Diamond v. Federal Emergency Management Agency

• Decision Date: 27 June 1988
• Docket Number: No. 86 CV 2989.,86 CV 2989.
• Citation: 689 F. Supp. 163
• Parties: Stuart DIAMOND as Assignee of Milton Lomask and/or Martha Lomask, Plaintiff, v. FEDERAL EMERGENCY MANAGEMENT AGENCY, General Accident Insurance Company of America and New York Property Insurance Underwriting Association, Defendants.
• Court: U.S. District Court — Eastern District of New York

689 F. Supp. 163

Stuart DIAMOND as Assignee of Milton Lomask and/or Martha Lomask, Plaintiff, v. FEDERAL EMERGENCY MANAGEMENT AGENCY, General Accident Insurance Company of America and New York Property Insurance Underwriting Association, Defendants.

No. 86 CV 2989.

United States District Court, E.D. New York.

June 27, 1988.

Weg and Meyers, P.C., New York City, for plaintiff; Dennis D'Antonio, of counsel.

Andrew J. Maloney, U.S. Atty., E.D. N.Y., Brooklyn, N.Y., for defendant FEMA; Joseph McCann, Asst. U.S. Atty., of counsel.

BARTELS, District Judge.

Hurricane Gloria struck the eastern seaboard of the United States on September 27, 1985, causing extensive wind and flood damage to property on Long Island and Fire Island. Among the houses affected by the storm was one located at Lot 795 on Champlain Street in Ocean Bay Park, Fire Island that was owned by Milton and Martha Lomask. At the time of the Hurricane, the Lomask property was insured against flood damage under a policy issued by the National Flood Insurance Program ("NFIP") ¹. The form of the policy, which appears at 44 C.F.R. Pt. 61, App. A(1), required the insured, in order to recover damages due to flood loss, to file a sworn proof of loss ² with the insurer within 60 days of the loss, unless that period was extended, in writing, by the NFIP.

The plaintiff in this action, Stuart Diamond, first rented a part of the Lomask home during the summer of 1984. Later, during the summer of 1985, Diamond rented the entire house and, on or about September 21, 1985, tentatively agreed to purchase it for $170,000 during a phone conversation with the Lomasks at their principal residence in London, U.K. One or two days after Hurricane Gloria, Diamond again called the Lomasks in London to inform them of the storm damage to their property. During that long distance conversation, it was agreed that the sale of the home would go forward at the pre-hurricane price, predicated upon Diamond ultimately receiving the funds necessary for repair from NFIP's anticipated payment on the Lomasks' flood claim ³. To effectuate this procedure, Lomask orally assigned his flood insurance policy (and the proceeds therefrom) to Diamond at that time, contingent upon Diamond's actual purchase of the house. However, no evidence was adduced suggesting that the assignment was attested to, acknowledged before a government official, certified, or otherwise conducted in accordance with 31 U.S.C. § 3727.

Several days later, Diamond reported the loss to Terry & Gibson, the Lomasks' insurance agent, and also contacted the public adjusting firm of Sapperstein, Hochberg & Haberman ("the Sapperstein firm") to represent him in the casualty loss. NFIP, on the other hand, contracted with Daynard & Van Thunen, an independent insurance adjusting firm, to investigate plaintiff's claim on November 9, 1985. Daynard and Van Thunen, in turn, assigned that task to their employee, Scott Williams.

These actions precipitated a series of events that are not considered in their chronological order. Daynard & Van Thunen wrote NFIP seeking an extension of the 60 day proof of loss filing deadline, which was subsequently de facto extended by NFIP until the end of December. Meanwhile, the Sapperstein firm, on behalf of plaintiff, arranged for loss evaluations of the home's contents and structure, while Williams inspected the premises, pursuant to the request of a private insurance company in connection with an assessment of wind damage. At the same time, Williams also determined the extent of flood damage at the Lomask home. Thereafter, Sapperstein spoke to Williams, who discussed the "ins and outs of the claim" but did not specifically instruct Sapperstein to do anything with respect to the required proof of loss filing. Meanwhile, Martha Lomask authorized Diamond to act as her agent to pursue the flood claim, by a letter dated November 15, 1985. Six weeks later, on December 30, 1985, the contract of sale for the home was signed, and that same day, Lomask's prior oral assignment of the NFIP policy to Diamond was finalized in writing, to induce the latter to buy the home at the pre-hurricane, contract price.

In particular, the written assignment encompassed "any and all proceeds which may be due us from the blank insurance company or any other insurance company which insured the aforementioned premises by reason of any loss sustained due to the recent damage caused by Hurricane Gloria. ..."

Two other relevant events occurred on December 30th: 1) Hochberg, an attorney and member of the Sapperstein firm, requested that the 60 day proof of loss filing period be extended yet another two weeks, by a letter addressed directly to the NFIP; and 2) Diamond signed a proof of loss directly below the phrase "Milton Lomask, by Stuart Diamond as representative per letter," in which he attributed approximately $36,000 in flood damage to the hurricane.

Significantly, Hochberg's stated justification for the filing extension request was that since the Lomasks were out of the country, "we have had much difficulty in getting the proof of loss to you as of this date." Defendant's Exhibit L. Hochberg's letter therefore indicates that plaintiff, through his representative, at least suspected that absent Milton Lomask's signature, any proof of loss filed would be ineffective under the policy. It should also be noted that Sapperstein then had in his possession a copy of the Lomask policy, which had previously been sent by Lomask to Diamond.

The next day, December 31st, a member of the Sapperstein firm physically delivered the aforementioned proof of loss signed by Diamond to the office of Daynard & Van Thunen, where it was eventually seen by Williams who, however, did not forward it to NFIP. Instead, Williams informed Sapperstein by phone that the proof of loss was signed by a "tenant" and was therefore "not valid." After that phone conversation, Williams, aware of the Hochberg extension request noted above, assumed that Sapperstein was going to file another, properly signed proof of loss.

The NFIP granted Hochberg's request for an extension on January 16, 1986, pursuant to which the 60 day period was extended to February 3, 1986. Nevertheless, for some unknown reason Diamond did not file a proof of loss with NFIP during the extension period or at any time thereafter, and Williams never forwarded the December 31st proof of loss signed by Diamond to NFIP.

On April 7, 1986 Diamond closed on the Lomask home. Approximately two months later, on June 2nd, the NFIP claims examiner assigned to the case, Liz Gilbert, asked Williams to forward his final report and submit a proof of loss for signature. Williams later did draw up a proof of loss for approximately $6,000 in flood damage sometime in early July, which Diamond refused to sign, whereupon the unsigned proof of loss, together with Williams' final report, and various other background documents were forwarded to NFIP.

The NFIP officially denied Diamond's damage claim by letter dated September 11, 1986, which explicitly delineated his failure to file a timely proof of loss as one reason therefor. As a result, plaintiff commenced this suit against defendant FEMA as assignee of the Lomasks, seeking recovery under their policy for flood loss. During the resulting 7 day bench trial, numerous witnesses were heard and exhibits entered into evidence.

Discussion

At trial, defendant sought to establish, among other points, two legal and complete defenses to the complaint: 1) that plaintiff lacks standing to prosecute his claim due to an invalid assignment; and 2) that plaintiff, in pursuing the Lomasks' flood damage claim, failed to comply with the policy's 60 day proof of loss filing requirement, which is a condition precedent to suit under the insurance contract.

Assignment

With respect to the assignment's validity defendant argues that the sequence of events necessary to its proper execution either did not occur or were in violation of the Federal Assignment of Claims Act ("the Act").⁴ The legal principles applicable to the Act are fairly straightforward. Designed, in part, to alleviate the government from the burden of determining with whom it must deal, the statute applies to all voluntary transfers or assignments of claims against the United States with two exceptions: transfers by will and general assignments for the benefit of creditors. See U.S. v. Shannon, 342 U.S. 288, 72 S.Ct. 281, 96 L.Ed. 321 (1952); U.S. v. Aetna Surety Co., 338 U.S. 366, 70 S.Ct. 207, 94 L.Ed. 171 (1949); Naartex Consulting Corp. v. Watt, 722 F.2d 779 (D.C.Cir.1983). By contrast, involuntary transfers, such as subrogations effected as a matter of law, do not fall within the purview of the Act. Aetna Surety Co., supra. Where the Act applies, noncompliance with its terms will defeat the assignment. Shannon, supra.

In this case, it is undisputed that neither party to the Lomask assignment complied with the Act's terms. Rather, plaintiff contests the applicability of the Act to this case, and argues, in the alternative, that the doctrines of waiver and estoppel should preclude its assertion by defendant.

No case has come to our attention in which § 3727 has been applied to an insurance policy issued by FEMA or one of its subdivisions. Nevertheless, the Act has been applied to claims arising in contexts analogous to the instant one. See, e.g., Bernert Towboat Co. v. USS Chandler, 666 F.Supp. 1454 (D.Or.1987) (Act applies to bar assignment of claim to cargo bailee by bailor regarding goods damaged by U.S. Navy ship, who then sued government for damages); Farm Bureau Mut. Ins. Co. v. U.S., 5 Cl.Ct. 142 (1984) (government employee's assignment to insurance company of any and all rights arising out of assignor's automobile accident while acting within the scope of his employment void for noncompliance with the Act). In view of the broad construction that § 3727 has been given by other courts, and the facial...