Studio Frames Ltd. v. Standard Fire Insurance

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
STUDIO FRAMES LTD., d/b/a 
Somerhill Gallery,
Plaintiff-Appellee,
v.
THE STANDARD FIRE INSURANCE
COMPANY,
Defendant-Appellant,
and  No. 05-2063
VILLAGE INSURANCE AGENCY,
INCORPORATED; BUSINESS
INSURERS OF THE CAROLINAS, LLC;
PHILIP D. PEARSALL; TRAVELERS
PROPERTY CASUALTY INSURANCE
COMPANY,
Defendants.

2 STUDIO FRAMES v. THE STANDARD FIRE INS. CO.
STUDIO FRAMES LTD., d/b/a 
Somerhill Gallery,
Plaintiff-Appellant,
v.
THE STANDARD FIRE INSURANCE
COMPANY,
Defendant-Appellee,
and  No. 05-2342
VILLAGE INSURANCE AGENCY,
INCORPORATED; BUSINESS
INSURERS OF THE CAROLINAS, LLC;
PHILIP D. PEARSALL; TRAVELERS
PROPERTY CASUALTY INSURANCE
COMPANY,
Defendants.

Appeals from the United States District Court
for the Middle District of North Carolina, at Durham.
N. Carlton Tilley, Jr., Chief District Judge.
(CA-01-876-1)
Argued: September 18, 2006
Decided: April 12, 2007
Before NIEMEYER, MICHAEL, and MOTZ, Circuit Judges.
Affirmed by published opinion. Judge Michael wrote the majority
opinion, in which Judge Motz joined. Judge Niemeyer wrote a dis-
senting opinion.
STUDIO FRAMES v. THE STANDARD FIRE INS. CO. 3
COUNSEL
ARGUED: Gerald Joseph Nielsen, NIELSEN LAW FIRM, L.L.C.,
Metairie, Louisiana, for Appellant/Cross-Appellee. John Albert
Michaels, MICHAELS & MICHAELS, Raleigh, North Carolina, for
Appellee/Cross-Appellant. ON BRIEF: Eric P. Stevens, POYNER &
SPRUILL, Raleigh, North Carolina, for Appellant/Cross-Appellee.
OPINION
MICHAEL, Circuit Judge:
This appeal involves contractual and statutory coverage issues
under a Standard Flood Insurance Policy issued pursuant to the
National Flood Insurance Program. In a summary judgment awarding
coverage to an insured tenant, the district court held that the tenant’s
leasehold improvements were insured under the building coverage
portion of the policy and that the statutory cap on the dollar amount
of coverage available did not bar the tenant from acquiring coverage,
see 42 U.S.C. § 4013(b)(4). We affirm the summary judgment order.
In the cross-appeal we affirm the district court’s order denying pre-
and post-judgment interest to the tenant because the federal flood
insurance program is not a commercial enterprise.
I.
Studio Frames Ltd., a small art gallery, leases a store in the East-
gate Shopping Center in Chapel Hill, North Carolina. The shopping
center is owned by Federal Realty Trust Investments (Federal Realty).
In 1996 Hurricane Fran caused flood damage to Studio Frames’s gal-
lery. Studio Frames, which did not have flood insurance, obtained a
disaster relief loan from the Small Business Administration. A loan
condition required Studio Frames to buy flood insurance under the
National Flood Insurance Program (NFIP) to cover the contents of the
gallery and leasehold improvements made by the gallery. Thus, in
1996 Studio Frames bought a Standard Flood Insurance Policy (SFIP)
from Standard Fire Insurance Company (Standard Fire), a private
insurer authorized to sell federal flood insurance under the Federal
4 STUDIO FRAMES v. THE STANDARD FIRE INS. CO.
Emergency Management Agency (FEMA)’s "Write Your Own" or
"WYO" program. See 42 U.S.C. §§ 4071(a), 4081; 44 C.F.R.
§§ 62.23, 62.24.
An SFIP provides coverage for both real and personal property.
Coverage A, or building coverage, covers the "entire building" as well
as "fixtures, machinery and equipment." J.A. 144. Coverage B, or
contents coverage, covers the insured’s personal property located
within the building. The contents coverage portion of an SFIP pro-
vides that a tenant "may apply up to 10% of the amount of insurance
applicable to the personal property covered under this item, not as an
amount of additional insurance, to cover loss to improvements to" the
building made at the tenant’s expense. J.A. 145. Studio Frames’s pol-
icy listed $194,700 in building coverage and $287,200 in contents
coverage. Studio Frames paid a premium that reflected the cost of
these amounts of insurance.
On July 23-24, 2000, Studio Frames again suffered severe flood
damage, and it immediately reported the event to Standard Fire. Dur-
ing the investigation of Studio Frames’s loss, Standard Fire learned
that Studio Frames did not own the building that housed the art gal-
lery but instead leased the space from Federal Realty. Standard Fire
further learned that Federal Realty had obtained in 1995, and contin-
ued to maintain, a $500,000 federal flood insurance policy with First
Community Insurance Company to cover the building that housed
Studio Frames’s gallery. An adjuster for Standard Fire notified Studio
Frames that it could not recover for losses to its leasehold improve-
ments under the SFIP’s building coverage provisions because it did
not own the building. The adjuster explained, however, that Studio
Frames could make a claim for leasehold improvement losses in an
amount equal to ten percent of the contents coverage policy limit.
On September 20, 2000, Studio Frames submitted a proof of loss
to Standard Fire. The gallery requested $287,200, the policy limit for
contents coverage, and stated that it was reserving the right to file an
additional proof of loss for damage to its leasehold improvements.
(Studio Frames did not file the additional proof of loss because it
believed Standard Fire had breached the policy when it took the posi-
tion that the building coverage portion of the policy did not apply to
the gallery.) Standard Fire disagreed with Studio Frames’s assessment
STUDIO FRAMES v. THE STANDARD FIRE INS. CO. 5
of its contents losses. After several months of negotiations, Standard
Fire paid $143,336.27 under the policy’s contents coverage provision,
allocated as follows: $114,616.27 for damage to inventory and
$28,720 for damage to the leasehold improvements (ten percent of the
contents coverage policy limit). Standard Fire also attempted to
refund to Studio Frames the premiums it had paid for building cover-
age under the policy.
Thereafter Studio Frames sued Standard Fire in federal court for
breach of contract, seeking (in the claim relevant to this appeal)
$132,597.05 under the building coverage portion of the policy. The
district court granted summary judgment to Standard Fire, concluding
that Studio Frames was barred from recovery under the building cov-
erage portion of the policy because the gallery had failed to submit
a proof of loss for its leasehold improvements. In the appeal that fol-
lowed, this court determined that Studio Frames’s failure to submit a
proof of loss would not preclude recovery if Standard Fire had repudi-
ated the policy’s building coverage before a proof of loss was due.
Studio Frames Ltd. v. Standard Fire Ins. Co., 369 F.3d 376, 383 (4th
Cir. 2004). We remanded for further proceedings, noting that Stan-
dard Fire did not repudiate the policy unless it "was mistaken in its
belief that the SFIP forbade it from offering [building] coverage to
Studio Frames." Id.
On remand the district court concluded that Standard Fire had repu-
diated the policy because nothing in the SFIP prohibited building cov-
erage for leasehold improvements. The court granted summary
judgment to Studio Frames, holding that the gallery had building cov-
erage and was entitled to $132,597.05 for damages to its leasehold
improvements. Studio Frames Ltd. v. Standard Fire Ins. Co., 397 F.
Supp. 2d 674 (M.D.N.C. 2005). The court later denied Studio
Frames’s motion for pre- and post-judgment interest. Standard Fire
appeals the summary judgment, contending that Studio Frames is not
insured for its leasehold improvements under the building coverage
portion of the SFIP. It argues, in the alternative, that Studio Frames
has no building coverage because the statutory coverage limit was
previously exhausted by Federal Realty’s $500,000 SFIP on the build-
ing. See 42 U.S.C. § 4013(b)(4). Studio Frames cross appeals the dis-
trict court’s order denying it pre- and post-judgment interest. Our
6 STUDIO FRAMES v. THE STANDARD FIRE INS. CO.
review of the issues is de novo. Battle v. Seibels Bruce Ins. Co., 288
F.3d 596, 603 (4th Cir. 2002).
II.
We begin with a discussion of the purpose and nature of the
National Flood Insurance Program created by Congress in 1968. See
National Flood Insurance Act of 1968, Pub. L. 90-448, 82 Stat. 572
(1968). By the mid-1960s Congress was acutely aware that the coun-
try’s growing population was occupying more and more land in flood-
prone areas, both inland and along the seacoasts. H.R. Rep. No. 90-
786, at 5 (1967). Flood losses were increasing at an alarming rate, and
flood insurance on flood-prone property was not available from pri-
vate insurance companies. Id. at 4. Recurring flood disasters required
Congress to fund expensive "relief measures" that were "plac[ing] an
increasing burden on the Nation’s resources." 42 U.S.C. § 4001(a).
These circumstances prompted Congress to create the NFIP, which
(1) makes federally subsidized flood insurance available in flood-
prone areas and (2) encourages states and localities to adopt land use
policies and regulations that reduce the risk of flood damage. Id.
§ 4001(a)-(e); Till v. Unifirst Fed. Sav. & Loan Ass’n, 653 F.2d 152,
159 (5th Cir. 1981).
"To the extent possible, the NFIP is designed to pay operating
expenses and flood insurance claims with premiums collected on
flood insurance policies rather than with tax dollars." Government
Accountability Office, Challenges Facing the National Flood Insur-
ance Program, Statement by William O. Jenkins, Jr., October 18,
2005 (GAO Report), at 5. The program is not entirely self-sufficient,
however, because Congress authorizes subsidized insurance rates for
many older structures. National Flood Insurance Program, Actuarial
Rate Review, November 30, 2004, at 7-8. About twenty-five percent
of SFIP policyholders pay premiums below actuarial rates. Id. at 4.
These subsidized premiums mean that the NFIP cannot accumulate
sufficient reserves to cover catastrophic flood losses. Id. at 4-6. Thus,
FEMA, which manages the NFIP, must rely on its statutory line of
credit at the U.S. Treasury to pay claims arising from catastrophic
losses. Id. at 3; see 42 U.S.C. §§ 4016(a), 4056(a).
Although the NFIP is not entirely self-sustaining, the program has
reduced the amount of flood disaster relief needed from the federal
STUDIO FRAMES v. THE STANDARD FIRE INS. CO. 7
government. The program has paid billions in claims, "primarily from
policyholder premiums that otherwise would have been paid through
taxpayer-funded disaster relief or borne by home and business owners
themselves." GAO Report at 2. FEMA estimates that every "$3 in
flood insurance claims payments saves about $1 in disaster assistance
payments." Id. Flood plain management efforts have also prevented
an estimated $1 billion per year in flood damages.
FEMA, as authorized by statute and regulations, arranges for prop-
erty insurance companies in the private sector, called Write-Your-
Own or WYO companies, to issue and administer federal policies in
their own names. 42 U.S.C. § 4081; 44 C.F.R. § 62.23. FEMA, in
accordance with statutory parameters, establishes the terms and con-
ditions of the standard policy (the SFIP), and the policy forms are
codified as part of FEMA’s regulations. 42 U.S.C. § 4013; 44 C.F.R.
§§ 61.13, 61 App. (A)(1)-(3). WYO companies remit premiums col-
lected, after deducting a scheduled amount for administrative
expenses, to FEMA for deposit in the National Flood Insurance Fund.
42 U.S.C. § 4017(d). Claims are thus paid from federal funds.
If a WYO company disallows a claim under an SFIP, the statute
allows the policyholder to sue FEMA in district court. 42 U.S.C.
§ 4072. FEMA regulations require the pertinent WYO company to
defend the suit, and FEMA reimburses the company for defense costs.
44 C.F.R. § 62.23(i)(6). NFIP policyholders routinely sue the WYO
company directly, and "a suit against a WYO company is the func-
tional equivalent of a suit against FEMA," Van Holt v. Liberty Mut.
Fire Ins. Co., 163 F.3d 161, 166 (3d Cir. 1998), because a WYO com-
pany is a "fiscal agent[ ] of the United States," 42 U.S.C.
§ 4071(a)(1). By the same token, a money judgment against a WYO
company for SFIP coverage is a charge on the federal treasury. Gow-
land v. Aetna, 143 F.3d 951, 955 (5th Cir. 1998).
III.
Standard Fire contends that the summary judgment awarded to Stu-
dio Frames should be reversed for two reasons. First, it argues that the
SFIP does not provide a tenant with building coverage for leasehold
improvements. Second, it argues that the building coverage portion of
Studio Frames’s policy is void because the statutory $500,000 limit
8 STUDIO FRAMES v. THE STANDARD FIRE INS. CO.
on coverage applies to each structure and was exhausted by the
owner’s prior SFIP on the building. We consider these arguments in
turn.
A.
The first issue requires us to interpret the terms of the insurance
policy. Standard Fire urges us to resolve doubts against the policy-
holder, arguing that "if there is any ambiguity regarding the issue of
coverage in the SFIP, the court should . . . limit exposure to the [U.S.]
treasury and not expand coverage." Appellant’s Br. at 51. Standard
Fire’s position is contrary to federal common law, which governs the
interpretation of federal flood insurance policies. Battle, 288 F.3d at
607. Under federal common law, the federal courts draw upon stan-
dard principles of insurance law to resolve disputes over coverage in
an SFIP. Id. at 607 n.17; Hanover Bldg. Materials, Inc. v. Guiffrida,
748 F.2d 1011, 1013 (5th Cir. 1984).
At least two principles of interpretation are relevant here. First, if
the policy language in issue is clear and unambiguous, we apply it
directly. Second, if the disputed language is ambiguous, or susceptible
to different constructions, we adopt the construction most favorable
to the insured. Of course, we will not torture language to create
ambiguities. Linder & Associates, Inc. v. Aetna Cas. & Sur. Co., 166
F.3d 547, 550 (3d Cir. 1999); see also Hanover Bldg., 748 F.2d at
1013 (listing several principles of policy interpretation).
The policy interpretation issue is whether the SFIP permits tenants
to acquire building coverage for their leasehold improvements. The
building coverage portion, Coverage A, reads in pertinent part:
This policy covers a building at the premises (the "build-
ing") which is described in the application, and includes:
1. The entire building, for its real property elements . . . .
3. Fixtures, machinery and equipment . . . all while within
the building and owned by the named insured, as to which
coverage is not provided under "Coverage B — PER-
SONAL PROPERTY" . . . .
STUDIO FRAMES v. THE STANDARD FIRE INS. CO. 9
J.A. 144 (emphasis in original). Paragraph 3 plainly covers improve-
ments, which the policy defines as "fixtures, alterations, or additions
comprising a part of the insured building." J.A. 142. Although para-
graph 3 covers improvements, Standard Fire argues that certain policy
provisions must be read to deny building coverage to Studio Frames
for its leasehold improvements.
1.
The building coverage portion of the policy, Coverage A, explicitly
covers "a building," that is, "the ‘building’ . . . described in the appli-
cation." J.A. 144. Standard Fire argues that because Studio Frames
does not own the building, it has no insurable interest in it. Thus, the
insurance company claims that Coverage A is void. The lack of an
ownership interest does not necessarily translate into lack of an insur-
able interest. An insurable interest exists in property if the policy-
holder "derives a benefit from [the property’s] existence or would
suffer loss from its destruction." Browning v. Browning, 621 S.E.2d
389, 394 (S.C. 2005); accord Valdez v. Colonial Country Mut. Ins.
Co., 994 S.W.2d 910, 914 (Tex. App. 1999); Technical Land, Inc. v.
Firemen’s Ins. Co., 756 A.2d 439, 445 (D.C. App. 2000). Here, Stu-
dio Frames spent its own money to make leasehold improvements
that, in the policy’s words, "comprise[d] a part of the insured build-
ing." J.A. 142. As a result, Studio Frames had an insurable interest in
the building because it stood to suffer a loss if the building was dam-
aged or destroyed. See State Farm Auto Ins. Co. v. Raymer, 977 P.2d
706, 711 (Alaska 1999) (stating that "the measure of an insurable
interest in property is the extent to which the insured might be indem-
nified by loss, injury or impairment"); Chicago Title & Trust Co. v.
United States Fidelity & Guaranty Co., 511 F.2d 241, 247 (7th Cir.
1975). Unless excluded by some other policy language, the building
coverage portion of the policy protected Studio Frames’s insurable
interest in the building to the extent of the leasehold improvements
made by the gallery.
2.
Standard Fire next argues that Coverage A (for the building) and
Coverage B (for contents or personal property), when read together,
10 STUDIO FRAMES v. THE STANDARD FIRE INS. CO.
limit a tenant’s coverage for leasehold improvements to ten percent
of the contents coverage limit. We disagree.
Before we get to Standard Fire’s specific argument, we examine
the basic language in Coverage A and Coverage B that is designed to
distinguish between (and identify) items that are insured as
"[f]ixtures, machinery and equipment" under Coverage A and items
that are insured as "personal property" under Coverage B. Paragraph
3 of Coverage A provides coverage for "[f]ixtures, machinery and
equipment, including the following [list of] property . . . as to which
coverage is not provided under ‘Coverage B — PERSONAL PROP-
ERTY’ . . . ." J.A. 144 (emphasis in original). The items listed in
paragraph 3 of Coverage A include furnaces, wall mirrors perma-
nently installed, fire extinguishing apparatus, venetian blinds, central
air conditioners, outdoor antennas and aerials, and carpet permanently
installed over unfinished flooring. Coverage B, section C, has a paral-
lel provision: "Coverage for personal property includes the following
[listed] property . . . for which coverage is not provided (irrespective
of the manner in which the property is installed or adapted to the
building) under ‘Coverage A — BUILDING PROPERTY’ . . . ." J.A.
145 (emphasis in original). The personal property items listed in sec-
tion C of Coverage B include washers, dryers, food freezers, portable
microwave ovens, installed air conditioning units, and carpet over fin-
ished flooring (whether permanently installed or not).
These parallel provisions are written to give applicants for federal
insurance and insureds a clear picture — sometimes in gray areas —
as to what items are insured as fixtures, machinery, and equipment
under Coverage A (for the building) and what items are insured as
personal property under Coverage B. This fuller differentiation assists
property owners, particularly landlords and tenants, in deciding
whether building coverage alone or contents coverage alone is suffi-
cient or whether both coverages are necessary to protect their inter-
ests.
With the policy’s purpose for spelling out the distinction between
the two coverages in mind, we turn to Standard Fire’s argument that
a tenant’s coverage for leasehold improvements is limited to ten per-
cent of contents coverage. Standard Fire begins with the language in
Coverage A (building coverage) that covers "machinery, fixtures and
STUDIO FRAMES v. THE STANDARD FIRE INS. CO. 11
equipment . . . as to which coverage is not provided under ‘Coverage
B — PERSONAL PROPERTY.’" J.A. 144 (emphasis in original).
The insurance company then cites Coverage B, section E, which
states:
The Insured, if not an owner of the described building, may
apply up to 10% of the amount of insurance applicable to
the personal property covered under this item, not as an
additional amount of insurance, to cover loss to improve-
ments to the described building which have been made, or
acquired, at the expense of the Insured . . . even though the
improvements are not legally subject to removal by the
Insured.
J.A. 145. Thus, Standard Fire argues, a tenant’s leasehold improve-
ments cannot be insured under the building coverage portion of the
policy because the improvements can be partially insured under the
contents coverage portion, Coverage B.
These two provisions do not clearly prohibit building coverage for
a tenant’s leasehold improvements. The term "coverage" in Coverage
A’s phrase, "as to which coverage is not provided under ‘Coverage
B,’" is susceptible to different constructions. On the one hand, an
insurer’s promise to pay any amount of money, however small, for
damages to insured property constitutes some coverage. Under this
construction, coverage would not be available under Coverage A. On
the other hand, it is natural to read the word "coverage" in the way
it is contemplated in the insuring clause, that is: full coverage up to
"actual cash value" or the "cost to repair or replace," whichever is
less, subject, of course, to policy limits. J.A. 140. Under the second
construction, building coverage for leasehold improvements is avail-
able under Coverage A because full coverage is not provided under
Coverage B. The ambiguity in the use of the word "coverage" in the
"as to which coverage is not provided under ‘Coverage B’" language
requires us to adopt the second construction, the one most favorable
for the insured.
Other factors support this result. As we have already discussed, the
basic purpose of the reciprocating "as to which coverage is not pro-
vided" language in both parts of the policy is to assist property own-
12 STUDIO FRAMES v. THE STANDARD FIRE INS. CO.
ers in determining whether they need both building and contents
coverage or whether one is sufficient. This effort to assist policyhold-
ers in their decisionmaking leads us to conclude for more specific rea-
sons that the "as to which coverage is not provided in ‘Coverage B’"
language is not intended to be coupled with section E in Coverage B
to prevent a tenant from fully insuring leasehold improvements under
building coverage. Rather, section E appears to be included to accom-
modate the many tenants that do not make extensive leasehold
improvements and therefore do not need a separate policy to cover
improvements. Section E provides these tenants the option of using
ten percent of their contents coverage (Coverage B) to protect any
leasehold improvements, relieving them of the need to buy the addi-
tional building coverage.
Coverage B, section E, however, is not designed for tenants (long-
term business tenants, for example) that make extensive investments
in both personal property and tenant improvements. The provision
offers the tenant making costly leasehold improvements very little, if
any, protection for these improvements. The ten percent of contents
coverage that may be allocated to leasehold improvements is far too
low to cover substantial improvements. Moreover, this ten percent
allotment is not even additional insurance. It has no value unless per-
sonal property loss does not consume all of the contents coverage.
The extremely low limit on coverage for leasehold improvements in
Coverage B, section E, makes sense only if a tenant needing more
protection can acquire it under Coverage A, the building coverage
portion of the policy. Indeed, the low ten percent limit appears
designed to encourage tenants that make substantial improvements to
buy Coverage A.
In sum, we conclude that Coverage A and Coverage B, when read
together, do not prevent a tenant from buying building coverage for
leasehold improvements.
3.
Standard Fire next argues that because the building owner, Federal
Realty, had already insured the building, the SFIP’s duplicate policy
provision barred Studio Frames from acquiring building coverage.
STUDIO FRAMES v. THE STANDARD FIRE INS. CO. 13
Article 8(W) of the policy, "Duplicate Policies Not Allowed," pro-
vides:
Property may not be insured under more than one policy
issued under the Act. When the Insurer finds that duplicate
policies are in effect, the Insurer shall by written notice give
the Insured the option of choosing which policy is to remain
in effect.
1. If the Insured chooses to keep in effect the policy with
the earlier effective date, the Insurer shall by the same writ-
ten notice give the Insured an opportunity to add the cover-
age limits of the later policy to those of the earlier policy,
as of the effective date of the later policy.
2. If the Insured chooses to keep in effect the policy with
the later effective date, the Insurer shall by the same written
notice give the Insured the opportunity to add the coverage
limits of the earlier policy to those of the later policy, as of
the effective date of the later policy.
J.A. 154. It is unclear whether "property" as used in this article refers
to a property interest or to physical property, such as a structure. If
"property" refers to property interest, multiple policies could cover a
single piece of property so long as the policies covered distinct inter-
ests.
When we consider context, here, the language that follows the
word "property," we conclude that the word refers to a property inter-
est. The exclusive reference to the "insured," rather than the "in-
sureds," indicates that the article only applies to duplicate policies
held by a single insured or policyholder. If the drafters of the policy
had intended to bar multiple policyholders from each holding a policy
on a piece of property, then the drafters would have referred to the
"insureds" when they set forth the procedures that a WYO company
must follow once it discovers a duplicate policy.
The procedures for dealing with duplicate policies provide further
support for the conclusion that "property" means an interest in prop-
14 STUDIO FRAMES v. THE STANDARD FIRE INS. CO.
erty. Article 8(W) states, "When the Insurer finds that duplicate poli-
cies are in effect, the Insurer shall . . . give the Insured the option of
choosing which policy is to remain in effect." J.A. 154 (emphasis
added). This directive to the WYO company does not contemplate a
situation, such as the one in this case, where multiple policyholders
each have a policy on the same property. Indeed, under Standard
Fire’s interpretation, it would be futile for insurers to act under this
directive because each policyholder would no doubt choose to keep
its own (single) policy in effect. Article 8(W) does not include any
mention of what procedures a WYO is to follow when it discovers
that multiple policyholders have policies covering the same property.
This omission indicates that Article 8(W) only prohibits a single
insured from maintaining duplicate policies covering the same prop-
erty interest.
The policies here were acquired by two different insureds, Federal
Realty and Studio Frames, and they cover different property interests.
Accordingly, neither Federal Realty’s nor Studio Frames’s policy is
barred under Article 8(W).
B.
We now turn to the statutory construction issue. When Studio
Frames, the tenant, obtained the SFIP providing $194,700 in building
coverage, Federal Realty, the building owner, already had in place an
SFIP with a building coverage limit of $500,000. Standard Fire con-
tends that Studio Frames’s building coverage is void because it
exceeds the $500,000 statutory limit in 42 U.S.C. § 4013(b)(4). That
section states:
[I]n the case of any nonresidential property, including
churches, for which the risk premium rate is determined in
accordance with the provisions of section 4014(a)(1), addi-
tional flood insurance in excess of the [$100,000] limits
specified in subparagraphs (B) and (C) in paragraph (1)
shall be made available to every insured upon renewal and
every applicant for insurance, in respect to any single struc-
ture, up to a total amount (including such limit specified in
subparagraph (B) or (C) of paragraph (1), as applicable) of
STUDIO FRAMES v. THE STANDARD FIRE INS. CO. 15
$500,000 for each structure and $500,000 for any contents
related to each structure . . . .
42 U.S.C. § 4013(b)(4). Standard Fire argues that the $500,000 limit
is intended to cap the aggregate amount of insurance available on
each structure. Studio Frames responds that the statute simply limits
the amount of insurance each insured can acquire on any one struc-
ture.
To resolve this dispute, we first determine whether § 4013(b)(4)
has a plain and unambiguous meaning. If so, our inquiry ends and the
plain meaning controls. In deciding whether statutory language is
plain or ambiguous, we look to the "language itself, the specific con-
text in which that language is used, and the broader context of the
statute as a whole." Robinson v. Shell Oil Co., 519 U.S. 337, 341
(1997).
The language in § 4013(b)(4) can be read to support different inter-
pretations of the $500,000 cap. The words "up to a total amount . . .
of $500,000 for each structure" suggest an aggregate cap on the insur-
ance available on each structure. On the other hand, the words "shall
be made available to every insured . . . in respect to any single struc-
ture" suggest that the $500,000 cap refers to the amount of insurance
each policyholder can buy on each structure.1 A look at the specific
context in which the inconsistent language is used in § 4013(b)(4)
reveals only that Congress intended to place limits on the amount of
coverage available. The specific context thus gives no indication
whether the cap is meant to limit the amount of insurance sold on
each structure or the amount sold to each insured on each structure.
1
The dissent drops words from § 4013(b)(4) to suggest that the section
should be read as follows: "Flood insurance shall be made available, in
respect to any single structure, up to a total amount of $500,000 for each
structure and $500,000 for any contents." Post at 23. This reading — or
rewriting — omits the direct object of "shall be made available," which
is, "to every insured upon renewal and every applicant for insurance." As
we indicate above, the direct object supports a reading that the $500,000
cap represents the amount available to each policyholder on each build-
ing.
16 STUDIO FRAMES v. THE STANDARD FIRE INS. CO.
When the inconsistent passages are considered in the context of the
broader statute, the resulting impression favors the interpretation that
"up to a total amount . . . of $500,000" refers to the amount of insur-
ance available to each policyholder. Broadly speaking, § 4013(b)
authorizes nonresidential insurance at subsidized and unsubsidized
rates. Qualifying applicants can receive limited coverage at subsi-
dized rates, see § 4013(b)(1), and more extensive coverage at actuar-
ial rates, see § 4013(b)(2)-(4). Thus, the "up to a total amount"
language in § 4013(b)(4) may be reasonably read to mean that the
$500,000 statutory limit encompasses the total amount of insurance
available to each policyholder, the subsidized amount under
§ 4013(b)(1) plus the unsubsidized amount under § 4013(b)(4).2 Thus,
viewed in the broader context of the statute, the "up to a total amount"
language does not support the interpretation that the $500,000 cap is
an aggregate cap for each structure.
Although the broader context analysis tilts toward the interpretation
urged by Studio Frames, we believe that § 4013(b)(4)’s coverage lim-
itation language is sufficiently ambiguous to warrant further analysis,
using additional tools of statutory construction. See S.J. & W. Ranch,
Inc. v. Leatinan, 913 F.2d 1538, 1540-41 (11th Cir. 1990).
2
The dissent argues that it would be anomalous to have the per struc-
ture cap that Congress has imposed on the subsidized building coverage
in § 4013(b)(1)(B), and yet not have a per structure cap on the unsubsi-
dized coverage in § 4013(b)(4). Post at 25-26. There is a logical rationale
for such an approach. Because subsidized insurance imposes substan-
tially greater costs on the government, Congress for that reason could
have chosen to place the per structure cap on only the subsidized insur-
ance. The dissent also contends that having a per structure cap for subsi-
dized insurance and a per policyholder cap for unsubsidized insurance
would present administrative problems: "There would be no explanation
as to who might receive the subsidized building coverage, or what to do
if the landlord or one tenant, acting quickly, has purchased all the subsi-
dized building coverage." Id. These problems would also be present
under the dissent’s interpretation of the statute, which would impose a
per structure cap on unsubsidized insurance. For example, if the dissent’s
interpretation was adopted, one applicant for insurance, acting quickly,
could buy up all of the subsidized and unsubsidized insurance available
on a building, thus preventing others with insurable interests from
acquiring any coverage at all.
STUDIO FRAMES v. THE STANDARD FIRE INS. CO. 17
In 1994 Congress amended § 4013(b)(4)’s coverage limitation lan-
guage. To resolve its meaning, it is appropriate for us to compare the
pre- and post-amendment language, Bailey v. United States, 516 U.S.
137, 147 (1995), consider the purpose of the amendment, McCreary
County v. ACLU, 125 S. Ct. 2722, 2734 (2005), and review any rele-
vant legislative history, United States v. R.L.C., 503 U.S. 291, 298
(1992); McCreary, 125 S. Ct. at 2734.
Prior to the 1994 amendment, § 4013(b)(4) read:
Additional flood insurance . . . shall be made available . . .
up to an amount equal to (i) $250,000 plus (ii) $200,000
multiplied by the number of such occupants which coverage
shall be allocated among such occupants (or among the
occupant or occupants and the owner) . . . except that the
aggregate liability for the structure itself may in no case
exceed $250,000 . . . .
Pub. L. 95-128, Title VII § 704(a), 91 Stat. 1145 (1977). In this ver-
sion Congress placed an aggregate cap on the coverage for each
structure and a separate cap on the coverage each occupant or policy-
holder could obtain for contents within the structure.
The 1994 amendment made two significant changes: (1) it deleted
the phrase, "except that the aggregate liability for the structure itself
may in no case exceed $250,000;" and (2) it used simpler, parallel
language in increasing the cap to "$500,000 for each structure and
$500,000 for any contents related to each structure." Pub. L. 103-325,
Title V § 573(a)(3), 108 Stat. 2278 (1994).
These changes eliminated the language differences in the descrip-
tion of the structure cap and the contents cap. Prior to 1994 the struc-
ture cap was written to apply as an "aggregate liability" cap on each
structure, and the contents cap was written to apply to each "occu-
pant" or policyholder. The present statute describes the two coverage
caps in the same way: coverage "shall be made available to every
insured . . . in respect to any single structure, up to a total amount . . .
of $500,000 for each structure and $500,000 for any contents related
to each structure." § 4013(b)(4). The statute’s use of parallel language
in describing the structure and contents caps reveals that they should
18 STUDIO FRAMES v. THE STANDARD FIRE INS. CO.
be applied in the same way: either as limits on the total coverage
available on the structure ($500,000) and on the contents in the struc-
ture added together ($500,000), or as limits on the total coverage
available to each insured on the structure and to each insured on any
contents. Either interpretation, of course, will alter the pre-1994
method of calculating coverage caps. The clear wording of the 1994
amendment, however, does not permit us to apply the structure cap
in one manner and the contents cap in a different manner. Thus, we
must determine whether Congress intended to (1) replace the aggre-
gate, per structure cap on building coverage with a per policyholder
cap or (2) replace the per policyholder cap on contents coverage with
an aggregate cap on the contents within a structure. Application of the
caps to each structure and the sum of its contents would reduce the
government’s potential liability, but would also reduce the number of
policies written and the amount of premiums collected. Application
of the caps to each insured would increase the government’s potential
liability, but would also attract more policyholders and more premium
revenue.3
3
It is not clear whether the dissent believes that the building and con-
tents coverage caps must be applied in the same manner. At one point,
the dissent appears to interpret the statute to place an aggregate cap on
both building and contents coverage. Post at 23 (stating that "the [statute]
gives the limit of $500,000 for the building and $500,000 for its con-
tents"). At another point, however, the dissent relies on a footnote in a
chart in FEMA’s regulations, 44 C.F.R. § 61.6(a), that states that con-
tents coverage limits are applied "per unit." According to the dissent, "By
explicitly making coverage for contents on a ‘per-unit’ basis, but not
coverage for the building, FEMA understood that building coverage
would not be on a per-unit basis." Post at 27 (emphases in original). The
dissent thus relies on FEMA’s understanding of the building coverage
cap, but overlooks the agency’s inconsistent understanding of the con-
tents coverage cap. Neither the dissent nor FEMA (in its regulations)
explains how the parallel language in § 4013(b)(4) can permit a different
type of cap for building coverage than it does for contents coverage. As
we have said, the clear language of § 4013(b)(4) requires that the build-
ing and contents coverage caps be interpreted in the same manner. Thus,
to the extent FEMA’s regulation interprets the statute to create a different
(per structure) cap for building coverage, the interpretation is inconsis-
tent and not entitled to deference.
STUDIO FRAMES v. THE STANDARD FIRE INS. CO. 19
Standard Fire urges us to interpret the statute to require the more
restrictive application, which would, it argues, "accord deference to
Congress’s intent to limit exposure to the treasury and not expand
coverage." Appellant’s Br. at 51. Further analysis reveals, however,
that the 1994 amendments were intended to increase coverage and
broaden participation in the federal flood insurance program.
First, Congress, in the 1994 amendment, deleted the "aggregate lia-
bility for the structure" language. This deletion suggests that Congress
intended to replace the aggregate per structure cap with a per policy-
holder cap for building coverage.
Second, the 1994 amendments were part of an ongoing effort to
"increase the number of people covered by flood insurance." 140
Cong. Rec. 9105 (May 3, 1994) (statement of Rep. Kennedy); see
also Rate Review at 5 (FEMA reaffirming that it is "sound public pol-
icy to maximize the number of people who have [government-
backed] flood insurance"); GAO Report at 14 (GAO stressing the
need to "increase participation in the [National Flood Insurance]
[P]rogram"). Low participation in the National Flood Insurance Pro-
gram has in part contributed to FEMA’s inability to build the reserves
necessary to pay all claims every year, which requires the agency to
burden the taxpayer by borrowing from the U.S. Treasury. 140 Cong.
Rec. 9105 (statement of Rep. Kennedy). In order to attract new poli-
cyholders and more premium dollars, Congress has periodically
increased the coverage limits. Congress raised the aggregate cap on
nonresidential structures from $30,000 to $100,000 in 1973, Pub. L.
93-234, Title I § 101, 87 Stat. 978 (1973), and to $250,000 in 1977,
Pub. L. 95-128, Title VII § 704(a), 91 Stat. 1145 (1977). Despite
these increases in coverage limits, the NFIP, as late as 1993, contin-
ued to suffer from a "distressfully low rate of participation." 139
Cong. Rec. E 2331 (Sep. 30, 1993) (statement of Rep. Kennedy).
Thus, the next year Congress again increased the coverage limits and
amended the language governing their application.
Given these efforts to expand participation and increase premium
revenue, Congress surely did not intend to eliminate the per policy-
holder cap on contents coverage. Applying the contents coverage cap
to the building contents added together would mean that many
insureds (tenants in large buildings, for example) could no longer
20 STUDIO FRAMES v. THE STANDARD FIRE INS. CO.
obtain anything approaching full coverage for contents (their personal
property). Thus, we conclude that Congress did not intend for the
1994 amendment to eliminate the per policyholder cap on contents
coverage. Because the structure cap is written in the same way as the
contents cap, and therefore should be applied in the same way, we
conclude that the structure cap is also a per policyholder cap.
For the foregoing reasons, we conclude that § 4013(b)(4) permits
each policyholder to acquire up to $500,000 in building coverage.
Thus, Studio Frames’s building coverage, which provided $194,700
in coverage for leasehold improvements, does not exceed the statutory
limit.
C.
Because building coverage for Studio Frames’s leasehold improve-
ments is not prohibited under either the policy or the governing stat-
ute, we affirm the district court’s conclusion that Standard Fire
breached its insurance contract with Studio Frames and that the gal-
lery is entitled to $132,597.05 in damages for this breach.
IV.
Finally, we consider Studio Frames’s cross-appeal of the district
court’s order denying it pre- and post-judgment interest. Studio
Frames argues that the National Flood Insurance Program falls within
the commercial activity exception to the general rule immunizing the
government from the payment of interest.
As we pointed out in part II, supra, a suit against a WYO company
is essentially a suit against FEMA. Likewise, a money judgment
against a WYO company is essentially a judgment against the govern-
ment. See Gowland, 143 F.3d at 955. There is, of course, a no-interest
rule "to the effect that interest cannot be recovered in a suit against
the government in the absence of an express waiver of sovereign
immunity from an award of interest." Library of Congress v. Shaw,
478 U.S. 310, 311 (1986). Congress has not waived the no-interest
rule here, but it does not apply "‘where the government has cast off
the cloak of sovereignty and assumed the status of a private commer-
STUDIO FRAMES v. THE STANDARD FIRE INS. CO. 21
cial enterprise.’" Sandia Oil Co. v. Beckton, 889 F.2d 258, 261 (10th
Cir. 1989) (quoting Shaw, 478 U.S. at 317 n.5). The NFIP would be
a commercial enterprise if "it engage[d] in business-type activity"
with the intent to make a profit. Id. at 263; see also United States v.
Worley, 281 U.S. 339 (1930) (holding that a government sponsored
veterans’ insurance program was not a commercial venture because
it was not designed to be profitable).
We conclude that the NFIP is not a commercial enterprise. The
NFIP was designed as, and continues to operate as, a not-for-profit
program. See GAO Report at 4 (stating that the program is "not actu-
arially sound"); Newton v. Capital Assur. Co., 245 F.3d 1306, 1310
(11th Cir. 2001). A large percentage of policyholders pay below-
actuarial rates authorized by statute, which prevents the program from
building the reserves necessary to pay off catastrophic losses. To keep
the NFIP solvent, FEMA relies on its line of credit with the federal
treasury, drawing on that source from time to time in order to pay
claims. See part II, supra. In 2006, for example, Congress increased
FEMA’s borrowing authority to $20.775 billion to enable the agency
to pay policy claims arising from Hurricane Katrina. Pub. L. 109-208,
120 Stat. 317 (2006). For these reasons, we agree with several of our
sister circuits that the NFIP is not a commercial enterprise and that
the no-interest rule applies to a suit against FEMA or a WYO com-
pany. See In re Estate of Lee, 812 F.2d 253, 256 (5th Cir. 1987); San-
dia Oil, 889 F.2d at 263; Newton, 245 F.3d at 1312; Palmieri v.
Allstate Ins. Co., 445 F.3d 179, 193 (2d Cir. 2006). The district court
correctly denied Studio Frames’s motion for interest.
V.
We affirm the district court’s orders granting summary judgment
to Studio Frames and denying Studio Frames’s motion for pre- and
post-judgment interest.
AFFIRMED
NIEMEYER, Circuit Judge, dissenting:
Under the National Flood Insurance Program, Congress provides
flood insurance with defined limits for commercial properties and
22 STUDIO FRAMES v. THE STANDARD FIRE INS. CO.
with different limits for residential properties, all as specified by stat-
ute. When, as the majority concludes, the statute’s specification of
those limits is ambiguous, we must construe the statute narrowly so
as not to appropriate more money for insurance coverage than Con-
gress intended. The majority violates this fundamental principle,
applying private contract law principles to favor insureds and thus to
expand coverage at the expense of the public fisc. This is a fundamen-
tal error of law.
Particularly, the majority finds ambiguity in the limits of coverage
provided by 42 U.S.C. § 4013(b)(4), which provides flood insurance
for commercial properties. It then resolves the ambiguity against Con-
gress and in favor of providing increased amounts of insurance cover-
age without concluding that those amounts are clearly authorized by
the text of the statute. It does this (1) by applying the canon of private
contract law that ambiguous insurance policies be construed against
the drafter, and (2) by relying on the generally stated purpose of the
insurance program. This approach, however, violates the bedrock
norm of authorizing no more money from the public fisc than Con-
gress clearly intended. It also undertakes statutory construction back-
wards — by looking first at the statute’s benevolent purpose and then
making the text fit that purpose.
Because the text of 42 U.S.C. § 4013(b)(4) and related factors dem-
onstrate that the statute provides an aggregate limit for commercial
flood insurance coverage on a per-structure basis, I dissent from the
majority’s conclusion that holds the stated limit to be available for
each insured — a holding that substantially expands the govern-
ment’s financial obligations. My position is supported by both the
statute’s text and its context.
In authorizing commercial flood insurance, 42 U.S.C. § 4013(b)(4)
provides limits as follows:
[I]n the case of any nonresidential property, [unsubsidized]
flood insurance . . . shall be made available to every insured
upon renewal and every applicant for insurance, in respect
to any single structure, up to a total amount . . . of $500,000
for each structure and $500,000 for any contents related to
each structure. . . .
STUDIO FRAMES v. THE STANDARD FIRE INS. CO. 23
(Emphasis added). The majority opinion assigns no relevant meaning
to the phrase "in respect to any single structure," concluding that the
limit applies to each separate insured, not each "single structure." Yet,
this is a key phrase in the paragraph at issue and a phrase whose
meaning can be ascertained by a careful reading of the text.
The subject of the sentence is "insurance"; the verbal phrase is
"shall be made available"; and three prepositional phrases then fol-
low, set off by serial commas: (1) "to every insured . . . ," (2) "in
respect to any single structure," (3) "up to a total amount . . . ." As
written, the prepositional phrase "in respect to any single structure"
can only modify the verb, "shall be made available," because it does
not make sense modifying "insured." Thus, the operative language
reads: "Flood insurance shall be made available, in respect to any sin-
gle structure, up to a total amount of $500,000 for each structure and
$500,000 for any contents." On this reading, it is clear that coverage
is provided on a per-structure basis.1
Moreover, as so read, the language is not "inconsistent," as the
majority finds in dismissing the language. The language is only
inconsistent when one ignores the role that the three prepositional
phrases play in the sentence — that they all modify the verb. The first
phrase answers the question: "To whom and when may insurance be
made available?" The second answers the question: "With regard to
what may insurance be made available?" And the third phrase
answers the question: "In what amount may insurance be made avail-
able?" Because the phrases are set off with serial commas, it is clear
that each phrase modifies the verb of the sentence, not a noun within
another prepositional phrase. And because all three phrases modify
the verb, they progressively and cumulatively narrow the verb. "Up
to a total amount" modifies the verb, as previously modified by the
"in respect to any single structure" language. Quantifying the cover-
age that "shall be made available" "in respect to any single structure,"
the paragraph gives the limit of $500,000 for the building and
$500,000 for its contents. The "up to a total amount" phrase cannot
1
The prepositional phrase, "to every insured upon renewal and every
applicant" is included to indicate that one acquires new coverage at the
renewal date or on the commencement of a new policy period, not in the
middle of one.
24 STUDIO FRAMES v. THE STANDARD FIRE INS. CO.
somehow modify "insured," as the majority impliedly believes. "In-
sureds" cannot be quantified by dollars. The majority’s implied read-
ing ignores the commas that set the phrases off from each other and
thereby preclude one phrase from modifying another. The "up to a
total amount" phrase modifies "shall be made available," subject to all
the modifications that have already been made. Since the modifica-
tions include the "in respect to any single structure" language, it is
clear that the cap acts as a limit on per-structure coverage and not on
per-insured coverage.
In addition to this textual analysis, six factors point to the interpre-
tation that the statute provides a per-structure limit, not a per-insured
limit, for commercial flood insurance.
First is the relationship of § 4013(b)(4) (providing commercial
coverage) with § 4013(b)(2) (providing residential coverage). Para-
graph (b)(2) provides the limits of insurance coverage for residential
structures, stating:
[I]n the case of any residential property, [unsubsidized]
flood insurance shall . . . be made available to every insured
upon renewal and every applicant for insurance so as to
enable such insured or applicant to receive coverage up to
a total amount . . . of $250,000.
(Emphasis added). Thus, in the case of residential property, it is crys-
tal clear that each insured can get up to $250,000 in coverage, with
no aggregate cap for the building. The majority’s reading of the stat-
ute fails to account for paragraph (b)(2) in two ways. First, it fails to
explain why (b)(4) and (b)(2) would express the exact same concept
— that each insured can get a certain amount of coverage without
regard to the total insurance on the entire building — in completely
different ways. Congress knew how to reach the result that the major-
ity is after, and did so unambiguously in paragraph (b)(2). That Con-
gress did not do so in (b)(4) should be dispositive. Second, the
majority’s reading fails to give any meaning to the phrase in (b)(4)
"in respect to any single structure." That phrase is present in (b)(4),
but not in (b)(2). Yet on the majority’s reading, it is given no meaning
at all, as the same result can be reached with or without the phrase.
Whatever role the majority could assign to the phrase "in respect of
STUDIO FRAMES v. THE STANDARD FIRE INS. CO. 25
any single structure" in (b)(4) cannot be squared with its exclusion in
(b)(2) — it is simply surplusage in (b)(4). I would hold that the phrase
does have a meaning, and that meaning can only be to limit the cover-
age available for commercial structures to $500,000 for each struc-
ture.
Second is the relationship of § 4013(b)(4) coverage with
§ 4013(b)(1) coverage. Paragraph (b)(1) provides subsidized flood
insurance, providing a first tier of insurance. Paragraph (b)(4) pro-
vides a second tier of unsubsidized flood insurance once the limits
available in (b)(1) are exhausted. The amount of available subsidized
coverage is specified:
[I]n the case of business properties which are owned or
leased and operated by small business concerns, an aggre-
gate liability with respect to any single structure, including
any contents thereof related to premises of small business
occupants . . . which shall be equal to (i) $100,000 plus (ii)
$ 100,000 multiplied by the number of such occupants and
shall be allocated among such occupants (or among the
occupant or occupants and the owner) under regulations pre-
scribed by the Director; except that the aggregate liability
for the structure itself may in no case exceed $100,000 . . . .
42 U.S.C. § 4013(b)(1)(B). This paragraph unambiguously caps the
aggregate coverage for "any single structure" at $100,000. It would
be anomalous to say that subsidized building coverage under para-
graph (b)(1) is capped at $100,000, but that unsubsidized building
coverage under paragraph (b)(4) is uncapped, as the majority con-
cludes.2 There would be no explanation as to who might receive the
subsidized building coverage, or what to do if the landlord or one ten-
2
The inclusion in subparagraph (b)(1)(B) of the explicit cap on "aggre-
gate liability for the structure" is necessary to make clear that even
though total subsidized coverage for both contents and structure is
capped only by the number of tenants, the coverage for the structure
itself is capped at $100,000. Such language is unnecessary in
§ 4013(b)(4) because (b)(4) caps coverage for both structure and contents
at the same level ($500,000).
26 STUDIO FRAMES v. THE STANDARD FIRE INS. CO.
ant, acting quickly, has purchased all the subsidized building cover-
age, leaving none for any other tenant in the building.
Third is the relationship between the current version of
§ 4013(b)(4), as amended in 1994, and the prior version (1993). Para-
graph (b)(4) as it existed in the prior 1993 version read:
[I]n the case of business property owned, leased, or operated
by small business concerns . . . [unsubsidized] flood insur-
ance . . . shall be made available to every such owner, les-
see, or operator in respect to any single structure, including
any contents thereof, related to premises of small business
occupants (as that term is defined by the Director), up to an
amount equal to (i) $250,000 plus (ii) $200,000 multiplied
by the number of such occupants which coverage shall be
allocated among such occupants (or among the occupants or
occupants and the owner) in accordance with the regulations
prescribed by the Director pursuant to such subparagraph
(B), except that the aggregate liability for the structure itself
may in no case exceed $250,000 . . . .
42 U.S.C. § 4013(b)(4) (1993 version) (emphasis added). The change
in language between the 1993 version of the statute and the current
version provides the best basis for the majority’s reading of the stat-
ute. The majority correctly notes that we generally assume that
changes in statutory language are meaningful. In this case, however,
the majority provides no textual basis for its understanding of the cur-
rent version of the statute, so it cannot say how the amendment
changed the intended meaning, only that it must somehow be differ-
ent. But based on my reading of the current statute, the language that
was included in the prior 1993 version — "except that the aggregate
liability for the structure itself may in no case exceed $250,000" —
was omitted from the current statute because it was redundant. This
is reinforced by the inclusion in the current statute of the serial com-
mas setting off the prepositional phrase "in respect to any single struc-
ture." The commas restructured the sentence, applying limits on a per-
structure basis, and thus removed the need for the now-redundant "ag-
gregate liability" language that had been included in the 1993 version.
Fourth, the regulations promulgated by FEMA under § 4013(b)(2)
provide an administrative interpretation of the available limits of
STUDIO FRAMES v. THE STANDARD FIRE INS. CO. 27
insurance which contradicts the majority’s analysis. See 44 C.F.R.
§ 61.6. In § 61.6(a), the regulation lists the limits available for flood
insurance of various kinds, including the commercial insurance under
§ 4013(b)(4). For nonresidential small business properties, the regula-
tion lists the total building coverage available as $500,000. For con-
tents coverage, the regulation specifies that limits are on a "per unit"
basis. Id. § 61.6(a) n.2. By explicitly making coverage for contents on
a "per-unit" basis, but not coverage for the building, FEMA under-
stood that building coverage would not be on a per-unit basis. In fact,
when FEMA wanted to insure residential buildings on a per-unit basis
under § 4013(b)(2), it made the coverage clear. Thus, § 61.6(b) pro-
vides that "[i]n the insuring of a residential condominium building in
a regular program community, the maximum limit of building cover-
age is $250,000 times the number of units in the building." Id.
§ 61.6(b). If residential coverage under 42 U.S.C. § 4013(b)(2) were
to be parallel with nonresidential coverage under § 4013(b)(4), as the
majority asserts, it is inexplicable that FEMA would specify that
insurance of paragraph (b)(2) losses is on a per-unit basis, but not
insurance of paragraph (b)(4) losses, such as the losses here. We must
not be so quick to ignore the agency’s considered opinion, especially
when, as the majority concedes, the statute is ambiguous.
Fifth, the majority’s reliance on a particular brand of legislative
history vividly demonstrates the sinister snare inherent in such reli-
ance. The majority cites a statement of Representative Joseph Ken-
nedy that the 1994 bill was intended to "increase the number of
people covered by flood insurance." 140 Cong. Rec. H2961 (daily ed.,
May 3, 1994) (statement of Rep. Kennedy). Indeed, this seems to be
the key factor behind the majority’s choice to resolve the ambiguity
in favor of more coverage. In the context of the rest of Representative
Kennedy’s remarks, however, this statement cannot possibly be used,
even as a tie-breaker, to decide the issue here. Representative Ken-
nedy went on, after the quoted language, to give the means by which
participation was to be increased — i.e., by requiring mortgage lend-
ers to enforce flood insurance purchase requirements. Id. At no point
in Representative Kennedy’s remarks did he allude to the provision
at issue here in any way, let alone as a mechanism by which to
increase participation in the program. Not only did Representative
Kennedy fail to mention the provision at issue here, but neither did
anyone else during the course of the entire legislative debate. Indeed,
28 STUDIO FRAMES v. THE STANDARD FIRE INS. CO.
no one even mentioned business flood insurance as a discrete matter.
When it is added that the legislation "was rushed to the floor after an
agreement was reached only last week," id. H2967 (statement of Rep.
Shaw), it is unlikely that "more than a handful of Members [had]
reviewed or even seen the legislation that [was before them] for a
vote." Id. The idea that Representative Kennedy’s statement reflects
the intent of Congress can only be laughable. Finally, making the
majority’s reliance truly incomprehensible, the remark was made to
a chamber in which the chair "counted two Members standing [and]
less than 10 Members on the floor." Id. at H2967.
The majority also reads the 1994 amendment as part of an "ongo-
ing effort to increase the number of people covered by flood insur-
ance," pointing to increases in coverage limits that were enacted in
1973 and 1977. A series of routine increases in the amount of cover-
age, however, hardly reveals an intent to increase the number of peo-
ple covered. To the contrary, one should use this history to construe
the 1994 amendment as simply a continuation of earlier increases. Yet
the majority reads the third increase in 1994 as a "sign" of Congress’
intent to expand now the number of persons covered, even though
Congress did nothing to indicate such intent.
The majority is forced to rely on such meager and misleading
scraps of legislative history because the more reliable forms of legis-
lative history provide it no help. The committee report relating to the
provision stated only that it "[i]ncreases coverage for nonresidential
structures to $500,000. Increases content coverage for nonresidential
structures to $500,000." H.R. Rep. No. 103-414, § 602 (1994). The
fact that the House Report did not even devote a complete sentence
to the provision at issue here shows the danger of relying on legisla-
tive history to decide this case. Most importantly, the most authorita-
tive source of legislative history, the House Report, shows no
intention that the provision of flood insurance be changed from a per-
structure basis to a per-insured basis, only an intention to increase
the limits. Thus, to the extent that the legislative history is notable at
all, it is notable for its complete silence as to what was, under the
majority’s reading, a major change in the federal flood insurance pro-
gram.
Sixth, the majority cites a canon of interpretation that ambiguous
provisions of insurance policies should be construed in favor of the
STUDIO FRAMES v. THE STANDARD FIRE INS. CO. 29
insured. Of course, this canon of contract construction does not apply
by its own terms to the interpretation of a statute. But more impor-
tantly, applying the canon here resolves the ambiguity against the
Treasury of the United States without a congressional appropriation.
This is in direct violation of both statutory command and constitu-
tional principle. See 31 U.S.C. § 1301 ("A law may be construed to
make an appropriation out of the Treasury or to authorize making a
contract for the payment of money in excess of an appropriation only
if the law specifically states that an appropriation is made or that such
a contract may be made"); U.S. Const., Art. 1, § 8 ("No money shall
be drawn from the treasury, but in consequence of appropriations
made by law"). The purportedly ambiguous statute must be construed
narrowly so as to not to encroach on Congress’s power of the purse.
The majority’s unfortunate expansion of the National Flood Insur-
ance Program opens the door to disastrous fiscal consequences.3
Under the majority’s reading, the aggregate amount of coverage avail-
able to businesses becomes effectively uncapped. Each insured can
obtain up to $1 million in total flood insurance. Thus, where a shop-
ping mall with 100 tenants is flooded and destroyed by an ocean
surge, the government will have a potential liability of $100 million
for just that mall. Multiplied across the country, the majority’s deci-
sion might extend the government’s obligations by many billions of
dollars. We should hesitate to adopt an expansive reading with these
consequences, particularly when the expansion is justified solely by
the program’s generally articulated purpose.
I would reverse the judgment of the district court.
3
The majority claims that its interpretation will result in the issuance
of more flood insurance policies with higher limits and that this would
somehow help "build the reserves to pay all claims every year." The
majority recognizes that each policy issued under the program is a
money-losing policy that the government subsidizes every year, but
apparently it believes in the motto, "We lose money on every sale, but
we make up for it on volume."