Studio Frames Ltd. v. Standard Fire Insurance , 369 F.3d 376 ( 2004 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
STUDIO FRAMES LTD., d/b/a 
Somerhill Gallery,
Plaintiff-Appellant,
v.
THE STANDARD FIRE INSURANCE
COMPANY,
Defendant-Appellee,
 No. 03-1674
and
VILLAGE INSURANCE AGENCY,
INCORPORATED; BUSINESS INSURERS OF
CAROLINA, LLC; PHILIP D. PEARSALL;
TRAVELERS PROPERTY CASUALTY
INSURANCE COMPANY,
Defendants.

Appeal from the United States District Court
for the Middle District of North Carolina, at Durham.
N. Carlton Tilley, Jr., Chief District Judge.
(CA-01-876)
Argued: February 27, 2004
Decided: May 21, 2004
Before LUTTIG and MICHAEL, Circuit Judges, and
William D. QUARLES, Jr., United States District Judge
for the District of Maryland, sitting by designation.
Affirmed in part, reversed in part by published opinion. Judge Luttig
wrote the opinion, in which Judge Michael and Judge Quarles joined.
2 STUDIO FRAMES v. STANDARD FIRE INS.
COUNSEL
ARGUED: John Albert Michaels, MICHAELS & MICHAELS,
Raleigh, North Carolina, for Appellant. Gerald Joseph Nielsen, Metai-
rie, Louisiana, for Appellee. ON BRIEF: Walter E. Brock, Jr.,
YOUNG, MOORE & HENDERSON, P.A., Raleigh, North Carolina,
for Appellant.
OPINION
LUTTIG, Circuit Judge:
Appellant, Studio Frames Ltd., d/b/a Somerhill Gallery, is a fine art
gallery located in the Eastgate Shopping Center in Chapel Hill, North
Carolina. Studio Frames leases its gallery location from the owner of
the shopping center, but has made improvements to the space, known
as "leasehold improvements," to make it suitable for use as an art gal-
lery.
In October 1996, as a condition of an emergency loan from the
Small Business Administration, Studio Frames was required to pur-
chase federal flood insurance under the National Flood Insurance Pro-
gram (NFIP), 42 U.S.C. § 4001 et seq., to provide coverage both for
the leasehold improvements it had made to its rental space and for the
contents of its gallery. It did so a month later through appellee Stan-
dard Fire Insurance Company ("Standard Fire"), an authorized carrier
of federal flood insurance under the Federal Emergency Management
Agency’s (FEMA) "Write Your Own" or "WYO" program. See 42
U.S.C. §§ 4071(a), 4081; 44 C.F.R. §§ 62.23, 62.24. Like all flood
insurance purchased through the NFIP, see 44 C.F.R. § 61.4(b), the
terms of Studio Frames’ policy were set forth in the Standard Flood
Insurance Policy (SFIP), codified in FEMA’s official regulations at
44 C.F.R. § 61, App. A(2). The policy purchased by Studio Frames
provided coverage of up to $194,700 for flood damage to the portion
of the shopping center occupied by Studio Frames (or "building cov-
erage," identified in the SFIP as "Coverage A"), and $287,200 for
flood damage to the contents of the gallery (or "contents coverage,"
identified in the SFIP as "Coverage B"). Over the next four years,
STUDIO FRAMES v. STANDARD FIRE INS. 3
Studio Frames paid a premium for the policy that reflected the com-
bined cost of both coverage limits. See J.A. 134, 135, 136.
On July 23-24, 2000, Studio Frames suffered severe flood damage
to its gallery, including to its leasehold improvements, and to the gal-
lery’s contents. It contacted Standard Fire almost immediately there-
after to report the damage. Standard Fire, in turn, arranged for an
adjuster, Leo Soucy, to visit the premises, which he did three days
later on July 26, 2000. In the course of his visit, Soucy learned that
Studio Frames leased, rather than owned, the portion of the shopping
center that housed its gallery, and that Federal Realty Trust Invest-
ments, Inc., the owner of the shopping center, maintained a federal
flood insurance policy that covered the entire building, including the
Studio Frames gallery. J.A. 218. On the basis of these discoveries,
Soucy informed Studio Frames that the building coverage, for which
Studio Frames had paid premiums for four years, was invalid under
the SFIP because Studio Frames did not own the building. J.A. 49.
Soucy explained further that, in his view, Art. 4 of the SFIP, J.A. 142
(Coverage B § E), limited a tenant’s recovery for damages to its
"leasehold improvements" to 10% of the total amount of the tenant’s
‘content’ coverage, in this case $28,700. J.A. 98. Consistent with
Soucy’s representation, Standard Fire attempted to refund to Studio
Frames the premium it had paid for building coverage in the past year
on August 21, 2000, J.A. 218; and, on September 11, 2000, Standard
Fire informed Studio Frames by letter that, "[u]nder the Standard
Flood Insurance Policy and [sic] insured/tenant cannot purchase
building coverage on a building he does not own." J.A. 208.
As required by Art. 8 § O(3) of the SFIP, J.A. 149, Studio Frames
next filed a "proof of loss" with Standard Fire on September 20, 2000,
itemizing and valuing its losses due to the flood, and ultimately claim-
ing total losses in excess of the policy limit of $287,200 for contents
coverage. J.A. 224-25. The "proof of loss," comprehensive in all other
respects, did not include damage that would have been covered under
the SFIP’s building coverage; instead, it provided only that Studio
Frames "reserved the right . . . to file an additional Proof of Loss for
leasehold improvements coverage." J.A. 225. Studio Frames did not
subsequently file an additional proof of loss, however, a decision that
its counsel now asserts was made "consciously and intentionally"
4 STUDIO FRAMES v. STANDARD FIRE INS.
because Standard Fire had already breached the contract of insurance.
J.A. 251.
On September 22, 2000, Standard Fire accepted Studio Frames’
proof of loss as complying with the "policy conditions and provi-
sions" of the SFIP, but rejected the values that Studio Frames attached
to its losses. J.A. 153. After several months of negotiations, Standard
Fire eventually determined that Studio Frames suffered flood damage
compensable under the SFIP’s contents coverage (Coverage B) in the
amount of $143,336.27 and, on January 3, 2001, issued a check to
Studio Frames for $93,336.27 ($143,336.27 less $50,000 that Stan-
dard Fire had released to Studio Frames at an earlier date). As is rele-
vant to this appeal, this final determination of coverage included
$28,700 in recompense for leasehold improvements, as required by
section E of the SFIP’s contents coverage (Coverage B), J.A. 142, but
provided no compensation under its building coverage (Coverage A).
J.A. 216. The calculation also excluded, as not covered by the SFIP,
the value of certain promotional materials (art cards, slides, and trans-
parencies) that were damaged in the flood.
Within a year of being notified that its claim was partially denied,
Studio Frames brought suit in federal district court to challenge Stan-
dard Fire’s denial of coverage for flood damage to both its leasehold
improvements and promotional materials. The district court dismissed
Studio Frames’ claim at summary judgment. As to the leasehold
improvements, the court ruled that Studio Frames was barred by the
terms of the SFIP from sustaining a challenge to Standard Fire’s
denial of coverage because it failed to file a proof of loss detailing the
damage to this property. J.A. 235-39; see also J.A. 151 (SFIP Art. 8,
§ T). And, concerning the promotional materials, the court agreed
with Standard Fire that the materials were properly characterized as
"valuable papers" and, for that reason, beyond the coverage of the
SFIP. J.A. 243-45. Studio Frames appealed the district court’s judg-
ment in both respects.
I.
Although the parties have not briefed the issue and the district
court did not consider it, we must establish in the first instance that
we have subject matter jurisdiction over this case. See American
STUDIO FRAMES v. STANDARD FIRE INS. 5
Canoe Ass’n v. Murphy Farms, Inc., 326 F.3d 505, 516 (4th Cir.
2003) (explaining that subject matter jurisdiction is the basis for the
"very legitimacy of a court’s adjudicatory authority"). Studio Frames,
alone among the parties, provided a jurisdictional statement in its
brief, but we have specifically reserved the question of whether its
asserted basis for jurisdiction, 42 U.S.C. § 4072, is sound. Battle v.
Seibels Bruce Ins. Co., 288 F.3d 596, 606 (4th Cir. 2002) (declining
"to tackle the difficult statutory construction question" of whether 42
U.S.C. § 4072 provides the federal courts with "original, exclusive
jurisdiction" over NFIP claims against a WYO carrier). And, indeed,
there is substantial disagreement among the circuits as to whether sec-
tion 4072 establishes "original exclusive jurisdiction" over claims,
such as this one, brought by an insured against the WYO carrier
through whom it acquired flood insurance, as opposed to "an action
institute[d] against the Director" of FEMA. See 42 U.S.C. § 4072
(conferring "original and exclusive jurisdiction" upon the federal
courts to "hear and determine" claims instituted by claimants under
section 4071 "against the Director").1
We once again decline to decide this question because, in this case,
even more clearly than in Battle, we possess subject matter jurisdic-
tion over Studio Frames’ breach of contract claims pursuant to 28
U.S.C. § 1331. See Battle, 288 F.3d at 606-09. "Federal common law
controls the interpretation of insurance policies issued pursuant to the
National Flood Insurance Program." Leland v. Fed. Ins. Adm., 934
F.2d 524, 529 (4th Cir. 1990). Therefore, Studio Frames’ "right to
relief" on its claims for breach of contract, both of which hinge on the
court’s interpretation of a standard form insurance policy issued pur-
suant to the NFIP and codified in federal regulations, "necessarily
1
Compare Downey v. State Farm Fire & Cas. Co., 266 F.3d 675, 680
(7th Cir. 2001) (refusing to "disregard not only the identity of the liti-
gants but also the fact that § 4072 is limited to suits against the Director"
and holding that section 4072 does not create jurisdiction for suits
against WYO companies) with Van Holt v. Liberty Mutual Fire Ins. Co.,
163 F.3d 161 (3d Cir. 1998) (explaining that because "a suit against a
WYO company is the functional equivalent of a suit against FEMA,"
section 4072 must be read as creating jurisdiction over suits against
WYO companies) and Gibson v. American Bankers Ins. Co., 289 F.3d
943, 947 (6th Cir. 2002) (same).
6 STUDIO FRAMES v. STANDARD FIRE INS.
depends on the resolution of a substantial question of federal law,"
Franchise Tax Bd. v. Constr. Laborers Vacation Trust, 463 U.S. 1,
27 (1983). Accord Downey, 266 F.3d at 682; Newton v. Capital
Assur. Co. Inc., 245 F.3d 1306, 1309 (11th Cir. 2001); Van Holt, 163
F.3d at 167.
Having concluded that we have federal question jurisdiction over
this cause of action under 28 U.S.C. § 1331, we turn to the substance
of Studio Frames’ appeal.
II.
Studio Frames first argues that the district court erred by refusing
to consider its challenge to the denial of coverage for its leasehold
improvements because it had failed to file a corresponding proof of
loss. Studio Frames acknowledges, as it must, both that the SFIP
requires that a proof of loss be filed within sixty days with respect to
all damages suffered by an insured, SFIP Art. 6 § (O)(3), and that it
never filed a proof of loss for damages to its leasehold improvements.
It nevertheless urges that it was excused from this contractual require-
ment because Standard Fire repudiated the building coverage portion
of the SFIP (Coverage A) prior to the date on which it was required
to have filed a proof of loss.
The district court rejected this argument, believing it to be fore-
closed by our recent decision in Dawkins v. Witt, 318 F.3d 606 (4th
Cir. 2003). J.A. 237-39. This was error. Studio Frames does not con-
tend that Standard Fire effectively waived the requirement that it file
a proof of loss, or that Standard Fire is estopped by its previous con-
duct from relying on the proof of loss requirement as a defense.2
Rather, it asserts that, by its statements and actions, Standard Fire
repudiated Coverage A of the SFIP altogether and that, as a direct
result of this repudiation, it was relieved of the otherwise incumbent
2
The district court was correct in its belief that an argument based on
either waiver or estoppel was foreclosed by Dawkins. As we held in that
case, the conditions that the SFIP places on recovery may not be waived
by the insurer, except as the policy itself provides, and the insurer may
not be estopped from relying on these conditions as a defense, at least
absent extreme misconduct. See Dawkins, 318 F.3d at 610-12.
STUDIO FRAMES v. STANDARD FIRE INS. 7
obligation to file a proof of loss before bringing a suit for breach of
contract. This argument is separate and distinct from the arguments
of waiver and estoppel that we addressed and rejected in Dawkins.
See Dawkins, 318 F.3d at 610-12. Whereas the equitable concepts of
waiver and estoppel prevent a party from asserting a legal right that
is otherwise valid and would be binding on the parties, see Zipes v.
Trans World Airlines, 455 U.S. 385, 398 (1982) (holding that
"waiver" is to be invoked "when equity so requires"); Office of Per-
sonnel Management v. Richmond, 496 U.S. 414, 426 (1990), the legal
doctrine of repudiation (sometimes called "anticipatory breach") pro-
vides that, when one party repudiates its obligations under a contract,
the unperformed contractual rights and duties of the contract cease to
be binding on the non-repudiating party altogether. Restatement (Sec-
ond) of Contracts § 253(2) & cmt. b (explaining that "one party’s
repudiation discharges any remaining duties of performance of the
other party with respect to the expected exchange") (emphasis added).
As a leading treatise on the law of contracts makes clear, after one
party to a contract repudiates its contractual rights and obligations, the
right of the non-repudiating party to recover on the contract without
first performing conditions precedent "is given to the non-repudiating
party by the law, irrespective of the repudiating party’s wishes." Wil-
liston on Contracts § 39:38 (Richard A. Lord, ed., 4th ed. 2000)
(emphasis added).
Thus, this case presents a different — and more difficult — ques-
tion than we considered in Dawkins. Here, we must consider, not
whether equity forbids Standard Fire from relying on the SFIP’s
requirement that Studio Frames file a proof of loss (under Dawkins,
it may not), but instead whether the otherwise binding requirement
that Studio Frames file a proof of loss could be legally excused by a
repudiation of the SFIP by Standard Fire. We conclude that it could
be and, therefore, that the district court erred by dismissing Studio
Frames’ claim for failing to file a proof of loss for damage to its
leasehold improvements without determining first whether Standard
Fire repudiated the policy.
To begin, "the law is well settled that federal common law alone
governs the interpretation of insurance policies [like the SFIP at issue
here] issued pursuant to the NFIP." Battle, 288 F.3d at 607; Leland,
934 F.2d at 529-30. Article 9 of the SFIP — itself part of FEMA’s
8 STUDIO FRAMES v. STANDARD FIRE INS.
regulations — makes this clear. Entitled "What Law Governs," it pro-
vides that the SFIP is governed "by the flood insurance regulations
issued by FEMA, the National Flood Insurance Act of 1968 as
amended . . . and Federal common law." J.A. 152 (emphasis added).
Thus, it is absolutely clear that our construction of the SFIP is to be
controlled by federal common law.
Equally clearly, the federal courts, applying federal common law
to contractual disputes, have long recognized the doctrine of repudia-
tion. See Roehm v. Horst, 178 U.S. 1, 13 (1900); Rederiaktiebolaget
Atlanten v. Aktieselskabet Korn-Og Foderstof Kompagniet, 252 U.S.
313 (1920); City of Fairfax v. Washington Metropolitan Area Transit
Authority, 582 F.2d 1321, 1325-26 (4th Cir. 1978). In fact, the
Supreme Court has affirmed repeatedly, including twice in the past
four years, the doctrine’s applicability to contracts between the gov-
ernment and private parties. See Franconia Assoc. v. United States,
536 U.S. 129, 136 (2002); Mobil Oil Exploration and Producing
Southeast, Inc. v. United States, 530 U.S. 604, 607-08 (2000); Lynch
v. United States, 292 U.S. 571, 580 (1934) ("The United States are
as much bound by their contracts as are individuals. If they repudiate
their obligations, it is as much repudiation, with all the wrong and
reproach that term implies, as it would be if the repudiator had been
a State or a municipality or a citizen.") (quoting The Sinking Fund
Cases, 99 U.S. 700, 719 (1878)). Furthermore, to the extent that the
development of these governing federal common law principles is
informed by "standard insurance law principles," see Battle, 288 F.3d
at 608 n.17 (providing that such principles "offer federal courts a
valuable repository of settled law" on which to base federal common
law), courts have consistently recognized that the repudiation of cov-
erage under an insurance policy relieves the insured of the obligation
of performing conditions precedent prior to bringing suit for breach
of contract. See Knickerbocker Life Ins. Co. v. Pendleton, 112 U.S.
696, 709-10 (1885); Conrad Bros. v. John Deer Ins. Co., 640 N.W.2d
231, 242 (Iowa 2001); Aetna Ins. Co. v. Indiana Nat. Life Ins. Co.,
133 N.E. 4, 7 (Ind. 1921); Pino v. Union Bankers Ins. Co., 627 So.
2d 535, 537-38 (Fl. App. 1994). On the basis of these authorities, we
believe it obvious that the flood insurance policy at issue in this case
was, on its own terms, subject to repudiation.3 See Lynch, 292 U.S.
3
Standard Fire protests that "because the theory [of repudiation] is not
to be found within FEMA’s regulations" or the terms of the SFIP, the
STUDIO FRAMES v. STANDARD FIRE INS. 9
at 576 (holding that war insurance policies between the government
and citizens "although not entered into for gain, are legal obligations
of the same dignity as other contracts of the United States and possess
the same legal incidents"). We therefore agree with Studio Frames
that, if Standard Fire’s refusal to provide building coverage under the
SFIP amounted to a repudiation of its policy for flood insurance, Stu-
dio Frames’ failure to file a proof of loss was not dispositive of its
claim.
Standard Fire objects that, pursuant to Art. 8 § T of the SFIP, J.A.
151, an insured’s failure to observe the policy’s "proof of loss"
requirement, SFIP Art. 8 § O(3), serves as an absolute bar to recovery
in federal court, regardless of whether its actions may be construed
as a repudiation of the policy’s building coverage. Article 8 § T of the
SFIP provides, in relevant part, as follows:
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 . . . .
J.A. 151. In Standard Fire’s view, the requirement that a proof of loss
be filed within sixty days is a "requirement" under the policy, and,
consequently, Studio Frames’ failure to comply is fatal to its claim.
It maintains that any other interpretation of the SFIP could mandate
a payment from the federal treasury on terms other than those devised
by Congress and thereby violate the Appropriations Clause of the
Constitution, U.S. Const. Art. I, § 9, Cl. 7.4 See Office of Personnel
application of it in this case is impermissible. Were it true that repudia-
tion had no basis in the policy, Standard Fire may well have a point;
however, as established in the text, the SFIP states explicitly that it is to
be governed by federal common law and the doctrine of repudiation is
part of the federal common law. Thus, contrary to Standard Fire’s asser-
tion, we believe it plain on the terms of the SFIP that the SFIP may be
repudiated by an insurer.
4
The Appropriations Clause provides, in relevant part, as follows: "No
Money shall be drawn from the Treasury, but in Consequence of Appro-
priations made by Law." U.S. Const., Art. I, § 9, cl. 7.
10 STUDIO FRAMES v. STANDARD FIRE INS.
Management v. Richmond, 496 U.S. 414 (1990) (providing that "not
a dollar of [the money in the federal Treasury] can be used in the pay-
ment of any thing not thus previously sanctioned").
Though this argument has some initial appeal, it ultimately fails on
its own terms. Article 8 § T of the SFIP directs that, in order to sus-
tain a claim based on its coverage, the insured must have complied
with the "requirements of the policy." See SFIP Art. 8 § T. Standard
Fire is correct that, in the ordinary course, this means that the failure
of an insured to file a proof of loss forecloses an insured from recov-
ery on a policy issued pursuant the NFIP. See Dawkins, 318 F.3d at
611. But the same does not hold when an insurer repudiates an NFIP
policy before the insured was obligated to file a proof of loss with the
insurer, because the consequence of a repudiation is that the insured
is no longer "required under the policy" to file a proof of loss before
bringing suit on the policy. Restatement (Second) of Contracts § 253
cmt. b. Thus, if Standard Fire actually repudiated the policy in this
case, Art. 8 § T of the SFIP would not bar Studio Frames from pro-
ceeding with its claim due to its failure to file a proof of loss because,
in contrast to those cases where the policy has not been repudiated,
the filing of a proof of loss has ceased to be a "requirement of the pol-
icy."
Having concluded that the policy at issue here may be repudiated,
it is left to be determined, of course, whether Standard Fire’s state-
ments and actions regarding the SFIP building coverage actually did
amount to repudiation. The district court did not consider this ques-
tion because it incorrectly regarded the failure to file a proof of loss
as an absolute bar to recovery under the policy, and we decline to take
it up for the first time on appeal.
We do offer some guidance upon remand, however. First, in deter-
mining whether Standard Fire repudiated a term of the contract, the
district court should bear in mind that a refused performance "need
not be express or dependent on ‘spoken words’ alone; it may rest on
a defendant’s conduct evidencing a clear intention ‘to refuse perfor-
mance in the future.’" City of Fairfax, 582 F.2d at 1327. Second, for
there to be repudiation of a contract, the district court must conclude
that the contract was binding on the party refusing to perform, i.e.,
that Standard Fire was mistaken in its belief that the SFIP forbade it
STUDIO FRAMES v. STANDARD FIRE INS. 11
from offering building coverage to Studio Frames. A party to a con-
tract does not repudiate its obligations under that contract by refusing
to do that which the contract forbids it from doing. Cf. Miller v.
Schwinn, 113 F.2d 748, 750 (D.C. Cir. 1940). And third, if it is deter-
mined that Standard Fire was bound to provide building coverage
under the contract, it must be determined whether its refusal to per-
form that obligation was unequivocal and went to the "very essence
of the contract." City of Fairfax, 582 F.2d at 1326, 1327; see also
Restatement (Second) of Contracts § 250.
III.
Studio Frames next argues that the district court erred by holding
certain of its promotional materials to be "valuable papers," within the
meaning of the SFIP, and therefore excluded from the policy’s cover-
age by Art. 6 § A(1) of the SFIP. See J.A. 239-45. These materials
consist of 172 sets of "art cards" used in marketing Studio Frames’
current and former collections, an equivalent number of more valu-
able transparencies from which these art cards were made, and 4800
slides, documenting the gallery’s collection over the past twenty-five
years. Studio Frames has valued these materials at $172,083.73.
Article 6, Section A(1) of the SFIP, the provision in which the term
"valuable papers" appears, provides that the policy shall not cover
flood damage to,
[a]ccounts, bills, currency, deeds, evidences of debt, money,
coins, medals, postage stamps, securities, bullion, manu-
scripts, other valuable papers or records, and personal prop-
erty used in a business.
J.A. 144 (emphasis added). Neither the policy nor FEMA regulations
define what is meant by "valuable papers,"5 but the policy does pro-
5
When the term "valuable papers or records" is defined in insurance
policies, it customarily means "inscribed, printed or written documents,
manuscripts or records, including abstracts, books, deeds, drawings,
films, maps or mortgages." See, e.g., NMS Services Inc. v. The Hartford,
62 Fed. Appx. 511, 515 (4th Cir. 2003) (unpublished); Whitney Nat.
12 STUDIO FRAMES v. STANDARD FIRE INS.
vide some guidance as to the meaning of the term. "Valuable papers"
is modified by the adjective "other" and coupled with the exclusion
of like "records." At the least, this indicates that the SFIP must be
interpreted to exclude "valuable papers or records" similar in kind to
the items expressly listed above — meaning "valuable papers or
records" similar to currency, money, coins, medals, postage stamps,
securities, bullion and manuscripts. When the term is so defined, we
believe it to be sufficiently broad to encompass the materials at issue
here.6
The provision, taken as a whole, transfers to the insured the risk of
flood damage to valuable property that could be protected from flood
damage by the insured itself without great difficulty.7 To that end, it
Bank of New Orleans v. State Farm Fire & Cas. Co., 518 F. Supp. 359,
365 (E.D. La. 1981) (similar definition); Lambrecht & Assoc. v. State
Farm Lloyd’s, 119 S.W.3d 16, 24 (Tex. App. 2003) (similar definition).
Because the promotional materials at issue here consist of a combination
of printed documents (the art cards) and films (the transparencies and
slides), they would easily fall within such a definition. Cf. Curran v.
Merrimack Mutual Fire Ins. Co., 1995 WL 104100 (S.D.N.Y.) (explain-
ing that insurance company admitted that business slides were covered
under "Valuable Papers and Records Coverage").
6
Because we hold that the materials at issue in this claim are "valuable
papers or records" within the meaning of Art. 6 § A(1) of the SFIP and
therefore not covered under the policy, we do not consider Standard
Fire’s alternative argument that Studio Frames was barred from sustain-
ing its claim because the proof of loss it filed on these materials did not
comply with the requirements for such filings set forth in Art. 8 § O(3)
of the SFIP.
7
Consistent with this purpose, insurance policies that do provide cover-
age for "valuable papers or records" often require those papers to be
stored in secure places. See Snelling & Snelling of Oklahoma City, Inc.
v. Aetna Cas. and Surety Co., 233 F. Supp. 771, 775 (W.D. Ok. 1964)
(explaining that "keeping . . . valuable papers and records in metal filing
cabinets is a condition imposed upon the plaintiff which if not met would
preclude the plaintiff from a recovery"); American Indemnity Co. v.
Lancer, Vandroff & Sudakoff, 452 So. 2d 594, 595 (Fl. App. 1984)
(denying coverage under fire insurance policy where valuable papers
were not stored in steel file cabinets).
STUDIO FRAMES v. STANDARD FIRE INS. 13
includes not only items that have a high, fixed value, such as cur-
rency, money, coins, medals, postage stamps, securities and bullion,
but also items whose replacement cost would be difficult to assess,
such as accounts, bills, deeds, evidence of debt, and manuscripts.
The art cards, transparencies, and slides that Studio Frames lost in
the flood fit comfortably within this list. First, they are "valuable" in
the same sense that this latter group of materials would be; like
accounts, bills, deeds, and manuscripts, these materials do not have
intrinsic or market value but are of unique importance and substantial
worth to their owners. Second, as the district court held, they are simi-
lar in kind to manuscripts, which are excluded from coverage by the
list. Like a manuscript, the promotion-related materials at issue here
are vested with value by the artistic contribution of their creators, and
consequently carry a value to Studio Frames that goes "above and
[well] beyond the paper on which the art cards are printed." J.A. 244.
Moreover, as the district court explained, "[t]he materials here, as
with the value of a manuscript to its owner or creator, obtain their
value through their relationship to the business of the gallery and the
history of the gallery that these items represent." J.A. 244-45. Such
is the unique value of these materials that Studio Frames asserts they
may only be replaced at a prohibitive cost. Finally, the interpretation
of the term "valuable papers or records" to include these promotional
materials is consistent with the apparent purpose of the provision, to
shift to the insured the risk of protecting valuable items that could
easily be protected from flood damage. See note 7.
In sum, we believe that these materials fit naturally within the
items already included on the list of excluded items in Art. 6 § A(1)
of the SFIP and, for that reason, are properly characterized as "other
valuable papers or records" under the policy. We therefore affirm the
district court on this claim.
CONCLUSION
The judgment of the district court is reversed in part and affirmed
in part. The case is remanded with instructions to the district court to
determine whether Standard Fire repudiated the policy by refusing to
provide building coverage to Studio Frames.
AFFIRMED IN PART, REVERSED IN PART