Absent a signed sworn proof of loss, no payment was owed to the Insured.

Shannon Howard-EldridgeU.S. Court of Appeals, 5th Circuit Rules that additional Sworn Proof of Loss was Necessary to Support a Supplemental Claim Under the National Flood Insurance Program. Absent a signed sworn proof of loss, no payment was owed to the Insured.

Mr. and Mrs. Ferraro sued Liberty Mutual to recover flood insurance proceeds under the National Flood Insurance Program (NFIP) after their home was damaged by Hurricane Isaac.  The Ferraros submitted an original signed sworn proof of loss that included a handwritten note “Will send supplement later.” The Ferraros later sought supplemental damages from Liberty Mutual, but did not provide a second sworn proof of loss.  Summary Judgment was granted by the district court in favor of Liberty Mutual holding that a second sworn proof of loss was necessary to support a claim under the NFIP. Summary Judgment was affirmed by the United States Court of Appeals for the Fifth Circuit on August 6, 2015.  Ferraro v. Liberty Mut. Fire Ins. Co., No. 14-30944.

The Ferraro case is interesting because Liberty Mutual knew that the Ferraros intended to supplement their original proof of loss. The Ferraos hired a public adjuster and submitted that adjuster’s report to Liberty Mutual but did not submit a signed sworn proof of loss form.  A Liberty Mutual adjuster told the Ferraros that no additional forms were necessary to support their claims. Liberty Mutual did not make payment on the supplemental claim based upon the public adjuster’s report of additional damages because the insureds failed to submit a second signed proof of loss.

The Ferraros filed suit against Liberty Mutual seeking payment for property damage, loss of use, depreciation, mold and damage remediation, debris clean-up and removal, cost of compliance and all other available damages.  Liberty Mutual filed for summary judgment arguing that the Ferraros were barred from litigation because they did not comply with the Standard Flood Insurance Policy (“SFIP”) prerequisite for filing suit under 44 C.F.R/ pt 61 app. A(1), art.VII. For claims relating to Hurricane Isaac, policyholders were required to provide a complete, signed sworn proof of loss within 240 days of the loss.  The district court noted that the NFIP program requires strict compliance and that the failure to provide the second proof of loss barred the Ferraros’ suit.

The appellate court agreed with the district court that the SFIP made strict compliance with the proof of loss requirement a condition precedent to suit.  “An insured’s failure to provide a complete, sworn proof of loss statement, as required by the flood insurance policy, relieves the federal insurer’s obligation to pay what otherwise might be  valid claim.”  Gowland v. Aetna, 143 F.3d 951, 954 (5th Cir. 1998). The Ferraros argued that a second sworn proof of loss was not necessary because they were merely supplementing a claim rather than making a new claim.  The issue of whether an insured must submit an additional proof of loss to recover an additional amount on a preexisting claim was a question of first impression in the Fifth Circuit Court of Appeals. The Fifth Circuit was persuaded by opinions from the First and Eighth Circuit Courts of Appeals that had considered similar circumstances, and held that an insured’s failure to strictly comply with the SFIP’s provisions, including the proof of loss requirement, relieves the federal insurer from the obligation to pay the non-compliant claim.  The handwritten note “Will send supplement later” and the public adjuster’s report did not comply with the SFIP’s regulatory proof of loss requirement.

The Ferraros maintained that they relied to their detriment on the assurance from a Liberty Mutual adjuster that no additional forms were necessary.  The Court of Appeals did not consider this argument on appeal because it was not raised in the opposition to summary judgment before the district court. It is uncertain whether Liberty Mutual’s adjuster could have waived the SFIP’s condition precedent for a sworn proof of loss. The Court did not consider the claim of detrimental reliance because the Ferraros did not bring the defense in the trial court and had no reasonable explanation as to why that defense was not raised in the trial court.

Shannon Howard-Eldridge
August 27, 2015