Masoner v. First Community Ins. Co., CV 99-0422-S-MHW.

• Decision Date: 13 January 2000
• Docket Number: No. CV 99-0422-S-MHW.,CV 99-0422-S-MHW.
• Parties: Gary MASONER and Joann Masoner, husband and wife, Plaintiffs, v. FIRST COMMUNITY INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — District of Idaho

81 F.Supp.2d 1052

Gary MASONER and Joann Masoner, husband and wife, Plaintiffs, v. FIRST COMMUNITY INSURANCE COMPANY, Defendant.

No. CV 99-0422-S-MHW.

United States District Court, D. Idaho.

January 13, 2000.

Kenneth L. Pedersen, Bradley E. Rice, Attorney at Law, Twin Falls, ID, for Plaintiffs.

Robert T. Wetherell, Brassey, Wetherell, Crawford & McCurdy, Boise, ID, Gerald J. Nielsen, Nielsen Law Firm, Metairie, LA, for Defendant.

ORDER

WILLIAMS, Chief United States Magistrate Judge.

Currently pending before the Court its consideration is Plaintiffs' Motion to Remand Back to State Court (Docket # 4), filed October 20, 1999. On November 18, 1999, the Court conducted a telephonic hearing on the motion with counsel for both parties participating. The Court has considered the arguments of counsel and has fully reviewed the legal briefing and is now prepared to rule on the motion as follows.

I. Background

This action arises out of the alleged bad faith failure of a private insurance company to properly adjust and pay a claim for property damage under the terms of a Standard Flood Insurance Policy. In February, 1997, Plaintiffs Gary and JoAnn Masoner purchased flood insurance from the Defendant, First Community Insurance Company ("FCIC"). The policy was a Standard Flood Insurance Policy issued pursuant to the National Flood Insurance Act of 1968 ("NFIA"), as amended, 42 U.S.C. § 4001 et seq., and the applicable federal regulations contained in Title 44 of the Code of Federal Regulations. (See Rice Affidavit, Exhibit 2).

On June 10, 1997, while Plaintiffs' flood insurance policy was in force, Plaintiffs' home and shop were damaged by flood water from the Snake River. Plaintiffs contacted FCIC regarding the loss and provided FCIC's adjuster with documentation regarding proof of loss. Several months elapsed and FCIC refused to settle the claim, informing Plaintiffs that the documentation they had submitted was deficient. On December 28, 1997, Plaintiffs resubmitted their proof of loss documents with the requested corrections. Thereafter, FCIC provided Plaintiffs with an estimate of damage and requested that the Plaintiffs sign a statement acknowledging that FCIC's estimate represented the full amount of damage. However, Plaintiffs rejected FCIC's estimate and demanded arbitration to settle the claim. On October 6, 1998, an arbitration hearing was held, and Plaintiffs were granted an award. On October 16, 1998, following a demand for payment by the Plaintiffs, FCIC paid Plaintiffs $145,237.59.

Plaintiffs filed the instant action in state court on or about August 6, 1999. The Complaint contains four causes of action. Count One alleges that FCIC acted in bad faith by (1) unreasonably delaying and denying Plaintiffs insurance benefits; and (2) engaging in underwriting and adjusting practices designed to deprive Plaintiffs of the benefits owed to them under the insurance policy. Count Two alleges that FCIC's refusal to pay benefits under the policy amounted to a breach of contract. Count Three alleges that FCIC never intended to pay Plaintiffs benefits under the policy and that as such, FCIC's actions amounted to fraud. Finally, Count Four alleges that Plaintiffs are entitled to reasonable attorneys fees incurred in prosecuting this action.

On September 20, 1999, Defendant removed the case to the United States District Court for the District of Idaho on the grounds that this Court has subject matter jurisdiction over the claims contained in Plaintiffs' Complaint under both federal question and diversity jurisdiction. The action is presently before the Court on Plaintiffs' Motion to Remand.

II. Motion to Remand

Plaintiffs move, pursuant to 28 U.S.C. § 1447(c), for an order remanding this case to the state court in which it was originally filed. Plaintiffs contend that remand is appropriate because this Court lacks subject matter jurisdiction to entertain Plaintiffs' claims. Specifically, Plaintiffs argue that Defendant has failed to establish that diversity jurisdiction exists pursuant to 28 U.S.C. § 1332(a) because there has been no showing that the amount in controversy meets or exceeds $75,000. Plaintiffs also contend that federal question jurisdiction is lacking because the claims contained in the Complaint do not raise questions of federal law. If the Court concludes that Plaintiffs' Complaint does raise questions of federal law, it will not be necessary to also determine if the requisite jurisdictional amount is alleged in the action. Therefore, the Court will first address whether removal can be sustained on federal question grounds.

In its Notice of Removal (Docket # 1), Defendant has asserted two bases on which this Court has federal question jurisdiction over Plaintiffs' Claims. First, Defendant alleges that Plaintiffs' claims for damages arise out of a Standard Flood Insurance Policy issued by FCIC as part of its participation in the National Flood Insurance Program and are therefore governed by the provisions of the National Flood Insurance Act, 42 U.S.C. § 4001, et seq. As such Defendant asserts that this Court has original exclusive jurisdiction over the claims pursuant to 42 U.S.C. § 4072. Next, Defendant contends that the Standard Flood Insurance Policy issued to Plaintiffs by FCIC is in itself a federal law, codified at 44 C.F.R. Pt. 61, App. A-1. According to Defendant, interpretation of that policy and the scope of the coverage provided thereunder, will necessarily require the interpretation of a federal law. Thus, Defendant asserts that federal question jurisdiction exists under 28 U.S.C. § 1331. However, Plaintiff disputes Defendant's assertions and argues that neither 42 U.S.C. § 4072 nor the federal regulations provide any basis for jurisdiction under the facts of this case.

42 U.S.C. § 4072 provides:

In the event the [National Flood Insurance Program] is carried out as provided in section 4071 of this title, the Director shall be authorized to adjust and make payment of any claims for proved and approved losses covered by flood insurance, and upon the disallowance by the Director of any such claim, or upon the refusal of the claimant to accept the amount allowed upon any such claim, the claimant, within one year after the date of mailing of notice of disallowance or partial disallowance by the Director, may institute an action against the Director on such claim in the United States district court for the district in which the insured property or the major part thereof shall have been situated, and original exclusive jurisdiction is hereby conferred upon such court to hear and determine such action without regard to the amount in controversy.

42 U.S.C. § 4072. Plaintiffs acknowledge that this statute confers exclusive jurisdiction upon the federal courts to hear claims arising out of flood insurance policies issued pursuant to the National Flood Insurance Program in the event that the Program is assumed by the federal government. See 42 U.S.C. § 4071 (providing for the assumption of the National Flood Insurance Program by the federal government). However, Plaintiffs argue that this statute is inapplicable to the case at bar because Plaintiffs "do not believe" that the federal government ever assumed their flood insurance or that the Director ever made any decision regarding the allowance of Plaintiffs' claim under their insurance policy.

Furthermore, Plaintiffs argue that the Standard Flood Insurance Policy issued to them by FCIC in this case differs from the Standard Flood Insurance Policy codified at 44 C.F.R. Pt. 61, App. A-1, and is therefore not a federal law in and of itself as Defendant contends. Specifically, Plaintiffs note that their insurance policy names FCIC as insurer whereas the federal policy names the Federal Emergency Management Agency ("FEMA") as insurer. Relying on this difference, Plaintiffs contend that the claims arising out of their Standard Insurance Policy do not present questions of federal law. However, this difference is of little consequence with respect to whether this Court has jurisdiction to hear Plaintiffs' claims; for as Defendant points out, the insurance policy out of which Plaintiffs' claims arise clearly states that it is a Standard Flood Insurance Policy issued Pursuant to the National Flood Insurance Act of 1968, as amended, and applicable regulations in Title 44 of the Code of Federal Regulations. Thus, the Court must look to those provisions and corresponding case law to determine whether jurisdiction is proper in this case.

In 1968, Congress established the National Flood Insurance Program for the dual purposes of spreading the risk of flood loss among private insurers and the federal government and of "making flood insurance coverage available on reasonable terms and conditions to persons who have need for such protection." 42 U.S.C. § 4001(a). See also, Gowland v. Aetna, 143 F.3d 951, 953 (5th Cir.1998) ("Congress established the National Flood Insurance Program to provide insurance coverage at or below actuarial rates."). The Program was originally administered under Part A of the National Flood Insurance Act by a pool of private insurance companies pursuant to a contract with the United States Department of Housing and Urban Development ("HUD"). See 42 U.S.C. §§ 4051-53; Van Holt v. Liberty Mutual Fire Insurance Company, 163 F.3d 161, 165 (3rd Cir.1998). However, on January 1, 1978, HUD ended this contractual arrangement and assumed administration of the Program pursuant to Part B of the National Flood Insurance Act, 42 U.S.C. § 4071. Van Holt, 163 F.3d at 165. The program is currently operated by the Federal Emergency Management Agency ("FEMA") and receives financial support through the National Flood Insurance Fund in the United States Treasury. 42 U.S.C. § 4017(d); Gowland, 143 F.3d at 953. Thus, despite Plaintiffs' assertions to the contrary, the federal government has assumed administration of the National Flood Insurance...