Migliaro v. Fidelity National Indemnity Insurance Co.

PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

_____________

No. 17-1434

_____________

ANTHONY MIGLIARO,

Appellant

v.

FIDELITY NATIONAL INDEMNITY

INSURANCE COMPANY,

a/k/a Wright National Flood Insurance Company

On Appeal from the United States District Court

for the District of New Jersey

(District Court No.: 1-15-cv-05688)

District Judge: Honorable Robert B. Kugler

Argued November 15, 2017

(Opinion Filed: January 29, 2018)

Before: AMBRO, KRAUSE and RENDELL, Circuit Judges

Steven C. Feinstein (Argued)

Daniel W. Ballard

Zenstein Ballard

1240 Old York Road

Suite 101

Warminster, PA 18974

Counsel for Appellant

Francis X. Manning (Argued)

Stradley Ronon Stevens & Young

457 Haddonfield Road

LibertyView, Suite 100

Cherry Hill, NJ 08002

Adam J. Petitt

Brandon M. Riley

Stradley Ronon Stevens & Young

2005 Market Street

Suite 2600

Philadelphia, PA 19103

Counsel for Appellee

____________

OPINION

____________

2

RENDELL, Circuit Judge:

The issue in this case is whether the rejection of a

policyholder’s proof of loss constituted a “written denial of

all or part of the claim,” thereby triggering the one-year

statute of limitations that is set forth in every Standard Flood

Insurance Policy (“SFIP”). After receiving a payment from

Fidelity National Indemnity Insurance Company, based on an

adjuster’s assessment of the damage to his property caused by

Hurricane Sandy, Anthony Migliaro submitted a sworn proof

of loss seeking additional compensation. Fidelity sent

Migliaro a letter rejecting his proof of loss, and he filed suit.

The District Court found that the letter rejecting Migliaro’s

proof of loss was a “written denial of all or part of the claim.”

Since Migliaro filed his complaint almost two years after he

received the letter, the District Court dismissed the suit as

time-barred. We affirm the District Court’s order. Although

the rejection of a proof of loss is not per se a denial of the

claim in whole or in part, it does constitute a denial of the

claim if, as here, the policyholder treats it as such by filing

suit against the carrier.

I. Background1

A. The National Flood Insurance Program

1

The District Court had jurisdiction under 28 U.S.C. § 1331.

This Court has jurisdiction under 28 U.S.C. § 1291.

3

Congress authorized the creation of the National Flood

Insurance Program (“NFIP”) to “enable interested persons to

purchase insurance against loss resulting from physical

damage to or loss of . . . property . . . arising from any flood

occurring in the United States.” 42 U.S.C. § 4011(a). The

NFIP is administered by the Federal Emergency Management

Agency (“FEMA”). Id. Under FEMA’s Write Your Own

program, individuals may purchase SFIPs from private

insurance carriers (“WYO carriers”). 44 C.F.R. § 62.23.

The national flood insurance system is an unusual

hybrid of government and private insurance, but it is

essentially a government program. WYO carriers are “fiscal

agents” of the United States. 42 U.S.C. § 4071(a)(1). SFIP

policyholders pay premiums to WYO carriers and WYO

carriers service the policies. 44 C.F.R. § 62.23(d). However,

the United States government ultimately pays all SFIP claims.

Van Holt v. Liberty Mut. Fire Ins. Co., 163 F.3d 161, 166 (3d

Cir. 1998) (“[A]n insured’s flood insurance claims are

ultimately paid by FEMA.”).2 In addition, although WYO

2

More specifically, “WYO companies must . . . remit the

insurance premiums to [FEMA]; however, the companies

may keep funds required to meet current expenditures, which

are limited to five thousand dollars. See 44 C.F.R. pt. 62, app.

A., art. VII(B) (2016). When WYO companies deplete their

net premium income, a phenomenon that occurs regularly

because the companies must forfeit a significant portion of

the proceeds from premiums, they draw money from FEMA

through letters of credit to disburse claims. See 44 C.F.R. pt.

62, app. A, art. IV(A). Thus, regardless whether FEMA or a

WYO company issues a flood insurance policy, the United

4

carriers are also responsible for defending lawsuits arising

under SFIPs, the United States government reimburses the

cost of defending such claims. 44 C.F.R. §62.23(i)(6); Van

Holt, 163 F.3d at 165 (“Although WYO companies have the

responsibility of defending against claims, FEMA reimburses

the WYO companies for their defense costs.”). Because SFIP

claims are ultimately paid by the United States government,

all SFIPs must be identical to the form codified at 44 C.F.R.

pt. 61, app. A(1).3 Every SFIP contains the following statute-

of-limitations provision:

You may not sue us 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 one year after the date of

the written denial of all or part of

the claim[.] . . . This requirement

applies to any claim that you may

have under this policy and to any

dispute that you may have arising

out of the handling of any claim

under the policy.

States treasury funds pay off the insureds’ claims.” Van Holt,

163 F.3d at 165.

3

Although an SFIP may be modified with the “express

written consent of the Federal Insurance Administrator,” 44

C.F.R. pt. 61, app. A(1), art. VII(D), Migliaro’s SFIP was not

modified.

5

44 C.F.R. pt. 61, app. A(1), art VII(R) (emphasis added).

The SFIP and corresponding FEMA bulletins describe

the SFIP claims process. After an SFIP policyholder suffers a

loss, the WYO carrier sends an insurance adjuster to assess

the damages. FEMA Bulletin W-12092a (Nov. 9, 2012). The

adjuster then makes a recommendation as to the amount of

money the policyholder is entitled to recover under the

policy. Id. The WYO carrier typically adopts the adjuster’s

recommendation and pays the policyholder the recommended

amount. Id. If the policyholder’s coverage limits have not

been exhausted and he believes he is entitled to recover more,

he must send the carrier a proof of loss no later than a year

and a half from the date of the loss. FEMA Bulletin W-

13060a (Oct. 1, 2013).4 A proof of loss is the policyholder’s

signed and sworn estimate of the additional covered damages.

44 C.F.R. pt. 61, app. A(1), art. VII(J)(4). The SFIP’s Loss

Payment provision sets forth the options available to the

policyholder if the proof of loss is rejected. See 44 C.F.R. pt.

61, app. A(1), art. VII(M)(2).

4

The claims process described in these FEMA bulletins

differs slightly from the process described in the codified

SFIP. While submission of a proof of loss within sixty days is

typically a condition precedent to payment, see 44 C.F.R., pt.

61, app. (a)(1), art. IX(J)(7), in the aftermath of Hurricane

Sandy, FEMA temporarily modified the scheme in order to

expedite the claims process and to give policyholders more

time to submit an initial proof of loss. FEMA Bulletin W-

12092a (Nov. 9, 2012). Migliaro’s claim was governed by

this modified scheme.

6

B. Factual Background

Migliaro purchased an SFIP from WYO carrier

Fidelity for his New Jersey property. The property sustained

flood damage in October 2012 as a result of Hurricane Sandy.

Fidelity sent an independent adjuster to assess the damage.

The adjuster recommended a payment of $90,499.11. Fidelity

adopted the adjuster’s recommendation and sent Migliaro a

check for the recommended amount.5

Five months later, Migliaro submitted a proof of loss,

claiming an additional $236,702.57 in damages. On July 15,

2013, Fidelity sent Migliaro a letter titled “Rejection of Proof

of Loss.” A189. The letter read, in pertinent part:

The Proof of Loss cannot be

accepted under the terms and

conditions of the insurance policy

for the following reason:

1. The amount claimed is not

an accurate reflection of

covered damage.

5

Before the adjuster inspected the property, Migliaro had

requested and received $35,000 in advance payments to cover

the damage. The adjuster then inspected the property and

submitted a report recommending a total payment of

$90,449.11. Fidelity then paid Migliaro $55,449.11, the

difference between the total covered damages and the

$35,000 advanced to Migliaro.

7

This is not a denial of your claim.

Your field adjuster provided you

with an estimate and Proof of

Loss regarding covered damages.

If there are additional covered

damages identified, please

forward documentation and they

will be considered on a

supplemental basis and a new

corrected estimate and a new

Proof of Loss will be provided.

A189. Migliaro did not provide additional documentation or

otherwise attempt to submit a second proof of loss. Instead,

he brought suit against Fidelity in federal court.

C. Procedural Background

Migliaro initially filed suit in the District Court for the

District of New Jersey on December 13, 2013, “to recover

damages arising from Defendants’ unfair refusal to pay

insurance benefits as represented by . . . the subject insurance

policy Defendants sold to Plaintiff.” A208. In September

2014, Migliaro filed a motion for voluntary dismissal under

Fed. R. Civ. P. 41(a)(2). The District Court granted the

motion and dismissed Migliaro’s first complaint without

prejudice. Migliaro filed a second complaint against Fidelity

in the same court on July 22, 2015, alleging that Fidelity

“ha[d] failed and refused to pay to Plaintiff those benefits due

and owing under [the SFIP].” A4.

Fidelity moved for summary judgment, arguing that

the suit was barred by the SFIP’s one-year statute of

8

limitations. Fidelity urged that the July 15, 2013 letter

rejecting Migliaro’s proof of loss was a “written denial of all

or part of the claim,” which triggered the statute of

limitations. Since Migliaro’s second complaint was filed

almost two years after he received the letter, Fidelity argues

that his claim was time-barred. In response, Migliaro argued

that the letter rejecting his proof of loss was not a “written

denial of all or part of the claim” because it explicitly said it

was not a denial of his claim. According to Migliaro, he had

never received a written denial of his claim, so the statute of

limitations had never begun to run. The District Court granted

summary judgment in favor of Fidelity. This timely appeal

followed.

II. Analysis6

The issue here is whether Fidelity’s rejection of

Migliaro’s proof of loss constituted a “written denial of all or

part of the claim,” thereby triggering the SFIP’s one-year

statute of limitations. As the District Court correctly noted,

“The Third Circuit has not explicitly defined what qualifies as

6

We exercise plenary review over a grant of summary

judgment and apply the same standard the district court

applies. Kelly v. Borough of Carlisle, 622 F.3d 248, 253 (3d

Cir. 2010). Summary judgment is appropriate when there is

no genuine issue of material fact and the movant is entitled to

judgment as a matter of law. Fed. R. Civ. P. 56(a). We may

affirm the decision of the District Court on any basis

supported by the record. Helvering v. Gowran, 302 U.S. 238,

245 (1937).

9

a written denial of a claim seeking benefits under the SFIP.”

Migliaro v. Fidelity Nat’l Indem. Ins. Co., Civ. No. 15-5688,

2017 WL 462631, at *2 (D.N. J. Feb. 3, 2017). Nor does it

appear that any other federal court has done so.7 Given the

language of the SFIP’s Loss Payment provision and the

restrictions placed on a policyholder’s private right of action

against a WYO carrier, we conclude that the written rejection

of a proof of loss constitutes a denial of the claim if, based on

it, the policyholder files suit against the WYO carrier, thereby

accepting the written rejection of a proof of loss as a written

denial of the claim.

7

Both parties cite a number of cases in which courts have

considered, on a case-by-case basis, whether a particular

writing constituted a written denial of a claim. See, e.g., State

Bank of Coloma v. Nat’l Flood Ins. Program, 851 F.2d 817,

819 (6th Cir. 1988) (finding that a letter offering to pay 50%

of the claimed damages was a partial denial of the claim and

triggered the statute of limitations); St. Germain Place

Owners Ass’n Inc. v. Texas Farmers Ins. Co., Civ. A. No. G-

11-071, 2012 WL 2564441 (S.D. Tex. June 29, 2010)

(finding that a letter offering to pay some of the claimed

damages was a partial denial of the claim); House v. Bankers

Ins. Co., 43 F. Supp. 2d 1329 (M.D. Fla. 1999) (finding that a

letter from a WYO carrier was not a denial of the claim).

However, we are not aware of any case providing a generally

applicable definition of “written denial of all or part of the

claim.” Nor are we aware of any case in which the court has

categorically determined whether the rejection of a proof of

loss constitutes a “written denial of all or part of the claim.”

10

At the outset, we reject Fidelity’s argument that the

rejection of a proof of loss is per se a denial of the claim.

Fidelity’s argument hinges on the SFIP’s Loss Payment

provision, 44 C.F.R. pt. 61, app. A(1), art. VII(M)(2), which

reads in pertinent part:

2. If we reject your proof of loss in whole or in part

you may:

a. Accept our denial of your claim

b. Exercise your rights under this policy; or

c. File an amended proof of loss as long as it is

filed within 60 days of the date of the loss.

Id. Fidelity reasons that, since subsection (a) equates a

rejection of a proof of loss with a denial of the claim, a

rejection of a proof of loss is per se a denial of the claim.

But Fidelity misreads the Loss Payment provision.

Under it, (a) is just one of three options a policyholder has

after his proof of loss has been rejected. He need not accept

the rejection as a denial of his claim. Alternatively, under

option (b) he may exercise his rights under the SFIP. These

include the right to demand an appraisal of the loss (44 C.F.R.

pt. 61, app. A(1), art. VII(P)), the right to cancel the policy

(44 C.F.R. pt. 61, app. A(1), art. VII(E)), and the right to file

suit “within one year after the date of the written denial of all

or part of the claim” (44 C.F.R. pt. 61, app. A(1), art. VII(R)).

Finally, option (c) allows the policyholder to file an amended

proof of loss and attempt to show the WYO carrier that he is

indeed entitled to additional compensation.

Migliaro urged that he exercised his rights under

option (b) by bringing suit against Fidelity (See Tr. Oral Arg.

at 11:35-11:50), and therefore since the provision is in the

11

disjunctive, he did not choose option (a) and accept the

rejection as a denial of his claim. But, in so arguing, Migliaro

necessarily admits that he viewed the July 15, 2013 letter

rejecting his proof of loss as a written denial of his claim.

This is because the private right of action against a WYO

carrier is limited to a suit challenging the complete or partial

denial of his claim. Therefore, the very act of bringing suit

signaled that, to Migliaro’s mind, his claim had been denied.

Second, by statute the policyholder’s cause of action arises

“upon the disallowance . . . of any [SFIP] claim, or upon the

refusal of the claimant to accept the amount allowed upon any

such claim.” 42 U.S.C. § 4072. The only communication of

the disallowance was the written rejection of the proof of loss

in the July 15 letter. Thus, by filing suit, Migliaro himself

held out the July 15 letter rejecting his proof of loss as a

denial of his claim. He cannot now argue otherwise.

When Congress created the NFIP, its authorization of

policyholders to sue FEMA upon disallowance of their claims

constituted a limited waiver of the sovereign immunity

typically enjoyed by the federal agency. FDIC v. Meyer, 510

U.S. 471, 475 (1994) (“Absent a waiver, sovereign immunity

shields the Federal Government and its agencies from suit.”).

We must interpret this waiver of sovereign immunity—and

the cause of action authorized under it—narrowly. See Lane

v. Pena, 518 U.S. 187, 192 (1996) (a waiver of sovereign

immunity must be “strictly construed, in terms of its scope, in

favor of the sovereign”). We cannot “enlarge the waiver

beyond what the language requires.” Library of Congress v.

Shaw, 478 U.S. 310, 381 (1986) (internal quotation marks

omitted). Strictly construed, 42 U.S.C. § 4072 provides a

limited right to sue upon the disallowance of all or part of a

claim, i.e. the complete or partial denial of a claim.

12

An SFIP policyholder is limited to bringing a suit

against the WYO carrier if he desires to challenge the denial

of his claim. Under the WYO program, WYO carriers stand

in FEMA’s shoes for litigation purposes. When Congress

authorized a private right of action to challenge the denial of a

claim in 42 U.S.C. § 4072, it only referred to suits against

FEMA. But Congress also charged FEMA with implementing

the NFIP, and it authorized the agency to promulgate

regulations and to utilize private insurance companies as

fiscal agents of the United States in order to do so. 42 U.S.C.

§§ 4011, 4019, 4041, 4071. Pursuant to this authority, FEMA

created the WYO program. 44 C.F.R. § 62.23. In so doing, it

authorized WYO carriers to stand in FEMA’s shoes for

purposes of issuing and servicing SFIPs and, importantly, for

defending lawsuits arising under SFIPs. See 44 C.F.R. §

61.13(f) (“Policies issued by WYO Companies may be

executed by the issuing WYO Company as Insurer, in the

place and stead of [FEMA].”); 44 C.F.R. § 62.23(g) (“WYO

Companies are solely responsible for their obligations to their

insured under any flood insurance policies[,] . . . such that the

Federal Government is not a proper party defendant in any

lawsuit arising out of such policies”). Because a suit against a

WYO company is the “functional equivalent of a suit against

FEMA,” Van Holt, 163 F.3d at 166, an SFIP policyholder

may only bring a suit against the WYO carrier.

Moreover, the United States government bears

ultimate financial responsibility for all SFIP claims,

regardless of whether FEMA or a WYO carrier has issued the

policy. We must carefully “observe the conditions defined by

Congress for charging the public treasury,” Fed. Crop Ins.

Corp. v. Merrill, 332 U.S. 380, 384-85 (1947), and “when

dealing with a statute subjecting the Government to liability

13

for potentially great sums of money, [we] must not promote

profligacy by careless construction[,]” Indian Towing Co. v.

United States, 350 U.S. 61, 69 (1955). Therefore, restrictions

on a policyholder’s right of action against FEMA apply with

equal force to suits against WYO carriers. See Flick v. Liberty

Mut. Fire Ins. Co., 205 F.3d 386, 394 (9th Cir. 2000)

(“Because flood losses, whether insured by FEMA or by a

participating WYO insurer, are paid out of the [United States

Treasury], a claimant under a standard flood insurance policy

must comply strictly with the terms and conditions that

Congress has established for payment.”); Suopys v. Omaha

Prop. & Cas., 404 F.3d 805, 809 (3d Cir. 2005) (“Because

any claim paid by a WYO Company is a direct charge to the

United States Treasury, strict adherence to the conditions

precedent to payment is required.”).

Because the only suit a policyholder can bring against

a WYO carrier is one challenging the denial of his claim, by

bringing suit on December 13, 2013, Migliaro necessarily

acknowledged that Fidelity had denied his claim. To the

extent that Migliaro’s suit was based upon something other

than the denial of his claim, it would have also been properly

dismissed for lack of jurisdiction because there is no waiver

of sovereign immunity except for the causes of action

provided for in the statute.8 See United States v. Dalm, 494

8

For example, Migliaro has suggested that his suit was based

upon a wrongful denial of his proof of loss, common law

breach of contract, or a breach of the covenant of bad faith.

See Tr. Oral Arg. at 40:56-41:11 (characterizing the cause of

action as the “failure to honor proof of loss as it was

submitted”); Oral Argument at 5:55-7:12; 38:25-39:15

14

U.S. 596, 608 (1990) (“[T]he United States, as sovereign, is

immune from suit, save as it consents to be sued . . . and the

terms of its consent to be sued in any court define that court’s

jurisdiction to entertain the suit.”) (internal quotation marks

omitted).

A policyholder must also wait until his claim has been

denied before he can file suit against a WYO carrier.

According to the SFIP, “If you do sue, you must start the suit

within one year after the date of the written denial of all or

part of the claim[.]” 44 C.F.R. pt. 61, app. A(1), art. VII(R)

(emphasis added). For the same reasons that we must

narrowly construe the type of suit a policyholder may bring

against a WYO carrier, we must also narrowly construe when

a policyholder may bring suit. See Block v. North Dakota, 461

U.S. 273, 287 (1983) (“When Congress attaches conditions to

legislation waiving the sovereign immunity of the United

States, those conditions must be strictly observed, and

exceptions thereto are not to be lightly implied.”). Narrowly

interpreted, this clause provides that a policyholder may not

bring suit against a WYO carrier until after his claim has been

denied in writing.

Because a policyholder cannot bring suit until his

claim has been denied in writing, Migliaro must have

accepted that this had occurred when he brought suit. The

(“We’re basing [the suit] upon a breach of contract. We’re not

basing it upon a denial of a claim.”); Br. for Appellant 25-27

(arguing that his claim should be allowed to proceed based on

a theory of bad faith and unfair dealing). As noted, however,

there is no waiver of sovereign immunity in connection with

these common law claims.

15

only writing in the record that Migliaro could have construed

as a denial of his claim was the July 15, 2013 letter rejecting

his proof of loss. Thus, by bringing suit, Migliaro

acknowledged that the letter constituted a written denial of his

claim.

Migliaro’s pleadings bear out this characterization of

his suit as one challenging the denial of his claim. His

complaint alleged that, “despite demand for benefits under its

policy of insurance, [Fidelity] failed and refused to pay

benefits due and owing under said policy[.]” A4. Surely this

is the same as saying that his claim was denied in whole or in

part.

Finally, we note Migliaro’s contention that, even if a

rejected proof of loss could constitute a denial of the claim,

his particular rejection letter did not because it stated that it

was “not a denial of [the] claim.” A189. We do not agree.

Given the language of the Loss Payment provision, the

statement was technically true at the time it was made. At that

time, the door to additional compensation for his claim

remained open. In the July 15 letter, Fidelity actually invited

him to submit additional documentation to support his initial

proof of loss. Also, by law he had the right to seek an

appraisal of the loss or file an amended proof of loss within

sixty days. 44 C.F.R. pt. 61, app. A(1), art. VII(M)(2). But

Migliaro closed the door by failing to seek an appraisal, file

an amended proof of loss within sixty days, or submit

additional documentation. Instead, he sued, and in doing so

acknowledged that, by virtue of the letter rejecting his proof

of loss, his claim had been denied.

Migliaro takes the position that because the rejection

letter stated that it was not a denial, the statute of limitations

never commenced to run. He effectively claims an open-

16

ended right to file suit. But his position is undercut by his

own conduct—he brought suit because his claim was denied.

Thus, because Migliaro’s second complaint was filed almost

two years after he received the July 15, 2013 letter, his suit

was properly dismissed as time-barred.9

III. Conclusion

For the foregoing reasons, we affirm the District

Court’s order granting summary judgment.

9

It is of no moment that Migliaro’s first complaint was timely

and was dismissed without prejudice. Cardio-Med Assocs. v.

Crozer-Chester Med. Ctr., 721 F.2d 68, 77 (3d Cir. 1983) (it

is a “well recognized principle that a statute of limitations is

not tolled by the filing of a complaint subsequently dismissed

without prejudice. As regards the statute of limitations, the

original complaint is treated as if it never existed”).

17