Dwyer v. Fidelity Nat. Property and Cas. Ins. Co.

• Decision Date: 09 April 2009
• Docket Number: No. 07-30831.,07-30831.
• Citation: 565 F.3d 284
• Parties: William DWYER, Jr.; Cynthia Dwyer, Plaintiffs-Appellees, v. FIDELITY NATIONAL PROPERTY AND CASUALTY INSURANCE COMPANY, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

565 F.3d 284

William DWYER, Jr.; Cynthia Dwyer, Plaintiffs-Appellees, v. FIDELITY NATIONAL PROPERTY AND CASUALTY INSURANCE COMPANY, Defendant-Appellant.

No. 07-30831.

United States Court of Appeals, Fifth Circuit.

April 9, 2009.

Soren E. Gisleson (argued), Herman, Herman, Katz & Cotlar, New Orleans, LA, for Plaintiffs-Appellees.

Gerald Joseph Nielsen (argued), William Truman Treas, Nielsen Law Firm, Metairie, LA, for Defendant-Appellant.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before JONES, Chief Judge, JOLLY, Circuit Judge, and CARDONE,^* District Judge.

EDITH H. JONES, Chief Judge:

William and Cynthia Dwyer ("Dwyers") sued Fidelity National Property and Casualty Insurance Company ("Fidelity") for insurance payments on their home damaged by Hurricane Katrina. Shortly before trial, Fidelity sought to compel non-binding appraisal of the damages, pursuant to the contract. The district court denied this request as untimely and, following a bench trial, awarded the Dwyers $56,963.19 in damages and $22,927.88 in attorneys' fees under the Equal Access to Justice Act. Because the district erred in denying Fidelity's motion to compel appraisal and in awarding attorneys' fees, we vacate the judgment and remand for appraisal as required by regulations of the National Flood Insurance Program.

I. BACKGROUND

Congress created the National Flood Insurance Program ("NFIP") to offer flood insurance at rates that were uneconomical for private companies. Gowland v. Aetna, 143 F.3d 951, 953 (5th Cir.1998). The Federal Emergency Management Agency ("FEMA") administers the program and has established, by regulation, the Standard Flood Insurance Policy ("SFIP"), 44 C.F.R. § 61.13. SFIPs may be purchased either directly from FEMA or through private insurers. Marseilles Homeowners Condo. Ass'n, Inc. v. Fidelity Nat'l Ins. Co., 542 F.3d 1053, 1054 (5th Cir.2008) (per curiam). Private insurers offering these policies are called "Write Your Own" ("WYO") companies and act as fiscal agents of the United States. Any payment on the policy ultimately comes from the United States treasury. 42 U.S.C. § 4082; Gallup v. Omaha Prop. & Cas. Ins. Co., 434 F.3d 341, 342 (5th Cir.2005). WYO insurance carriers may not alter, vary, or waive the terms of the SFIP contract. 44 C.F.R. § 61.13(d).

The Dwyers purchased an SFIP from Fidelity to protect their home in Slidell, Louisiana, obtaining $250,000 coverage for the building and $100,000 for its contents. Hurricane Katrina's wind and flood buffeted the home in August 2005. Following inspection by an independent adjuster, Fidelity paid the policy limit for contents and $86,629¹ for flooding-related building damages. After the first set of checks did not arrive, Fidelity mailed a second set, which the Dwyers received in December.

On February 21, 2006, Dwyer sent a certified letter to both Fidelity and Traveler's Insurance Company ("Traveler's"), whose homeowner's insurance policy on the Dwyer dwelling covers wind damage. The letter stated that a contractor's estimate to repair the house was roughly $100,000 more than the combined amounts paid by Fidelity and Traveler's. Dwyer wrote that neither he nor the contractor could accurately distinguish between wind and flood damage, so Dwyer recommended each company pay the additional expenses in proportion to the amount it had already paid. Based on this calculation, he requested an additional $85,471.89 from Fidelity.

Fidelity instructed the Dwyers to contact the adjuster and faxed a copy of the letter to him. Apparently no further action occurred, and the Dwyers sued Fidelity on August 25, 2006, seeking additional money under the policy and damages under federal common law for bad faith claim adjustment. The complaint does not limit its allegations to undervaluation of the Dwyers' loss nor does it disavow a claim to increase Fidelity's share of the wind/water allocation, and it includes claims such as "failing to properly train its adjusters and agents," which could be related to valuation, coverage, or both.

In its answer, Fidelity denied liability and stated:

If these Plaintiffs' SFIP claims dispute reaches a point where it is established that there is (1) full and complete compliance with all conditions precedent to the making of a claim, and (2) resolution and agreement upon all issues of both coverage and the scope of the loss, then in that event (but not until that event) Defendant affirmatively asserts and invokes the appraisal clause of the SFIP. 44 C.F.R. Pt. 61, App. A(1), Art. VII(P).

The appraisal clause allows either party to demand non-binding appraisal of the amount of loss, but FEMA regulations permit a claimant dissatisfied with the appraisal amount to sue. See 44 C.F.R. § 62.22(a) ("[U]pon the refusal of the claimant to accept the amount allowed upon any claim after appraisal pursuant to policy provisions, the claimant ... may ... institute an action on such claim against the insurer ....").

The case proceeded until January 5, 2007, when, as part of their expert witness disclosure, the Dwyers provided Fidelity with a detailed repair estimate from Louis Velez, a certified contractor. The Velez estimate duplicates the adjuster's earlier estimate but states higher prices for the work. This document convinced Fidelity that the scope of coverage was undisputed, and the dispute was limited to costs. The insurer demanded, as stated in its answer, that the claim undergo appraisal. When the Dwyers refused, Fidelity filed a motion to compel appraisal on February 13.

Because the trial date was close at hand, the district court denied the motion as untimely. After a four-day bench trial, the court awarded the Dwyers the difference between Velez's estimate and the money already paid by Fidelity. In addition, the court awarded the Dwyers their attorneys' fees, finding that Fidelity qualified as a "federal agency" under the Equal Access to Justice Act. Fidelity appeals both rulings.

II. APPRAISAL

The relevant portion of the appraisal clause in the SFIP contract states:² "If you and we fail to agree on the actual cash value or, if applicable, replacement cost of your damaged property to settle upon the amount of loss, then either may demand an appraisal of the loss." 44 C.F.R. Pt. 61, App. A(1), Art. VII(P). This appraisal is not an arbitration and is not governed by the Federal Arbitration Act (FAA). See Hartford Lloyd's Ins. Co. v. Teachworth, 898 F.2d 1058 (5th Cir.1990) (distinguishing between insurance appraisals and arbitrations). We thus construe the SFIP according to federal common law, 44 C.F.R. Pt. 61, App. A(1), Art. IX, and do not apply the FAA's presumption in favor of arbitration. See Moses H. Cone Memorial Hosp. v. Mercury Const. Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983).

The district court did not state why it denied Fidelity's motion to compel other than to say "it comes too late on the eve of trial," suggesting that Fidelity waived the appraisal provision.³ Like any other contract term, the appraisal provision may be waived by conduct inconsistent with invocation of the provision. Burton-Dixie Corp. v. Timothy McCarthy Const. Co., 436 F.2d 405, 407-08 (5th Cir.1971). The Fifth Circuit treats waiver as a question of law, which we review de novo, although we review the factual conclusions underlying that finding for clear error. Price v. Drexel Burnham Lambert, Inc., 791 F.2d 1156, 1159 (5th Cir.1986).

Fidelity contends that under the terms of the SFIP, it cannot waive this provision. 44 C.F.R. § 61.13(d). Analogizing to the requirement that SFIP claimants submit a formal proof of loss statement, Fidelity asserts that the appraisal clause cannot be waived without the express written consent of the Federal Insurance Administrator. Gowland v. Aetna, 143 F.3d 951, 954-55 (5th Cir.1998) ("When federal funds are involved, the judiciary is powerless to uphold a claim of estoppel because such a holding would encroach upon the appropriation power granted exclusively to Congress by the Constitution."). The analogy is unpersuasive. The "Requirements in Case of Loss" portion of the SFIP states: "In case of a flood loss to insured property, you must: [w]ithin 60 days after the loss, send us a proof of loss ...." 44 C.F.R. Pt. 61, App. A(1), Art. VII(J)(4) (emphasis added). A proof of loss is mandated as a requirement for disbursing funds from the public treasury. Gowland, 143 F.3d at 955. In contrast, the appraisal clause provides an option for dispute resolution that either party may invoke. 44 C.F.R. Pt. 61, App. A(1), Art. VII(P). The regulations authorize Fidelity to satisfy a flood insurance claim without appraisal if Fidelity never requests one. It stands to reason that Fidelity could also acquiesce in payment by judgment following trial rather than opt for appraisal. Moreover, Fidelity could acquiesce in the litigation process even after becoming aware that a claim was limited to a dispute covered by the appraisal clause. In the last circumstance, waiver of the appraisal option does not contravene the regulations' intent but fosters efficiency in claim resolution.

The Dwyers, in contrast, argue that appraisal cannot be requested after suit has been filed. They offer no authority⁴ to support their position. Nothing in the clause or the contract as a whole establishes a time limit for invoking the appraisal clause. Contractual clauses cannot be evaded by racing to the courthouse, and appraisal and arbitration clauses are routinely invoked during litigation. E.g., Hill v. G E Power Sys., Inc., 282 F.3d 343 (5th Cir.2002) (arbitration); Terra Indus., Inc. v. Commonwealth Ins. Co., 981 F.Supp. 581, 600 (N.D.Iowa 1997) (appraisal). Consequently, the appraisal clause may be invoked after suit, provided that the failure to do so has not amounted to waiver.

With these principles in mind, we turn to the facts. The district court incorrectly homed in on the interval...