N.Y. Court Enforces Flood Insurance Policy’s Proof-of-Loss Requirement

A New York appeals court recently affirmed a lower court’s ruling that a homeowner was not entitled to coverage under the policy from the National Flood Insurance Program because he failed to follow the proof-of-loss requirement.

The case involves Robert Jacobson, who purchased a house near the juncture of the Catskill and Kaaterskill Creeks in upstate New York in 2001. The U.S. Court of Appeals for the Second Circuit in New York issued the ruling on March 6.

According to court documents, between 2004 and 2006, Jacobson experienced the effects of the Catskill Creek’s seasonal flooding nine times. These floods destroyed stairs he had constructed to lead into the creek and washed away up to 65 feet of his land.

In early 2007, following these losses, Jacobson took out a standard flood insurance policy from Metropolitan Property & Casualty Insurance Company, a Write-Your-Own (“WYO”) Program provider.

In June 2007, the creeks flooded again, this time rising over 46 feet and washing away another 50 feet of Jacobson’s land. The water never entered Jacobson’s home, however, and he noticed no damage to the house until December 2007, after an extended vacation. He finally made his claim to Metropolitan in January 2008.

Metropolitan notified Jacobson that the terms require Jacobson to provide the proof of loss. Jacobson partially complied, but failed to designate a specific amount of damages, instead listing the value of the loss as “undetermined.” Subsequently, Metropolitan sent Jacobson a letter rejecting the claim on the basis of the incomplete proof of loss.

Jacobson appealed to FEMA but the appeal was rejected. The agency based its decision not on the incomplete proof of loss, but on three separate grounds, each a basis for exclusion under the policy terms: (1) that Jacobson had failed to notify Metropolitan promptly after the alleged damage occurred; (2) that the actual damage to the home was a consequence of the nine floods that had preceded the June 2007 flood; and (3) that the engineers hired by both parties concurred that “land subsidence was the proximate cause of damage to the insured building.”

Jacobson then sued Metropolitan in district court. He argued that Metropolitan’s initial denial of coverage on the basis of Jacobson’s incomplete proof of loss amounted to a “repudiation” under New York law, and that such repudiation relieved Jacobson of the proof-of-loss requirements with which he admittedly failed to comply.

The district court rejected Jacobson’s arguments in summary judgment. The court noted that “every circuit to address the requirements of recovery under a standard flood insurance policy has held that an insured’s claim cannot be paid unless he has timely submitted a complete proof of loss which is signed and sworn to.”

The district court also rejected Jacobson’s “repudiation” argument, concluding that, even if repudiation could excuse compliance with a policy requirement in the National Flood Insurance Program context, Metropolitan cannot be deemed to have repudiated the policy in this case.

The U.S. Court of Appeals for the Second Circuit in New York affirmed the lower court’s decision, stating that “Under Jacobson’s proposed approach, a WYO company that rejects a claim for failure to comply with the requirement could be deemed to have repudiated the policy, retroactively excusing the claimant’s need for compliance with the proof-of-loss requirement. We reject such an illogical rule.”

“If [Jacobson’s] version of repudiation were to carry the day, there would be no circumstance under which a party would be required to file a proof of loss.”