If an agent misrepresents the coverages available and the insured relies on that representation to the insured's detriment, the agent may be held liable for damages resulting from the misrepresentation. (Photo: Thinkstock)

The National Flood Insurance Program (NFIP) policy is a creature of federal statute and is limited to what it says to protect the federal treasury. In Pittman v. Farmers Fire Ins. Exchange, the insureds, by failing to comply with the policy conditions and by having a loss not covered by the policy, lost their suit against the insurer. That left them with nothing more than a suit against the agent, who they claimed promised coverage that did not exist in their NFIP policy, for misrepresenting the coverage available.

Case background

Plaintiffs Catherine Lynn Pittman and Troy Vernon Pittman owned a single-family home in the town of Peculiar, Mo., on property that abuts a river. Catherine contacted defendant Colby Yoder, an insurance agent for Farmers Fire Insurance Exchange, a “Write-Your-Own” Standard Flood Insurance Policy (SFIP) company. Catherine specifically told Yoder that she wanted a flood insurance policy to cover the contents of her basement. She detailed the high-value possessions she kept in the basement, including furniture, televisions, kitchen appliances, a computer and hunting supplies.

Yoder asked her several questions to complete the SFIP application. Yoder said that he could procure a federal flood insurance policy that covered up to $250,000 for the house and $100,000 for its contents. He specifically promised that the policy would cover all of the contents of their home, including items in the basement. Catherine did not have a copy of the prospective policy in front of her during this conversation. The parties later executed the policy.

In June 2008, the river flooded the Pittmans’ house and damaged some personal property in their basement. Farmers agreed to pay for structural damage and for most of the house’s contents, but refused claims for most items in the basement, because SFIPs, pursuant to federal regulations, specifically limited: “Coverage for items of property … in a basement … to the following items, if installed in their functioning locations and, if necessary for operation, connected to a power source:

  1. Air conditioning units, portable or window type;

  2. Clothes washers and dryers; and

  3. Food freezers, other than walk-in, and food in any freezer.”

Contrary to what Yoder had told Catherine, their policy did not cover most of the items in their basement. The Pittmans formally submitted a claim, but Farmers decided that the claim was incomplete per the policy’s terms and so could not be considered timely. They properly executed their proof of loss in July 2012, over four years after the flood and well beyond the 60-day requirement of the policy.

Analysis

In court, Yoder moved for summary judgment on all claims against him: breach of contract, vexatious refusal to pay, negligent procurement and negligent misrepresentation. As for the first two claims, because the Pittmans conceded that “actions for breach of contract and vexatious refusal to pay … cannot be asserted against Defendant Yoder,” the court granted Yoder summary judgment on these claims.

Count II alleged that Yoder negligently failed to procure insurance for the Pittmans that covered the contents of their basement. As the court explained, a negligent procurement claim cannot stand when “there was no insurance that could be purchased insuring against the peril causing the loss.”

The court found that there was a genuine dispute over facts material to the Pittmans’ negligent misrepresentation claim and concluded that it must deny summary judgment to Yoder.

SFIP policies, which are governed by National Flood Insurance Program regulations, look like an insurance policy but are, rather, a tightly limited government entitlement, providing funds to rebuild a dwelling and replace its contents after a flood that no insurance company is willing to cover. The policy wording is strictly enforced. The agent who sold the policy is considered to be a broker, transacting insurance with, but not on behalf of the insurer, who, regardless of the name on the policy is really the U.S. Treasury. If the agent misrepresents the coverages available and the insured relies on that representation to the insured’s detriment, the agent may be held liable for damages resulting from the misrepresentation. It will take a trial to tell whether Yoder owes anything to the Pittman.