Richmond Printing LLC v. Director Federal Emergency Management Agency

United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS July 21, 2003
FOR THE FIFTH CIRCUIT Charles R. Fulbruge III
Clerk
_____________________
No. 02-20223
_____________________
RICHMOND PRINTING LLC
Plaintiff - Appellant
v.
DIRECTOR FEDERAL EMERGENCY MANAGEMENT AGENCY; Et Al
Defendant
RGA INC, also known as Ray Graf Inc, also known as Ray Graf
Adjustment Inc; RAYMOND E GRAF INC, also known as RGA INC,
also known as Ray Graf Inc, also known as Ray Graf
Adjustment Inc; RAYMOND MEYER
Defendants - Appellees
_________________________________________________________________
Appeal from the United States District Court
for the Southern District of Texas
(H-00-CV-2667)
_________________________________________________________________
Before KING, Chief Judge, and REAVLEY and STEWART, Circuit
Judges.
KING, Chief Judge:*
*
Pursuant to 5TH CIR. R. 47.5, the court has determined
that this opinion should not be published and is not precedent
except under the limited circumstances set forth in 5TH CIR. R.
47.5.4.
Plaintiff-Appellant Richmond Printing, Inc. brought claims
for negligent and fraudulent misrepresentation, violations of the
Texas Insurance Code, and violations of the Texas Deceptive Trade
Practices Act against Defendants-Appellants Raymond E. Graf, RGA
Inc., and Raymond Meyer arising out of Richmond’s attempts to
file a claim pursuant to its flood insurance policy. For the
following reasons, we affirm the district court’s judgment.
I. FACTS AND PROCEDURAL BACKGROUND
On September 11, 1998, Plaintiff-Appellant Richmond
Printing, Inc. (“Richmond”), a Texas company, suffered flood
damage as a result of Tropical Storm Francis. Richmond was
covered by a standard flood insurance policy (“SFIP”) issued by
the Federal Emergency Management Agency (“FEMA”) pursuant to the
National Flood Insurance Program (“NFIP”). After the flood,
Richmond filed a claim with FEMA based on that policy. FEMA
assigned a private insurance adjuster, Defendant Raymond E. Graf
(“RGA”), to handle Richmond’s claim. RGA, in turn, subcontracted
some of the adjusting work to Catastrophe Claims Adjustors, Inc.,
whose president was Defendant Raymond E. Meyer. Richmond’s SFIP
contains the following clause concerning the responsibilities of
a private claims adjuster assigned by FEMA:
The insurance adjuster whom the Insurer hires to
investigate the claim may furnish the Insured with a
proof of loss form, and she or he may help the Insured
complete it. However, this is a matter of courtesy only,
and the Insured must still send the Insurer a proof of
loss within 60 days after loss even if the adjuster does
not furnish the form or help the insured complete it. In
2
completing the proof of loss, the insured must use its
own judgment concerning the amount of loss and the
justification for the amount.
On November 9, 1998, Richmond submitted a $35,331.60
preliminary proof of loss to FEMA, which was paid. Shortly
thereafter, Richmond submitted a detailed and itemized statement
of the total losses which stated additional flood damages of
$359,485. On March 19, 1999, while the larger claim with FEMA
was still pending, Richmond’s facilities flooded again. At the
time of the second flood, Richmond was still covered by the same
SFIP. Richmond filed a damages claim with FEMA stemming from the
March 1999 flood in the amount of $135,950.
In August 1999, FEMA advised Richmond that it was denying
Richmond’s claims arising out of the March 1999 flood because
Richmond had failed to submit the proper form of proof of loss.
FEMA later denied Richmond’s pending claim from the September
1998 flood for the same reason.
On August 2, 2000, Richmond filed suit in federal district
court against the director of FEMA and RGA. Sometime thereafter,
Richmond settled its claims against FEMA for $50,000. Richmond
then amended its complaint to add Meyer as a defendant. In its
amended complaint, Richmond alleged that RGA and Meyer had made
material misrepresentations concerning what information Richmond
needed to provide to FEMA, as well as when and in what form the
information had to be provided, in order to satisfy the proof of
loss requirements of the SFIP. Richmond also alleged that it
3
submitted information to RGA and Meyer that they never forwarded
to FEMA. Richmond brought claims against RGA and Meyer for
negligent and fraudulent misrepresentation, violations of the
Texas Insurance Code1, and violations of the Texas Deceptive
Trade Practices Act.2
RGA filed a motion for summary judgment, which the district
court granted. The district court found that, whether or not
Richmond actually had a copy of its SFIP, Richmond was presumed
to know the contents of the policy. The court reasoned that,
because the SFIP had been published in the Code of Federal
Regulations (“CFR”), Richmond was expected to know the terms of
his SFIP and any reliance on statements made by the adjusters was
unreasonable so far as those statements contradicted the terms of
1
TEX. INS. CODE. ANN. art. 21 §§ 4(10)-(11) (Vernon 1981 &
Supp. 2002) include within the statutory definition of unfair and
deceptive acts or practices in the business of insurance “unfair
settlement practices” and “misrepresentation of an insurance
policy” (providing multiple specific acts constituting each).
2
TEX. BUS. & COM. CODE ANN. § 17.50(a) (Vernon 2002):
(a) A consumer may maintain an action where any of the
following constitute a producing cause of economic
damages or damages for mental anguish:
. . .
(3) any unconscionable action or course of action by
any person; or
(4) the use or employment by any person of an act or
practice in violation of Article 21.21, Insurance
Code.
4
the policy. The district court also found that RGA owed no duty
to Richmond because, under the terms of the SFIP, the adjuster
has no duty to assist the insured; instead, the policy states
only that the adjuster “may” assist the insured and that the
adjuster is provided only as a matter of “courtesy.”
Meyer then filed his own motion for summary judgment,
raising the same lack of duty and unreasonable reliance grounds
that RGA had raised. The district court also granted Meyer’s
motion for summary judgment, relying on the same grounds that it
did when considering RGA’s motion for summary judgment. However,
the court also somewhat ambiguously discussed whether federal law
preempted Richmond’s state law claims.3
Richmond appeals the district court’s grants of summary
judgment in favor of both RGA and Meyer, arguing that the
district court erred both in finding that the defendants owed him
no duty as the adjusters assigned to handle his insurance claim
and in finding that he unreasonably relied on statements made by
RGA and Meyer that contradicted the terms of his SFIP. We review
a grant of summary judgment de novo, viewing all questions of
fact in the light most favorable to the nonmoving party. Horton
3
The district court rejected Richmond’s reliance on Davis
v. Travelers Property & Casualty Co., 96 F.Supp.2d 995 (N.D. Cal.
2000), which had held that similar claims raised before that
court were not preempted. However, the district court never
actually stated that it believed Richmond’s claims were
preempted; instead, it based its order granting summary judgment
on the lack of duty and unreasonable reliance grounds it had
invoked when considering RGA’s motion for summary judgment.
5
v. City of Houston, 179 F.3d 188, 191 (5th Cir. 1999). Summary
judgment is appropriate only where no question of material fact
remains and the moving party is entitled to judgment as a matter
of law. Blow v. City of San Antonio, 236 F.3d 293, 296 (5th Cir.
2002).
II. PREEMPTION OF RICHMOND’S STATE LAW CLAIMS
Initially, Richmond asserts that the “ultimate basis” for
the district court’s ruling rested on the somewhat ambiguous
discussion concerning whether Richmond’s state statutory and
common law claims were preempted by federal law. While we
disagree that the district court’s orders primarily rested on a
finding that Richmond’s claims were preempted, we will
nevertheless consider Richmond’s allegation.
Before addressing this question, we should note that FEMA
has issued a new regulation that amends an insured’s SFIP to
include the following language:
IX. What Law Governs
This policy and all disputes arising from the handling of
any claim under the policy are governed exclusively by
the flood insurance regulations issued by FEMA, the
National Flood Insurance Act of 1968, as amended (42
U.S.C. 4001 et seq.), and Federal common law.
65 Fed. Reg. 60,758, 60,767 (2000). However, this regulation did
not go into effect until December 31, 2000 — after Richmond had
filed suit against RGA and Meyer. Thus, both parties agree that
the regulation does not govern the outcome of this case. We
reference the new rule, though, to emphasize that our preemption
6
decision in this case applies only to those claims which arose
prior to the date the amended SFIP became effective.
In arguing that its claims are not preempted, Richmond
relies heavily on our decision in Spence v. Omaha Indemnity
Insurance Co., 996 F.2d 793 (5th Cir. 1993). In Spence, the
insured had obtained an SFIP from a write-your-own (“WYO”)
insurance company.4 Id. at 794 & n.1. After the insurer denied
coverage based on policy language, the insured brought state law
claims for, among other things, tortious misrepresentation in the
procurement of the policy. Id. In holding that the plaintiff’s
misrepresentation claim could go forward under state law, we
reasoned that whether a claim was preempted should depend upon
whether the claim arose out of the terms of the contract (the
SFIP) or whether the claim was extracontractual. For contractual
claims, we noted that the “national policies underlying the NFIP
and extensive federal role therein impel our conclusion that
federal common law governs claims under flood insurance
policies.” Id. at 796. However, we also found that FEMA accords
“substantial autonomy” to its private insurers in the areas of
“SFIP marketing and claims adjustment” and that, as a result, the
federal interests in these claims were more attenuated. Id.Because the misrepresentation claim was an extracontractual
4
Under the terms of the NFIP, an insured may obtain its
SFIP either from FEMA directly or from a private WYO insurer
which has contracted with FEMA to issue SFIPs.
7
claim, not a contractual claim under the SFIP, we concluded that
the claim was not preempted.
RGA and Meyer argue that Richmond’s reliance on Spence is
misplaced because there are material differences between claims
arising from misrepresentation in the procurement of an SFIP (as
was the case in Spence) and claims arising from misrepresentation
in the adjustment of a claim under an SFIP (as is the case here).
The defendants cite several cases from other courts which have
limited Spence to fraud in the procurement process, holding that
claims for fraud in the adjustment process are preempted. See
Messa v. Omaha Property & Cas. Ins. Co., 122 F.Supp.2d 513, 521
(D.N.J. 2000) (“Policy procurement is an entirely different
creature than claims handling.”); see also Neill v. State Farm
Fire & Cas. Co., 159 F.Supp.2d 770, 775-78 (E.D. Pa. 2000); Jamal
v. Travelers Lloyds of Tex. Ins. Co. et al., 129 F.Supp.2d 1024,
1029-31 (S.D. Tex. 2001); but see Davis, 96 F.Supp.2d at 1003-04
(citing Spence for the proposition that the NFIP does not preempt
state-law extracontractual tort claims arising out of the
adjustment process).
The defendants also cite a Fifth Circuit case, West v.
Harris, 573 F.2d 873 (5th Cir. 1978), decided prior to Spence as
evidence that Spence should be limited to claims arising out of
policy procurement. In West, we held that a plaintiff’s state
law claims for attorney’s fees and penalties arising out of an
insurer’s arbitrary refusal to pay a flood insurance claim were
8
preempted by federal law. Id. at 881. Because nothing in Spence
purported to overrule West, the defendants argue that the only
way to reconcile the two cases is to find that extracontractual
claims (such as claims for attorney’s fees, state law statutory
penalties, and misrepresentation) are preempted by federal law
except where those claims arise in the procurement process. See
also Messa, 122 F.Supp.2d at 521 (making the same argument).
After carefully considering these arguments, we conclude
that Richmond’s state law claims are not preempted. We find
little reason to draw the distinction desired by the defendants
between extracontractual claims arising out of policy procurement
and extracontractual claims arising out of claims adjustment. We
clearly stated in Spence that, under the NFIP, private insurers
had substantial autonomy in both policy procurement and claims
adjustment. Spence, 996 F.2d at 796. Additionally, the terms of
the SFIP prevent a private insurer from obtaining federal funds
to cover the adjuster’s liability for fraud. 42 U.S.C. § 4081(c)
(1994) (“The Director of the Federal Emergency Management Agency
may not hold harmless or indemnify an agent or broker for his or
her error or omission.”). Thus, as we noted in Spence, the
federal interests in seeing federal law applied to such claims
are much lower than they are where the claim arises out of
coverage of the policy; claims on the policy are paid out of the
federal treasury. Spence, 996 F.2d at 796.
9
Further, the defendants misinterpret the relationship
between West and Spence. While the claims for attorney’s fees
and penalties asserted in West were technically extracontractual,
they were claims against the insurer ultimately based on the
insurer’s decision to deny coverage of a claim. Thus, the crux
of the case in West arose out of a claim on the contract, not an
extracontractual claim related to the procurement of the contract
or the adjustment of the claims. West, therefore, can simply be
read to mean that state law claims arising out of the terms of
coverage of the SFIP are preempted, whether the claims are merely
claims for coverage or ancillary claims arising out of the
insurer’s denial of coverage. Nothing in Spence contradicts this
holding. See Spence, 996 F.2d at 795 (finding that federal law
rather than state law applied to insured’s breach of contract
claim).
In short, Fifth Circuit precedent clearly demonstrates that
Richmond’s tortious misrepresentation claims against RGA and
Meyer are not preempted. We thus must examine whether the
district court properly granted summary judgment in favor of the
defendants on those claims. As we will see, to say that
Richmond’s claims are governed by state law does not mean that
the policy does not play an important part in their resolution.
III. THE ADJUSTERS’ ROLES AND RESPONSIBILITIES UNDER THE SFIP
The district court grounded its decisions to grant summary
judgment on two separate but related conclusions: (1) RGA and
10
Meyer, as private adjusters supplied by FEMA under the terms of
the SFIP, owed no duty to Richmond; and (2) Richmond’s reliance
on the alleged misstatements by RGA and Meyer was unreasonable.
Because reasonable reliance is an element of all of Richmond’s
state law claims and Richmond’s reliance on any statements made
by RGA and Meyer that contradicted the terms of the SFIP was
unreasonable as a matter of law, we affirm the district court’s
grants of summary judgment.5
A recent Eighth Circuit decision dealt with these issues.
Kerr v. FEMA, 113 F.3d 884 (8th Cir. 1997). In Kerr, the insured
brought a claim under Missouri law against a private adjuster
provided by FEMA alleging negligence in handling the proof of
loss forms. Id. at 885. The insured argued that the adjuster
owed it a duty and that it breached that duty by failing to
complete the proof of loss forms properly. Id. The court stated
that, even assuming that a duty existed between the adjuster and
the insured, the insured’s reliance on the representations made
by the adjuster was not reasonable. Id. at 886-87. The court
specifically cited to the provision of the SFIP which states that
the adjuster “may” furnish the proof of loss form but that an
5
Richmond strenuously argues that the duty question is
irrelevant here because none of the statutory or common law
claims it raises require Richmond to demonstrate that RGA and
Meyer owed it a duty. However correct this argument may be,
because we hold that Richmond unreasonably relied on the
adjusters’ statements, we do not need to reach the merits of
whether the adjusters owed a duty to Richmond.
11
adjuster was provided only as a “matter of courtesy.” Id. at
887. The court concluded that the insured knew that it was his
own responsibility to complete and submit the proof of loss forms
because that was clearly stated in the provisions of his
insurance policy. Id. Because of this, any reliance on
statements made by the adjuster that contradicted the terms of
the SFIP was unreasonable as a matter of law; the insured had a
duty to read the policy and acted unreasonably in relying on
adjusters provided only as a “courtesy” to complete a task which
was the insured’s own responsibility.
We find Kerr to be persuasive in this case. The SFIP
clearly states that the adjusters are provided only as a courtesy
and that the ultimate responsibility for correctly completing and
submitting the proof of loss forms falls entirely on the insured.
If RGA and Meyer did make material misstatements that
contradicted the proof of loss provisions of the SFIP, Richmond
acted unreasonably as a matter of law in relying on those
statements.
Richmond contends that the Kerr reasoning on this issue is
inapplicable in Texas because, under Texas law, an insured can
rebut the presumption that he knows the terms of his insurance
policy by demonstrating that he never received a copy of the
policy or never read what he did receive. We find two flaws with
this argument.
12
First, Richmond was insured by the federal government
through the NFIP. As the Supreme Court has stated, “those who
deal with the Government are expected to know the law and may not
rely on the conduct of government agents contrary to the law.”
Heckler v. Community Health Servs., 467 U.S. 51, 63 (1984).
Thus, the special nature of the insurance relationship in this
case charges the insured with the duty of understanding the terms
of the SFIP so that he may deal appropriately with the government
and its appointed agents.
Second, while Richmond contends that it never received a
copy of the policy, the SFIP is published in its entirety in the
CFR. Unlike a typical automobile or health insurance policy,
therefore, the insured has an additional outlet to which to turn
to obtain information about the terms of the policy. In a
similar situation where the federal government oversaw a wheat
crop insurance program, the Supreme Court held that the fact that
the Wheat Crop Insurance Regulations were published in the
Federal Register made them “binding on all who come within the
Federal Crop Insurance Act, regardless of actual knowledge of
what is in the regulations or of the hardship resulting from
innocent ignorance.” Fed. Crop Ins. Corp. v. Merrill, 332 U.S.
380, 385 (1947); see also Flick v. Liberty Mut. Fire Ins. Co.,
205 F.3d 386, 390 (9th Cir. 2000) (applying the Merrill rule in
the context of the NFIP).
13
The unique situation presented by the NFIP creates
additional responsibilities for the insured. One of those
responsibilities is that, given that the insured is doing
business with the government and that the terms of the SFIP are
published in the CFR, the insured has a duty to read and
understand the terms of its SFIP. Richmond here claims that,
because it never received a copy of the SFIP, it had no way of
knowing what the proof of loss submission requirements were and
that, because RGA and Meyer were acting as government agents,
Richmond reasonably relied upon their representations concerning
the SFIP. Even if Richmond did not receive a copy of the SFIP, a
copy was widely available and Richmond had a duty to familiarize
itself with the terms of the policy. While RGA and Meyer may
have made statements which contradicted the proof of loss terms
of the SFIP, we agree with the Kerr court in holding that any
reliance by Richmond on those statements was unreasonable as a
matter of law.
Because Richmond’s reliance upon representations by RGA and
Meyer was unreasonable, the district court properly granted
summary judgment in favor of RGA and Meyer on all of Richmond’s
common law and statutory claims.
IV. CONCLUSION
We AFFIRM the judgments of the district court granting
summary judgment in favor of RGA and Meyer. Costs shall be borne
by the appellant.
14