Monticello Road LLC et al v. Auto-Owners Insurance et al
ORDER AND OPINION denying 15 Motion to Remand to State Court. Signed by Honorable Margaret B Seymour on 7/28/2017.(asni, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF SOUTH CAROLINA
Monticello Road, LLC,
Monticello Road C Store, LLC,
AmGuard Insurance Company,
Civil Action Number: 3:17-0730-MBS
ORDER AND OPINION
On February 14, 2017, Plaintiffs Monticello Road, LLC and Monticello Road C Store,
LLC (collectively, “Plaintiffs”) sued Defendants Auto-Owners Insurance Company and
AmGuard Insurance Company1 in the Court of Common Pleas for Richland County, South
Carolina for bad faith failure to pay an insurance claim. ECF No. 1-1. On March 16, 2017,
Defendant Auto-Owners Insurance Company (“Defendant”) timely removed this action to
federal court citing federal question jurisdiction pursuant to 28 U.S.C. § 1331 or 42 U.S.C.§
4072. ECF Nos. 15-2, 22. Plaintiffs moved to remand on May 13, 2017. ECF No. 15.
LEGISLATIVE & FACTUAL BACKGROUND
The National Flood Insurance Program (“NFIP”)
Congress established the NFIP under the National Flood Insurance Act of 1968 to
provide affordable flood insurance coverage for residential and commercial properties. 42 U.S.C.
§§ 4001 et seq.; see Battle v. Seibels Bruce Ins. Co., 288 F.3d 596, 598 (4th Cir. 2002). NFIP is
federally subsidized and federally administered. The Federal Emergency Management Agency
(“FEMA”) is responsible for the administration of NFIP. 42 U.S.C. § 4011. In 1983, FEMA
Defendant AmGuard Insurance Company has not responded to Plaintiffs’ motion to remand;
however, Defendant AmGuard filed an answer in the federal court proceedings, ECF No. 8.
created the “Write-Your-Own” program, which allows private insurance companies to issue
Standard Flood Insurance Policies (“SFIPs”) under the NFIP. 44 C.F.R § 62.23 (2017). These
insurance companies are referred to as “Write-Your-Own” companies (“WYO”). Id. at §
WYOs are responsible for the “adjustment, settlement, payment and defense of all claims
arising from policies of flood insurance it issues under the Program, based upon the terms and
conditions of the Standard Flood Insurance Policy.” Id. at § 62.23(d). WYOs are fiscal agents of
the United States of America. 42 U.S.C. § 4071(a)(1); 44 C.F.R. § 62.23(g). As fiscal agents,
WYOs collect SFIP premiums in segregated accounts, deduct their fees and costs from those
premiums, and then deposit the remainder of the premiums in the National Flood Insurance Fund
in the United States Treasury. 42 U.S.C. § 4017(b)(2). FEMA sets the terms, rate structures, and
premium costs of the SFIPs, and is ultimately responsible for the payment of all claims. Id. at §
4014. If an insurance claim is more than the WYO has received in premiums, WYOs must draw
upon the letters of credit from FEMA. Battle, 288 F.3d at 600; see also 44 C.F.R. § 62.23(f).
According to the arrangement entered into with FEMA, WYOs retain a standard percentage of
claims paid to the insured, which is essentially a commission for the WYOs for their
participation in the WYO program. Southpointe Villas Homeowners Ass’n v. Scottis Ins. Agency
Inc., 213 F. Supp. 2d 586, 588 (D.S.C. 2002) (citing 44 C.F.R. § 62.23(a)). FEMA disburses
additional funding to cover certain costs incurred by WYO’s when defending against claims. 44
C.F.R. § 62.23(i)(6). “In short, premiums collected on policies written by WYO[s] do not belong
to those companies.” Battle, 288 F.3d at 600 (citing Newtown v. Capital Assurance Co., 245 F.3d
1306, 1311 (11th Cir. 2001)).
2016 Storm and Subsequent Insurance Claim
Plaintiffs are South Carolina limited liability companies that operate a convenience store
at 6000 Monticello Road, Columbia, South Carolina. ECF No. 1-1 at ¶ 1. On February 26, 2015,
Defendant, issued Plaintiffs a flood insurance policy (SFIP No. 4100766692) under the NFIP.
ECF No. 22-1. Plaintiffs allege that in or about 2016 their convenience store sustained flood and
water damage during a severe storm. ECF No. 1-1 at ¶ 3. Plaintiffs alleged that, “the flood, the
water, the wind and the overall havoc” damaged the store and its inventory. Id. at ¶ 7. Plaintiffs
claim that Defendant breached their insurance contract by failing to provide the entire amount
due on their insurance claim. Id. at ¶ 8. Plaintiffs request $74,500 in damages. Id.
Removal from state court is governed by 28 U.S.C. § 1441. Under § 1441, “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 . . . .” A federal court may have
original jurisdiction through federal question jurisdiction, 28 U.S.C. § 1331, or diversity
jurisdiction, 28 U.S.C. § 1332. “A defendant or defendants desiring to remove any civil action . .
. shall file in the district court . . . a pending notice or removal” within thirty days after receipt of
the initial pleading. 28 U.S.C. § 1446. Once an action has been removed, a plaintiff may file a
motion to remand “on the basis of any defect other than lack of subject matter jurisdiction . . .
within 30 days after the filing of the notice of removal . . . .” 28 U.S.C. § 1447.
The removing party has the burden of establishing federal jurisdiction, and the court
should construe any uncertainty of federal jurisdiction in favor of remand. Mulcahey v. Columbia
Organic Chems. Co., Inc., 29 F.3d 148, 151 (4th Cir. 1994). Removal jurisdiction is determined
on the basis of the state court complaint at the time of removal. Woodward v. Newcourt Comm.
Fin. Corp., 60 F. Supp. 2d 530, 531 (D.S.C. 1999). Defendant does not claim diversity
jurisdiction; therefore, the court must determine whether there is federal question jurisdiction
pursuant to 28 U.S.C. § 1331 or 42 U.S.C. § 4072.
A plaintiff’s cause of action arises under federal law only when a “well-pleaded
complaint” raises an issue of federal law. Metro. Life Ins. Co. v. Taylor, 481 U.S. 58, 63 (1987).
The rule provides that “whether a case is one arising under the Constitution or a law or treaty of
the United States . . . must be determined from what necessarily appears in the plaintiff’s
statement of his own claim.” Aetna Health Inc. v. Davila, 542 U.S. 200, 207 (2004); (citing
Taylor v. Anderson, 234 U.S. 74, 75-76 (1914)). The district court has jurisdiction to hear a case
only when a well-pleaded complaint “establishes either that federal law creates the cause of
action or that the plaintiff’s right to relief necessarily depends on resolution of a substantial
question of federal law.” Battle, 288 F.3d at 606-07. If the outcome of the lawsuit turns on a
question of federal law, then relief necessarily depends on the resolution of a substantial question
of federal law and there is federal question jurisdiction. Franchise Tax Bd. v. Constr. Laborers
Vacation Trust, 463 U.S. 1, 13 (1983). A defense based on federal law is not sufficient to
establish federal question jurisdiction. E.g., Merrell Dow Pharm., Inc. v. Thompson, 478 U.S.
804, 809 (1986) (“A defense that raises a federal question is inadequate to confer federal
A party who brings a suit may decide whether to rely on state or federal law, but “may
not defeat removal by omitting to plead necessary federal questions in a complaint.” Rivet v.
Regions Bank of Louisiana, 522 U.S. 470, 475 (1998). A court may uphold removal if it
concludes that a plaintiff has “artfully pleaded” claims in order to avoid federal questions. Id.
Additionally, if federal law completely preempts a plaintiff’s state law claim, the artful pleading
doctrine permits removal. Id.; see Metro. Life Ins. Co., 481 U.S. at 65-66.
Plaintiffs assert that there is no federal question jurisdiction under 28 U.S.C. § 1331.
Plaintiffs allege that they are relying solely on state common law. ECF No. 15-1 at 1. In Studio
Frames Ltd. v. Standard Fire Insurance. Co., 369 F.3d 376, 380 (4th Cir. 2004), the Fourth
Circuit Court of Appeals held that a plaintiff’s “right to relief on its claims for breach of contract,
which hinge[d] on the court's interpretation of a [SFIP] issued pursuant to the NFIP and codified
in federal regulations, necessarily depend[ed] on the resolution of a substantial question of
federal law.” See also Leland v. Fed. Ins. Adm’r, 934 F.2d 524, 529 (4th Cir. 1991) (“Federal
common law controls the interpretation of insurance policies issued pursuant to the NFIP.”). As
the resolution of Plaintiffs’ claim is based on a SFIP issued pursuant to the NFIP and codified
federal regulations, their claims necessarily depend on the interpretation of a substantial question
of federal law. Plaintiffs’ SFIP explicitly states: “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.” ECF No. 22 at 7. The court finds removal was proper
under federal question jurisdiction. 2
Plaintiff alternatively raises 42 U.S.C. § 4072, 28 U.S.C. § 1337, and 28 U.S.C. § 1367 as bases
for federal question jurisdiction; however, the court declines to address these arguments as it
finds subject matter jurisdiction under § 1331.
For the reasons stated above, Plaintiffs’ motion for remand is DENIED.
s/ Margaret B. Seymour
The Honorable Margaret B. Seymour
Senior United States District Judge
July 28, 2017
Columbia, South Carolina
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