Cole v. New Hampshire Ins.

• Decision Date: 09 January 2012
• Docket Number: CIVIL ACTION NO.: 1:10CV183-SA-DAS
• Parties: WALTER R. COLE, AND WIFE, DOROTHY COLE PLAINTIFFS v. NEW HAMPSHIRE INSURANCE DEFENDANT
• Court: U.S. Bankruptcy Court — Northern District of Mississippi

WALTER R. COLE, AND WIFE, DOROTHY COLE PLAINTIFFS

v.NEW HAMPSHIRE INSURANCE DEFENDANT

CIVIL ACTION NO.: 1:10CV183-SA-DAS

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF MISSISSIPPI EASTERN DIVISION

Dated: January 9, 2012

MEMORANDUM OPINION

Presently before the Court is a Motion for Summary Judgment [36] filed by Defendant New Hampshire Insurance Company. Also before the Court is a Motion to Continue [40] filed by Plaintiffs. After reviewing the motions, response, rules, and authorities, the Court finds that Defendant's motion should be granted and Plaintiffs' motion should be deemed moot.

LEGAL AND FACTUAL BACKGROUND

This dispute invokes issues under the National Flood Insurance Act, as the Defendant, New Hampshire Insurance Company, is a Write-Your-Own carrier participating in the United States Government's National Flood Insurance Program. Before discussing the facts relevant to this action, the Court first provides background information concerning the applicable law governing the National Flood Insurance Program.

The National Flood Insurance Program

Recognizing that private insurers were unlikely to provide adequate flood insurance without some federal subsidy, Congress in 1968 created the National Flood Insurance Act ("NFIA"), codified at 42 U.S.C. §§ 4001-4129, to provide subsidized flood insurance through private insurers. See 42 U.S.C. § 4001(b) ("[M]any factors have made it uneconomic for theprivate insurance industry alone to make flood insurance available to those in need of such protection on reasonable terms and conditions"). Under the Act, the federal government provides flood insurance subsidies and local officials are required to adopt and enforce various management measures. See id. §§ 4002(b)(3), 4012(c), 4022; 44 C.F.R. §§ 60.2-60.7. The National Flood Insurance Program ("NFIP"), created by the Act, is administered by the Federal Emergency Management Agency ("FEMA") and supported by the federal treasury, which pays for claims that exceed the revenues collected by private insurers from flood insurance premiums. See Van Holt v. Liberty Mut. Fire Ins. Co., 163 F.3d 161, 165 n.2 (3d Cir. 1998). Congress has authorized FEMA to "prescribe regulations establishing the general method or methods by which proved and approved claims for losses may be adjusted and paid for any damage to or loss of property which is covered by flood insurance." 42 U.S.C. § 4019. The resulting regulatory scheme is set out at 44 C.F.R. §§ 61.1-78.14.

Prior to the NFIA's enactment, "few insurance companies offered flood insurance because private insurers were unable to profitably underwrite flood insurance policies." C.E.R. 1988, Inc. v. Aetna Cas. & Sur. Co., 386 F.3d 263, 266 (3d Cir. 2004). In its "early years, the Program was administered under what is known as 'Part A' [or the 'Industry Program'] of the NFIA. A pool of private insurance companies issued policies and shared the underwriting risk, with financial assistance from the federal government." Id.; see also Downey v. State Farm Fire & Cas. Co., 266 F.3d 675, 678 (7th Cir. 2001) (citing 42 U.S.C. §§ 4051-4056). Under "Part B," known as the "Government Program," the government "run[s] the NFIP itself-offering federally underwritten policies-with the potential for administrative assistance from private insurers." Downey, 266 F.3d at 678 (citing 42 U.S.C.§§ 4071-4072). "In 1977, the Secretary of Housing and Urban Development, who ran the NFIP at the time . . ., decided that the Industry Program was unworkable and ended it. He then implemented the Government Program, which has continued to the present." Id. at 678-79.

Pursuant to 42 U.S.C. § 4081(a), FEMA created the Write-Your-Own Program ("WYOP"), which allows private insurers, sometimes called "WYO companies," to issue and administer flood-risk policies under the Government Program. Although FEMA may issue policies directly under the Government Program,

more than 90% are written by WYO companies. These private insurers may act as 'fiscal agents of the United States,' 42 U.S.C. § 4071(a)(1), but they are not general agents. Thus they must strictly enforce the provisions set out by FEMA and may vary the terms of a Policy only with the express written consent of the Federal Insurance Administrator. 44 C.F.R. § 61.4(b), 61.13(d) & (e), 62.23(c) & (d). In essence, the insurance companies serve as administrators for the federal program. It is the Government, not the companies, that pays the claims.

C.E.R. 1988, Inc., 386 F.3d at 267; see also Downey, 266 F.3d at 679 (noting that under the Government Program, "although private insurers issue the policies, FEMA underwrites the risk. The insurance companies handle administrative business for FEMA by selling policies and processing claims but do little else"). Suits against the FEMA Director upon the disallowance of a claim are authorized by 42 U.S.C. § 4072, and "[b]y regulation, the WYO company [may be] sued in place of the FEMA director." C.E.R. 1988, Inc., 386 F.3d at 267 n.4; see also Downey, 266 F.3d at 679 (citing 44 C.F.R § 62.23(d)).

Factual Background¹

Plaintiffs commenced this suit in the County Court of Lowndes County on June 9, 2010, which Defendant thereafter removed to this Court on July 23, 2010. Defendant is acting as, and is sued in its capacity as, a WYO company. Plaintiffs contend that Defendant allegedly failed to properly adjust and pay their flood insurance claim in full for damages stemming from a flood that occurred on January 7, 2009. Plaintiffs also appear to raise extra-contractual claims for damages resulting from Defendant's handling of their flood claim.

Plaintiffs had a Standard Flood Insurance Policy ("SFIP") issued by Defendant that was in effect at the time at the alleged flood event forming the basis of this action. The policy had building limits under Coverage A of $18,000, and contents limits under Coverage B of $9,600.00. The full text of Plaintiffs' SFIP can be found at 44 C.F.R. Pt. 61, App. A(1).

When Plaintiffs originally purchased the property at issue under this action in 1968, the insured structure was a ground level cabin built on a slab. In 1988, Plaintiffs tore down the building and built a new elevated structure, which became their permanent residence sometime in 1991. Apparently, Plaintiffs failed to file a new application for flood insurance in 1989 to reflect and cover the new elevated structure. According to Defendants, and wholly uncontested by Plaintiffs, the Plaintiffs' flood carrier was not notified that the insured cabin was replaced with a new and separate elevated house. Due to this, the rating and premium owed for Plaintiffs' flood coverage was never changed to reflect the new elevated structure.

Plaintiffs appear to have reported a claim to Defendant for damages to the property on or about January 7, 2009. Defendant assigned the claim to an independent adjuster to assist Plaintiffs with estimating the loss, in accordance with Article VII(J)(5), (7), and (8) of the SFIP. The independent adjuster determined that the property suffered some flood damage and also noted, apparently for the first time, that the insured property was actually an elevated structure. The adjuster then prepared a report and estimate, recommending payment of $15,107.81 under Coverage A for building and $1,011.38 under Coverage B for contends, for a total payment of $16,119.19.

On March 9, 2009, Plaintiffs signed a Proof of Loss form provided by the independent adjuster in the amount of $16,119.19. The independent adjuster's report and the signed proof of loss were then tendered to Defendant for verification of the claim pursuant to the regulations codified in 44 C.F.R. § 62.23(i)(2). During the administration of the flood claim, Defendant—again, apparently for the first time—learned that the Plaintiffs never informed them that they tore down the original insured structure in 1988 and built a new elevated structure in 1989. During this adjustment process, Defendant determined that Plaintiffs' SFIP had to be reformed. Defendant further determined that additional premiums were due for this reformed coverage, and that any claim for flood damage would be restricted pursuant to the policy provisions regarding property located below the lowest level of a post-FIRM² elevated structure as outlined in Article III(A)(8), (B)(3) of the SFIP. Defendant asserts that, pursuant to the rules and regulations governing the NFIP, the policy needed to be reformed to reflectthat the Plaintiffs' insured property was actually an elevated post-FIRM structure and not a ground level cabin built on a slab. Given this, Defendant concluded that the policy needed reformation, that an additional premium would be due from Plaintiffs in order to keep their existing amount of coverage, and that any claim for damages stemming from the January 7, 2009 flood would be restricted pursuant to Article III(A)(8), (B)(3) of the SFIP.

On May 7, 2009, Defendant notified Plaintiffs, in writing, that in order to keep their existing coverage limits in place, the policy would need to be reformed to reflect that the insured property was actually a post-FIRM elevated structure, and that an additional premium would be needed to cover the corrected rating of the policy. Defendant offered Plaintiffs the option to deduct the additional premium owed from any amount Defendant might owe them for the flood loss. The following day, on May 8, 2009, Plaintiffs signed the agreement to reform the policy and deduct the additional premium owed of $787.00 from any amount due to them on the claim. Defendant thus applied the applicable SFIP restrictions for recovery of benefits for property located below the lowest elevated level of a post-FIRM, elevated structure to Plaintiffs' flood claim, which reduced the amount of recoverable flood benefits under the reformed policy to $4,743.23 under Coverage A for the building, and $0 for the contents.

Subsequently, on May 14, 2009, Defendant denied all or part of Plai...