McHugh v. United Service Automobile Ass'n

GRABER, Circuit Judge,

dissenting:

I respectfully dissent. The majority s opinion is inconsistent with the record, conflicts with precedent on important matters of federal law, modifies a valid federal regulation, and reaches an unjust result.

THE INSURANCE POLICY AND THE

GOVERNING REGULATIONS

This appeal involves the interpretation of a Standard Flood Insurance Policy (SFIP), the wording of which is prescribed by the National Flood Insurance Act of 1968(Act) and by Federal Emergency Management Agency (FEMA) regulations, found at 44 C.F.R. Pt. 61, App. A(l). The Act grants to the Director of FEMA the authority to promulgate regulations pertaining to SFIPs. 42 U.S.C. § 4121 (a)(1). The SFIP is a single-risk insurance policy that “only provide[s] coverage for direct physical loss by or from flood.” 44 C.F.R. Pt. 61, App. A(l) (emphasis in original). 1 The emphasized phrase is defined as “any loss in the nature of actual loss of or physical damage, evidenced by physical changes, to the insured property (building or personal property) which is directly and proximately caused by a flood.” Id. (emphasis added; emphasis omitted).

FEMA regulations define the terms “flood” and “flooding” to include:

(a) A general and temporary condition of partial or complete inundation of normally dry land areas from:

(3) Mudslides (i.e., mudflows) which are proximately caused by flooding as defined in paragraph (a)(2) of this definition and are akin to a river of liquid and flowing mud on the surfaces of normally dry land areas, as when earth is carried by a current of water and deposited along the path of the current.

44 C.F.R. § 59.1 (emphasis added). “Inundation” is not defined in the regulations, but commonly means, as pertinent, “a rising and spreading of water over land not usu[ally] submerged.” Webster’s Third New Int’l Dictionary 1188 (unabridged ed.1993).

*458 The regulations further define “mudslide (i.e., mudflow)” 2 as

a condition where there is a river, flow or inundation of liquid mud down a hillside usually as a result of a dual condition of loss of brush cover, and the subsequent accumulation of water on the ground preceded by a period of unusually heavy or sustained rain. A mudslide (i.e., mudflow) may occur as a distinct phenomenon while a landslide is in progress, and will be recognized as such by the Administrator only if the mudflow, and not the landslide, is the proximate cause of damage that occurs.

44 C.F.R. § 59.1 (emphasis added). That regulatory definition of “mudslide (i.e., mudflow)” as “a river, flow or inundation of liquid mud” is very similar to the SFIP’s definition of that term as “akin to a river of liquid and flowing mud.” Under either definition, a “mudslide (i.e., mudflow)” must consist of liquid mud.

THE ISSUE FOR DECISION AND THE FACTS IN THE RECORD

We must decide whether, based on the evidence in this record, a “mudslide” directly caused the damage to plaintiffs’ property. If so, defendant must provide insurance coverage. If not, defendant need not provide coverage.

The majority correctly notes (Slip op. at 59-60) that the legal conclusions of the experts involved in this case are entitled to no consideration because, as this court has held, expert testimony is inappropriate in matters of law that are reserved for the court’s determination. G.F. Co. v. Pan Ocean Shipping Co., 23 F.3d 1498 , 1507 n. 6 (9th Cir.1994). The majority also correctly recognizes that the material historical facts of this case are undisputed. Slip op. at 60. Those facts show, however — without contradiction — that the direct damage to plaintiffs’ property did not involve an inundation of liquid mud. That being so, the majority’s conclusion that plaintiffs’ injury was caused by a mudslide or mudflow is erroneous as a matter of law.

Defendant’s geotechnical engineer unequivocally concluded that plaintiffs’ property damage was the result of a landslide, not a mudslide. His report stated in part:

The slide debris generally consists of gravel and sand mixed with surface vegetation, several large tree stumps, and previously cut tree tops. In our opinion, the presence of cut trees and decayed tree stumps on the surface of the slope may also have contributed to the instability.

Based on our visual evaluation of the property, it is our opinion that the soil instability that occurred at the subject site is classified as a landslide, not a mudslide. The soils that have accumulated against the side of the beach house appear to have slid down the slope as a saturated mass of soil and trees. There was no evidence of soils having flowed around the sides of or into the house, as would have occurred if there had been significant flowing of wet or saturated soils.

(Emphasis added.)

Plaintiffs’ expert, in his report, presented “arguments for classifying this slope failure as a ‘mudslide’ in accordance with [defendant’s] flood policy terminology.” (Emphasis added.) Notwithstanding the availability of those “arguments,” however, plaintiffs’ expert, too, ultimately concluded that the directly damage-causing event was not a mudslide:

If the saturated soils on the slope consisted of silts and clays, or even sands .and silts, the failure most certainly would have been labeled a “mudflow.” Saturated fine-grained soils would behave more like a slurry because of its particle size, strength and viscosity characteristics. In contrast, these soils on your slope are basically coarse-grained granular materials with higher strength and greater resistance to failure — thereby resulting in steeper natural slopes. The causes of failure are the same (i.e.: rainfall, surface runoff and groundwater seepage), but the appearance is different. Saturated sands and gravels are not carried as far by water flow, nor do they create mud or slurry-like consistencies. Although excess surface water *459 runoff is more readily absorbed by the native granular soils, the net effect of saturated soils on your steep slope is a “sand-gravel flow" instead of a “mudflow."

(Emphasis added.) Plaintiffs’ expert did not refer to the mass of material that directly damaged the house as “liquid mud” or even “mud.” Rather, the words that he used in his report to describe the material include “sand,” “gravel,” “rock,” “vegetation,” “coarse-grained granular materials,” and “debris.”

Nowhere in the record is there any indication that the directly damage-causing material was liquid mud or that it flowed or resembled a river at any time, as required by the definition of “mudslide” in the SFIP and the FEMA regulations. In colloquial terms, it rained a lot. The rain caused the hill behind plaintiffs’ house to fail, and the hill — soil, rock, gravel, sand, trees, plants, and debris— fell on the house. That kind of earth movement is not a “mudslide,” because it lacks the essential characteristic of a “mudslide” as defined in the SFIP and the regulations— liquidity.

The majority writes that “[t]he torrential rain and the overflow of the natural drainage channel formed a liquidity which flowed down the slope and brought with it a saturated soil mass composed of soil, sand, gravel, and underbrush.” Slip op. at 62 (emphasis added). This passage still means that rain caused the ground to get wet and give way, and that the wet ground then damaged plaintiffs’ house. Using the word “liquidity” in the sentence does not change the nature of the directly damage-causing event from a slope failure to a mudflow.

FEDERAL JUDICIAL INTERPRETATION OF THE SFIP

“As the courts have all but universally held, federal flood insurance policies do not cover losses stemming from water-caused earth movements.” Wagner v. Director, Fed. Emergency Management Agency, 847 F.2d 515 , 522 (9th Cir.1988). That is so because of the SFIP’s requirement that property damage be caused “directly and proximately” by a flood. See SFIP, Art. 2, at 1 (so providing); 44 C.F.R. Pt. 61, App. A(1) (same). Because of that requirement, it is not enough for heavy rainfall to cause an earth movement and for the earth movement in turn to cause property damage. Rather, the flood must be the immediate and actual cause of the damage. As this court observed in Wagner, 847 F.2d at 522, other courts that have considered the question have concluded that SFIPs do not provide coverage for water-caused earth movements. See, e.g., Sodowski v. National Flood Ins. Program, 834 F.2d 653, 657-59 (7th Cir.1987) (holding that the SFIP does not cover structural damage caused by soil settlement that, in turn, resulted from a flood); Beck v. Director, Fed. Emergency Management Agency, 534 F.Supp. 516 (N.D.Ohio 1982) (holding that the SFIP does not cover damage to the plaintiffs’ house caused by slippage of a hillside following heavy rainfall).

Except for a belated legal opinion offered by plaintiffs’ expert (which, as noted, can be given no weight), the evidence does not conflict. The reports from both parties’ experts support only one ultimate conclusion: that the directly damage-causing event was not a “mudslide (i.e., mudflow)” within the meaning of the SFIP. That being so, defendant properly denied coverage, and the district court properly granted summary judgment in defendant’s favor. The majority’s contrary holding (1) effectively removes the SFIP’s and the regulation’s requirement of direct flood damage, and (2) conflicts with precedent.

CONTRACTUAL AND REGULATORY DEFINITION OF TERMS

When an insurance policy defines a term, the court is bound by that definition. Enterprise Tools, Inc. v. Export-Import Bank, 799 F.2d 437, 439 (8th Cir.1986). The SFIP defines “flood” and “mudslide (i.e., mudflow).” As noted earlier, the policy covers “[m]ud-slides (i.e., mudflows) which are ... akin to a river of liquid and flowing mud on the surfaces of normally dry land areas, as when earth is carried by a current of water and deposited along the path of the current.”

*460 Although the majority recognizes that a court must employ the contractual definition of a term when that definition differs from common usage, the majority conducts its analysis using the common meaning of “mudflow,” after asserting that the contractual and common definitions match. Slip op. at 62. That reasoning is flawed, because the contractual definition and the common meaning of “mudflow” differ materially. The SFIP’s narrow definition of “mudslide (i.e., mudflow)” requires liquidity. The majority, instead, adopts a broader meaning for “mudflow” as “ ‘a moving mass of soil made fluid by rain or melting snow.’” Slip op. at 62 (quoting Webster’s Ninth New Collegiate Dictionary 778 (1984)). The majority thereby ignores the contractual requirement that a mudslide “be akin to a river of liquid and flowing mud,” and contradicts the prece-dential requirement that a contractual definition govern, when it says that “common sense and common meaning must prevail.” Slip op. at 62.

There is a second flaw in the majority’s analysis of terms: By adopting the “common meaning” of terms for interpreting SFIPs, the majority unjustifiably modifies a valid FEMA regulation. 3 The SFIP’s definition of “mudflow” derives from and is mandated by a FEMA regulation, 44 C.F.R. § 59.1 . Regulations issued by an agency pursuant to statutory authority have the force and effect of law. Batterton v. Francis, 432 U.S. 416, 425 , 97 S.Ct. 2399 , 53 L.Ed.2d 448 (1977). A court has no power to set aside valid administrative regulations simply because it would interpret differently the statute under which they were promulgated. Id.

Indeed, the majority recognizes that it is eschewing the regulatory definition when it rejects defendant’s reliance on the pertinent FEMA regulations: “While FEMA should be free to draw a mudslide/landslide distinction when allocating its flood coverage, as a matter of fairness such a distinction should not lead to such a seemingly arbitrary result.” Slip op. at 65.

It is true that SFIPs are governed by federal common law, and courts are charged with creating that common law. See Sodowski, 834 F.2d at 655 (holding that federal common law controls the interpretation of SFIPs). However, the power to create federal common law is not absolute. We have said that “[t]he authority of courts to develop a ‘federal common law’ ... is not the authority to revise the text of the statute.” Peterson v. American Life & Health Ins. Co., 48 F.3d 404, 411 (9th Cir.1995) (quoting Mertens v. Hewitt Assocs., 508 U.S. 248, 259 , 113 S.Ct. 2063 , 124 L.Ed.2d 161 (1993)). By enlarging the unambiguous terms of the SFIP, which FEMA mandates, the majority is altering valid regulations simply because it would interpret the statutory concept of “flood” differently. The majority is thus doing to the Act what Peterson forbids.

UNFAIR RESULT

As noted, the majority uses the common, rather than the contractual and regulatory, definition of the term “mudflow” to avoid a “seemingly arbitrary result.” Slip op. at 65. Although what befell plaintiffs was unquestionably a disaster, disallowing recovery under an insurance policy that plainly does not cover their loss is entirely reasonable and just.

Simply put, it is not unjust to deny coverage when the insured has not bought coverage for the particular kind of disaster that occurred. The majority thinks it unfair that “a policyholder whose home was inundated with flood waters mixed with fine, granular soil would receive coverage, while a homeowner unfortunate enough to be located below a slope with sand and gravel where flood waters are mixed with fine, granular soil would be denied coverage.” Id. Although that result surely is unfortunate for the second homeowner, it is not unfair. The first homeowner bought insurance that covered the damage, while the second did not.

Indeed, the opposite result is what would be unfair. Others who have purchased flood insurance must pay for the claim in the form of increased premiums. Purchasers of flood insurance agree to share only the risk of *461 flood, not any of the many other risks for which other forms of insurance are designed.

CONCLUSION

For the foregoing reasons, I must dissent. The majority can reach the conclusion that it does only by bending the facts (which show unequivocally that liquid was the indirect, but not the direct, cause of damage) or the law (which requires that liquid be the direct cause of damage). The judgment of the district court should be affirmed.

APPENDIX A

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. Except as noted, the terms of plaintiffs' SFIP are identical to FEMA's regulations.

. Plaintiffs’ SFIP does not contain this additional definition.

. No party challenges the validity of the FEMA regulations that are implicated here. For purposes of this case, therefore, the regulations must be deemed to be valid and binding.