Opinion
CIVIL ACTION No. 03-2724, SECTION: I/2
February 9, 2004
ORDER AND REASONS
This matter is before the Court on a motion, filed on behalf of Hartford Fire Insurance Company ("Hartford"), to dismiss plaintiff's state law claim for denial of coverage pursuant to her flood insurance policy and the associated claims for attorney's fees, penalties, and interest. Plaintiff, Lisa Miceli, opposes the motion. For the following reasons, defendant's motion to dismiss plaintiff's state law claims is GRANTED.
Rec. Doc. No. 7.
BACKGROUND
Plaintiff, Lisa Miceli, filed this action against Hartford and Audubon Insurance Company, following flood damage to her home which occurred on or about September 18, 2002, and September 25, 2002. It is undisputed that Miceli's home was covered by a Standard Flood Insurance Policy ("SFIP") issued through Hartford. Hartford is a Write-Your-Own ("WYO") company participating in the U.S. Government's National Flood Insurance Program ("NFIP") pursuant to the National Flood Insurance Act of 1968, as amended. 42 U.S.C. § 4001, et seq. ("NFIA").Plaintiff filed this action in Orleans Parish Civil District Court, alleging that Hartford refused to pay Miceli's claim for the flood damage to her property. Plaintiff alleges that, pursuant to Louisiana law, Hartford's failure to pay her claim has been arbitrary and capricious and, as such, Hartford is liable for statutory penalties and attorney's fees. In addition, plaintiff asserts entitlement to legal interest from the date of judicial demand until any judgment rendered in her favor is paid. Hartford moves to dismiss plaintiff's state law claim and the claims for attorney's fees, penalties, and interest. Specifically, Hartford asserts that plaintiff's state law claim is preempted by federal law and extra-contractual damages based upon state law are not permitted because plaintiff's claim is based upon the denial of coverage pursuant to a SFIP.
LAW AND ANALYSIS
In evaluating a motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, this Court will not look beyond the factual allegations in the pleadings to determine whether relief should be granted. See Spivey v. Robertson, 197 F.3d 772, 774 (5th Cir. 1999); Baker v. Putnal, 75 F.3d 190, 196 (5th Cir. 1996). In assessing the complaint, a court must accept all well-pleaded facts in the complaint as true and liberally construe all factual allegations in the light most favorable to the plaintiff. Spivey, 197 F.3d at 774; Lowry v. Texas A M University System, 117 F.3d 242, 247 (5th Cir. 1997). A complaint may not be dismissed pursuant to Rule 12(b)(6) "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957); Blackburn v. City of Marshall, 42 F.3d 925, 931 (5th Cir. 1995).
It is well-settled in this jurisdiction that federal law governs disputes over the coverage of insurance policies issued pursuant to the National Flood Insurance Act. See e.g., Hanover Building Materials, Inc. v. Guiffrida, 748 F.2d 1011, 1013 (5th Cir. 1984); West v. Harris, 573 F.2d 873, 881 (5th Cir. 1978) cert. denied, 440 U.S. 946, 99 S.Ct. 1424, 59 L.Ed.2d 635 (1979); Durkin v. State Farm Mutual Ins. Co., 3 F. Supp.2d 724, 728 (E.D.La. 1997). Accordingly, state law does not provide a basis for recovery when plaintiff's claim pertains to a denial of coverage pursuant to a SFIP. See, e.g., Jamal v. Travelers Lloyds of Texas Ins. Co., 129 F. Supp.2d 1024, 1029 (S.D.Miss. 2001) ("Fifth Circuit case law makes it abundantly clear that SFIP contract and coverage disputes are governed exclusively by federal law."); Schopin v. State Farm Ins. Co., 1996 WL 696444, at *1 (E.D.La. Dec. 2, 1996)("Federal common and statutory law preempts state principles of contract law and damages in cases arising under the NFIA.").
Equally well-settled is that, pursuant to federal law, plaintiff may not recover state law statutory penalties and attorney's fees in an action based upon a denial of coverage pursuant to a SFIP. As stated by the Fifth Circuit, "a prevailing plaintiff in a suit on a flood insurance policy issued pursuant to the National Flood Insurance Act is not entitled to recover the statutory penalty and attorney's fees allowed by state insurance law for arbitrary denial of coverage." West, 573 F.2d at 881; see also Danos v. Louisiana Farm Bureau Cas. Ins. Co., 2003 WL 715753 (E.D.La.); Durkin, 3 F. Supp.2d at 728; Cage v. State Farm Fire and Cas. Co., 1997 WL 40641, at *2 (E.D.La. Jan. 31, 1997); Oppenheim v. Leone, 1997 WL 149952, at *1 (E.D.La March 20, 1997). Accordingly, plaintiff's state law claim seeking penalties and attorney's fees pursuant to Louisiana law for the arbitrary and capricious denial of coverage pursuant to the SFIP are barred.
With respect to plaintiff's demand for legal interest, it is clear that plaintiff is not entitled to prejudgment interest from the date of judicial demand pursuant to Louisiana law. West, 573 F.2d at 882 ("[P]laintiff is not entitled to an award of prejudgment interest from date of judicial demand based on La. Civ. Code An., art. 2924."). However, the West court held that, as a matter of federal law, prejudgment interest was a mandatory element of damages to be awarded to a prevailing plaintiff in a flood insurance coverage dispute. West, 573 F.2d at 883-84. Subsequently, the Fifth Circuit distinguished West and held that an award of prejudgment interest in lawsuits brought directly against the Federal Emergency Management Agency ("FEMA"), is precluded by sovereign immunity. Hill v. National Flood Insurance Program (In re Estate of Lee), 812 F.2d 253, 255-56 (5th Cir. 1987). The Fifth Circuit explained:
When West was decided, the NFIP was operated under "Part A" of the Act, 42 U.S.C. § 4051-56, which authorized an incorporated underwriting pool of private insurance companies to form the National Flood Insurance Association ("the Association"). The Association issued, marketed and serviced flood insurance policies under the Act. National Flood Insurers Ass'n v. Harris, 444 F. Supp. 969 (D.D.C. 1977). These private insurers also adjusted and paid all flood insurance claims. 42 U.S.C. § 4053. The United States Department of Housing and Urban Development ("HUD") entered an agreement with the Association regarding the amount of risk each insurer would bear, the maximum profit and the payment terms for operating costs. Id § 4052. Reviewing Part A of the Act, this court held that despite the federal government's financial stake in the flood insurance program, the Association was not "cloak[ed] . . . with the robe of sovereign immunity from awards of any interest." West, 573 F.2d at 882. We therefore concluded in West that fair compensation to the prevailing plaintiff could only be achieved by awarding prejudgment interest on those policies issued under Part A of the Act. Id. at 883.
FEMA argues that West is not controlling in this case because the NFIP is no longer operated by private insurers. In 1976 the Secretary of HUD became dissatisfied with the Association's operation of the flood insurance program. National Flood Insurers, 444 F. Supp. at 970. Under the authority vested in the Secretary in "Part B" of the Act, 42 U.S.C. § 4071-72, HUD took control of the program and assumed all operational responsibilities on January 1, 1978. Subsequently, the Director of FEMA took over HUD's duties under the flood insurance program. The Director of FEMA is required to "carry out the program of flood insurance authorized under [the Act] through the facilities of the Federal Government." Id. § 4071(a). In doing so, however, the Director is authorized to use either federal employees or insurance companies and brokers as "fiscal agents." Id. Under Part B, the Director of FEMA now adjusts and pays the claims. In sum, under the current Part B program, FEMA has assumed the responsibilities that the Association formerly executed under Part A. We hold, therefore, that because of the government's increased role in the operation of the NFIP, a suit against the Director of FEMA for recovery on a national flood insurance policy issued under Part B of the Act is now a suit against the federal government. Kolner v. Director, Fed. Emer. Management, 547 F. Supp. 828, 830 (N.D.Ill. 1982).Id The Court concluded that "[a]lthough it was appropriate to award interest on flood insurance policies issued by the private insurers under Part A of the Act, such an award, which would now be a direct charge on the public treasury, is no longer possible without express congressional consent." Id. at 256; see also Sandia Oil Co. v. Beckton, 889 F.2d 258, 264 (10th Cir. 1989) (concluding that post-judgment interest may not be awarded in a lawsuit directly against the FEMA because FEMA was "a subsidized insurance program . . . designed to accomplish important national goals at some cost to the national treasury" and because Congress had not explicitly waived sovereign immunity with respect to interest awards).
The Fifth Circuit has not decided whether the Estate of Lee rule, precluding interest awards in lawsuits brought directly against the FEMA, applies to lawsuits filed against WYO companies. The Eleventh Circuit, using Estate of Lee and Sandia as a starting point for its analysis, held that prejudgment interest awards against a WYO company are in fact direct charges on the public treasury and, as such, are forbidden by the "no-interest" rule. Newton v. Capital Assurance Co., Inc., 245 F.3d 1306, 1312 (11th Cir. 2001). Recognizing that a lawsuit against a WYO is not a lawsuit directly against the federal government, the Eleventh Circuit cautioned that the "no-interest" rule, "as applied to private entities[,] should be a narrow one applicable only when the interest charge really is, for all relevant purposes, directly against the federal government." Id. at 1311. Analyzing the financial relationship established by agency regulation between WYO companies and the FEMA, the Eleventh Circuit stated that "claim payments come out of FEMA's pocket regardless of how they are paid." Id. at 1311-12 (setting forth a detailed analysis of regulations relevant to the relationship between a WYO company and the FEMA); see also Gowland v. Aetna, 143 F.3d 951, 954-55 (5th Cir. 1998) (holding that because payments made pursuant to a SFIP are "a direct charge on the public treasury," a WYO insurer cannot waive a right to a proof-of-loss statement or be equitably estopped from demanding one); Van Holt v. Liberty Mut. Fire Ins. Co., 163 F.3d 161, 166-67 (3d Cir. 1998) (holding that for jurisdictional purposes a lawsuit against a WYO company is the "functional equivalent of a suit against FEMA" because defense costs and claims are ultimately paid by FEMA). Therefore, the Eleventh Circuit held that a plaintiff could not be awarded interest on any judgment because "the line between a WYO company and FEMA is too thin to matter for the purposes of federal immunities such as the no-interest rule." Newton, 245 F.3d at 1311.
In Estate of Lee, the Fifth Circuit explained the "no-interest" rule as follows:
As a general rule, in suits against the sovereign, the United States is not liable for interest unless the liability is imposed by statute or assumed by contract. Because an award of interest against the government is a direct and costly charge on the public treasury, courts have a duty to carefully observe the express conditions defined by Congress before allowing such awards. Although Part B provides a limited waiver of sovereign immunity that permits a claimant to sue the Director of FEMA in federal district court, it does not provide for awards of prejudgment interest in favor of prevailing plaintiffs. The Act's limited waiver of sovereign immunity from suit cannot be construed as an express direction from Congress permitting interest awards on flood insurance claims.Estate of Lee, 812 F.2d at 256 (citations omitted).
The Eleventh Circuit's analysis of the relationship between a WYO company and FEMA is persuasive. That analysis is congruent with the Fifth Circuit's recognition, in Estate of Lee, of the structural changes occasioned by the transition from private operation of the NFIP, pursuant to Part A of the NFIA, to the "government's increased role in the operation of the NFIP," pursuant to Part B of the Act. Estate of Lee, 812 F.2d at 255-56. Moreover, the Lee court explicitly limited the West decision to interest awards in lawsuits involving flood insurance policies "issued by the private insurers under Part A of the Act" and noted that "such an award, which would now be a direct charge on the public treasury, is no longer possible without express congressional consent." Id. at 256. Accordingly, the Court is persuaded that an award of interest with respect to plaintiffs claim for the denial of coverage pursuant to the SFIP issued by Hartford is precluded by the "no-interest" rule because it constitutes a direct charge on the public treasury.
Upon review of the complaint, the Court finds that plaintiff's petition against Hartford, insofar as it states claims pursuant to Louisiana law and makes a demand for legal interest, fails to state a claim upon which relief can be granted.
Accordingly, for the above and foregoing reasons,
IT IS ORDERED that plaintiffs claims against defendant, Hartford Fire Insurance Company, pursuant to Louisiana law are hereby DISMISSED.