning to the merits of Allstate’s argument, the Fourth Circuit found the Woodsons had not initiated their lawsuit within the applicable statute of limitations. Following denial, the Woodsons filed their lawsuit in state court in North Carolina one day shy of the one-year statute of limitations. Allstate removed the claim to federal court more than one year after the denial of the flood claim. Allstate argued the Woodsons had not filed their claim in a United States District Court within one year, as required by the policy, NFIA, and its regulations. And the Fourth Circuit agreed. Because the issue was not raised by affirmative defense or motion, the court went to some length to discuss how Allstate had raised the statute of limitations in pre-trial submissions and at trial. Resolving this issue in favor of Allstate, the court ruled “[t]he district court was presented with the limitations issue and the relevant evidence, and the Woodsons were undoubtedly aware that the issue was before the court, as they addressed it explicitly during closing argument.”
The Fourth Circuit also agreed the Woodsons’ claim for bad faith handling of the insurance claim under North Carolina’s Unfair and Deceptive Trade Practices Act was preempted by federal law and therefore barred.