The terms and conditions of the Standard Flood Insurance Policy (“SFIP”) are specified by regulations promulgated under the National Flood Insurance Act (“NFIA”). One of the terms in the SFIP provides that the insured cannot sue the flood carrier unless the insured has complied with all requirements of the policy and the insured must “start the 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 the loss.”
The Fourth Circuit recently determined that an SFIP insured is time barred from filing suit if the date that the suit was filed in federal court is more than the allowable year specified in the SFIP even if the insured filed an action in state court within the one-year period. Woodson v. Allstate Ins. Co., Docket No. 16-1935 (May 3, 2017). In Woodson, the insureds suffered damages to their home as a result of Hurricane Irene, and submitted a claim to Allstate for flood damages pursuant to their SFIP. Allstate denied the Woodsons’ claim for flood damage on February 28, 2012, and the Woodsons filed suit in in state court on February 27, 2013 alleging breach of contract, and violation of the North Carolina Unfair and Deceptive Trade Practices Act.
Allstate removed the action to the North Carolina U.S. District Court on April 1, 2013. The district court did not address the suit limitations issue raised by Allstate, entered judgment on the breach of contract claim for the insureds in the amount of $233,398, and awarded treble damages in the amount of $700,194 and attorneys’ fees in the amount of $63,962.50 after finding that Allstate acted in bad faith. Allstate appealed to the Fourth Circuit, which reversed.
The Fourth Circuit held that the date that the action was removed was dispositive of the date that the suit was filed for purposes of the one-year period because the SFIP explicitly requires that the suit be filed in the “United States District Court of the district in which the covered property was located at the time of the loss.” Because the action was removed to federal court on a date that was more than one year after Allstate’s denial, the insureds’ suit was time barred. The Fourth Circuit specifically rejected the insureds’ claim that the filing in state court should toll the suit limitation period, stating that the state court lacked jurisdiction to hear the claim. The court also rejected the insureds’ contention that Allstate had waived the suit limitation defense by failing to file a dispositive motion before trial. The court reasoned that “while Allstate would have been wise to present its limitations defense through a separate motion,” Allstate had included the issue in its answer and pretrial order. The Fourth Circuit also joined the Third, Fifth, Sixth, Tenth and Eleventh Circuits that have analyzed federal preemption issues, and held that the insureds’ bad faith claim was preempted by federal law. The Fourth Circuit interpreted the one-year suit limitation as applicable not only to the breach of contract claim but also to the bad faith claim if such a claim could be recognized under federal law (an issue the court did not reach).
Suit limitation provisions are included in many insurance policies so that the carrier has some certainty as to the amount of time that liability may be incurred under the policy. The inclusion of reservation of rights language in written correspondence to the insured, and the inclusion of the suit limitation defense in pleadings may be useful in ensuring that waiver of the defense is not implicated.