Bruinsma v. State Farm Fire and Cas. Co.

• Decision Date: 23 January 2006
• Docket Number: No. 5:05 CV 81.,5:05 CV 81.
• Citation: 410 F.Supp.2d 628
• Parties: Arnold and Cynthia BRUINSMA, Plaintiffs, v. STATE FARM FIRE AND CASUALTY COMPANY, Defendant.
• Court: U.S. District Court — Western District of Michigan

410 F.Supp.2d 628

Arnold and Cynthia BRUINSMA, Plaintiffs, v. STATE FARM FIRE AND CASUALTY COMPANY, Defendant.

No. 5:05 CV 81.

United States District Court, W.D. Michigan, Southern Division.

January 23, 2006.

Thomas R. Behm, Gruel Mills Nims & Pylman LLP, Grand Rapids, MI, for Plaintiffs.

Stacey L. Heinonen, Patrick Johnson & Mott PC, Southfield, MI, for Defendant.

OPINION

SCOVILLE, United States Magistrate Judge.

This is an action for breach of contract under a standard flood insurance policy (SFIP) issued by defendant State Farm Fire and Casualty Company to plaintiffs, Arnold and Cynthia Bruinsma. State Farm issued the policy under the authority of the National Flood Insurance Act (NFIA), 42 U.S.C. § 4001. Plaintiffs' claim arises from damage to their home caused by a flood on May 23, 2004. They brought suit in the Kent County Circuit Court by filing a one-count complaint for breach of contract. Defendant thereafter removed the action to this court.

Presently pending before the court are defendant's motion for judgment on the pleadings and its separate motion for summary judgment. The motion for judgment on the pleadings seeks to dismiss all statelaw claims on the theory that the NFIA preempts all state causes of action based on the handling or disposition of claims under the SFIP. The motion for summary judgment asserts that plaintiffs' federal claims under the SFIP are barred by their failure to file a timely proof of claim and, alternatively are precluded by substantive provisions of the policy. The parties have consented to the dispositive jurisdiction of a magistrate judge pursuant to 28 U.S.C. § 636(c). (See Consent and Order of Reference, docket # 12). The court conducted oral argument on the motions on January 13, 2006. For the reasons set forth below, the court concludes that plaintiffs' only claim is for breach of contract under federal law and that this claim is barred by plaintiffs' failure to file a timely proof of loss as required by Article VII(J)(4) of the SFIP.

Findings of Undisputed Facts

The facts established by the evidence of record, viewed in a light most favorable to plaintiffs, are as follows:

Plaintiffs, Arnold and Cynthia Bruinsma, own a home located on Riverbank Ave., N.E., in Grand Rapids, Michigan, near the Grand River. On May 23, 2004, flood water from the Grand River entered the foundation and crawlspace of the house, coming within an inch of the subfloor. As a result of the flood, the wood floors and carpeting of the house were soaked, and the Bruinsmas claimed the occurrence of significant structural damage as well.

At the time of the flood, the property was covered by a standard flood insurance policy (dwelling form) issued by defendant State Farm Fire and Casualty Company (Plf. Ex. 2, docket # 23). Plaintiffs promptly notified State Farm of the fact of flood damage. Plaintiffs contacted a contractor, Jarvis Construction, to help dry out the house and to make necessary temporary repairs. In addition, Jarvis estimated the cost of further repair work. Jarvis Construction faxed its estimates directly to State Farm on June 8, June 17, and June 21, 2004. Shortly thereafter, State Farm's adjuster inspected the premises and orally informed plaintiffs that State Farm would not cover structural damage to the home. By letter dated June 30, 2004, the adjuster confirmed plaintiffs' concerns about the structural damage to the building and informed them that the insurance company would hire a local structural engineer to inspect the home to determine the cause of the structural damage. (Plf.Ex. 7). In the same letter, he agreed that State Farm would cover other items of loss, including replacement of the carpet pad, cleaning of the carpet, and drying out and repairing insulation in the crawlspace. (Id.).

State Farm engaged John Krause, P.E., who inspected the premises on July 2, 12, and 16, 2004. On July 21, 2004, Mr. Krause provided a lengthy written report to the insurance company. (Plf.Ex. 8). The report concluded that the sagging of the living room floor and other parts of the house was a result of the settlement of the foundation, a process that Mr. Krause believed had been underway for at least fourteen years. The report made certain recommendations concerning modifications necessary to prevent further damage to the structure.

Plaintiff Arnold Bruinsma submitted an undated proof of loss to State Farm. (Plf.Ex.9). Plaintiffs have presented no evidence to establish the date upon which the proof of loss was submitted. On September 3, 2004, a claims representative of State Farm acknowledged receipt of the proof of loss. (Letter, Plf.Ex. 10). The letter recognized that the $40,000.00 figure set forth in the proof of loss was a rough estimate and indicated that once foundation estimates were received, State Farm might ask plaintiffs to submit an amended proof of loss. The same letter transmitted a draft in the amount of $4,373.83 and indicated that once further estimates are received, "further payments will be made on the file." (Id.).

On January 14, 2005, plaintiffs received a letter from State Farm rejecting the proof of loss "because we do not agree with the amounts claimed for building damages." (Plf.Ex. 11). The letter indicated that the estimate submitted by Jarvis Construction was inconsistent with the scope of coverage under the policy. The letter went on to indicate that upon receipt of a valid proof of loss, State Farm was prepared to make an additional cash value payment of $2,428.13 for the undisputed damage under the policy. The letter also said that the claim representative was extending for a period of sixty days the time allowed under the policy for submitting a proof of loss. Thereafter, however, the insurance company refused to cover structural loss, contending that it was not covered by the policy in the circumstances of this case.

Plaintiffs began this action by filing a one-count complaint in the Kent County Circuit Court on April 15, 2005. By notice of removal filed May 16, 2005, defendant removed the action to this court under 28 U.S.C. § 1441(a), alleging the existence of a federal question.

Discussion

I. The National Flood Insurance Program

Congress created the National Flood Insurance Program in the National Flood Insurance Act of 1968, 42 U.S.C. §§ 4001-4129. The NFIA was enacted to provide a unified national program to reduce and avoid losses caused by floods by making reasonably priced flood insurance available for residential and commercial properties. The Federal Emergency Management Administration (FEMA) administers the National Flood Insurance Program. 42 U.S.C. § 4081(a). Pursuant to statutory authorization, FEMA is empowered to promulgate regulations establishing the general method by which insurance claims for losses under a flood insurance policy may be adjusted and paid. 42 U.S.C. § 4019. FEMA has promulgated regulations setting forth the rights of insurance companies and their insureds under the National Flood Insurance Program. 44 C.F.R. Pts. 61-78. The regulations establish the "Write Your Own" (WYO) program, pursuant to which private insurance companies such as State Farm issue standard flood insurance policies, or SFIPs. 44 C.F.R. §§ 62.23-.24.

FEMA regulations dictate the precise content, word-for-word, of the SFIP. 44 C.F.R. Pt. 61, app. A(1) (2004 ed.). The regulations provide that the insurance company must use the standard form policy and that "no provision of the said documents shall be altered, varied, or waived other than by the express written consent of the Administrator through the issuance of an appropriate amendatory endorsement...." 44 C.F.R. § 61.13(d). The insured is informed of the this restriction in the text of the policy itself. (Plf.Ex. 2, art. VII(D)). The Supreme Court has long held that an insured under a federal insurance program is charged with constructive knowledge of all provisions of the policy and the governing regulations. See Federal Crop Ins. Corp. v. Merrill, 332 U.S. 380, 384, 68 S.Ct. 1, 92 L.Ed. 10 (1947).

The Federal Treasury underwrites all operations of the National Flood Insurance Program. This includes both payment of claims and the costs of adjustment. 42 U.S.C. § 4017(d)(1). Consequently, FEMA's arrangement with WYO carriers, such as State Farm, specifies that FEMA will pay all approved claims, with the carrier receiving a payment from FEMA of 3.3 percent of the amount paid to the insured. See 44 C.F.R. Pt. 62, App. A, art. III(C)(1). Furthermore, FEMA reimburses the carrier for its defense costs in the event of a dispute. 44 C.F.R. § 62.23(i)(6). Consequently, the WYO carrier is a "fiscal agent" of the United States. 42 U.S.C. § 4071(a)(1). These features of the National Flood Insurance Program remove all disincentive from the insurance company to deny meritorious claims. See Neill v. State Farm Fire & Cas. Co., 159 F.Supp.2d 770, 774 (E.D.Pa. 2000); 3608 Sounds Ave. Condo. Ass'n v. South Carolina Ins. Co., 58 F.Supp.2d 499, 502 (D.N.J.1999).

The policy language, as dictated by FEMA regulations, provides that the policy and all disputes arising from the handling of any claim thereunder are governed exclusively by the flood insurance regulations issued by FEMA, the National Flood Insurance Act of 1968, and federal common law. (Plf.Ex. 2, art. IX). Subject-matter jurisdiction in the federal courts to hear claims under the policy is created by 42 U.S.C. § 4072. The federal courts have uniformly held that federal law governs all aspects of such claims and that the federal courts have exclusive jurisdiction over suits under the NFIA. See Gallup v. Omaha Prop. & Cas. Ins. Co., 434 F.3d 341 (5th Cir.2005); Van Holt v. Liberty Mut. Fire Ins. Co., 163 F.3d 161, 166-67 (3d Cir.1998); State Bank of Coloma v. Nat'l Flood Ins. Program, 851 F.2d 817, 819 (6th Cir.1988).

II. Motion for Judgment on the Pleadings

Defendant has moved for a judgment on the pleadings, dismissing all claims...