Homeowners often presume that they are covered for property damage to their home caused by flooding. This misconception can be even more harmful to homeowners because the term "flood damage" is far more expansive within the context of an insurance policy than the meaning when the term is used in everyday parlance. Water damage caused by a swimming pool located on higher ground that overflows into the entrance of a backyard might be considered flood damage. Since flood damage must be covered through the National Flood Insurance Program (NFIP), homeowners must understand the importance of ensuring they have flood coverage. In this blog, our homeowner insurance lawyers review a decision revealing the devastating consequences of terminating or failing to obtain flood coverage.
In Hodde v. American Bankers Insurance Company of Florida, the policyholders purchased two separate Standard Flood Insurance Policies (SFIP) on May 31, 2011. The policies included a 30-day waiting period. The terms of the policy allowed the insureds to cancel the coverage and obtain a full refund of all premiums during the waiting period. On June 6, 2011, FEMA announced the Missouri River was flooding, which made the policies worthless for the June flood because the 30-day waiting period had not expired. After FEMA designated the impending flood, the policyholders exercised their contractual right to terminate the policy and obtain a refund. The policyholders home was subsequently destroyed when the Missouri River flooded shortly after the policies were canceled.
Congress passed the Biggert-Waters Flood Insurance Reform Act of 2012 (FIRA) approximately a year after the flood destroyed the home of the insured. The law included a provision designed to ease the impact of FEMA's preemptive flood-in-progress designation for the 2011 flood. The provision provided coverage to property owners who obtained coverage between May 1 and July 6 of 2011 if they did not pursue the flood damage claim for at least 30 days after purchasing the coverage. After a trial before a judge, the court decided the case for the defendants based on the conclusion that FIRA did not automatically reinstate canceled policies.
The appellate court initially observed that the homeowners did not contend they rescinded their cancellation of the policy. While the policyholders argued that FIRA reinstated flood insurance policies retroactively. FIRA only applies to claimants who establish they had "eligible coverage." Under the terms of the statute, the term "eligible coverage" refers to policies purchased between May 1 and June 6 for homeowners who suffered a loss in the June 2011 flood. Because the policyholders canceled their policy, the appellate court reasoned the insureds were outside the scope of persons who purchased flood insurance during the operative period.
Many homeowners learn the hard way that flood damage is not covered by their