Surfsand Resort, LLC v. Nationwide Mutual Fire Insurance Co. et al
Filing
24
OPINION AND ORDER by Judge Anna J. Brown The Court GRANTS Defendants' Motion (# 18 ) to Dismiss Count II of Plaintiff's Complaint and GRANTSDefendants' Motion (# 17 ) to Strike Jury Demand. IT IS SO ORDERED. See order for details. Signed on 10/16/17. (jy)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON
SURFSAND RESORT, LLC, an
Oregon limited liability
company,
Plaintiff,
v.
NATIONWIDE MUTUAL FIRE
INSURANCE COMPANY, an Ohio
company, and HARLEYSVILLE
INSURANCE COMPANY, a
Pennsylvania company,
Defendants.
JAMES LEE GUSE
Barker Martin
1500 S.W. First Avenue
Suite 980
Portland, OR 97201
(503) 796-9806
Attorneys for Plaintiff
DIANE L. POLSCER
BRIAN C. HICKMAN
Gordon & Polscer, LLC
9755 S.W. Barnes Road
Suite 650
Portland, OR 97225
(503) 242-2922
1 - OPINION AND ORDER
3:17-cv-00866-BR
OPINION AND ORDER
KAYLEIGH T. KEILTY
PATRICIA M. LAMBERT
Pessin Katz Law, P.A.
901 Dulaney Valley Road
Suite 500
Towson, MD 21204
(410) 339-6772
Attorneys for Defendants
BROWN, Judge.
This matter comes before the Court on Defendants’ Motion
(#18) to Dismiss Count II of Plaintiff's Complaint and Motion
(#17) to Strike Jury Demand.
For the reasons that follow, the
Court GRANTS Defendants’ Motions.
BACKGROUND
The following facts are taken from Plaintiffs’ Complaint and
the parties’ filings related to Defendants’ Motion to Dismiss and
Motion to Strike.
On September 14, 2015, Defendants Nationwide Mutual Fire
Insurance Company and Harleysville Insurance Company issued to
Plaintiff Surfsand Resort, LLC, a Standard Flood Insurance Policy
(SFIP) pursuant to the National Flood Insurance Act (NFIA), 42
U.S.C. § 4001(a).
The policy period was from September 14, 2015,
through September 14, 2016.
The policy provides in relevant part
that it and “all disputes arising from the handling of any claim
under the policy are governed exclusively by the flood insurance
2 - OPINION AND ORDER
regulations issued by Federal Emergency Management Agency (FEMA),
the National Flood Insurance Act of 1968 . . . and federal common
law.”
Decl. of Kayleigh Toth Keilty, Ex. B at 24.
On December 11, 2015, the tidal waters of the Pacific Ocean
overflowed and allegedly damaged the bottom level of hotel rooms
at the Surfsand Resort in Cannon Beach, Oregon, which is owned by
Plaintiff.
On June 3, 2016, Nationwide issued a coverage determination
letter in which it denied coverage on the ground that there were
not any visible signs of covered flood damage.
Plaintiff
appealed Nationwide’s denial of coverage to FEMA as required by
the terms of the SFIP.
“A formal denial letter [of Plaintiff’s
appeal] was received by Plaintiff on March 27, 2017.”
Compl. at
¶ 24.
On June 2, 2017, Plaintiff filed an action in this Court
against Defendants asserting claims for breach of insurance
contract and negligence per se.
Plaintiff seeks damages,
attorneys’ fees, and a jury trial.
On August 21, 2017, Defendants filed a Motion to Dismiss
Count II of Plaintiff’s Complaint and a Motion to Strike Jury
Demand.
The Court took the Motions under advisement on
September 21, 2017.
DEFENDANTS’ MOTION (#18) TO DISMISS COUNT II
OF PLAINTIFF’S COMPLAINT
3 - OPINION AND ORDER
Defendant moves to dismiss Plaintiff’s claim for negligence
per se and Plaintiff’s demand for attorneys’ fees on the ground
that they are preempted by the NFIA and/or the National Flood
Insurance Program (NFIP), C.F.R. Title 44, Chapter I, Subchapter
B, Part 59, et seq.
I.
Standards
To survive a motion to dismiss, a complaint must
contain sufficient factual matter, accepted as
true, to “state a claim to relief that is
plausible on its face.” [Bell Atlantic v.
Twombly, 550 U.S. 554,] 570, 127 S. Ct. 1955
[(2007)]. 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. at 556. . . . The plausibility
standard is not akin to a “probability
requirement,” but it asks for more than a sheer
possibility that a defendant has acted unlawfully.
Ibid. Where a complaint pleads facts that are
“merely consistent with” a defendant's liability,
it “stops short of the line between possibility
and plausibility of ‘entitlement to relief.’” Id.
at 557, 127 S. Ct. 1955 (brackets omitted).
Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009).
Atlantic, 550 U.S. at 555-56.
See also Bell
The court must accept as true the
allegations in the complaint and construe them in favor of the
plaintiff.
Novak v. U.S., 795 F.3d 1012, 1017 (9th Cir. 2015).
"In ruling on a 12(b)(6) motion, a court may generally
consider only allegations contained in the pleadings, exhibits
attached to the complaint, and matters properly subject to
judicial notice."
Akhtar v. Mesa, 698 F.3d 1202, 1212 (9th Cir.
2012)(citation omitted).
4 - OPINION AND ORDER
A court, however, "may consider a
writing referenced in a complaint but not explicitly incorporated
therein if the complaint relies on the document and its
authenticity is unquestioned."
Swartz v. KPMG LLP, 476 F.3d 756,
763 (9th Cir. 2007)(citation omitted).
II.
National Flood Insurance Program
Congress enacted the NFIA in 1968 in response to the fact
that flood disasters were creating personal hardships and
economic distress that was “increasing [the] burden on the
Nation's resources,” and the exposure to flood losses was
“growing.”
42 U.S.C. § 4001(a).
The NFIA created the NFIP under
the administration of FEMA to “mak[e] flood insurance coverage
available on reasonable terms and conditions.”
U.S.C. § 4011.
Id.
See also 42
Flood insurance under the NFIP is sold to
qualified applicants either directly by FEMA or by private
insurance companies known as “write-your-own” (WYO) companies.
44 C.F.R. § 62.23.
WYO companies enter into a standardized
agreement with FEMA that authorizes the WYO company to issue
flood insurance in its own name and assigns the WYO company the
responsibility for “the adjustment, settlement, payment and
defense of all claims arising from policies of flood insurance it
issues under the Program.”
44 C.F.R. § 62.23(d).
Nevertheless,
the ultimate responsibility for paying all claims remains with
FEMA.
See 42 U.S.C. § 4017(a).
The NFIA regulations specify the required terms and
5 - OPINION AND ORDER
conditions of policies written under the NFIP.
Specifically, the
SFIP must advise the insured that FEMA is providing insurance
“under the terms of the National Flood Insurance Act of 1968 and
its Amendments, and Title 44 of the Code of Federal Regulations.”
44 C.F.R. pt. 61, app. A(1), art. I.
The SFIP also must set out
the scope of coverage, the exclusions, the deductions, and the
general conditions applicable to coverage, adjustment, and
payment.
The SFIP must also provide:
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, as amended (42 U.S.C.
§ 4001, et seq.), and Federal common law.1
44 C.F.R. pt. 61, app. A(1), art. IX.
In addition, the SFIP also
must include the following conditions and limitations for filing
actions for claims under SFIPs and for disputes arising out of
the handling of any claim under an SFIP:
You may not sue us to recover money under this
policy unless you have complied with all the
requirements of the policy. If you do sue, you
must start the suit within one year after the date
of the written denial of all or part of the claim,
and you must file the suit in the United States
District Court of the district in which the
covered property was located at the time of loss.
This requirement applies to any claim that you may
have under this policy and to any dispute that you
may have arising out of the handling of any claim
under the policy.
1
The SFIP at issue included all of the required language
identified above.
6 - OPINION AND ORDER
44 C.F.R. pt. 61, app. A(1), art. VII(R).
See also 42 U.S.C.
§ 4072; 44 C.F.R. § 62.22.
“In short, [SFIPs], claims under [SFIPs], and disputes
relating to the handling of claims under [SFIPs] are highly
regulated and subject exclusively to federal law.”
Woodson v.
Allstate Ins. Co., 855 F.3d 628 622-23 (4th Cir. 2017).
III. Analysis
As noted, Defendants move to dismiss Plaintiff’s claim for
negligence per se and Plaintiff’s demand for attorneys’ fees on
the ground that they are preempted by the NFIA and/or the NFIP.
C.F.R. Title 44, Chapter I, Subchapter B, Part 59, et seq.
A.
Plaintiff’s claim for negligence per se is preempted by
the NFIA and/or the NFIP.
Although the Ninth Circuit has not decided in a
published opinion whether state-law claims against WYO providers
related to SFIPs are preempted by federal law, “every [other]
circuit court to have considered this issue has concluded . . .
state-law claims against [WYO] insurance providers are preempted
by federal law.”
Woodson v. Allstate Ins. Co., 855 F.3d 628, 637
(4th Cir. 2017)(citing Remund v. State Farm Fire & Cas. Co., 483
F. App’x 403, 408–11 (10th Cir. 2012); Shuford v. Fidelity Nat'l
Prop. & Cas. Ins. Co., 508 F.3d 1337, 1344 (11th Cir. 2007);
Wright v. Allstate Ins. Co., 415 F.3d 384, 389–90 (5th Cir.
2005); C.E.R. 1988, Inc. v. Aetna Cas. and Surety Co., 386 F.3d
7 - OPINION AND ORDER
263, 268–72 (3d Cir. 2004); Gibson v. Am. Bankers Ins. Co., 289
F.3d 943, 948–50 (6th Cir. 2002)).
See also Gunter v. Farmers
Ins. Co., Inc., 736 F.3d 768, 772 (8th Cir. 2013)(concluding the
plaintiff’s state-law claims were preempted by NFIA/NFIP).
Courts that have addressed the question and concluded
state-law claims are preempted have noted FEMA amended the NFIA
in 2000 to include the provision for exclusive federal
jurisdiction:
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, as amended (42 U.S.C. 4001,
et seq.), and Federal common law.
44 C.F.R. pt. 61, app. A(1), art. IX (emphasis added).
When FEMA
proposed the 2000 amendment to the SFIP, it issued a statement of
intent that courts have concluded bolsters the conclusion that
state-law claims are preempted by the NFIA/NFIP:
[SFIPs] are sold by a number of private [WYO]
insurance companies and directly to the public by
the Federal Insurance Administration. Because the
[NFIP] is national in scope and accomplishes a
number of programmatic missions in addition to
making affordable flood insurance generally
available to the public, the SFIP provides that
its terms cannot be altered, varied or waived
except by the written authority of the Federal
Insurance Administrator. The Administrator
intends that the same benefits should be available
to insureds wherever the insured property is
located, or whether the policy is purchased from a
WYO insurance company or from the Federal
Government. Thus, there is a need for uniformity
in the interpretation of and standards applicable
to the policies and their administration.
8 - OPINION AND ORDER
Therefore, we have clarified the policy language
pertaining to jurisdiction, venue and applicable
law to emphasize that matters pertaining to the
[SFIP], including issues relating to and arising
out of claims handling, must be heard in Federal
court and are governed exclusively by Federal law.
65 Fed.Reg. 34,824, 34,826–27 (May 31, 2000)(emphasis added).
Thus, “[i]n the light of the plain language of the 2000 amendment
and the statement of intent [state-law claims are] expressly
preempted by federal law because [they] arise from the handling
of a claim under a [SFIP].”
Shuford, 508 F.3d at 1344.
See also
Gunter, 736 F.3d at 772 (“We agree with the Eleventh Circuit that
the plain language of this provision as well as FEMA’s stated
purpose in amending it, reflects a clear intent to preempt claims
under state law.”).
In Flick v. Liberty Mutual Fire Insurance Company the
parties stipulated the plaintiff’s state-law bad-faith claim
related to her SFIP was preempted by federal law.
389 (9th Cir. 2000).
205 F.3d 386,
In deciding other issues in the case,
however, the Ninth Circuit noted because
the flood insurance program is a child of
Congress, conceived to achieve policies which are
national in scope, and [because] the federal
government participates extensively in the program
both in a supervisory capacity and financially, it
is clear that the interest in uniformity of
decision present in this case mandates the
application of federal law.
Id. at 390.
The court explained “the Appropriations Clause
prohibits the judiciary from granting any money claim against the
9 - OPINION AND ORDER
federal government that is not authorized by statute,” and “[i]t
is an axiomatic principle of constitutional law that the
judiciary's power is limited by a valid reservation of
congressional control over public funds.”
Id. at 391.
The Ninth
Circuit noted “[b]ecause flood losses, whether insured by FEMA or
by a participating WYO insurer, are paid out of the National
Flood Insurance Fund, a claimant under a standard flood insurance
policy must comply strictly with the terms and conditions that
Congress has established for payment.
That is the simple, but
powerful command of the Appropriations Clause.”
Id. at 394.
Finally, the Ninth Circuit explained the “success of the NFIP, so
far, has depended on the ability of the federal government and
participating insurers to offer flood insurance at below
actuarial rates,” and “[i]n adhering to a rule of strict
compliance, we . . . avoid disturbing the delicate balance, which
FEMA has sought to strike, between the need to pay claims and the
need to ensure the long term sustainability of the NFIP” as well
as “inconsistent results that would occur were we to treat
[SFIPs] differently depending on whether they are written by WYO
insurers or FEMA.”
Id. at 396.
Thus, although the Ninth Circuit
did not address whether state-law claims are preempted under the
NFIP/NFIA, the court stressed the importance of strict compliance
with the terms of the NFIA and of consistent results for all who
are insured with SFIPs.
10 - OPINION AND ORDER
In its Response to Defendants’ Motion to Dismiss
Plaintiff cites a number of cases to support its assertion that
its state-law claim for negligence per se is not preempted by
NFIP/NFIA.
Those cases, however, were all decided before FEMA’s
2000 amendment to the NFIA that made clear all disputes arising
from the handling of any claims under SFIPs are “governed
exclusively by the flood insurance regulations [and] the [NFIA].”
The cases on which Plaintiff relies, therefore, are inapplicable.
This Court adopts the analysis and reasoning of
Woodson, Shuford, Wright, C.E.R., Gibson, and Gunter.
Accordingly, the Court concludes Plaintiff’s claim for negligence
per se is preempted by the NFIA/NFIP.
B.
Federal Common-Law Bad-Faith Claim.
In its Response to Defendants’ Motion to Dismiss
Plaintiff states although Defendants “argue that [Plaintiff’s
negligence per se] claim must be dismissed because of federal
preemption[, n]owhere do [Defendants] argue or provide authority
suggesting that a federal claim is not available.”
Resp. at 8.
As Defendants point out, however, Plaintiff did not plead a
federal common-law bad-faith claim in its Complaint.
Defendants,
therefore, did not have the opportunity to address that issue.
In any event, it is questionable whether a federal
common-law bad-faith claim is permitted under NFIA/NFIP.
that have addressed the issue rejected such claims.
11 - OPINION AND ORDER
Courts
For example,
in Gunter the Eighth Circuit affirmed the district court’s
dismissal of the plaintiff’s “extracontractual claim brought
under federal common law” on the ground that the claim “was
essentially a re-labeled state-law claim and thus also preempted
by federal law.”
736 F.3d at 772 (quotation omitted).
Similarly, in Wright v. Allstate Insurance Company the Fifth
Circuit held the term “federal common law” as used in the SFIP
does not give policyholders, either expressly or implicitly, “the
right to assert extra-contractual claims against WYO insurers which claims, if successful, would likely be paid with government
funds” because that would allow the court to fashion remedies
there were beyond the remedies Congress provided in the NFIP.
500 F.3d 390, 394 (5th Cir. 2007).
The Fifth Circuit held the
NFIP specifically allows policyholders to bring actions against
WYO insurers for breach of contract (42 U.S.C. §§ 4053, 4072),
but it does not permit extracontractual claims such as negligence
or actions for a declaratory judgment.
Id.
The “lone reference
to federal common law instructs courts to consider standard
principles of interpreting insurance contracts when resolving
questions regarding the policy's coverage; it is not an
invitation to courts to fashion additional remedies or causes of
action.”
Id. at 397.
To the extent that Plaintiff would seek to amend its
Complaint to allege a federal common-law bad-faith claim, the
12 - OPINION AND ORDER
Court adopts the reasoning and analysis of Gunter and Wright and
concludes such an amendment would be futile.
Accordingly, to the
extent that Plaintiff would seek to amend its Complaint to add a
federal common-law bad-faith claim, the Court denies that request
on the ground that any such claim would be “essentially a relabeled state-law claim and thus also preempted by federal law,”
and, therefore, would be futile.
C.
Plaintiff’s demand for attorneys’ fees is preempted by
the NFIA and/or the NFIP.
In its Complaint Plaintiff also seeks attorneys’ fees
pursuant to Oregon Revised Statutes § 742.061.
As noted,
Defendant moves to dismiss Plaintiff’s request for attorneys’
fees on the ground that they are not provided for in the SFIP
and/or they are preempted by the NFIP/NFIA.
The SFIP at issue provides in pertinent part:
“We only
provide coverage for direct physical loss by or from flood, which
means that we do not pay you for:
loss you suffer.”
. . . [a]ny other economic
Keilty Decl., Ex. B at 14.
Plaintiff does not
appear to dispute that the SFIP does not specifically provide for
attorneys’ fees under its terms.
Instead Plaintiff seeks fees
pursuant to Oregon Revised Statutes § 742.061(1), which provides
in relevant part:
“[I]f . . . an action is brought in any court
of this state upon any policy of insurance of any kind or nature,
and the plaintiff's recovery exceeds the amount of any tender
made by the defendant in such action, a reasonable amount to be
13 - OPINION AND ORDER
fixed by the court as attorney fees shall be taxed as part of the
costs of the action.”
Although the Ninth Circuit has not addressed the issue
of an insured’s entitlement to attorneys’ fees for litigating a
claim under an SFIP via a provision of state law, at least one
district court in the Ninth Circuit has addressed the issue and
refused to apply state-law authority for recovery of attorneys’
fees.
See, e.g., Cook v. USAA Gen. Indem. Co., C-07-4042 SC,
2008 WL 5265103, at *5-6 (N.D. Cal. Dec. 16, 2008)(“Plaintiffs'
claim for breach of the implied covenant of good faith and fair
dealing is preempted, and . . . the attorneys' fees Plaintiffs
seek are . . . legally unavailable.”); Bianchi v. State Farm Fire
and Cas. Co., 120 F. Supp. 2d 837, 842 (N.D. Cal. 2000)(granting
the defendants’ motion to strike the plaintiffs’ request for
attorneys’ fees for breach of a SFIP).
the same conclusion.
Other courts have reached
See, e.g., Messa v. Omaha Prop. & Cas. Ins.
Co., 122 F. Supp. 2d 513, 523 (D. N.J. 2000)(“Plaintiffs' claims
against defendant in this case are nothing more than a
disagreement with defendant's decision to pay less on the claim
than plaintiffs believe is warranted.
Plaintiffs may still
pursue that claim through their breach of contract action based
on the SFIP itself.
However, plaintiffs are not entitled to
receive . . . attorney's fees . . . because federal law does not
provide for those remedies in this type of case.”); Evanoff v.
14 - OPINION AND ORDER
The Standard Fire Ins. Co., 1:07-CV-00631, 2007 WL 1577744, at *2
(N.D. Ohio May 29, 2007)(“[T]he NFIA preempts Count II of
Plaintiff's Complaint and the demands for punitive damages and
attorneys' fees.”); Cole v. New Hampshire Ins., 1:10CV183–SA–DAS,
2012 WL 39515, at *14 (N.D. Miss. Jan. 9, 2012)(granting the
defendant’s motion for summary judgment as to the plaintiff’s
extra-contractual claims, including a request for attorneys’
fees, on the ground that the claims are preempted by the
FNIA/FNIP); McDowell v. USAA Gen. Indemn. Co., 14-4529 (JBS/AMD),
2016 WL 4249487, at *4 (D. N.J. Aug. 9, 2016)(granting the
defendant’s motion to strike the plaintiff’s request for
attorney’s fees pursuant to state law on the ground that the
request was preempted by federal law).
This Court adopts the analysis and reasoning of
Bianchi, Messa, Evanoff, Cole, and McDowell.
Accordingly, the
Court concludes Plaintiff’s request for attorneys’ fees pursuant
to Oregon Revised Statutes § 742.061 is preempted by the
NFIP/NFIA.
In summary, the Court grants Defendants’ Motion to Dismiss
Plaintiff’s negligence per se claim and grants Defendants’ Motion
to Dismiss Plaintiff’s request for attorneys’ fees.
DEFENDANTS’ MOTION (#17) TO STRIKE JURY DEMAND
Defendants move to strike Plaintiff’s jury demand
15 - OPINION AND ORDER
pursuant to Federal Rule of Civil Procedure 39(a)(2) on the
ground that an insured bringing a claim for breach of an SFIP
does not have a right to a jury trial.
As the court explained in
Cook:
All flood claim benefits paid under the SFIP, as
part of the National Flood Insurance Program, are
U.S. Treasury funds. See Van Holt v. Liberty Mut.
Ins. Co., 163 F.3d 161, 165 (3d Cir. 1998).
Although the WYO Carriers, such as USAA, issue the
insurance policies and process claims, they do so
as fiscal agents of the United States. Id.
(citing 42 U.S.C. § 4071(a)(1)). The terms of the
SFIP are fixed by the Federal Emergency Management
Agency (FEMA) rather than by the carriers, and the
carriers are not permitted to deviate from those
terms. Id. at 165-66. In short, a suit against a
WYO carrier for breach of the SFIP is essentially
a suit against FEMA. Id. See also Flick v.
Liberty Mut. Fire Ins. Co., 205 F.3d 386, 393 n.10
(9th Cir. 2000)(“Though policyholders may file
claims against WYO Insurers in federal court,
. . . the claim is, in reality, a claim against
the federal government.”).
It is well established that the Seventh Amendment
right to a jury trial does not apply in actions
against the United States, or to recover U.S.
Treasury funds, unless the government expressly
consents to suit and authorizes trial by jury.
See Lehman v. Nakshian, 453 U.S. 156, 160 (1981).
The statute that governs judicial review of SFIP
claims does not grant the right to a jury trial in
such actions. See 42 U.S.C. § 4072. Because
Congress did not expressly provide for trial by
jury in this matter, Plaintiffs' claim for federal
funds must proceed before the Court.
2008 WL 5265103, at *6.
In its Response Plaintiff concedes it does not have a right
to a jury trial if the Court grants Defendants’ Motion to
Dismiss.
The Court has granted Defendants’ Motion to Dismiss
16 - OPINION AND ORDER
Plaintiff’s claim for negligence per se.
The Court, therefore,
concludes Plaintiff is not entitled to a jury trial because the
sole remaining claim in this matter is one for breach of the SFIP
for which Congress did not authorize a trial by jury.
Accordingly, the Court grants Defendants’ Motion to Strike Jury
Demand and strikes Plaintiff’s request for a jury trial from
Plaintiff’s Complaint.
CONCLUSION
For these reasons, the Court GRANTS Defendants’ Motion (#18)
to Dismiss Count II of Plaintiff's Complaint and GRANTS
Defendants’ Motion (#17) to Strike Jury Demand.
IT IS SO ORDERED.
DATED this 16th day of October, 2017.
/s/ Anna J. Brown
ANNA J. BROWN
United States Senior District Judge
17 - OPINION AND ORDER
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