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April 19, 2000


The opinion of the court was delivered by: Alsup, District Judge.



The issue on defendants' motions is whether the National Flood Insurance Program immunizes a "write-your-own" carrier from any and all state-law liability (apart from flood insurance payments) for wrongful acts in processing NFIP claims. This order holds that there is no such blanket immunity.


Plaintiffs, Kenneth and Barbara Davis of Corte Madera, argue that Travelers misled them to their detriment in advising them how to process their flood insurance claims. Plaintiffs' home was flooded on February 28, 1998. Covered by the National Flood Insurance Program (NFIP), they advised Travelers Property & Casualty Co., the underwriter of their standard NFIP policy, of their losses. Under the NFIP, private insurers write standard flood insurance policies (SFIPs) under their own names. See 44 C.F.R. § 62.23. The SFIPs issued by the private insurers are identical to those issued directly by the Federal Emergency Management Agency (FEMA), and is published in the Code of Federal Regulations. See 44 C.F.R. Pt. 61, App. A(1). Private insurers, like Travelers, that issue SFIPs are sometimes referred to as "write-your-own" insurers or "WYO" insurers. Under the NFIP regulations, WYO insurers pay claims out of the National Flood Insurance Fund. The federal government assumes full liability for SFIPs issued by WYO insurers. See 44 C.F.R. § 62.23(f).

By form letter dated March 31, 1998, Travelers acknowledged receipt of plaintiffs' notice of loss and stated that the claim had been assigned to De Cesare Insurance Adjusters in Fresno for investigation. Travelers stated: "Your cooperation and assistance in working with the adjusters is appreciated." The letter asked the insureds to complete and to date a claims questionnaire and return it within three days of receipt "to insure prompt processing of your claim." The enclosed form stated that it "must be completed and returned with 72 hours of receipt." The letter sated: "Additionally, we do require evidence of repair of prior flood damage, if applicable." The insureds were instructed to "have your receipts and invoices ready to give to the adjuster in the event there was prior flood damage to your building. . . ." No mention was made of any requirement to submit a sworn proof of loss.

The insureds filled in the form and returned it within the 72-hour period specified. This form, however, required neither a signature under penalty of perjury nor a statement of a dollar amount. Again, Travelers' letter made no mention whatsoever of proof of loss, much less a sworn proof of loss, even less of a requirement to file a sworn proof of loss within sixty days of the occurrence.

Various inspections by the adjusters then ensued. In late April, meanwhile, the sixty-day period for submitting a sworn proof of loss ran. No sworn proof of loss was ever submitted. Although the policy in their possession stated that a sworn proof of loss within sixty days was a requirement, plaintiffs allege that they were unaware of the requirement.

On May 14, 1998 — after the sixty days ran — Travelers sent a form letter to "Dear Insured" stating that "Our records show a pending flood claim" and for the first time advising that plaintiffs needed to file a proof of loss within sixty days of their loss:

"Policy provisions state that you must file a formal proof of loss (which is your statement to us listing the dollar amount of your claim) within 60 days from the date of loss. If this provision is not complied with, your claim may be denied. It is your responsibility to complete this form; however, the adjusters may assist you. An immediate written explanation must be sent to us if there is a valid reason why you cannot comply with this policy provision. Once your request is received, we will consider an extension.
By this letter we do not intend to waive or relinquish any of our rights or defenses. . . ."

Even this letter did not actually say that any proof of loss had to be sworn; nor did it identify any policy provisions. In these circumstances, an insured might reasonably have thought that the claims questionnaire previously requested by Travelers on 72-hours notice (and submitted within the sixty days) would have constituted the "formal proof of loss." The letter did not say to the contrary. No proof-of-loss form was enclosed in the letter or in any other Travelers letter.

After receiving the May 14 letter, Mr. Davis telephoned the adjuster. The adjuster stated that he already had all the paperwork needed and that there was no need for plaintiffs to prepare another form. Thereafter, Travelers provided a form to the insureds entitled "National Flood Insurance Program Final Report." The form did not call itself a proof of loss. The form was evidently filled out by the adjuster and would have allowed $5,459.08 in payment. There were blanks for the signatures of the insureds, above which was printed "The above statements are true and correct to the best of my knowledge. I understand that any false statements may be punished by fine or imprisonment under 18 U.S.C. § 1001." Plaintiffs declined to sign because they thought they should receive substantially more. Travelers states that even this report would not have been a sworn proof of loss.

The SFIP provides that the adjuster has no duty to furnish a proof-of-loss form or assist the insured in filling one out:

The insurance adjuster whom we hire to investigate your claim may furnish you with a proof of loss form, and she or he may help you to complete it. However, this is a matter of courtesy only, and you must still send us a proof of loss within 60 days after the loss even if the adjuster does not furnish the form or help you complete it.

(SFIP; 44 C.F.R. pt. 61, app. A(1), art. 9, § J(6)).

On August 18, 1998, Travelers sent another form letter to "Dear Insured," stating in part:

We have reviewed the supplemental request for the referenced date of loss and find that we are unable to extend any further payment for your flood related damages.

Given that Travelers had never made any payment at all, this sentence was hard to understand. The letter went on to deny coverage on the ground that the flood water did not cause the damage. No mention was made of a sworn proof-of-loss requirement.

Plaintiffs then filed this lawsuit in state court and defendants removed it to this court. Plaintiffs sued on the policy and on state-law claims. Only then did Travelers seek to deny coverage on the ground that plaintiffs had not submitted a sworn and timely proof of loss as required by SFIP. Section J(3) of Article 9 of the SFIP provides as follows:

Should a flood loss occur to your insured property, you must:
3. Within 60 days after the loss, send us a proof of loss, which is your statement as to the amount you are claiming under the policy signed and sworn to by you and furnishing us with the following information:

a. The date and time of the loss,

b. A brief explanation of how the loss happened,

c. Your interest in the property damaged (for example, "owner") and the interests, if any, of others in the damaged property,
d. The actual cash value or replacement cost, whichever is appropriate, of each damaged item of insured property and the amount of damages sustained,
e. Names of mortgagees or anyone else having a lien, charge or claim against the insured property,
f. Details as to any other contracts of insurance covering the property whether valid or not,
g. Details of any changes in ownership, use, occupancy, location or possession of the insured ...

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