NFIP Escapes Payment with Form-Over-Substance Rules—The Need For Reform of the National Flood Insurance Program

While speaking at the Florida Association of Public Insurance Adjusters Fall Conference regarding National Flood Insurance claims, I promised to blog about a recent case that made its way through the federal courts. Homeowners Henry and Mary Siedzikowski learned some hard lessons about the strict requirements for flood insurance claims. The case, which began in the U.S. District Court for the Eastern District of Pennsylvania and was later affirmed by the Third Circuit Court of Appeals, highlights the critical importance of adhering to the precise procedures outlined in Standard Flood Insurance Policies (SFIPs).

District Court Findings

The Siedzikowskis’ home near the Schuylkill River suffered flood damage during Hurricane Ida in August 2021. They filed a claim under their SFIP, which was administered directly by FEMA through the National Flood Insurance Program (NFIP) Direct. The key issues in the district court case revolved around the validity of the homeowners’ proof of loss submissions.

The federal trial court found for FEMA concluding that: 1

The Siedzikowskis’ December 2021 letter to FEMA did not qualify as a valid proof of loss because:

It was not “sworn to” by the plaintiffs, lacking notarization or an equivalent.
It did not include a specific amount being claimed under the policy.
The two valid proofs of loss submitted by the Siedzikowskis were fully paid by FEMA, totaling $160,368.95.
State law claims against the adjuster (Administrative Strategies, LLC) were preempted by federal law.

On appeal, the Third Circuit affirmed the district court’s decision. 2 The appellate court’s key findings included that the homeowners failed to plausibly allege that they complied with the claim-submission process required by their SFIP. The December 15, 2021, letter to NFIP Direct did not qualify as a valid proof of loss because:

It lacked a specific loss amount.
It was not sworn to by the Siedzikowskis.

The key lessons from this case are:

Strict Compliance is Crucial: Adhere meticulously to all SFIP requirements, especially regarding proof of loss submissions.
Specify Claim Amounts: Always include a specific amount being claimed under the policy in your proof of loss
Timeliness Matters: Submit proofs of loss within the required timeframe, typically 60 days from the date of loss (though extensions may be granted in some circumstances.
Informal Communications are Insufficient: Letters or emails disputing adjusters’ findings do not substitute for formal proof of loss submissions
State Law Claims are Preempted: Understand that state law claims against adjusters or related to SFIP handling are generally preempted by federal law. Federal law is the only law that applies when dealing with National Flood Insurance claims.
Document Everything: Keep detailed records of all communications and submissions related to your claim. Submit all estimates and documentation with the proof of loss form.
Consider Legal Counsel Early: Given the complex requirements, seeking legal advice early in the claims process may be beneficial, especially in disputed cases.
Understand the Finality of Decisions: Courts may dismiss cases with prejudice if proper procedures aren’t followed, leaving no opportunity for amendment.

There is a need to reform the NFIP, and this case is an example. FEMA escaped paying the full amount owed on the claim because of technical form-over-substance rules. Henry Siedzikowski is a noted and experienced litigation attorney. If he cannot comply with the technicalities of his own flood claim, what makes the federal government think anybody else has half a chance of getting fair treatment? Here is a little about Siedzikowski from his firm’s website:

Henry F. Siedzikowski is a senior trial and appellate attorney with significant experience litigating cases in federal and state courts and administrative agencies throughout the country, with an emphasis on complex commercial disputes, healthcare, insurance, antitrust, and bankruptcy matters. He has served as trial counsel and lead trial counsel in litigating, to a successful conclusion, many multimillion-dollar cases….

In his healthcare practice, Henry serves as a business advisor and litigator for insurers, managed care companies, hospital systems, and physician and ancillary providers on a broad range of legal issues. He has extensive experience in internal audits and/or investigations in the healthcare field, as well as in developing compliance plans. Henry also represents hospitals and healthcare systems in medical staff and peer review issues.

Henry’s insurance practice includes extensive experience litigating cases and advising clients in reinsurance matters, coverage issues, managing general agent issues, executive contracts, insurance company insolvencies, and insurance fraud investigations. He is experienced in matters relating to health insurance, life insurance, property and casualty, directors and officers, and errors and omissions coverages.

Henry has served as lead trial counsel, including court appointment as co-lead counsel or liaison counsel in several class actions and multi-district litigations. His complex litigation practice has included cases involving civil rights under 42 U.S.C. §1983, ERISA, bankruptcy, antitrust, and intellectual property matters.

When accomplished attorneys familiar with complex insurance matters lose benefits because of form-over-substance rules that NFIP and their attorneys hide behind to frustrate otherwise owed benefits, the system needs to be overhauled. Congress needs to investigate how policyholders are being treated and pass new laws changing this system.

I have questioned those in charge of the NFIP numerous times over the past decade. I provided another example in “Are Some Managers Running the National Flood Insurance Program Corrupt?”

Knowing that National Flood customers were relying upon National Flood’s own words to prove more monies were owed, National Flood administrators simply changed the manual to cheat its customers out of monies overwise owed. That is not right.

Congress should conduct an investigation and reform the National Flood Insurance Program. The Executive should “clean house” to get administrators who will demand integrity. It is obviously being run in part by those who look to shortchange policyholders by technical requirements and who will change the rules mid-stream to win at all costs.

The emphasis is on “some” because I have known several mid-level flood managers who are and have always been ethical and fair.

The bottom line is that flood policyholders with claims are not the enemy. They need to have laws and regulations which do not allow technical disallowance of otherwise valid claims.

Thought For The Day

The law is an ass – an idiot.
—Charles Dickens

1 Siedzikowski v. Criswell, No. 22-3369, 2023 WL 3161459 (E.D. Penn. Apr. 28, 2023).
2 Siedzikowski v. Administrator of Federal Emergency Management Agency, No. 23-1937, 2024 WL 1506349 (3rd Cir. Apr. 8, 2024).