Many property owners throughout California are required by the terms of their loan documents (a promissory note or deed of trust) to maintain flood insurance for their real property and the improvements thereon. Claims to insurance companies pursuant to a policy of flood insurance, are, almost without exception, pursuant to policies issued through the National Flood Insurance Program (NFIP).
An insurance contract is in most respects treated no different than any other private contract. Thus, a dispute between an insured and an insurer over the terms of coverage would ordinarily be the subject of a normal State Court proceeding. However, in a case of first impressions, the California Court of Appeal has ruled in McCormick v. Traveler’s Insurance that any policy of insurance issued pursuant to the NFIP must, always, be filed in United States Federal District Court. This is a potential trap for the unwary. Failing to pursue a remedy in the appropriate jurisdiction could potentially result in the loss of a flood insurance claim.
If you own real property, and are required to maintain flood insurance, you should verify whether the flood insurance policy has been issued pursuant to the NFIP. Filing in the wrong Court could cause the substantive loss of your contract rights. A simple way to safeguard against this potential trap for the unwary is to prepare a short memorandum, electronic or otherwise, to be kept with your insurance policies. Documenting whether the policy is subject to the NFIP and thus, whether claims must be pursued in Federal Court, could be the difference in a successful claim and a tragic loss.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
We operate a free-to-view policy, asking only that you register in order to read all of our content. Please login or register to view the rest of this article.