Wright v. Director, Federal Emergency Management Agency, 89-4033

• Decision Date: 11 October 1990
• Docket Number: No. 89-4033,89-4033
• Citation: 913 F.2d 1566
• Parties: Jerry J. WRIGHT, Plaintiff-Appellee, v. DIRECTOR, FEDERAL EMERGENCY MANAGEMENT AGENCY, Defendant-Appellant.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1566

913 F.2d 1566

Jerry J. WRIGHT, Plaintiff-Appellee, v. DIRECTOR, FEDERAL EMERGENCY MANAGEMENT AGENCY, Defendant-Appellant.

No. 89-4033.

United States Court of Appeals Eleventh Circuit.

Oct. 11, 1990.

Samuel A. Alter, Jr., Asst. U.S. Atty., Lyndia P. Barrett, Pensacola, Fla., Ellen M. Neubauer, Federal Emergency Management Agency, Lori M. Beranek, Michael J. Singer, Dept. of Justice, Civ. Div., Appellate Staff, Washington, D.C., for defendant-appellant.

George H. Gwynn, T. Whitney Strickland, Jr., Owen, Gwynn & Lewis, Tallahassee, Fla., for plaintiff-appellee.

Appeal from the United States District Court for the Northern District of Florida.

Before TJOFLAT, Chief Judge, FAY Circuit Judge, and HOFFMAN ^*, Senior District Judge.

FAY, Circuit Judge:

Defendant-Appellant, the Director of the Federal Emergency Management Agency ("FEMA"), seeks reversal of a district court order granting summary judgment for plaintiff-appellee, whose home had been covered by a flood insurance policy issued under the National Flood Insurance Program. The district court held that a regulation promulgated by FEMA effective October 1, 1988, which eliminated an exclusion for ground level structures and contents of certain elevated buildings, applied retroactively to plaintiff's flood losses in August and September of 1985. Because we think that the district court erred in giving the 1988 regulation retroactive effect to cover flood losses that occurred more than two years prior to the effective date of the new regulation, we VACATE the district court's order and REMAND for judgment in favor of FEMA.

BACKGROUND

In 1968, pursuant to the National Flood Insurance Act ("the Act"), Congress authorized the National Flood Insurance Program ("the Program"), a federally subsidized effort to make flood insurance affordable on a nationwide basis to those in need of such protection. 42 U.S.C. Sec. 4001(d)(1) (1988). FEMA administers the Program. ¹ Consequently, the Act authorizes the Director of FEMA to "provide by regulation for general terms and conditions of insurability" for eligible properties, after consulting with an advisory committee, as well as representatives of a pool of private insurers and state insurance authorities. 42 U.S.C. Sec. 4013(a). The terms and conditions of policies issued under the Program are stated in the standard policy issued to each insured, and also appear in the Code of Federal Regulations as administrative regulations, subject to procedural requirements such as notice and comment. ²

This case arose from the partial denial of two claims submitted by plaintiff-appellee Wright under standard policies issued by FEMA pursuant to the Program. Wright, the owner of residential property in West Indian Pass, Florida, suffered flood damage to the property on two separate occasions: during Hurricane Alena on August 31, 1985, and again during Hurricane Kate on November 21, 1985. At both times, a Standard Flood Insurance Policy ³ ("SFIP") issued by FEMA was in full force and effect. ⁴ Wright submitted claims for his losses to FEMA.

In each instance, FEMA paid a portion of Wright's claim, but denied coverage for damage to structural components and personal property within the lowest level of plaintiff's structure. This was because Article V(F) of the SFIP excluded coverage for damage to enclosures and contents of floors lower than the lowest elevated floor in an "elevated building." 44 C.F.R. Pt. 61 App. A(1), Art. V(F) (1985). FEMA denied full coverage to Wright's residence because it determined the dwelling to be an "elevated building" within the meaning of the policy. Wright then filed an action in the district court challenging FEMA's denial of coverage. The parties filed cross-motions for summary judgment on the issue of whether Wright's residence was an "elevated building."

On January 11, 1989, the district court found that Wright's dwelling was in fact an "elevated building," a conclusion which would have placed Wright's damages within the ambit of the policy exclusion, and consequently justified FEMA's denial of coverage. The district court, however, stayed its decision, and asked the parties to submit briefs concerning the applicability of an October 1, 1988 amendment to the SFIP ("October Amendment"). See 53 Fed.Reg. 27,989 (July 26, 1988). If retroactively applicable, the narrower, amended exclusion clause would no longer encompass Wright's residence, and he would be able to recover from FEMA. ⁵

Upon re-briefing, the district court granted summary judgment in favor of Wright. Applying Bradley v. Richmond School Board, 416 U.S. 696, 711, 94 S.Ct. 2006, 2016, 40 L.Ed.2d 476 (1974), the court stated that it must apply the law in effect at the time it rendered its decision. It therefore found that the October Amendment to Article V(F) of the SFIP applied retroactively to the policies under which Wright sustained losses. ⁶ The court held that the "exclusion of Article V(F) as found in the Code of Federal Regulations prior to October 1, 1988, does not apply, and the amended Article V(F) which would allow coverage for pre-FIRM buildings does apply." FEMA appeals this retroactive application of the 1988 regulation.

DISCUSSION

Preliminarily, we note that the Eighth Circuit has very recently visited the identical question raised in this case, holding that "the October 1, 1988, amendment of the elevated structure exclusion does not have retrospective effect." Criger v. Becton, 902 F.2d 1348, 1355 (8th Cir.1990). For the reasons set forth below, we are in accord with the Eighth Circuit's position. ⁷

We begin by taking issue with the district court's conceptualization of the insurance policies issued by the National Flood Insurance Program. FEMA argued that the October Amendment should not apply retroactively because it was not adopted during the existence of the insurance policies at issue in this case. The district court viewed this argument as raising "the question of whether the agreement between the parties should be treated strictly as a contract or as a legal relationship controlled by the regulatory process." Indeed, the district court itself suggested that if the policies were viewed as insurance agreements "negotiated through the typical bargaining process, I would be inclined to agree with [FEMA] that the new regulation should not apply to a contract which terminated prior to the date of the amendment." The court felt, however, that because of various aspects of federal involvement with the Program, the policies issued by FEMA were better analogized to "public benefits provided by the federal government to a certain class of individuals."

We feel that the district court's view of the policies involved here as "public benefits" is simply incorrect. It is certainly true that the Program is a hybrid creature of federal government and private insurance company cooperation. See 42 U.S.C. Sec. 4001(d)(1). But characterizing the Program in terms of "government benefits" ignores its essential framework and design; it is a program devised to provide individual insurance contracts to purchasers. Thus, the mere fact that the Program is federally subsidized "does not compel the conclusion that the premiums insureds pay are not expected to defray the cost of covering the risk." Criger, 902 F.2d at 1351. The Program authorizes estimation of premium rates according to standard insurance risk and actuarial studies, 42 U.S.C. Sec. 4014 (1988), and "it is clear that Congress did not intend to abrogate standard insurance law principles which affect such estimates and risks." Drewett v. Aetna Casualty & Sur. Co., 539 F.2d 496, 498 (5th Cir.1976); accord Atlas Pallet, Inc. v. Gallagher, 725 F.2d 131, 135 (1st Cir.1984). Although the Program "offers subsidized flood insurance, it is designed to operate much like any private insurance company." Drewett, 539 F.2d at 498. ⁸

Furthermore, it is well settled that an insurance policy is a contract. See e.g., Clyce v. St. Paul Fire & Marine Ins. Co., 850 F.2d 1398, 1401 (11th Cir.1987). FEMA's administration of the insurance program does nothing to alter the status of the policies as insurance contracts. ⁹ As contracts, the standard policies issued under the Program are governed by federal law, see West v. Harris, 573 F.2d 873, 880-81 (5th Cir.1978), cert. denied, 440 U.S. 946, 99 S.Ct. 1424, 59 L.Ed.2d 635 (1979), applying "standard insurance law principles." Id. at 481; Drewett, 539 F.2d at 498.

In construing the policies, it "is a basic tenet of insurance law that each time an insurance contract is renewed, a separate and distinct policy comes into existence." Hercules Bumpers, Inc. v. First State Ins. Co., 863 F.2d 839, 842 (11th Cir.1989). ¹⁰ In this case, the policies applicable to Wright's losses terminated on September 25, 1985, and September 25, 1986, respectively. These terms, i.e. the policy terms in effect at the time of the flood loss, dictated the contractual conditions of plaintiff's relationship with the government. The terms provided that the ground level contents of elevated buildings such as Wright's residence were explicitly excluded from coverage, and we see no contractual grounds for incorporating into the terms a change in regulations that took effect two years after Wright's applicable policies had expired.

Moreover, we see no reason to alter this conclusion by treating the standard policies issued through the Program differently from other insurance contracts, simply because their terms are set forth in the form of administrative regulations. As the Eighth Circuit recently pointed out with regard to the elevated structure exclusion:

The regulation at issue is, in effect, a term of an insurance policy. FEMA determines policy terms through ordinary administrative rulemaking simply because the flood insurance program is federally mandated and Congress has vested the agency with responsibility for promulgating policy terms. See 42 U.S.C. Sec....