April 19, 2010

The United Sates Court of Appeals, Fifth Circuit, discussed the constructive total loss doctrine in connection with a homeowner’s flood loss. This case is Monistere v. State Farm Fire and Casualty Company, 559 F.3d 390 (2009).

The homeowners brought an action against its flood insurer seeking to recover additional amounts under the flood insurance policy for loss sustained during Hurricane Katrina. After the hurricane damaged their house, the homeowners put in a claim and the insurer paid $133,212 for the loss. The Department of Emergency Management for Jefferson Parish, Louisiana, then issued a substantial damage determination letter on the house. Under this determination, the house would have to be rebuilt to a new height before any flood insurance could be obtained. It was determined that the estimated cost for demolishing the house and building a new one that met the flood requirements was $477,692. The homeowners sought more money from the insurer under coverage A of the policy to compensate for physical loss to the premises. State Farm refused and notified the homeowners that nothing more was owed under that coverage. A lawsuit followed.