Opinion ID: 624665
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Heading: The National Flood Insurance Program

Text: The NFIA recognizes that many factors have made it uneconomic for the private insurance industry alone to make flood insurance available to those in need of such protection on reasonable terms and conditions. 42 U.S.C. § 4001(b). Under the Act, the federal government provides flood insurance subsidies and local officials are required to adopt and enforce various management measures. Palmieri v. Allstate Ins. Co., 445 F.3d 179, 183 (2d Cir. 2006); see also 42 U.S.C. §§ 4002(b)(3), 4012(c), 4022; 44 C.F.R. §§ 60.2-60.7. The NFIP, created by the Act, is administered by FEMA and supported by taxpayer funds, which pay for claims that exceed the premiums collected from the insured parties. See Van Holt v. Liberty Mut. Fire Ins. Co., 163 F.3d 161, 165 n. 2 (3d Cir. 1998). Congress has authorized FEMA to prescribe regulations establishing the general method or methods by which proved and approved claims for losses may be adjusted and paid for any damage to or loss of property which is covered by flood insurance. 42 U.S.C. § 4019. This regulatory scheme, including the terms and exact language of the SFIP, is recorded in the Code of Federal Regulations. See 44 C.F.R. §§ 61.1-78.14. Pursuant to its authority under 42 U.S.C. § 4081(a), FEMA created the WYO Program, which allows private insurers, also known as WYO companies, to issue and administer flood-risk policies under the NFIP. Although FEMA may also issue policies directly, see, e.g., Phelps v. FEMA, 785 F.2d 13, 14 (1st Cir.1986), more than 90% are written by WYO companies. C.E.R.1988, Inc. v. Aetna Cas. & Sur. Co., 386 F.3d 263, 267 (3d Cir.2004). WYO companies such as Metropolitan may act as fiscal agents of the United States, 42 U.S.C. § 4071(a)(1), but they are not general agents and therefore must strictly enforce the provisions set out in the regulations, varying the terms of a policy only with FEMA's express written consent. See 44 C.F.R. §§ 61.4(b), 61.13(d)(e), 62.23(c)-(d). Thus, while the private insurance companies administer the federal program, [i]t is the Government, not the companies, that pays the claims. Palmieri, 445 F.3d at 184; see also Downey v. State Farm Fire & Cas. Co., 266 F.3d 675, 679 (7th Cir.2001) (noting that under the NFIP, although private insurers issue the policies, FEMA underwrites the risk and that the insurance companies handle administrative business for FEMA by selling policies and processing claims but do little else). Jacobson's argument rests on the idea that the SFIP at issue here must be interpreted like any private insurance contract, thus allowing him the benefit of a more liberal interpretation of the proof-of-loss requirement with which he failed to comply. While we have not specifically addressed the interpretation of SFIP proof-of-loss requirements, many of our sister circuits have done so and have uniformly held that those requirements must be strictly construed and enforced. See, e.g., Evanoff v. Standard Fire Ins. Co., 534 F.3d 516 (6th Cir.2008); Shuford v. Fidelity Nat'l Prop. & Cas. Ins. Co., 508 F.3d 1337 (11th Cir.2007); Phelps, 785 F.2d 13; Suopys v. Omaha Prop. & Cas., 404 F.3d 805 (3d Cir.2005); Dawkins v. Witt, 318 F.3d 606 (4th Cir.2003); Mancini v. Redland Ins. Co., 248 F.3d 729 (8th Cir.2001); Flick v. Liberty Mut. Fire Ins. Co., 205 F.3d 386 (9th Cir.2000); Gowland v. Aetna, 143 F.3d 951 (5th Cir.1998). We adopt the same standard here. We do so in part because [t]here is a compelling interest in assuring uniformity of decision in cases involving the NFIP. Flick, 205 F.3d at 390. But even if we were the first to address the issue, we would reach the same conclusion. In a private insurance context, policy exclusions and limitations are to be accorded a strict and narrow construction. Seaboard Sur. Co. v. Gillette Co., 64 N.Y.2d 304, 311, 486 N.Y.S.2d 873, 476 N.E.2d 272 (1984). Ordinarily, such a construction is to the benefit of the insured: strict construction makes the terms of the policy easier to understand and easier to satisfy. In some contexts, the result following such a construction may offend equitable principles. When that occurs, a court may be justified in invoking other principles on behalf of an innocent insured in order to accomplish the design of an insurance policy. See, e.g., Lane v. Sec. Mut. Ins. Co., 96 N.Y.2d 1, 4-6, 724 N.Y.S.2d 670, 747 N.E.2d 1270 (2001). But when private parties make demands on the public fisc, different principles are at stake. Where federal funds are implicated, the person seeking those funds is obligated to familiarize himself with the legal requirements for receipt of such funds. Wright v. Allstate Ins. Co., 415 F.3d 384, 388 (5th Cir.2005). Protection of the public fisc requires that those who seek public funds act with scrupulous regard for the requirements of law.... [T]hose who deal with the Government are expected to know the law and may not rely on the conduct of Government agents contrary to law. Heckler v. Cmty. Health Servs. of Crawford Cnty., Inc., 467 U.S. 51, 63, 104 S.Ct. 2218, 81 L.Ed.2d 42 (1984). In the context of federal insurance policies, the Supreme Court has long held that an insured must comply strictly with the terms and conditions of such policies. See Fed. Crop Ins. Corp. v. Merrill, 332 U.S. 380, 384-85, 68 S.Ct. 1, 92 L.Ed. 10 (1947). The principles unique to governmental insurance policies that require a strict construction of their terms and requirements can sometimes create ostensibly inequitable results. In Gowland, for example, the insureds suffered a flood that rose to a level of approximately three inches above the floor and did not begin to recede until three or four weeks later. 143 F.3d at 952. The WYO insurance company's agent concurred that there was covered damage, but insisted that the policy still required a proof of loss. The Gowlands' agent represented to the insurance company that the proof of loss was not possible to calculate, because the water had not yet receded, but never filed a formal proof-of-loss statement. Id. at 952-53. This failure led the Fifth Circuit to decide the case against the Gowlands, concluding that [w]hile this result may seem harsh ..., we must remind that the National Flood Insurance Program is federally subsidized and enables consumers to obtain flood insurance which virtually would be impossible to purchase in the marketplace. Requiring the Gowlands to turn square corners when dealing with the Treasury does not reflect a callous outlook. It merely expresses the duty of all courts to observe the conditions defined by Congress for charging the public treasury. Id. at 955, quoting Fed. Crop Ins. Corp., 332 U.S. at 385, 68 S.Ct. 1. Fortunately, our decision here does not produce an inequitable result of this kind. Jacobson's claim is not similar to that of the plaintiffs in Gowland. Although Metropolitan's February 13, 2008, letter rejected Jacobson's claim on the basis of its incomplete proof-of-loss statement, FEMA rejected the claim because Jacobson sought coverage for damage specifically excluded by the policy. Thus, even assuming arguendo that the regulatory scheme established by the NFIA allowed for it, Jacobson's claim would not benefit from a more liberal construction of the policy's terms and requirements.