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La Mirage Homeowners Association, Inc. v. Wright National Flood Insurance Co.

United States District Court, S.D. Texas, Corpus Christi Division

August 28, 2019




         Before the Court is Defendant's Rule 12(b)(6) Partial Motion to Dismiss ("Partial Motion to Dismiss") filed on July 31, 2019. (D.E. 18). Defendant moves to dismiss both Plaintiffs negligence claim and its demand for a jury trial, fees, costs of suit, and prejudgment and post-judgment interest. Defendant seeks to leave pending only Plaintiffs breach of insurance contract claim under the National Flood Insurance Program ("NFIP"). Plaintiff filed a response on August 21, 2019. (D.E. 23). After considering the motion, response, pleadings, and applicable law, the Court herein GRANTS the Partial Motion to Dismiss.

         I. BACKGROUND

         Hurricane Harvey made landfall in Texas in August 2017. Plaintiff La Mirage Homeowners Association, Inc., insures multiple condominium properties in Texas on behalf of condominium owners. (D.E. 16, ¶ 6). Defendant Wright National Flood Insurance Company, pursuant to the NFIP, was Plaintiffs insurance provider when Hurricane Harvey damaged Plaintiffs property. (D.E. 16, ¶¶ 5-6). Plaintiff alleges that Defendant breached the insurance contract by underpaying on Plaintiffs flood loss claims on three of Plaintiff s condominium buildings and by not initiating the appraisal Plaintiff demanded. (D.E. 16, ¶¶ 7-10). In addition to seeking policy benefits owed and court supervision of the appraisal process for its contractual claim, Plaintiff seeks recovery for negligence, consequential damages, statutory penalties, attorney's fees, and pre-and post-judgment interest. (D.E. 16, p. 5-8).

         In the pending motion, Defendant moves to dismiss Plaintiffs extra-contractual claims and to strike its jury demand. (D.E. 18). Plaintiff contests the authorities that Defendant relies on for dismissing costs and interest and asserts that the jury demand is tied to its negligence claim, which it contends is outside the scope of Defendant's arrangement with FEMA under 44 C.F.R. pt. 62, app. A. art III(D) (2016). (D.E. 16, ¶ 10; 23). That regulation states that certain actions are not reimbursable by the federal government if it is an "action[] by the Company that. . . involve[s] issues of insurer/agent negligence." 44 C.F.R. pt. 62, app. A. art III(D).


         The test of pleadings under Rule 12(b)(6) is devised to balance a party's right to redress against the interests of all parties and the court in minimizing expenditure of time, money, and resources devoted to meritless claims. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 558 (2007). Federal Rule of Civil Procedure 8(a)(2) requires only "a short and plain statement of the claim showing that the pleader is entitled to relief." Furthermore, "[p]leadings must be construed so as to do justice." Fed.R.Civ.P. 8(e). The requirement that the pleader show that she is entitled to relief requires "more than labels and conclusions[;] a formulaic recitation of the elements of a cause of action will not do." Twombfy, 550 U.S. at 555 (citing Papasan v. Attain, 478 U.S. 265 (1986)).

         Twombly requires factual allegations sufficient to raise the entitlement to relief above the level of mere speculation. 550 U.S. at 555. Those factual allegations must then be taken as true, even if doubtful. Id. The Supreme Court, elaborating on Twombly, stated, "The plausibility standard is not akin to a 'probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully." As her oft v. Iqbal, 556 U.S. 662, 678 (2009). "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Id.


         Congress established the NFIP through the National Flood Insurance Act of 1968 ("NFIA"). See 42 U.S.C. §§ 4001-4033. The NFIP provides flood insurance coverage and is operated by the Federal Emergency Management Agency ("FEMA"), an agency of the Department of Homeland Security. Ferraro v. Liberty Mut. Fire Ins. Co., 796 F.3d 529, 531 (5th Cir. 2015). Because it is a federal program, the NFIP draws funds from the federal treasury to cover all approved claims. Id. As such, the NFIP's regulations implicate sovereign immunity, and "the provisions of an insurance policy issued pursuant to a federal program must be strictly construed and enforced." Id. (citations omitted). Homeowners can purchase policies either directly from FEMA or from private insurers that function as Write Your Own ("WYO") providers and fiscal agents of the United States. Id. (citing 42 U.S.C. § 4071(a)(1)).

         Before 2005, courts interpreted the Fifth Circuit's case law as holding that state law claims are not preempted by the NFIP. Gallup v. Omaha Prop. & Cas. Ins. Co., 434 F.3d 341, 344 (5th Cir. 2005) (citations omitted)! But in Wright v. Allstate Ins. Co., 415 F.3d 384 (5th Cir. 2005), the Fifth Circuit expressly held that "state law tort claims arising from claims handling by a WYO are preempted under federal law." Id. at 390; 44 C.F.R. Part 61, App. A(1) art. IX (stating that the "[flood] 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 the Federal common law."); accord Grissom v. Liberty Mut. Fire Ins. Co., 678 F.3d 397, 400 (5th Cir. 2012); Campo v. Allstate Ins. Co., 562 F.3d 751, 754(5thCir. 2009).[1]

         IV. ANALYSIS

         The question before the Court is whether Plaintiffs claims of negligence, attorney's fees, statutory penalties, and interest are policy-handling claims which are thereby preempted by federal law.[2] To decide whether a plaintiffs claims arise from "claims handling," courts look to the "status of the insured at the time of the interaction between the parties." Grissom, 678 F.3d at 400-01. "If the individual is already covered and in the midst of a non-lapsed insurance policy, the interactions between the insurer and insured . . . are 'claims-handling' subject to preemption." Id. In the case at hand, Plaintiff was insured by Defendant at the time the dispute arose. (D.E. 16, ¶ 5-6). Indeed, Plaintiffs negligence claim is based on "Defendant's denial, delay, refusal and/or failure to pay"-a claim regarding how the insurance agent managed and processed Plaintiffs claim under its active policy. (D.E. 16, ¶ 12). Therefore, Plaintiffs extra-contractual allegations are "claims-handling" claims and, as such, are preempted.

         Plaintiff acknowledges in its Response that this is not a policy-procurement claim. (D.E. 23, ¶ 5). Instead, Plaintiffs argument against preemption is that its negligence claim falls outside the scope of Defendant's arrangement with FEMA. Plaintiffs argument is without merit. See Spong v. Fid. Nat. Prop. & Cas. Ins. Co., 787 F.3d 296, 307 (5th Cir. 2015) (finding that claims contending the defendant was "liable for the manner in which it denied or processed their claim for flood damage, or the reasons it gave for denying coverage and voiding the policy" were preempted). Plaintiffs argument is based on Appendix A to 44 C.F.R. pt. 62, (D.E. 12, ΒΆ 4), an appendix which was removed from the Code of Federal Regulations in 2016, ...

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