Opinion
CIVIL ACTION NO: 14-2474 SECTION: "A" (4)
08-20-2015
TIM CLARK CONSTRUCTION, LLC v. ALLSTATE INSURANCE CO.
ORDER AND REASONS
Before the Court is a Motion for Summary Judgment (Rec. Doc. 29) filed by defendant Allstate Insurance Co. Plaintiffs Tim Clark Construction, LLC ("Tim Clark Construction") and Mr. and Mrs. Talmage Mitchell ("the Homeowners") oppose the motion. The motion, set for hearing on June 17, 2015, is before the Court on the briefs without oral argument.
I. Background
Plaintiff Tim Clark Construction filed this lawsuit to recover payments which it claims it is owed by Defendant via the Homeowners. The Homeowners had a Standard Flood Insurance Policy ("SFIP") on their home issued by Defendant. Defendant provided this policy as a "Write-Your-Own Program" carrier participating in the federal National Flood Insurance Program ("NFIP"). A specific provision of that policy, the "Increased Cost of Compliance" provision ("ICC") is at issue here.
The Homeowners joined as additional plaintiffs in this case after Defendant filed a motion to dismiss arguing that Tim Clark Construction is not the proper party to bring this claim due to a lack of privity in contract and violation of the Anti-Assignment Act. As both parties agreed that the Homeowners have privity with Defendant, the Court dismissed the motion as moot in response to Tim Clark Construction's request to add the Homeowners. (Rec. Doc. 20).
The ICC provision provides coverage for an insured's expenses when incurring costs to conform repairs or reconstructions with a state or local floodplain management law, up to $30,000. The Homeowners stated that they contracted with Tim Clark Construction to elevate their home to bring it into compliance with the standards in place at that time. Tim Clark Construction then performed elevation work on the home. While Tim Clark Construction claims that the Homeowners are ultimately liable for payment for this work, the Homeowners assigned to Tim Clark Construction any rights of recovery, and it accordingly filed claims with Louisiana's Hazard Mitigation Grant Program ("HMGP") and Defendant. HMGP has partially paid the claims but is allegedly withholding its final payments until payment by Defendant under the ICC provision. Defendant has denied the claim.
The lawsuit was filed in state court on September 25, 2014. Defendant removed the case to this Court on October 28, 2014.
Via the instant motion for summary judgment, Defendant contends that the Complaint must be dismissed for several reasons. First, Defendant argues that the provisions of the SFIP must be strictly complied with and that Plaintiffs did not submit a proof of loss on the ICC claim. Second, Defendant argues that the home was already in compliance with the floodplain management laws at that time, making this elevation work ineligible for a compliance claim. Third, Defendant contends that neither the SFIP nor the Assignment of Claims Act allows for the alleged assignment in this case, and thus Tim Clark Construction is not a proper party to bring this claim due to a lack of privity in contract. Finally, Defendant argues that Plaintiffs' extra-contractual state law claims are preempted by federal law.
II. Standard of Review
Summary judgment is appropriate only if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any," when viewed in the light most favorable to the non-movant, "show that there is no genuine issue as to any material fact." TIG Ins. Co. v. Sedgwick James, 276 F.3d 754, 759 (5th Cir. 2002) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50 (1986)). A dispute about a material fact is "genuine" if the evidence is such that a reasonable jury could return a verdict for the non-moving party. Id. (citing Anderson, 477 U.S. at 248). The court must draw all justifiable inferences in favor of the non-moving party. Id. (citing Anderson, 477 U.S. at 255). Once the moving party has initially shown "that there is an absence of evidence to support the non-moving party's cause," Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986), the non-movant must come forward with "specific facts" showing a genuine factual issue for trial. Id. (citing Fed. R. Civ. P. 56(e); Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574, 587 (1986)). Conclusional allegations and denials, speculation, improbable inferences, unsubstantiated assertions, and legalistic argumentation do not adequately substitute for specific facts showing a genuine issue for trial. Id. (citing SEC v. Recile, 10 F.3d 1093, 1097 (5th Cir. 1993)).
III. Discussion
Each of Defendant's arguments will be discussed in turn below.
a. Proof of Loss
Standard Flood Insurance Policies ("SFIP") require that insureds asserting a claim file a Proof of Loss ("POL") within 60 days, subject to any extensions approved by the Federal Emergency Management Agency ("FEMA"), of sustaining a loss due to flood. Wright v. Allstate Ins. Co., 415 F.3d 384, 387 (5th Cir. 2005) (citing 44 C.F.R. §§ 61.13(a), (d), & (e) (1993); Foreman v. Fed. Emer. Mgt. Agency, 138 F.3d 543, 545 (5th Cir. 1998)). Courts have enforced this requirement strictly, holding that failure to timely file a POL is a valid basis for denying an insured's claim. Wright, 415 F.3d at 387 (citing Neuser v. Hocker, 246 F.3d 508, 510 (6th Cir. 2001); Gowland v. Aetna, 143 F.3d 951 (5th Cir. 1998)). The NFIP is a federally-administered program supported by funds drawn from the federal treasury. Wright, 415 F.3d at 388 (citing Gowland, 143 F.3d at 955). Where federal funds are implicated, the person seeking those funds is obligated to familiarize himself with the legal requirements for receipt of such funds. Id. (citing Heckler v. Comm. Health Servs., Inc., 467 U.S. 51, 63 (1984)).
The pertinent federal regulations regarding requirements in case of loss state as follows:
Within 60 days after the loss, send us a proof of loss, which is your statement of the amount you are claiming under the policy signed and sworn to by you, and which furnishes us with the following information:44 C.F.R. § 61, App. A(1), VII(J).
a. The date and time of loss;
b. A brief explanation of how the loss happened;
c. Your interest (for example, "owner") and the interest, if any, of others in the damaged property;
d. Details of any other insurance that may cover the loss;
e. Changes in title or occupancy of the covered property during the term of the policy;
f. Specifications of damaged buildings and detailed repair estimates;
g. Names of mortgagees or anyone else having a lien, charge, or claim against the insured property;
h. Details about who occupied any insured building at the time of loss and for what purpose;
. . . .
The Homeowners submitted a satisfactory proof of loss on their initial flood damage claim, which was paid in full by Defendant. The Homeowners retained Tim Clark Construction to elevate their home on July 27, 2012. A claim under the ICC provision was submitted on March 14, 2014, and subsequently denied.
Plaintiffs do not dispute that they did not file a proof of loss for the ICC claim. They contend however that this failure should not prejudice their ability to pursue their claim as they had previously submitted a proof of loss on the flood damage claim, and Defendant had sufficient information to evaluate the ICC claim. Plaintiffs also argue that Defendant should be equitably estopped from raising this defense. They provide part of the corporate deposition of Defendant, in which it acknowledged that it sent a letter to the Homeowners stating "Upon receipt of these documents, the flood claims office will forward an ICC proof of loss to the policyholder." (Rec. Doc. 30-9, at 18). The deponent then clarified that it would send one if there was coverage for the claim but would not send one where Defendant determined there was no coverage. Id. at 18-19. Finally, both parties filed supplemental briefs on whether a "repudiation exception" might apply in this case.
Fifth Circuit precedent regarding the application of conditions precedent to claims on policies governed by the NFIP, such as the proof of loss condition at issue here, has been described as "harsh" and "unforgiving." See, e.g., Wright, 415 F.3d at 387; Wientjes v. American Bankers Insur. Co., no. 07- 3762, at 6 (E.D. La. Sept. 16, 2008). Indeed, many of the arguments submitted by Plaintiffs have been previously discarded by the Fifth Circuit.
The caselaw does not permit an exception to proof of loss via substantial compliance or the provision of information in alternative formats; it asks simply whether there has been a compliant proof of loss for the submitted claim. Ferraro v. Liberty Mut. Fire Insur. Co., no. 14-30944 (5th Cir. Aug. 6, 2015); Kidd v. State Farm Fire & Cas. Co., 392 F. Appx. 241 (5th Cir. 2010)(affirming summary judgment where the plaintiffs failed to submit a second proof of loss for additional damages sought); see Marseilles Homeowners Condominium Ass'n Inc. v. Fidelity Nat'l Insur. Co., 542 F.3d 1053, 1056 (5th Cir. 2008); Richardson v. American Bankers Insur. Co., 279 F. Appx. 295, 299 (5th Cir. 2008)(holding, in a SFIP case, that "[the] theory of substantial compliance is contrary to binding precedent in this circuit"); Howell-Douglas v. Fidelity Nat'l Indemnity Insur. Co., 24 F. Supp. 3d 579, 582-83 (E.D. La. 2014)("If an insured seeks further funds beyond what his insurer has already disbursed under a SFIP, a Proof of Loss is required for the supplemental claim, just as it was for the original claim.")(citations omitted); Kelly v. Hartford Fire Insur. Co., 615 F. Supp. 2d 474 (E.D. La. 2009)(Zainey, J.)(granting summary judgment for failure to submit a proof of loss on additional claims).
This opinion, released during the pendency of the present motion, further emphasizes the necessity of a proof of loss for each claim; it however does not speak to the possible repudiation exception addressed below.
Similarly, the precedent refuses to consider the application of equitable estoppel to an insurer's defense of failure to submit a proof of loss, even in egregious circumstances. See, e.g., Wright, 415 F.3d at 387-88 (reversing the district court's application of equitable estoppel where the insurer had sent the plaintiff a letter regarding his submitted documentary evidence stating that "we are accepting this proof in compliance with the policy conditions concerning the filing of a Proof of Loss"); Collins v. Nat'l Flood Insur. Program, 394 F. Appx. 177, 179 (5th Cir. 2010)(declining to apply equitable estoppel where the insurance adjuster sent a letter to the plaintiff stating that the proof of loss requirement had been waived) ; Richardson, 279 F. Appx. at 299 (declining to apply equitable estoppel where the insurer's attorney told the plaintiff that it would not raise failure to submit proof of loss as a defense in litigation). In other words, the focus in matters under the NFIP centers on the text of the applicable regulations and provisions - not on an insured's understanding of them or an insurer's communication of them. Wright, 415 F.3d at 388 (quoting Heckler, 467 U.S. at 63 ("Protection of the public fisc requires that those who seek public funds act with scrupulous regard for the requirement of the law . . . . [T]hose who deal with the Government are expected to know the law and may not rely on the conduct of Government agents contrary to law.")). Plaintiffs' arguments on these bases are unavailing.
Nonetheless, the Fifth Circuit has noted that there are regulatory exceptions to the proof of loss requirement. Norman v. Fidelity Nat'l Insur. Co., 354 F. Appx. 934, 936 (5th Cir. 2009). It has also indicated that a jurisprudential exception - repudiation of a policy - might be available. Id. (citing Studio Frames Ltd. v. Std. Fire Insur. Co., 369 F.3d 376 (4th Cir. 2004)).
Fifth Circuit caselaw has not yet set out the exact parameters nor differences in what constitutes a repudiation of a claim and what constitutes a denial of a claim. It is of course though a critical distinction as a denial of a claim provides no safe haven from the proof of loss exception, while a repudiation does.
Denial of a claim for benefits under an insurance policy does not constitute a repudiation. Richardson, 279 F. Appx. at 299 (citing New York Life Insur. Co. v. Viglas, 297 U.S. 672 (1936)). "As the Restatement [(Second) of Contracts] explains, 'repudiation is a statement by the obligor to the obligee indicating that the obligor will commit a breach that would of itself give the obligee a claim for damages for total breach.'" Evanoff v. Std. Fire Insur. Co., 534 F.3d 516, 521 (6th Cir. 2008)(citations omitted). However, this should not be construed as repudiation requiring a total rejection of the policy. In the oft-cited Studio Frames Ltd. case, the Fourth Circuit found a possible occurrence of repudiation where the insurer rejected as invalid a claim for damage to a building on the basis that the claimant was the lessee of the building, not the owner of the building. Studio Frames Ltd., 369 F.3d at 378. The claims as to contents coverage and leasehold improvements proceeded. Id. at 379. As to how to make the determination if repudiation had taken place, the Fourth Circuit, in remanding the case, offered "some guidance" to the district court on how it should proceed in its analysis. Id. at 383. The Fourth Circuit identified the following three considerations: 1) a "refused performance" may be evidenced by conduct, not just by words; 2) the party refusing to perform must be found to be bound by the contract; and 3) whether the refusal to perform was "unequivocal and went to the 'very essence of the contract.'" Id. (citations omitted).
The Fifth Circuit, applying the factors identified in Studio Frames Ltd., found that repudiation did not take place where the defendant admitted it was bound to provide coverage but disputed only the amount due to the plaintiff. Norman, 354 F. Appx. at 937 ("In this case, Fidelity did not deny Norman coverage. On the contrary, Fidelity admitted in open court that Norman had coverage. The dispute between Fidelity and Norman revolves around the amount of the loss, not the coverage itself. As such, Fidelity did not repudiate the contract."); see also Richardson, 279 F. Appx. at 299 (finding no repudiation where the dispute centered on the amount of the loss).
Given that the dispute here is as to validity of coverage under the ICC provision, rather than the amount of coverage, and that it is not yet clear to the Court as to whether Defendant was bound by that provision at the time of the claim, the Court finds that there is a disputed issue of a material fact as to whether repudiation took place.
b. Compliance
Defendant, citing to the applicable language of the policy, points out that the ICC coverage only "pays [the insured] to comply with state or local floodplain management laws or ordinances that meet the minimum standards of the National Flood Insurance Program found in the Code of Federal Regulations at 44 C.F.R. 60.3, . . ., [and] for compliance activities that exceed those standards" in certain conditions. 44 C.F.R. § 61, App. A(1), III(D). Defendant directs the Court to FEMA's Flood Insurance Manual as the more specific applicator of these standards to individual claimants' situations, and notes that in this case, as the property was located in the A-03 Flood Zone, it must have the higher of a base flood elevation of 1.50 or the advisory flood elevation as per New Orleans City Ordinance no. 22354, which requires an elevation three feet above the curb. See M.C.S., Ord. No. 23911, § 78-38, 3-11-10 (explaining the application of M.C.S., Ord. No. 22354, § 1, 8-25-06). Defendant contends that as this was an elevated building per city, NFIP regulation, and SFIP definitions, any measurements are taken from the top of the elevated floor, not from the bottom floor of the structure itself. When measuring from this point, the home was allegedly already in compliance with the relevant standards and was thus not eligible for coverage under the ICC provision.
Plaintiffs respond though that, at the very least, there are several issues of disputed fact concerning the elevation levels of the house. First, Plaintiffs note that Louisiana's Hazard Mitigation Grant Program applies the same standards when approving funds for the elevation of a home, and that it found that the property should be elevated in this case. (Rec. Doc. 30-2; Affid. of Tim Clark). Plaintiffs also reference a letter from the Chief Building Inspector for the City of New Orleans which states that the pre-raising elevation of the home was - 2.00, the required base flood elevation is 1.50, and that the elevation activities have now raised it to +6.44. (Rec. Doc. 30-6; Letter from Johnny Odom, Chief Building Inspector, City of New Orleans, to the Homeowners, August 30, 2013).
More specifically, Plaintiffs contend that the lowest floor of the building should be included in the calculations. They include the deposition testimony of Defendant's corporate representative, who testified that if the lowest floor was included, the home pre-elevation would be below the required base flood elevation. (Rec. Doc. 30-9, at 6-7).
The SFIP policy language, closely paralleling the city and NFIP definitions, states that an elevated building is "[a] building that has no basement and that has its lowest elevated floor raised above ground level by foundation walls, shear walls, posts, piers, pilings, or columns." 44 C.F.R. § 61, App. A(1), II(B)(14). A New Orleans City Ordinance adds that the "[l]owest floor means the lowest floor of the lowest enclosed area (including basement). An unfinished or flood-resistant enclosure, usable solely for parking of vehicles, building access or storage in an area other than a basement area is not considered a building's lowest floor . . . ." M.C.S., Ord. No. 23911, § 78-40, 3-11-10 (emphasis omitted). Finally, citing FEMA's Flood Insurance Manual, Plaintiffs quote the following language, in pertinent part, defining the lowest floor in an elevated building:
B. Elevated Buildings in A Zones
...
If a building located in an A Zone has an enclosure below the elevated floor, including an attached garage, the enclosure or garage floor becomes the lowest floor for rating if any of the following conditions exists:
• The enclosed space is finished (having
more than 20 linear feet of interior finished wall [paneling, etc.]; or
• The unfinished enclosed space is used for other than building access (stairwells, elevators, etc.), parking, or storage; or
• The unfinished enclosed space has no proper openings (flood vents).
...
Flood Insurance Manual, National Flood Insurance Program, FEMA, May 2011.
The Court cannot determine this issue on the evidence presented and under the standards applicable to a motion for summary judgment. The Court recognizes the photos and testimony submitted by Defendant in support of its argument that this should be considered an elevated building. However, the Court also notes Plaintiff's arguments and references to record document evidence, in addition to those cited earlier, that the bottom floor was an enclosed area containing living space and no flood vents. The finder of fact will be best-positioned to weigh the merits of each party's factual arguments in light of the applicable standards. Summary judgment is denied on this basis.
The parties should not interpret this denial of summary judgment as any indication of the Court's opinion as to the merits of Plaintiffs' theories, or any defenses Defendant may have. Rather, the Court merely finds that, at this juncture, there is a genuine issue of material facts in dispute.
c. Assignment of the ICC Claim
Defendant argues that the claims of Tim Clark must be dismissed as a matter of law for three reasons. It argues that an assignee cannot seek a remedy for a breach of contract with the government where it has no privity with the government; that the language of the SFIP precludes assignment of claims except in limited exceptions not applicable here; and that the Assignment of Claims Act, 31 U.S.C. § 3727, precludes the assignment of claims against the government, including the ones at issue here.
Plaintiffs present persuasive arguments as to why certain exceptions to the Assignment of Claims Act should apply in this case. (Rec. Doc. 30; Opp. at 4, 7)(citing, e.g., United States v. Shannon, 342 U.S. 288, 292 (1952), for the exception where there has been a "general assignment for the benefit of creditors," and Mariconda v. United States, no. 88-3897, 1993 WL 53162 (E.D. N.Y. Jan. 6, 1993), for the exception where precluding the claim would not serve the purposes of the Act).
Plaintiffs however did not respond to the second argument mentioned above - that the language of the SFIP itself precludes such an assignment. That language states as follows:
VII. General Conditions
D. Amendments, Waivers, Assignments
This policy cannot be changed nor can any of its provisions be waived without the express written consent of the Federal Insurance Administrator. No action we take under the terms of this policy constitutes a waiver of any of our rights. You may assign this policy in writing when you transfer title to your property to someone else except under these conditions:
1. When this policy covers only personal property; or
2. When this policy covers a structure during the course of construction.
44 C.F.R. § 61, App. A(1), VII(D)
In a 2007 memo, FEMA, via the Federal Insurance Administrator, sought to expand on this provision as applied to ICC claims. That memo included the following relevant language:
There have been recent inquiries regarding the assignment of ICC benefits when the property is sold to a new owner. The Standard Flood Insurance Policy (SFIP) does not provide the assignment of a claim but will allow for the assignment of the policy when the title to the property is transferred to the new property owner.
...
[quoting the language from VII(D) included above]
...
The only time an ICC claim can be transferred is when it is in conjunction with a FEMA project such as the Hazard Mitigation Grant Program (HMGP). The assignment is made to the community and usually used as the community's non Federal match. Only that part of the ICC benefit that pertains to the project requirements is assigned to the community. The original owner of the property retains the remaining benefits for ICC.
...
(Rec. Doc. 29-11; Memorandum re: Assignment of Increased Cost of Compliance (ICC) Claims, Jan. 16, 2007, Federal Insurance Administrator, FEMA)
The Court can find no reason, regardless of what exceptions might be applicable to the Assignment of Claims Act, why plaintiff Tim Clark Construction's claims should be allowed to proceed past the antecedent examination of the SFIP language. While VII(D) is stated more broadly than merely a claim, it certainly includes claims as well. If it did not, a piecemeal assignment of claims would erode any significance that the broader prohibition might have. Indeed, the language of the memorandum urges an even more narrow reading of VII(D) when applied to ICC claims. Further, no exception or exclusion mentioned in either the policy language or the memorandum applies here. There was no transfer of title; this relates solely to personal property; and there has been no assignment to the community. Therefore, the attempted assignment in this case is precluded by the language of the SFIP.
Finally, the Court finds that Plaintiffs' state-law-based claims stem directly from claims-handling issues. As such, they are preempted by federal law. Wright, 415 F.3d 389-390.
Perhaps recognizing this well-settled precedent, Plaintiffs did not address this argument in their opposition to the motion for summary judgment. (Rec. Doc. 30). --------
Accordingly, and for the foregoing reasons;
IT IS ORDERED that the Motion for Summary Judgment (Rec. Doc. 29) filed by defendant Allstate Insurance Co. is GRANTED IN PART and DENIED IN PART. It is GRANTED as to all state law claims brought by Plaintiffs. It is also GRANTED as to all claims brought by plaintiff Tim Clark Construction Co. It is DENIED in all other respects.
August 20, 2015
/s/_________
JAY C. ZAINEY
UNITED STATES DISTRICT JUDGE