Opinion
Civil Action No. 03-3476 Section "K"(4).
October 28, 2004
Before the Court is defendant's Motion to Quash Jury Demand (Rec. Doc. No. 18). The plaintiffs filed a formal opposition. (Rec. Doc. No. 27). After reviewing the pleadings, memoranda, and relevant law, the Court finds that plaintiffs' right to a jury trial on their extra-contractual state law claim under La. Civ. Code art. 1997 should be protected; thus, this Court DENIES defendant's Motion as to this particular claim. However, defendant's Motion to Quash Jury Demand on plaintiffs' breach of contract claims is GRANTED.
I. BACKGROUND
The Gallups purchased a Standard Flood Insurance Policy ("SFIP") from defendant Omaha for their home and contents in Covington, Louisiana throughout 2002 and 2003. (Complaint ¶ 5). Omaha provides flood insurance through the National Flood Insurance Program ("NFIP") under the Federal Emergency Management Agency ("FEMA") which authorizes defendant to function as a "Write-Your Own" insurer. 42 U.S.C. § 4001- 4129. Plaintiffs contend that on December 24, 2002, a flood occurred reaching their home on the bank of the Bogue Falaya River in Covington, Louisiana. (Complaint ¶ 8). On February 21, 2003 plaintiffs filed a Proof of Loss with the defendant for $210,000, the insured's replacement value of the home. (Complaint ¶ 9). On April 1, 2003, Omaha notified the Gallups that it was paying only the amount it would cost to replace the soil beneath the home. (Complaint ¶ 12). Before the plaintiffs could file suit on Claim I, Tropical Storm Bill caused another flood ("Flood II") on June 30, 2003. (Complaint ¶ 15). The plaintiffs filed another Proof of Loss under the same policy with the defendant on August 26, 2003 seeking $209, 585, the total replacement value of the home minus the deductible. (Complaint ¶ 20). The defendant denied the plaintiffs' claim and offered the plaintiffs $3,360.37 under Claim II. (Complaint ¶ 35). Subsequently, on December 1, 2003 the plaintiffs filed suit against the defendant alleging (1) breach of contract on Claims I and II under federal common law; (2) breach of the duty of good faith and fair dealing under federal common law on Claims I and II; (3) bad faith breach of contract on Claims I and II under La. Civ. Code art. 1997; and (4) bad faith adjustment of Claim II under La.Rev.Stat. 22:1220.
In their complaint, the Gallups demanded trial by jury. In their opposition to defendant's Motion before the Court, the plaintiffs stated they wanted a jury trial on all claims. (Rec. Doc. No. 27). On August 6, 2004, defendant filed a Motion to Dismiss all of plaintiffs' claims, except plaintiffs' breach of contract claims. (Rec. Doc. No. 22). The Court dismissed plaintiffs' federal common laws claims, plaintiffs' claim under La.Rev.Stat. 22:1220, but did not dismiss plaintiffs extra-contractual state law claim under La. Civ. Code art. 1997. (Rec. Doc. No. 60). Thus, the Court will consider the defendant's Motion to Quash regarding the remaining breach of contract claims and claim under La. Civ. Code Art. 1997.
II. ANALYSIS
A. Breach of Contract Claims
Plaintiffs' breach of contract claims involve coverage under the policy and the timeliness of the payment under the terms of the policy, specifically Article 9, § L. (Complaint ¶¶ 37, 40, 43). Congress authorized the use of federal funds for the cost incurred in the adjustment and payment of any claims for losses. 42 U.S.C. § 4017(d). A WYO is a "fiscal agent" of the United States. 42 U.S.C. § 4071(a)(1). Regulations promulgated by FEMA regulate the payment of federal funds to WYO companies. FEMA reimburses a WYO company for claims paid under the policy. 44 C.F.R. Pt. 62, App. A, Art. II(B). A WYO shall remit all funds not required to meet current expenditures to the U.S. Treasury. 44 C.F.R. Pt. 62, App. A, Art. VII(B). Courts also recognize that a suit against the Director of FEMA for recovery on a SFIP under Part B of the Act is a suit against the federal government." In re Estate of Lee, 812 F.2d 253, 256 (5th Cir. 1987). "Congress established the National Flood Insurance Program to provide insurance coverage at or below actuarial rates. The program is currently operated by the Federal Emergency Management Agency (FEMA) and actually is supported by the Federal treasury." Gowland v. Aetna, 143 F.3d 951, 953 (5th Cir. 1998).
A claimant may file suit on a claim for the disallowance or partial disallowance of payment under the SFIP, pursuant to 42 U.S.C. § 4072 which states the following:
[T]he 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 United States district court.
This statute requires that a claimant file suit in federal courts for claims that involve the allowance or disallowance of claims or claims that pertain particularly to the terms of the policy. See Gowland, 143 F.3d at 953. 42 U.S.C. § 4072 allows suits against a WYO for cases arising out of claims under policies issued pursuant to Part B. See Van Holt v. Liberty Mutual Fire Ins. Co., 163 F.3d 161 (3rd Cir. 1998). However, whether this type of claim is heard before a jury depends on whether Congress expressly granted this right to do so. While the Seventh Amendment preserves the right to trial by jury, the Supreme Court has held that the Seventh Amendment does not apply in actions involving U.S. Treasury funds, Lehman v. Nakshian, 453 U.S. 156, 160, 101 S.Ct. 2698, 2701, 69 L.Ed.2d 548 (1981) (citing Galloway v. United States, 319 U.S. 372, 388-389, 63 S.Ct. 1077, 1086, 87 L.Ed. 1458), unless Congress affirmatively grants by statute the right to a trial by jury. Lehman, 453 at 165, 101 S.Ct. at 2704. Congress has not provided for this right by statute in the NFIA; therefore, when a claimant brings an action under 42 U.S.C. § 4072 against FEMA or a WYO for coverage on the policy or disputes regarding terms of the policy, a right to a jury trial is denied. See Latz v. Gallagher, 550 F.Supp. 257 (W.D.Mich. S.D. 1982); Kolner v. Director, FEMA, 547 F.Supp. 828, 830 (N.D.Ill. 1982); Al Copeland v. Federal Emergency Management Agency, 2004 WL 325577 (E.D.La.) ([P]laintiff is not entitled to a jury trial because the NFIA does not grant the right for a jury trial."). Because of the reasons stated above, this Court will grant defendant's Motion to Quash Jury Demand as to plaintiffs' breach of contract claims. B. Extra-Contractual State Law Claim Under La. Civ. Code art. 1997.
Plaintiffs also assert an extra-contractual bad faith claim under La. Civ. Code art. 1997. This Court has already determined that plaintiffs' extra-contractual claim does not fall under 42 U.S.C. § 4072 because it is a claim against the insurer for its bad faith adjustment of claims. (Doc. Rec. No. 60). Thus, a claim against an insurer for bad faith practices is not a claim for which the federal government or FEMA is liable. Statues and regulations promulgated by FEMA support this understanding. 42 U.S.C. § 4081(c) provides: "The Director of the Federal Emergency Management Agency may not hold harmless or indemnify an agent or broker for his or her error or omission." The following regulation promulgated by FEMA anticipates lawsuits for against an insurer for which FEMA will not be held liable:
Limitation on Litigation Costs.
a. Following receipt of notice of litigation, the FEMA Office of General Counsel ("OGC") shall review the information submitted. If the FEMA OGC finds that the litigation is grounded in actions by the Company that are significantly outside the scope of this Arrangement, and/or involves issues of agent negligence, then the FEMA OGC shall make a recommendation to the Administrator regarding whether all or part of the litigation is significantly outside the scope of the Arrangement.
b. In the event the Administrator agrees with the determination of the FEMA OGC . . . then the Company will be notified in writing within thirty (30) days of the Administrator's decision that any award or judgment for damages and any costs to defend such litigation will not be recognized . . . as a reimbursable loss cost, expense, or expense reimbursement.
The term "Company" refers to insurer. 44 C.F.R.Pt. 62, App.A, Art. I. (Effective October 1, 2004.)
44 C.F.R.pt. 62, app A, art. III.D.3. (effective October 1, 2004).
Furthermore, 44 C.F.R. pt. 62, App.A, art. XVI (effective October 1, 2004) states:
Inasmuch as the Federal Government is a guarantor hereunder, the primary relationship between the Company and the Federal Government is one of a fiduciary nature, i.e., to assure that any taxpayer funds are accounted for and appropriately expended. The Company is a fiscal agent of the Federal Government, but is not a general agent of the Federal Government. The Company is solely responsible for its obligations to its insured under any policy issued pursuant hereto such that the Federal Government is not a proper party to any lawsuit arising out of such policies.
Prior to the amendment effective October 1, 2004, Article XVI read in pertinent part: "The Company is not the agent of the Federal Government. The Company is solely responsible for its obligations to its insured under any flood policy issued pursuant hereto." The amendment added the following language, "such that the Federal Government is not a proper party to any lawsuit arising out of such policies." This amendment promulgated by FEMA anticipates lawsuits arising out of obligations owed by the Company.
Although these regulations do not explicitly provide for state law claims, they do contemplate insurer liability outside the arrangement between the Federal Government and the insurer. Gibson v. American Bankers Ins. Co., 289 F.3d 943, 953 (6th Cir. 2002) (J. Moore, dissenting).
Courts have also supported that an extra-contractual claim against a WYO does not expend federal funds. Spence v. Omaha Indemnity Ins. Co., 996 F.2d 793, 796 (5th Cir. 1993) ([W]hile WYO insurers may draw on FEMA letters of credit to pay SFIP claims, the WYO-FEMA agreement does not permit such draws to cover a WYO company's liability for fraud.); Richmond Printing L.L.C. v. Director Federal Emergency Management Agency, 72 Fed. Appx. 92, 2003 WL 21697457 (5th Cir. (Tex)) ("Thus, as we noted in Spence, the federal interests in seeing federal law applied to such claims are much lower than they are where the claim arises out of coverage of the policy; claims on the policy are paid out of the federal treasury."); Moore v. USAA General Indemnity Co., 2002 WL 31886719 at *3(E.D.La.) (This provision [ 44 C.F.R. pt. 62, app. A, art. III (D)(4)] indicates not only that WYOs may be involved in litigation that falls outside the scope of the Act, but also that the federal government is not responsible for picking up the tab on such litigation.); Powers v. Autin-Gettys-Cohen Insurance Agency, Inc., 2000 WL 1593401 at *2 (E.D.La.) (noting that the defendants were unable to demonstrate to the Court that any federal funds would be utilized to pay the judgment of indemnify the defendants for alleged tortious acts). Furthermore, the Seventh Amendment to the Constitution provides that "[i]n Suits at common law, where the value in controversy shall exceed twenty dollars, the right to a jury trial shall be preserved." See also Fed.R.Civ.Proc. 38(a): "The right of trial by jury as declared by the Seventh Amendment fo the Constitution or as given by a statute of the United States shall be preserved to the parties inviolate."
Because plaintiffs' claims under La. Civ. Code art. 1997 will not be a charge on the federal treasury, the plaintiffs are entitled to have this claim heard by a jury. See Bleeker v. Standard Fire Ins. Co., 130 F.Supp. 2d 726,740 (E.D.N.C. 2000) (denying defendant's Motion to Quash Jury on plaintiff's state law claim).
Accordingly.
It is ORDERED that defendant's Motion to Quash Jury Demand (Rec. Doc. No. 18) is GRANTED in part as to plaintiffs' breach of contract claims and DENIED in part as to plaintiffs' extra-contractual state law claim under La. Civ. Code art. 1997.