Opinion
Civil Action No. 98-3476 (NHP).
July 29, 1999.
Robert A. Weiss, Esq., Union, N.J., Attorney for Plaintiff.
Susan Handler-Menahem, Assistant U.S. Attorney, FAITH S. HOCHBERG, UNITED STATES ATTORNEY, Newark, N.J., Attorneys for Defendant.
LETTER OPINION ORIGINAL ON FILE WITH CLERK OF THE COURT
Dear Counsel:
This matter comes before the Court on the motion by defendant Federal Emergency Management Agency to dismiss plaintiff Paul A. Paolella's Complaint for lack of subject matter jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(1) or, in the alternative, for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6). Since both parties have relied upon documents outside of the pleadings, however, this Court will construe defendant Federal Emergency Management Agency's motion as a motion for summary judgment. This Court heard oral argument on June 28, 1999. For the reasons stated herein, defendant Federal Emergency Management Agency's Motion for Summary Judgment pursuant to Federal Rule of Civil Procedure 56 is GRANTED and plaintiff Paul A. Paolella's Complaint is DISMISSED WITH PREJUDICE.
Federal Rule of Civil Procedure 12(b) provides, in pertinent part:
If, on a motion asserting the defense numbered (6) to dismiss for failure to state a claim upon which relief can be granted, matters outside the pleading are presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56, and all parties shall be given reasonable opportunity to present all material made pertinent to such a motion by Rule 56.
STATEMENT OF FACTS
Plaintiff Paul A. Paolella (hereafter "plaintiff") purchased a general property Standard Flood Insurance Policy, No. FL 1-0874-0938-7 ("SFIP") which was issued through the National Flood Insurance Program ("NFIP") pursuant to the National Flood Insurance Act of 1968, as amended, 42 U.S.C. § 4001 (West 1999). Said insurance policy insured plaintiff's commercial building located at 120 Millburn Avenue, Millburn, New Jersey. See Declaration of James P. Shortley ("Shortley") dated January 14, 1999, ¶ 3; see also Declaration of Paul A. Paolella ("Paolella") dated May 3, 1999. Plaintiff's SFIP provided coverage beginning from October 25, 1995 through October 25, 1998. See Shortley, ¶ 3. The policy's limit of liability was $200,000.00 for the building minus a $500.00 deductible. Plaintiff did not purchase coverage for the contents of the building.
Plaintiff has stipulated to the entire statement of facts as set forth in defendant's supporting brief. See Plaintiff's Opposition Brief, page 1.
Plaintiff alleges that the insured property sustained direct physical loss by or from a flood on July 24, 1997. See Complaint, ¶ 5.
On July 28, 1997, plaintiff's insurance representative sent written notice of the loss via facsimile, identifying July 24, 1997 as the date of loss. See Shortley, Exhibit 1. That same day, defendant Federal Emergency Management Agency ("FEMA") wrote plaintiff to advise that the claim had been assigned to Charter Adjustment Co., for an independent investigation. See id., Exhibit 2. FEMA also reminded plaintiff that the policy required submission of a Proof of Loss within sixty days of the loss and referenced the "requirements in case of loss" provisions of the SFIP which contain the technical requirements to perfect a claim. See id.
On July 31, 1997, the claim was investigated by Steve Misto, an independent adjustor employed by Charter Adjustment Co., and reviewed by James R. Lawson, Claims Examiner, employed by a servicing contractor for the NFIP. See id., ¶ 6.
On October 21, 1997, FEMA again wrote plaintiff and identified the SFIP requirement that a written Proof of Loss be submitted within sixty days of the loss. See id., Exhibit 3. FEMA informed plaintiff that the elapsed deadline for filing a written Proof of Loss, September 24, 1997, had passed, and that the claim could be denied for violation of the SFIP's terms and conditions. See id. Plaintiff was allowed an additional fifteen day grace period (i.e., November 5, 1997) to file a written Proof of Loss. See id.
However, plaintiff did not submit a signed and sworn Proof of Loss until November 20, 1997 and then only verified and swore to damages in the amount of $65,908.21. See id., Exhibit 4. Despite the late submission, FEMA subsequently issued check number FL 03270, dated December 9, 1997, payable to plaintiff and his mortgagee, Inter Community Bank of Springfield, New Jersey in the amount of $65,908.21 for plaintiff's flood claim number 1087409387970724. Thereafter, plaintiff's flood claim was closed. See id., Exhibit 5.
On July 23, 1998, plaintiff filed a Complaint in the United States District Court, District of New Jersey. See Complaint. Plaintiff alleges that he suffered losses totaling $336,170.02. See Complaint. The record reveals that plaintiff did not serve the United States Attorney with process until February 5, 1999.
DISCUSSION
I. Jurisdiction 42 U.S.C. § 4072 confers exclusive subject matter jurisdiction upon district courts in cases arising under Part B of the National Flood Insurance Act. Specifically, the Act provides that an insured may file suit against FEMA if it adjusts a claim and improperly refuses to pay benefits. Van Holt v. Liberty Mutual Fire Ins. Co., 163 F.3d 161, 166-67 (3d Cir. 1998); see also Linder and Associates, Inc. v. Aetna Casualty and Surety Co., 166 F.3d 547, 550 n. 3 (3d Cir. 1999).
Since plaintiff alleges that FEMA improperly refuses to pay the total amount of benefits in connection with plaintiff's flood insurance claim, thereby allegedly violating the insurance policy contract, this court has jurisdiction pursuant to 42 U.S.C. § 4072.
II. Rule 56
The standard governing a summary judgment motion is set
forth in Fed.R.Civ.P. 56(c), which provides, in pertinent
part, that:
[t]he judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.
Fed.R.Civ.P. 56(c). A fact is material if it might affect the outcome of the suit under the governing substantive law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986).
Procedurally, the movant has the initial burden of identifying evidence that it believes shows an absence of genuine issues of material fact.Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986). When the movant will bear the burden of proof at trial, the movant's burden can be discharged by showing that there is an absence of evidence to support the non-movant's case. Id. at 325. If the movant establishes the absence of a genuine issue of material fact, the burden shifts to the non-movant to do more than "simply show that there is some metaphysical doubt as to material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986).
In this matter, there are no genuine issues of material fact and therefore, summary judgment is appropriate.
III. Flood Insurance
By way of background, Congress passed the National Flood Insurance Act in response to its concern over enormous personal hardship and economic distress caused by flood disasters. 42 U.S.C. § 4001 (West 1999). The Act allows the public to overcome the devastation accompanying floods by providing "a reasonable method of sharing the risk of flood losses . . . through a program of flood insurance which can complement and encourage preventive and protective measures." 42 U.S.C. § 4001(a). Congress found that "many factors have made it uneconomic for the private insurance industry alone to make flood insurance available to those in need of such protection on reasonable terms and conditions" and, therefore, authorized the development of the NFIP "with large-scale participation of the Federal Government and carried out to the maximum extent practicable by the private insurance industry." 42 U.S.C. § 4001(b) (West 1999).
The NFIP is a federally subsidized program which provides flood insurance at or below actuarial rates. See Meister Bros, Inc. v. Macy, Jr., 674 F.2d 1174, 1175 n. 1 (7th Cir. 1982). The organization and administration of the NFIP are prescribed in Subchapter II of the National Flood Insurance Act. Prior to 1978, private insurance companies administered the program with federal financial participation under Part A of Subchapter II. In January 1978, however, the Federal Government "took control of the program and assumed all operational responsibilities." In re Estate of Lee, 812 F.2d 253, 256 (5th Cir. 1987). Presently, the Director of FEMA administers the NFIP and carries out the duties pursuant to Part B of Subchapter II. 42 U.S.C. § 4011(a) (West 1999); see also Reorganization Plan No. 3 of 1978, § 202, 43 Fed. Reg. 41943 (1978).
Initially, the Secretary of Housing and Urban Development administered the NFIP.
The Act authorizes the Director of FEMA to "provide by regulation for general terms and conditions of insurability which shall be applicable to properties eligible for flood insurance coverage under [the Act]." 42 U.S.C. § 4013(a) (West 1999). The terms and conditions of all federal flood insurance policies have been fixed by the FEMA regulations in the form of the Standard Flood Insurance Policies and no provision may be "altered, varied, or waived other than by the express written consent of the [Federal Insurance] Administrator . . ." 44 C.F.R. § 61.13(d);see also §§ 61.13(e); 61.4(b).
The SFIP document itself expressly provides that the policy "is governed by 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." See 44 C.F.R. § 61, App. A(2), Article 9 (West 1999).
The SFIP, a single risk insurance policy, provides coverage against "all Direct physical loss by or from flood to the insured property." See 44 C.F.R. § 61, App. A(2), Insuring Agreement (West 1999). The SFIP also provides that, should a loss occur, the insured is obligated to:
3. Within 60 days after the loss, send the Insurer a proof of loss, which is the Insured's statement as to the amount it is claiming under the policy signed and sworn to by the Insured and furnishing the following information:
* * *
d. The actual cash value of each damaged item of insured property and the amount of damages sustained;
* * *
i. The amount the Insured claims is due under this policy to cover the loss . . .
44 C.F.R. § 61, App. A(2), Art. 8, ¶O (West 1999).
Article 8, paragraph O(6) of the SFIP emphasizes that the insured is personally responsible for complying with the Proof of Loss requirement and simply cannot rely upon the independent adjustor to certify the claim or complete the paperwork:
The insurance adjustor whom the Insurer hires to investigate the claim may furnish the Insured with a proof of loss form, and she or he may help the Insured to complete it. However, this is a matter of courtesy only, and the Insured must still send the Insurer a proof of loss within 60 days after the loss even if the adjustor does not furnish the form or help the Insured complete it. In completing the proof of loss, the Insured must use its own judgment concerning the amount of loss and the justification for the amount.
44 C.F.R. § 61, App. A(2), Art. 8, ¶O(6) (West 1999).
Finally, the SFIP informs the insured that compliance with all terms and conditions of the policy is a prerequisite to bringing a lawsuit:
No suit or action on this policy for the recovery of any claim shall be sustainable in any court of law or equity unless all the requirements of this policy shall have been complied with . . .
44 C.F.R. § 61, App. A(2), Art. 8, ¶T (West 1999).
It is well-settled that the government may set the terms and conditions for recovery on a federal insurance policy. See Federal Crop Ins. Corp. v. Merrill, 332 U.S. 380, 384 (1947). The terms and conditions set by FEMA are entitled to judicial deference and must be strictly construed by the courts. Kennedy v. CNA Ins. Co., 969 F. Supp. 931, 936 (D.N.J. 1997), aff'd 156 F.3d 1225 (3d Cir. 1998). See also Wagner v. Director, Federal Emergency Management Agency, 847 F.2d 515, 518 (9th Cir. 1988);Gagliardi v. Omaha Property and Insurance Co., 952 F. Supp. 212, 215 (D.N.J. 1997); Exim Mortgage Banking Corp. v. Witt, 16 F. Supp.2d 174, 176-77 n. 5 (D.Conn. 1998).
Moreover, the agency regulation, which provides that a Proof of Loss must be filed according to the terms and conditions set forth in the SFIP, is not an insignificant procedural hurdle. See Diamond v. Federal Emergency Management Agency, 689 F. Supp. 163, 165 n. 2 (E.D.N.Y. 1988) (recognizing that, through the Proof of Loss regulation, "the government seeks to deter frivolous claims by requiring claimants to swear to the veracity of each loss."). Courts have "almost invariably denied recovery where the claimant failed to comply with proof of loss requirements found in insurance policies issued under Federal programs." Cross Queen, Inc. v. Director, Federal Emergency Management Agency, 516 F. Supp. 806, 809 (D.V.I. 1980). See also Gagliardi v. Omaha Property and Insurance Company, 952 F. Supp. 212 (D.N.J. 1997); Schumitzki v. Director, Federal Emergency Management Agency, 656 F. Supp. 430 (D.N.J. 1997); Diamond v. Federal Emergency Management Agency, 689 F. Supp. 163 (E.D.N.Y. 1988);Cohen v. Federal Insurance Administration, 565 F. Supp. 823 (E.D.N Y 1983) (citations omitted).
In this matter, plaintiff acknowledges in his memoranda in opposition to the present motion that:
the submission of a sworn proof of loss is a requirement of payment of a claim and that same must be submitted within sixty days from the date of loss unless an extension has been granted. In this instance the proof of loss was submitted after expiration of sixty days . . .See Plaintiff's Opposition Brief (emphasis supplied).
More specifically, plaintiff filed the requisite Proof of Loss statement on November 20, 1997, almost a full two months after plaintiff was obligated to file the document. At that time, plaintiff swore only to damages in the amount of $65,908.21. See id., Exhibit 4. Despite the fact that plaintiff's submission was untimely, FEMA subsequently issued check number FL 03270, dated December 9, 1997, payable to plaintiff and his mortgagee, Inter Community Bank of Springfield, New Jersey in the amount of $65,908.21 for plaintiff's flood claim number 1087409387970724.
This result seems particularly fair in light of the fact that plaintiff was given an extension of time in which to file the Proof of Loss and because plaintiff has articulated no reason for the untimely filing of the Proof of Loss, other than his simple neglect. Moreover, according to the terms and conditions of the SFIP, this Court believes that plaintiff was not entitled to receive any monies for his claim due to his noncompliance with the terms and conditions of the policy. Yet, for some reason unknown to this Court, FEMA paid plaintiff the exact sum of money that he requested in the untimely Proof of Loss. Plaintiff's act of filing a Complaint wherein he alleges that he is entitled to more money simply stupefies this Court.
Plaintiff's failure to comply with the terms and conditions of the insurance policy contract, particularly the condition precedent requiring the filing of the Proof of Loss, bars this action as a matter of law. Accordingly, this Court will dismiss plaintiff's Complaint.
An appropriate Order accompanies this Letter Opinion.