McHugh v. United Service Auto. Ass'n, 97-35019

• Decision Date: 06 January 1999
• Docket Number: No. 97-35019,97-35019
• Citation: 164 F.3d 451
• Parties: 99 Cal. Daily Op. Serv. 162, 1999 Daily Journal D.A.R. 219 Frank J. McHUGH, husband; Mary S. McHugh, wife, Plaintiffs-Appellants, v. UNITED SERVICE AUTOMOBILE ASSOCIATION, a Texas corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 451

164 F.3d 451

99 Cal. Daily Op. Serv. 162, 1999 Daily

Journal D.A.R. 219

Frank J. McHUGH, husband; Mary S. McHugh, wife, Plaintiffs-Appellants, v. UNITED SERVICE AUTOMOBILE ASSOCIATION, a Texas corporation Defendant-Appellee.

No. 97-35019.

United States Court of Appeals Ninth Circuit.

Argued and Submitted June 4, 1998.

Decided Jan. 6, 1999.

Matthew T. Boyle, Mitchell, Lang & Smith, Seattle, Washington, for plaintiffs-appellants.

D. Bradley Hudson, Hudson Youngblood, Seattle, Washington, for defendant-appellee.

Appeal from the United States District Court for the Western District of Washington; J. Kelley Arnold, Magistrate Judge, Presiding. D.C. No. CV-95-05702.

Before: LAY, ^* PREGERSON and GRABER, Circuit Judges.

Opinion by Judge LAY; Dissent by Judge GRABER.

LAY, Circuit Judge:

Frank and Mary McHugh filed a complaint for a declaratory judgment against the United Service Automobile Association insurance company ("USAA") and the Director of the Federal Emergency Management Agency ("FEMA") alleging that (1) their beach house which was insured by USAA under a Standard Flood Insurance Policy ("SFIP") was damaged by a mudslide, (2) they made a claim to USAA under the SFIP, and (3) USAA improperly denied their claim. The district court granted summary judgment for USAA, holding that the damage to the McHughs' home was caused by a landslide which is not covered by the policy. We reverse the decision of the district court.

BACKGROUND

Under the National Flood Insurance Act of 1968 ("Act"), codified at 42 U.S.C. §§ 4001 et seq. (1994), the FEMA is authorized to provide federally subsidized flood insurance to individual homeowners. The language of the SFIP is prescribed by the Act and FEMA regulations, although the policy itself is issued through a private insurer. Frank and Mary McHugh purchased a SFIP from USAA to provide coverage for their beach house located on the Hood Canal in Seabeck, Washington.

The McHughs' Flood Policy defines "Direct Physical Loss By or From Flood" as "any loss in the nature of actual loss of or physical damage, evidenced by physical changes, to the insured property ... which is directly and proximately caused by a 'flood' (as defined in this policy)." ER at 31. The policy also defines "Flood" as:

A. A general and temporary condition of partial or complete inundation of normally dry land area from:

1. The overflow of inland or tidal waters.

2. The unusual and rapid accumulation or runoff of surface waters from any source.

3. Mudslides (i.e., mudflows) which are proximately caused by flooding as defined in subparagraph A-2 above and are akin to a river of liquid and flowing mud on the surfaces of normally dry land areas, including your premises, as when earth is carried by a current of water and deposited along the path of the current.

B. The collapse or subsidence of land along the shore of a lake or other body of water as a result of erosion or undermining caused by waves or currents of water exceeding the cyclical levels which result in flooding as defined in subparagraph A-1 above.

ER at 31-32 (emphasis added).

The Flood Policy also contains the following exclusion:

We only provide coverage for direct physical loss by or from flood which means we do not cover:

...

B. Losses from other casualties, including loss caused by:

1. Theft, fire, windstorm, wind, explosion, earthquake, land sinkage, landslide, destabilization or movement of ER at 32-33 (emphasis added).

land resulting from the accumulation of water in subsurface land areas, gradual erosion, or any other earth movement except such mudslides (i.e., mudflows) or erosion as is covered under the peril of flood.

The federal courts have stated that flood insurance polices normally are subject to limitations on coverage imposed by applicable federal regulations. See Carneiro Da Cunha v. Standard Fire Ins. Co./Aetna Flood Ins. Program, 129 F.3d 581, 585 (11th Cir.1997) (stating that "[t]here is no dispute that the policies at issue are subject to limitations on coverage imposed by federal statute and regulations"); Criger v. Becton, 902 F.2d 1348, 1351 (8th Cir.1990) (stating that FEMA's interpretation of its own regulations regarding coverage is entitled to great deference). However, this makes little difference in the instant case because the definitions of the terms "flood" and "flooding" in the policy are the same in all material respects as the definitions found in the regulations. The regulations defining mudslide state:

Mudslide (i.e., mudflow) describes a condition where there is a river, flow or inundation of liquid mud down a hillside usually as a result of a dual condition of loss of brush cover, and the subsequent accumulation of water on the ground preceded by a period of unusually heavy or sustained rain. A mudslide (i.e., mudflow) may occur as a distinct phenomenon while a landslide is in progress, and will be recognized as such by the Administrator only if the mudflow, and not the landslide, is the proximate cause of damage that occurs.

44 C.F.R. § 59.1 (1997).

On December 28, 1994, the McHughs reported to USAA that their beach house had been damaged by a flood-related mudslide that occurred after heavy rains and an overflow of a drainage ditch situated at the top of the slope on which the house was located. The house, located at the base of a steep sloping hill, was knocked off its foundation and partially destroyed after being hit by a saturated mixture of soil, gravel, vegetation, and rock. After receiving the McHughs' claim under the SFIP, USAA hired an independent adjustor, who took several photographs, ¹ and then hired Martin Page from the geo-technical engineering firm of Shannon & Wilson to determine the exact cause of the damage to the McHughs' house. In a written report, Page concluded that the slide was caused by a combination of factors including saturation of the surface soils by heavy rainfall and a build-up of groundwater in the underlying sand and gravel. Page's report concludes, however, that "it is our opinion that the soil instability that occurred at the subject site is classified as a landslide, not a mudslide." ER at 16.

The McHughs hired their own geo-technical engineer, Robert Pride, to assess the cause of the damage. Contrary to Page's report, Pride found that the damage to the beach house was caused by a mudslide, not a landslide, precipitated by soil saturation and surface-water runoff from a natural drainage channel above the slide area.

In December 1995, the McHughs filed a complaint against USAA and the director of FEMA seeking coverage for damage to the beach house. ² USAA moved for summary judgment in November 1996 to dismiss all claims with prejudice. The McHughs filed a cross-motion for summary judgment a month later asking the district court to hold that their claim was covered by the policy as a matter of law.

On December 6, 1996, the district court ³ granted USAA's motion for summary judgment, holding the damage to the McHughs' home was caused by a landslide, not a mudslide, and therefore was excluded from coverage under the SFIP. See McHugh v. United Service Automobile Ass'n, No. C95-5702JKA

(W.D.Wash. Dec. 6, 1996) (Order Granting Defendant's Motion for Summary Judgment). This appeal followed.

DISCUSSION

The law is clear that, as contracts, SFIPs issued under the National Flood Insurance Program ("NFIP") are governed by federal law applying standard insurance law principles. See, e.g., Brazil v. Giuffrida, 763 F.2d 1072, 1075 (9th Cir.1985); Carneiro Da Cunha, 129 F.3d at 584. Federal common law therefore controls the interpretation of these insurance policies. Sodowski v. Nat'l Flood Ins. Program of Federal Emergency Management Agency, 834 F.2d 653, 655 (7th Cir.1987). Furthermore, the interpretation of the insurance policy is a question of law for the court and is reviewed de novo. See Stanford Ranch, Inc. v. Maryland Cas. Co., 89 F.3d 618, 624 (9th Cir.1996) (stating that "[t]he interpretation of an insurance policy is a question of law"); Sodowski, 834 F.2d at 655 (analyzing the application of the SFIP as a matter of law on de novo review); Brazil, 763 F.2d at 1075 (stating that a reviewing court reviews de novo the district court's interpretation of an insurance policy).

There were two diverging expert testimonies in this case. Although experts may disagree in their conclusions, their testimony cannot be used to provide legal meaning or interpret the policies as written. See Crow Tribe of Indians v. Racicot, 87 F.3d 1039, 1045 (9th Cir.1996) (stating that expert testimony is not proper for issues of law because the role of experts is to interpret and analyze factual evidence and not to testify about the law); Maffei v. Northern Ins. Co. of New York, 12 F.3d 892, 898-99 (9th Cir.1993) (holding that an insurance expert's declaration that sulphur dioxide cloud constituted a "hostile fire" as described in insured's policies was improper expert testimony); Aguilar v. Int'l Longshoremen's Union Local No. 10, 966 F.2d 443, 447 (9th Cir.1992) (stating that matters of law are "inappropriate subjects for expert testimony"). Therefore, we view the experts' testimony in this case as only relevant for the historical facts that they observed and not for their legal conclusions as to what conditions were covered or excluded under the terms of the policy.

The historical facts of this case are not in dispute. Robert Pride, the McHughs' expert, characterized the event as a "saturated soil mass that flowed down towards the [McHughs'] house." ER at 138. He stated that this signified to him the fluid movement of saturated soils, whatever their makeup. ER at 125-26. The insurance company's expert did not differ from this observation. In fact, Martin Page, the defendant's geo-technical engineer, also characterized the event as "a saturated mass of soil and trees" that slid down the slope. ER at 16-17. Page stated in his report:

The slide debris generally...