Federal courts are creating an nearly unimaginable barrier for policyholders attempting 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 acceptable flood protection. These federal choices invite contempt of the regulation by odd individuals injured due to any individual else’s wrongdoing.
A current case highlights this troubling development. In Shabshelowitz v. Previous 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 concerning that coverage is taken into account “claims dealing with” fairly than “procurement.”
This distinction is essential as a result of federal regulation preempts (overrides) state regulation claims associated to NFIP claims dealing with.
What makes this authorized reasoning significantly 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. Strive explaining that logic to any cheap particular person outdoors the authorized career. 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 situation: 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 could have. Beneath regular circumstances, state regulation would let you maintain that agent accountable for his or her skilled negligence.
Nevertheless, if you have already got an NFIP coverage, courts are actually saying these interactions are magically reworked into “claims dealing with” actions. That is true despite the fact that:
- No declare has been filed
- The interplay is solely about insurance coverage protection
- The agent is clearly engaged in gross sales and advisory actions
It’s as if the courts are saying, “Every little 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 shopper safety. Insurance coverage brokers serve an important position in serving to policyholders perceive and acquire acceptable 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 essential 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 smart 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 could haven’t any recourse in opposition to agent negligence as soon as the coverage is in place.
The underside line is that no quantity of authorized gymnastics can persuade an affordable individual that an insurance coverage agent’s negligence in promoting or servicing a coverage magically turns into “claims dealing with” simply because an NFIP coverage exists. Typically, the regulation creates fiction that solely attorneys can love – that is a type of occasions.
Thought For The Day
The primary responsibility of society is justice.
—Alexander Hamilton
1 Shabshelowitz v. Previous 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).
