Ling v. Texas Farmers Insurance Company
OPINION AND ORDER OF PARTIAL DISMISSAL granting #6 MOTION to Dismiss. (Signed by Judge Melinda Harmon) Parties notified.(rhawkins)
United States District Court
IN THE UNITED STATES DISTRICT COURT
Southern District of Texas
FOR THE SOUTHERN DISTRICT OF TEXAS
February 02, 2017
David J. Bradley, Clerk
§ CIVIL ACTION NO. H-16-2961
FARMERS INSURANCE GROUP d/b/a
FIRE INSURANCE EXCHANGE,
OPINION AND ORDER OF PARTIAL DISMISSAL
The above referenced cause, alleging breach of flood insurance
contract and state-law claims for failure to pay the full amount of
benefits owed to the insured, was removed from the 164th Judicial
District Court of Harris County, Texas.1
Pending before the Court
Federal courts have original, exclusive jurisdiction over a
breach of contract suit against the Director of the Federal
Emergency Management Agency (“FEMA”) seeking payment of
additional flood insurance benefits under a Standard Flood
Insurance Policy (“SFIP”). 42 U.S.C. § 4072. Section 4072
(“Adjustment and payment of claims; judicial review; limitations;
In the event the program is carried out as provided in
section 1340 [42 U.S.C. § 4071], the Director shall be
authorized to adjust and make payment of any claims for
proved and approved losses covered by flood insurance,
and upon the disallowance by the Director of any such
claim, or upon the refusal of the claimant to accept
the amount allowed upon any such claim, the claimant,
within one year after the date of mailing of notice of
disallowance or partial disallowance by the Director,
may institute an action against the Director on such
claim in the Untied States district court for the
district in which the insured property or the major
part thereof shall have been situated, and original
exclusive jurisdiction is hereby conferred upon such
court to hear and determine such action without regard
to the amount in controversy.
Furthermore, effective December 31, 2000 an amendment to the SFIP
added the following language to Article IX (“What law Governs”)
is a motion to dismiss with prejudice under Federal Rule of Civil
Procedure 12(b)(6) (instrument #6) all Plaintiff Jianhua Ling’s
extra-contractual state-law claims2 in this suit, bought pursuant
to the National Flood Insurance Act of 1968, as amended, (“NFIA”),
42 U.S.C. §§ 4001, et seq., filed by Defendant Farmers Insurance
Company (“Texas Farmers”), on behalf of Defendant Farmers Insurance
Group d/b/a Fire Insurance Exchange’s,3
because in the context of
of the standard flood insurance policy: “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. Part 61, App. A. Art. IX (2001).
Several Circuit Courts of Appeals have held that § 4072 also
applies to lawsuits against private insurers who issue SFIPs
under the Write Your Own (“WYO”) program. See Wright v. Allstate
Ins. Co., 415 F.3d 384, 389 (5th Cir. 2005); Gibson v. Am.
Bankers Ins. Co., 289 F.3d 943, 947 (6th Cir. 2002); Van Hold v.
Liberty Mut. Fire Ins.Co., 163 F.3d 161, 166-67 (3d Cir. 1998).
Specifically in her Original Petition, in addition to
breach of contract, Plaintiff sought to recover for extracontractual claims of violations of the Texas Insurance Code, the
common law duty of good faith and fair dealing, fraudulent
misrepresentations, common law fraud, treble damages under the
Texas Insurance Code, punitive and/or exemplary damages,
attorneys’ fees, and pre- and post-judgment interest.
Farmers Insurance Group d/b/a Fire Insurance Exchange was
incorrectly named as defendant because the relevant policy of
insurance (Policy No. 8702691498 2015 for the property located at
8926 Ferris, Houston, Texas (the “Property”), owned by Plaintiff)
was issued by Texas Farmers, a Write-Your-Own (“WYO”) Program
carrier participating in the NFIP. Homeowners can purchase a
SFIP policy directly from FEMA or through private insurers, which
serve as WYO providers, such as Texas Farmers here. Ferraro v.
Liberty Mutual Fire Ins. Co., 796 F.3d, 529, 531 (5th Cir. 2015).
The private WYO companies defend against claims and then FEMA
reimburses them because they are fiscal agents of the United
States. 44 C.F.R. § 62.23(g), (i)6; 42 U.S.C. § 4071(a)(1).
Texas Farmers is appearing in this action in its fiduciary
the United States Government’s National Flood Insurance Program
constitutional, statutory, and regulatory law, as well as by United
States Supreme Court precedents.5
Defendant would leave pending
capacity as a “fiscal agent of the United States.”
44 C.F.R. §
See Wright v. Allstate Ins. Co., 415 F.3d 384 (5th Cir.
2995)(insured’s state-law claims made against WYO insurance
relating to the handling of flood insurance policies under the
NFIP are expressly preempted by the NFIA).
Two Supreme Court cases have ruled that any
misrepresentation claim involved in the handling of a
plaintiff/insured’s flood insurance claim is barred: Fed. Crop
Ins. Corp. v. Merrill, 332 U.S. 380 (1947), and Heckler v. Cmty.
Health Serv. Of Crawford Cnty., Inc., 467 U.S. 51 (1984). In
Merrill, farmers who applied for crop insurance told the
government-created corporation handling the matter that the
farmers’ entire crop, including reseeded winter wheat, was
insurable, when regulations, published in the federal register,
actually prohibited insurance coverage of reseeded winter wheat.
A drought subsequently destroyed most of the farmers’ crop, but
their claim under the policy was denied because everyone “is
charged with knowledge of the United States’ Statutes,” rules and
regulations. Moreover under the Merrill doctrine, estoppel is not
permitted against the government. As opined in Heckler v.
Community Health Service of Crawford County, 467 U.S. at 63-64,
“Protection of the public fisc requires those who seek public
funds act with scrupulous regard for the requirements of law,”
and participants in federal benefit programs have a legal duty to
“familiarize” themselves with the program’s “legal requirements
for cost reimbursement.” “It is well settled that the Government
may not be estopped on the same terms as any other litigant.”
Id. These two cases fed into Richmond Printing LLC v. Director,
FEMA, 72 Fed. Appx. 92, 2003 WL 21697457, at *2 (5th Cir. July
21, 2003), in which the Fifth Circuit highlighted that “state law
claims arising out of the terms of coverage of the SFIP are
preempted, whether the claims are merely claims for coverage or
ancillary claims arising out of the insurer’s denial of
In sum Texas Farmers maintains that all of Plaintiff’s
extra-contractual claims are barred by Merrill, Heckler, Wright,
only Plaintiff’s breach of insurance contract claim under the SFIP.
Although Plaintiff is represented by counsel, she has failed
to file a response.
On May 26, 2015 heavy rainfall flooded the Meyerland area in
Property that it required extensive remediation and rebuilding.
After Plaintiff filed a claim with Defendant for the cost of
repairs to the Property under her policy, Defendant allegedly
wrongfully underpaid some of the claims and continues to withhold
Standard of Review
When a district court reviews a motion to dismiss pursuant to
Fed. R. Civ. P. 12(b)(6), it must construe the complaint in favor
of the plaintiff and take all well-pleaded facts as true. Randall
D. Wolcott, MD, PA v. Sebelius, 635 F.3d 757, 763 (5th Cir. 2011),
citing Gonzalez v. Kay, 577 F.3d 600, 603 (5th Cir. 2009).
assumption. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)(“The tenet
that a court must accept as true all of the allegations contained
in a complaint is inapplicable to legal conclusions.”), citing Bell
Atlantic Corp. v. Twombly, 556 U.S. 662, 678 (2007); Hinojosa v.
U.S. Bureau of Prisons, 506 Fed. Appx. 280, 283 (5th Cir. Jan. 7,
“While a complaint attacked by a Rule 12(b)(6) motion to
dismiss does not need detailed factual allegations, . . . a
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)(citations omitted). “Factual allegations must
be enough to raise a right to relief above the speculative level.”
Id. at 1965, citing 5 C. Wright & A. Miller, Federal Practice and
Procedure § 1216, pp. 235-236 (3d ed. 2004)(“[T]he pleading must
contain something more . . . than . . .
a statement of facts that
merely creates a suspicion [of] a legally cognizable right of
action”). Twombly requires that a complaint allege enough facts to
state a claim that is plausible on its face.”
St. Germain v.
Howard,556 F.3d 261, 263 n.2 (5th Cir. 2009), citing In re Katrina
Canal Breaches Litig., 495 F.3d 191, 205 (5th Cir. 2007)(“To survive
a Rule 12(b)(6) motion to dismiss, the plaintiff must plead ‘enough
facts to state a claim to relief that is plausible on its face.’”),
citing Twombly, 127 S. Ct. at 1974).
“‘A claim has facial
plausibility when the pleaded factual content allows the court to
draw the reasonable inference that the defendant is liable for the
Montoya v. FedEx Ground Package System,
Inc., 614 F.3d 145, 148 (5th Cir. 2010), quoting Ashcroft v. Iqbal,
556 U.S. 662, 678 (2009).
The plausibility standard is not akin
“possibility that a defendant has acted unlawfully.”
U.S. at 556.
Dismissal under Rule 12(b)(6) is proper not only where the
plaintiff fails to plead sufficient facts to support a cognizable
legal theory, but also where the plaintiff fails to allege a
cognizable legal theory.
Kjellvander v. Citicorp, 156 F.R.D. 138,
140 (S.D. Tex. 1994), citing Garrett v. Commonwealth Mortgage
Corp., 938 F.2d 591, 594 (5th Cir. 1991); ASARCO LLC v. Americas
Min. Corp., 832 B.R. 49, 57 (S.D. Tex. 2007).
“A complaint lacks
an ‘arguable basis in law’ if it is based on an indisputedly
meritless legal theory’ or a violation of a legal interest that
does not exist.”
Ross v. State of Texas, Civ. A. No. H-10-2008,
2011 WL 5978029, at *8 (S.D. Tex. Nov. 29, 2011).
As noted, on a Rule 12(b)(6) review, although generally the
court may not look beyond the pleadings, the court may examine the
complaint, documents attached to the complaint, and documents
attached to the motion to dismiss to which the complaint refers and
which are central to the plaintiff’s claim(s), as well as matters
of public record.
Lone Star Fund V (U.S.), L.P. v. Barclays Bank
PLC, 594 F.3d 383, 387 (5th Cir. 2010), citing Collins, 224 F.3d at
498-99; Cinel v. Connick, 15 F.3d 1338, 1341, 1343 n.6 (5th Cir.
“‘[D]ocuments that a defendant attaches to its motion to
dismiss are considered part of the pleadings if they are referred
to in the plaintiff’s complaint and are central to [its] claim.’”
Collins v. Morgan Stanley Dean Witter, 224 F.3d 496, 498-99 (5th
Cir. 2000), quoting Venture Assocs. Corp. v. Zenith Data Sys.
Corp., 987 F.2d 429, 431 (7th Cir. 1993).
By such attachments the
defendant simply provides additional notice of the basis of the
suit to the plaintiff and aids the Court in determining whether a
claim has been stated.
Id. at 499.
The attachments may also
provide the context from which any quotation or reference in the
motion is drawn to aid the court in correctly construing that
quotation or reference.
In re Enron Corp. Securities, Derivative
& “ERISA” Litig., No. H-04-0087, 2005 WL 3504860, at 11 n.20 (S.D.
Tex. Dec. 22, 2005). “Where the allegations in the complaint are
contradicted by facts established by documents attached as exhibits
Martinez v. Reno, No. 3:97-CV-0813-P, 1997 WL
786250, at *2 (N.D. Tex. Dec. 15, 1997), citing Nishimatsu Const.
Co. v. Houston Nat’l Bank, 515 F.2d 1200, 1206 (5th Cir. 1975).
When conclusory allegations and unwarranted deductions of fact are
contradicted by facts disclosed in the appended exhibit, which is
treated as part of the complaint, the allegations are not admitted
Carter v. Target Corp., 541 Fed. Appx. 413, 417 (5th Cir.
Oct. 4, 2013), citing Associated Builders, Inc. v. Alabama Power
Co., 505 F.2d 97, 100 (5th Cir. 1974), citing Ward v. Hudnell, 366
F.2d 247 (5th Cir. 1966).
Because the NFIP, which provides flood insurance coverage at
very reasonable rates, is operated by FEMA, an agency of the
Department of Homeland Security, the NFIP draws funds from the
federal treasury to cover approved claims.
Ferraro v. Liberty
Mutual Fire Ins. Co., 796 F.3d 529, 531 (5th Cir. 2015).
the NFIP’s regulations implicate sovereign immunity, and “‘the
provisions of an insurance policy issued pursuant to a federal
program must be strictly construed and enforced.’”6
Gowland v. Aetna, 143 F.3d 951, 954 (5th Cir. 1998), and citing
DeCosta v. Allstate Ins. Co., 730 F.3d 76, 84 (1st Cir. 2013), and
Mancini v. Redland Ins., 248 F.3d 729, 734-35 (8th Cir. 2001).
Homeowners can purchase policies either directly from FEMA or from
private insurers, which function as WYO providers and fiscal agents
of the United States.
Id., citing 42 U.S.C. § 4071(a)(1).
Before the Fifth Circuit issued Wright v. Allstate Ins. Co.,
415 F.3d 384 (5th Cir. 2005), courts interpreted the Circuit’s case
law as ruling that state law claims are not preempted by the NFIP.
Gallup v. Omaha Property and Casualty Insurance Co., 434 F.3d 341,
344 (5th Cir. 2005), citing Spence v. Omaha Indemnity Ins. Co., 996
F.2d 793 (5th Cir. 1993), and Richmond Printing LLC v. Director,
No provision of a SFIP can be waived without the express
written consent of the Federal Insurance Administrator and an
insured covered by a SFIP policy cannot file a lawsuit under the
NFIP until he has met all the SFIP provisions, including sending
FEMA a signed, sworn proof of loss within sixty days after the
loss. Berger v. Nat’l Flod Ins. Program, 2013 WL 499310, at *4
(E.D. La. Feb. 7, 2013)
FEMA, 72 Fed. Appx. 92 (5th Cir. 2003)(“interpreting Spence as
holding that a misrepresentation extracontractual claim was not
preempted by the Act.”).
Then in Wright, 415 F.3d at 390, the
Fifth Circuit ruled that “‘state law tort claims arising from
claims handling by a WYO are preempted under federal law.’”
preemption provision added by amendment in 2000, 44 C.F.R. Part 61,
App. A(1) art. IX (The SFIP states, “This [flood] 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 the Federal common law.”).
Grissom v. Liberty Mut. Fire Ins. Co., 678 F.3d 397, 400 (5th Cir.
2012); Campo v. Allstate Ins. Co., 562 F.3d 751,(5th Cir. 2009).
Fifth Circuit has continued to distinguish between claims for
policy handling, which have “traditionally been considered subject
to federal jurisdiction” and which are reimbursed by the United
States Treasury, and “claims for policy procurement, which have
not” been considered subject to federal jurisdiction and which
WYO’s must defend on their own.
Seruntine v. State Farm Fire &
Cas., 444 F. Supp. 2d 698, 701-02 (E.D. La. 2006).
Defendant’s Rule 12(b)(6) Motion To Dismiss
Defendant points out that every appellate court that has
contractual based claims in the context of a SFIP claims dispute
has concluded that such claims are barred and preempted by federal
law, and that federal common law does not permit recovery of
interest, penalties, or attorney’s fees, all of which Plaintiff
See, e.g., C.E.R. 1988, Inc. v. Aetna Cas. and Surety
Co., 386 F.3d 263, 272 (3d Cir. 2004); Gallup, 434 F.3d at 345;
Wright, 415 F.3d at 390; Gibson, 289 F.3d 943 (“Given this court’s
holding in Wright, that state law tort claims arising from claims
handling by a WYO are preempted by the National Flood Insurance
Act, it necessarily follows that the Act gives FEMA authority to
promulgate regulations to that effect.”); Gunter v. Farmers Ins.
Co., Inc., 736 F.3d 768, 771-72 (8th Cir. 2013); Pecarivich v.
Allstate Ins. Co., 135 Fed. Appx. 23, 25 (9th
Cir. 2005); Remund
v. State Farm Fire & Cas. Co., 483 Fed. Appx. 403, 409 (10th Cir.
2012); Shuford v. Fidelity Nat’ Prop. & Cas. Ins. Co., 508 F.3d
1337, 1344 (11th Cir. 2007); and Palmieri v. Allstate Ins. Co., 445
F.3d 179, 193 (“Although the defendant is a private insurer and not
the United States, it is the United States that will pay for an
award of interest”; “because there is no express congressional
consent to the award of interest separate from a general waiver of
immunity to suit, the United States is immune from an interest
Moreover some appellate decisions (Gallup; Gowland; Van
Holt v. Liberty Mutual Fire Ins. Co., 163 F.3d 161 (3d Cir. 1998);
and Flick v. Liberty Mutual Fire Ins. Co., 205 F.3d 386 (9th Cir.
2000)) address the structure and statutory scheme of the NFIP
relating to the motion to dismiss.
See, e.g., Gallup, 434 F.3d at
342 (The WYO companies “issue SFIPS in their own names and arrange
for the adjustment, settlement, payment and defense of all claims
arising from the policies. FEMA regulations establish the terms of
the SFIP, rate structures and premium costs. Claims are ultimately
paid out of the U.S. Treasury.”).
In Wright, 415 F.3d at 390 (citations omitted), the Fifth
Circuit examined the reasoning of the Third Circuit in C.E.R. and
the Sixth Circuit in Gibson in determining whether federal law
preempts state law tort claims based on a WYO’s handling of an
It determined that
the Third Circuit concluded that the insured’s state law
claims were preempted because ‘the application of state
tort law would impede Congress’s objective’ in enacting
the NFIA. Indisputedly a central purpose of the Program
is to reduce fiscal pressure on federal flood relief
effort. The court reasoned that “[i]f FEMA refused to
reimburse WYO carriers for their defense costs, insurers
would leave the Program, driving the price of insurance
The alternative, remuneration for losses
incurred in such suits, would directly burden the federal
The court also implicitly rejected the
argument that state law tort claims against WYOs should
not be preempted because FEMA might refuse to reimburse
the WYO in some cases.
(“FEMA ordinarily will be
responsible financially for the costs of defending a
lawsuit against a WYO company. The efficiency goals of
the Program, on balance, would better be served by
requiring claimants to resolve their disputes by means of
the remedies FEMA provides.”).
In Gibson, the Sixth
Circuit similarly concluded that state law tort claims
relating to a WYO handling of a flood insurance claim are
preempted . . . .
The Fifth Circuit went on to join the Third and Sixth Circuits
conclusion that state tort claims arising from claims handling by
a WYO are preempted by federal law
is consistent with our holding in [West v. Harris, 573
F.2d 873 (5th Cir. 1978)] that federal rather than state
law governs entitlement to attorney’s fees because the
NFIP 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.”
West, 573 F.2d at 881. We note that the significance of
this holding may have been pretermitted by FEMA
regulation. In 2000, FEMA amended the language of SFIP
policies to state: “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.” 44 C.F.R. pt. 61, app.
(A)(1), art. IX.
In Wright v. Allstate Ins. Co. (Wright II), 500 F.3d 390 (5th
Cir. 2007), the Fifth Circuit also examined in detail the issue of
extra-contractual claims in the context of the NFIP regarding
“federal common law” claims.
The Fifth Circuit held that neither
NFIA nor the SFIP expressly authorized policyholders to file such
500 F.3d at 393-95.
In questioning whether there was
an implied right of action to bring extra-contractual federal
common law claims against the WYO Program carrier, the Fifth
Circuit applied the four-prong test of Cort v. Ash, 422 U.S. 66
Id. at 395.
It determined that, as to the first prong,
Wright was not an “especial beneficiary” of the NFIA for whom the
statute created a federal right because its primary purpose was “to
reduce, by implementation of agequate land use controls and flood
insurance, the massive burden on the federal fisc of the everincreasing federal flood disaster assistance.”. Id. at 395-97. As
to the second, any legislative intent to permit an implied right of
action, the Fifth Circuit found “it significant that Congress
expressly provided a private remedy for policyholders in 42 U.S.C.
§§ 4053 and 4072, which
allow a policy holder to sue in federal court if he is
dissatisfied with the amount of a claim payment. The
Congress expressly authorized private causes of action in
other sections of the NFIA weighs against Wright’s theory
that Congress implicitly intended the courts to fashion
additional causes of action.
As the Supreme Court
recognized in Touche Ross & Co. v. Redington,[439 U.S.
979 (1978)] “when Congress wished to provide a private
damages remedy, it knew how to do so.”
Wright II, 500 F.3d at 397.
Finally the Fifth Circuit found that
the last two prongs “are relevant only if the answers to the first
two indicate congressional intent to create a private remedy,”
which under its findings, clearly do not.
The appellate court
concluded that based upon Wright, 415 F.3d 384, Gallup, and Wright
contractual theories of recovery for a NFIP breach of contract
Defendant lists a number of Texas District Court cases in
#6 at pp. 12-13.
As for Plaintiff’s prayer for attorney’s fees from Texas
Farmers, it is black letter law that claimants cannot recover
attorney’s fees in an NFIP claims handling dispute.
Guiffrida, 748 F.2d 1011, 1013 (5th Cir. 1978).
So, too, are her
claims for pre- and post-judgment interest barred.
See, e.g., In
re Estate of Lee v. NFIP, 812 F.2d 253, 256 (5th Cir. 1987)(“As a
general rule, in suits against the sovereign, the United States is
not liable for interest unless the liability is imposed by statute
or assumed by contract” because “an award of interest against the
government is a direct and costly charge on the public treasury.”
While a claimant may sue the Director of FEMA in federal court, 42
U.S.C. § 4072 “does not provide for awards of prejudgment interest
in favor of prevailing plaintiffs.”).
see also Newton v. Capital
Assur. Co., Inc, 245 F.3d 1306, 1312 (11th Cir. 2001); Scandia Oil
Co., Inc. v. Beckton, 889 F.2d 258, 264 (10th Cir. 1989).
pursuant to a flood insurance policy are “a direct charge on the
public treasure,” “when federal funds are involved, the judiciary
is powerless to uphold a claim of estoppel because such a holding
would encroach upon the appropriation power granted exclusively to
Congress by the Constitution.
‘Any exercise of a power granted by
the Constitution to one of the other branches of Government is
limited by a valid reservation of congressional control over funds
in the Treasury.’”
Gowland, 143 F.3d at 955.
The Court has carefully reviewed Defendant’s brief and the
applicable law and fully concurs with its argument that the extracontractual claims that have been asserted or might be should, as
a matter of law, be dismissed with prejudice.
ORDERS that Defendant’s motion to dismiss with prejudice
Plaintiff’s extra-contractual claims is GRANTED. Plaintiff’s claim
for breach of insurance contract under the SFIP shall proceed.
SIGNED at Houston, Texas, this
February , 2017.
UNITED STATES DISTRICT JUDGE
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