GOLDSTEIN GROUP HOLDINGS, INC. v. HARTFORD INSURANCE COMPANY OF THE MIDWEST et al

Filing 52

OPINION. Signed by Judge Noel L. Hillman on 2/1/2017. (tf, )

UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY

GOLDSTEIN GROUP HOLDINGS,
INC.,

1:15-cv-03851-NLH-AMD
OPINION

Plaintiff,
v.

HARTFORD INSURANCE COMPANY OF
THE MIDWEST and NEW HAMPSHIRE
INSURANCE COMPANY,
Defendants.

APPEARANCES:
PETER J. KURSHAN
CHASE, KURSHAN, HERZFELD & RUBIN, LLC
354 LIVINGSTON PARKWAY
LIVINGSTON, NJ 07039
On behalf of Plaintiff
ERIN ELIZABETH NULTY
CLARK & FOX
951 HADDONFIELD ROAD
SUITE A-2B
CHERRY HILL, NJ 08002
STEPHEN C. PARKER
BUTLER SNOW LLP
6075 POPLAR AVENUE, SUITE 500
MEMPHIS, TN 38119
On behalf of Defendant Hartford Insurance Company of the
Midwest
KATHRYN A. CALLAHAN
GARY S. KULL
CARROLL MCNULTY & KULL LLC
120 MOUNTAINVIEW BOULEVARD
P.O. BOX 650
BASKING RIDGE, NJ 07920

KEITH M. DETWEILER, ESQ.
NIELSEN, CARTER & TREAS, L.L.C.
3838 N. CAUSEWAY BLVD., SUITE 2850
METAIRIE, LA 70002
On behalf of Defendant New Hampshire Insurance Company
HILLMAN, District Judge
This case concerns flood insurance claims arising from
damage caused by Superstorm Sandy to a home in Atlantic City,
New Jersey.

Presently before the Court are three summary

judgment motions filed by each of the parties.

For the reasons

expressed below, Plaintiff’s motion will be denied, and
Defendants’ motions will be granted.
BACKGROUND
On October 29, 2012, Superstorm Sandy made landfall in New
Jersey, causing flood damage to 107 N. Brighton Avenue, Atlantic
City, New Jersey.

At the time, the property was owned by Ismael

Caban, with the front of the property insured for flood damage
by Defendant Hartford Insurance Company of the Midwest and the
rear of the property insured for flood damage by Defendant New
Hampshire Insurance Company.

Both insurance companies are

Write-Your-Own (“WYO”) Program carriers participating in the
United States Government’s National Flood Insurance Program
(“NFIP”), pursuant to the National Flood Insurance Act of 1968,
as amended, 42 USC § 4001, et seq. (“NFIA”), and they are
appearing in their fiduciary capacities as the “fiscal agent of
the United States.”

The NFIP is administered by the Federal
2

Emergency Management Agency (“FEMA”), underwritten by the U.S.
Treasury, and all flood loss claims presented under the NFIP are
paid directly with U.S. Treasury funds, including defense costs.
A WYO Program carrier makes a percentage of the payment of any
proper flood claims - the higher the claim payment, the more the
WYO Program carrier is paid by FEMA. 1
The Defendant insurance companies each issued Mr. Caban a
Standard Flood Insurance Policy (“SFIP”), which is written by
the federal government.

Hartford issued to Mr. Caban a SFIP

with policy limits of $184,800.00 for building coverage for the
front of the property with the effective dates from December 2,
2011 through December 2, 2012.

New Hampshire issued to Mr.

Caban a SFIP with policy limits of $184,800.00 for building
coverage for the rear of the property with the effective dates
from September 8, 2012 to September 8, 2013.

Bayview Loan

Servicing (“Bayview”) held the mortgage on the property and was
identified as the mortgagee on the SFIP declarations page.
Prior to Superstorm Sandy, Mr. Caban had fallen in arrears
on mortgage payments.

Bayview instituted a foreclosure action

in the Superior Court of New Jersey in Atlantic City on August
13, 2009, and a receiver was appointed and took custody of the
property.

1

The applicable federal regulations are found in Title 44 of the
Code of Federal Regulations.
3

On June 25, 2014, Bayview completed a foreclosure action
and the Atlantic City Superior Court of New Jersey, Chancery
Division, issued a writ of execution ordering the Sheriff to
sell the property.

Michael Goldstein, who does business as

Plaintiff Goldstein Group Holdings, Inc. (hereinafter
“Goldstein”), is in the business of buying and selling
foreclosed properties and default notes, and became interested
in the 107 N. Brighton Avenue property.

Goldstein contacted

Bayview and negotiated the sale of the mortgage from Bayview to
Goldstein for $100,000.00.

Goldstein did this to obtain

Bayview’s right to bid the amount of the mortgage at the
Sheriff’s auction, and it would deter other bidders and limit
the amount of transfer tax Goldstein would have to pay based on
the auction amount.

Goldstein did not inspect the building

because mortgage companies and receivers do not allow an
interior inspection of the buildings prior to the Sheriff’s
auction.
Around August 5-7, 2014, Goldstein contacted the Defendant
insurance companies, informing them that the property had been
placed in a receivership in 2011, but that the receiver had
never notified the insurance companies about the flood damage
caused by Sandy.
On August 7, 2014, Bayview assigned the mortgage to
Goldstein and executed and filed with the Superior Court a public
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notice that Goldstein had the right to bid the mortgage balance
at the auction.
sale.

On August 21, 2014, the Sheriff held a public

Goldstein purchased the property with the high bid of

$100.00. 2
Goldstein filed his proof of loss with Defendants on
September 12, 2014. 3

In October 2014, both Defendants denied

Goldstein’s claim, explaining that the policy prohibits transfer
of a SFIP claim after the date of the actual flood damage.

On

December 4, 2014, Goldstein filed an appeal of Defendants’
decisions with FEMA.

FEMA determined that even though the SFIP

allows the transfer of a flood insurance policy to a new owner
of a property, it does not permit the transfer of a preexisting
claim for damage from a flood event that occurred prior to the
transfer of the policy.

FEMA found that a property holder or a

mortgagee cannot claim coverage for damage to a property that

2

At some time between August 21, 2014 and February 25, 2016 (the
date of Goldstein’s deposition), Goldstein sold the property to
an unrelated investor for $100,000.
3

A typical flood loss claim is required to be submitted within
60 days of the date of loss, but an extension granted by FEMA
gave SFIP insureds with losses sustained in Sandy until October
29, 2014. Defendants argue that Goldstein’s proof of loss was
not actually submitted, and what he ported to have submitted was
not proper in substance and form. Defendants argue that this
fact alone precludes judgment in Goldstein’s favor. Because
this issue is not relevant to the Court’s resolution of the
parties’ motions, the Court accepts for the purpose of this
Opinion that Goldstein’s proof of loss was proper.
5

occurred when they did not own the property and were not the
named insured at the time of the flood loss.
Under the SFIPs, Goldstein was afforded one year from the
date of Defendants’ denials to file suit against them.
Goldstein timely filed the instant action, contending that
because Bayview, as mortgagee and an insured under the policies,
assigned the mortgage – not a post-flood claim - to him, that
assignment included proceeds from any recovery from the SFIPs.
Goldstein, Hartford, and New Hampshire have all moved for
summary judgment in their favor.

Goldstein argues that he is

entitled to judgment as to liability on his breach of contract
and breach of good faith and fair dealing claims, with the issue
of damages to be determined.

Defendants argue that they are

entitled to judgment in their favor because they properly denied
his claims.
DISCUSSION
A.

Subject Matter Jurisdiction

Original exclusive jurisdiction is conferred upon this
Court pursuant to the National Flood Insurance Act of 1968, 42
U.S.C. § 4001 et seq.

This Court has jurisdiction over this

matter pursuant to 42 U.S.C. § 4053 and 42 U.S.C. § 4072, which
grant this Court original exclusive jurisdiction to hear and
determine an action involving a disallowance or partial
disallowance by WYO carriers of a plaintiff's flood insurance
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claim, without regard to the amount in controversy.
B.

Standard for Summary Judgment

Summary judgment is appropriate where the Court is
satisfied that the materials in the record, including
depositions, documents, electronically stored information,
affidavits or declarations, stipulations, admissions, or
interrogatory answers, demonstrate that there is no genuine
issue as to any material fact and that the moving party is
entitled to a judgment as a matter of law.

Celotex Corp. v.

Catrett, 477 U.S. 317, 330 (1986); Fed. R. Civ. P. 56(a).
An issue is “genuine” if it is supported by evidence such
that a reasonable jury could return a verdict in the nonmoving
party’s favor.
248 (1986).

Anderson v. Liberty Lobby, Inc., 477 U.S. 242,

A fact is “material” if, under the governing

substantive law, a dispute about the fact might affect the
outcome of the suit.

Id.

In considering a motion for summary

judgment, a district court may not make credibility
determinations or engage in any weighing of the evidence;
instead, the non-moving party's evidence “is to be believed and
all justifiable inferences are to be drawn in his favor.”
Marino v. Industrial Crating Co., 358 F.3d 241, 247 (3d Cir.
2004)(quoting Anderson, 477 U.S. at 255).
Initially, the moving party has the burden of demonstrating
the absence of a genuine issue of material fact.
7

Celotex Corp.

v. Catrett, 477 U.S. 317, 323 (1986).

Once the moving party has

met this burden, the nonmoving party must identify, by
affidavits or otherwise, specific facts showing that there is a
genuine issue for trial.

Id.

Thus, to withstand a properly

supported motion for summary judgment, the nonmoving party must
identify specific facts and affirmative evidence that contradict
those offered by the moving party.
57.

Anderson, 477 U.S. at 256-

A party opposing summary judgment must do more than just

rest upon mere allegations, general denials, or vague
statements.

Saldana v. Kmart Corp., 260 F.3d 228, 232 (3d Cir.

2001).
C.

Analysis

The parties present various arguments to support their
positions, 4 but the crux of the matter is whether Bayview’s postloss assignment of the mortgage to Goldstein included Bayview’s
rights to the insurance proceeds as a named insured on the date
of loss.

The Court finds that the language of the SFIP is clear

that an assignee of a mortgage cannot collect on the insured
mortgagee’s policy for a loss that predates the assignment.
“‘It is well settled that federal common law governs the

4

The parties also dispute (1) whether Goldstein filed a proper
proof of loss which would trigger a claim, as noted above, supra
note 3, and (2) whether Goldstein’s sale of the property for the
same amount he purchased it eliminates any claim to damages, and
eliminates his standing. The Court does not need to address
these arguments.
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interpretation of the SFIP at issue here.’”

McDowell v. USAA

General Indemnity Company, 2016 WL 4249487, at *4 (D.N.J. 2016)
(quoting Torre v. Liberty Mut. Fire Ins. Co., 781 F.3d 651, 653
(3d Cir. 2015)); 44 C.F.R. Pt. 61, App. A(1) and A(2), Art. IX;
44 C.F.R. Pt. 61, App. A(3), Art. X (What Law Governs).

The

terms and conditions of the SFIP must be strictly construed.
Id. (citing 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)).
The “Definitions” section of the SFIP provides:
A.
In this policy, "you" and "your” refer to the
insured(s) shown on the Declarations Page of this
policy and your spouse, if a resident of the same
household. “Insured(s)" includes: Any mortgagee and
loss payee named in the Application and Declarations
Page, as well as any other mortgagee or loss payee
determined to exist at the time of loss in the order
of precedence. "We," "us," and "our" refer to the
insurer.
44 C.F.R. Pt. 61, App. A(1), A(2) and A(3), Section II; (Docket
No. 37-4 at 3.)
Goldstein argues that several factors support his claim to
the SFIPs’ insurance proceeds for the property’s Sandy damage:
(1) Goldstein was assigned the mortgage, which included being a
named insured under the SFIPs issued by Hartford and New
Hampshire, and not simply Bayview’s claim to funds under the
policy; (2) assignments of insurance proceeds are permitted in
New Jersey; (3) New Jersey courts have found that assignees
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assume the same rights and responsibilities as the assignors
previously possessed; and (4) had Bayview submitted timely and
proper claims to Defendants, Defendants admit that payable
claims to Bayview would have existed, and therefore, because
Goldstein assumed the same rights that Bayview held under the
policies, and he submitted timely and proper claims to
Defendants, payable claims to Goldstein exist.
The Court does not dispute that Goldstein’s arguments are
generally valid with regard to typical insurance policies, but
those arguments do not override the language of the SFIP, or the
nature of the National Flood Insurance Program, which pays
claims from federal funds.
The SFIP is unambiguous: an insured is “[a]ny mortgagee and
loss payee named in the Application and Declarations Page, as
well as any other mortgagee or loss payee determined to exist at
the time of loss.”

Goldstein is not a mortgagee or loss payee

named in the Application and Declarations Page of the Hartford
and New Hampshire SFIPs.

Goldstein is not an “other mortgagee”

who was “determined to exist at the time of loss.”

Thus,

Goldstein is not an insured under the SFIPs.
Additional provisions in the SFIP confirm that Goldstein is
not entitled to insurance proceeds from the Hartford and New
Hampshire policies.

The “Mortgage Clause” states, “Any loss

payable under Coverage A – Building Property will be paid to any
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mortgagee of whom we have actual notice as well as any other
mortgagee or loss payee determined to exist at the time of loss,
and you, as interests appear.”

(Docket No. 37-4 at 16.)

Again,

Goldstein is not “any other mortgagee or loss payee determined
to exist at the time of loss.”
The “Loss Payment” section provides, “We will adjust all
losses with you.

We will pay you unless some other person or

entity is named in the policy or is legally entitled to receive
payment.”

(Docket No. 37-4 at 16.)

Goldstein argues that the

language “some other person or entity . . . is legally entitled
to receive payment” encompasses him, because the mortgage
assignment caused him to be “legally entitled to receive
payment.”

This argument is refuted by the Definitions and

Mortgage Clause provisions, as explained above, and it is also
refuted by the “Amendments, Waivers, Assignment” provision.
That provision states, “This policy cannot be changed nor can
any of its provisions be waived without the express written
consent of the Federal Insurance Administrator . . . .

You may

assign this policy in writing when you transfer title of your
property to someone else, except under certain conditions,”
i.e., when the policy covers only personal property or covers a
structure during construction.

(Docket No. 37-4 at 13.)

Thus, if Bayview had assigned to Goldstein the mortgage
along with SFIPs that were in effect at the time of assignment,
11

and the insured followed the procedures for assignment of the
policies as set forth by the SFIPs and federal regulations, 5 such
an assignment may have been proper. 6

Then, if after the

assignment of SFIPs to Goldstein the property suffered flood
damage, Goldstein would be a “mortgagee or loss payee determined
to exist at the time of loss” and would be “legally entitled to
receive payment.”

This scenario, however, is not the situation

here.
Further confirming that Goldstein is not “legally entitled
to receive payment” under the Hartford and New Hampshire SFIPs
is a bulletin issued by FEMA with regard to the assignment of
interest in claim payments to third parties.

See David I.

Maurstad, Assistant Administrator for Federal Insurance, Federal
Insurance and Mitigation Administration, “Inclusion of Law Firms
on Checks Arising Out of NFIP Claims,” available at
https://bsa.nfipstat.fema.gov/wyobull/2016/w-16078.pdf.

The

5

The procedure for assignment of an SFIP is set forth in FEMA’s
Flood Insurance Manual, Effective October 1, 2016, available at
https://www.fema.gov/media-library-data/1478091260016e5df86570c38453818a95ec2a62479a5/12_endorsement_508_oct2016.pdf
(“A building owner’s flood insurance building policy may
be assigned to a purchaser of the insured building with the
written consent of the seller. The seller must sign the
assignment endorsement on or before the closing date.”).
6

It does not appear that the Hartford and New Hampshire
policies were renewed after their expiration in December
and September 8, 2013, so it does not appear that valid,
force SFIPs could have been assigned to Goldstein at the
the August 7, 2014 mortgage assignment.
12

flood
2, 2012
intime of

October 14, 2016 memorandum was drafted to provide guidance to
WYO coordinators and NFIP servicing agents when WYO companies
and vendors acting on behalf of the NFIP receive requests to
include attorneys, law firms, public adjusters and other lien
holders as co-payees on NFIP checks.

Quoting the Definitions

section of the SFIP, FEMA explained that “[t]hird parties, such
as attorneys, law firms and public adjusters, whose interest did
not exist at the time of the loss are not loss payees under the
SFIP.”

Id.

FEMA also cited the Assignment of Claims Act, 31 U.S.C. §
3727 et seq., which has a “primary purpose . . . to prevent
persons of influence from buying up claims against the United
States, which might then be improperly urged upon officers of
the Government, and that a second purpose was to prevent
possible multiple payment of claims, to make unnecessary the
investigation of alleged assignments, and to enable the
Government to deal only with the original claimant.”

U.S. v.

Shannon, 342 U.S. 288, 291 (U.S. 1952) (internal quotations and
citations omitted).
The FEMA bulletin sets out the conditions necessary to
assign a claim against the United States to a third-party: “An
assignment may be made only after a claim is allowed, the amount
of the claim is decided, and a warrant for payment of the claim
has been issued.”

FEMA Bulletin (quoting 31 U.S.C. § 3727(b)).
13

FEMA notes that the Act applies to NFIP claim payments.

Id.

(citing Diamond v. FEMA, 689 F. Supp. 163 (E.D.N.Y. 1988)).
Thus, if a party seeks to assign a claim that is to be paid
from NFIP federal funds, the assignment is only permitted after
the claim has been approved.

In this case, Goldstein could

never be paid from federal funds under the Hartford and New
Hampshire SFIPs because such payment was not approved before he
purportedly obtained the assignment of rights to such payment.
Even though, as Goldstein points out, Bayview did not
assign him only its claim to payment under the SFIPs, but rather
assigned the entire mortgage, the reasoning of FEMA’s bulletin,
as well as the purpose of Assignment of Claims Act, affirms that
such a distinction is irrelevant under the circumstances of a
post-loss claim to be paid from federal funds. 7
CONCLUSION
The plain language of the SFIPs, which must be strictly

7

Goldstein also argues that the concerns to be prevented by the
Assignment of Claims Act are not present here, since he was not
even aware of the un-claimed insurance when he contacted Bayview
about the property, and there is no chance for duplicitous
claims. In contrast, Defendants argue that preventing Goldstein
from obtaining a windfall paid from federal funds is the upmost
concern of the Act, especially when no repairs to the property
would be made with the funds and Goldstein no longer owns the
property. The Court’s decision is supported by the Act’s
guiding principle that claims on the U.S. Government payable out
of the treasury should be closely examined, but the Court’s
decision does not hinge on the application of the Act, but
rather the plain language of the SFIPs.
14

construed, does not include Goldstein as a covered person or
entity under the policies for the October 29, 2012 flood damage.
The plain language of the SFIPs is also in line with the
Assignment of Claims Act, which precludes payment from federal
funds to a party who has not been deemed to be entitled to those
federal funds.

Accordingly, Goldstein’s claim that he is

entitled to payment of the insurance proceeds from the Hartford
and New Hampshire SFIPs for flood damage to 107 N. Brighton
Avenue, Atlantic City, New Jersey caused by Superstorm Sandy on
October 29, 2012 fails as a matter of law.

Defendants’ motions

for summary judgment must therefore be granted, and Goldstein’s
motion for summary judgment must be denied.
An appropriate Order will be entered.

Date:

February 1, 2017

s/ Noel L. Hillman
NOEL L. HILLMAN, U.S.D.J.

At Camden, New Jersey

15