NFIA is not “Insurance”


To Pursue Litigation Against a National Flood Insurance Act Claim the Insured Must Strictly Comply with Statute

The National Flood Insurance Act (the Act) created a statutory scheme to allow private insurers to issue and deal with flood claims on behalf of the United States. The Act makes the U.S. Government solely responsible for the payment of flood claims. As a result the standard flood policy issued to an individual or corporation can only be resolved in federal court and all of the conditions of the policy must be strictly enforced. In that regard the Act, and the policies issued under it, are not treated as policies issued by an insurer.

In Ali Ekhlassi v. National Lloyds Insurance Company, No. 18-20228, United States Court of Appeals for the Fifth Circuit (June 4, 2019) the District Court refused Ekhlassi’s suit against a private insurer issuing a policy in accordance with the act because the suit was not filed within the time required by the standard policy.


Ali Ekhlassi challenged the summary judgment awarded National Lloyds Insurance Company pursuant to the Act. Primarily, at issue are: whether the statute providing for “original exclusive jurisdiction” in district court and the one-year limitations period is applicable to actions against Write-Your-Own (WYO) carriers (private insurers which issue flood insurance policies underwritten by the Government in their own names as part of the National Flood Insurance Program) created by the Act and, if applicable, whether its one-year limitations period bars relief.

The required language of the policy issued by WYO carriers is provided in the Code of Federal Regulation. Lloyds participated in the program as a WYO carrier.

The Standard Flood Insurance Policy, provided in the Code of Federal Regulations and utilized by WYO carriers participating in the National Flood Insurance Program, states the “Requirements in Case of Loss” that suit must be filed in federal court no later than one year after denial of a claim.

Ekhlassi insured his house in Houston, Texas, with a National Flood Insurance Program policy from Lloyds. An extensive rain-storm that caused flooding damaged Ekhlassi’s home and he reported the loss to Lloyds the next day.

The Federal Emergency Management Agency (FEMA) extended the time to submit a proof of loss the notice stated it did “not . . . waive any other provisions of the [Standard Flood Insurance Policy]”.

One such non-waived provision in the policy is the one-year statute of limitations.

Lloyds’ 6 October 2015 letter to Ekhlassi stated it had reviewed his adjuster’s report and would process a claim for $3,768.25 upon receipt of a “signed, dated and sworn to proof of loss”. The letter also stated it was “denying payment for any building and contents items not subject to direct physical loss by or from flood” and “denying payment for all non-covered items located below the lowest elevated floor of [Ekhlassi’s house], pursuant to the Standard Flood Insurance Policy”. The 6 October letter also warned Ekhlassi about the one-year limitations period.

Notably, strict compliance with the provisions of federal flood insurance policies is required because payments are drawn from the federal treasury.

Ekhlassi submitted a proof of loss in late December 2015 for $274,940.05. In response, Lloyds’ 11 January 2016 letter to Ekhlassi acknowledged receipt of the proof of loss, and rejected all but $3,768.25 (the amount offered by the 6 October letter).

One year from the 11 January 2016 denial, Ekhlassi sued in Texas state court on 11 January 2017. He claimed breach of contract against Lloyds. This suit was removed to federal court on 24 April 2017.

Lloyds filed a summary-judgment motion, which was granted in January 2018. The court ruled Ekhlassi’s action was time-barred, based on its concluding the first denial letter triggered the one-year limitations period.


As governed by the Act, this action concerns a WYO carrier. Our court has previously, and comprehensively, explained how the WYO program operates:

● WYO carriers must issue policies containing the exact terms and conditions of the [Standard Flood Insurance Policy] set forth in FEMA regulations.
● FEMA regulations govern the methods by which WYO carriers adjust and pay claims.
● Although WYO carriers play a large role, the government ultimately pays a WYO carrier’s claims.
● When claimants sue their WYO carriers for payment of a claim, carriers bear the defense costs, which are considered “part of the … claim expense allowance”.
● FEMA reimburses these costs.
● If litigation is grounded in actions by the WYO Company that are significantly outside the scope of this Arrangement, and/or involves issues of agent negligence, then such costs will not be reimbursable to the WYO carrier.

WYO carriers are fiscal, not general, agents of the United States. They administer the National Flood Insurance Program by strictly enforcing the provisions set out by FEMA and can not vary the terms of the Standard Flood Insurance Policy without express written consent from the Government. WYO carriers write far more policies than does FEMA. Pursuant to federal regulation, WYO carriers are sued in place of the FEMA in actions involving WYO policies.

Primarily at issue was whether the statute’s requirement of original exclusive jurisdiction in federal court causes this action to be time-barred because it was not filed in, or removed to, federal court within one-year of the claim’s denial, regardless of which of the two letters was the operative denial.

The Fifth Circuit held the statute applies to actions against WYO carriers and, because Ekhlassi’s action did not arrive in federal court within one-year of his claim’s denial, it is time-barred. Finding that it is a fundamental canon of statutory construction that the words of a statute must be read in their context and with a view to their place in the overall statutory scheme the Fifth Circuit interpreted the statute as a symmetrical and coherent regulatory scheme. That framework counsels in favor of applying the limitation to WYO actions.

Since an insured’s flood insurance claims are ultimately paid by FEMA after a WYO company depletes its net premium income, FEMA reimburses the company for the company’s claims payments. Although a WYO company collects premiums and disburses claims, only FEMA bears the risk under the flood insurance program. A lawsuit against a WYO company is, in reality, a suit against FEMA.

The general design of the National Flood Insurance Act also evidences an intent to ensure that claims involving the programs it creates are heard in the federal courts.

There were no disputed facts needing resolution. Ekhlassi’s claim was time-barred. Lloyds’ first letter was sent on 6 October 2015; its second, on 11 January 2016. Ekhlassi filed this action in state court on 11 January 2017, exactly one year from the second letter. But the statute confers original exclusive jurisdiction on the United States district court for the district in which the insured property shall have been situated. This action was not removed to district court until 24 April 2017, well over one year from either letter, and, therefore, too late under the statute.

Ekhlassi did not timely file in the correct court.


Federal courts have no problem applying a prejudice requirement on private insurers seeking to enforce conditions like the one year statute of limitations contained in their policies. However, since the Act deals with the funds of the U.S. Treasury rather than the funds of an individual insurer, they apply the terms and conditions of the policy strictly. Edklassi failed to sue within the time stated in the policy and sued in the wrong court. As a result his suit failed. It would be useful if federal courts dealt with private insurers, whose policies are written as strictly as the standard flood policy. I doubt they ever will.

© 2019 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at and

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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