The Wait for NFIP Reform ContinuesFor the 11th time in the last two years, the House has passed yet another short-term extension of the National Flood Insurance Program (NFIP). The NFIP remains the largest source of flood coverage in the U.S.; this extension through September 30, 2019, ensures that the program does not lapse during hurricane season.

The NFIP makes federally subsidized flood insurance available in special flood hazard areas for participating communities. NFIP policies can be purchased directly from the government or from private insurers through the “Write Your Own” program.  Many commercial policyholders rely on the NFIP to provide primary-level coverage for up to $500,000 for a commercial building, and up to an additional $500,000 for certain types of personal property. These single peril policies cover direct physical damage caused by flood based on the property’s actual cash value. NFIP does not provide business interruption coverage for lost profits due to a shutdown of an insured’s operations.

U.S. Rep. Maxine Waters (D-Calif.), chair of the House Committee on Financial Services, and U.S. Rep. Patrick McHenry (R-N.C.) proposed the most recent extension. They seek additional time to reach a bipartisan compromise that will end the short-term extensions. A bipartisan group of senators also recently wrote a letter to Chairman Mike Crapo (R-Idaho) and Ranking Member Sherrod Brown (D-Ohio) urging the Senate Banking Committee to reauthorize the NFIP and address the issues that have been pushed down the road with every temporary extension.

As now structured, the NFIP cannot cover the cost of flood losses, which have dramatically increased since the early 2000s. Stakeholders acknowledge the necessity of reform, but the timing and scope of that reform requires consensus between the political parties and states with competing interests based on their flood exposure. The clock starts ticking now.

Urgent Considerations with Harvey, Irma, and Maria Suit Limitations Deadlines Approaching Commercial Property and Business Interruption insurance policies customarily include suit limitations clauses to protect the insurer against lawsuits. These clauses may be found buried amid general conditions in the property form or in an endorsement. Their sole purpose is to shorten the otherwise longer statute of limitations and hinder your organization’s ability to challenge your insurance company’s decision not to fully pay your organization’s insured loss. Savvy risk managers, lawyers, and insurance professionals should keep these hidden, sometimes tricky, exclusions top of mind over the summer months as it is the two-year anniversary of the destructive 2017 hurricane season.

1. Suit Limitations Clauses Are Generally Enforceable in Texas, but Puerto Rico and Florida Offer Better Protection for Policyholders

While each U.S. state and territory may apply different rules regarding enforceability of suit limitations clauses, it sometimes comes as an unpleasant surprise to policyholders that most jurisdictions uphold suit limitations clauses. For example, in Texas, suit limitation clauses are enforceable as long as the limitation is not less than two years. If the suit limitations clause is less than two years, the provision is void as a matter of law. Then and only then will a Texas court apply either the longer statutory limitations period for breach of contract (four years from the date of breach) or a two-year contractual limitations clause if the policy contains a “savings clause.”

In Florida, suit limitations clauses are prohibited by statute, however, even if your damaged location was in Florida, you should not assume that Florida law will necessarily apply. Counsel can be helpful in working with your risk management department to determine (i) the correct deadline and (ii) what state’s law will control. Your insurer may argue that Florida law does not apply so that it can attempt to enforce a suit limitations clause. There are still potential risks posed by a suit limitations clause in your insurance policy.

Until recently in Puerto Rico, suit limitations clauses as short as one year were enforced by courts. However, in late 2018, the Puerto Rican legislature retroactively amended the insurance code to allow the informal, extra-judicial tolling of the applicable limitations period through the submission of a written claim. The same law also allowed for appraisal of property losses, which were previously prohibited under Puerto Rican law. The Supreme Court of Puerto Rico recently confirmed that this amendment was retroactively applicable to property damage and business interruption claims from Hurricanes Irma and Maria. Similar to Florida, however, insurers may attempt to circumnavigate favorable Puerto Rican law by seeking to apply the law of a different jurisdiction.

So, while there are potential exceptions, you should treat the suit limitations clause in your insurance policy as an absolute bar to avoid any potential disputes down the line.

2. Calendar the Earliest Possible Suit Limitations Date

While specific policy language can vary significantly depending on your specific policy language, let’s assume your organization’s policy runs two years from the date of loss:

  1. Hurricane Harvey – August 26, 2019 (Texas and Louisiana)
  2. Hurricane Irma – September 9, 2019 (Barbuda, Saint Martin, and Virgin Gorda); September 10, 2019 (Florida, Georgia and South Carolina)
  3. Hurricane Maria – September 19, 2019 (Windward Islands, Dominicana and Guadeloupe); September 20, 2019 (Virgin Island, Puerto Rico, and the Dominican Republic); September 26, 2019 (North Carolina)

3. Use a Tolling Agreement to Protect Your Rights

While suit limitations clauses can be a potential bar, filing a lawsuit in advance of a pending limitations deadline is typically unnecessary. In many jurisdictions, including those affected by Harvey, Irma and Maria, by agreement of both parties they may contractually agree to “toll,” or pause, the applicable limitations period to allow for further negotiations and adjustment.

That said, there are multiple factors to consider before entering into a tolling agreement: (1) length of tolling period; (2) renewal process for extending tolling period; (3) process for terminating tolling agreement if negotiations fail; and (4) which claims will be subject to the tolling agreement (i.e., breach of contract claims only or bad faith claims as well). Additionally, depending on where your organization is located, counsel can be engaged to assist with the analysis of specific laws or procedures that impact the terms and conditions of your tolling agreement. Finally, even in cases where you believe that a suit limitations clause is not an issue, either because the provision may be unenforceable or because of an informal tolling process, seeking a written tolling agreement is preferable to mitigate the risk that a court will apply the law of a different, less favorable jurisdiction.

Suit limitations clauses are a trap for the unwary to limit or bar your organization’s insurance recovery, but by being aware of applicable laws, calendaring pending limitations dates, and protecting your organization’s rights through tolling agreements, policyholders can mitigate the impact of these potentially troublesome provisions.

Christine Davis Named to General Council of Tort Trial and Insurance PracticeWe are pleased to announce that Christine Davis, an attorney on our Policyholder Insurance Coverage team in Washington, D.C., was recently selected to serve a three-year term as a member of the General Council of the Tort Trial and Insurance Practice Section (TIPS) of the American Bar Association, beginning in August 2019.  The General Council is the section’s governing body, which oversees the work of the section to maintain its prominence in relevant fields and provide invaluable benefits to its members.

Election to the General Council is a competitive process that can only be attained after years of hard work and proven commitment to the section. Christine’s election to the council is recognition by her peers of her contributions to the section and the legal profession to date.

Christine has been an active member of TIPS since she was selected as a TIPS Fellow over a decade ago. During that time, she served in various leadership roles, including as chair of the Business Litigation Committee. In her tenure as chair, the Business Litigation Committee was selected for the Award of Excellence, which is given to the top-performing committee of roughly 35 working committees.  Christine is also vice chair of various other committees, including the Insurance Coverage Litigation Committee and the Women Trial Lawyers Committee.

Christine is currently editor-in-chief of the Tort Trial and Insurance Practice Law Journal, the section’s premier law journal, which presents scholarly articles on timely and pertinent tort and insurance issues. She is also the current executive editor of TortSource, another of the section’s publications that presents readers with timely information on legal developments in the tort and insurance fields. Christine is herself a frequent contributor of articles on insurance coverage issues.

With nearly 20 years of experience in the insurance coverage field, Christine has advised corporate policyholders in all stages of coverage disputes, ranging from informal negotiation, formal mediation and arbitration, to litigation and appeal. She also has considerable experience in claims handling issues and insurance placement.  Christine can be reached at cdavis@bradley.com.