MCDOWELL v. USAA GENERAL INDEMNITY COMPANY
Filing
79
MEMORANDUM OPINION. Signed by Chief Judge Jerome B. Simandle on 8/9/2016. (tf, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
BRIAN R. MCDOWELL,
HONORABLE JEROME B. SIMANDLE
Plaintiff,
Civil Action
No. 14-4529 (JBS/AMD)
v.
USAA GENERAL INDEMNITY COMPANY,
MEMORANDUM OPINION
Defendant.
SIMANDLE, Chief Judge:
In this action, Plaintiff Brian R. McDowell seeks damages
against Defendant USAA General Indemnity Company (“USAA”),
arising from Defendant’s alleged failure to pay him the full
benefits owed under his flood insurance policy for damage to his
home caused by Superstorm Sandy. Before the Court is Defendant’s
motion for judgment on the pleadings [Docket Item 49], seeking
to dismiss Plaintiff’s extra-contractual and tort claims for bad
faith, pre-judgment and post-judgment interest, punitive
damages, attorney’s fees, and other consequential damages, and
Plaintiff’s cross-motion to amend his complaint [Docket Item
60], by which he agrees to drop his claims for bad faith and
seeks to replace Count 2 with claims for fraud and
misrepresentation. For the following reasons, the Court will
grant Defendant’s motion for judgment on the pleadings and deny
Plaintiff’s motion to amend the Complaint.
1.
Background. Plaintiff is a resident of New Jersey and
holds a Standard Flood Insurance Policy (“SFIP”) covering his
home with USAA, a Texas-domiciled insurer which participates in
the Federal Emergency Management Agency’s (“FEMA”) “Write Your
Own” (“WYO”) flood insurance program. (Compl. ¶¶ 2-4.) 1 On
October 29, 2012, Plaintiff’s home sustained “catastrophic”
damage caused by Superstorm Sandy; the storm “hit and forced two
walls off the foundation, which in turn sheared the roof
rafters, which in turn (combined with floating debris) caused
interior walls, including a load bearing wall, to shift and tilt
. . . .” (Id. ¶ 31.)
2.
Plaintiff initiated a claim under his flood insurance
policy with USAA. (Id. ¶ 32.) At USAA’s direction, he gutted the
house to prevent further water damage to mitigate his damages.
(Id. ¶ 33.) USAA allegedly acknowledged, after an inspection on
November 12, 2012, that his home was “substantially damaged” and
that the “house may need to come down because of the structural
damage.” (Id. ¶ 35.) A FEMA adjuster estimated that the water
level inside Plaintiff’s home had reached 24” during the storm
and stated that, as a result, multiple walls would need to be
1
For purposes of the pending motion, the Court accepts as true
the version of events set forth in Plaintiff’s Complaint,
documents explicitly relied upon in the Complaint, and matters
of public record. See Schmidt v. Skolas, 770 F.3d 241, 249 (3d
Cir. 2014).
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re-footed and repaired or his home would have to be torn down.
(Id. ¶ 36.) Lacey Township Officials have also concluded that
Plaintiff’s home suffered “substantial damage” within FEMA
guidelines. (Id. ¶ 63.)
3.
Plaintiff had submitted, and USAA had considered and
paid out in part, a number of claims under his USAA policy in
2010 and 2011, prior to Superstorm Sandy in October 2012. (Id.
¶¶ 15-30.) In mid-November 2012, USAA took the position that
Plaintiff had not made necessary repairs to his home after the
prior flood and fire damage in 2011 as recommended by USAA’s
engineers and stated that it would pay Plaintiff only $15,212.99
for the repairs needed from Superstorm Sandy. (Id. ¶¶ 38-41.)
4.
In response, Plaintiff retained Asset Protection
Public Adjustment, LLC (“APPA”) to prepare an estimate of the
actual value of his insurance claim; the firm estimated that
repairs would cost nearly $260,000. (Id. ¶¶ 42 & 44.) APPA
engaged Careaga Engineering to inspect Plaintiff’s home in April
2013. (Id. ¶ 45.) Careaga concluded that “the displacement of
the exterior walls, interior walls and the framing members were
direct physical losses caused by the flood that occurred solely
as a result of Superstorm Sandy.” (Id. ¶ 46.) Careaga’s findings
brought Plaintiff’s loss within the terms of his USAA policy.
(Id.)
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5.
USAA consulted with Atlantic Professional Services,
its engineers, in June 2013 to again inspect Plaintiff’s home
and issue a report on Plaintiff’s claim. (Id. ¶ 47.)
Notwithstanding USAA’s adjusters’ opinion in November 2012 that
Plaintiff’s home was a total loss, Atlantic concluded that the
damage to Plaintiff’s home from Superstorm Sandy was due to his
failure to make certain repairs as required by USAA and Atlantic
on his previous insurance claims made in 2011. (Id. ¶ 48.) On
July 18, 2013, USAA partially denied coverage on account of the
findings of Atlantic’s 2013 report. (Id. ¶ 49.) According to
Plaintiff, USAA believes that “the damage to the Property caused
by Superstorm Sandy was preexisting damage that had not been
repaired during prior fire or water damage claims.” (Id. ¶ 51.)
An adjuster with the National Flood Insurance Program (“NFIP”),
who inspected Plaintiff’s home after USAA partially denied
Plaintiff’s claim a second time, agreed with Atlantic’s
conclusion that damage to the home had been caused by inadequate
repairs following Plaintiff’s 2011 damage. (Id. ¶¶ 52-54.)
6.
Plaintiff submitted a Proof of Loss to USAA on
November 23, 2013 under FEMA’s extended deadlines. (Id. ¶ 65.)
USAA issued Plaintiff a check for “Flood-Building” for
$10,025.89. (Id. ¶ 66.) Plaintiff submitted a Supplemental Proof
of Loss on April 13, 2014 which was denied on three grounds:
“(i) the value stated in the POL are not substantiate [sic] and
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are not agreed to; (ii) USAA did not agree with the scope of
damage as being a direct physical loss by or from the flood; and
(iii) the estimates included code compliance which is not
covered under the NFIP Dwelling Form policy.” (Id. ¶¶ 67-68.)
Plaintiff appealed the denial of the Supplemental Proof of Loss
and USAA offered to pay an additional $20,534.34. (Id. ¶69-70.)
Plaintiff alleges that the payments made or offered by USAA -$15,212.99 in November 2012, $10,025.89 in 2013, and $20,534.34
recently – are inadequate to repair or replace his home. (Id.)
7.
Plaintiff maintains that he was never made aware of
the 2011 repair recommendations and has never been provided with
a copy of that report. (Id. ¶¶ 48, 50, 55.) He further maintains
that USAA’s files do not “document the prior damage on which
USAA now bases its denial of coverage” and that this “refusal to
produce any of the evidence from prior claims upon which USAA
relies” belies the fact that “USAA has no reasonable or fairly
debatable basis to deny” Plaintiff’s claim. (Id. ¶¶ 58-60.) He
asserts that the damage to his home “resulting from Superstorm
Sandy clearly falls within the coverage of the Policy” and that
he has always “complied with all terms and conditions of the
USAA policy and has satisfied all conditions precedent to
coverage under the Policy.” (Id. ¶¶ 72-73.)
8.
Plaintiff initially filed an action against USAA for
breach of contract and other extra-contractual claims seeking
5
costs and fees. McDowell v. USAA General Indemnity Company, Case
No. 13-6520 (JAP/TJB) (D.N.J. Oct. 29, 2013). Plaintiff agreed,
by stipulation, to dismiss any extra-contractual claims and any
reference to attorney’s fees. [Case No. 13-6520, Docket Item 9.]
Plaintiff voluntarily dismissed his action without prejudice on
June 27, 2014 after the parties exchanged discovery. [Case No.
13-6520, Docket Item 17.] He then filed the instant action on
July 17, 2014. [Docket Item 1.] Defendant answered the Complaint
and asserted a variety of affirmative defenses to Plaintiff’s
action. [Docket Item 8.] The parties continued to exchange
discovery before Defendant filed the pending motion for judgment
on the pleadings [Docket Item 49] and Plaintiff responded with
his cross-motion to amend his Complaint. [Docket Item 60.]
9.
Standard of Review. A defendant may move to dismiss a
complaint before or after filing an answer. Fed. R. Civ. P.
12(b)(6) and (c); see also Borough of Sayreville v. Union
Carbide Corp., 923 F. Supp. 671, 675 (D.N.J. 1996). A motion
made before an answer is filed is a motion to dismiss pursuant
to Fed. R. Civ. P. 12(b)(6). A motion made after an answer is
filed is a motion for judgment on the pleadings pursuant to Fed.
R. Civ. P. 12(c). See Fed. R. Civ. P. 12(h)(2) (“Failure to
state a claim upon which relief can be granted . . . may be
raised . . . by a motion under Rule 12(c).”). The differences
between Rules 12(b)(6) and 12(c) are purely procedural, and the
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pleading standards of Rule 12(b)(6) are applied for both. Turbe
v. Gov’t of the Virgin Islands, 938 F.2d 427. 428 (3d Cir.
1991). Thus, the Court must “accept all factual allegations as
true, construe the complaint in the light most favorable to the
plaintiff, and determine whether, under any reasonable reading
of the complaint, the plaintiff may be entitled to relief.”
Fleischer v. Standard Ins. Co., 679 F.3d 116, 120 (3d Cir.
2012). The complaint must contain “sufficient factual matter,
accepted as true, to state a claim to relief that is plausible
on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)
(internal quotation marks omitted). “A claim has facial
plausibility when the plaintiff pleads factual content that
allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.” Id.
10.
Under Federal Rule of Civil Procedure 15(a), leave to
amend should be “freely give[n] when justice so requires.”
Therefore, in the absence of undue prejudice, unfair prejudice,
or futility, motions to amend must be granted. United States ex
rel. Schumann v. Astrazeneca Pharma. L.P., 769 F.3d 837, 849 (3d
Cir. 2014) (citing Lake v. Arnold, 232 F.3d 360, 373 (3d Cir.
2000). And amendment is futile if it fails to state a claim upon
which relief could be granted. In re Burlington Coat Factory
Sec. Litig., 114 F.3d 1410, 1434-35 (3d Cir. 1997) (citing
Glassman v. Computervision Corp., 90 F.3d 617, 623 (3d Cir.
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1996)). “In assessing futility, the district court applies the
same standard of legal sufficiency as applies under Rule
12(b)(6). Id. A motion to dismiss under Fed. R. Civ. P. 12(b)(6)
may be granted only if, accepting all well-pleaded allegations
in the complaint as true and viewing them in the light most
favorable to the plaintiff, a court concludes that plaintiff
failed to set forth sufficient facts to state a claim for relief
that is plausible on its face. Bell Atlantic Corp. v. Twombly,
550 U.S. 544 (2007); Fleisher v. Standard Ins. Co., 679 F.3d
116, 120 (3d Cir. 2012). “A claim has facial plausibility when
the plaintiff pleads factual content that allows the court to
draw the reasonable inference that the defendant is liable for
the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009). However, legal conclusions are not entitled to the same
assumption of truth, and “[a] pleading that offers labels and
conclusions or a formulaic recitation of the elements of a cause
of action will not do.” Id. To determine if a complaint meets
the pleading standard, the Court must strip away conclusory
statements and “look for well-pled factual allegations, assume
their veracity, and then determine whether they plausibly give
rise to an entitlement of relief.” Bistrian v. Levi, 696 F.3d
352, 365 (3d Cir. 2012) (quotation omitted).
11.
Defendant’s Motion for Judgment on the Pleadings.
First, Defendant seeks to strike all of Plaintiff’s extra8
contractual tort-based claims for pre-judgment and post-judgment
interest, punitive damages, attorney’s fees and other
consequential and extra-contractual damages as requested in the
“wherefore” clauses of Counts 1 and 3 of the Complaint. 2
Plaintiff does not dispute, in any briefing on either motion
pending before this Court, Defendant’s assertion that he is not
entitled to extra-contractual claims or fees and costs.
12.
Plaintiff holds a SFIP issued by USAA, a WYO flood
insurance carrier pursuant to the National Flood Insurance
Program (“NFIP”). As the Third Circuit has explained, the NFIP
is “a federally supervised and guaranteed insurance program
presently administered by the Federal Emergency Management
Agency (‘FEMA’) pursuant to the [National Flood Insurance Act]
and its corresponding regulations.” Van Holt v. Liberty Mut.
Fire Ins. Co., 163 F.3d 161, 165 (3d Cir.1998) (citing 44 C.F.R.
§§ 59.1–77.2). FEMA promulgated the SFIP, set forth in 44 C.F.R.
Pt. 61, App. A(1), (2), and (3), and provided for claims
adjustment of the SFIP by private insurers operating as WYO
companies. Messa v. Omaha Property & Cas. Ins. Co., 122 F. Supp.
2
Defendant’s motion sought initially to strike all extracontractual damages from Counts 1, 2, and 3 of the Complaint,
but Plaintiff agreed in his cross-motion to amend to drop his
claim for bad faith in Count 2 of the Complaint, seeking to
replace it with a claim for fraud and misrepresentation. The
Court will consider Defendant’s motion only with respect to
Counts 1 and 3 of the Complaint and will address Plaintiff’s new
Count 2 with respect to his motion to amend, infra.
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2d 513, 519 (D.N.J. 2000). “It is well settled that federal
common law governs the interpretation of the SFIP at issue
here.” Torre v. Liberty Mut. Fire Ins. Co., 781 F.3d 651, 653
(3d Cir. 2015). As with other insurance policies issued under
federal programs, the terms and conditions of the SFIP must be
strictly construed. Suopys v. Omaha Property & Cas., 404 F.3d
805, 809 (3d Cir. 2005); Kennedy v. CNA Ins. Co., 969 F. Supp.
931, 934 (D.N.J. 1997) aff’d, 156 F.3d 1225 (3d Cir. 1998).
13.
The plain language of the SFIP insures “against direct
physical loss by or from flood” to, inter alia, a policyholder’s
dwelling. 44 C.F.R. Pt. 61, App. A(1), Art. III-A. The SFIP
specifically excludes from coverage “any other economic loss you
suffer” on account of flood damage. Id. Art. V-A(7). Courts, in
this District and around the country, have uniformly held that
this means that policyholders may pursue breach of contract
claims to contest the handling of a claim under an SFIP, but
“are not entitled to receive compensatory, punitive, or
consequential damages, or attorney’s fees” if they prevail on
such claims. Messa, 122 F. Supp. 2d at 523. See also 3608 Sounds
Ave. Condominium Ass’n v. South Carolina Ins. Co., 58 F. Supp.
2d 499, 502 (D.N.J. 1999) (“[I]t is also well established that
plaintiffs who assert flood insurance claims cannot recover
penalties and attorney’s fees because federal law preempts such
claims.”); Weisbecker v. Szalkowski, Case No. 14-55, 2016 WL
10
3566719, at *4 (D.N.J. June 29, 2016) (dismissing Plaintiff’s
claims for attorney’s fees, pre-judgment interest, and postjudgment interest in SFIP claim arising from Superstorm Sandy);
Linblad v. Nationwide Mut. Ins. Co., Case No. , 2014 WL 6895775,
at *6 (D.N.J. Dec. 4, 2012) (“Courts have uniformly held that in
breach of contract actions where the contract had been issued
pursuant to the NFIA, prevailing plaintiffs are not entitled to
recover attorneys’ fees because federal law does not provide for
such a remedy.”).
14.
Accordingly, the Court will grant Defendant’s motion
for judgment on the pleadings. Plaintiff’s requests for prejudgment and post-judgment interest, punitive damages,
attorney’s fees and other consequential and extra-contractual
damages as requested in the “wherefore” clauses of Counts 1 and
3 of the Complaint will be stricken.
15.
Plaintiff’s Motion to Amend. Also pending before the
Court is Plaintiff’s cross-motion to amend the complaint. By his
motion, Plaintiff agrees to drop his claim for bad faith and to
replace it with one for “fraud and/or misrepresentation in the
procurement of the SFIP.” (Proposed Amended Complaint [Docket
Item 60-21] Count 2.) The gravamen of Plaintiff’s new
allegations is that USAA induced him to purchase an insurance
policy with a high premium by misrepresenting, orally and in
writing, over a number of years, the cost of replacing his home.
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According to Plaintiff, his amendment should be permitted
because it states a claim upon which relief can be granted, and
because it is not unduly prejudicial to Defendant. Defendant
contends that Plaintiff’s motion to amend should be denied
because amendment would be futile. For the following reasons,
the Court will deny Plaintiff’s motion.
16.
At the outset, the Court notes that Plaintiff’s
proposed claim for fraud in the procurement process of an SFIP
is not preempted by the NFIA, as his claims for extracontractual damages are. See Messa, 122 F. Supp. 2d at 521
(finding that tort claim arising from SFIP procurement is not
preempted, while state law claims arising from the SFIP claims
handling process would be); Spence v. Omaha Indem. Ins., 996
F.2d 793 (5th Cir. 1993) (same). Nonetheless, Plaintiff’s
proposed fraud claim may still be futile if his amended
allegations fail to state a claim upon which relief can be
granted. To state a claim for common law fraud, a plaintiff must
show: “(1) a material misrepresentation of a presently existing
or past fact; (2) knowledge or belief by the defendant of its
falsity; (3) an intention that the other person rely on it; (4)
reasonable reliance thereon by the other person; and (5)
resulting damages.” Gennari v. Weichert Co. Realtors, 691 A.2d
350, 367 (N.J. 2007). Pursuant to Rule 9(b), Fed. R. Civ. P., a
plaintiff must “state the circumstances constituting fraud with
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particularity.” Klein v. Gen. Nutrition Companies, Inc., 186
F.3d 338, 344 (3d Cir. 1999). A defendant’s knowledge or state
of mind may be “alleged generally,” Fed. R. Civ. P. 9(b), but
“[e]ven under a relaxed application of Rule 9(b), boilerplate
and conclusory allegations will not suffice.” Burlington Coat,
114 F.3d at 1418.
17.
Plaintiff alleges that USAA misrepresented the value
of his home in its initial quote and annual renewal notices,
representing to him that the cost to replace his home would be
at least $226,000 and up to $250,000 because that was the amount
of flood insurance coverage recommended by USAA. (Prop. Am.
Compl. ¶¶ 84-97.) Plaintiff alleges that USAA “was well aware”
when it issued its initial quote and sent yearly renewal notices
that the cost to repair Plaintiff’s home would be far less (id.
¶ 84; see also ¶ 100, 103), but that the company intended that
McDowell would rely on that figure and “procure an SFIP as to
which it could charge higher premiums.” (Id. ¶ 87; see also ¶¶
88-96.) Plaintiff asserts that USAA’s 2012 Valuation Report
(Rosenthal Cert. Ex. B), produced in the course of discovery,
shows that Defendant knew Plaintiff’s home would only cost
$90,480.42 to replace, inclusive of labor, materials, and a
general contractor’s profit and overhead.
18.
Defendant takes the position that these allegations do
not state an actionable fraud claim because Plaintiff has failed
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to allege any misrepresentation by USAA regarding the value of
Plaintiff’s home and has failed to allege any facts showing that
USAA “knew or had reason to believe that the initial quote was
false.” (Def. Opp. at 18-19.) According to Defendant,
Plaintiff’s assumption that USAA misrepresented the value of his
home when it quoted him a coverage limit of $226,000 is based on
a “simplistic” and ultimately false inference. (Id. at 18.)
Defendant asserts that the $90,480.42 replacement cost figure
from USAA’s 2012 Valuation Report cannot give rise to an
inference that the $226,000 initial coverage quote was false
when it was made in 2005 because those numbers are unrelated:
the Valuation Report was based on “an on-site inspection of the
home by an adjuster after Plaintiff reported his Sandy claim,”
after Plaintiff allegedly failed to make required repairs
following previous damage to his home in 2011, while the initial
quote was based on information provided by Plaintiff regarding
the size, location, and condition of his home. (Id.)
19.
The Court agrees with Defendant that the coverage
limit quoted in USAA’s initial letter to Plaintiff or in its
yearly renewal notices is not a material misrepresentation that
can support a common law fraud claim. By its own terms, an SFIP
is not a value policy, a type of insurance policy “in which the
insured and the insurer agree on the value of the property
insured, that value being payable in the event of a total loss.”
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44 C.F.R. Pt. 61, App. A(1), Art. II-28. Instead, in the event
of flood damage, a homeowner holding an SFIP will be paid
“actual cash value” to “replace the insured item of property at
the time of loss, less the value of its physical depreciation.”
Id. Art. II-2 (emphasis added). The premium rates for SFIPs are
based on federal law and regulation, see 42 U.S.C. §§ 4014-4015
and 44 C.F.R. § 62.23. Plaintiff was mistaken to interpret
USAA’s coverage limit quote as an agreed-upon value to his home,
an amount to which he would be entitled in full if his home
suffered flood damage. Rather, USAA’s initial quote and renewal
notices informed Plaintiff about the maximum flood insurance
coverage statutorily available to a homeowner in his
circumstances, and Plaintiff was free to acquire less building
coverage under the NFIP. Because Plaintiff alleges no other
basis on which USAA’s coverage quote could be a
misrepresentation as to the value of Plaintiff’s home, the Court
will deny Plaintiff’s motion to amend. 3
20.
An accompanying Order will be entered.
August 9, 2016
Date
s/ Jerome B. Simandle
JEROME B. SIMANDLE
Chief U.S. District Judge
3
Accordingly, the Court need not address the parties’ arguments
regarding the timeliness of Plaintiff’s proposed fraud claim
under the applicable statute of limitations, or whether
permitting this amendment would unduly prejudice Defendant in
this case.
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