The rejection of a policyholder's proof of loss for a flood insurance claim does not necessarily constitute a written denial of the claim—unless the policyholder treats it like one, a federal appeals court has ruled.

A three-judge panel of the U.S. Court of Appeals for the Third Circuit consisting of Judges Thomas Ambro and Cheryl Ann Krause and Senior Judge Marjorie Rendell rejected defendant Fidelity National Insurance Co.'s argument that a proof of loss rejection is an automatic claim denial. But the panel still affirmed a district court's dismissal of plaintiff Anthony Migliaro's suit against the insurer as time-barred.

“Although the rejection of a proof of loss is not per se a denial of the claim in whole or in part, it does constitute a denial of the claim if, as here, the policyholder treats it as such by filing suit against the carrier,” Rendell said in her opinion.

According to Rendell's opinion, Migliaro received a payment from Fidelity for damage to his property caused by Hurricane Sandy, but later submitted a sworn proof of loss seeking additional compensation. Fidelity sent Migliaro a letter rejecting his proof of loss, and he responded by filing a lawsuit nearly two years later.

The district court dismissed the suit as barred by the one-year statute of limitations that is triggered by a written denial of a claim under a standard flood insurance policy. But the district court also noted that the Third Circuit had not previously clearly defined what constitutes a written denial of a claim in an SFIP.

On appeal, Rendell rejected Fidelity's argument that a rejection of proof of loss is a per se denial of the claim, saying the insurer “misreads the loss payment provision” of the SFIP, which provides a policyholder with three options when their proof of loss is rejected: a) Accept denial of the claim; b) Exercise the policyholder's rights under the policy; or c) File an amended proof of loss within 60 days of the date of the loss.

“Under it, (a) is just one of three options a policyholder has after his proof of loss has been rejected,” Rendell said. “He need not accept the rejection as a denial of his claim. Alternatively, under option (b) he may exercise his rights under the SFIP. These include the right to demand an appraisal of the loss … the right to cancel the policy … and the right to file suit 'within one year after the date of the written denial of all or part of the claim.' Finally, option (c) allows the policyholder to file an amended proof of loss and attempt to show the WYO carrier that he is
indeed entitled to additional compensation.”

Migliaro's suit must be dismissed however, because he chose option (a), Rendell continued.

“Because a policyholder cannot bring suit until his claim has been denied in writing, Migliaro must have accepted that this had occurred when he brought suit,” Rendell said. “The only writing in the record that Migliaro could have construed as a denial of his claim was the July 15, 2013, letter rejecting his proof of loss. Thus, by bringing suit, Migliaro acknowledged that the letter constituted a written denial of his claim.”

She added, “Migliaro takes the position that because the rejection letter stated that it was not a denial, the statute of limitations never commenced to run. He effectively claims an open-ended right to file suit. But his position is undercut by his own conduct—he brought suit because his claim was denied. Thus, because Migliaro's second complaint was filed almost two years after he received the July 15, 2013, letter, his suit was properly dismissed as time-barred.”

Rendell pointed out that, in the July 15 letter, Fidelity invited Migliaro to submit additional documentation to support his proof of loss.

“Also, by law he had the right to seek an appraisal of the loss or file an amended proof of loss within 60 days,” Rendell said. “Migliaro closed the door by failing to seek an appraisal, file
an amended proof of loss within 60 days, or submit additional documentation. Instead, he sued, and in doing so acknowledged that, by virtue of the letter rejecting his proof of loss, his claim had been denied.”

Daniel Ballard of Zenstein Ballard in Warminster represents Migliaro and did not return a request for comment. Francis Manning of Stradley Ronon Stevens & Young represents the insurance company and also did not respond to a request for comment.