Bell v. O'LEARY, 81-1422 C (D)

• Decision Date: 27 December 1983
• Docket Number: 81-1597 C (D).,No. 81-1422 C (D),81-1422 C (D)
• Citation: 577 F. Supp. 1361
• Parties: Robert G. BELL and Gevodia Bell, Plaintiffs, v. James O'LEARY, Shelter Mutual Insurance Company and Federal Emergency Management Agency, Defendants. Edward L. BONI and Patricia A. Boni, Plaintiffs, v. James O'LEARY, Shelter Mutual Insurance Company and Federal Emergency Management Agency, Defendants.
• Court: U.S. District Court — Eastern District of Missouri

577 F. Supp. 1361

Robert G. BELL and Gevodia Bell, Plaintiffs, v. James O'LEARY, Shelter Mutual Insurance Company and Federal Emergency Management Agency, Defendants.

Edward L. BONI and Patricia A. Boni, Plaintiffs, v. James O'LEARY, Shelter Mutual Insurance Company and Federal Emergency Management Agency, Defendants.

Nos. 81-1422 C (D), 81-1597 C (D).

United States District Court, E.D. Missouri.

December 27, 1983.

Anzalone & Geissal, Richard L. Geissal, Jr., Clayton, Mo., for plaintiffs.

Bruce D. White, Asst. U.S. Atty., St. Louis, Mo., for Federal Emergency Management Agency.

William B. England, St. Louis, Mo., for James O'Leary.

Godfrey, Vandover & Burns, James E. Godfrey, St. Louis, Mo., for Shelter Mut. Ins. Co.

MEMORANDUM

WANGELIN, District Judge.

This matter is before the Court for a decision upon the merits. The parties in each case, having engaged in discovery and established their respective legal positions, have entered into a Stipulation of Fact and submitted each case to the Court for a final decision. Both cases were filed in the state court and removed to this Court pursuant to 28 U.S.C. § 1446(e), and subsequently consolidated by Order of this Court dated July 8, 1982.

Plaintiffs herein seek recovery on flood insurance policies issued under authority of federal statute. After the policies were issued and the premiums paid, each plaintiff sustained a loss and filed a claim, only to discover that the residences purportedly insured were in fact not eligible for the coverage because they were located outside an incorporated area of Lincoln County, Missouri.

After consideration of the Stipulation of Fact,¹ the exhibits attached thereto, the briefs of the parties and the applicable law, the Court hereby makes and enters the following findings of fact and conclusions of law. Any finding of fact or conclusion of law which is applicable as a conclusion of law or finding of fact, respectively, is hereby adopted as such.

Findings of Fact

A. Bell, et al. v. O'Leary, et al.

1. Between December 29, 1976 and January 14, 1977 plaintiffs requested that defendant O'Leary procure flood insurance on behalf of plaintiffs, and defendant O'Leary wrote an application for flood insurance for plaintiffs' residence, a mobile home located at Lot 22, Melloway Manor in Winfield, Missouri.

2. Defendant O'Leary submitted this application to M.F.A. Insurance Company, now known as Shelter Mutual Insurance Company (hereinafter Shelter). Between 1968 and 1978, the National Flood Insurance Program (hereinafter N.F.I.P.) was administered by the National Flood Insurers Association (hereinafter N.F.I.A.), a voluntary unincorporated group of insurance companies, pursuant to an agreement with the Department of Housing and Urban Development (hereinafter H.U.D.). Under this contract, N.F.I.A. issued and serviced individual policies of flood insurance and processed claims for losses. H.U.D. was the underwriter for the program and determined both the risks to be written and the premiums to be paid for those risks.

The agreement executed with N.F.I.A. terminated on December 31, 1977, and effective January 1, 1978, H.U.D. assumed the complete administration of the N.F.I.P. and became the sole insurer of all outstanding Standard Flood Insurance Policies. Additionally, H.U.D. assumed all servicing operations previously performed by N.F.I.A. and its servicing companies such as Shelter. On April 1, 1979, Executive Order 12127, 44 Fed.Reg. 19367, transferred to the Federal Emergency Management Agency (hereinafter F.E.M.A.) the operation of a National Flood Insurance Program.

3. On plaintiffs' application for flood insurance, defendant O'Leary identified the plaintiffs' property as located in Winfield, Missouri (which is a participating community). The subject property is located in an unincorporated area of Lincoln County which had not been approved for coverage by N.F.I.P. O'Leary also marked an "x" in a box on the application, indicating that the property was located in an unincorporated area of the County.

4. Defendant O'Leary submitted the application to defendant Shelter (at that time M.F.A.), which processed it based upon a property location of Winfield, and issued Policy No. FL 773 574 32 to plaintiffs, effective January 14, 1977.

5. After the issuance of said flood insurance policy, Shelter forwarded a copy of said application to N.F.I.P., which did not reject said application at that time.

6. On January 1, 1978, Shelter was terminated as a servicing agency.

7. Plaintiffs renewed this policy in 1978, 1979 and 1980.

8. After the issuance of said policy, plaintiffs bought and procured a newer and more valuable mobile home than had been on the premises previously, and plaintiffs bought and procured newer and more expensive furniture, furnishings, and appliances than had been on said premises previously, which was reported to O'Leary.

9. On April 11, 1979, plaintiffs' property was flooded.

10. Defendant F.E.M.A. hired an adjuster to evaluate plaintiffs' claim for damages and assess the extent of the damage. Although plaintiffs allege damage in the amount of Eleven Thousand Nine Hundred Eighteen Dollars ($11,918), the adjuster determined that the property sustained damage in the amount of Five Thousand Six Hundred Dollars ($5,600), and the policy itself limited liability to Five Thousand Six Hundred Dollars ($5,600).

11. After the flood, when plaintiffs presented notice of their claim for damages, N.F.I.P. denied plaintiffs' claim and refunded their premium payments.

12. On November 9, 1981, the United States filed a petition for removal, thereby removing this matter from the Circuit Court of St. Louis County to the United States District Court for the Eastern District of Missouri. On the same day, the United States filed a motion for substitution of party defendant and a memorandum in support thereof.

B. Boni, et al. v. O'Leary, et al.

13. In March, 1978, defendant O'Leary wrote an application for flood insurance on the residence of plaintiffs Edward L. Boni and Patricia A. Boni (hereinafter referred to collectively as Boni), a mobile home located at Lot 9, McDonald Subdivision, Lincoln County, Missouri. At that time, defendant O'Leary advised Boni that "we can write flood insurance in Lincoln County."

14. O'Leary submitted this application to the N.F.I.P. servicing company, Electronic Data Systems, Inc. (hereinafter E.D. S.). As of January 1, 1978, H.U.D. administered the N.F.I.P., contracting with E.D.S. to perform its servicing operations, such as receiving applications and premiums payments, issuing policies and processing claims for losses. On April 1, 1979, Executive Order 12127, 44 Fed.Reg. 19367, transferred to the F.E.M.A. the operation of the National Flood Insurance Program.

15. On plaintiffs' application for flood insurance, defendant O'Leary identified the property to be insured as located in Lincoln County, Missouri, and indicated that the plaintiffs live in Florissant, Missouri. He also indicated that the property was located in an unincorporated area of the county and left blank the space provided for the community number.

16. Defendant O'Leary submitted the application to E.D.S. (servicing agent for the N.F.I.P.), which processed it based upon a mistake by E.D.S. that the property was located in Florissant, Missouri, and issued Policy No. FL 909114 39 to plaintiffs, effective March 26, 1978. The subject property was located in an unincorporated area of Lincoln County which had not been approved for coverage by N.F.I.P.

17. After defendant O'Leary sold Boni the insurance, no further effort was made by O'Leary to verify the validity of the policy.

18. On April 11, 1979, plaintiffs' property was flooded.

19. Defendant F.E.M.A. hired an adjuster to evaluate the plaintiffs' claim for damages and assess the extent of the damage. Although plaintiffs allege damage in the amount of Thirty Five Thousand Dollars ($35,000), the policy at issue limits liability to Sixteen Thousand Dollars ($16,000).

20. After the April 11, 1979 flood, plaintiffs filed a Notice of Loss. No proof of loss forms were furnished to Boni, nor did Boni file one with N.F.I.P.

21. On December 16, 1981, the United States filed a petition for removal, removing this matter from the Circuit Court of St. Louis County to the United States District Court for the Eastern District of Missouri. On April 8, 1982, the United States filed a motion for substitution of party defendant, along with a memorandum in support thereof.

Conclusions of Law

The Court's conclusions of law are necessarily more limited than what is sought by the parties. Although considerable effort has been devoted to briefing issues of relative liabilities of the various co-defendants, those questions are not before the Court. No cross-claims or third party actions for indemnity or contribution were ever filed in either matter to put such questions at issue. Hence, this Opinion addresses only the liabilities between the plaintiffs and each separate defendant. Co-defendant liability is left for litigation at a later date if those parties so desire.

A. Defendant Federal Emergency Management Agency.

The Court begins with the fundamental principle that where Congress authorizes the issuance by an agency of the government of a specific type of insurance under specific conditions, and where a policy is thereafter issued which does not meet those conditions, that policy is void and of no legal effect. Federal Crop Insurance Corp. v. Merrill, 332 U.S. 380, 68 S.Ct. 1, 92 L.Ed. 10 (1947). Plaintiffs herein, however, assert the argument that in a situation where a government agency has issued an invalid policy and the insured has relied to his detriment on that policy, the government should be estopped from disclaiming coverage. Such a theory has been much litigated since the Merrill decision was handed down, in an effort to avoid its harsh consequences. See generally, Ann...