Pre-Judgment Interest Not Awarded Under Flood Policy

    The court granted the insurer’s motion to dismiss state law and extracontractual claims, including pre-judgment interest. Hurley v. Wright Nat’l Flood Ins. Co., 2022 U.S. Distl. LEXIS 203803 (W.D. La. Nov. 8, 2022).

    The insured suffered damage from Hurrican Delta. He filed suit, alleging that Wright National Flood Insurance Company breached the Standard Flood Insurance Policy (SFIP). The insured sought damages for state law claims for bad faith, diminution in value, actual repair costs, attorney’s fees , litigation costs, and interest. Wright moved to dismiss the extracontractual state law causes of action for bad faith and various claims for damages, other than the damages sought for the alleged breach of the SFIP.

    The court explained that the Write-Your-Own (WYO) Program carriers issuing flood insurance under the National Flood Insurance Program (NFIP) arranged for the adjustment, settlement, payment, and defense of all claims arising from the policy. Congress underwrote all operations of the NIFP, including claims adjustment, through United States Treasury funds. A judgment against a WYO Program carrier constitued a judgment agaisnt FEMA, and consequently, a direct charge on the United States Treasury. 

    In the opposition to the motion, the insured conceded that the bad faith, general damages and attoreny fees claims were preempted by federal law. Therefore, the insured only opposed the dismissal of pre-judgment interest. A prior case from the Fifth Circuit had recognized that fair compensation to the plaintiff for his loss covered by the insurance policy issued by an insurer could only be achieved by including the award of prejudgment interst as a mandatory element of damages. West v. Harris, 573 F.2d 873, 883-84 (5th Cir. 1978). 

    Subsequently, however, the NIFP had changed so that all claims were ultimately paid by with United States Treasury funds. Cases held that an award of interest against a WYO company was precluded by the no-interest rule because it was a direct charge on the federal treasury. Therefore, the court agreed with Wright that the insured could not recover pre-judgment interest. The motion was granted as far as the extracontractual claims and claims for attorney’s fees and interest.