Mahakali Krupa, LLC v. Allstate Ins. Co.

• Decision Date: 02 July 2014
• Docket Number: 3:12-CV-00S69
• Parties: MAHAKALI KRUPA, LLC and HINA PATEL, Plaintiffs, v. ALLSTATE INSURANCE CO., Dsfendant.
• Court: U.S. District Court — Middle District of Pennsylvania

MAHAKALI KRUPA, LLCand HINA PATEL, Plaintiffs, v. ALLSTATE INSURANCE CO., Dsfendant.

3:12-CV-00S69

UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF PENNSYLVANIA

Dated: July 2, 2014

(JUDGE MARIANI)

MEMORANDUM OPINION

I. Introduction

Presently before the Court is a Motion for Summary Judgment (Doc. 17) filed by the Defendant, Allstate Insurance Company, in this action to recover payment under a flood insurance policy pursuant to the National Flood Insurance Act. For the reasons discussed below, the Court will deny Defendant's Motion.

II. Statement of Undisputed Facts

On August 23, 2011, the Plaintiffs, Mahakali Krupa, LLC and Hina Patel, the LLC's representative, purchased a Subway franchise in Shickshinny, Pennsylvania from nonparty Leonard Marconi. (See Def.'s Statement of Undisputed Facts, Doc. 18-1, at ¶¶ 1-4.) At the time of the sale, Marconi insured the franchise with a Standard Flood Insurance Policy (SFIP) through Defendant Allstate Insurance. (Id. at ¶¶ 4-5.) Following the sale, the Plaintiffs wanted to transfer Marconi's SFIP into their own names, and discussed thispossibility with Marconi—though it is unclear what exactly the substance of these discussions was. (Id. at ¶ 4.)

A very short time after the sale, on September 8, 2011, Plaintiffs' franchise property sustained flood damage, which is valued in the Complaint at $77,105.72. (Doc. 18-1 at ¶ 6; Compl., Doc. 1, at ¶ 9.) Plaintiff Hina Patel admits in her deposition that she did not attempt to process paperwork through Allstate to transfer the SFIP from Marconi to herself until after the flood occurred. (Doc. 18-1 at ¶ 10; Hina Patel Dep., Doc. 18-3, at 21:9-23:21.)

Plaintiffs then made a claim on the existing SFIP, which Allstate denied, on the grounds that there was no policy in effect on the date of loss. (Doc. 18-1 at ¶¶ 7-8.) The basis of this denial was Defendant's assertion that, under the federal guidelines, flood insurance policies such as the one at issue here may not be transferred from one insured to another, but rather that a new policy would have to be issued, following receipt by Allstate of an application and a premium. (Id. at ¶¶ 12-13.) The relevant regulations creating the policy state, "You may assign this policy in writing when you transfer title of your property to someone else except under these conditions: . . . When this policy covers only personal property[.]" 44 C.F.R. Pt. 61, App. A(1), Art. VII(D)(1). In this regard, Hina Patel's deposition indicates that the Plaintiffs bought the Subway franchise and the equipment therein, but only leased the building in which the franchise operates. (Doc. 18-3 at 16:8-17:7.)

Following denial, Plaintiffs filed this lawsuit, which, in a short, five-page Complaint, seeks reimbursement for flood-related damages from Allstate in the amount of $60,000, the upper limit of reimbursement under the policy. (Cornpl. at ¶¶ 13, Wherefore Clause.)

III. Standard of Review

Through summary adjudication, the court may dispose of those claims that do not present a "genuine dispute as to any material fact." Fed. R. Civ. P. 56(a). "As to materiality, . . . [o]nly disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 2510, 91 L. Ed. 2d 202 (1986). The party moving for summary judgment bears the burden of showing the absence of a genuine issue as to any material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S. Ct. 2548, 2552, 91 L. Ed. 265 (1986). Once such a showing has been made, the nonmoving party must offer specific facts contradicting those averred by the movant to establish a genuine issue of material fact. Lujan v. Nat'l Wildlife Fed'n, 497 U.S. 871, 888, 110 S. Ct. 3177, 3188, 111 L. Ed. 2d 695 (1990). "Inferences should be drawn in the light most favorable to the non-moving party, and where the non-moving party's evidence contradicts the movant's, then the non-movant's must be taken as true." Big Apple BMW, Inc. v, BMW of N. Am., Inc., 974 F.2d 1358, 1363 (3d Cir. 1992), cert. denied 507 U.S. 912 (1993).

IV. Analysis

a. Interpretation of Plaintiffs' Standard Flood Insurance Policy

Defendant Allstate Insurance is a "Write-Your-Own" (WYO) Program flood insurance carrier participating in the federal government's National Flood Insurance Program (NFIP) pursuant to the National Flood Insurance Act of 1968, (Doc. 18-1 at ¶ 19.) Under the FEMA regulations enacted pursuant to the Act, "the Federal Insurance Administrator may enter into arrangements with individual private sector property insurance companies [i.e., WYO companies] or other insurers, such as public entity risk sharing organizations. Under these arrangements, such companies or other insurers may offer flood insurance coverage under the [NFIP] to eligible applicants." 44 C.F.R. § 62.23(a). A WYO company, therefore,

is a private insurer authorized by FEMA to provide Policies in its own name. It collects premiums in segregated accounts, from which it pays claims and issues refunds. When the funds are inadequate (as frequently occurs), [the WYO] pays claims by drawing on letters of credit issued by the United States Treasury.

C.E.R. 1988, Inc. v. Aetna Cas. & Sur. Co., 386 F.3d 263, 265 (3d Cir. 2004). Thus, "a suit against a WYO company is the functional equivalent of a suit against FEMA." Van Holt v. Liberty Mut. Fire Ins. Co., 163 F.3d 161, 166 (3d Cir. 1998). This is so because, inter alia, "an insured's flood insurance claims are ultimately paid by FEMA. After a WYO company depletes its net premium income, FEMA reimburses the company for the company's claims payments." Id. (citing 44 C.F.R. Pt. 62, App. A, Art. IV(A). The regulations themselves provide that the "Federal Government will be a guarantor in which the primary relationshipbetween the WYO Company and the Federal Government will be one of a fiduciary nature, i.e., to assure that any taxpayer funds are accounted for and appropriately expended." 44 C.F.R. § 62.23(f); see also id. at § 62.23(g) ("A WYO Company shall act as a fiscal agent of the Federal Government . . . .").

Moreover, "[a]ll flood insurance made available under the Program is subject . . . [t]o the terms and conditions of the Standard Flood Insurance Policy," as promulgated by FEMA at 44 C.F.R. Pt. 61, App. A(1). id. at § 61.4(b). The SFIP has been officially promulgated and may not be "altered, varied, or waived other than by the express written consent of the Federal Insurance Administrator through the issuance of an appropriate amendatory endorsement, approved by the Federal Insurance Administrator as to form and substance for uniform use." Id. at § 61.13(d); see also id. at Pt. 61, App. A(1), VII(D) (SFIP, stating that "[t]his policy cannot be changed nor can any of its provisions be waived without the express written consent of the Federal Insurance Administrator").

The SFIP states that a policy cannot be assigned "when this policy covers only personal property," 44 C.F.R. Pt. 61, App. A(1), Art. VII(D)(1), implying that when a policy covering only personal property is transferred to a new owner, a new policy would need to be created . When a new policy is created, "the effective date and time of any new policy or added coverage or increase in the amount of coverage shall be . . . the 30th calendar day after the application date and the presentment of payment of premium." 44 C.F.R. § 61.11(c). However, "[w]here the initial purchase of flood insurance is in connection with themaking, increasing, extension, or renewal of a loan, the coverage with respect to the property which is the subject of the loan shall be effective as of the time of the loan closing." Id. at §61.11(b).

Taking these regulations into consideration, the Court finds that there are two material issues of fact unresolved by the existing record which preclude summary judgment.

The first issue is whether the Plaintiffs had a policy that only covered personal property. The Flood General Policy Endorsement Declarations issued to Leonard Marconi and to Hina Patel state that all money under the policy is paid toward "contents." (See Docs. 18-4; 18-8; see also Pls.' Resp. to Statement of Undisputed Facts, Doc. 20, at ¶ 12 (admitting that Plaintiffs had a "contents only" policy).) However, it is unclear what "contents" (which is an undefined term in the SFIP) means in this context, which "contents" were insured, and whether the word "contents" should be considered synonymous with the policy term "personal property." Thus, Hina Patel's deposition indicates that the Plaintiffs bought the "contents" and "equipment" inside the Subway restaurant, as well as the intangible "business" of the franchise, but does not specify further. (See Hina Patel Dep., Doc. 18-3, at 16:22-17:11.) Such testimony leaves open the question of whether the "equipment" and "contents" actually fit the definition of "personal property," and are not, for instance, to be considered fixtures—a legally distinct concept. See, e.g., Lehmann v. Keller, 684 A.2d 618, 621 (Pa. Super. Ct. 1996) ("Possessory rights regarding chattels that are attached to leased realty are determined by classifying the chattels as either fixtures orpersonal property.") (emphasis added). Of course, it is true that "fixtures" may sometimes be considered a subset of personal property, and therefore arguably not a distinct category. See, e.g., Smith v. Weaver, 665 A.2d 1215, 1218 (Pa. Super. Ct. 1995) ("A fixture is an article in the nature of personal property which has been so annexed to the realty that it is regarded as part and parcel of the land."). And it is also true that, under the heading "Contents Location," the two Declarations read, inter alia, "Subject to, III. Property Covered, Paragraph B"—a reference the section of the SFIP entitled "Personal Property." (Docs. 18-4; 18-8.) But, while these considerations leave open the possibility that ...