McCarty v. S. Farm Bureau Cas. Ins. Co.

Decision Date11 July 2014
Docket NumberNo. 13–2490.,13–2490.
Citation758 F.3d 969
PartiesMike McCARTY, Plaintiff–Appellee v. SOUTHERN FARM BUREAU CASUALTY INSURANCE COMPANY, Defendant–Appellant.
CourtU.S. Court of Appeals — Eighth Circuit


Gerald Joseph Nielsen, argued, Metairie, LA (Richard N. Watts, of Little Rock, AR., Kim Tran Britt, of Metairie, LA., William Truman Treas, of Metairie, LA, on the brief), for Appellant.

J. Grant Ballard, argued, Little Rock, AR (Charles A. Banks, of Little Rock, AR, on the brief), for Appellee.

Before RILEY, Chief Judge, BYE and KELLY, Circuit Judges.

RILEY, Chief Judge.

This dispute involves the standard flood insurance policy (SFIP) Mike McCarty purchased from Southern Farm Bureau Casualty Insurance Co. (Farm Bureau) shortly before the Mississippi River flooded his riverside hunting cabin. SFIP coverage is provided by the federal government's National Flood Insurance Program (NFIP), which is administered by the Federal Emergency Management Agency (FEMA). See42 U.S.C. § 4011(a). Farm Bureau serves as fiscal agent for the government for a fee, but has no direct financial stake in the program. See id. § 4071(a)(1); 44 C.F.R. § 62.23(g). To recover for flood damage, an SFIP policyholder must submit a timely proof of loss. See44 C.F.R. pt. 61, app. A(1), art. VII(J)(4). Although McCarty failed to comply with this requirement, the district court—finding waiver based on a non-waiver agreement—ruled in McCarty's favor after a bench trial. We reverse.


Amid major flooding along the Mississippi River in spring 2011, McCarty visited his cabin in Desha County, Arkansas, and found the access road waterlogged, forcing him to reach his cabin by boat. Five days later, McCarty bought federal flood insurance through Farm Bureau, simultaneously applying for a loan secured by the hunting property to evade the NFIP's standard 30–day waiting period, which does not apply to insurance tied to certain loans, see42 U.S.C. § 4013(c)(1)-(2)(A); 44 C.F.R. § 61.11(b). The bank estimated the property's value at $25,000, but McCarty needed a larger loan to insure the property for a higher amount. Thus, he pledged the property, plus a $60,000 certificate of deposit, as collateral. At the time, his net worth exceeded $5 million, and he admits “the whole purpose for getting the loan” was “to get around the 30–day waiting period set by FEMA.”

After floodwaters damaged McCarty's hunting cabin, Farm Bureau assigned adjusters to process his claim. The only document McCarty signed to validate his claim was a “Non–Waiver Agreement.” Although the SFIP requires policyholders to submit a “signed and sworn” proof of loss within 60 days, McCarty never signed any proof of loss at any time. 44 C.F.R. pt. 61, app. A(1), art. VII(J)(4). Nor did McCarty sign any document listing the necessary information, including loss amounts, required by the proof of loss form. In some cases, the SFIP allows an insurer at its discretion to “accept the adjuster's report of the loss instead of [the insured's] proof of loss,” but the insured must sign the adjuster's report.” Id. art. VII(J)(9) (emphasis added). McCarty never did so.

After the denial of his claim, McCarty filed a complaint against Farm Bureau in the Eastern District of Arkansas, alleging a state bad faith claim and federal breach of contract. At the conclusion of a bench trial (jury trials are not permitted for SFIP disputes, see Gunter v. Farmers Ins. Co., 736 F.3d 768, 773 (8th Cir.2013)), the district court found in McCarty's favor on the breach of contract claim and awarded $47,059.32 in damages. The district court concluded strict compliance with the proof of loss requirement was not necessary, reasoning Farm Bureau waived the requirement by accepting McCarty's signature on the non-waiver agreement. Farm Bureau appeals, invoking our 28 U.S.C. § 1291 appellate jurisdiction over the district court's final judgment.


This federal flood insurance “case is governed to some extent by rules quite different from those that would apply in a normal insurance dispute.” Mancini v. Redland Ins. Co., 248 F.3d 729, 733 (8th Cir.2001). Promulgated by FEMA in its role as administrator of the NFIP, the SFIP “is more than a contract: it is also a regulation ... stating the conditions under which federal flood-insurance funds may be disbursed to eligible policy holders.” Id.; see44 C.F.R. § 61.13; 44 C.F.R. pt. 61, app. A(1). FEMA authorizes certain private insurers, such as Farm Bureau, to issue SFIPs to the public. See42 U.S.C. § 4071(a)(1); 44 C.F.R. § 62.23; id. pt. 62, app. B. FEMA's regulations make each insurer “a fiscal agent of the Federal Government, but not ... its general agent.” 44 C.F.R. § 62.23(g); see42 U.S.C. § 4071(a)(1). Without “express written consent of the Federal Insurance Administrator” by “amendatory endorsement,” no insurer, such as Farm Bureau, can alter, vary, or waive any provision of the SFIP. 44 C.F.R. § 61.13(d).

The insurers deposit all premiums into the U.S. Treasury, which pays claims and the insurers' litigation costs. See42 U.S.C. §§ 4017(a), (d), 4071(a)(1); 44 C.F.R. § 62.23(i)(3), (6), (9). Taxpayers are liable for these expenses when payouts exceed premiums. See Van Holt v. Liberty Mut. Fire Ins. Co., 163 F.3d 161, 165 n. 2 (3d Cir.1998). As the NFIP offers insurance at subsidized prices below actuarial rates, it is no surprise [t]he potential losses generated by NFIP have created substantial financial exposure for the federal government and U.S. taxpayers.” U.S. Gov't Accountability Office, GAO–13–283, High–Risk Series: An Update 261 (2013); see also U.S. Gov't Accountability Office, GAO–14–532T, Dep't of Homeland Sec.: Progress Made; Significant Work Remains in Addressing High–Risk Areas 18 (2014) (“As of December 2013, FEMA owed the Treasury $24 billion ... and had not made a principal payment since 2010.”).

Unlike the usual insurance case in which federal courts apply the substantive state law governing the insurance contract, NFIP disputes are governed exclusively by substantive federal law. See44 C.F.R. pt. 61, app. A(1), art. IX. “It is well settled that federal common law governs the interpretation of the SFIP.” Linder & Assocs., Inc. v. Aetna Cas. & Sur. Co., 166 F.3d 547, 550 (3d Cir.1999). Because federal common law should be uniform, we follow standard insurance law principles and strive to maintain consistency among the circuits. See Nelson v. Becton, 929 F.2d 1287, 1291 (8th Cir.1991). “Undoubtedly, federal programs” like the NFIP “that ‘by their nature are and must be uniform in character throughout the Nation’ necessitate formulation of controlling federal rules.” United States v. Kimbell Foods, Inc., 440 U.S. 715, 728, 99 S.Ct. 1448, 59 L.Ed.2d 711 (1979) (quoting United States v. Yazell, 382 U.S. 341, 354, 86 S.Ct. 500, 15 L.Ed.2d 404 (1966)).

Applying these principles and reviewing the district court's legal conclusions de novo, see Urban Hotel Dev. Co. v. President Dev. Grp., L.C., 535 F.3d 874, 879 (8th Cir.2008), we hold the district court committed reversible legal error by excusing McCarty from complying with the SFIP's proof of loss requirement.

A. Proof of Loss Requirement

We “must strictly construe the statutory or regulatory limits upon disbursements of funds through federal insurance programs. Like our sister circuits, we are unable to avoid the conclusion that the proof-of-loss provision in the SFIP states such a limit and must therefore be strictly construed.” Mancini, 248 F.3d at 733 (internal citation omitted). Strict compliance with the proof of loss provision is mandatory: policyholders ‘may not sue ... to recover money under th[eir] policy unless [they] have complied with all the requirements of the policy.’ Dickson v. Am. Bankers Ins. Co. of Fla., 739 F.3d 397, 399 (8th Cir.2014) (alterations and omissions in original) (quoting 44 C.F.R. pt. 61, app. A(1), art. VII(R)). The proof of loss “serves as a condition precedent to recovery under the SFIP.” Gunter, 736 F.3d at 773.

Given the unique nature of the NFIP, precise adherence to the SFIP's requirements is necessary as a constitutional matter to prevent the judiciary from drifting beyond Article III. Only Congress can appropriate funds from the U.S. Treasury, and any judicial decision ordering disbursement of federal funds on terms not authorized by Congress would breach constitutional barriers. See, e.g., Mancini, 248 F.3d at 735. In fact, [t]he SFIP's procedural requirements” have jurisdictional implications because these requirements “constitute conditions precedent to a waiver by the federal government of its sovereign immunity.” Wagner v. Dir., FEMA, 847 F.2d 515, 518 (9th Cir.1988) (emphasis added) (citing, inter alia, United States v. Mottaz, 476 U.S. 834, 841, 106 S.Ct. 2224, 90 L.Ed.2d 841 (1986)).

As “Justice Holmes declared[,] ‘men [and women] must turn square corners when they deal with the Government.’ U.S. Marshals Serv. v. Means, 741 F.2d 1053, 1059 (8th Cir.1984) (en banc) (quoting Rock Island, Ark. & La. R.R. Co. v. United States, 254 U.S. 141, 143, 41 S.Ct. 55, 65 L.Ed. 188 (1920)). When people seek benefits from a taxpayer-funded program, it is fair to require them to fill out the correct form-especially one that is only one page and easily accessible online, see FEMA, Proof of Loss, Form No. 086–0–9 (Oct.2010), available at http:// www. fema. gov/ media- library- data/ 20130726- 1601- 20490- 7838/ 086_ 0_ 9_ previously_ ff 81_ 42. pdf. McCarty acknowledges Farm Bureau promptly provided him with a short FEMA handbook informing him the proof of loss is the “official claim for damages” and “must be fully completed and signed and in the hands of [his] insurance company within 60 days after the loss occurs.” Yet he failed to follow this simple instruction.

B. Waiver

Seeking to circumvent the proof of loss requirement, litigants in a throng of cases have deluged our court with creative theories purporting...

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