Wagner v. Director, Federal Emergency Management Agency

• Decision Date: 20 May 1988
• Docket Number: No. 87-6108,87-6108
• Citation: 847 F.2d 515
• Parties: Christian WAGNER and Rosemarie Wagner, Plaintiffs-Appellees, v. DIRECTOR, FEDERAL EMERGENCY MANAGEMENT AGENCY, Defendant-Appellant. Ms. Dolphia BLOCKER, Mr. & Mrs. James Digby, Mr. & Mrs. William Frumovitz, Mr. & Mrs. Edward Gomoll, Mr. & Mrs. Brian Grazer, Ms. Eleanor Mirsky, Mr. Pernell Roberts, Ms. Kara Knack, Plaintiffs-Appellees, v. DIRECTOR, FEDERAL EMERGENCY MANAGEMENT AGENCY, Defendant-Appellant. Gerald BRESLAUER, Trustee of the Pacific Coast Highway Security Trust, and Robert Ferguson, Plaintiffs-Appellees, v. DIRECTOR, FEDERAL EMERGENCY MANAGEMENT AGENCY, Defendant-Appellant. Samuel and Carolyn BLACK, Stephen and Brigette Bosustow, Sumi Tatsui, Anthony and Hedy Stute, Plaintiffs-Appellees, v. DIRECTOR, FEDERAL EMERGENCY MANAGEMENT AGENCY, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 515

847 F.2d 515

Christian WAGNER and Rosemarie Wagner, Plaintiffs-Appellees, v. DIRECTOR, FEDERAL EMERGENCY MANAGEMENT AGENCY, Defendant-Appellant.

Ms. Dolphia BLOCKER, Mr. & Mrs. James Digby, Mr. & Mrs.

William Frumovitz, Mr. & Mrs. Edward Gomoll, Mr. & Mrs.

Brian Grazer, Ms. Eleanor Mirsky, Mr. Pernell Roberts, Ms.

Kara Knack, Plaintiffs-Appellees, v. DIRECTOR, FEDERAL EMERGENCY MANAGEMENT AGENCY, Defendant-Appellant.

Gerald BRESLAUER, Trustee of the Pacific Coast Highway

Security Trust, and Robert Ferguson, Plaintiffs-Appellees, v. DIRECTOR, FEDERAL EMERGENCY MANAGEMENT AGENCY, Defendant-Appellant.

Samuel and Carolyn BLACK, Stephen and Brigette Bosustow, Sumi Tatsui, Anthony and Hedy Stute, Plaintiffs-Appellees, v. DIRECTOR, FEDERAL EMERGENCY MANAGEMENT AGENCY, Defendant-Appellant.

No. 87-6108.

United States Court of Appeals Ninth Circuit.

Argued and Submitted March 9, 1988.

Decided May 20, 1988.

Gregory C. Sisk, Civ. Div., Dept. of Justice, Washington, D.C., for defendant-appellant.

Deborah J. Goldman, Lillick McHose & Charles, Los Angeles, Cal., for plaintiffs-appellees.

Appeal from the United States District Court for the Central District of California.

Before HUG, ALARCON and KOZINSKI, Circuit Judges.

KOZINSKI, Circuit Judge:

Plaintiffs sue to recover benefits under a Standard Flood Insurance Policy (SFIP) issued pursuant to the National Flood Insurance Act, 42 U.S.C. Secs. 4001-4128 (1982 &amp Supp. III 1985). We consider whether they have satisfied the procedural requirements for maintaining the action and whether the SFIP covers losses caused by a flood-induced landslide.

Facts

Plaintiffs own homes in the Big Rock Mesa area of Malibu, California. Their properties are situated on an ancient landslide that had been dormant. Unusually heavy rainfall during the winter of 1982-1983 and the discharge of effluent from defective septic systems raised the ground water level in the Big Rock Mesa area, saturating and destabilizing the subsurface soil. The rise in ground water thus contributed to the reactivation of the landslide, damaging plaintiffs' property and threatening further damage should the landslide continue.

Each of the plaintiffs had insured his property against "all direct physical loss by flood" with an SFIP issued by the National Flood Insurance Program (NFIP), which provides federally subsidized flood insurance at or below actuarial rates. Since 1979, the Director of the Federal Emergency Management Agency (FEMA) has administered the program for the federal government through the Federal Insurance Administration. ¹ In order to qualify for flood insurance benefits, a claimant must submit a signed and sworn proof of loss to FEMA within 60 days after the loss has occurred. SFIP, art. VIII, p I(4), published at 44 C.F.R. pt. 61, App. A(1) (1982). ² If FEMA disallows the claim, the claimant must file any action in federal district court within one year after the mailing of the notice of disallowance. 42 U.S.C. Sec. 4072 (1982); SFIP, art. VIII, p Q.

Plaintiffs advised FEMA informally of the loss and eventually most of them filed the required formal proofs of loss. None did so, however, until April 1984, seven months after Los Angeles County officials had notified them that their homes were located in an unstable area. In February 1984, FEMA sent adjusters and an engineering firm to conduct a limited investigation of plaintiffs' claims. The investigators determined that the properties had not been inundated by flowing surface waters and that all of the damage resulted from the landslide. FEMA thereupon sent letters to plaintiffs denying coverage on the ground that the policy excluded the type of loss they had suffered.

Plaintiffs filed four separate actions against FEMA for breach of the insurance contract. After the actions were consolidated, both sides filed motions for summary judgment. The district court granted plaintiffs' motion and then granted final judgment in the amount of each plaintiff's policy limit.

Contentions of the Parties

FEMA argues that the district court erred with respect to both the procedural and substantive issues raised by plaintiffs' claims. It contends that all plaintiffs are barred from maintaining their suits because they failed to submit timely proofs of loss, while some are also barred because they brought suit more than a year after FEMA disallowed their claims. As to any plaintiffs that successfully vault the procedural hurdles, FEMA argues that their losses were caused not by a flood but by a landslide, a hazard specifically excluded by the SFIP.

Plaintiffs, on the other hand, argue that failure to file a timely proof of loss does not bar suit and that, in any event, FEMA is estopped from relying on that ground. As to the statute of limitations, plaintiffs argue that letters they received from FEMA after the initial disallowance restarted the limitations period and that their lawsuits were therefore timely. On the merits, plaintiffs contend that the subsurface saturation constituted a flood within the meaning of the policy and that their losses were the direct, proximate result of that flood.

Discussion

I

Before deciding whether the SFIP covers the losses suffered by plaintiffs, we must first determine whether they have satisfied the prerequisites established by the policy and federal regulations for maintaining this action. The SFIP's procedural requirements must be taken seriously: They constitute conditions precedent to a waiver by the federal government of its sovereign immunity, conditions that define our jurisdiction. See, e.g., United States v. Mottaz, 476 U.S. 834, 841, 106 S.Ct. 2224, 2229, 90 L.Ed.2d 841 (1986); Block v. North Dakota, 461 U.S. 273, 287, 103 S.Ct. 1811, 1819, 75 L.Ed.2d 840 (1983); United States v. Sherwood, 312 U.S. 584, 586, 61 S.Ct. 767, 769, 85 L.Ed. 1058 (1941). Because waivers of sovereign immunity are construed narrowly, Lehman v. Nakshian, 453 U.S. 156, 160-61, 101 S.Ct. 2698, 2701-02, 69 L.Ed.2d 548 (1981), the conditions of an insurance policy offered pursuant to a congressionally mandated program, such as the NFIP, must be strictly observed. Federal Crop Ins. Corp. v. Merrill, 332 U.S. 380, 385, 68 S.Ct. 1, 3, 92 L.Ed. 10 (1947); see Rock Island, Ark. & La.R.R. v. United States, 254 U.S. 141, 143, 41 S.Ct. 55, 56, 65 L.Ed. 188 (1920) (Holmes, J.) ("[m]en must turn square corners when they deal with the Government"). FEMA warned plaintiffs as much: "You may not sue us to recover money under this policy unless you have complied with all the requirements of the policy." SFIP, art. VIII, p Q. We examine whether plaintiffs have done so.

A. Proof of Loss

The SFIP requires claimants to submit a signed and sworn proof of loss setting out the nature, cause and value of the loss, as well as their interest in the damaged property. ³ The policy requires that the formal proof be submitted to FEMA within 60 days after the loss. None of the plaintiffs filed a proof of loss within 60 days of first learning of the loss in September 1983.

1. Plaintiffs argue that FEMA is equitably estopped from asserting this procedural default as a defense. The district court agreed, concluding that "[p]laintiffs reasonably relied, to their detriment, on FEMA's own delay in not raising the subject of the proofs of loss for an appreciable period after FEMA had become aware and actually began investigation of claims in the Big Rock Mesa area." Wagner v. Director FEMA, 658 F.Supp. 1530, 1538 (C.D.Cal.1987). The court held that estoppel was appropriate because plaintiffs' interest in obtaining flood insurance benefits outweighed FEMA's interest in enforcement of this "stunted technicality." Id.

The Supreme Court has long held that the federal government "may not be estopped on the same terms as any other litigant" from insisting on compliance with legal requirements. Heckler v. Community Health Servs., Inc., 467 U.S. 51, 60, 104 S.Ct. 2218, 2224, 81 L.Ed.2d 42 (1984); see also Schweiker v. Hansen, 450 U.S. 785, 788, 101 S.Ct. 1468, 1470, 67 L.Ed.2d 685 (1981) (per curiam); Merrill, 332 U.S. at 383, 68 S.Ct. at 2; Lee v. Munroe & Thornton, 11 U.S. (7 Cranch) 366, 369, 3 L.Ed. 373 (1813). Because the federal government's "fiscal operations are so various, and its agencies so numerous and scattered," there is always a risk that misinformed agency employees and representatives may err in interpreting statutes and regulations, and even "the utmost vigilance would not save the public from the most serious losses." United States v. Kirkpatrick, 22 U.S. (9 Wheat.) 720, 735, 6 L.Ed. 199 (1824); see Phelps v. FEMA, 785 F.2d 13, 17 (1st Cir.1986). Moreover, "[t]he government could scarcely function if it were bound by its employees' unauthorized representations." Goldberg v. Weinberger, 546 F.2d 477, 481 (2d Cir.1976), cert. denied sub nom. Goldberg v. Califano, 431 U.S. 937, 97 S.Ct. 2648, 53 L.Ed.2d 255 (1977).

The Supreme Court has stopped short, however, of holding "that there are no cases " in which the public interest behind the government estoppel doctrine "might be outweighed by the countervailing interest of citizens in some minimum standard of decency, honor, and reliability in their dealings with their Government." Community Health Services, 467 U.S. at 60-61, 104 S.Ct. at 2224-25 (emphasis original). We have therefore adopted a less absolute but nevertheless stringent test: A party seeking to raise estoppel against the government must establish "affirmative misconduct going beyond mere negligence"; even then, "estoppel will only apply where the government's wrongful act will cause a serious injustice, and the public's interest will not suffer undue damage by imposition of the liability." Morgan v. Heckler, 779 F.2d 544, 545 (9th Cir.1985); Mukherjee v. INS, 793 F.2d 1006, 1008-09 (9th Cir.1986). "A mere failure to inform or assist does not justify application of equitable estoppel." Lavin v. Marsh, 644 F.2d 1378, 1384 (9th Cir.1981)...