Woodson v. Allstate Ins. Co.
| Decision Date | 03 May 2017 |
| Docket Number | No. 16-1935, No. 16-2018,16-1935 |
| Citation | 855 F.3d 628 |
| Parties | Gary WOODSON; Rebecca Woodson, Plaintiffs–Appellees, v. ALLSTATE INSURANCE COMPANY, Defendant–Appellant. United States of America; Property Casualty Insurers Association of America, Amici Supporting Appellant, Douglas J. Pepe, Amicus Supporting Appellees. Gary Woodson; Rebecca Woodson, Plaintiffs–Appellees, v. Allstate Insurance Company, Defendant–Appellant. United States of America; Property Casualty Insurers Association of America, Amici Supporting Appellant, Douglas J. Pepe, Amicus Supporting Appellees. |
| Court | U.S. Court of Appeals — Fourth Circuit |
ARGUED: Gerald Joseph Nielsen, NIELSEN, CARTER & TREAS, LLC, Metairie, Louisiana, for Appellant. Ernest Bradley Evans, WARD AND SMITH, P.A., Greenville, North Carolina, for Appellees. Nicolas Y. Riley, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Amicus United States of America. ON BRIEF: Keith M. Detweiler, John D. Carter, NIELSEN, CARTER & TREAS, LLC, Metairie, Louisiana; Eric P. Stevens, POYNER SPRUILL, LLP, Raleigh, North Carolina, for Appellant. Michael J. Parrish, WARD AND SMITH, P.A., Greenville, North Carolina, for Appellees. Benjamin C. Mizer, Principal Deputy Assistant Attorney General, Michael S. Raab, Civil Division, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C.; Adrian Sevier, Chief Counsel, Razeyeh Jafarzadeh, Office of Chief Counsel, FEDERAL EMERGENCY MANAGEMENT AGENCY, Washington, D.C.; John Stuart Bruce, Acting United States Attorney, Raleigh, North Carolina, for Amicus United States of America. Wystan M. Ackerman, ROBINSON & COLE LLP, Hartford, Connecticut, for Amicus Property Casualty Insurers Association of America. Douglas J. Pepe, Amicus Pro Se.
Before NIEMEYER, MOTZ, and DIAZ, Circuit Judges.
Reversed by published opinion. Judge Niemeyer wrote the opinion, in which Judge Motz and Judge Diaz joined.
Hurricane Irene, characterized as a Category 1 hurricane when it hit the North Carolina coast on August 27, 2011, passed near the waterfront house of Gary and Rebecca Woodson on the Albemarle Sound in Jarvisburg, North Carolina, flooding their property and, for several hours, subjecting the foundation of their house to wave action, allegedly causing substantial damage to the house. Shortly after the storm, the Woodsons made a claim under the flood insurance policy issued to them by Allstate Insurance Company under the National Flood Insurance Program.
Following inspections of the property by engineers hired by both parties and exchanges relating to the appropriate documentation for a proof of loss, Allstate denied the major portion of the Woodsons' claim by letter dated February 28, 2012, and the Federal Emergency Management Agency ("FEMA") affirmed the decision. The Woodsons commenced this action against Allstate in state court on February 27, 2013, alleging (1) that, in denying the major portion of their claim, Allstate breached its contract of insurance, and (2) that Allstate did not act in good faith in handling the Woodsons' claim, in violation of the North Carolina Unfair and Deceptive Trade Practices Act.
On April 1, 2013, Allstate removed the case to federal court and, in its answer filed thereafter, asserted that the Woodsons' suit was barred by the applicable statute of limitations. Allstate raised the limitations defense again in the pretrial order entered in the case, in the proposed findings of fact and conclusions of law presented by the parties to the court one week before trial, and in the examination of witnesses at trial. The district court, however, did not address the limitations issue in its findings of fact and conclusions of law and entered judgment for the Woodsons in the amount of $233,398 on their breach of contract claim and trebled those for a total of $700,194 on their bad-faith-handling claim under the North Carolina Unfair and Deceptive Trade Practices Act. The court also awarded the Woodsons $63,962.50 in attorneys fees on the bad-faith-handling claim.
On appeal, Allstate raises, as its first issue, its statute of limitations defense. It also raises the issue of whether the Woodsons' bad-faith-handling claim was preempted by the National Flood Insurance Act of 1968.
Because federal law exclusively governs claims made on policies issued under the National Flood Insurance Program and to disputes arising out of the handling of those claims, thus preempting state law, and imposes a one-year statute of limitations for all such claims, we reverse the district court's judgment.
Responding to the fact that flood disasters were creating personal hardships and economic distress that was "increasing [the] burden on the Nation's resources" and that the exposure to flood losses was "growing," Congress enacted the National Flood Insurance Act of 1968 ("NFIA"). 42 U.S.C. § 4001(a). The NFIA creates the National Flood Insurance Program under the administration of FEMA to "mak[e] flood insurance coverage available on reasonable terms and conditions." Id .; see also id. § 4011. Under the Program, flood insurance is sold to qualified applicants either directly by FEMA or by private insurance companies known as "write-your-own" (sometimes, "WYO") companies. 44 C.F.R. § 62.23. These companies enter into a standardized agreement with FEMA that authorizes the private company to issue flood insurance in its own name and assigns the company responsibility for the "the adjustment, settlement, payment and defense of all claims arising from policies of flood insurance it issues under the Program." Id. § 62.23(d). The ultimate responsibility for paying all claims and related expenses, however, rests with FEMA. See 42 U.S.C. § 4017(a). The NFIA imposes a $250,000 cap in coverage for residential properties. Id. § 4013(b)(2).
The terms and conditions of a National Flood Insurance Policy are specified by regulation. The "Standard Form Insurance Policy" begins with advice to the insured that FEMA is providing insurance "under the terms of the National Flood Insurance Act of 1968 and its Amendments, and Title 44 of the Code of Federal Regulations." 44 C.F.R. pt. 61 app. A(1), art. I. The Policy then sets forth the scope of coverage, the exclusions, the deductions, and the general conditions applicable to coverage, adjustment, and payment. The Policy also provides:
This policy and all disputes arising from the handling of any claim under the policy are governed exclusively by the flood insurance regulations issued by FEMA, the National Flood Insurance Act of 1968, as amended (42 U.S.C. § 4001, et seq. ), and Federal common law.
Id. art. IX. Consistent with the statute and regulation, the Policy also provides the conditions and limitations for filing suit for claims under the Policy and on disputes arising out of the handling of any claim under the Policy:
You may not sue us to recover money under this policy unless you have complied with all the requirements of the policy. If you do sue, you must start the suit within one year after the date of the written denial of all or part of the claim, and you must file the suit in the United States District Court of the district in which the covered property was located at the time of loss. This requirement applies to any claim that you may have under this policy and to any dispute that you may have arising out of the handling of any claim under the policy.
Id. art. VII(R); see also 42 U.S.C. § 4072 ; 44 C.F.R. § 62.22.
In short, National Flood Insurance Policies, claims under those Policies, and disputes relating to the handling of claims under those Policies are highly regulated and subject exclusively to federal law.
Gary and Rebecca Woodson purchased their National Flood Insurance Policy through Allstate, a write-your-own insurance company, to insure their waterfront home in Jarvisburg. As mandated by statute, the Policy provided the Woodsons with $250,000 in coverage for their house and $12,200 for personal property, and included a $1,000 deductible.
Shortly after Hurricane Irene struck the Woodsons' house on August 27, 2011, the Woodsons called Allstate, which promptly inspected their property. Following the initial visit, Allstate retained the engineering firm of Rimkus Consulting Group, Inc., to inspect the Woodsons' property and give Allstate a report as to the extent and cause of the damage. The Rimkus report concluded that, other than a substantial loss of soil washed away from around the supporting portions of the house, there was "no damage or permanent movement of the structure." The report recommended reimbursement for the replacement of the washed out soil at a cost under $1,200.
The Woodsons retained their own engineering firm, House Engineering, P.C., which submitted a report describing substantial damage caused by the hurricane, including movement of the house's pilings that caused the house no longer to be level. The Woodsons sent the report to Allstate in support of their proof of loss, claiming $228,822.08 in damages. Based on a subsequent report by House Engineering, the Woodsons increased that claim to $272,473, which included $33,075 for bulkhead repairs, an item concededly not covered by the National Flood Insurance Policy.
After evaluating the House Engineering report, Allstate sent the Woodsons a letter dated February 28, 2012, denying their claim for foundation damage. Allstate attached to its denial letter a revised version of the Rimkus report, which addressed the conclusions reached in the House Engineering report and disagreed with them. In its letter, Allstate advised the Woodsons that they could appeal the denial of coverage to FEMA.
The Woodsons did in fact appeal the denial of coverage to FEMA, and after review, FEMA advised the Woodsons that there was "no reason" to "overturn Allstate's denial of your claim of foundation damages." In particular, FEMA found that the findings of the Rimkus report were more compelling than those of the House Engineering report.
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