Southpointe Villas Homeowners v. Scottish Ins., No. CIV.A.4:01-3847-23.

• Decision Date: 11 April 2002
• Docket Number: No. CIV.A.4:01-3847-23.
• Citation: 213 F.Supp.2d 586
• Court: U.S. District Court — District of South Carolina
• Parties: SOUTHPOINTE VILLAS HOMEOWNERS ASSOCIATION, INC., Plaintiff, v. The SCOTTISH INSURANCE AGENCY, INC.; Security Insurance Company of Hartford; and Royal & Sunalliance Personal Insurance Company, Defendant.

213 F.Supp.2d 586

SOUTHPOINTE VILLAS HOMEOWNERS ASSOCIATION, INC., Plaintiff, v. The SCOTTISH INSURANCE AGENCY, INC.; Security Insurance Company of Hartford; and Royal & Sunalliance Personal Insurance Company, Defendant.

No. CIV.A.4:01-3847-23.

United States District Court, D. South Carolina, Florence Division.

April 11, 2002.

Gene McCain Connell, Jr, Kelaher Connell and Connor PA, Surfside Beach, SC, for plaintiff.

Morris Dawes Cooke, Jr, David L Harrell, Barnwell Whaley Patterson and Helms LLC, Bradish Johnson Waring, Young Clement Rivers and Tisdale, Charleston, SC, for defendant.

ORDER

DUFFY, District Judge.

This matter is before the Court upon Plaintiff Southpointe Villas Homeowners Association's Motion for Remand. Defendants removed this action on September 26, 2001. Plaintiff argues that the Court lacks subject-matter jurisdiction to entertain its claims. Specifically, Plaintiff argues that the Court has neither federal question jurisdiction, pursuant to 42 U.S.C. § 4072 or 28 U.S.C. § 1331, nor diversity jurisdiction pursuant to 28 U.S.C. § 1332.

BACKGROUND

The Plaintiff is a homeowner's association that purchased flood insurance from Defendants. Plaintiff, alleges that Defendants overcharged Plaintiff for flood insurance over the course of "many years." Defendants have refunded overcharged premiums for the years 1999-2000 and 2000-2001, but refuse to refund any premiums for years prior to 1999 as they contend that the National Flood Insurance Program's Flood Insurance Manual prohibits such refunds.

Plaintiff originally filed this action in the Horry County Court of Common Pleas on July 11, 2001. Defendants removed this case on September 26, 2001 alleging federal question jurisdiction pursuant to 42 U.S.C. § 4072 and 28 U.S.C. § 1331. Plaintiff timely filed its Motion to Remand on October 16, 2001.

The flood insurance purchased by Plaintiff is part of the National Flood Insurance Program (NFIP). Congress established the NFIP in 1968 pursuant to the National Flood Insurance Act (NFIA), 42 U.S.C. § 4001 et seq. The NFIP is federally subsidized and currently administered by the Federal Emergency Management Agency (FEMA). 42 U.S.C. §§ 4001-4129. In 1983, FEMA promulgated regulations that enabled the agency to use private insurers, called Write-Your-Own insurance companies (WYO), as intermediaries in providing flood insurance. See 44 C.F.R. § 61.13(f).¹ The flood insurance policies issued under the NFIP are called Standard Flood Insurance Policies (SFIPs).² FEMA regulations exclusively establish the terms of the SFIP as well as the rate structures and premium costs. WYO companies market, issue, and handle claims adjustment of these SFIPs.³

WYO companies issue SFIPs in their own names. 44 C.F.R. § 61.13(f), 62.23(a). These companies collect premiums in segregated accounts from which they pay claims and make necessary refunds under those policies. 44 C.F.R. Pt. 62, App. A, Arts. II(E), III(D), and III(E). After deducting the companies' fees and administrative costs, premiums collected from policy holders are deposited in the National Flood Insurance Fund in the U.S. Treasury. 42 U.S.C. § 4017(d). When the WYO companies lack sufficient funds in their segregated accounts, they draw on FEMA letters of credit from the U.S. Treasury to pay claims and make refunds. While WYO companies defend against claims, FEMA reimburses them for certain defense costs, 44 C.F.R. § 62.23(i)(6),⁴ because WYO companies are fiscal agents of the United States, 42 U.S.C. § 4071(a)(1).⁵

Congress established the NFIP "among other things, to limit the damage caused by flood disasters through prevention and protective measures, spread the risk of flood damage among many private insurers and the federal government, and make flood insurance `available on reasonable terms and conditions' to those in need of it." Van Holt v. Liberty Mut. Fire Ins. Co., 163 F.3d 161, 165 (3d Cir.1998) (quoting 42 U.S.C. § 4001(a)). The NFIP was particularly necessary given the unavailability of flood insurance from private insurance companies unable to provide flood insurance on an economically feasible basis. 42 U.S.C. §§ 4001 & 4002. To encourage private insurers to provide flood insurance, the federal government provides a number of incentives already noted above. First, the government bears the ultimate responsibility for financing. 44 C.F.R. § 62.23(f); 44 C.F.R. Pt. 62, App. A, Arts. II(E), IV(A), VII(A). Second, the government provides commissions on all benefit payments made by WYOs. 44 C.F.R. Pt. 62, App. A, art. III(C)(1).

REMOVAL STANDARD

Removal statutes must be construed strictly against removal. Mulcahey v. Columbia Organic Chem. Co., Inc., 29 F.3d 148, 151 (4th Cir.1994). The party seeking removal bears the burden of establishing the right to removal, including compliance with the jurisdictional requisites. Id. "If federal jurisdiction is doubtful, a remand is necessary." Handyman Network, Inc. v. Westinghouse Savannah River Co., 868 F.Supp. 151, 153 (D.S.C. 1994) (citing Mulcahey v. Columbia Organic Chemicals Co., Inc., 29 F.3d 148, 151 (4th Cir.1994)); see also Whitman v. Raley's, Inc., 886 F.2d 1177, 1180 (9th Cir. 1989). In order for a defendant to remove a case filed in state court, there must exist original federal jurisdiction. 28 U.S.C. § 1441(a). Removal jurisdiction is determined on the basis of the state court complaint at the time of removal, and the removing party bears the burden of establishing the existence of federal jurisdiction. Woodward v. Newcourt Comm. Fin. Corp., 60 F.Supp.2d 530, 531 (D.S.C.1999). It is uncontested that this case involves non-diverse parties and that the Court, therefore, does not have diversity jurisdiction. See 28 U.S.C. § 1332. Thus, the only question is whether there is subject-matter jurisdiction pursuant to 42 U.S.C. § 4072 or 28 U.S.C. § 1331.

DISCUSSION

I. 42 U.S.C. § 4072 Jurisdiction

42 U.S.C. § 4072 provides as follows:

In the event the 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 vests district courts with original exclusive jurisdiction over suits by claimants against WYO companies based on partial or total disallowance of claims for insurance arising out of the National Flood Insurance Act." Van Holt v. Liberty Mutual Fire Insurance Co., 163 F.3d 161, 167 (3rd Cir.1998) (emphasis added). Plaintiff argues, however, that "42 U.S.C. § 4072 is not applicable because this is not a claim for a flood loss." (Pl's. Mot. Remand at 1) (emphasis added on "flood loss"). Specifically, Plaintiff contends that this suit is simply for a "refund of overcharged premiums." (Pl's. Mem. Supp. Mot. Remand at 1).

Defendants respond that "[w]hen the Plaintiff filed suit to collect premiums, the Plaintiff made a `claim' under the policy, and therefore, this matter is subject to the exclusive, original jurisdiction of the Federal Court." (Def.s' Mem. Opp. Mot. Remand at 4). The issue therefore is whether Plaintiff's suit for overcharged premiums constitutes a "claim[] for proved and approved losses covered by flood insurance." 42 U.S.C. § 4072.

On the facts of this case, Section 4072 does not grant the Court original exclusive jurisdiction over Plaintiff's claims. Plaintiff has no flood loss, therefore, there has been no "proved or approved losses" or any "disallowance" of a claim by the Director. See 42 U.S.C. § 4072. Rather, Plaintiff seeks the refund of overcharged premiums and all such related damages, actual and punitive. "42 U.S.C. § 4072 addresses itself solely to actions arising from partial or complete disallowance of flood insurance policy claims." Spence v. Omaha Indem. Ins. Co., 996 F.2d 793, 796 (5th Cir.1993). Plaintiff's claims simply do not satisfy the plain language of Section 4072.

This conclusion, however, does not end the jurisdictional inquiry. In the alternative, Defendants argue that subject-matter jurisdiction properly lies in this Court pursuant to 28 U.S.C. § 1331.

II. 28 U.S.C. § 1331 Jurisdiction

Section 1331 provides that the "district courts shall have original jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the United States." 28 U.S.C. § 1331. The meaning of the phrase "arising under" is not for want of Supreme Court precedent regarding its meaning and effect. Most important, "a cause of action arises under federal law only when the plaintiff's well-pleaded complaint raises issues of federal law." Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 63, 107 S.Ct. 1542, 95 L.Ed.2d 55 (1987); see Louisville & Nashville Railroad v. Mottley, 211 U.S. 149, 29 S.Ct. 42, 53 L.Ed. 126 (1908). A defendant may not remove a case on the basis of an anticipated or even inevitable federal defense, but instead must show that a federal right is an essential element of the plaintiff's cause of action. Gully v. First Nat'l Bank, 299 U.S. 109, 57 S.Ct. 96, 81 L.Ed. 70 (1936); see also Merrell Dow Pharmaceuticals Inc. v. Thompson, 478 U.S. 804, 808, 106 S.Ct. 3229, 92 L.Ed.2d 650 (1986) ("A defense that raises a federal question is inadequate to confer federal jurisdiction.").

However, even when no federal claim appears on the face of the complaint, the Court may still...