McGair v. Am. Bankers Ins. Co. of Fla.

Decision Date04 September 2012
Docket NumberNo. 11–2179.,11–2179.
Citation693 F.3d 94
PartiesMary Jane McGAIR; Joseph McGair, Plaintiffs, Appellants, v. AMERICAN BANKERS INSURANCE COMPANY OF FLORIDA, Defendant, Appellee.
CourtU.S. Court of Appeals — First Circuit

OPINION TEXT STARTS HERE

Lewis J. Paras, with whom Joseph A. Kelly, Petrarca and McGair, Inc., and Baluch, Gianfrancesco & Mathieu were on brief, for appellants.

Gerald Joseph Nielsen, with whom Joseph J. Aguda, Jr., Nielsen Law Firm, L.L.C., David W. Zizik, and Zizik, Powers, O'Connell, Spaulding & Lamontagne, PC were on brief, for appellee.

Before LYNCH, Chief Judge, LIPEZ and HOWARD, Circuit Judges.

LIPEZ, Circuit Judge.

This appeal arises from a dispute over the scope of a flood insurance policy. In July 2006, appellants, Mary Jane and Joseph McGair, purchased a flood insurance policy from appellee, American Bankers Insurance Company of Florida (American Bankers). Their policy was issued pursuant to a federal program under which private insurers issue and administer standardized flood insurance policies, and all claims are paid by the government. After a 2010 flood damaged their home in Warwick, Rhode Island, including the contents of their basement, the McGairs sought compensation. American Bankers disallowed much of the amount claimed, asserting that the contents of the McGairs' basement were not covered by their policy. Subsequently, the McGairs brought suit in federal court, arguing that the Declarations Page of their policy created an ambiguity as to the scope of coverage and that, under federal common law and general insurance law principles, this ambiguity should be resolved in their favor. The district court disagreed, entering summary judgment in favor of American Bankers. We affirm.

I.

In reviewing a decision on a motion for summary judgment, we consider the facts in the light most favorable to the non-moving party. Guay v. Burack, 677 F.3d 10, 13 (1st Cir.2012).

A. The National Flood Insurance Program

The McGairs' flood insurance policy was written pursuant to the National Flood Insurance Program (“NFIP”), a federal program created by the National Flood Insurance Act of 1968 (“NFIA”), 42 U.S.C. §§ 4001–4129. Noting that private insurers were not providing adequate flood insurance in many areas, Congress designed the NFIA to increase the availability of flood insurance by offering subsidized insurance. See id. § 4001(b). The NFIP is administered by the Federal Emergency Management Agency (“FEMA”) and backed by the federal treasury, which is responsible for paying claims that exceed the revenue generated by premiums paid under policies issued pursuant to the program. See id. § 4011(a) (charging Administrator of FEMA with establishing NFIP); id. § 4017(a) (creating fund in United States Treasury to pay for NFIP); see also Palmieri v. Allstate Ins. Co., 445 F.3d 179, 183 (2d Cir.2006) (describing NFIP). Accordingly, Congress authorized FEMA to “prescribe regulations establishing the general method or methods by which proved and approved claims for losses may be adjusted and paid.” 42 U.S.C. § 4019.

In 1983, FEMA created the Write–Your–Own (“WYO”) program, permitting private insurance companies to issue policies as part of the NFIP. 44 C.F.R. §§ 62.23–24. As part of the WYO program, FEMA promulgated regulations prescribing the terms of the Standard Flood Insurance Policy (“SFIP”) to be used by WYO companies. See id. pt. 61, app. A(1). By regulation, [t]he Standard Flood Insurance Policy and required endorsements must be used in the Flood Insurance Program, and no provision of the said documents shall be altered, varied, or waived other than by the express written consent of the Federal Insurance Administrator.” Id. § 61.13(d). Thus, when private companies issue WYO policies, they “act as ‘fiscal agents of the United States,’ 42 U.S.C. § 4071(a)(1), but they are not general agents.... In essence, the insurance companies serve as administrators for the federal program. It is the Government, not the companies, that pays the claims.” Palmieri, 445 F.3d at 183–84 (quoting C.E.R.1988, Inc. v. Aetna Cas. & Sur. Co., 386 F.3d 263, 267 (3d Cir.2004)). Alternatively put:

FEMA provides a standard text for all NFIP policies and forbids WYOP companies from making changes; FEMA's interpretations of the policy bind all WYOP participants; FEMA decides what rates may be charged; all premiums are remitted on to FEMA (minus a small fee); if WYOP companies pay out on a claim they get reimbursed by FEMA; likewise with litigation costs.

Downey v. State Farm Fire & Cas. Co., 266 F.3d 675, 679 (7th Cir.2001).

Two limitations on coverage provided by the SFIP are relevant to this case. Article III(A)(8) of the SFIP states that coverage for items located in the basement of a dwelling is limited, and it identifies seventeen categories of fixtures (e.g., central air conditioners, furnaces, insulation) covered under the policy. Article III(B)(3) similarly limits coverage for personal property in a basement and identifies only three covered categories of personal property (all major appliances). By the terms of the SFIP, these items are the only contents of a basement for which a policy-holder may seek reimbursement. In addition to limiting the potential losses due to flooding of basements, these limitations serve to encourage construction that minimizes the risk of flooding (e.g., elevated foundations and buildings without basements).

The McGairs' policy, purchased from American Bankers in 2006, is a Preferred Risk Policy (“PRP”) incorporating the SFIP.1 It states that flood insurance is provided “under the terms of the National Flood Insurance Act of 1968 ..., and Title 44 of the Code of Federal Regulations.” Reflecting the prohibition on alteration of the SFIP, the McGairs' policy also providesthat it “cannot be changed nor can any of its provisions be waived without the express written consent of the Federal Insurance Administrator.” As such, it includes Articles III(A)(8) and (B)(3) of the SFIP limiting coverage for the contents of the basement of an insured dwelling.

The McGairs' policy also includes a Declarations Page indicating the coverage purchased, the policy limits, and the deductible. The “Rating Information” section of the Declarations Page indicates that the McGairs have a finished basement and states that the contents of their home are located in the “basement and above.” The Declarations Page also provides that the contents of the home are covered by the policy, up to $100,000, and identifies none of the limitations stated in the SFIP. The parties agree that the Rating Information section includes information provided by the McGairs to American Bankers for the purpose of calculating the premiums to be paid.

B. The McGairs' Claim

In late March 2010, the McGairs' home was damaged by a flood. The flooding caused damage to furniture, furnishings, appliances, and fixtures, including such items located in the McGairs' finished basement. On March 31, 2010, the McGairs filed a claim based on the damage caused to their home by the flood.

Their claim was assigned to an independent adjuster, Sweet Claim Service, Inc., and, on April 1, 2010, adjuster Shawn Hamil investigated the damage to the McGairs' home. The McGairs allege that Hamil engaged in “predatory conduct” during the investigation. Specifically, they assert that he attempted to intimidate Mary Jane McGair by telling her that they did not have coverage for the damage to their home. Additionally, the McGairs assert that Hamil encouraged them to make a misrepresentation by claiming that the damage to their finished basement was to drywall, which was covered under their policy, instead of wood paneling, which was not. The McGairs refused to do so, and Hamil prepared a report for American Bankers recommending payment of $4,307.91 to settle the claim.2

Although American Bankers issued a check to the McGairs based on the amount determined by Hamil, the McGairs refused to accept the payment. Claiming $40,614.52 in damages, the McGairs sent American Bankers documentation of the repair estimates totaling this amount. The primary disagreement between the parties concerned the scope of the policy's coverage of the contents of the McGairs' basement. The McGairs insisted that, per the Declarations Page, the entire contents of their basement were covered by their policy without limitation. American Bankers disagreed. Relying on the limitations contained in the SFIP, it disallowed the majority of the McGairs' claim. In a series of letters in mid- to late 2010, American Bankers and the McGairs continued to insist on their respective positions.

On February 9, 2011, the McGairs filed suit in the United States District Court for the District of Rhode Island seeking a declaratory judgment establishing their entitlement to the full amount they claimed, as well as damages for breach of contract and bad faith dealing under state law. Both parties moved for summary judgment.

American Bankers argued that the McGairs were bound by the terms of the SFIP because the NFIP specified that the company could not alter the terms of the SFIP, and the McGairs were charged with knowledge of this prohibition. Therefore, any supposed discrepancy between the SFIP and the Declarations Page was irrelevant. In turn, the McGairs argued that the SFIP and Declarations Page should be interpreted pursuant to federal common law and standard insurance law principles, including the familiar principle that any ambiguity in the contract should be read in their favor. They added that such an ambiguity existed because their Declarations Page states that the contents of their home are located in the “basement and above,” without identifying any limitation on the coverage of contents of their basement. This unqualified statement, they asserted, is inconsistent with the limitations imposed by Sections III(A)(8) and (B)(3) of the SFIP. Thus, reading this supposed ambiguity in their favor,...

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