State Initiatives May Fall Short for Sandy Flood Victims

Since the devastation of Superstorm Sandy, many state and local government initiatives have been announced or proposed to help property and business owners recover under their insurance policies. For example, Governors Christie and Cuomo announced a mediation program, whereby policy holders could require insurance companies to submit to an early nonbinding mediation program. More recently, legislation was proposed that would "expand the rights" of policy holders to sue for bad-faith handling of their claims, and at least one local politician called for legislation to require insurance companies to act on claims faster.

Unfortunately, none of these programs help with claims under flood policies. Flood policies are written under the National Flood Insurance Program (NFIP), which was created by Congress to provide standardized insurance coverage for flood damage. The policies are governed and administered by the Federal Emergency Management Agency (FEMA), with the insurance companies serving merely as administrators or "fiscal agents." As such, state legislation or executive orders would not be binding on these flood policies unless FEMA agreed to participate. Moreover, because the policies are governed by federal law, there are procedural restrictions and substantive limitations that must be understood and considered when challenging denials or partial denials of claims under flood policies.

Background of the NFIP