Insurer Sued in New York for Canceling, Reissuing Flood Policies After Claim

December 27, 2013

Fidelity National Property & Casualty Insurance Co. was recently sued in a New York court over flood insurance policies. The suit alleges the insurer retroactively canceled flood policies for Dayton Towers Corp.’s residential buildings and reissued new policies with lower limits of liability when Dayton submitted a claim after Superstorm Sandy.

Dayton is a cooperative housing corporation organized and existing under the private housing finance law. It owns seven high-rise residential buildings in The Rockaways, a Queens County neighborhood in New York City. The seven buildings are home to approximately 1,752 families.

The lawsuit says the seven Dayton buildings collectively suffered more than $12 million in property damage as a result of Sandy.

The lawsuit says Dayton had purchased standard flood insurance policies for each of its seven buildings through the National Flood Insurance Program from Fidelity, by way of Dayton’s two insurance brokers, M.R. Cooper Ltd. and FS Insurance Brokers of New York. The complaint was filed by law firm Dickstein Shapiro on behalf of Dayton.

The policies provide Dayton limits of liability ranging from $2,519,000 to $2,765,700 per building, totaling $18,519,500 in the aggregate for the seven buildings. The premium for each of the buildings ranged from $3,845 to $8,563. The policies were effective from June 23, 2012 through June 23, 2013.

Dayton says in its lawsuit that it promptly submitted its claim to Fidelity following Sandy. But Dayton alleges Fidelity took no action until March 2013. On March 20, 2013, Fidelity purportedly canceled the policies that Dayton purchased prior to Sandy and purportedly issued different policies to Dayton to replace the unilaterally canceled policies, according to the lawsuit.

According to the suit, each purported replacement policy provided Dayton with only $250,000 of limits per building and $1,750,000 in total aggregate limits for the seven buildings. The suit says that in May 2013, Fidelity tendered $1,750,000 as “building payments equaling the policy limit of $250,000 for each of the Dayton Towers buildings[.]”

The lawsuit alleges Fidelity also attempted to return what was described as the “overpayment of premium” for each of the original seven policies that it issued to Dayton to provide coverage for the buildings. Fidelity denies that it owes Dayton any further duties or obligations, according to the court filing.

The lawsuit alleges Fidelity cited “cancel/rewrite due to misrating (transaction record reporting and processing reason 22)” of the National Flood Insurance manual as the reason for canceling the original policies and issuing new policies. The manual states that:

  • This reason is used when ineligible PRPs [Preferred Risk Policies] or MPPP [Mortgage Portfolio Protection Program] policies are canceled and rewritten within the same company and when changes are made due to system constraints. This reason should also be used to cancel a standard-rated policy that is eligible for a PRP due to misrating . . . In order to process a cancel/rewrite due to misrating, the policy to be cancelled must have no paid or pending claim during the policy years(s) to be cancelled.

The suit says the manual prohibits insurers from canceling original policies and issuing new ones when claims have already been submitted and are pending. The suit also says the reason cited applies only to preferred risk policies or a mortgage portfolio protection program. The plaintiff argues its policies are not preferred risk policies and not part of a mortgage portfolio protection program.

The case is Dayton Towers Corporation V. Fidelity National Property and Casualty Insurance Company, U.S. District Court, Eastern District of New York, Nov. 21, 2013.

 

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Latest Comments

  • January 1, 2014 at 10:44 am
    Robert says:
    The article appears to imply that the flood policy can't change after the loss is reported. If this is correct there are other gray areas. Such as in a case when a five or mor... read more
  • December 30, 2013 at 5:28 pm
    carl says:
    why would an insured be required too prove when he has an issued policy,the company needs to prove that the insured knew that he did not have the coverage stated in the policy... read more
  • December 30, 2013 at 2:01 pm
    Original Bob says:
    Unless the insured can prove that the false belief of higher coverage prejudiced their opportunity to purchase higher amounts of flood insurance, it would not appear the error... read more
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