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Spence v. Omaha Indemnity Insurance Co.

decided as corrected: August 2, 1993.

HARRY SPENCE AND NANCY SPENCE FORTNER, PLAINTIFFS-APPELLEES,
v.
OMAHA INDEMNITY INSURANCE COMPANY, DEFENDANT-APPELLANT.



Appeal from the United States District Court for the Southern District of Texas. D.C. DOCKET NUMBER CA-C-89-166. Mag. Eduardo E. de Ases

Before Politz, Chief Judge, Goldberg and Jones, Circuit Judges.

Author: Politz

POLITZ, Chief Judge:

Omaha Indemnity Insurance Company appeals an adverse judgment on verdict in this action by Harry Spence and Nancy Fortner which raises both ex contractu and ex delicto claims. We affirm.

Background

Spence and Fortner, then husband and wife, purchased a Standard Flood Insurance Policy (SFIP) from Omaha, through sales agent Whitney-Vaky, Inc. Omaha provides flood insurance through the National Flood Insurance Program (NFIP) under an agreement with the Federal Emergency Management Agency (FEMA), which authorizes it to operate as a "Write-Your-Own" (WYO) insurance company.*fn1 On April 11, 1985, heavy rains flooded the Spence basement, damaging furniture, appliances, and other belongings therein, and damaging the basement itself. Roy Yoakum, a claims adjuster, surveyed the damage a few days later. The Spences claimed that repair of damage to the basement, not including damage to contents, would cost $92,500. Relying on a policy exclusion for "finished basement walls, floors, ceilings and other improvement to a basement ... and contents, machinery, building equipment and fixtures in such basement," on May 15, 1985, Omaha issued a notice denying the Spences' claim. The Spences contend that they relied upon representations by Whitney-Vaky and Yoakum about the coverage under the SFIP and, as a result, suffered substantial losses.

The Spences filed the instant action on May 10, 1989,*fn2 alleging breach of the insurance contract and fraud arising out of representations by Whitney-Vaky and Yoakum.*fn3 The district court denied Omaha's motion for summary judgment on statute of limitations grounds. The parties consented to trial before a magistrate Judge and the case was submitted to the jury on both fraud and contract theories of liability. The jury answered special interrogatories finding that: (1) Whitney-Vaky and Yoakum were agents of Omaha; (2) both made misrepresentations to the Spences concerning the scope of their insurance coverage upon which the Spences justifiably relied; (3) ambiguity in the policy should be resolved favorably to the Spences; and (4) the Spences suffered a loss of $84,123.30. The trial court denied post-trial motions for judgment as a matter of law and for new trial and entered judgment upon the verdict, awarding damages as found by the jury and pre- and post-judgment interest and costs. Omaha timely appealed.

Analysis

1. Statute of Limitations

Omaha first faults the district court's refusal to dismiss the Spences' claims as barred by applicable limitations periods. In support of its position, Omaha invites our attention to Article VIII(Q) of the SFIP, which provides:

You may not sue [the WYO insurer] to recover money under this policy unless you have complied with all the requirements of the policy. If you do sue, you must start the suit within twelve (12) months from the date we mailed you notice that we have denied your claim, or a part of your claim.*fn4

Omaha also points out that, under 42 U.S.C. § 4072,

upon the disallowance by the Director of any [claim under a flood insurance policy], or upon the refusal of the claimant to accept the amount allowed upon any such claim, the claimant, within one year after the date of mailing of notice of disallowance or partial disallowance by the Director, may institute an action against the Director on such claim.*fn5

Omaha argues that these provisions establish a one-year limitation period which, rather than the four-year period provided for by Texas law,*fn6 controls in this case and bars the Spences' contract and misrepresentation claims.*fn7 Because the district court entered judgment on alternative bases of liability, ...


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