McGair v. American Bankers Insurance

United States Court of Appeals
For the First Circuit
No. 11-2179
MARY JANE MCGAIR; JOSEPH MCGAIR,
Plaintiffs, Appellants,
v.
AMERICAN BANKERS INSURANCE COMPANY OF FLORIDA,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND
[Hon. Mary M. Lisi, U.S. District Judge]
Before
Lynch, Chief Judge,
Lipez and Howard, Circuit Judges.
Lewis J. Paras, with whom Joseph A. Kelly, Petrarca and
McGair, Inc., and Baluch, Gianfrancesco & Mathieu were on brief,
for appellants.
Gerald Joseph Nielsen, with whom Joseph J. Aguda, Jr., Nielsen
Law Firm, L.L.C., David W. Zizik, and Zizik, Powers, O'Connell,
Spaulding & Lamontagne, PC were on brief, for appellee.
September 4, 2012
LIPEZ, Circuit Judge. This appeal arises from a dispute
over the scope of a flood insurance policy. In July 2006,
appellants, Mary Jane and Joseph McGair, purchased a flood
insurance policy from appellee, American Bankers Insurance Company
of Florida ("American Bankers"). Their policy was issued pursuant
to a federal program under which private insurers issue and
administer standardized flood insurance policies, and all claims
are paid by the government. After a 2010 flood damaged their home
in Warwick, Rhode Island, including the contents of their basement,
the McGairs sought compensation. American Bankers disallowed much
of the amount claimed, asserting that the contents of the McGairs'
basement were not covered by their policy. Subsequently, the
McGairs brought suit in federal court, arguing that the
Declarations Page of their policy created an ambiguity as to the
scope of coverage and that, under federal common law and general
insurance law principles, this ambiguity should be resolved in
their favor. The district court disagreed, entering summary
judgment in favor of American Bankers. We affirm.
I.
In reviewing a decision on a motion for summary judgment,
we consider the facts in the light most favorable to the non-moving
party. Guay v. Burack, 677 F.3d 10, 13 (1st Cir. 2012).
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A. The National Flood Insurance Program
The McGairs' flood insurance policy was written pursuant
to the National Flood Insurance Program ("NFIP"), a federal program
created by the National Flood Insurance Act of 1968 ("NFIA"), 42
U.S.C. §§ 4001-4129. Noting that private insurers were not
providing adequate flood insurance in many areas, Congress designed
the NFIA to increase the availability of flood insurance by
offering subsidized insurance. See id. § 4001(b). The NFIP is
administered by the Federal Emergency Management Agency ("FEMA")
and backed by the federal treasury, which is responsible for paying
claims that exceed the revenue generated by premiums paid under
policies issued pursuant to the program. See id. § 4011(a)
(charging Administrator of FEMA with establishing NFIP); id. §
4017(a) (creating fund in United States Treasury to pay for NFIP);
see also Palmieri v. Allstate Ins. Co., 445 F.3d 179, 183 (2d Cir.
2006) (describing NFIP). Accordingly, Congress authorized FEMA to
"prescribe regulations establishing the general method or methods
by which proved and approved claims for losses may be adjusted and
paid." 42 U.S.C. § 4019.
In 1983, FEMA created the Write-Your-Own ("WYO") program,
permitting private insurance companies to issue policies as part of
the NFIP. 44 C.F.R. §§ 62.23-24. As part of the WYO program, FEMA
promulgated regulations prescribing the terms of the Standard Flood
Insurance Policy ("SFIP") to be used by WYO companies. See id.
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pt. 61, app. A(1). By regulation, "[t]he Standard Flood Insurance
Policy and required endorsements must be used in the Flood
Insurance Program, and no provision of the said documents shall be
altered, varied, or waived other than by the express written
consent of the Federal Insurance Administrator." Id. § 61.13(d).
Thus, when private companies issue WYO policies, they "act as
'fiscal agents of the United States,' 42 U.S.C. § 4071(a)(1), but
they are not general agents. . . . In essence, the insurance
companies serve as administrators for the federal program. It is
the Government, not the companies, that pays the claims."
Palmieri, 445 F.3d at 183-84 (quoting C.E.R. 1988, Inc. v. Aetna
Cas. & Sur. Co., 386 F.3d 263, 267 (3d Cir. 2004)). Alternatively
put:
FEMA provides a standard text for all NFIP
policies and forbids WYOP companies from
making changes; FEMA's interpretations of the
policy bind all WYOP participants; FEMA
decides what rates may be charged; all
premiums are remitted on to FEMA (minus a
small fee); if WYOP companies pay out on a
claim they get reimbursed by FEMA; likewise
with litigation costs.
Downey v. State Farm Fire & Cas. Co., 266 F.3d 675, 679 (7th Cir.
2001).
Two limitations on coverage provided by the SFIP are
relevant to this case. Article III(A)(8) of the SFIP states that
coverage for items located in the basement of a dwelling is
limited, and it identifies seventeen categories of fixtures (e.g.,
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central air conditioners, furnaces, insulation) covered under the
policy. Article III(B)(3) similarly limits coverage for personal
property in a basement and identifies only three covered categories
of personal property (all major appliances). By the terms of the
SFIP, these items are the only contents of a basement for which a
policy-holder may seek reimbursement. In addition to limiting the
potential losses due to flooding of basements, these limitations
serve to encourage construction that minimizes the risk of flooding
(e.g., elevated foundations and buildings without basements).
The McGairs' policy, purchased from American Bankers in
2006, is a Preferred Risk Policy ("PRP") incorporating the SFIP.1
It states that flood insurance is provided "under the terms of the
National Flood Insurance Act of 1968 . . . , and Title 44 of the
Code of Federal Regulations." Reflecting the prohibition on
alteration of the SFIP, the McGairs' policy also provides that it
"cannot be changed nor can any of its provisions be waived without
the express written consent of the Federal Insurance
Administrator." As such, it includes Articles III(A)(8) and (B)(3)
of the SFIP limiting coverage for the contents of the basement of
an insured dwelling.
The McGairs' policy also includes a Declarations Page
indicating the coverage purchased, the policy limits, and the
1
The important relationship between a PRP and the SFIP is
discussed in the analysis section.
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deductible. The "Rating Information" section of the Declarations
Page indicates that the McGairs have a finished basement and states
that the contents of their home are located in the "basement and
above." The Declarations Page also provides that the contents of
the home are covered by the policy, up to $100,000, and identifies
none of the limitations stated in the SFIP. The parties agree that
the Rating Information section includes information provided by the
McGairs to American Bankers for the purpose of calculating the
premiums to be paid.
B. The McGairs' Claim
In late March 2010, the McGairs' home was damaged by a
flood. The flooding caused damage to furniture, furnishings,
appliances, and fixtures, including such items located in the
McGairs' finished basement. On March 31, 2010, the McGairs filed
a claim based on the damage caused to their home by the flood.
Their claim was assigned to an independent adjuster,
Sweet Claim Service, Inc., and, on April 1, 2010, adjuster Shawn
Hamil investigated the damage to the McGairs' home. The McGairs
allege that Hamil engaged in "predatory conduct" during the
investigation. Specifically, they assert that he attempted to
intimidate Mary Jane McGair by telling her that they did not have
coverage for the damage to their home. Additionally, the McGairs
assert that Hamil encouraged them to make a misrepresentation by
claiming that the damage to their finished basement was to drywall,
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which was covered under their policy, instead of wood paneling,
which was not. The McGairs refused to do so, and Hamil prepared a
report for American Bankers recommending payment of $4,307.91 to
settle the claim.2
Although American Bankers issued a check to the McGairs
based on the amount determined by Hamil, the McGairs refused to
accept the payment. Claiming $40,614.52 in damages, the McGairs
sent American Bankers documentation of the repair estimates
totaling this amount. The primary disagreement between the parties
concerned the scope of the policy's coverage of the contents of the
McGairs' basement. The McGairs insisted that, per the Declarations
Page, the entire contents of their basement were covered by their
policy without limitation. American Bankers disagreed. Relying on
the limitations contained in the SFIP, it disallowed the majority
of the McGairs' claim. In a series of letters in mid- to late
2010, American Bankers and the McGairs continued to insist on their
respective positions.
On February 9, 2011, the McGairs filed suit in the United
States District Court for the District of Rhode Island seeking a
declaratory judgment establishing their entitlement to the full
amount they claimed, as well as damages for breach of contract and
2
There is a small discrepancy in the parties' descriptions of
the payment recommended by Hamil. However, this small difference
-- approximately $100 -- is not relevant to the issue before us.
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bad faith dealing under state law. Both parties moved for summary
judgment.
American Bankers argued that the McGairs were bound by
the terms of the SFIP because the NFIP specified that the company
could not alter the terms of the SFIP, and the McGairs were charged
with knowledge of this prohibition. Therefore, any supposed
discrepancy between the SFIP and the Declarations Page was
irrelevant. In turn, the McGairs argued that the SFIP and
Declarations Page should be interpreted pursuant to federal common
law and standard insurance law principles, including the familiar
principle that any ambiguity in the contract should be read in
their favor. They added that such an ambiguity existed because
their Declarations Page states that the contents of their home are
located in the "basement and above," without identifying any
limitation on the coverage of contents of their basement. This
unqualified statement, they asserted, is inconsistent with the
limitations imposed by Sections III(A)(8) and (B)(3) of the SFIP.
Thus, reading this supposed ambiguity in their favor, they argued
that the contents of their basement are covered under their policy
without limitation.
The district court granted summary judgment for American
Bankers, explaining that the regulations governing the NFIP provide
that parties cannot alter the terms of the SFIP and that the
McGairs were charged with knowledge of that prohibition. Thus, it
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found that the SFIP's limitations on coverage of the contents of a
basement applied in this case. The McGairs now appeal.
II.
We are first confronted with a jurisdictional issue
raised by American Bankers. It urges us to hold that we have
jurisdiction over this action pursuant to 42 U.S.C. § 4072, which
authorizes "an action against the Director [of FEMA]" when a claim
made under an NFIP policy is wholly or partially disallowed. Doing
so would require us to hold that § 4072's reference to "the
Director" includes the Director's fiscal agent, i.e., the WYO
company that issued the policy in question. This jurisdictional
question is significant because § 4072 confers exclusive
jurisdiction on federal district courts. If jurisdiction exists
under that statute, claims against WYO companies concerning NFIP
policies may not be brought in state courts.3
3
Although we have never addressed the issue, several circuits
have held that § 4072's reference to "the Director" includes the
WYO company that issued the policy. See, e.g., Palmieri, 445 F.3d
at 187 (finding jurisdiction under § 4072 and declining to consider
whether federal question jurisdiction also exists under 28 U.S.C.
§ 1331); Gibson v. Am. Bankers Ins. Co., 289 F.3d 943, 946-47 (6th
Cir. 2002) (finding jurisdiction under § 4072 and not discussing
§ 1331); Van Holt v. Liberty Mut. Fire Ins. Co., 163 F.3d 161, 167
(3d Cir. 1998) (finding jurisdiction under both § 4072 and § 1331).
Other circuits have declined to address the issue, noting that
federal question jurisdiction exists under 28 U.S.C. § 1331
regardless of whether jurisdiction may also be based on § 4072.
See, e.g., Studio Frames Ltd. v. Standard Fire Ins. Co., 369 F.3d
376, 379-80 (4th Cir. 2004); Newton v. Capital Assurance Co., Inc.,
245 F.3d 1306, 1308-09 (11th Cir. 2001). However, at least one
circuit has held that subject matter jurisdiction does not exist
under § 4072, but does under 28 U.S.C. § 1331. See Downey v. State
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Despite the exhortation of American Bankers, we will not
take up the § 4072 jurisdictional issue unnecessarily. The McGairs
did not bring their claims in state court. Even though the parties
agree that federal jurisdiction exists under § 4072, that agreement
cannot bind us. We have an obligation "to inquire sua sponte into
[our] subject matter jurisdiction." Godin v. Schencks, 629 F.3d
79, 83 (1st Cir. 2010). Given the circuit split on this issue, the
lack of a dispute between the parties, and the fact that we do not
have the benefit of briefing on both sides of the § 4072 issue, we
will not take up the question where it has no bearing on the
outcome of this appeal.
Instead, we conclude that federal question jurisdiction
exists under 28 U.S.C. § 1331. No circuit has found that a claim
such as the McGairs' fails to present a federal question.
Interpretation of insurance policies issued pursuant to the NFIP is
a matter of federal law. See Phelps v. Fed. Emergency Mgmt.
Agency, 785 F.2d 13, 16 n.2 (1st Cir. 1986). Accordingly, the
McGairs' "right to relief . . . necessarily depends on the
resolution of a substantial question of federal law." Studio
Frames Ltd. v. Standard Fire Ins. Co., 369 F.3d 376, 380 (4th Cir.
2004) (quoting Franchise Tax Bd. v. Constr. Laborers Vacation
Trust, 463 U.S. 1, 27 (1983)) (internal quotation marks omitted).
Because we have federal question jurisdiction under 28 U.S.C. §
Farm Fire & Cas. Co., 266 F.3d 675, 680-81 (7th Cir. 2001).
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1331, we decline to decide whether we also have jurisdiction under
§ 4072 where the issue is not squarely presented.
III.
We review the grant of summary judgment de novo. Sch.
Union No. 37 v. United Nat'l Ins. Co., 617 F.3d 554, 558 (1st Cir.
2010). Summary judgment is warranted where "there is no genuine
dispute as to any material fact and the movant is entitled to
judgment as a matter of law." Fed. R. Civ. P. 56(a); see also
Rosciti v. Ins. Co. of Penn., 659 F.3d 92, 96 (1st Cir. 2011).
A. The Nature of the McGairs' Policy
On appeal, the McGairs make essentially the same
arguments that they raised before the district court: 1) the
Declarations Page is part of their policy, 2) there is an ambiguity
in their policy created by a discrepancy between the Declarations
Page and other provisions of the policy, and 3) as a matter of
general principles of insurance law and federal common law, this
ambiguity should be resolved in their favor. However, they never
directly address the key aspect of the district court's decision --
the fact that, any ambiguity notwithstanding, American Bankers did
not have the authority to alter the terms of the SFIP through the
Declarations Page. Rather, the McGairs attempt to circumvent this
issue by suggesting that there is a meaningful difference between
their PRP and the SFIP, and that the terms of a PRP are not subject
to the prohibition against alteration applied to the SFIP. They
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point out that the PRP is not referenced in the statute creating
the NFIP or the FEMA regulations, but only in the FEMA National
Flood Insurance Manual (the "Manual"). They also note that the
2011 version of the Manual is the first in which the PRP was
explicitly identified as being the same as the SFIP.
There is no authority, however, for the proposition that
a PRP alters the material terms of the SFIP in any way relevant to
this case, and the governing regulations and structure of the NFIP
indicate that it does not.4 First, the McGairs' policy is labeled
as a "Standard Flood Insurance Policy" and states that it "provides
flood insurance under the terms of the National Flood Insurance Act
of 1968 and its amendments, and Title 44 of the Code of Federal
Regulations." Accordingly, the policy itself belies the assertion
that it is anything other than an SFIP. Furthermore, as noted,
FEMA regulations require that all WYO policies issued pursuant to
the NFIP use the SFIP. See 44 C.F.R. § 61.13(d). Thus, by
regulation, the McGairs' policy must be an SFIP and include the
limitations on coverage contained therein.5
4
The 2011 Manual states that "The Preferred Risk Policy (PRP)
is a Standard Flood Insurance Policy (SFIP), written using the
Dwelling Form or General Property Form, that offers low-cost
coverage to owners and tenants of eligible buildings located in the
moderate-risk"
5
It is true that the 2011 Manual is the first version to
explicitly state that the PRP is an SFIP. However, the general
description of the PRP offered in earlier versions is otherwise
identical to that in the 2011 Manual. Regardless, while the Manual
offers useful guidance on the structure of the NFIP, it does not
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B. Coverage of the Contents of the McGairs' Basement
The McGairs do not argue that they are entitled to the
benefit that they claim under the terms of the SFIP. Rather, they
insist that there is an inconsistency between their Declarations
Page and the SFIP as to what contents of their basement are
covered. The McGairs argue that this ambiguity should be
interpreted in their favor, rendering the SFIP's limitations
inoperative and the entire contents of their basement covered
without limitation. This argument is meritless.
There can be no ambiguity between the SFIP and the
McGairs' Declarations Page because the terms of the SFIP control.
As noted above, the regulations governing the NFIP provide that "no
provision of the [SFIP] shall be altered, varied, or waived other
than by the express written consent of the Federal Insurance
Administrator." 44 C.F.R. § 61.13(d). In fact, the SFIP itself
states that it "cannot be changed nor can any of its provisions be
waived without the express written consent of the Federal Insurance
Administrator." Id. pt. 61, app. (A)(1), art. VII(D); see also
Palmieri, 445 F.3d at 183 (noting same); Phelps, 785 F.2d at 19
(noting same). Thus, as a matter of law, any discrepancy between
the SFIP and an accompanying Declarations Page must be resolved in
trump FEMA regulations. See Christensen v. Harris Cnty., 529 U.S.
576, 587 (2000) (noting that interpretations in "agency manuals
. . . lack the force of law[, and] do not warrant Chevron-style
deference").
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favor of the SFIP, unless the Federal Insurance Administrator has
given express written consent for alterations to the policy. The
McGairs do not argue that any such consent has been given here.
The Second Circuit recently considered a similar issue in
Jacobson v. Metropolitan Property & Casualty Insurance Co., 672
F.3d 171 (2d Cir. 2012). In that case, the appellee insurance
company denied a claim filed pursuant to an SFIP because the
appellant failed to comply with the proof-of-loss requirements
established by the policy. There, as here, "[appellant's] argument
rest[ed] on the idea that the SFIP at issue . . . must be
interpreted like any private insurance contract, thus allowing him
the benefit of a more liberal interpretation [of the relevant
provisions]." Id. at 175. The Second Circuit rejected this
argument, noting that because the policy was issued pursuant to the
NFIP, the requirements imposed by the SFIP "must be strictly
construed and enforced." Id. The court explained that "[w]here
federal funds are implicated, the person seeking those funds is
obligated to familiarize himself with the legal requirements for
receipt of such funds." Id. (quoting Wright v. Allstate Ins. Co.,
415 F.3d 384, 388 (5th Cir. 2005)) (internal quotation marks
omitted); see also Heckler v. Cmty. Health Servs. of Crawford
Cnty., Inc., 467 U.S. 51, 64 (1984) (stating that a participant in
a government program has "a duty to familiarize itself with the
legal requirements for cost reimbursement"). It added that "[i]n
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the context of federal insurance policies, the Supreme Court has
long held that an insured must comply strictly with the terms and
conditions of such policies." Jacobson, 672 F.3d at 176 (citing
Fed. Crop Ins. Corp. v. Merrill, 332 U.S. 380, 384-85 (1947)).
The McGairs' claim fails for the same reason. Even if we
acknowledged that their Declarations Page creates an ambiguity as
to the scope of coverage, which we do not,6 general insurance law
principles applicable to the interpretation of ambiguities must
give way in light of the prescription by federal regulation of the
terms of the SFIP. Because American Bankers had no authority to
alter the terms of the SFIP through the Declarations Page,7 there
is no need to resolve any supposed inconsistency between the SFIP
and Declarations Page. The terms of the SFIP control.
Accordingly, Wagenmaker v. Amica Mutual Insurance Co.,
369 F. App'x 149 (1st Cir. 2010), which the McGairs rely upon, is
not applicable here. In that case, the appellant was a passenger
in an automobile who sought benefits from the driver's insurer
after she was injured in a collision with an uninsured motorist.
The declarations page of the driver's policy indicated that the car
6
The description offered by the Declarations Page was only a
summary, subject to exclusions and limitations contained in the
policy itself. In fact, a notice provided with the Declarations
Page instructs the insured to "review your flood insurance policy,
Declarations page, and any applicable endorsements for a complete
description of your coverage."
7
We do not suggest that it did so.
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was not covered for damages by an uninsured driver, reflecting the
driver's request, nine months earlier, that his uninsured motorist
coverage be cancelled. However, the boilerplate terms of the
policy had not been changed to reflect this cancellation, and the
appellant argued that she was entitled to benefits pursuant to
these terms. In affirming a judgment in favor of the insurer, we
explained that the terms of a policy include those on the
declarations page, which is of "paramount importance" since it is
tailored to the policy at issue. Id. at 150. Thus, we concluded
that the unambiguous declarations page was controlling. Id. at
151. However, Wagenmaker involved a private auto insurance policy,
not a policy issued as part of a federal program dictating its
terms. Here, even though the McGairs' Declarations Page is part of
their policy, by law it may not alter the terms of the SFIP without
the express written consent of the Federal Insurance Administrator.
See 44 C.F.R. § 61.13(d). Thus, the principle articulated in
Wagenmaker is inapposite.8
C. Potential Liability of American Bankers
The McGairs seek to escape the rule requiring strict
construction of the SFIP by arguing that any award in this case
8
The other cases cited by the McGairs are similarly
unhelpful. These decisions concern situations in which there is an
ambiguity in the SFIP itself, or some factual dispute about whether
the insured received a copy of the policy or what structure was
actually covered by the policy. None of the cases cited support
the proposition that a declarations page may create an ambiguity in
an otherwise unambiguous SFIP.
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will not actually be paid from the federal treasury, but by
American Bankers, because the company acted outside the scope of
its agreement with the government in preparing the Declarations
Page. This argument also fails.
As noted above, the NFIA provides that WYO companies act
as "fiscal agents of the United States." 42 U.S.C. § 4071(a)(1).
The agreement between a WYO company and the government is
prescribed by federal regulations, and Article I of the agreement
provides that "the Federal Treasury will back all flood policy
claim payments by the Company." 44 C.F.R. pt. 62, app. A, art. I.
Similarly, the provision of the agreement dealing with loss
payments states that "[l]oss payments under policies of flood
insurance shall be made by the [WYO] Company from Federal funds
retained in the bank account(s) established under Article II." Id.
art. III(D)(1). "Loss payments include payments as a result of
litigation that arises under the scope of [the NFIP]." Id. art.
III(D)(2). Additionally, numerous decisions have made it clear
that "a money judgment against a WYO company for SFIP coverage is
a charge on the federal treasury." Studio Frames, 483 F.3d at 244;
see also Palmieri, 445 F.3d at 184 ("It is the Government, not the
companies, that pays the claims.").
Nonetheless, it is true that there are some circumstances
in which a WYO company may be required to pay damages. The
governing regulations provide that the Federal Insurance
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Administrator may choose not to reimburse a WYO company for any
award or judgment against it, or for the costs of litigation, if
"the litigation is grounded in actions by the [WYO] Company that
are significantly outside the scope of [the NFIP], and/or involves
issues of agent negligence." 44 C.F.R. pt. 62, app. A, art.
III(D)(3); see also Grissom v. Liberty Mut. Fire Ins. Co., 678 F.3d
397, 399 (5th Cir. 2012) (recognizing same).
The McGairs allege only that there is an ambiguity as to
whether the contents of their basement were covered by their
policy. Accordingly, they seek a declaratory judgment that their
loss is covered by their policy, as well as damages for a breach of
contract arising from the denial of their insurance claim.9 The
McGairs do not allege that American Bankers acted outside the scope
of its obligations under the NFIP. They seek damages in contract
and do not allege negligence. Theirs is not remotely a claim on
which a WYO company may be required to pay damages. Thus, the
McGairs may not escape the rules requiring strict construction of
the SFIP.
Affirmed.
9
The McGairs' complaint also raised a claim under Rhode
Island law that American Bankers did not evaluate their loss claim
in good faith. However, the district court rejected this claim and
the McGairs do not raise this issue in their appeal. Accordingly,
we need not address whether this alleged conduct gives rise to
potential liability on the part of American Bankers.
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