Simmons et al v. Mississippi Farm Bureau Casualty Insurance Company

Filing 18

MEMORANDUM OPINION re 17 Order on Motion to Remand to State Court. Signed by Glen H. Davidson on 7/29/13. (tab)

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF MISSISSIPPI

GREENVILLE DIVISION

LEE SIMMONS, et ux., and PAULA SIMMONS
v.

PLAINTIFFS

CIVIL ACTION NO. 4: 12-CV-00063-GHD-JMV

MISSISSIPPI FARM BUREAU CASUALTY INSURANCE COMPANY

DEFENDANT

MEMORANDUM OPINION GRANTING PLAINTIFFS' MOTION TO REMAND
Presently before this Court is Plaintiffs' motion to remand the case to state court [7].
Upon due consideration, the Court finds that the motion is well taken.

A. Factual and Procedural Background
On May 18, 2012, Plaintiffs filed a complaint in the Circuit Court of Sunflower County,
Mississippi, against Mississippi Farm Bureau Casualty Insurance Company ("Defendant") to
recover for Defendant's alleged misrepresentations and failure to procure a flood insurance
policy that would have covered flood damage to Plaintiffs' real property. Defendant timely
removed this case on the basis of federal question jurisdiction and filed its answer and
affirmative defenses [5]. Plaintiffs subsequently filed a motion to remand [7] the case to state
court, Defendants filed a response, and Plaintiffs filed a reply. The matter is now ripe for
review.

B. Standard ofReview
The removal statute provides in pertinent part:
Except as otherwise expressly provided by Act of Congress, any
civil action brought in a State court of which the district courts of
the United States have original jurisdiction, may be removed by
the defendant or the defendants, to the district court of the United
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States for the district and division embracing the place where such
action is pending.
28 U.S.C. § 1441(a). A case may be remanded upon a motion filed within thirty days after the
filing of the notice of removal on any defect except subject matter jurisdiction, which can be
raised at any time by any party or sua sponte by the court. See Wachovia Bank, N.A. v. PICC

Prop. & Cas. Co., 328 F. App'x 946, 947 (5th Cir. 2009). "If at any time before final judgment
it appears that the district court lacks subject matter jurisdiction, the case shall be remanded." 28
U.S.C. § 1447(c). Any "doubts regarding whether removal jurisdiction is proper should be
resolved against federal jurisdiction." Acuna v. Brown & Root Inc., 200 F.3d 335, 339 (5th Cir.
2000).
Federal diversity jurisdiction requires complete diversity between all plaintiffs and all
defendants and an amount in controversy that exceeds $75,000.00. See 28 U.S.C. § 1332(a). In
the case sub judice, there is no question that Plaintiffs and Defendant are Mississippi citizens for
purposes of diversity jurisdiction, and thus, that diversity jurisdiction is not a removable basis.
Thus, the sole issue before the Court is whether the Court has subject matter jurisdiction over
this matter based on federal question jurisdiction. See 28 U.S.C. § 1331.
The party seeking removal bears the burden of demonstrating that a federal question
exists. Gutierrez v. Flores, 543 F.3d 248 (5th Cir. 2008). A federal question exists "if there
appears on the face of the complaint some substantial, disputed question of federal law." In re

Hot-Hed, Inc., 477 F.3d 320 (5th Cir. 2007) (citing Franchise Tax Bd. v. Constr. Laborers
Vacation Trust, 463 U.S. 1, 12, 103 S. Ct. 2841, 77 L. Ed. 2d 420 (1983». Whether a case is
removable upon the basis of federal question jurisdiction is to be determined by the allegations
of the plaintiff's "well-pleaded complaint" as of the time of removal.
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See, e.g., Medina v.

Ramsey Steel Co., 238 F.3d 674, 680 (5th Cir. 2001); Avitts v. Amoco Prod. Co., 53 F.3d 690,
693 (5th Cir. 1995).

Plaintiff is the master of his complaint, and he may avoid federal

jurisdiction by exclusive reliance on state law. Lorenz v. Tex. Workforce Com 'n, 211 F. App'x
242, 244 (5th Cir. 2006) (per curiam). Thus, if, on its face, the plaintiffs complaint raises no
issue of federal law, federal question jurisdiction is lacking. Hart v. Bayer Corp., 199 F.3d 239,
244 (5th Cir. 2000) (citing Franchise Tax Bd., 463 U.S. at 10, 103 S. Ct. 2841).
A plaintiff, however, cannot defeat removal of a federal claim by "artfully pleading" it as
a state-law claim. Terrebonne Homecare, Inc. v. SMA Health Plan, Inc., 271 F.3d 188 (5th Cir.
2001) (citing Rivet v. Regions Bank a/La., 522 U.S. 470, 475, 118 S. Ct. 921, 139 L. Ed. 2d 912
(1998)). The artful pleading doctrine allows removal where federal law completely preempts a
plaintiffs state-law claim. Bernhard v. Whitney Nat 'I Bank, 523 F.3d 546 (5th Cir. 2008) (citing

Rivet, 522 U.S. at 475, 118 S. Ct. 921). Federal question jurisdiction exists when a state law is
completely preempted because "there is, in short, no such thing as a state-law claim." Id. at 551
(citing Beneficial Nat'l Bank v. Anderson, 539 U.S. 1, 11, 123 S. Ct. 2058, 156 L. Ed. 2d 1
(2003)).
C. Discussion

Plaintiffs purchased flood insurance through the Federal Emergency Management
Agency's ("FEMA"'s) Write Your Own ("WYO") flood insurance program under the National
Flood Insurance Act (the "NFIA").! "Federal law preempts state[ -]law tort claims arising from
claims handling by a WYO." Campo v. Allstate Ins. Co., 562 F.3d 751, 754 (5th Cir. 2009)
(quoting Wright v. Allstate Ins. Co., 415 F.3d 384, 390 (5th Cir. 2005) (internal quotation marks
1 The NFIA defmes the term "Write Your Own" as "the cooperative undertaking between the insurance
industry and the Federal Insurance Administration which allows participating property and casualty insurance
companies to write and service standard flood insurance policies." See 42 U.S.c. § 4004(a)(5).

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omitted; emphasis added).

However, "federal law does not preempt state-law procurement-

based claims." Id. at 757 (emphasis added). The issue before this Court in the case sub judice is
whether Plaintiffs' claims concern the handling or procurement of the flood insurance policy,
and thus whether Plaintiffs' case is properly removed to this Court based on federal question
jurisdiction.
The Fifth Circuit has explained the National Flood Insurance Program as follows:
By enacting the National Flood Insurance Act of 1968, 42 U.S.C. §
4001 et seq., Congress established the Program to make flood
insurance available on reasonable terms and to reduce fiscal
pressure on federal flood relief efforts. FEMA administers the
Program. [See 42 U.S.C. § 401 I (a) (2006).] Within the Program,
the WYO program allows private insurers to issue flood insurance
policies in their own names. Under this framework, the federal
government underwrites the policies and private WYO carriers
perform significant administrative functions including "arrang[ing]
for the adjustment, settlement, payment and defense of all claims
arising from the policies." [Gallup v. Omaha Prop. & Cas. Co.,
434 F.3d 341, 342 (5th Cir. 2005).] WYO carriers must issue
policies containing the exact terms and conditions of [the Standard
Flood Insurance Policy ("SFIP")] set forth in FEMA regulations.
[See 44 C.F.R. §§ 61.4(b), 62.23(c)-(d) (2008) (mandating use of
SFIP terms); 44 C.F.R. pt. 61, app. A(1) (setting forth SFIP
terms).] Additionally, FEMA regulations govern the methods by
which WYO carriers adjust and pay claims. [GE.R. 1988, Inc. v.
Aetna Cas. & Sur. Co., 386 F.3d 263, 267 (3d Cir. 2004) (citing 44
C.F.R. §§ 61.1-78.14).] Although WYO carriers playa large role,
the government ultimately pays a WYO carrier's claims. [See
Gallup, 434 F.3d at 342.] When claimants sue their WYO carriers
for payment of a claim, carriers bear the defense costs, which are
considered "part of the ... claim expense allowance", [44 C.F.R. §
62.23(i)(6) (2008)]; FEMA reimburses these costs. [GE.R., 386
F.3d at 270 & n.9 (citing 42 U.S.C. § 4017(d)(l» (noting that
Congress reimburses costs, including defense costs, for adjustment
and payment of claims).] Yet, if "litigation is grounded in actions
by the [WYO] Company that are significantly outside the scope of
this Arrangement, and/or involves issues of agent negligence,"
then such costs will not be reimbursable to the WYO carrier. [44
C.F.R. pt. 62, app. A, art. III(O)(3)(a).]
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Grissom v. Lib. Mut. Fire Ins. Co., 678 F.3d 397, 399 (5th Cir. 2012) (quoting Campo, 562 F.3d

at 754).
In Grissom, the Fifth Circuit explained:
The key factor to determine if an interaction with an insurer is
"claims handling" is the status of the insured at the time of the
interaction between the parties. If the individual is already covered
and in the midst of a non-lapsed insurance policy, the interactions
between the insurer and insured ... are "claims handling" subject
to preemption.
Id. at 401. "[I]nteractions between the insurer and an insured seeking payment for hurricane

damage to his home," including those to recover for the insurer's denial of a flood insurance
claim on the insured's policy, constitute claims handling. Id. at 400; see Wright, 415 F.3d at
385, 389-90. However, interactions between the insurer and an insured to recover for the
insurer's alleged negligence during a lapse in policy coverage constitute procurement.

See

Campo, 562 F.3d at 752.

In Campo, the plaintiff had claimed that Allstate made negligent misrepresentations in
violation of state law that caused the plaintiff not to reinstate his expired flood insurance policy
prior to Hurricane Katrina destroying the plaintiff s home, and Allstate had argued that these
claims were preempted under federal law because they concerned claims handling. Id. at 752,
755. 2 The Fifth Circuit held that the plaintiffs claims were related to policy procurement, not
claims handling, and thus that plaintiffs claims were not preempted by federal law. Id. The
Fifth Circuit reasoned that "[t]o the extent that this case involves handling of a 'claim,' it is
merely a 'fictitious claim' in the sense that the act of filing a claim on an expired policy, i.e., a

2 The Court notes that the handling/procurement distinction analysis is equally applicable in both the
context of whether federal jurisdiction exists and whether the claims are preempted by federal law. See id. at 756
n.33.

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dormant policy, is equivalent to filing no claim at all" and thus that "Allstate ... by definition
[was] incapable of handling any new claims based on post-expiration occurrences." Id. at 756
(emphasis in original). The Fifth Circuit found that the facts of the case indicated that the claim
was procurement-related because Allstate's alleged misrepresentations occurred when the
plaintiffs only relationship with Allstate was that of a former and a potential future policyholder
and reasoned that "[t]o hold otherwise would permit insurers like Allstate to ensure unilaterally
that disputes would be classified as preempted handling-related suits by simply acting as though
they were handling claims when in fact none existed as a matter of law." Id. The Fifth Circuit
explained its holding in a subsequent per curiam opinion on the bench ruling: "[B]ecause (1)
[plaintiff s] policy had expired when he made his claim and (2) the SFIP provisions dealing with
policy renewal did not address policy renewal with sufficient specificity to render [plaintiffs]
claims handling-related, [plaintiffs] state-law claims relate to insurance procurement [and] are
not preempted by federal law ...." Campo, 440 F. App'x 298, 300 (5th Cir. 2011) (per curiam).
In Grissom, the Fifth Circuit distinguished Campo thus: "Campo's clear holding [is] that the
lapse in coverage turned what would otherwise be a renewal into the procurement of a new
policy." Grissom, 678 F.3d at 401.
In the case sub judice, Plaintiffs allege that they are not seeking coverage under the SFIP
or recovery on the basis of a contract from National Flood Insurance Program funds, but are
instead seeking tort damages from their insurance agent's own funds and/or its errors and
omissions coverage funds for their agent's tortious conduct in failing to procure the specific
coverage explicitly requested and represented to have been procured. PIs.' Mot. Remand [7] ~ 9.
The Court finds from a plain reading of Plaintiffs' complaint that Plaintiffs allege the following
facts: (1) Plaintiffs had a longstanding fiduciary relationship with Defendant and Defendant's
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agent concerning insurance, Pis.' Compl. [2]

~

7; (2) based on this relationship, Plaintiffs sought

flood insurance coverage from Defendant and Defendant's agent on real property Plaintiffs were
about to purchase, id.; (3) Plaintiffs, Defendant, and Defendant's agent were all aware that
flooding of the real property was imminent and that the threat of this flood was the reason for the
insurance transaction, id.

~

10; (4) Plaintiffs submitted an application for the insurance and

delivered the premium payment to Defendant's agent, id.

~

12; (5) Plaintiffs asked Defendant's

agent to procure the flood insurance for them, id.; (6) Plaintiffs proceeded with the closing of the
purchase of subject real property based on Defendant's and Defendant's agent's assurances of
immediate flood damage coverage under the policy, id.
suffered damages due to subsequent flooding, id.

~

~

13; (7) Plaintiffs' subject real property

16; (8) only after the flooding occurred did

Plaintiffs receive a copy of the subject flood insurance policy, id.

~

15; (9) Plaintiffs

subsequently filed a flood damage claim in accordance with the subject policy, id.

~

16; and (10)

Plaintiffs were denied coverage for the property damages due to flooding, based on an
exclusionary clause in the subject policy providing that the policy would not cover damage due
to a flood already in progress at the time the policy term began, id.

~

17. Plaintiffs concede that

the SFIP does not cover the flood damage sustained by their real property, as the damage was
caused by a flood in progress at the time the SFIP term began; instead, Plaintiffs seek recovery
under state-law theories of negligent misrepresentation and failure to procure the requested
insurance policy. PIs.' Mot. Remand [7] ~ 7, 9.
The Court finds that the alleged misrepresentations concerning flood insurance coverage
occurred when Plaintiffs' only relationship with Defendant was that of potential future flood
insurance policyholders, and further, that Defendant's alleged misrepresentations were allegedly
of a kind that could lull Plaintiffs into believing that they would receive immediate coverage for
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the flood damage under Defendant's policy, thus dissuading Plaintiffs from seeking flood
insurance coverage elsewhere. See Campo, 562 F.3d at 756. The misrepresentation claim
appears to fall within the "species of insurance procurement" claims referenced in Campo. See
id. The failure-to-procure claim also appears to fall within this species of claims. In both claims,
Plaintiffs do not seek recovery for any denial of coverage under the subject policy, but rather for
the conduct of Defendant in the representations made about the policy and in the procurement of
the subject policy. See Pis.' Compl. [2]

~

18. Such procurement-related claims sound in state

law. See Haggans v. State Farm Fire and Cas. Co., 803 So. 2d 1249, 1252 (Miss. Ct. App.
2002). Plaintiffs' alleged reliance on Defendant's alleged misrepresentations with respect to
flood insurance coverage lasted throughout the initial application, delivery of premium payment,
occurrence of flood damage, receipt of copy of policy, submission of claim pursuant to the
policy, and denial of coverage under the policy. Although this is doubtless a close question of
law, when compared with the holding in Grissom, for example, Plaintiffs in this case challenge
alleged representations made by Defendant prior to the application of the policy and in the
infancy of the procurement of flood damage protection: procurement-related-whereas the
plaintiff in Grissom challenged the lack of information he received while he was already insured
concerning his eligibility for additional flood insurance coverage: claims handling-related. See
Grissom, 678 F.3d at 401. The Court finds that Plaintiffs' complaint does not present a federal
question claim, but instead presents state-law tort claims that fall within the procurement-related
SFIP claims not preempted by federal law, as the claims allege negligence on the part of
Defendant. See 44 C.R.F. pt. 62, app. A, art. III(D)(3)(a) (noting that "litigation ... grounded in
actions by the [WYO] Company that ... involve[] issues of agent negligence" are not within the
scope of the NFIA); see also Rhodes v. State Farm Fire and Cas. Co., Civil No. 1:08CV674­
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HSO-RHW, 2009 WL 563876, at *4-7 (S.D. Miss. Mar. 4, 2009) (finding plaintiff bringing
negligent misrepresentation claim related to procurement of SFIP and failure to procure claim,

inter alia, had not attempted to plead a federal question claim). Because this Court does not
have diversity jurisdiction over Plaintiffs' state-law claims due to lack of complete diversity of
citizenship, the Court is devoid of jurisdiction to hear this case. Plaintiffs' case is properly in
state court.

D. Conclusion
For all the foregoing reasons, Plaintiffs' motion to remand to state court [7] is
GRANTED, and the case is remanded to the Circuit Court of Sunflower County, Mississippi.
An order in accordance with this opinion shall issue this day.

:¥

THIS, the

;)0/day of July, 2013.

SENIOR JUDGE

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