Fourth Circuit Clarifies Statute of Limitations Applicable in Lawsuit Following Flood Insurance Claim
Plaintiffs’ waterfront home was damaged during Hurricane Irene in August of 2011. After the storm, Plaintiffs made a claim under a flood insurance policy issued by Allstate Insurance Company (“Allstate”) under the National Flood Insurance Program. Following inspections of the property by engineers hired by both Allstate and Plaintiffs, Allstate denied the claim. FEMA upheld Allstate’s denial.
Plaintiffs filed suit against Allstate in North Carolina state court, alleging that Allstate breached the flood insurance policy and that Allstate did not act in good faith in handling Plaintiffs’ claim in violation of the North Carolina Unfair and Deceptive Trade Practices Act, N.C. Gen. Stat. § 75-1.1 et. seq. Allstate removed the lawsuit to federal court. After a bench trial, the District Court awarded Plaintiffs $233,398 on their breach of contract claim, which it trebled based on Plaintiffs’ bad faith claim under the North Carolina Unfair and Deceptive Trade Practices Act. Allstate appealed to the U.S. Court of Appeals for the Fourth Circuit.
In Woodson v. Allstate Ins. Co., 855 F.3d 628, 631 (4th Cir. 2017), the court reversed, holding that Plaintiffs’ claims were time-barred under a one-year statute of limitations. The court noted that, consistent federal law and regulations, the flood insurance policy at issue required the policyholder to file suit within one year of a written denial of all or part of a claim and that any suit must be filed in the U.S. District Court in which the covered property was located at the time of the loss. After evaluating a report from its own engineer and reports prepared by Plaintiffs’ engineers, Allstate sent Plaintiffs a denial letter dated February 28, 2012. Although Plaintiffs filed suit in state court on February 27, 2013, within one year of the denial, Allstate did not remove the lawsuit to federal court until April 1, 2013. According to the Fourth Circuit’s opinion, this meant that Plaintiffs’ lawsuit was untimely because it was not “filed in federal court” until more than one year after Allstate denied coverage. The court rejected Plaintiffs’ argument that the one-year statute of limitations was tolled when Plaintiffs filed the lawsuit in state court.
Although Plaintiffs’ flood insurance policy was issued by Allstate as a WYO insurer, not directly by the federal government, the court concluded that federal law preempted Plaintiffs’ state law claim for unfair and deceptive trade practices. The court left open the potential for a WYO insurer to be held liable for bad faith under federal regulations; however, the court declined further discussion of this issue because federal law required Plaintiffs to file any lawsuit arising from Allstate’s handling of the claim in federal court within one year of Allstate’s denial.