Harris v. Nationwide Mut. Fire Ins. Co.

Decision Date15 February 2019
Docket NumberCase No. 3:11-cv-00412
Citation367 F.Supp.3d 768
CourtU.S. District Court — Middle District of Tennessee
Parties Michael H. HARRIS and Beverly D. Harris, Plaintiffs, v. NATIONWIDE MUTUAL FIRE INS. CO., David W. Vandenbergh, First American Flood Data Services, First American Corporation, First American CoreLogic, Inc., Regions Bank, AmSouth Bank, N.A., George V. Logan and Dorothy A. Logan, Defendants.

David A. Binegar, Tiffany R. Christian, Binegar Christian, LLC, New Orleans, LA, Zachary T. Glaser, The Glaser Firm, Gallatin, TN, for Plaintiffs.

Gregory Bodin, Baker, Donelson, Bearman, Caldwelltz, PC, Baton Rouge, LA, Jamie Ballinger-Holden, Baker, Donelson, Bearman, Caldwell & Berkowitz, PC, Knoxville, TN, for Defendants.

MEMORANDUM

ALETA A. TRAUGER, United States District Judge

Pending before the court is a Motion to Dismiss Amended Complaint (Docket No. 195), filed by defendant Regions Financial Corporation and Regions Bank, as successor by merger to AmSouth Bank, N.A. (collectively "Regions"). The plaintiffs, Michael and Beverly Harris, have filed a Response in opposition (Docket No. 199), to which Regions has filed a Reply (Docket No. 200). For the reasons discussed herein, the motion will be granted and the plaintiffs' claims against Regions will be dismissed.

BACKGROUND & PROCEDURAL HISTORY

In 2006, Michael and Beverly Harris purchased a house on the Cumberland River. They obtained a mortgage through Regions. The deed of trust required the plaintiffs to keep the house insured against flood hazards. Prior to the August 21, 2006 closing date, Regions contracted with CoreLogic, a flood certification company, to provide a flood zone determination for the house. Buyers securing loans for houses in flood zones are required by lenders to purchase flood insurance pursuant to the National Flood Insurance Act of 1968, 42 U.S.C. 4001 et seq . ("NFIA"). Flood zones are determined by the Federal Emergency Management Agency ("FEMA") and demarcated on Flood Insurance Rate Maps ("FIRMs"). The FIRM in place at the time (the "1981 FIRM") showed that the house was in a flood zone, but CoreLogic incorrectly determined that the house was not in a flood zone and that flood insurance was thus not required. The plaintiffs did not purchase flood insurance.

On September 20, 2006, FEMA issued a revised FIRM (the "2006 FIRM"). In late September or early October, Regions informed the plaintiffs that their house was in a flood zone under the 2006 FIRM and that flood insurance was thus required. The plaintiffs hired an insurance agent named David Vandenbergh to obtain a policy, which he procured from Nationwide Mutual Fire Insurance Company ("Nationwide"). There are two types of policies relevant to this dispute: "pre-FIRM" policies, which cover houses built before implementation of the 1981 FIRM, and "post-FIRM" policies, which cover houses built after implementation of the 1981 FIRM. See 44 C.F.R. § 59.1 (defining "Existing construction" and "New construction"). As a precondition to purchasing insurance, buyers purchasing post-FIRM policies are required to obtain an elevation certificate showing that the house is sufficiently elevated above the base flood zone. If part of a post-FIRM house falls below the elevation line, that part of the house is uninsurable. Buyers purchasing pre-FIRM policies do not need an elevation certificate because pre-FIRM houses are fully insurable, regardless of elevation. See generally 44 C.F.R. § 60.3 (outlining elevation certificate requirements). The plaintiffs were told that their house was a pre-FIRM property built before the 1981 FIRM was implemented1 and that they were therefore not required to obtain an elevation certificate. However, this information was wrong. The plaintiffs' house was built in 1984, making it a "post-FIRM" property that did require an elevation certificate. As a result, the house was not fully insurable. The plaintiffs did not know that they had been misinformed or that the house was not fully insurable. They purchased a pre-FIRM policy that did not require an elevation certificate.

In May 2010, a 1000-year flood filled the plaintiffs' house with sixteen inches of water. The plaintiffs filed a claim with Nationwide under their policy. Nationwide responded that their rating information was incomplete because the plaintiffs' house required an elevation certificate. An elevation analysis was conducted, and a flood adjuster determined that the bottom floor of the plaintiffs' home was not insured under the policy because it was situated below the base flood-zone elevation. As a result, Nationwide did not cover damages sustained to the bottom floor of the house, including damage to the plaintiffs' personal property therein.

On May 2, 2011, the plaintiffs filed a Complaint in this court. (Docket No. 1.)

CoreLogic filed a Motion to Dismiss (Docket No. 25), which was granted (Docket No. 54). The court held that the common law negligence claims against CoreLogic were precluded by the NFIA. Regions then filed its own Motion to Dismiss (Docket No. Docket No. 60), which also was granted. (Docket No. 80.)2 On appeal, the Sixth Circuit reversed, without ruling on the merits of the plaintiffs' claims. The Sixth Circuit's narrow decision held that the NFIA does not create an implied private right of action but also does not foreclose state common law claims. Harris v. Nationwide Mut. Fire Ins. Co ., 832 F.3d 593, 597 (6th Cir. 2016). After remand and upon the retirement of Judge Haynes in January 2017, the case was assigned to the undersigned. On March 22, 2018, the plaintiffs filed a Motion for Leave to Amend Complaint (Docket No. 168), which was granted in part by the court's May 8, 2018 Order (Docket No. 182). On May 18, 2018, the plaintiffs filed their Amended Complaint.3 On November 19, 2018, Regions moved to dismiss the claims against it.

LEGAL STANDARD

In deciding a motion to dismiss for failure to state a claim under Rule 12(b)(6), the court will "construe the complaint in the light most favorable to the plaintiff, accept its allegations as true, and draw all reasonable inferences in favor of the plaintiff." Directv, Inc. v. Treesh , 487 F.3d 471, 476 (6th Cir. 2007) ; Inge v. Rock Fin. Corp. , 281 F.3d 613, 619 (6th Cir. 2002). The Federal Rules of Civil Procedure require only that a plaintiff provide "a short and plain statement of the claim that will give the defendant fair notice of what the plaintiff's claim is and the grounds upon which it rests." Conley v. Gibson , 355 U.S. 41, 47, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). The court must determine only whether "the claimant is entitled to offer evidence to support the claims," not whether the plaintiff can ultimately prove the facts alleged. Swierkiewicz v. Sorema N.A. , 534 U.S. 506, 511, 122 S.Ct. 992, 152 L.Ed.2d 1 (2002) (quoting Scheuer v. Rhodes , 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974) ).

The complaint's allegations, however, "must be enough to raise a right to relief above the speculative level." Bell Atl. Corp. v. Twombly , 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). To establish the "facial plausibility" required to "unlock the doors of discovery," the plaintiff cannot rely on "legal conclusions" or "[t]hreadbare recitals of the elements of a cause of action," but, instead, the plaintiff must plead "factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal , 556 U.S. 662, 678–79, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). "[O]nly a complaint that states a plausible claim for relief survives a motion to dismiss." Id. at 679, 129 S.Ct. 1937 ; Twombly , 550 U.S. at 556, 127 S.Ct. 1955. According to the Supreme Court, "plausibility" occupies that wide space between "possibility" and "probability." Iqbal , 556 U.S. at 678, 129 S.Ct. 1937. If a reasonable court can draw the necessary inference from the factual material stated in the complaint, the plausibility standard has been satisfied.

ANALYSIS

In 1968, Congress enacted the NFIA to make flood insurance coverage available on reasonable terms to private residences and businesses in high-risk areas, thereby easing the burden that flood disasters inflict on the federal treasury. See, e.g., Gibson v. Am. Bankers Ins. Co ., 289 F.3d 943, 946 (6th Cir. 2002) ; Campo v. Allstate Ins. Co ., 562 F.3d 751, 754 (5th Cir. 2009). Under the NFIA, FEMA may either issue its own flood insurance policies to property owners or utilize private insurance companies, as agents of the United States, to issue and administer policies. 42 U.S.C. §§ 4071(a), 4081. To this end, FEMA authorizes private insurers to issue policies in their own names and to handle all administration of the policies—including adjustment, settlement, payment, and defense of claims—with the federal government acting as a financial guarantor. 44 C.F.R. § 62.63. The general terms of these policies are governed by FEMA regulations. 44 C.F.R. § 61, Appendix A. Id.

The NFIA prohibits lenders from making any real estate loans in a special flood hazard area unless the property is covered by flood insurance. 42 U.S.C. § 4012a(b). When property is in a special flood hazard area, lenders must notify borrowers that flood insurance is required. Id. at § 4012a(e)(1). To facilitate this notice, lenders "may provide for the acquisition or determination of such information to be made by a person other than such lender (or other person), only to the extent such person guarantees the accuracy of the information." Id. at § 4014b(d). If a borrower fails to purchase insurance within forty-five days, the lender is required to buy it for the borrower and charge the costs back to the borrower. Id. at § 4012a(e)(2). Lenders are liable for civil penalties if found to have a "pattern or practice" of violating these requirements. Id. at § 4012a(f)(1)(2) ; see also id. at § 4104a(1) (stating that regulators shall require lenders to give...

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