Why is a National Flood Insurance Program Policy Not Insurance?

Fulfill the Condition Strictly or Get Nothing

Contrary to what it is called, the National Flood Insurance Program is not insurance. It is, rather, a government funded entitlement that can only pay claims by dipping into the treasury of the United States. As a result, unlike insurance policies, federal courts strictly construe the language of the National Flood Insurance policy. In the majority of state jurisdictions substantial compliance with the proof of loss requirement is all that is necessary while Flood policies are strictly construed.

The proper inquiry in determining substantial compliance with a proof-of-loss condition in an insurance policy is whether the proof of loss fulfilled its three intended purposes: (1) allowing insurer an opportunity to investigate the loss; (2) allowing insurer to estimate its rights and liabilities; and (3) preventing fraud. [Bowlers’ Alley, Inc. V. Cincinnati Ins. Co., — F.Supp.3d —-, 2015 U.S. Dist. LEXIS 70090 (E.D.Mich.), [subscribers can access an enhanced version of this opinion: lexis.com | Lexis Advance]. “A substantial compliance with the provision requiring a sworn proof of loss, resulting in the insurer being able to adequately investigate the claim and estimate its liabilities, is all that is required.” [Greenbrier Hotel Corp. v. Lexington Ins. Co., Slip Copy, 2015 U.S. Dist. LEXIS 19049 (S.D.W.Va., 2/18/15), [subscribers can access an enhanced version of this opinion: lexis.com | Lexis Advance].

However, in Ferraro v. Liberty Mut. Fire Ins. Co., — F.3d —-, 796 F.3d 529 (C.A.5 (La.) 8/6/2015), [subscribers can access an enhanced version of this opinion: lexis.com | Lexis Advance], Ron and Patricia Ferraro sued Liberty Mutual to recover flood-insurance proceeds after their house was damaged by Hurricane Isaac. The Ferraros submitted an original signed, sworn proof of loss with the handwritten note “Will send supplement later.” They later sought payment from Liberty Mutual for the supplemental amount without providing a second proof of loss.

The district court granted summary judgment for Liberty Mutual, holding that a second sworn proof of loss is necessary to support a claim under the National Flood Insurance Program.


The Ferraros own a house in LaPlace, Louisiana. They purchased a Standard Flood Insurance Policy (SFIP) from Liberty Mutual via the National Flood Insurance Program’s (NFIP) Write–Your–Own (WYO) program. The policy was in place on August 29, 2012, after Hurricane Isaac made landfall on Louisiana.

The Ferraros’ home suffered damage, and they filed a claim for benefits with Liberty Mutual. Liberty Mutual dispatched an independent adjuster, who recommended payment of $103,826.83 and prepared a proof-of-loss form in that amount. The Ferraros signed the proof of loss and handwrote on the form: “Will send supplement later.” Liberty Mutual paid the Ferraros the full amount claimed by the proof-of-loss form.

The Ferraros then hired Dan Onofrey, a public adjuster, to evaluate the damage on their home. Onofrey issued a report valuing the Ferraros’ loss at $320,436.55. Surprisingly, since a licensed public adjuster is expected to know the requirements of the NFIP, the Ferraros only submitted Onofrey’s report to Liberty Mutual. They did not submit a second signed, sworn proof-of-loss form. Liberty Mutual made no further payments to the Ferraros.

For claims relating to Hurricane Isaac, policyholders were required to provide a complete, signed, sworn-to proof of loss within 240 days of the loss (extended by FEMA from the standard 60 days).

The district court granted summary judgment, noting that the NFIP requires strict compliance and holding that the Ferraros’ failure to provide a second proof of loss to accompany Onofrey’s loss valuation barred their suit.


Congress created the NFIP to provide flood-insurance coverage at affordable rates. The program, which is operated by the Federal Emergency Management Agency (FEMA), draws funds from the federal treasury. Homeowners can purchase an SFIP policy directly from FEMA or through private insurers, which serve as WYO providers and are fiscal agents of the United States.

Because the NFIP puts at stake the government’s money its regulations are subject to sovereign immunity. Although WYO insurers administer SFIP policies, payments made pursuant to such policies are “a direct charge on the public treasury.” Gowland v. Aetna, 143 F.3d 951, 955 (5th Cir.1998), [subscribers can access an enhanced version of this opinion: lexis.com | Lexis Advance]. The provisions of an insurance policy issued pursuant to a federal program must be strictly construed and enforced.

The central issue in this case is the interpretation of the proof-of-loss requirement in Article VII of the SFIP.

The regulations make strict compliance with the proof-of-loss requirement a condition precedent to suit. “You may not sue us to recover money under this policy unless you have complied with all the requirements of the policy. … This requirement applies to any claim that you may have under this policy and to any dispute that you may have arising out of the handling of any claim under the policy.” 44 C.F.R. pt. 61, app. A(1) art. VII(R) (emphasis added), [subscribers can access an enhanced version of this opinion: lexis.com | Lexis Advance]. An insured’s failure to provide a complete, sworn proof of loss statement, as required by the flood insurance policy, relieves the federal insurer’s obligation to pay what otherwise might be a valid claim.

The Ferraros argue that they discharged their proof-of-loss obligation when they filed a signed, sworn statement claiming $103,826.83 in damages and advised Liberty Mutual that a supplement would follow. They contend that they seek only additional benefits (for a total of $320,436.55) and not a wholly separate, “materially different” claim. “The policy at issue,” they assert, “does not require the Ferraros to submit supplementary proof of loss forms to sue for additional payments for previously perfected claims.”

Whether an insured must submit an additional proof of loss to recover an additional amount on a preexisting claim is a question of first impression in the Fifth Circuit. However, Gunter v. Farmers Ins. Co., 736 F.3d 768 (8th Cir.2013), [subscribers can access an enhanced version of this opinion: lexis.com | Lexis Advance], provides strong persuasive authority for the conclusion that a second proof of loss is indeed required.

It does not matter that the estimate from [the insured’s] adjuster was submitted at the same time and along with compliant proof-of-loss forms claiming undisputed sums because, under the plain terms of the SFIP, [the insured] still had to sign and swear to the amount in that estimate, which he did not do.

SFIP is clear that statements by an adjuster are provided only as a courtesy, and the proof of loss is the signed and sworn final statement of the insured as to how much damage is claimed. Failure to provide a proof of loss for any supplemental amount is a bar to recovery.

The Fifth Circuit found persuasive the reasoning of other Circuits and applied the same principles to the suit filed by the Ferraros that an insured’s failure to strictly comply with the SFIP’s provisions—including the proof-of-loss requirement—relieves the federal insurer’s obligation to pay the non-compliant claim.

Because the Ferraros’ additional claim for $320,436.55 was neither signed nor sworn-to, it cannot serve as a proof of loss under the plain terms of the SFIP.

The Fifth Circuit held that a second proof of loss was necessary for the Ferraros to perfect their claim. Therefore, the district court properly granted summary judgment for Liberty Mutual.


Insurance policies issued by insurers not part of the NFIP also contain similar proof of loss conditions. However, they are not strictly construed because substantial compliance is enough when the money expended belongs to a profit making insurer while a NFIP policy impacts money from the Treasury.

It seems to me that contract terms agreed to at the time the contract is made should be enforced if they are clear and unambiguous. Courts that extend the sixty day proof of loss requirement if there is evidence of “substantial compliance” are saying that the contract term is unimportant and need not be enforced except where money from the Treasury is involved. The language is the same and the contracts should be enforced the same.

A Government funded “insurance” program should never be more equal than a private insurance program.

    By Barry Zalma, Attorney and Consultant

Reprinted with Permission from Zalma on Insurance, (c) 2015, Barry Zalma.

Barry Zalma, Esq., CFE, is a California attorney who limits his practice to consultation regarding insurance coverage, insurance claims handling, insurance bad faith and fraud and acting as a mediator or arbitrator on insurance disputes. Mr. Zalma serves as a consultant and expert almost equally for insurers and policyholders. He founded Zalma Insurance Consultants in 2001 and serves as its only consultant. He recently published the e-books, “Zalma on Rescission in California – 2013”; “Random Thoughts on Insurance” containing posts from this blog; “Zalma on Insurance;” “Murder and Insurance Don’t Mix;” “Heads I Win, Tails You Lose — 2011,” “Zalma on Diminution in Value Damages,” “Arson for Profit” and “Zalma on California Claims Regulations,” and others that are available at Zalma Books.

Mr. Zalma can be contacted at or [email protected], and you can access his free “Zalma on Insurance Fraud” newsletter at Zalma’s Insurance Fraud Letter.

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