Florida judge rejects blocking flood insurance changes

By Jim Saunders

U.S. District Judge Darrel James Papillion, who is based in New Orleans, issued a 56-page ruling last week that pointed to potential problems if he issued an injunction against a risk-rating system that began taking effect in 2021 and was fully in place in April 2023. The lawsuit, led by Louisiana and including Florida and eight other states, was filed in June 2023.

"The court … finds that, in light of the particular claims in this case and to the extent plaintiffs are likely to succeed on any of them, any interest the public has in the need for federal agencies to follow the law is outweighed by the public's interest in the stability of the administration of the National Flood Insurance Program, which would be greatly disrupted if this court were to issue a preliminary injunction restraining defendants from enforcing the rating methodology that was fully implemented prior to plaintiffs' filing of this lawsuit," Papillion wrote.

But Papillion also ruled that the states and three local governments in Louisiana can continue pursuing the lawsuit, rejecting federal arguments that the case should be dismissed because of a lack of legal standing. In part, he said the states have shown they could face higher rebuilding costs after floods if property owners drop National Flood Insurance Program policies because of increased costs.

"To the extent plaintiffs' allegation that the increased premiums will lead to fewer policies in force is conclusory, the court also finds that Plaintiffs have plausibly substantiated this allegation in a manner sufficient to carry their burden at the motion to dismiss stage," the judge wrote Thursday.

The lawsuit, filed in the federal Eastern District of Louisiana, centers on changes known as "Risk Rating 2.0: Equity in Action." Federal officials contend that the changes were designed to make the flood-insurance program actuarially sound and reflect the risks of each property.

But the lawsuit alleges, in part, that federal officials violated a law known as the Administrative Procedure Act by making changes that were "arbitrary and capricious."

The National Flood Insurance Program plays a key role in states like Florida and Louisiana, as many homeowners with mortgages are required to carry flood insurance. Typical property-insurance policies do not include flood insurance, forcing homeowners to buy additional coverage.

A document in the lawsuit said the National Flood Insurance Program included about 1.391 million Florida policies, with total coverage of nearly $367 billion. The lawsuit is playing out as homeowners across Florida also face higher costs for property-insurance policies that cover risks such as wind and fire damage.

Along with Florida and Louisiana, other states in the case are Idaho, Kentucky, Mississippi, Montana, North Dakota, South Dakota, Texas and Virginia. The defendants include the U.S. Department of Homeland Security and the Federal Emergency Management Agency.

In a document filed last year seeking dismissal of the case, U.S. Department of Justice attorneys argued the plaintiffs had exaggerated "skyrocketing costs" after the change in the risk-rating system. The document said 19 percent of premiums decreased and 70 percent increased by less than $10 a month.

"These changes all reflect best practices in the insurance industry, which is precisely what Congress charged FEMA (the Federal Emergency Management Agency) to do under the NFIA (National Flood Insurance Act)," Justice Department attorneys wrote. "Furthermore, the geographical distribution of premium payments has been stark: Under the legacy (previous) rating approach, taxpayers and policyholders in landlocked states were covering the cost of flood risk in a few coastal states. Risk Rating 2.0 charges every policyholder their fair share based on their property's true flood risk and thus accomplishes the stated purpose of the NFIA."

But attorneys for the states and local governments in Louisiana pointed to "crippling effects" of changes in the program.

"Plaintiffs do not dispute that, under the legacy rating system, many individuals experienced slight annual increases as permitted under (a federal law)," the plaintiffs' attorneys wrote in a document last year. "But policyholders have never seen rate increases like the ones they are seeing" under the changes.