Landry v. State Farm Fire & Cas. Co., Civil Action No. 06-181.

• Decision Date: 25 April 2006
• Docket Number: Civil Action No. 06-181.
• Citation: 428 F.Supp.2d 531
• Parties: Keith LANDRY, et al. v. STATE FARM FIRE & CASUALTY CO., et al.
• Court: U.S. District Court — Eastern District of Louisiana

Page 531

428 F.Supp.2d 531

Keith LANDRY, et al. v. STATE FARM FIRE & CASUALTY CO., et al.

Civil Action No. 06-181.

United States District Court, E.D. Louisiana.

April 25, 2006.

Covert J. Geary, Jones, Walker, Waechter, Poitevent, Carrere & Denegre, New Orleans, LA, Jeffery J. Waltz, Jones Walker, Baton Rouge, LA, for Keith Landry and Marcelle Landry.

Burt K. Carnahan, Edward F. Rudiger, Jr., Lobman, Carnahan, Batt, Angelle & Nader, New Orleans, LA, Gerald J. Nielsen, Nielsen Law Firm, Metairie, LA, Steuart H. Thomsen, Sutherland Asbill & Brennan LLP, Washington, DC, for State Farm Fire and Casualty Company.

ORDER AND REASONS

FALLON, District Judge.

Before the Court is the Motion to Remand of Plaintiffs, Keith Landry and Marcelle Landry. This motion was set for hearing on March 1, 2006; however, upon request of counsel, oral argument was scheduled for March 29, 2006. For the following reasons, the Plaintiffs' motion is GRANTED.

I. Factual and Procedural Background

This case arises from a dispute regarding homeowner's and flood insurance coverage for Plaintiffs' home, located at 5825 West End Boulevard in New Orleans, Louisiana. Plaintiffs allege that their home was destroyed during Hurricane Katrina on August 29, 2005. Defendants in this case are State Farm Fire and Casualty Company ("State Farm"), Plaintiffs' home-owner's and flood insurance carrier, and Charles A. Lagarde, an agent of State Farm who was responsible for management of Plaintiffs' policies.

Plaintiffs allege that in 2000 when they purchased their home, State Farm placed them in touch with agent Tony Bordlee, who assisted them in obtaining their homeowner's policy and flood insurance policy. Mr. Bordlee served as Plaintiffs' contact with State Farm from 2000 to 2003. However, in January 2003, Plaintiffs asked State Farm for their policies to be transferred to another agent because they were dissatisfied with Mr. Bordlee's services. In 2003, State Farm referred Plaintiffs to Defendant Charles Lagarde.

After the transfer in 2003, Plaintiffs allege that they asked Mr. Lagarde to review their coverages to ensure that they received the best coverage available. Mr. Lagarde agreed to do so, according to Plaintiffs. From 2003 until August 2005, Mr. Lagarde and State Farm would periodically request increases in coverage, according to Plaintiffs, and Plaintiffs believed that they had full coverage on their home.

After Hurricane Katrina, Plaintiffs allege that they learned that they did not have coverage for the contents of their home. Defendant State Farm paid out $137,200, the full "dwelling" coverage, according to Plaintiffs; however, none of this payment was for contents. In October 2005, Plaintiffs allege that State Farm denied them coverage for contents and stated that the reason was lack of coverage.

On December 14, 2005, Plaintiffs filed the instant suit against State Farm and Mr. Lagarde in Civil District Court for the Parish of Orleans, State of Louisiana. For the allegedly negligent failure to provide coverage, Plaintiffs seek recovery of the full amount of the contents of their home, including damages, penalties, and attorneys' fees. Plaintiffs further argue that Mr. Lagarde as State Farm's agent had a duty of reasonable diligence that he violated when he allegedly failed to review the Plaintiffs' coverage for its adequacy.

Defendants timely removed the suit on January 13, 2006. On February 9, 2006, Plaintiffs filed the instant Motion to Remand. The parties argue that the instant motion presents novel jurisdictional questions that will affect other, similar suits regarding flood insurance coverage in the aftermath of Hurricane Katrina. They further allege that this is the first such "post-Katrina" remand motion.

II. Plaintiffs' Motion to Remand

Defendants base jurisdiction on federal question under 42 U.S.C. § 4072 and under 28 U.S.C. § 1331. Alternatively, defendants predicate jurisdiction on complete diversity under 28 U.S.C. § 1332, and argue that Defendant Charles Lagarde is improperly or fraudulently joined with State Farm in this action. The Court addresses these arguments in turn.

a. Federal Question—the NFIA

The National Flood Insurance Act ("NFIA") grants federal courts original exclusive jurisdiction over lawsuits against the Director of FEMA for denials of claims made by insured individuals under their Standard Flood Insurance Policy ("SFIP"). 42 U.S.C. § 4072. While the plain language of Section 4072 only addresses suits against the Director of FEMA, the Fifth, Sixth, and Third Circuits have held that Section 4072 applies to lawsuits against private insurers who issue SF IPs under the Write Your Own ("WYO") program. See Wright v. Allstate Ins. Co., 415 F.3d 384, 389 (5th Cir.2005); Gibson v. Am. Bankers Ins. Co., 289 F.3d 943, 947 (6th Cir.2002); Van Holt v. Liberty Mut. Fire Ins. Co., 163 F.3d 161, 166-67 (3d Cir.1998).

In this case, Plaintiffs have made tort claims against State Farm, a WYO insurer, and State Farm's agent for errors and omissions arising from their home-owner's and flood insurance policies. Plaintiffs phrase their cause of action as an tort action for errors and omissions under Louisiana state law. See Petition for Damages, ¶¶ 15 and 16 (citing to Louisiana case law and statutes dealing with tortious errors and omissions of insurance agents). However, Defendants argue that Plaintiffs' claim for errors and omissions is preempted by federal law.

While it is clear that causes of action under the NFIP agreement itself are questions of federal law, the parties in this case dispute whether state law tort claims relating to the NFIP arise under state or federal law. In Wright v. Allstate Insurance Co., the Fifth Circuit addressed the question of whether state law causes of action for improper claims adjustment were preempted by the NFIA. 415 F.3d at 388-89. The plaintiff in that case had purchased an NFIP from Allstate to cover his home in Houston, and the home suffered damage during Tropical Storm Allison in 2001. Id. at 386. The plaintiff alleged that Allstate's adjuster failed to make an appropriate estimate of the damage to his home, and Allstate alleged that plaintiff was not properly paid under the policy because he failed to comply with FEMA regulations on documentation of his losses. Id. The plaintiff brought a variety of causes of action against Allstate under Texas state law arising from the adjustment of his claim. Id. Thus, the question presented to the Fifth Circuit was whether the plaintiff's state law causes of action were preempted by the NFIA such that the case presented a federal question. Id. at 389.

The Fifth Circuit found that adjustment of an insurance claim is considered "handling," and, as such, the NFIA would preempt any state law claims. Id. at 390 ("state law tort claims arising from claim handling by a WYO are preempted by federal law.") (emphasis added). However, the Fifth Circuit has not had the occasion to determine whether a state law tort claim for errors and omissions like the Plaintiffs' claim would be considered "handling," and the Fifth Circuit has not determined whether state law claims for improper "procurement" would be preempted by the NFIA.

The Fifth Circuit addressed a case that was factually similar to the instant one in Spence v. Omaha Indemnity Insurance Company, 996 F.2d 793 (5th Cir.1993). In that case, homeowners brought claims for fraudulent misrepresentation and breach of contract against their homeowners' insurance policy carrier for its failure to disclose a lack of coverage for a flooded basement. Id. at 794. The Fifth Circuit held that the state's statute of limitations applied to the Plaintiffs' claims. Id. at 796-97. Certain language in that opinion appeared to imply that the Plaintiffs' claims, which involved procurement of their policy, fell under state law and were not preempted by the NFIA. Id.

However, the Fifth Circuit in Wright stated that its decision in Spence did not address the issue at hand in this case— whether state law tort claims relating to policy procurement are preempted by the NFIA. Wright, 415 F.3d at 389-90 ("the issue of whether the NFIA preempted state law tort claims was not before the court in Spence, and the court did not address it"). Thus, the Fifth Circuit has not addressed whether state law claims regarding procurement of policies would be preempted by the NFIA.

Although the Fifth Circuit has not spoken directly on this issue, a number of district courts have held that federal question jurisdiction does not exist for claims related to flood insurance procurement. Waltrip v. Brooks Agency, Inc., 417 F.Supp.2d 768, 770 (E.D.Va.2006); Roybal v. Los Alamos National Bank, 375 F.Supp.2d 1324, 1332-33 (D.N.M.2005); Corliss v. South Carolina Ins. Co., No. 03-2944, 2004 WL 2988497, at *3 (E.D.La. Dec. 12, 2004) (Vance, J.); Elizabeth v. USAA Gen. Indem. Co., No. 02-2021, 2002 WL 31886719, at *3 (E.D.La. Dec. 19, 2002) (Vance, J.).

The distinction that other courts have made between handling and procurement of an NFIA policy for purposes of federal question jurisdiction is compelling. The federal courts premise their jurisdiction under the NFIA upon the fact that policies under the National Flood Insurance Program are paid from the federal treasury; thus, claims regarding handling of those policies also involve the spending of federal funds. See Waltrip, 417 F.Supp.2d at 771-72. However, under the NFIA, federal funds are not used to reimburse WYO insurers for liability arising outside of the scope of the Act. 44 C.F.R. Pt. 62, App. A, Art. IX. Thus, for tort claims or extra-contractual claims related to an NFIA policy, an insured can obtain no reimbursement from the federal treasury because these claims fall outside the scope of the Act. Therefore, there is no equivalent justification for federal jurisdiction for state law tort claims because there is no expenditure of federal funds. Waltrip, 417 F.Supp.2d at 771-72...