SMITH et al v. KEER & HEYER, INC. et al
Filing
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OPINION. Signed by Judge Madeline Cox Arleo on 7/27/18. (cm, )
NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
SMITH, et al.,
Plaintiffs,
Civil Action No. 17-12460
v.
OPINION
KEER & HEYER, INC., et al.,
Defendants.
This matter comes before the Court by way of Defendant American Bankers Insurance
Company of Florida’s (“ABIC”) Motion to Dismiss Plaintiffs John J. Smith, Jr.’s, and Conchita
Smith’s (“Plaintiffs” or the “Smiths”) Second Amended Complaint (“SAC”) pursuant to Fed. R.
Civ. P. 12(b)(6). ECF No. 5, 1.1. For the reasons set forth below, the motion is GRANTED.
I. BACKGROUND
This insurance dispute arises from damages to Plaintiffs’ premises located at 1740 Bay Isle
Drive, Point Pleasant, New Jersey 08742-5210 (“the Property”) sustained during Superstorm
Sandy.
A. The Policy
When Plaintiffs purchased the Property in 2004, they were required to obtain flood
insurance as a mortgage requirement and sought coverage from Keer & Heyer, Inc. (“Keer”), an
insurance broker located in Point Pleasant Beach, New Jersey. Compl. at pp. 1-2. ABIC, a WriteYour-Own (“WYO”) insurer pursuant to the National Flood Insurance Act of 19681 (the “NFIA”),
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42 U.S.C. § 4001, et seq.
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subsequently issued a Standard Flood Insurance Policy in 2004 through their agent, Keer.
Plaintiffs renewed the Policy year after year, with the policy renewed effective August 30, 2012
to August 30, 2013 at issue in this action (the “Policy”).2 Certification of Patricia Mulvania
(“Mulvania Cert.”, Ex. 1). Plaintiffs received a policy declaration sheet, which indicated that the
limit of liability for “contents” was “None” and any deductible was “N/A”. SAC at p. 2. Upon
inquiry, Keer allegedly informed Plaintiffs that contents coverage was neither available under this
type of policy nor required by the mortgage company. Id. Plaintiffs do not dispute that they did
not have coverage for “contends” under the Policy.
B. Superstorm Sandy Loss
On October 29, 2012, the Property was damaged by Superstorm Sandy. Plaintiffs allege
they submitted a building claim and contents claim to ABIC under the Policy in connection with
their loss. Id. ABIC “addressed” Plaintiffs’ claim regarding building damage but denied coverage
relating to Plaintiffs’ contents claim. Id.
C. Procedural History
The SAC alleges four counts in total, including Count One for a judicial declaration, Count
Two for breach of contract, Count Three for breach of fiduciary duty, and Count Four for breach
of the implied covenant of good faith and fair dealing. In sum and substance, Plaintiffs allege that
ABIC failed to inform them of the availability of content coverage under the Policy, thereby
breaching their contractual obligations, their fiduciary obligations, and the covenant of good faith
and fair dealing. Plaintiffs seek a declaratory judgment that there was full coverage under the
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In deciding a motion to dismiss, the Court generally considers only the facts set forth in the
complaint, exhibits attached to the complaint, and facts existing in the public record. Pension
Ben. Guar. Corp. v. White Consol. Indus., Inc., 998 F.2d 1192, 1196 (3d Cir. 1993). However, a
court may also “consider an undisputedly authentic document that a defendant attaches as an
exhibit to a motion to dismiss if the plaintiff's claims are based on the document.” Id.
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Policy, including contents coverage, along with damages, interest, and fees and costs. Plaintiffs
commenced this action in Hudson County New Jersey Superior Court in 2017. Thereafter, ABIC
removed this matter to federal court on the basis of federal question jurisdiction, arguing that
Plaintiffs state law claims are preempted by federal law.
II. STANDARD OF REVIEW
In considering a motion to dismiss, the Court accepts as true all of the facts in the complaint
and draws all reasonable inferences in favor of the nonmoving party. Phillips v. Cty. of Allegheny,
515 F.3d 224, 233 (3d Cir. 2008). Dismissal is inappropriate even where “it appears unlikely that
the plaintiff can prove those facts or will ultimately prevail on the merits.” Id. at 231. However,
the facts alleged must be “more than labels and conclusions, and a formulaic recitation of the
elements of a cause of action will not do.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555
(2007). Therefore, a complaint will survive a motion to dismiss if it provides a sufficient factual
basis such that it states a facially plausible claim for relief. Iqbal, 556 U.S. at 678.
III. DISCUSSION
A. Federal Preemption
ABIC argues that Plaintiffs’ state law claims are preempted by the NFIA. The Court
disagrees.
In order to assess the issue of federal preemption, some background analysis of the NFIA
is required.
The National Flood Insurance Act of 1968 (“NFIA”), 42 U.S.C. §§ 4001–4129,
established the National Flood Insurance Program (“NFIP”) in order to provide
flood insurance at reasonable rates through federal funding. 42 U.S.C. § 4017
(2003); see also Van Holt v. Liberty Mutual, 163 F.3d 161, 164 n.2 (3d Cir. 1998).
Under the NFIA, FEMA is permitted to implement the program either by issuing
its own flood insurance policies, or by authorizing private insurance companies to
implement the policies as agents of the United States. Id. §§ 4071(a), 4081. To
this end, FEMA established the WYO program, which allowed private companies
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to issue policies in accordance with the terms of the NFIP. 44 C.F.R. § 62.63. As
such, WYO companies are required to adjust claims in accordance with the terms
of the Standard Flood Insurance Policy (“SFIP”). See Bay Point I, 2013 WL
6252692, at *103 (holding that WYO insurer Standard was obligated to follow
FEMA Claims Manual). WYOs handle all administration of the policies, including
adjustment, settlement, payment, and defense of claims, with the federal
government acting as a financial guarantor. 44 C.F.R. § 62.63.
Residences at Bay Point Condo. Ass’n, Inc. v. Chernoff Diamond & Co., LLC, No. 16-5190, 2017
WL 1364593, at *3 (D.N.J. Apr. 13, 2017). In 2003, FEMA revised the SFIP to include a provision
on jurisdiction. It reads:
This policy and all disputes arising from the handling of any claim under the policy
are governed exclusively by the flood insurance regulations issued by FEMA, the
National Flood Insurance Act of 1968 . . . and Federal common law.
Id. at *8 (quoting 44 C.F.R. pt. 61, app. A(2), art. IX) (emphasis added). Consistent with this
provision, ABIC argues Plaintiffs state law claims are preempted because they arise from ABIC’s
handling of Plaintiffs’ claim under the policy.
As it relates to claims involving Standard Flood Insurance Policies, “[i]n general, federal
courts recognize that claims sounding in policy “handling” are preempted.” Id. (citations omitted).
However, federal courts “have distinguished between claims sounding in procurement and claims
sounding in handling.” Id. (citations omitted). “Accordingly, at least one court in this district has
declined to dismiss on preemption grounds,” when a case involved policy procurement rather than
handling. Id. (citing Danho v. Fidelity Nat. Indem. Ins. Co., 2013 WL 5411195, at *5 (D.N.J.
Sept. 26, 2013) (“the Court cannot at this time conclude that Plaintiff’s state law claim of negligent
misrepresentation in the procurement of a flood insurance policy is federally preempted”).
“Bay Point I” refers to: Residences at Bay Point Condominium Ass’n, Inc. v. Standard Fire Ins.
Co. et al., No. 13-02380, 2013 U.S. Dist. LEXIS 170811 at *10, (D.N.J. Dec. 4. 2014).
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“The status of the plaintiff’s coverage at the time of the adverse interaction with defendant
WYO company determines whether a claim arising from that interaction relates to claims handling
or policy procurement.” Bay Point I, 2013 WL 6252692, at *15. If the individual is “already
covered and in the midst of a non-lapsed insurance policy, the interactions between the insurer and
the insured, including renewals of insurance are ‘claims handling’ subject to preemption.”
Grissom v. Liberty Mut. Fire Ins. Co., 678 F.3d 397, 401 (5th Cir. 2012). In other words, when
there is an existing insurance relationship between the claimant and the insurer at the time of the
alleged interaction between the parties, the lawsuit sounds in claims handling, not procurement.
Residences at Bay Point, 2017 WL 1364593 at *3 (citing Bay Point I, 2013 WL 6252692, at *15).
When, however, there is not an existing relationship between the claimant and the insurer—for
example, if coverage has lapsed4 or if a claim relates to an insurer’s failure to provide the coverage
requested and represented to have been provided5—then a claim is procurement-related.
Applying these principles here, ABIC argues that any alleged conduct giving rise to
Plaintiffs’ claims—the denial of their request for contents coverage—occurred long after Plaintiffs
established an insurance relationship with ABIC as a WYO carrier in 2004 and are therefore
preempted as sounding in claims handling. The Court agrees, in part. To the extent Plaintiffs
contend ABIC “wrongfully den[ied] coverage for loss of contents,” their claim sounds in handling
and falls under federal law. SAC at p. 1, ¶ 9. Moreover, this claim fails because Plaintiffs
acknowledge that they did not have contents coverage under the Policy. Pl. Br. at 5, ECF No. 7.
The claim for coverage under the policy is therefore dismissed.
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Campo v. Allstate Ins. Co., 562 F.3d 751, 756 (5th Cir. 2009)
Simmons v. Mississippi Farm Bureau Cas. Ins. Co., No. 12-00063, 2013 WL 3895043, at *4
(N.D. Miss. July 29, 2013)
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However, the bulk of the SAC does “not seek recovery for any denial of coverage under
the subject policy, but rather for (1) ABIC’s and Keer’s “conduct . . . in the representations made
about the policy and in the procurement of the subject policy,” Simmons v. Mississippi Farm
Bureau Cas. Ins. Co., No. 12-00063, 2013 WL 3895043, at *4 (N.D. Miss. July 29, 2013), and (2)
ABIC’s and Keer’s “errors and omissions in failing to provide contents coverage under their
homeowner’s and flood insurance policies,” id. (citing Landry v. State Farm Fire & Cas. Co., 428
F.Supp.2d 531 (E.D.La. 2006)). “Such procurement-related claims sound in state law.” Id.
Consequently, Plaintiffs’ state law claims against ABIC and Keer are not preempted, insofar as
they relate to the representations and conduct concerning Plaintiffs’ initial obtaining of coverage.
Because the Court declines to exercise supplemental jurisdiction, as discussed below, it will not
opine on the merits of these claims.
B. Remand
In the absence of any federal question, the remaining potential basis for this Court’s
jurisdiction over Plaintiffs’ remaining state law claims is supplemental jurisdiction pursuant to 28
U.S.C. § 1367.6 The Court declines to exercise supplemental jurisdiction and will remand to the
state court.
This Court has an obligation to satisfy itself that it has subject matter jurisdiction over a
case and to address the issue sua sponte. Meritcare Inc. v. St. Paul Mercury Ins. Co., 166 F.3d
214, 217 (3d Cir. 1999), overruled on other grounds by Exxon Mobil Corp. v. Allapattah Svcs.,
Inc., 545 U.S. 546 (2005). Parties cannot waive a lack of subject matter jurisdiction or confer it
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Plaintiffs are New Jersey residents and Defendant Keer is a New Jersey corporation, with a
principal place of business in Point Pleasant, New Jersey. Consequently, there is not complete
diversity between the parties giving rise to diversity jurisdiction under 28 U.S.C. § 1332. See
SAC at p. 1, ¶¶ 1-2.
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upon the Court by consent. Brown v. Philadelphia Housing Auth., 350 F.3d 338, 346 (3d Cir.
2003).
“Supplemental jurisdiction allows federal courts to hear and decide state-law claims along
with federal-law claims when they are so related to claims in the action within such original
jurisdiction that they form part of the same case or controversy.” Wisconsin Dept. of Corrections
v. Schacht, 524 U.S. 381, 387 (1998) (citation and internal quotation marks omitted). Where a
district court has original jurisdiction pursuant to 28 U.S.C. § 1331 over federal claims and
supplemental jurisdiction over state claims pursuant to 28 U.S.C. § 1367(a), the district court has
discretion to decline to exercise supplemental jurisdiction if it has dismissed all claims over which
it has original jurisdiction. 28 U.S.C. § 1367(c)(3); Growth Horizons, Inc. v. Delaware County,
Pennsylvania, 983 F.2d 1277, 1284–1285 (3d Cir. 1993). In exercising its discretion, “the district
court should take into account generally accepted principles of ‘judicial economy, convenience,
and fairness to the litigants.’” Growth Horizons, Inc., 983 F.2d at 1284 (quoting United Mine
Workers v. Gibbs, 383 U.S. 715, 726 (1966)). Where the federal claims are dismissed at an early
stage in the litigation, courts generally decline to exercise supplemental jurisdiction over state
claims. United Mine Workers, 383 U.S. at 726; Growth Horizons, Inc., 983 F.2d at 1284–85.
Here, the Court has dismissed the federal claims early in the proceedings and exercises its
discretion to decline supplemental jurisdiction over any remaining state law claims at this time.
IV. CONCLUSION
For the foregoing reasons, the Motion to Dismiss is GRANTED with respect to Plaintiffs’
claims for content coverage under the policy. Having dismissed Plaintiffs’ federal law claims, the
Court denies supplemental jurisdiction over Plaintiffs’ remaining state law claims. An appropriate
order accompanies this opinion.
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Date: July 27, 2018
/s Madeline Cox Arleo__________
MADELINE COX ARLEO
UNITED STATES DISTRICT JUDGE
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