Federal courts are creating an nearly inconceivable barrier for policyholders making an attempt to carry their insurance coverage brokers accountable for negligence involving Nationwide Flood Insurance coverage Program (NFIP) insurance policies. The reasoning by these courts defies widespread sense and leaves policyholders with out recourse when brokers fail to correctly advise about or procure applicable flood protection. These federal choices invite contempt of the legislation by peculiar folks injured due to any person else’s wrongdoing.
A latest case highlights this troubling development. In Shabshelowitz v. Outdated Dominion Insurance coverage Firm, 1 a federal courtroom in Florida adopted different jurisdictions in holding that after an individual has an NFIP coverage, any interplay with their insurance coverage agent relating to that coverage is taken into account “claims dealing with” moderately than “procurement.”
This distinction is essential as a result of federal legislation preempts (overrides) state legislation claims associated to NFIP claims dealing with.
What makes this authorized reasoning notably weird is that it transforms an agent’s negligent acts in promoting or servicing a coverage into “claims dealing with” – even when no declare exists. Attempt explaining that logic to any affordable particular person exterior the authorized occupation. I’m having potential shoppers yell at me as I attempt to clarify what their federal authorities and Congress have allowed.
The Alice in Wonderland Impact
Contemplate this state of affairs: You meet together with your agent to evaluation your flood protection wants. The agent negligently fails to vary the suitable protection limits you ask for or misrepresents what protection you’ve. Below regular circumstances, state legislation would mean you can maintain that agent accountable for his or her skilled negligence.
Nevertheless, if you have already got an NFIP coverage, courts at the moment are saying these interactions are magically reworked into “claims dealing with” actions. That is true regardless that:
- No declare has been filed
- The interplay is only about insurance coverage protection
- The agent is clearly engaged in gross sales and advisory actions
It’s as if the courts are saying, “Every thing is claims dealing with if we are saying it’s, even when it clearly isn’t.”
Why This Issues
This judicial interpretation creates a harmful hole in client safety. Insurance coverage brokers serve a vital function in serving to policyholders perceive and procure applicable flood protection. When brokers fail on this responsibility, they need to be held accountable like another skilled.
The present interpretation basically offers brokers immunity for his or her negligence as soon as a policyholder has an NFIP coverage. This removes vital incentives for brokers to train correct care in advising shoppers about flood insurance coverage wants.
A Name for Change
The Shabshelowitz courtroom’s interpretation stems from the Fifth Circuit’s choice in Spong v. Constancy Nationwide Property & Casualty Insurance coverage Firm, 2 which different courts have adopted. Whereas federal preemption of NFIP claims dealing with is sensible to make sure uniform dealing with of flood claims, extending this preemption to routine coverage gross sales and repair defies each logic and public coverage objectives.
Both Congress must make clear that agent negligence in coverage gross sales and repair isn’t “claims dealing with,” or courts have to rethink this overly broad interpretation. Till then, policyholders must be extraordinarily cautious of their preliminary NFIP coverage buy, as they might haven’t any recourse towards agent negligence as soon as the coverage is in place.
The underside line is that no quantity of authorized gymnastics can persuade an inexpensive person who an insurance coverage agent’s negligence in promoting or servicing a coverage magically turns into “claims dealing with” simply because an NFIP coverage exists. Generally, the legislation creates fiction that solely attorneys can love – that is a kind of instances.
Thought For The Day
The primary responsibility of society is justice.
—Alexander Hamilton
1 Shabshelowitz v. Outdated Dominion Ins. Co., No.4:18-cv-10202 (S.D. Fla. Dec. 31, 2020).
2 Spong v. Constancy Nationwide Prop. & Cas. Ins. Co., 787 F. 3d 296 (fifth Cir. 2015).