Petition for Writ of Certiorari — Wright v. Allstate Insurance Company (No. 07-777)

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Supreme Court, U.S.

FILE

07-7770F°10 27

No. ——__ OF PICE OF 7] ' ERK

IN THE

Supreme Court of the Anited States

THOMAS WRIGHT, M.D.

Petitioner,

ALLSTATE INSURANCE COMPANY

Respondent.

Petition for Writ of Certiorari to the

United States Court of Appeals

For the Fifth Circuit

PETITION FOR WRIT OF CERTIORARI

Robert L. Galloway* Dax O. Faubus

ROB GALLOWAY, PC FAUBUS TAFT

1303 San Jacinto SCARBOROUGH, LLP

Houston, Texas 77002 1010 Lamar, Ste 1020

(713) 646-2927 Houston, Texas 77002

(713) 222-6400

* Counsel of Record

Attorneys for Petitioner

— (202) 789-0096 —- WA:

QUESTIONS PRESENTED

1. Whether the statement in the federally

mandated standard flood insurance policy that “all

disputes arising from the handling of any claim

under the policy are governed exclusively by...

Federal common law” is an express authorization

that allows an insured to bring extra-contractual

claims against an insurer under Federal common

law.

2. Alternatively, whether a federal common-law

right of action to bring extra-contractual claims may

be inferred under provisions of the National Flood

Insurance Act.

TABLE OF CONTENTS

Page

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TABLE OF AUTHORITIES ......... eae aes eee

OPINIONS BELOW ............. uUERapesebudetascensksaneas l

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CONSTITUTIONAL PROVISION

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STATEMENT ......... I l

REASONS FOR GRANTING OF PETITION ..........5

I. Appellant is entitled to federal

common law claims pursuant to the

express terms of the Standard Flood

PRBUPANCO FOLCY. .............000.0cscccceceece

II. In the alternative, Appellant is

entitled to federal common law claims

because they are implicit in the

Standard Flood Insurance Policy.......10

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APPENDICES

il.

TABLE OF AUTHORITIES

CASES

Chelentis v. Luckenback Steam Ship Co,

GE Sac Ow CI i skaabiddscadeentucaseonces

Clear Field Trust Company v. U.S.,

Ae Chie PE Ci kcnccesandgssouciessnian

Cort v. Ash,

Pi.) BORO Fe.» |. 1 eee renereeeeeE ney err 11,

D’Oench Duhme & Co. v. FDIC, 315 U.S.

447, 472 (1942)

Firestone Tire & Rubber Co. v. Bruch,

489 U.S. 101 (1989)............ Ps A Mend tise

Graham v. Renbrook School,

692 F.Supp. 102 (D.Conn. 1988)...........

Illinois v. City of Milwaukee, Wisconsin,

In re: Adler, Coleman Clearing Corp., 247

BER: GR EP. Fc, BGG. novice cccascccscccvas

Kossick v. United Fruit Co.,

ee Cara Cee © ED ikioe okdndsncpadhoneatnanece

Mallis v. Bankers Trust Co., 615 F.2d 68,

82 (2d Cir. 1980), cert. denied, 449 U.S.

ER eer © RN Ricnccuecaccecusavincaeecisaae

Page

14,15

@ @)

IV.

Marcus v. AT&T Corp., 938 F. Supp. 1158

(S.D.N.Y. 1996)

National Society of Professional Engineers

v. United States,

435 U.S. 679 (1978)

Pence v. United States, 316 U.S. 332, 338

(1941)

Spence v. Omaha Indemnity Insurance

Company, 996 F.2d 793, 796 (5" Cir.

Texas Industry, Inc. v. Radcliff Materials,

Inc.,

451 U.S. 630 (1981)

Textile Workers Union of America v.

Lincoln Mills of Alabama,

353 U.S. 448 (1957)

Till v. Unifirst Federal Savings and Loan

Assoc.,

653 F.2d 152 (5 Cir. 1981)

Touche Ross & Co. v. Redington,

442 U.S. 560 (1975)

Wright v. Allstate Insurance Company,

415 F.3d 384 (5™ Cir. 2005)..................

Wright v. Allstate Insurance Company, 500

an TEU GEE GE, PPE adc acigaeaxsousati nates

STATUTES AND REGULATIONS

National Flood Insurance Act 42 U.S.C.

§$4001-4129

National Flood Insurance Act 42 U.S.C.

§4071(a)(1)

National Flood Insurance Act 42 U.S.C.

§4081(a)

National! Flood Insurance Act 42 U.S.C.

§4012a(b)

National Flood Insurance Act 42 U.S.C.

§4104a

28 U.S.C. §1254(1)

353 U.S. 448 (1957)

44 C.F.R. Pt. 61, App. A(1) Art. IX ....... 3,

OTHER AUTHORITIES

Chemerinsky, Erwin, Federal Jurisdiction

(4 ed.), §6.1

Ficid, Martha A., Sources of Law: The

Scope of Federal Common Law, 99

Harv. L. Rev. 881 (1986)

H.R. Rep. 90-1585, 1968 U.S.C.C.A.N.

TEE, CN iis ad ret dy Pa cakeene Gees

13, 14

OPINION BELOW

The opinion of the United States Court of

Appeals for the Fifth Circuit was published on

September 11, 2007, Wright v. Allstate Insurance

Company, 500 F.3d 390 (5th Cir. 2007).

JURISDICTION

The Court of Appeals issued its opinion on

September 11, 2007. Petitioner did not seek

rehearing. The jurisdiction of this Court is invoked

under 28 U.S.C. §1254(1).

The district court had jurisdiction under 42

U.S.C. § 4072. See Wright v. Allstate Ins. Co., 415

F.3d 384, 389 (5th Cir. 2005) (holding that the grant

of exclusive jurisdiction to federal courts for suits

against FEMA also applies to private insurers

issuing standard flood insurance policies).

STATUROTY PROVISION INVOLVED

44 C.F.R. Part 61, Appendix A(1), Article IX states:

This 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 seg.), and Federal common law.

STATEMENT OF THE CASE

This case involves a denial of coverage under

standard flood insurance policy. Petitioner, Dr.

Thomas Wright, purchased the policy’ to cover his

' Allstate issued the policy under the auspices of the National

Flood Insurance Act, 42 U.S.C. §§4001-4129

Houston, Texas home. The policy was purchased

from Respondent, Allstate Insurance Company, and

provided through the National Flood Insurance

Program. Under the provisions of the National Flood

Insurance Act,’ the program is administered by the

Federal Emergency Management Agency. Allstate is

known as a Write-Your-Own insurer.®

On June 9, 2001, Tropical Storm Allison hit the

Houston area. Dr. Wright’s home was among those

suffering significant damage. Approximately three

feet of flood water entered his garage and one inch of

flood water entered the remainder of the first floor,

which is higher than the garage in elevation. Water

also entered the home through a roof leak caused by

the storm. Dr. Wright’s non-foundation flood

damages totaled $125,840.23. Dr. Wright filed a

claim with Allstate for these damages. Allstate

concedes that Dr. Wright suffered flood damages and

that such damages are covered under his flood policy.

Allstate assigned Jack Gardner of Pilot

Catastrophe Services to adjust Dr. Wright’s flood

damages. Gardner estimated the covered damage at

$12,580.04. Dr. Wright hired his own adjuster, who

ultimately estimated the covered damage at

$125,840.23.°

2 42 U.S.C. § 4001-4129.

*42 U.S.C. § 4071(aX1), 4081(a).

* Dr. Wright's agent, Pat Wolford, initially estirnated the

covered damage at $233,497.59. However, Wolford

acknowledged that the estimate included damages related to

the roof leak. She later revised the estimate

Alistate sent Dr. Wright a proof of loss. The proof

of loss reflected Gardner’s estimate of flood damages

— $12,580.04. Dr. Wright did not execute Allstate’s

proof of loss because it did not accurately reflect his

flood damages. Dr. Wright also believed that he

would be bound by the proof of loss under Article VII

(J) (9) of his flood policy.” But Dr. Wright had ample

time to file his own proof of loss. The original proof

of loss deadline was sixty days following the loss.

The deadline, however, was extended several times.

Initially the deadline was extended to October 2,

2001. Ultimately, the proof of loss deadline was

extended to February 4, 2002.

Dr. Wright timely filed a proof of loss on

December 5, 2001. The proof of loss was properly

sworn but did not state a net amount claimed.

Instead, the proof of loss stated “to be determined.”

Dr. Wright did not include a net amount claimed

because the extent of his flood damage was highly

disputed by Allstate. At the time he submitted his

proof of loss, Allstate had yet to determine the

amount of damage to his foundation and there was

no agreement on the amount of structural damages.

Both Dr. Wright and his hired adjuster understood

that a number must be identified in the proof of loss

as the net amount claimed. The claim was still in

the investigation and negotiation phase and Dr.

Wright and his hired adjuster were still attempting

to ascertain the net amount of Dr. Wright’s flood

damages. At the time he submitted his proof of loss,

°44C.F.R. Part 61, Appendix A(1), Article IX.

Dr. Wright had two months to amend his proof of

loss before the February 4, 2002 deadline

But on December 19, 2001, Guy Chapman sent a

letter to Dr. Wright on Allstate’s behalf that stated:

“We are in receipt of a Proof of Loss which was

filed with us on December 5, 2001.

We are accepting this proof in compliance

with the policy conditions concerning the

filing of a proof of loss.”

The third paragraph of the letter reserved Alistate’s

“rights and defenses in connection with the

ascertainment as to the value and loss ....” But,

ironically, the letter had no indication that the proof

of loss was insufficient

Unbeknownst to Dr. Wright, an Alls’ ate

supervisor decided to reject the claim because the

proof of loss was insufficient. But Allstate elected

not to inform Dr. Wright. Even though Dr. Wright

had the absolute right to amend his claim before the

deadline and he had ongoing negotiations with

Allstate before the deadline for amending the proof of

loss, Allstate chose to keep their “rejection” a secret

until the deadline expired. In fact, Dr. Wright only

learned of Allstate’s position after the deadline

passed.

Dr. Wright sued Allstate and Chapman, alleging

breach of contract, violations of the Texas Insurance

Code and Deceptive Trade Practices Act, breach of

the common law duty of good faith and fair dealing,

fraud, and negligent misrepresentation. Dr. Wright

also sought leave to amend his complaint to include

federal common law causes of action for fraud and

negligent misrepresentation. The district court

dismissed all of Dr. Wright’s claims except the

breach of contract claim against Allstate, holding

that federal law preempted the state law claims.

The district court also denied Dr. Wright’s request

for leave to amend his complaint. As to the breach of

contract claim, the district court held that Allstate

was equitably estopped from asserting Dr. Wright’s

alleged failure to file an adequate proof of loss as a

basis for the denial of coverage. The district court

awarded Dr. Wright $24,029 in damages as well as

costs and attorney fees.

Both parties appealed. The Fifth Circuit held

that (1) Allstate was not estopped from asserting Dr.

Wright’s failure to file a proof of loss as a basis for

denying his claim and (2) the state law claims were

preempted. Wright v. Allstate Ins. Co., 415 F.3d 384,

391 (5th Cir. 2005). The court also remanded the

issue of the denial of the motion to amend the

complaint because it could not determine the basis

for the district court’s denial. Jd.

On remand, the district court once again denied

Dr. Wright’s requested leave to amend the complaint

to add the federal common law claims for fraud and

negligent misrepresentation. The district court

reached this conclusion because it was “not aware by

the pleading or otherwise of any federal common law

cause(s) of action that might be asserted by [Dr.

Wright}.”

Dr. Wright appealed. The Fifth Circuit affirmed

the district court’s denial of leave. Wright v. Allstate

Ins. Co., 500 F.3d 390, 392 (5th Cir. 2007). The court

held that the National Flood Insurance Act did not

expressly or implicitly authorize extra-contractual

claims. Jd. In the Fifth Circuit’s view, Dr. Wright

has no remedy under federal common law, despite

the standard flood insurance policy’s language.

REASONS FOR GRANTING THE PETITION

No one disputes that Dr. Wright had a flood

insurance policy. No one disputes that he suffered a

covered loss. No one disputes that Allstate accepted

his proof of loss and led him to believe that he had

done everything to properly raise the claim. And no

one disputes that he had a certain amount of time to

amend his proof of loss if anyone challenged its

sufficiency. The only issue and the essence of this

appeal is whether Allstate may avoid all liability by

purposefully withholding technical complaints with

the proof of loss until after the date which Dr.

Wright is able to amend.

The Fifth Circuit gave Allstate absolute

immunity for this fraudulent conduct and left Dr.

Wright without a remedy simply because, in its view,

Congress had not authorized federal common law

claims. This decision is wrong and dramatically

misinterprets congressional intent. Federal common

law claims are available to Dr. Wright for two

scparate reasons---(1) the federally mandated,

standard flood insurance policy’s language indicates

express congressional authority to authorize federal

common law claims; and. (2) at a minimum, the

policy language illustrates an implicit authorization

for a private cause of action. The Fifth Circuit’s

decision improperly rejected both.

I. Appellant is entitled to federal common law

claims pursuant to the express terms of the

Standard Flood Insurance Policy.

Congress specifically intended for federal courts

to develop federal common law in the context of the

National Flood Insurance Act. In fact, the Fifth

Circuit recognized that “the national policies

underlying the [Standard Flood Insurance Policy]

and extensive federal role therein impel our

conclusion that federal common law governs the

claims under flood insurance policies. ...” Spence v.

Omaha Indemnity Insurance Company, 996 F.2d

793, 796 (5th Cir. 1993).

This conclusion is supported by the standard

flood insurance policy’s language, which provides:

This policy and all disputes arising from the

handling of any claim under the policy are

governed exclusively by the flood insurance

regujations issued by FEMA, the National Flood

Insurance Act of 1968, as amended (42 U.S.C.

§4001, et seg.), and Federal common law.

44 C.F.R. Part 61, Appendix A(1), Article IX

(emphasis added). This provision expressly calls for

the development of Federal common law claims to be

brought in disputes arising under the standard flood

insurance policy. As such, the district court should

have allowed Dr. Wright to pursue federal common

law fraud and negligent misrepresentation claims.

Federal common law is that law developed by

federal courts “in the absence of directly controlling

constitutional or statutory provisions.” Erwin

Chemerinsky, FEDERAL JURISDICTION (4th ed.), §6.1.

Put another way, the federal common law “refer[s] to

any rule or federal] law created by a court... when

the substance of that rule is not clearly suggested by

federal enactments — constitutional or

congressional.” Martha A. Field, Sources of Law:

The Scope of Federal Common Law, 99 HARV. L. REV.

881, 890 (1986). However, “the vesting of

jurisdiction in the federal courts does not in and of

itself give rise to authority to formulate federal

common law.” Texas Indusiry, Inc. v. Radcliff

Materials, Inc., 451 U.S. 630, 640-41 (1981). Federal

common law has been developed in numerous areas:

Deciding disputes between states;® developing legal

rules to apply statutory and _ constitutional

provisions;’ to protect federal interests;® to develop

admiralty and maritime cases;?’ and most

importantly to fulfill congressional intent."

This Court should acknowledge or create federal

common law fraud and negligent misrepresentation

lilinois v. City of Milwaukee, 406 U.S. 91, 103 (1972).

D’Oench Duhme & Co. v. FDIC, 315 U.S. 447, 472 (1942).

* Clear Field Trust Co. v. United States, 318 U.S. 744 (1943).

° Kossick v. United Fruit Co., 365 U.S. 731 (1961); Chelentis

v. Luckenbach Steam Ship Co., 247 U.S. 372 (1918).

"Textile Workers Union of America v. Lincoln Mills of Ala.,

353 U.S. 448 (1957), Firestone Tire & Rubber Co. v. Bruch, 489

U.S. 101, 110 (1989); National Society of Prof. Eng’rs v. United

States, 435 U.S. 679, 688 (1978).

claims. Doing so will serve to protect the federal

government’s interest. Most importantly, however,

the standard flood insurance policy’s language

indicates that FEMA and Congress’ expressly

intended to develop federal common law in the

context of claims arising from the standard flood

insurance policy.

Federal courts have created federal common law

when, as here, Congress has asked them to do so.

This Court has held that “federal common law also

may come into play when Congress has invested

jurisdiction in the federal courts and empowered

them to create governing rules of law.” Texas

Industry, Inc. v. Radcliff Materials, Inc., 451 U.S.

630, 642 (1991). Similarly, in Textile Workers Union

of America v. Lincoln Mills of Aiabama, this Court

held that Congress intended that federal courts

develop common law principles to resolve labor

management disputes that arise under the Taft-

Hartley Act. 353 U.S. 448 (1957). And this Court

has acknowledged that “courts are to develop a

federal common law of rights and allegations under

ERISA plans.” Firestone Tire & Rubber Co. v. Bruch,

489 U.S. 101, 110 (1989); see also National Society of

Professional Engineers v. United States, 435 US.

679, 688 (1978) (reasoning Congress “did not intend

the text of the Sherman Act to delineate the full

meaning of the statute or its application in concrete

situations. The legislative history makes it perfectly

clear that it expected the courts to give shape to the

statute’s broad mandate by drawing on common-law

tradition.”).

Finally, federal courts have already developed

fraud and negligent misrepresentation claims in the

context of federal common law. Graham v. Renbrook

School, 692 F.Supp. 102 (D.Conn. 1988) (citing Pence

v. United States, 316 U.S. 332, 338 (1941); In re:

Adler, Coleman Clearing Corp., 247 B.R. 51

(S.D.N.Y., 1999); Mallis v. Bankers Trust Co., 615

F.2d 68, 82 (2d Cir. 1980), cert. denied, 449 U.S. 1123

(1981); Marcus v. AT&T Corp., 938 F. Supp. 1158

(S.D.N.Y. 1996).

The standard flood insurance policy exhibits

congressional intent to expressly authorize federal

common law claims for the fraudulent or negligent

handling of flood insurance claims. The Fifth

Circuit’s holding to the contrary should be reviewed

and reversed.

II. In the alternative, Appellant is entitled to

federal common law claims because they

are implicit in the Standard Flood

Insurance Policy.

Separate and apart from the express

congressional authorization for federal common law

claims found in the language of the standard flood

insurance policy, Dr. Wright also may pursue federal

common law claims because the National Flood

Insurance Act’s language and purpose implies a

private right of action.

This Court has explained that a private remedy

is implied from aé_ statute by examining four

considerations:

whether the Plaintiff is “one of the class for

whose especial benefit the statute was

enacted;”

whether “there is any indication of

legislative intent explicit or implicit, either

to create such remedy or to deny one;”

whether it is “consistent with the

underlying purposes of the legislative

scheme to imply such a remedy for the

Plaintiff,” and

“is the cause of action one traditionally

relegated to the state law, in an area

basically of concern of the States.”

Cort v. Ash, 422 U.S. 66, 78 (1975); see also Touche

Ross & Co. v. Redington, 442 U.S. 560, 575 (1975)

(acknowledging that factors are primarily used to

examine congressional intent).

The first prong of Cort considers if the Plaintiff is

a member of the “especial beneficiaries” of the NFIA.

Cort, 422 U.S. at 78. The “especial beneficiary”

status occurs when the statute creates a federal right

in favor of the particular plaintiff. Jd. at 78. To

make this determination, one must review the Act’s

legislative history. Tvll v. Unifirst Federal Savings

and Loan Assoc., 653 F.2d 152, 159 (5th Cir. 1981).

The Fifth Circuit improperly relied on its earlier

holding in Till. There, homeowners sued a federal

savings and loan association because it failed to

require them to obtain flood insurance as required by

42 U.S.C. §§ 4012a(b) and 4104a. The Till Court

considered if the two provisions provided an implicit

cause of action. In finding that the provisions did

not provide an implicit cause of action, the court

simply evaluated the language of the two provisions.

It did not determine as a genera} matter that the

National Flood Insurance Act never conferred an

implicit cause of action.

Dr. Wright bases his argument on an entirely

different provision of the Act — 44 C.F.R. Part 61,

Appendix A(1), Article IX (the codification of the

Standard Flood Insurance Policy). This provision,

unlike those at issue in 7%l/, actually does indicate

that insureds, like Dr. Wright, are intended to be

“especial beneficiaries.”

The Housing and Urban Development Act of

1968, which contained the National Flood Insurance

Act’s original text, demonstrates that Dr. Wright is a

beneficiary especial of the standard flood insurance

policy. Congress described the bill as:

The Housing and Urban Development Act of

1968 as approved by the committee reaffirms our

national housing goals and makes extensive

modifications and additions to our housing

programs to accelerate progress. Since the

declaration in the 1949 act that our national

objective was a ‘decent home and a suitable living

environment for every American family’ our

country has invested heavily in the production of

housing for low and moderate income families and

in the improvement of our towns and cities.

While we can- take- pride in _ these

accomplishments, they have fallen far short of

today’s needs. Progress has been repeatedly

interrupted by period and tight money and

budgetary pressures on the Federal Government.

Moreover, population growth and migration to our

cities has continued at a high rate, off-setting.

much of the progress which has been made... the

bill serves the important objective of making

major improvements in our present housing

programs.

H.R. Rep. 90-1585, 1968 U.S.C.C.A.N. 2873

Congress’ intent is further evidenced from the

bill’s introduction. Congress sought to “accelerate

progress” in the home market and to provide a

“suitable living environment” for “every American

family.” To accomplish these goals, Congress

promised Americans aid for homeownership,

liberalized FHA financing, urban renewal projects,

flood insurance, and various other programs.

Congress clearly envisioned home owners as this

bill’s “especial beneficiaries.” Congress wanted

Americans buying homes and they wanted them to

do so with certain benefits, like flood insurance.

Under the heading for the NFIA, Title XI ~— National

Flood Insurance, Congress stated:

Heavy losses over the years from hurricanes

in the coastal areas and from storms in inland

areas of the Nation dramatize the lack of

insurance protection against flood damage.

Insurance protection against the risk of

destruction caused by tornadoes and other

natural catastrophes is generally available, but

it is not available against the risk of flood loss.

Here, Congress was not suggesting that the Federal

Government needs protection from losses. It is

clearly stating that individuals need protection.

The bill offered further “benefits” in the form of

reduced cost flood insurance. H.R. Rep. 90-1585,

1968 U.S.C.C.A.N 2873, 2968. Put simply, American

citizens were not able to obtain flood insurance at

reasonable rates prior to the passage of the Act in

1968. The result was catastrophic losses for the

American people. To counteract these losses, and to

protect all American citizens from the strain of

having to pay for natural disasters, Congress stepped

in to provide benefits to those who needed it.

Congress wanted to encourage people to obtain this

insurance and termed such protection a “benefit.”

Thus, Dr. Wright is the exact type of beneficiary

envisioned by the Congress in 1968.

The second prong of the Cort analysis considers if

an imphed cause of action is within the statute.

Here, the National Flood Insurance Act specifically

references the federal common law as governing

claims arising under the Act. This is “an indication

of legislative intent” to create federal common law

claims. The Amendment to the NFIA preempts

state-based claims but provides for federal common-

law causes of action. As Congress could not have

foreseen FE MA’s preemptive actions, private causes

of action under the federal common law must be a

viable alternative to individuals harmed by their

flood insurance carrier.

The third prong of Cort considers if the remedy in

this case is not inconsistent with the Act’s

“underlying legislative purpose.” The standard flood

insurance’ policy provision’s express terms

demonstrates unequivocally that providing Dr.

Wright with federal common law fraud and negligent

misrepresentation claims would not be inconsistent

with the underlying legislative purpose. Stripping

him of the only remaining causes of action he has

against his insurance carrier would deprive him of

that protection. Those damages would be

compensable to Dr. Wright but for the fact that

Allstate fraudulently induced him into filing and not

amending what they claim is a technically deficient

proof of loss. He, therefore, would face further

damage if he could not hold his insurance company

accountable for their tortious conduct in denying his

claims.

Finally, the fourth prong of Cort would not apply

in this case based upon the Amendment to the Act.

As the Fifth Circuit has already found that the

Amendment preempts state law claims, a discussion

about whether or not “the cause of action is one

traditionally relegated to state law” is moot.

The congressional intent evidenced by the bill’s

language offering protection for individuals in flood-

prone regions is significant. Accordingly, Dr. Wright

should be allowed to pursue his federal common law

causes of action under this Court’s holding in Cort.

CONCLUSION

Dr. Wright paid for and obtained flood insurance,

which covered the damages he suffered from Tropical

Storm Allison. Allstate has thus far escaped liability

on a technicality with Dr. Wright’s proof of loss.

Allstate created this problem by telling Dr. Wright

he had submitted a proof of loss in compliance with

his policy and then withholding any complaint about

the document’s form until after the deadline for

amendments had passed. Dr. Wright’s only option to

recover any funds under his flood policy is to pursue

federal common law claims. He respectfully prays

that this Court allow him to do so.

This Court should review and reverse the Fifth

Circuit’s holding.

Respectfully submitted,

Robert L. Galloway Dax O. Faubus

RoB GALLOWAY, PC FAUBUS TAFT

1303 San Jacinto SCARBOROUGH, LLP

Houston, Texas 77002 1010 Lamar, Ste 1020

(713) 646-2927 Houston, Texas 77002

(713) 222-6400

December 10, 2007

APPENDIX

TABLE OF CONTENTS

Appendix A:

Memorandum Opinion of the United

States District Court for the Southern

District of Texas, Houston Division

dated March 31, 2004

Appendix B:

Opinion of the United |

Appeals Fifth Circuit «

2005

Appendix C:

Order from the United States Dis

Court for the Southern District of

Texas, Houston Division dated

December 2, 2005

Appendix D:

Opinion of the United Sta

Appeals for tne Fifth Circult

‘ +

Pt ye)

September 11, 2¢

Appendix E:

44 C.F.R. Part

Appendix F:

National F

$4072

APPENDIX A

IN THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF TEXAS

HOUSTON DIVISION

DR. THOMAS WRIGHT §

Plaintiff 8

§ NO. H-03-0915

ALLSTATE INS.CO. §

And GUY CHAPMAN §

Defendant.

MEMORANDUM OPINION

Before the Court is the plaintiff, Dr. Thomas

Wnight’s, breach of contract suit brought against the

defendant, Allstate Insurance Company concerning flood

damages that he alleges occurred at his residence

luring tropical storm Allison on June 1, 2001. The

Court has heard the testimony of the witnesses,

reviewed the deposition testimonies, examined the

locumentary evidence and determines that the

plaintiff should recover on his claim.

iI.

The plaintiff is the owner of a home in Houston

Trhy« . y . r > « 1. a tT “cy ‘ . » <r - - ahr

that has approximately 7,000 square feet of living space

It consists of four (4) bedrooms and six (6) baths

constructed on three levels. The first floor includes an

attached garage that is below first floor grade, a media

room, a library, an exercise room, a guest bedroom a

bath, bar area and Jacuzzi.

On June 9, 2001, the Houston community

experienced a major flood and the plaintiffs home was

not spared. The flood waters covered the more than a

two-acre tract surrounding the plaintiffs home and

stood at about three (3) feet deep in the garage. Flood

waters entered the home on the first floor and rose to

a level just below one (1) inch. According to the

plaintiff, the carpets, floor tile and base molding were

compromised. While there was no testimony clicited

from the plaintiff concerning windstorm water

damages, the plaintiffs damages estimator, Pat

Wolford, commented that the French doors on the first

floor were compromised by wind and rain water blew

into the house as a result. Nevertheless, the defendant

concedes that a general condition of flooding occurred

in the Houston area on June Y, 2001, that the plaintiff

had in full force and effect a National Flood Insurance

Program Standard Flood Insurance Policy issued by

Allstate [Po. No. 080251427], and that the plaintiff

sustained damages.

After the flood water subsided, the plaintiff

contacted the defendant concerning the damage caused

by the flood. Jack Gardner of Pilot Catastrophe Services

came out on behalf of the defendant on or about June

23, to inspect for flood damage. The plaintiff, in turn

employed John Kubala, a certified public insurance

adjuster, to assist him in adjusting his flood claim. He

dispatched Pat Wolford to estimate the damages that

were sustained by the plaintiff. She visited the

plaintiffs property over a period of two to three days in

early July 2001, On or about July 13, Wolford completed

her estimate and submitted it to Kubala. She estimated

the total damages to be $233,497.59 and that estimate

was forwarded to the defendant on or about Ju’, 21.

At or about this time, the defendant’s adjuster

was completing his estimate and he presented his

estimate of $12,580.04 to the defendant and Kubala.

Because of the great disparity in the estimates, a

revisit to the property by Gardner and Kubala was

planned. Kubala recognized that Wolford had included

in her assessment, damages that were preexisting and

that had been caused by windstorm and roof leaking.

Hence, Wolford also returned to the property to conduct

a second estimate that would exclude any damages

other than those caused by flooding.

On or about August 14, Gardner presented his

estimate in the form of a Proof of Claim [POC]. It did

not include allowance for any foundation damage that

the plaintiff contended his home had _ sustained,

Gardner dispatched an engineer, William Springer, to

the site to examine the foundation. According to the

plaintiff and Kubala, Springer conducted, more or less,

a visual inspection and reported on August 26, that no

foundation damage had occurred due to flood waters.

The plaintiff and Kubala insist that foundation

damage had occurred. However, during the negotiations

Gardner was reassigned and Mark Buntyn replaced

him as the defendant’s claims adjuster. William

Oliver, Buntyn’s supervisor, was also brought into the

picture. Oliver dispatched a new engineer, Thomas R.

Kiener, to inspect the site. Within a few days, Kiener

visited the site and, according to Buntyn and Oliver

was producing a report shortly. While waiting for the

written report, the defendant informed the plaintiff that

Kiener reported that there was foundation damage that

was attributable to flood waters. However, Kiener’s

written report was not forthcoming.

Communications between the plaintiff and other

Pilot adjusters continued over the weeks that followed

while Kiener’s report was being completed. The

plaintiff spoke with Wilma Brown, a Pilot employee

who also served as the defendant’s flood insurance

claims manager for Texas. Brown wrote to the

plaintiff on September 18, 2001, reminding the

plaintiff that the period for filing his POL was

extended to October 2, 2001.’ In the meantime, the

plaintiff complained to Brown and then to Brown's

supervisor, Joyce Washington, about how his claim

was being handled. Specifically, the plaintiff was

concerned that he was being forced to accept Pilot's

POL without the benefit of Kiener’s report that would

necessitate an adjustment for foundation damages.

Washington returned the plaintiffs calls and again

extended the deadline for submitting his POL.

Brown reported to the plaintiff, on or about

' Article 7 of the General Condition section of the policy provides

that a POL must be filed within 60 days of the loss. However, thus

period may be extended.

fod

October 6, that she had received Kiener's report and

that it revealed that 20-25 percent foundation damage

had occurred due to flood waters. Nevertheless, the

report was not provided to the plaintiff, and the

plaintiff again balked at signing off on Pilot's POL.

However, when the report was received, it did not

reveal that any foundation damage had _ been

sustained by the plaintiffs home. Moreover, Kiener’s

written report contradicted the representations that

Brown had made to the plaintiff. Hence, the plaintiff

sought to inspect Kiener’s handwritten report. His

request was refused.

The plaintiff engaged his own foundation

contractor to prepare an estimate of the damage. He

employed Charles J. Jenkins, who reported that

foundation damage existed and determined that

damage to be $9,200.00 In the meantime, Wolford

adjusted her earlier estimates concerning house

damages from $233,497.59 to $125,840.23. This latter

amount was discounted for actual cash value by

Wolford to $106,809.44.

The plaintiff admits that he never submitted a

POL that included the figures and attachments

necessary to complete his POL. However, he did submit

a POL on December 5, 2001, that reflected "to be

determined" in the spaces for the full cost of repairs,

depreciation, cash value and net amount claimed. The

plaintiff was of the view, based on the defendant’s

December 19, 2001 letter, that his POL claim had

been properly filed, subject to amendment(s). The

correspondence that the plaintiff had received on

December 19, indicated that the defendant had

received the plaintiffs POL and that “we [the

defendant] are accepting this proof in compliance with

the policy conditions concerning the filing of a Proof of

Loss.” The letter was under the signature of Guy

Chapman at the Allstate National Catastrophe Center

in [llinois.

It is undisputed that after the December 19 letter,

the defendant failed to communicate further with the

plaintiff and made no efforts to notify the plaintiff

about the status of his claim. On January 15, January

28 and February 14, 2002, the plaintiff corresponded

with the defendant concerning resolution. However,

the defendant did not respond to the plaintiffs letter

until March 14, 2002, a time when the period of time

for the plaintiff to “complete” his POL had expired.

According to the defendant, the period for filing a POL

expired on February 8, 2002.

In the March letter, the defendant rejected the

plaintiffs claim stating that: (a) the plaintiff failed and

refused to cooperate, in violation of Article 9, A of the

policy; and, (b) the plaintiff failed to file a “proper” POL

within 60 days of the loss. The defendant ended the

letter with advice concerning the filing of a lawsuit.

This letter was also wmtten under Guy Chapman’s

name with Brown signing his name.

Il.

The defendant does not dispute that the plaintiff

had a flood policy in force and that he sustained flood

damages. The defendant also abandoned its assertion

that the plaintiff failed or refused to cooperate with

‘a

the defendant during the negotiation of the plaintiffs

claim. However, the defendant contends that the

plaintiff failed to prepare and file a proper POL in a

timely manner. As a result, the defendant contends

that the plaintiff failed to satisfy a condition precedent

to recovery. In addition, the defendant contends that

the plaintiffs claim is not covered under the FEMA

Insurance Program; and, even it were properly

presented and covered, the plaintiff failed to produce

documentation to establish the actual amount that he

is legitimately entitled. Finally, the defendant

contends that the plaintiff has misrepresented the

scope and value of his claim, thereby rendering his

policy void ab initio.”

The plaintiff contends that the defendant did, in

fact, violate the terms of the flood policy. Moreover, the

plaintiff asserts that the defendant is “equitably

estopped” from claiming that the plaintiffs POL failed

to comply with FEMA requirements. Assuming that the

plaintiff failed to comply, the plaintiff contends that

his failing was due to error or omission on the part of

the defendant; thus, estoppel applies. The defendant

argues, in this regard, that the plaintiff should be

confined to the scope of his pleadings and that an

estoppel defense should not be permitted. Speaking to

* The defendant also asserted these contentions at the end

of the plaintiffs evidentiary presentation dumnng its FRCP,

Rule 52 motion for judgment on the case. The Court took

the motion and the plaintiffs response under advisement

and received the defendant's evidentiary offers. For the

reasons stated in this opinion, the motion is denied.

this issue separately, the Court is of the opinion that

the plaintiffs pleadings adequately raise facts that

support the claim for equitable estoppel. Therefore,

the claim is allowed.

IV.

The Standard Flood Insurance Policy, written

under the Federal Emergency Management Agency

(FEMA) regulations, provide that within 60 days after a

loss or within any extensions authorized by FEMA, a

claimant must file a signed and sworn POL listing,

among other things, “the actual cash value... of each

damaged item of insured property . .. and the amount

of damages sustained” and “the amount. . . claimed as

due under the policy to cover the loss.” See 44 C.F.R. §§

61.13(a), (d), (e) and Pt. 61 App. AQ), Art. [X, para J(3);

see also; Forman v. Federal Emergency Management

Agency, 138 F.3d 543, 545 (5th Cir. 1998). Six Circuit

Courts of Appeals have concluded that there must be

strict compliance with the terms and conditions of

federal flood insurance policies, and that failure to file a

proof of loss prohibits a plaintiff from recovery. See

Gowland vy. Aetna, 143 F.3d 951 (5th Cir. 1998); Sanz

v. U.S. Security Insurance Co., 328 F.3d 1314 (11th

Cir. 2003); Dawkins v. Witt, 318 F.3d 606 (4th Cir.

2003); Mancini v. Redland Ins. Co., 248 F.3d 729 (8th

Cir. 2001); Flick v. Liberty Mut. Fire Ins. Co., 205 F.3d

386 (9th Cir. 2000); and Phelps v. Fed. Emergency

Mgmt. Agency, 785 F.2d 13 (1st Cir. 1986). It is

noteworthy that in each of these cases, the claunmant

either failed to file a POL or filed it after the 60 days

period for filing had expired.

In the case at bar, the plaintiff filed his POL

within the allotted time; yet, he admits that he did not

complete the form in strict compliance with the

regulations. He asserts, however, that the reason that

he did not do so was due to the language in the

defendant’s December 19 letter. That letter, minus

greeting and salutation, reads as follows:

We are in receipt of a Proof of Loss which was

filed with us on December 5,2001.

We _ are accepting this proof in compliance

with the policy conditions concerning the

filing of a Proof of Loss.

However, we expressly reject any and all

statements in the said Proof of Loss with

reference to the amount of sound value and

the amount of loss, and we expressly reserve

all of our rights and defenses in connection

with the ascertainment as to the value and

loss, if any, and we do not in any way in

acknowledging the receipt of this Proof of

Loss waive any of the rights and defenses

which _ Allstate Insurance Company

possesses _under its _ policy _mumber.

(Emphasis supplied]

Feel free to call with any further concerns.

The language that the plaintiff seizes upon for

his argument that his POL was timely and met the

requirements of the policy is the sentence that states:

“(Wle are accepting this proof in compliance with the

policy conditions concerning the filing of a Proof of

Loss.” The defendant denies that this language means

10a

what it says and makes two counter argum ents. First,

the defendant argues that the POL fails to meet the

strictures of the law t.e., completeness in every respect

and having the signature of the notary. And, second, the

defendant reserved the right to challenge the amount

and value of the plaintiff's loss.

The Court is of the opinion that the plaintiff's

breach of contract claim obtains viability through the

doctrine of equitable estoppel. In order to establish

that equitable estoppel applies against the defendant,

the plaintiff must establish that: (1) the defendant was

awarc of the statement in its December 19 letter; (2) the

defendant intended its letter and attendant conduct to

be acted or relied upon; (3) the plaintiff did not have

knowledge of the defendant’s different interpretation of

its letter; and, (4) the plaintiff reasonably relied on the

defendant’s acts or conduct. to his detriment. Gowland v.

Aetna, 143 F.3d 951, 955 n. 6 (5th Cir. 1998)(citing to

Ingalls Shipbuilding, Inc. v. Director, Office of Workers’

Compensation Programs, U.S. Dept. of Labor, 976 F.2d

954 (5th Cir. 1992)).

After a review of the facts, including the

explicit language in the defendant’s December 19

letter, the Court holds that the plaintiffs POL was “in

compliance with the policy conditions concerning the

filing of a Proof of Loss.” This language, chosen by the

defendant, is not ambiguous and is not made so by the

remainder of the letter. The fact that the defendant

reserved the nght to dispute that any loss had occurred

or the amount of the loss, does not alter the express

acceptance language. Nor does the letter’s reservation

ila

of rights language alter this fact. In fact, it repeats the

fact that the defendant was in receipt of the plaintiff's

POL while not accepting the plaintiffs damage

numbers.

Hence, the Court determines that the plaintiff

was not misinformed about the status of his POL. Nor

did the defendant err in its interpretation of the

statutes and regulations. Instead, the defendant

affirmatively waived, in writing, any defense that it

might make concerning the plaintiff's failure to comply

with any filing condition of the policy. Hence, the

defendant’s efforts to assert the defense that it raises,

is waived. This effort amounts to misconduct that goes

beyond mere negligence on its part and outweighs the

defendant’s need to escape the estoppel doctrine. See

Heckler v. Community Health Servs., Inc., 461 U.S.

51,60(1984).

Under the circumstances, the defendant’s

wrongful conduct, if permitted, causes a_ serious

injustice and the public interest will not suffer undue

damage by avoidance of the imposition of the doctrine

of estoppel. See also, Schweiker v. Hanson, 450 USS.

785, 788 (1981). The Court determines that the

defendant affirmatively waived any claim that the

plaintiffs POL was not in compliance, intending that

the plaintiff rely upon its letter, which

the plaintiff did to his detriment. The Court is,

therefore, of the opinion that the plaintiff should

recover on his claim.

This Court is also of the opinion that the

plaintiffs evidence fails to distinguish between,

12a

admittedly, preexisting foundation damages and

foundation damages due to Allison flood waters.

Hence, recovery on that claim is denied. The plaintiff

also failed to distinguish between flood water damages

from rising water and windstorm waters that came into

the house through the French doors. Wolford testified

chat substantial water entered the first floor when the

French doors were compromised by wind. In spite of

this lack, the evidence is undisputed that nearly an

inch of water was standing on the first floor and that

some, if not all, of the water was flood water as

evidenced by debris residue.

Conclusion

In this regard, the Court determines that

several areas of the first floor and garage were

damaged. The Court determines the damages using

the plaintiffs Exhibit 9: (a) exterior — outlet, repair

service, and the 2, 3 and 5 ton compressors, $3,731.42;

(b) garage —- entire, $6,492.40; (c) closet and garage —

all $940.84; (d) library — clean-up, remove, replace

paint base molding, $574.70; (e) hall and stairway —

clean-up, remove, replace, paint base molding, $146.94;

(f) bathroom near library — clean-up, remove, replace,

paint base molding, remove, clean-up and reinstall

commode, clean sink, $ 181.66; (g) bar area — clean-up,

remove, replace pad and carpet, remove replace, paint

base molding, $959.36; (h) family room — clean-up,

remove replace pad and carpet, paint trim, remove

doors, $6,072.15; (i) jacuzzi_room — clean-up, remove,

replace pad and carpet, $2,077.22; and, (j) jacuzzi closet

clean-up, remove, replace pad and carpet, 5 ton

l3a

condenser, $2,380.19. Allowing the general contractor

10% profit ($2,356) and 10% overhead ($2,356), results

in a total of $28,268.88. This sum discounted for actual

cash value results in damages in the amount of

$24,029.

The Court finds and holds that the plaintiff

shall recover $24,029 from the defendant. Any

claim for attorneys fee shall be submitted within

ten (10) days of this Memorandum.

It is so ORDERED.

Signed this 29th day of March, 2004.

KENNETH M. HOYT United States District Judge

APPENDIX B

THOMAS WRIGHT, Dr,

versus

ALLSTATE INSURANCE COMPANY,

ALLSTATE INSURAN( COMPANY

Appeals

Before GARWOOD.

Circuit Judges

154

EMILIO M. GARZA, Circuit Judge:

This appeal stems from Allstate Insurance

Company's (“Allstate”) denial of Dr. Thomas Wright's

claim against his flood insurance policy, issued under

the auspices of the National Flood Insurance Act, 42

U.S.C. §§ 4001-4129 (“NFIA”). Allstate appeals the

district court's application of equitable estoppel and

award of costs and attorney's fees. Wright cross-

appeals the court's dismissal of his state law claims

against Allstate and an Allstate employee, Guy

Chapman, as well as its denial of his motion to

amend his complaint. Both parties appeal the

damages award.

Wright purchased a Standard Flood Insurance

Policy (“SFIP”) to cover his Houston home. While

Wright purchased his SFIP from Allstate, the

insurance was provided through the National Flood

Insurance Program (“NFIP”), which is administered

by the Federal Emergency Management Agency

(“FEMA”) under the NFIA. The terms of SFIP

policies are dictated by FEMA. 44 C.F.R. §§ 61.4(b),

61.13(d). Payments on SFIP claims come ultimately

from the federal treasury. Gowland v. Aetna, 143

F.3d 951, 955 (5th Cir.1998). Allstate is a fiscal agent

of the United States and, in the parlance of the

NFIP, a Write Your Own insurer (“WYO”). 42 U.S.C

$§ 4071(a)(1), 4081(a).

After Tropical Storm Allisor. struck Houston

in 2061, Wright filed a claim on his SFIP. Allstate

16a

dispatched claims adjuster Jack Gardner, of Pilot

Catastrophe Services, to inspect Wright's home.

Gardner estimated the covered damage at

$12,580.04. Wright hired his own certified public

insurance adjuster whose agent, Pat Wolford,

prepared an estimate of $233,497.59. Because

Wolford's estimate included damage unrelated to

Wright's flood claim, Wolford later revised her

estimate to $125,840.23. Wright did not provide

Allstate with a copy of Wolford's revised estimate,

although Alistate was apparently aware a second

estimate had been prepared.

Negotiations between Wright's adjuster and

Allstate's representatives over the correct loss

amount were unfruitful. Wright refused to sign a

Proof of Loss form (“POL”), required under FEMA

regulations, containing Gardner's damage estimate.

Instead, Wright eventually submitted his own POL

to Allstate, listing “to be determined” in the spaces

for cost of repairs, depreciation, cash value, and net

amount claimed. Allstate responded with a letter,

containing what purports to be employee Guy

Chapman's signature,’ stating “we are accepting this

proof in compliance with the policy conditions

concerning the filing of a Proof of Loss.” [t continued,

‘ While the letter contained Chapman's purported signature,

Wright concedes that Chapman was not actually involved in

writing or signing the letter. Rather, the letter was written by a

different Allstate employee authorized to sign Chapman's name

to claims correspondence for purposes of prowding a uniform

contact person

lva

“we expressly reserve all of our rights and defenses

in connection with the ascertainment as to the value

and loss, if any, and we do not in any way in

acknowledging receipt of this Proof of Loss waive any

of the rights and defenses [we possess!}.” Wright's

adjuster subsequently sent three letters to Allstate

expressing an interest in negotiating a resolution.

Allstate's response, received after tine FEMA-

established deadline for filing a POL had passed,

rejected Wright's claim on the grounds <teat Wright

failed (1) to cooperate as required by the terms of the

policy and (2) to file an adequate POL within the

FEMA-prescribed time frame.

Wright filed suit against Allstate and

Chapman, alleging breach of contract, violations of

the Texas Insurance Code and Deceptive Trade

Practices Act, breach of the common Jaw duty of good

faith and fair dealing, fraud, and _ negligent

misrepresentation. The district court dismissed al}

but the breach of contract claim against Allstate,

holding that the state law claims were preempted by

federal law. It also dismissed Wright's claims against

Chapman. With regard to the breach of contract

claim, the court held Allstate equitably estopped

from asserting Wright's alleged failure to file an

adequate POL as a basis for denial of his claim.

Finding that Wright's evidence failed to show that all

of the claimed damages were caused by flooding, che

court awarded Wright $24,029, costs, and attorney's

fees. Both parties appeal.

18a

SFIP policies require that insureds asserting a

claim file a POL within 60 days, subject to such

extensions as FEMA may approve, listing “the actual

cash value ... of each damaged item of insured

property ...{,] the amount of damage sustained” and

“the amount ... claimed as due under the policy to

cover the loss.” 44 C.F.R. §§ 61.13(a), (d), (e) (1993);

see also Forman v. Fed. Emergency Mgmt. Agency,

138 F.3d 5438, 545 (5th Cir.1998). Courts have

enforced this requirement strictly, holding that

failure to timely file a POL complying with the

regulatory requirements is a valid basis for denying

an insured's claim. See, e.g., Neuser v. Hocker, 246

F.3d 508, 510 (6th Cir.2001) (“Our sister circuits

have consistently held that FEMA's proof of loss

requirement is to be strictly enforced.”); Gowland,

143 F.3d 951. We have previously recognized that a

POL lacking the requisite amounts claimed is

insufficient’ to satisfy FEMA requirements. See

Forman, 138 F.3d at 545.

The district court held, however, that Allstate

was equitably estopped from claiming Wright's

failure to file an adequate POL as a basis for denying

his claim. Citing Allstate's letter “accepting this

roof in compliance with the policy conditions

concerning the filing of a Proof of Loss,” the court

found that Wright had proven the elements of

equitable estoppel. On appeal, Allstate argues that

(1) courts cannot apply equitable estoppel against a

WYO on these facts and (2) Wright failed to establish

the elements of equitable estoppel. We review the

19a

district court's application of equitable estoppel de

novo. Ramirez v. City of San Antonio, 312 F.3d 178,

183 (5th Cir.2002).

We previously considered the application of

equitable estoppel against a WYO in Gowland. 143

F.3d 951. There, the insureds, like Wright, argued

that their WYO should be equitably estopped from

asserting their failure to file a POL as a basis for

denying their claim. /d. at 954. We declined to so

hold, stating that:

Although the Gowland policy was written

by Aetna, a private insurance company,

payments made to that policy are a “direct

charge on the public treasury.” When

federal funds are involved, the judiciary is

powerless to uphold a claim of estoppel

because such a holding would encroach

upon the appropriation power granted

exclusively to Congress by the

Constitution.

Id. at 955 (quoting In re Estate of Lee, 812

F.2d 253, 256 (5th Cir.1987)). We went on to explain

that “[w]hile this result may seem harsh .... [It] ‘does

not reflect a callous outlook. It merely expresses the

duty of all courts to observe the conditions defined by

Congress for charging the public treasury.’ ” Id.

(quoting Fed. Crop Ins. Corp. v. Merrill, 332 US.

380, 385, 68 S.Ct. 1, 92 L.Ed. 10 (1947)).

Here, as in Gowland, we find the doctrine of

equitable estoppel inapplicable. The Supreme Court

has made clear that “judicial use of the equitable

20a

doctrine of estoppel cannot grant respondent a

money remedy that Congress has not authorized.”

Office of Pers. Mgmt. v. Richmond, 496 U.S. 414, 426,

110 S.Ct. 2465, 110 L.Ed.2d 387 (1990). Under the

Appropriations Clause of the Constitution, “[mloney

may be paid out only through an appropriation made

by law; in other words, the payment of money from

the Treasury must be authorized by a statute.” Jd. at

424, 110 S.Ct. 2465. While Richmond dealt with a

claim of estoppel based on the actions of a

government employee, our holding in Gowland

makes clear that the same principle applies to claims

against WYOs, because SFIPs are ultimately

supported by federal funds. Although the Supreme

Court has not categorically held equitable estoppel

unavailable in cases involving government funds, we

find that such a claim ts not viable in this case. Our

holding is also consistent with the principle that

Whatever the form in_ which _ the

Government functions, anyone entering

into an arrangement with the Government

takes the risk of having accurately

ascertained that he who purports to act for

the Government stays within the bounds of

his authority. The scope of this authority

may be explicitly defined by Congress or be

limited by delegated legislation, properly

exercised through the rule-making power.

And this is so even though, as here, the

agent himself may have been unaware of

the limitations upon his authority.

2la

Merrill, 332 U.S. at 384, 68 S.Ct. 1;see also Dawkins

v. Witt, 318 F.3d 606, 611-12 (4th Cir.2003)

(discussing the applicability of equitable estoppel in

a claim against FEMA under the NFIA, and

concluding that a FEMA adjuster's assurances that

FEMA was not concerned with the sixty day POL

deadline and FEMA's acceptance of an untimely POL

were insufficient to invoke equitable estoppel under

the standard established by the Supreme Court).*

Where federal funds are implicated, the

person seeking those funds is obligated to familiarize

himself with the legal requirements for receipt of

such funds. See Heckler v. Cmty. Health Services of

Crawford County, Inc., 467 U.S. 51, 63, 104 S.Ct.

2218, 81 L.Ed.2d 42 (1984) (“Protection of the public

fisc requires that those who seek public funds act

with scrupulous regard for the requirements of

law.... [T]hose who deal with the Government are

expected to know the law and may not rely on the

conduct of Government agents contrary to law.”).

While Wright purchased his SFIP from Allstate, the

NFIP is a federally-administered program supported

by funds drawn from the federal treasury. See

Gowland, 143 F.3d at 955. The terms of the SFIP are

dictated by FEMA, and cannot be waived or modified

by Allstate. 44 C.F.R. §§ 61.4(b), 61.13(d). Under

* The cases on which Wright cites as permitting estoppel of a

WYO under the NFIA predate the Supreme Court's decision in

Richmond, this court's decisions in Gowland and Forman, and

FEMA's adoption of an SFIP policy provision cautioning

insured's against reliance on the statements of adjusters

provided by the FEMA or a WYO.

22a

these circumstances, and in light of our previous case

law, we hold that the district court erred in

estopping Allstate from asserting Wright's failure to

file an adequate POL as a basis for denying his

claim.

We are also not persuaded by Wright's

argument that his breach of contract claim is not one

for federal funds. Wright's reliance on 42 U.S.C. §

4081(c)'s provision that “the director of the Federal

Emergency Management Agency may not hold

harmless or indemnify an agent or broker for his or

her error or omission” is misplaced. Even assuming

that § 4081(c) applies to claims adjustment, it is

plainly limited to claims against agents and brokers,

as distinct from WYQOs. See42 U.S.C. § 4081(a)

(referring to insurance companies as distinct from

agents and brokers), § 4081(c) (referring only to

claims against agents and brokers who sell or

undertake to sell flood insurance policies under the

NFIP). Wright's argument that his breach of contract

suit does not implicate federal funds because FEMA

may, in some cases, choose not to reimburse a WYO

is similarly unavailing. FEMA regulations permit

FEMA to decline to recognize as a reimbursable loss

cost claims grounded in actions by the WYO which

FEMA determines are “significantly outside the

scope of this Agreement.” 44 C.F.R. Pt. 62, App. A.

Art. {1{(D)(4). Wright has provided no more than a

conclusory assertion that this provision renders his

claim something other than a claim for federal funds.

Moreover, courts have consistently held that claims

23a

on SFIPs issued by WYQOs are actions for federal

funds. Gibson v. Am. Bankers, 289 F.3d 943, 946 (6th

Cir.2002); Van Holt v. Liberty Mut. Fire Ins. Co., 163

F.3d 161, 166 (3d Cir.1998); Gowland, 143 F.3d at

955.

[I]

Wright argues that the district court erred in

dismissing his state law claims as preempted. We

review the district court's preemption analysis de

novo. Witty v. Delta Air Lines, Inc., 366 F.3d 380, 382

(5th Cir.2004). Preemption of state law may be the

result of either express preemption, field preemption,

or conflict preemption. Perry v. Mercedes Benz of N.

Am., Inc., 957 F.2d 1257, 1261 (5th Cir.1992).

Two decisions from this court informed the

district court's conclusion that Wright's state law

claims against Allstate were preempted by federal

law: West v. Harris, 573 F.2d 873 (5th Cir.1978) and

Spence v. Omaha Indem. Ins. Co., 996 F.2d 793 (5th

Cir.1993). In West, the court determined that federal

rather than state law applied to a claim for

attorney's fees in a flood insurance dispute, because

the flood insurance program was a “child of

Congress, conceived to achieve policies which are

national in scope, and [because] the federal!

government participates extensively in the program

both in a supervisory capacity and financially....”

West, 573 F.2d at 881. In Spence, we held that state

law determined the statute of limitations for an

insured's state law tort claims against a WYO. 996

F.2d at 796.

24a

Like others before it, the district court ir this

case interpreted our decisions in West and Spence,

taken together, as holding that state law claims

based on claims procurement were not preempted,

while state law claims based on claims adjustment

were. See, e.g. Messa v. Omaha Prop. & Cas. Ins. Co.,

122 F.Supp.2d 5138, 521 (D.N.J.2000). Other courts,

meanwhile, have read Spence to hold that state law

tort claims against WYOs, whether based on

procurement or claims adjustment, are not

preempted by federal law. See Davis v. Travelers

Prop. & Cas. Co., 96 F.Supp.2d 995, 1003-04

(N.D.Cal.2000).°

A careful reading of Spence, however, reveals

that Spence does not hold that state law tort claims

are not preempted by the NFIA. The issue in Spence

was a narrow one: whether federal or state law

determined the statute of limitations for bringing

state law claims against a WYO. While we held that

state law would govern the statute of limitations for

state law tort claims, we did not foreclose the

possibility of field or conflict preemption. Rather, our

holding was premised on the fact that “[t]lhe NFIA

contains no express preemption provision” and

* We endorsed the latter view in an unpublished decision,

Richmond Printing LLC v. Dir. Fed. Emergency Mgmt. Agency,

72 Fed.Appx. 92 (5th Cir.2003). There, we reconciled West and

Spence as distinguishing between state law claims tied to the

contract itself, which are preempted, and extracontractual tort

claims, which are not. We went on to hold that, while the

insured's state law claims against the WYO in that case were

not preempted by federal law, they were impossible of success.

20a

“[njeither [the insurer] nor the federal government

as amicus suggests preemption of the state law fraud

claim.” 996 F.2d at 797 n. 20. Thus, the issue of

whether the NFIA preempted state law tort claims

was not before the court in Spence, and the court did

not address it.

In this case, by contrast, the question of whether

federal law preempts state law tort claims based on a

WYO's handling of an insurance claim is squarely

before the court. The Third and Sixth Circuits have

recently addressed the issue of preemption under the

NFIA, holding that such state law claims are

preempted. C.E.R. 1988, Inc. v. The Aetna Casualty

& Surety Co., 386 F.3d 263 (3d Cir.2004); Gibson,

289 F.3d 943. In C.E.R. 1988, the insured brought

territorial tort law claims against the insurer, Aetna,

which moved for summary judgment on the ground

that such claims were preempted by federal law. /d.

at 265-66. The Third Circuit concluded that the

insured's state law tort claims were preempted

because “the application of state tort law would

impede Congress's objectives” in enacting the NFIA.

Id. at 270. “Indisputably, a central purpose of the

Program is to reduce fiscal pressure on federal flood

relief efforts.” /d. (citing Till v. Unifirst Fed. Sav. &

Loan Ass'n, 653 F.2d 152, 159 (5th Cir.1981)). The

court reascned that “{iJf FEMA refused to reimburse

WYO carriers for their defense costs, insurers would

leave the Program, driving the price of insurance

higher. The alternative, remuneration for losses

26a

incurred in such suits, would directly burden the

federal Treasury.” /d. The court also implicitly

rejected the argument that state law tort claims

against WYQOs should not be preempted because

FEMA might refuse to reimburse the WYO in some

cases. [d. at 271 (“FEMA ordinarily will be

responsible financially for the costs of defending a

lawsuit against a WYO company. The efficiency goals

of the Program, on balance, would better be served

by requiring claimants to resolve their disputes by

means of the remedies FEMA provides.”). In Gibson,

the Sixth Circuit similarly concluded that state law

tort claims relating to a WYO handling of a flood

insurance claim are preempted by state law. 289

F.3d at 948-50.

We join these circuits in holding that state law

tort claims arising from claims handling by a WYO

are preempted by federal law. This conclusion is

consistent with our holding in West that federal

rather than state law governs entitlement to

attorney's fees because the NFIP is a “child of

Congress, conceived to achieve policies which are

national in scope, and [because] the federal

government participates extensively in the program

both in a supervisory capacity and financially.” West,

573 F.2d at 881. We note that the significance of this

holding may have been pretermitted by FEMA

regulation. In 2000, FEMA amended the language of

SFIP policies to state: “This policy and all disputes

arising from the handling of any claim under the

policy are governed exclusively by the _ flood

27a

insurance regulations issued by FEMA, the National

Flood Insurance Act of 1968 ... and Federal] common

law.” 44 C.F.R. pt. 61, app. A(1), art. IX. While no

circuit has yet addressed whether this amendment is

effective as an express preemption of state law

claims, it can obviously be so argued.® See In re

Cajun Elec. Power Coop., Inc., 109 F.3d 248, 254 (5th

Cir.1997) (“Federal regulations have no less pre-

emptive effect than federal statutes.”); see _/so

C.E.R., 386 F.3d at 269 n. 6, 271 n. 10 (stating that

“{a]rguably the Policy now contains such [an express]

provision” and that “[iJn its current form, the Policy

appears explicitly to preempt state law tort suits”).

We also agree with the district court's

conclusion that Wright cannot maintain a claim

against Chapman, whom Wright concedes was not

actually involved in the letter that forms the basis

for Wright's claims.

Because we hold that the district court erred

in estopping Allstate from asserting Wright's failure

to file a POL as a basis for denying his claim, and

because we hold that the district court did not err in

holding Wright's state law claims preempted, we do

not reach the parties’ arguments regarding the

district court’s damage award, Allstate's argument

that the district court is prohibited from awarding

costs and attorney's fees in a suit under the NFIA, or

® Allstate has not, however, argued that this policy amendment

is applicable to the case before us. Accordingly, we analyze this

case as a preamendment dispute.

Allstate’s alternative arguments in opposition to

Wright's breach of contract claim.

Finally, Wright argues that the district court

erred in denying his motion to amend his complaint

to add federal common law claims for fraud and

negligent misrepresentation. This court reviews the

denial of a motion to amend the complaint for abuse

of discretion, though there is a presumption in favor

of permitting amendments. Mayeaux v. La. Health

Serv. and Indem. Co., 376 F.3d 420, 425 (5th

Cir.2004). Among the permissible bases for denial of

a motion to amend are “undue delay, bad faith or

dilatory motive on the part of the movant, repeated

failure to cure deficicncies by amendments

previously allowed, undue prejudice to the opposing

party by virtue of allowance of the amendment, [and]

futility of amendment.” Foman v. Davis, 371 U.S.

178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962). The

district court's order denying Wright's motion to

amend his complaint does not explain on what basis

the court denied the complaint, and Allstate

advocated multiple theories for denying Wright's

motion. Specifically, Allstate argued both that the

motion was untimely under the local rules and that

Wright's proposed common law claims were not

cognizable under the NFIA. Because we are unable

to determine with certainty from the record the basis

for the district court's decision, we remand to the

district court for clarification of the basis of its

ruling

For the forgoing

29a

and REVERSE in part the district court's decisions,

and REMAND this case for further proceedings not

inconsistent with this opinion.

30a

PEND

[IN THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF TEXAS

HOUSTON DIVISION

DR. THOMAS WRIGHT

MS:

Plaintiff

NO. H-03-0915

VS.

ALLSTATE INS. CO.

And GUY CHAPMAN

Defendant.

ORDER OF DISMISSAL.

Before the Court are the plaintiffs motion for

leave to file federal common law causes of action

and the defendant's memorandum in opposition.

The Court is not aware by the pleading or

otherwise of any federal common law cause(s) of

action that might be asserted by the plaintiff. It

appears from the motion that the proposed causes

of action are mercly state law causes of action that

are preempted by the federal insurance programs.

It is, therefore, Ordered that the plaintiff's motion

for leave should be and it is hereby Denied. This

case is, therefore, Dismissed with Prejudice.

3la

SIGNED and ENTERED this 2nd day of December,

2005.

Kenneth M. Hoyt

United States District Judge

32a

APPENDIX D

IN THE UNITED STATES COURT OF

APPEALS

FOR THE FIFTH CIRCUIT

No. 06-20069

DR THOMAS WRIGHT

Plaintiff-Appellant

N'.

ALLSTATE INSURANCE COMPANY

Defendant-Appellee

Appeal from the United States District Court

for the Southern District of Texas

Before HIGGINBOTHAM, WIENER, and GARZA,

Circuit Judges.

WIENER, Circuit Judge:

Plaintiff-Appellant Thomas Wright appeals

33a

the district court's refusal to grant him leave to

amend his complaint to include extra-contractual

claims against Allstate Insurance Company

(“Allstate”), the Write Your Own (“WYO”) insurance

company that issued his federal flood insurance

policy. We affirm.

I. FACTS & PROCEEDINGS

As the facts of this case are fully set forth in

Wright v. Allstate’ (“Wright I”), we summarize them

only briefly here. Wright purchased a Standard

Flood Insurance Policy (“SFIP”) from Allstate to

cover his Houston home. Under the terms of the

National Flood Insurance Act (““NFIA”), Allstate, as a

WYO insurer, was authorized to issue fiood

insurance policies in its own name. The terms and

conditions that must be included in such policies are

set by the Federal Emergency Management Agency

(“FEMA”). All WYO insurers, such as Allstate, act as

the fiscal agent of the United States.

In 2001, Wright's home sustained damages

from Tropical Storm Allison. When he was unable to

reach an agreement with Alistate as to the amount of

damages caused by the storm, Wright refused to sign

the proof of loss proffered by Allstate's adjuster.

Instead, Wright submitted his own proof of loss,

writing “to be determined” in the spaces for cost of

repairs, depreciation, cash value, and net amount

claimed. Allstate responded by letter, stating that

“we are accepting this proof in compliance with the

policy conditions concerning the filing of a Proof of

"415 F.3d 384 (5th Cir.2005).

34a

Loss.” Allstate's letter continued, “we expressly

reserve all of our rights and defenses in connection

with the ascertainment as to the value and loss, if

any, and we do not in any way in acknowledging

receipt of this Proof of Loss waive any of the rights

and defenses [that we possess].” Allstate later

rejected Wright's claim because, according to

Allstate, Wright failed “(1) to cooperate as required

by the terms of the policy and (2) to file an adequate

POL within the FEMA-prescribed time frame.”

Wright filed suit against Allstate and one of

its employees, Guy Chapman, asserting, inter alia,

breach of contract and state /aw claims for fraud and

negligent misrepresentation. Wright later sought

leave to amend his complaint to include federal

common law causes of action for fraud and negligent

misrepresentation. The district court dismissed all

but Wright's breach of contract claim, holding that

the state law claims were preempted by federal law.

The district court also denied Wright's request to

amend his complaint to include federal common law

causes of action for fraud and _ negligent

misrepresentation. Although it held Allstate

equitably estopped from asserting Wright's alleged

failure to file an adequate proof of loss as a basis for

denial of Wright's claim, the district court

determined that Wright had failed to prove that all

of his claimed damages were caused by flooding and

awarded Wright $24,029, plus costs and attorney's

fees. Both parties appealed.

In Wright /, we held that Wright's state law

35a

claims were preempted by the NFILA; however, we

remanded the case to the district court to clarify the

basis of its denial of Wright's motion to amend his

complaint. On remand, Wright's motion was again

rejected because the court was “not aware by the

pleading or otherwise of any federal common law

cause(s) of action that might be asserted by

(Wright].” The district court went on to characterize

Wright's proposed claims as merely “state law causes

of action that are preempted by the federal insurance

program.”

Unsatisfied with the district court's

explanation on remand, Wright again appeals the

court's order denying his motion to amend his

complaint to include federal common law causes of

action for fraud and negligent misrepresentation.

According to Wright, the NFIA expressly provides for

such claims, because the SFIP specifies that disputes

arising from the handling of an insurance claim shall

be governed by federal common law. Wright

advances the alternative theory that the NFIA

implicitly authorizes federal common law claims for

fraud and negligent misrepresentation. We reject

both of these contentions. As counsel conceded at

oral argument that these are extra-contractual

claims, Wright is asking us to create private causes

of action that are neither expressly nor implicitly

authorized by Congress. We decline this invitation to

create a private right of action when Congress has

not manifested its intent that one should exist.

36a

I]. ANALYSIS

A. Standard of Review

We review de novo whether the NFIA either

expressly or implicitly authorizes a private federal

common law cause of action for fraud or negligent

misrepresentation.°®

B. Merits

We begin by addressing Wright's first

assertion, that his extra-contractual claims for fraud

and negligent misrepresentation are expressly

authorized by the language of the SFIP. Concluding

that they are not, we follow by addressing whether

such claims are implicitly authorized.

1. Express Authorization

Wright contends that the district court erred

in refusing to allow him to add federal common law

claims to his complaint, insisting that the NFIA,

through its prescribed terms for the SFIP, expressly

allows for extra-contractual claims in disputes

arising under a flood insurance policy. We disagree.

“[Wlhether a statute creates a cause of action,

either expressly or by implication, is basically a

matter of statutory instruction.”® To determine if the

NFIA contains express Congressional authorization

for a policyholder to bring extra-contractual claims

against a WYO insurer, we look to the language of

® Acara v. Banks, 470 F.3d 569, 570 (5th Cir.2006).

° Transamerica Mortgage Advisors, Inc. v. Lewts, 444 U.S. 11,

15, 100 S.Ct. 242, 62 L.Ed.2d 146 (1979).

37a

the statute itself. The National Flood Insurance

Program (“NFIP”) was created by the NFIA and is

administered by FEMA.” Through its regulations,

FEMA establishes the terms and conditions of the

SFIP, the rate structures, and the premium costs for

the program." Article IX of the SFIP dictates the

controlling law:

IX. What Law Governs

This policy and all disputes arising form the

handling of any claim under the policy are

governed exclusively by the flood insurance

regulations issued by FEMA, and National

Flood Insurance *394 Act of 1968, as amended

(42 U.S.C. 4001, et seq.), and Federal common

law.!?

Even though the NFIA does allow a policyholder to

sue a WYO insurer for amounts due under the

contract, nowhere in the NFIA or the SFIP does

Congress explicitly reference any right of a

policyholder to bring’ extra-contractual claims

against a WYO insurer.”

Wright insists that, because the SFIP states

that disputes arising from the handling of a claim

under the policy are governed, in part, by federal

common law, Congress intended for courts to allow

policyholders to bring extra-contractual claims

10 42 U.S.C. §§ 4001, 401 1(a).

"' Gallup v. Omaha Property & Cas. Ins. Co., 434 F.3d 341, 342

(5th Cir.2005).

'2 44 C.F.R. Pt. 61, App. A(1), article IX.

42 U.S.C. §§ 4053, 4072.

38a

against an insurer. Aside from the SFIP language

itself, Wright provides no evidence to support this

conclusion. We previously recognized that the

reference to federal common law in the SFIP directs

courts to employ standard insurance principles when

deciding coverage issues under the policy.”* It does

not confer on policyholders the right to assert extra-

contractual claims against WYO _ insurers-which

claims, if successful, would likely be paid with

government funds.”

'* See Hanover Bldg. Materials Inc. v. Guiffrida, 748 F.2d 1011,

1013 (5th Cir.1984) (quoting West v. Harris, 573 F.2d 873, 880-

81 (5th Cir.1978)) (“When such disputes [over coverage] arise,

they are resolved under federai law ‘by drawing upon standard

insurance law principles.’ ”).

‘* During oral argument, Wright argued that if he were to

prevail on his extra-contractual claim, the final judgment would

be paid by Allstate, not from the public fisc. According to FEMA

regulations, the government will reimburse a WYO insurer for

litigation expenses as long as the conduct of the insurer is not

“significantly outside the scope of the Arrangement.” 44 C.F_R.

Pt. 62, App. A, article III (emphasis added). As the regulations

do not define the type of conduct that falls significantly outside

the scope of the arrangement, the ultimate decision whether

Allstate will be reimbursed resis with FEMA.

In a case similar to Wright's, FEMA made it clear that

extra-contractual claims related to the handling of a flood

insurance claim would be paid by the federal government.

According to FEMA, it “will pay such expenses because in

FEMA's judgment it is necessary for the continued functioning

of the [flood insurance] program for FEMA to absorb that msk.”

Therefore, we presume that any amounts awarded to Wnght on

his extra-contractual claims would more than likely be paid by

the federal government

39a

Faced with the total absence of indicia of

congressional intent to support his position, Wright

attempts to rescue his argument by advancing that

he is not asking us to create a new cause of action; he

argues that federal courts have already recognized

federal common law claims for fraud and negligent

misrepresentation. Yet Wright fails to present a

single example of such claims in the context of a

hazard insurance policy.*® The only case cited by

Wright that does address an insurance contract is

Pence v. United States, in which the widow of a sole

beneficiary of a government-issued life insurance

policy filed suit against the government to recover

the proceeds under the contract.'’ The government

defended the widow's claim by alleging that her

husband had made fraudulent misrepresentations on

his policy application.”® Pence, a _ straight life

insurance coverage case, does not stand for the

proposition that a flood insurance policyholder may

bring a federal common law extra-contractual cause

of action for fraud in the handling of his flood

insurance claim.

Wright nevertheless asks us to conclude-based

solely on the language of the SFIP-that Congress

'* See Mallis v. Bankers Trust Co., 615 F.2d 68 (2nd Cir.1980)

(securities fraud); In re Adler, 247 B.R. 51, 116 (Bankr.S.D.NLY.

1999) (securities fraud); Marcus v. AT&T Corp., 938 F.Supp.

1158 (S.D.N.Y.1996) (Federal Communications Act); Graham v.

Renbrook Sch., 692 F.Supp. 102, 108 (D.Conn.1988) (Age

Discrimination Act).

316 U.S. 332. 333, 62 S.Ct. 1080, 86 L.Ed. 1510 (1942).

'* Id.

40a

intended federai courts to fashion remedies for NFIA

policyholders in addition to those _ specifically

contained in the statute. He cannot, however,

provide any support for his assertion that the

reference to “federal common law” in the SFIP

somehow vests policyholders with the right to bring

extra-contractual claims against a WYO insurer. We

hold that neither the NFIA nor the SFIP expressly

authorizes policyholders to file extra-contractual

claims against a WYO insurer.

2. Implied Right of Action

Wright alternatively asserts that, even if a

federal common law cause of action is not expressly

provided for in the NFIA or the SFIP, authorization

for such a remedy may be implied from the language

and purpose of the NFIA. To determine whether we

should infer a cause of action when one is not

explicitly authorized by Congress, we must answer

the four questions posed by the Supreme Court in

Cort v. Ash."* The Cort questions are: “(1) whether

the plaintiff is one of a class for whose especial

benefit the statute was enacted; (2) whether there is

an indication of legislative intent to create or deny

such remedy; (3) whether such a remedy would be

inconsistent with the underlying legislative purpose;

and (4) whether the cause of action is one

traditionally relegated to state law.”° Cases

subsequent to Cort have recognized that all four

‘9 422 US. 66, 95 S.Ct. 2080, 45 L.Ed.2d 26 (1975)

°° Till v. Unifirst Federal Sav. & Loan Ass'n, 653 F.2d 152, 157

(5th Cir.1981) (citing Cort, 422 U.S. at 78, 95 S.Ct. 2080)

4la

factors may be important, but the determinative

question is whether Congress intended to create a

private right of action in favor of the plaintiff.”'

a. Especial Beneficiary

The first of Cort's questions requires us to

determine whether Wright is “one of the class for

whose especial benefit the statute was enacted.”** A

plaintiff is an “especial beneficiary” if the statute

creates a federal right in favor of the particular

plaintiff. “[T]he right- or duty-creating language of

the statute has generally been the most accurate

indicator of the propriety of implication of a cause of

action.”* Courts must consider the entire corpus of

pertinent law to ensure that any interpretation is

consistent with the purposes enunciated’ by

Congress.”

Wright asserts that he is the _ especial

beneficiary of the NFIA, because the primary

purpose of the act is to benefit homeowners.

Diametrically opposed to this contention, however, is

our conclusion in Till v. Unifirst Federal Savings &

Loan Ass'n, that the primary purpose of the NFIA is

to reduce the overwhelming burden on the federal

treasury.”° In Till, borrowers sued a federal savings

*' California v. Sierra Club, 451 U.S. 287, 293, 101 S.Ct. 1775,

68 L.Ed.2d 101 (1981) (internal citations omitted).

” Cort, 422 U.S. at 78, 95 S.Ct. 2080 (internal quotations

omitted).

23> Cannon v. Univ. of Chicago, 441 U.S. 677, 690 n. 13, 99 S.Ct.

1946, 60 L.Ed.2d 560 (1979).

Till, 653 F.2d at 158 n. 13.

5 Td. at 159

t2a

and loan association based on its failure to require

them to obtain flood insurance pursuant to 42 U.S.C.

§§ 4012a(b) and 4104a. To determine whether the

NFIA afforded such borrowers a private cause of

action, we first looked to the statutory language in

sections 4012a(b) and 4104a. We found in that

language ro clear right in favor of the borrowers.

Rather, “(tlhe statutes merely. require lending

institutions to notify borrowers of flood plains and

require appropriate flood insurance.” We then

looked to the NFIA as a whole and determined that

“the principal purpose in enacting the Program was

to reduce, by implementation of adequate land use

controls and flood insurance, the massive burden on

the federal fisc of the ever-increasing federal flood

disaster assistance.””’ Even though Till involved

different sections of the NFIA than those implicated

here, we perceive no reason why our earlier

determination of the Act's purpose should not be

applicable in the instant case

Wright nevertheless urges that Till was

decided incorrectly, insisting that the primary

purpose of the NFIA is to benefit policyholders. To

support this contention, Wright cites congressional

statements regarding the Housing and Urban

Development Act of 1968, which contained the

original text of the National Flood Insurance Act. As

described by Congress in the Introduction to the

Hlousing and Development Act, the purpose of the

™ Id. at 158

*’ Id. at 159

43a

Act is to “accelerate progress” in the home market

and provide a “suitable living environment for every

American family.” Thus, Wright maintains,

Congress clearly envisioned home owners as especial

beneficiaries of the bill. The Introduction of the

Housing and Urban Development Act does not,

however, include a single reference to the NFIA,

flood insurance, or hurricanes. We find more

convincing the discussion contained in congressional

statements, like those cited in Till, that specifically

refer to the NFIA.

Wright's second reference is even _ less

convincing. To demonstrate that the NIFA was

enacted to benefit policyholders, Wright points to the

language contained in the heading of the NFIA, Title

XI, in which Congress stated:

Heavy losses over the year from hurricanes in

the coastal areas and from storms in inland

areas of the Nation dramatize the lack of

insurance protection against flood damage.

Insurance’ protection against risk of

destruction caused by tornadoes and other

natural catastrophes is generally available,

but is not available against the risk of flood

loss.”

At first glance this language might appear to support

Wrights argument, but it is actually just a part of

*® HT R. REP. No. 90-1585 (1968). as renrinted in 1968

U.S.C.C.A.N. 2873, 2873

°2 Id. at 2966

44a

the language cited in Till,’ which goes on to state:

These facts underline the need for a program

which will make insurance against flood

damage available, encourage persons to

become aware of the risk of occupying the

flood plains, and reduce the mounting Federal

expenditures for disaster relief assistance.”

Viewing this statement in its entirety, as we did in

Till, we remain convinced that the primary purpose

of the NFIA is to *397 reduce the financial burden on

the federal fisc.

b. Legislative Intent

To answer the second question of the Cort

analysis, we must examine the legislative history of

the statute and determine whether there is

congressional intent to create or deny a private right

of action.** “[I]n cases where the statutes and

legistative history are silent on the question of a

private remedy, ‘implying a private right of action on

the basis of congressional silence is a hazardous

enterprise, at best.’ ”*

Wright insists that this requirement is

fulfilled, because the SFIP specifically references

federal common law as governing claims arising out

of the insurance policy. Aside from this language,

°° Till, 653 F.2d at 159 n. 14.

“H.R. REP. No. 90-1585 (1968), as reprinted in 1968

U.S.C.C.A.N. 2966-67 (emphasis added).

* Cort v. Ash, 422 US. 66, 78, 95 S.Ct. 2080, 45 L.Ed.2d 26

(1975).

* Till, 653 F.2d at 160 (citing Touche Ross & Co., 442 U.S. 560,

571, 99 S.Ct. 2479, 61 L.Ed.2d 82 (1979)).

45a

however, there is no indication in the legislative

history or elsewhere that Congress intended to

create or permit additional causes of action. Again,

that lone reference to federal common law instructs

courts to consider standard principles of interpreting

insurance contracts when resolving questions

regarding the policy's coverage; it is not an invitation

to courts to fashion additional remedies or causes of

action.*4

We deem it significant that Congress

expressly provided a private remedy for policyholders

in 42 U.S.C. §§ 4053 and 4072. These statutes allow

a policyholder to sue in federal court if he is

dissatisfied with the amount of a claim payment.

That Congress expressly authorized private causes of

action in other sections of the NFIJA weighs against

Wright's theory that Congress implicitly intended

the courts to fashion additional causes of action. As

the Supreme Court recognized in Touche Ross & Co.

vu. Redington,“when Congress wished to provide a

private damages remedy, it knew how to do so.”**

c. Underlying Purpose / State Law Claim

The third and fourth Cort questions are

relevant only if the answers to the first two indicate

congressional intent to create a private remedy.” As

we find no congressional intent to allow extra-

** Dickerson v. State Farm Fire & Cas. Co., Civ. Action No. 06-

5181, 2007 WL 1537631, at *2 (E.D.La. May 23, 2007).

> 442 U.S. at 572, 99 S.Ct. 2479.

*® California v. Sierra Club, 451 U.S. 287, 297, 101 S.Ct. 17’

68 L.Ed.2d 101 (1981).

46a

contractual claims in flood insurance cases, it is

unnecessary for us to address the last two questions

of the Cort test. If we were to do so, however, tiie

answers to the third and fourth questions would not

change our conclusion. The third question of the Cort

test asks whether creating a cause of action would be

consistent with the underlying purpose of the

legislation. We have already determined that the

overarching purpose of the NFIA is to relieve the

burden on the federal treasury caused by flood

damage. Subjecting the government to. extra-

contractual claims on flood insurance policies would

increase rather than confine the burdens on the

federal government and the federal fisc that the

NFIA was created to mitigate. Inferring a private

right of action would run counter to the underlying

purpose of the Act. The last Cort question, which

recognizes that it may be inappropriate to infer a

cause of action based solely on federal law when a

state law remedy exists,’ is not applicable in this

case, because the NFIA preempts state law claims

that arise under federal flood insurance policies.**

Ill. CONCLUSION

Our review of the language of the NFIA and

the SFIP reveals no express authorization for a

policyholder to bring an extra-contractual claim

against a WYO insurer. Neither do we perceive any

evidence that Congress implicitly intended that

policyholders be able to file claims against WYO

’ Cort, 422 U.S. at 84, 95 S.Ct. 2080.

* Wright v. Allstate, 415 F.3d 384 (5th Cir.2005).

47a

insurers other than those specifically provided for in

the Act. As Wright's extra-contractual claims for

fraud and negligent misrepresentation are neither

explicitly nor implicitly authorized by the NFIA, the

judgment of the district court ts

AFFIRMED.

44a

APPENDIX E

Code of Federal Regulations

Title 44.

Appendix A(1) To Part 61

Federa] Emergency Management Agency, Federal

Insurance Administration

Standard Flood Insurance Policy

DWELLING FORM

Please read the policy carefully. The flood insurance

provided is subject to limitations, restrictions, and

exclusions. This policy covers only:

1. A non-condominium residential building designed

for principal use as a dwelling place of one to four

families, or

2. A single family dwelling unit in a condominium

building.

[. Agreement

The Federal Emergency Management Agency

(FEMA) provides flood insurance under the terms of

the National Flood Insurance Act of 1968 and its

Amendments, and Title 44 of the Code of Federal

Regulations

45a

We will pay you for direct physical loss by or from

flood to your insured property if you:

1. Have paid the correct premium;

2. Comply with all terms and conditions of this

policy; and

3. Have furnished accurate information and

statements.

We have the right to review the information you give

us at any time and to revise your policy based on our

review.

Il. Definitions

A. In this policy, "you" and "your" refer to the

insured(s) shown on the Declarations Page of this

policy and your spouse, if a resident of the same

household. Insured(s) includes: Any mortgagee and

loss payee named in the Application and

Declarations Page, as well as any other mortgagee or

loss payee determined to exist at the time of loss in

the order of precedence. "We," "us," and "our" refer to

the insurer.

Some definitions are complex because they are

provided as they appear in the law or regulations, or

result from court cases. The precise definitions are

intended to protect you.

46a

Flood, as used in this flood insurance policy, means:

1. A general and temporary condition of partial or

complete inundation of two or more acres of normally

dry land area or of two or more properties (one of

which is your property) from:

a. Overflow of inland or tidal waters,

b. Unusual and rapid accumulation or runoff of

surface waters from any source,

c. Mudflow.

2. Collapse or subsidence of land along the shore ofa

lake or similar body of water as a result of erosion or

undermining caused by waves or currents of water

exceeding anticipated cyclical levels that result in a

flood as defined in A.1.a. above.

B. The following are the other key definitions we use

in this policy:

1. Act. The National Flood Insurance Act of 1968 and

any amendments to it.

2. Actual Cash Value. The cost to replace an insured

item of property at the time of loss, less the value of

its physical depreciation.

47a

3. Application. The statement made and signed by

you or your agent in applying for this policy. The

application gives information we use to determine

the eligibility of the risk, the kind of policy to be

issued, and the correct premium payment. The

application is part of this flood insurance policy. For

us to issue you a policy, the correct premium

payment must accompany the application.

4. Base Flood. A flood having a one percent chance of

being equaled or exceeded in any given year.

5. Basement. Any area of the building, including any

sunken room or sunken portion of a room, having its

floor below ground level (subgrade) on all sides.

6. Building.

a. A structure with two or more outside rigid walls

and a fully secured roof, that is affixed to a

permanent site;

b. A manufactured home (a "manufactured home,"

also known as a mobile home, is a structure: built on

a permanent chassis, transported to its site in one or

more sections, and affixed to a permanent

foundation); or

c. A travel trailer without wheels, built on a chassis

and affixed to a permanent foundation, that is

regulated under the community's floodplain

48a

management and building ordinances or laws.

Building does not mean a gas or liquid storage tank

or a recreational vehicle, park trailer or other similar

vehicle, except as described in B.6.c. above.

7. Cancellation. The ending of the insurance

coverage provided by this policy before the expiration

date.

8. Condominium. That form of ownership of real

property in which each unit owner has an undivided

interest in common elements.

9. Condominium Association. The entity made up of

the unit owners responsible for the maintenance and

operation of:

a. Common elements owned 1n undivided shares by

unit owners; and

b. Other real property in which the unit owners have

use rights; where membership in the entity is a

required condition of unit ownership.

10. Declarations Page. A computer-generated

summary of information you provided in the

application for insurance. The Declarations Page also

describes the term of the policy, limits of coverage,

and displays the premium and our name. The

Declarations Page is e part of this flood insurance

policy.

11. Described Location. The lecation where the

insured building(s) or personal property are found.

The described location is shown on the Declarations

Page.

12. Direct Physical Loss By or From Flood. Loss or

damage to insured property, directly caused by a

flood. There must be evidence of physical changes to

the property.

13. Dwelling. A building designed for use as a

residence for no more than four families or a single-

family unit in a building under a condominium form

of ownership.

14. Elevated Building. A building that has no

basement and that has its lowest elevated floor

raised above ground level by foundation walls, shear

walls, posts, piers, pilings, or columns.

15. Emergency Program. The initial phase of a

community's participation in the National Flood

Insurance Program. During this phase, only limited

amounts of insurance are available under the Act.

16. Expense Constant. A flat charge you must pay on

each new or renewal policy to defray the expenses of

the Federal Government related to flood insurance.

50a

17. Federal Policy Fee. A flat charge you must pay on

each new or renewal policy to defray certain

administrative expenses incurred in carrying out the

National Flood Insurance Program. This fee covers

expenses not covered by the Expense Constant.

18. Improvements. Fixtures, alterations,

installations, or additions comprising a part of the

insured dwelling or the apartment in which you

reside.

19. Mudflow. A river of liquid and flowing mud on

the surface of normally dry land areas, as when

earth is carried by a current of water. Other earth

movements, such as landslide, slope failure, or a

saturated soil mass moving by liquidity down a

slope, are not mudflows.

20. National Flood Insurance Program (NFIP). The

program of flood insurance coverage and floodplain

management administered under the Act and

applicable Federal regulations in Title 44 of the Code

of Federal Regulations, Subchapter B.

21. Policy. The entire written contract between you

and us. It includes:

a. This printed form;

b. The application and Declarations Page;

Sla

c. Any endorsement(s) that may be issued; and

d. Any renewal certificate indicating that coverage

has been instituted for a new policy and new policy

term.

Only one dwelling, which you specifically described

in the application, may be insured under this policy.

22. Pollutants. Substances that include, but are not

limited to, any solid, liquid, gaseous, or thermal

irritant or contaminant, including smoke, vapor,

soot, fumes, acids, alkalis, chemicals, and waste.

"Waste" includes, but is not limited to, materials to

be recycled, reconditioned, or reclaimed.

23. Post-FIRM Building. A building for which

construction or substantial improvement occurred

after December 31, 1974, or on or after the effective

date of an initial Flood Insurance Rate Map (FIRM),

whichever is later.

24. Probation Premium. A flat charge you must pay

on each new or renewal policy issued covering

property in a community the NFIP has placed on

probation under the provisions of 44 CFR 59.24.

25. Regular Program. The final phase of a

community's participation in the National Flood

Insurance Program. In this phase, a Flood Insurance

Rate Map is in effect and full limits of coverage are

avallable under the Act.

26. Special Flood Hazard Area. An area having

special flood or mudflow, and/or flood-related erosion

hazards, and shown on a Flood Hazard Boundary

Map or Flood Insurance Rate Map as Zone A, AO,

A1-A30, AE, A99, AH, AR, AR/A, AR/AE, AR/AH,

AR/AO, AR/A1-A30, V1-V30, VE, or V.

27. Umit. A single-family unit you own in a

condominium building

28. Valued Policy. A policy in which the insured and

the insurer agree on the value of the property

insured, that value being payable in the event of a

total loss. The Standard Flood Insurance Policy is

not a valued policy.

We insure against direct physical loss by or from

flood to

ry } | ; ; } .

1. The dwelling at the described location, or for a

period of 45 days at another location as set forth in

Ii1.C.2.b., Property Removed to Safety

2. Additions and extensions attached to and in

contact with the dwelling by means ofa rigid exterior

53a

wall, a solid load-bearing interior wall, a stairway,

an elevated walkway, or a roof. At your option,

additions and extensions connected by any of these

methods may be separately insured. Additions and

extensions attached to and in contact with the

building by means of a common interior wall that is

not a solid load-bearing wall are always considered

part of the dwelling and cannot be separately

insured.

3. A detached garage at the described location.

Coverage is limited to no more than 10% of the limit

of liability on the dwelling. Use of this insurance is

at your option but reduces the building limit of

liability. We do not cover any detached garage used

or held for use for residential (i.e., dwelling),

business, or farming purposes.

4. Materials and supplies to be used for construction,

alteration, or repair of the dwelling or a detached

garage while the materials and supplies are stored in

a fully enclosed building at the described location or

on an adjacent property.

5. A building under construction, alteration, or repair

at the described location.

a. If the structure is not yet walled or roofed as

jescribed in the definition for building (see II.B.6.a.)

then coverage applies:

o4a

(1) Only while such work is in progress; or

(2) If such work is halted, only for a period of up to

90 continuous days thereafter.

b. However, coverage does not apply until the

building is walled and roofed if the lowest floor,

including the basement floor, of a non-elevated

building or the lowest elevated floor of an elevated

building is:

(1) Below the base flood elevation in Zones AH, AE,

A1-A30, AR, AR/AE, AR/AH, AR/A1-A30, AR/A,

AR/AO: or

(2) Below the base flood elevation adjusted to include

the effect of wave action in Zones VE or V1-V30.

The lowest floor levels are based on the bottom of the

lowest horizontal structural member of the floor in

Zones VE or V1-V30 and the top of the floor in Zones

AH, AE, Al-A80, AR, AR/AE, AR/AH, AR/A1-A30,

AR/A, AR/AO.

6. A manufactured home or a travel trailer as

described in the Definitions section (see I1.B.6.b. and

11.B.6.c.)

If the manufactured home or travel trailer is in a

special flood hazard area, it must be anchored in the

following manner at the time of the loss:

55a

a. By over-the-top or frame ties to ground anchors; or

b. In accordance with the manufacturer's

specifications; or

c. In compliance with the community's floodplain

management requirements unless it has_ been

continuously insured by the NFIP at the same

described location since September 30, 1982.

7. The following items of property which are covered

under Coverage A only:

a. Awnings and canopies;

b. Blinds;

c. Built-in dishwashers;

d. Built-in microwave ovens;

e. Carpet permanently installed over unfinished

flooring;

f. Central air conditioners:

gy. Elevator equipment;

h. Fire sprinkler systems;

06a

i. Walk-in freezers;

j. Furnaces and radiators;

k. Garbage disposal units;

1. Hot water heaters, including solar water heaters;

m. Light fixtures;

n. Outdoor antennas and aerials fastened _ to

buildings;

o. Permanently installed cupboards, bookcases,

cabinets, paneling, and wallpaper;

p. Plumbing fixtures;

q. Pumps and machinery for operating pumps;

r. Ranges, cooking stoves, and ovens;

s. Refrigerators; and

t. Wall mirrors, permanently installed.

8. Items of property in a building enclosure below the

lowest elevated floor of an elevated post-FIRM

building located in Zones Al-A30, AE, AH, AR, AR/A,

AR/AE, AR/AH, AR/A1-A30, V1-V30, or VE, or in a

basement, regardless of the zone. Coverage is limited

57a

to the following:

a. Any of the following items, if installed in their

functioning locations and, if necessary for operation,

connected to a power source:

(1) Central air conditioners;

(2) Cisterns and the water in them;

(3) Drywall for walls and ceilings in a basement and

the cost of labor to nail it, unfinished and unfloated

and not taped, to the framing;

(4) Electrical junction and circuit breaker boxes;

(5) Electrical outlets and switches;

(6) Elevators, dumbwaiters and related equipment,

except for related equipment installed below the base

flood elevation after September 30, 1987;

(7) Fuel tanks and the fuel in them;

(8) Furnaces and hot water heaters;

(9) Heat pumps;

(10) Nonflammable insulation in a basement;

(11) Pumps and tanks used in solar energy systems;

58a

(12) Stairways and staircases attached to the

building, not separated from it by _ elevated

walkways;

(13) Sump pumps;

(14) Water softeners and the chemicals in them,

water filters, and faucets installed as an integral

part of the plumbing system;

(15) Well water tanks and pumps;

(16) Required utility connections for any item in this

list; and

(17) Footings, foundations, posts, pilings, piers, or

other foundation walls and anchorage systems

required to support a building.

b. Clean-up.

B. Coverage B--Personal Property

1. If you have purchased personal property coverage,

we insure against direct physical loss by or from

flood to personal property inside a building at the

described location, if:

a. The property is owned by you or your household

family members; and

59a

b. At your option, the property is owned by guests or

servants.

Persona! property is also covered for a period of 45

days at another location as set forth in III.C.2.b.,

Property Removed to Safety.

Personal property in a building that is not fully

enclosed must be secured to prevent flotation out of

the building. If the personal property does float out

during a flood, it will be conclusively presumed that

it was not reasonably secured. In that case there is

no coverage for such property.

2. Coverage for personal property includes the

following property, subject to B.1. above, which is

covered under Coverage B only:

a. Air conditioning units, portable or window type;

b. Carpets, not permanently installed, over

unfinished flooring;

c. Carpets over finished flooring;

d. Clothes washers and dryers;

e. "Cook-out" grills;

f. Food freezers, other than walk-in, and food in any

60a

freezer; and

g. Portable microwave ovens and_ portable

dishwashers.

3. Coverage for items of property in a building

enclosure below the lowest elevated floor of an

elevated post-FIRM building located in Zones Al-

A30, AE, AH, AR, AR/A, AR/AE, AR/AH, AR/A1-A30,

V1-V30, or VE, or in a basement, regardless of the

zone, is limited to the following items, if installed in

their functioning locations and, if necessary for

operation, connected to a power source:

a. Air conditioning units, portable or window type;

b. Clothes washers and dryers; and

c. Food freezers, other than walk-in, and food in any

freezer.

4. If you are a tenant and have insured personal

property under Coverage B in this policy, we will

cover such property, including your cooking stove or

range and refrigerator. The policy will also cover

improvements made or acquired solely at your

expense in the dwelling or apartment in which you

reside, but for not more than 10% of the limit of

liability shown for personal property on _ the

Declarations Page. Use of this insurance is at your

option but reduces the personal property limit of

6la

liability.

5. If you are the owner of a unit and have insured

personal property under Coverage B in this policy,

we will also cover your interior walls, floor, and

ceiling (not otherwise covered under a_ flood

insurance policy purchased by your condominium

association) for not more than 10% of the limit of

liability shown for personal property on the

Declarations Page. Use of this insurance is at your

option but reduces the personal property limit of

liability.

6. Special Limits. We will pay no more than $2,500

for any one loss to one or more of the following kinds

of personal property:

a. Artwork, photographs, collectibles, or

memorabilia, including but not limited to, porcelain

or other figures, and sports cards;

b. Rare books or autographed items;

c. Jewelry, watches, precious and semi-precious

stones, or articles of gold, silver, or platinum;

d. Furs or any article containing fur which

represents its principal value; or

e. Personal property used in any business.

62a

7. We will pay only for the functional value of

antiques.

C. Coverage C--Other Coverages

1. Debris Removal.

a. We will pay the expense to remove non-owned

debris that is on or in insured property and debris of

insured property anywhere.

b. If you or a member of your household perform the

removal work, the value of your work will be based

on the Federal minimum wage.

c. This coverage does not increase the Coverage A or

Coverage B Limit of Liability.

2. Loss Avoidance Measures

a. Sandbags, Supplies, and Labor

(1) We will pay up to $1,000 for costs you incur to

protect the insured building from a flood or

imminent danger of flood, for the following:

(a) Your reasonable expenses to buy:

(i) Sandbags, including sand to fill them;

(ii) Full for temporary levees;

63a

(iii) Pumps; and

(iv) Plastic sheeting and lumber used in connection

with these items.

(b) The value of work, at the Federal minimum wage,

that you or a member of your household perform.

(2) This coverage for Sandbags, Supplies and Labor

only applies if damage to insured property by or from

flood is imminent and the threat of flood damage is

apparent enough to lead a person of common

prudence to anticipate flood damage. One of the

following must also occur:

(a) A general and temporary condition of flooding in

the area near the described location must occur, even

if the flood does not reach the building; or

(b) A legally authorized official must issue an

evacuation order or other civil order for the

community in which the building is located calling

for measures to preserve life and property from the

peril of flood.

This coverage does not increase the Coverage A or

Coverage B Limit of Liability.

b. Property Removed to Safety

64a

(1) We will pay up to $1,000 for the reasonable

expenses you incur to move insured property to a

place other than the described location that contains

the property in order to protect it from flood or the

imminent danger of flood.

Reasonable expenses include the value of work, at

the Federal minimum wage, you or a member of your

household perform.

(2) If you move insured property to a location other

than the described location that contains the

property, in order to protect it from flood or the

imminent danger of flood, we will cover such

property while at that location for a period of 45

consecutive days from the date you begin to move it

there. The personal property that is moved must be

placed in a fully enclosed building or otherwise

reasonably protected from the elements.

Any property removed, including a moveable home

described in II.6.b.and c., must be placed above

ground level or outside of the special flood hazard

area.

This coverage does not increase the Coverage A or

Coverage B Limit of Liability.

3. Condominium Loss Assessments.

a. If this policy insures a unit, we will pay, up to the

65a

Coverage A limit of liability, your share of loss

assessments charged against you by the

condominium association in accordance with the

condominium association's articles of association,

declarations and your deed.

The assessment must be made as a result of direct

physical loss by or from flood during the policy term,

to the building's common elements.

b. We will not pay any loss assessment charged

against you:

(1) And the condominium association by any

governmental body;

(2) That results from a deductible under the

insurance purchased by the condominium association

insuring common elements;

(3) That results from a loss to personal property,

including contents of a condominium building;

(4) That results from a loss sustained by the

condominium association that was not reimbursed

under a flood insurance policy written in the name of

the association under the Act because the building

was not, at the time of loss, insured for an amount

equal to the lesser of:

(a) 80% or more of its full replacement cost; or

66a

(b) The maximum amount of insurance permitted

under the Act;

(5) To the extent that payment under this policy for a

condominium building loss, in combination with

payments under any other NFIP policies for the

same building loss, exceeds the maximum amount of

insurance permitted under the Act for that kind of

building; or

(6) To the extent that payment under this policy for a

condominium building loss, in combination with any

recovery available to you as a tenant in common

under any NFIP condominium asscciation policies

for the same building loss, exceeds the amount of

insurance permitted under the Act for a single-

family dwelling.

Loss assessment coverage does not increase the

Coverage A Limit of Liability.

D. Coverage D--Increased Cost of Compliance

1. General.

This policy pays you to comply with a State or local

floodplain management law or ordinance affecting

repair or reconstruction of a structure suffering flood

damage. Compliance activities eligible for payment

are: elevation, floodproofing, relocation, or demolition

67a

(or any combination of these activities) of your

structure. Eligible floodproofing activities are limited

to:

a. Non-residential structures.

b. Residential structures with basements that satisfy

FEMA's standards published in the Code of Federal

Regulations [44 CFR 60.6 (b) or (c) J.

2. Limit of Liability.

We will pay you up to $30,000 under this Coverage

1D--Increased Cost of Compliance, which only applies

to policies with building coverage (Coverage A). Our

payment of claims under Coverage D is in addition to

the amount of coverage which you selected on the

application and which appears on the Declarations

Page. But the maximum you can collect under this

policy for both Coverage A--Building Property and

Coverage D--Increased Cost of Compliance cannot

exceed the maximum permitted under the Act. We do

not charge a separate deductible for a claim under

Coverage D.

2. Limit of Liability.

We will pay you up to $20,000 under this Coverage

D--Increased Cost of Compliance, which only applies

to policies with building coverage (Coverage A). Our

payment of claims under Coverage D is in addition to

68a

the amount of coverage which you selected on the

application and which appears on the Declarations

Page. But the maximum you can collect under this

policy for both Coverage A--Building Property and

Coverage D--Increased Cost of Compliance cannot

exceed the maximum permitted under the Act. We do

not charge a separate deductible for a claim under

Coverage D.

3. Eligibility

a. A structure covered under Coverage A--Building

Property sustaining a loss caused by a flood as

defined by this policy must:

(1) Be a "repetitive loss structure." A repetitive loss

structure is one that meets the following conditions:

(a) The structure is covered by a contract of flood

insurance issued under the NFIP.

(b) The structure has suffered flood damage on two

occasions during a 10-year period which ends on the

date of the second loss.

equaled or exceeded 25% of the market value of the

structure at the time of each flood loss.

(d) In addition to the current claim, the NFIP must

have paid the previous qualifying claim, and the

69a

State or community must have a cumulative,

substantial damage provision or repetitive loss

provision in its floodplain management law or

ordinance being enforced against the structure; or

(2) Be a structure that has had flood damage in

which the cost to repair equals or exceeds 50% of the

market value of the structure at the time of the flood.

The State or community must have a substantial

damage provision in its floodplain management law

or ordinance being enforced against the structure.

b. This Coverage D pays you to comply with State or

local floodplain management laws or ordinances that

meet the minimum standards of the National Flood

Insurance Program found in the Code of Federal

Regulations at 44 CFR 60.3. We pay for compliance

activities that exceed those standards under these

conditions:

(1) 3.a.(1) above.

(2) Elevation or floodproofing in any risk zone to

preliminary or advisory hbase flood elevations

provided by FEMA which the State or loca!

government has adopted and is enforcing for flood-

damaged structures in such areas. (This includes

compliance activities in B, C, X, or D zones which are

being changed to zones with base flood elevations.

This also includes compliance activities in zones

where base flood elevations are being increased, and

70a

a flood-damaged structure must comply with the

higher advisory base flood elevation.) Increased Cost

of Compliance coverage does not apply to situations

in B, C, X, or D zones where the community has

derived its own elevations and is enforcing elevation

or floodproofing requirements for flood-damaged

structures to elevations derived solely by the

community.

(3) Elevation or floodproofing above the base flood

elevation to meet State or local "freeboard"

requirements, i.e., that a structure must be elevated

above the base flood elevation.

c. Under the minimum NFIP criteria at 44 CFR

60.3(b)(4), States and communities must require the

elevation or floodproofing of structures’ in

unnumbered A zones to the base flood elevation

where elevation data is obtained from a Federal,

State, or other source. Such compliance activities are

also eligible for Coverage D.

d. This coverage will also pay for the incremental

cost, after demolition or relocation, of elevating or

floodproofing a structure during its rebuilding at the

same or another site to meet State or local floodplain

management laws or ordinances, subject to

Exclusion D.5.g. below.

e. This coverage will also pay to bring a flood-

damaged structure into compliance with state or

Tla

local floodplain management laws or ordinances even

if the structure had received a variance before the

present loss from the applicable floodplain

management requirements.

4. Conditions.

a. When a structure covered under Coverage A--

Building Property sustains a loss caused by a flood,

our payment for the loss under this Coverage D will

be for the increased cost to elevate, floodproof,

relocate, or demolish (or any combination of these

activities) caused by the enforcement of current State

or local floodplain management ordinances or laws.

Our payment for eligible demolition activities will be

for the cost to demolish and clear the site of the

building debris or a portion thereof caused by the

enforcement of current State or Jocal floodplain

management ordinances or laws. Eligible activities

for the cost of clearing the site will include those

necessary to discontinue utility service to the site

and ensure proper abandonment of on-site utilities.

b. When the building is repaired or rebuilt, it must

be intended for the same occupancy as the present

building unless otherwise required by current

floodplain management ordinances or laws.

5. Exclusions.

Under this Coverage D (Increased Cost of

72a

Compliance) we will not pay for:

a. The cost to comply with any floodplain

management law or ordinance in communities

participating in the Emergency Program.

b. The cost associated with enforcement of any

ordinance or law that requires any insured or others

to test for, monitor, clean up, remove, contain, treat,

detoxify or neutralize, or in any way respond to, or

assess the effects of pollutants.

c. The loss in value to any insured building or other

structure due to the requirements of any ordinance

or law.

d. The loss in residual value of the undamaged

portion of a building demolished as a consequence of

enforcement of any State or local floodplain

management law or ordinance.

e. Any Increased Cost of Compliance under this

Coverage D:

(1) Until the building is elevated, floodproofed,

demolished, or relocated on the same or to another

premises; and

(2) Unless the building is elevated, floodproofed,

demolished, or relocated as soon as_ reasonably

possible after the loss, not to exceed two years.

f. Any code upgrade requirements, e.g., plumbing or

electrical wiring, not specifically related to the State

or local floodplain management law or ordinance.

g. Any compliance activities needed to bring

additions or improvements made after the loss

occurred into compliance with State or local

floodplain management laws or ordinances.

h. Loss due to any ordinance or law that you were

required to comply with before the current loss.

i. Any rebuilding activity to standards that do not

meet the NFIP's minimum requirements. This

includes any situation where the insured has

received from the State or community a variance in

connection with the current flood loss to rebuild the

property to an elevation below the base flood

elevation.

j. Increased Cost of Compliance for a garage or

carport.

k. Any structure insured under an NFIP Croup Flood

Insurance Policy.

l. Assessments made by a condominium association

on individual condominium unit owners to pay

increased costs of repairing commonly owned

buildings after a flood in compliance with State or

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local floodplain management ordinances or laws.

6. Other Provisions.

a. Increased Cost of Compliance coverage will not be

included in the calculation to determine whether

coverage meets the 80% insurance-to-value

requirement for replacement cost coverage as set

forth in VII. General Conditions, V. Loss Settlement.

b. All other conditions and provisions of the policy

apply.

[V. Property Not Covered

We do not cover any of the following:

1. Personal property not inside a building;

2. A building, and personal property in it, located

entirely in, on, or over water or seaward of mean

high tide if it was constructed or substantially

improved after September 30, 1982;

3. Open structures, including a building used as a

boathouse or any structure or building into which

boats are floated, and personal property located in,

on, or over water;

4. Recreational vehicles other than travel trailers

described in the Definitions section (see I[I.B.6.c.)

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whether affixed to a permanent foundation or on

wheels;

5. Self-propelled vehicles or machines, including

their parts and equipment. However, we do cover

self-propelled vehicles or machines not licensed for

use on public roads that are:

a. Used mainly to service the described location or

b. Designed and used to assist handicapped persons,

while the vehicles or machines are inside a building

at the described location;

6. Land, land values, lawns, trees, shrubs, plants,

growing crops, or animals;

7. Accounts, bills, coins, currency, deeds, evidences of

debt, medals, money, scrip, stored value cards,

postage stamps, securities, bullion, manuscripts, or

other valuable papers;

8. Underground structures and equipment, including

wells, septic tanks, and septic systems;

9. Those portions of walks, walkways, decks,

driveways, patios and other surfaces, all whether

protected by a roof or not, located outside the

perimeter, exterior walls of the insured building or

the building in which the insured unit is located;

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10. Containers, including related equipment, such as,

but not limited to, tanks containing gases or liquids;

11. Buildings or units and all their contents if more

than 49% of the actual cash value of the building is

below ground, unless the lowest level is at or above

the base flood elevation and is below ground by

reason of earth having been used as insulation

material in conjunction with energy efficient building

techniques;

12. Fences, retaining walls, seawalls, bulkheads,

wharves, piers, bridges, and docks;

13. Aircraft or watercraft, or their furnishings and

equipment;

14. Hot tubs and spas that are not bathroom fixtures,

and swimming pools, and their equipment, such as,

but. not limited to, heaters, filters, pumps, and pipes,

wherever located;

15. Property not eligible for flood insurance pursuant

to the provisions of the Coastal Barrier Resources

Act and the Coastal Barrier Improvement Act and

amendments to these Acts;

16. Personal property you own in common with other

unit owners comprising the membership of a

condominium association.

V. Exclusions

A. We only pay for direct physical loss by or from

flood, which means that we do not pay you for:

1. Loss of revenue or profits;

2. Loss of access to the insured property or described

location;

3. Loss of use of the insured property or described

location;

4. Loss from interruption of business or production;

5. Any additional living expenses incurred while the

insured building is being repaired or is unable to be

occupied for any reason;

6. The cost of complying with any ordinance or law

requiring or regulating the construction, demolition,

remodeling, renovation, or repair of property,

including removal of any resulting debris. This

exclusion does not apply to any eligible activities we

describe in Coverage D--Increased Cost of

Compliance; or

7. Any other economic loss you suffer.

B. We do not insure a loss directly or indirectly

caused by a flood that is already in progress at the

time and date:

1. The policy term begins; or

2. Coverage is added at your request.

C. We do not insure for loss to property caused

directly by earth movement even if the earth

movement is caused by flood. Some examples of

earth movement that we do not cover are:

1. Earthquake;

2. Landslide:

Land subsidence;

4. Sinkholes;

5. Destabilization or movement of land that results

from accumulation of water in subsurface land area;

6. Gradual erosion.

We do, however, pay for losses from mudflow and

land subsidence as a result of erosion that are

specifically covered under our definition of flood (see

1f1.A.1.¢c. and II.A.2.)

[). We do not insure for direct physical loss caused

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directly or indirectly by any of the following:

1. The pressure or weight of ice;

2. Freezing or thawing;

3. Rain, snow, sleet, hail, or water spray;

4. Water, moisture, mildew, or mold damage that

results primarily from any condition:

a. Substantially confined to the dwelling; or

b. That is within your control, including but not

limited to:

(1) Design, structural, or mechanical defects;

(2) Failure, stoppage, or breakage of water or sewer

lines, drains, pumps, fixtures, or equipment; or

(3) Failure to inspect and maintain the property after

a flood recedes;

5. Water or water-borne material that:

a. Backs up through sewers or drains;

b. Discharges or overflows from a sump, sump pump

or related equipment; or

5Va

c. Seeps or leaks on or through the covered property;

unless there is a flood in the area and the flood is the

proximate cause of the sewer or drain backup, sump

pump discharge or overflow, or the seepage of water;

6. The pressure or weight of water unless there is a

flood in the area and the flood is the proximate cause

of the damage from the pressure or weight of water;

7. Power, heating, or cooling failure unless the

failure results from direct physical loss by or from

flood to power, heating, or cooling equipment on the

described location;

8. Theft, fire, explosion, wind, or windstorm;

S. Anything you or any member of your household do

or conspires to do to deliberately cause loss by flood;

i0. Alteration of the insured property’ that

significantly increases the risk of flooding.

E. We do not insure for loss to any building or

personal property located on land leased from the

Federal Government, arising from or incident to the

flooding of the land ty the Federal Government,

where the lease expressly holds the Federal

Government harmless under flood insurance issued

under any Federal Government program

Sla

F. We do not pay for the testing for or monitoring of

pollutants unless required by law or ordinance.

VI. Deductibles

A. When a loss is covered under this policy, we will

pay only that part of the loss that exceeds your

deductible amount, subject to the limit of lability

that applies. The deductible amount is shown on the

Declarations Page

However, when a building under construction,

alteration, or repair does not have at least two rigid

exterior walls and a fully secured reof at the time of

loss, your deductible amount will be two times the

deductible that would otherwise apply to a completed

building.

B. In each loss from flood, separate deductibles apply

to the building and personal property insured by this

policy

C; The deductible does N¢ yT apply to

>.2. Loss Avoidance Measure

pent

2. I1I.C.3. Condominium Loss Assessments: or

3. II1.D. Increased Cost of Compliance

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VII. General Conditions

A. Pair and Set Clause

In case of loss to an article that is part of a pair or

set, we will have the option of paying you:

1. An amount equal to the cost of replacing the lost,

damaged, or destroyed article, minus its

depreciation, or

2. The amount that represents the fair proportion of

the total value of the pair or set that the lost,

damaged, or destroyed article bears to the pair or

set.

B. Concealment or Fraud and Policy Voidance

1. With respect to all insureds under this policy, this

policy:

a. Is void:

b. Has no legal force or effect;

c. Cannot be renewed: and

d. Cannot be replaced by a new NFIP policy, if,

before or after a Joss, you or any other insured or

your agent have at any time:

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(1) Intentionally concealed or misrepresented any

material fact or circumstance;

(2) Engaged in fraudulent conduct; or

(3) Made false statements; relating to this policy or

any other NFIP insurance.

2. This policy will be void as of the date wrongful acts

described in B.l.above were crmmitted.

3. Fines, civil penalties, and imprisonment under

applicable Federal laws may also apply to the acts of

fraud or concealment described above.

4. This policy is also void for reasons other than

fraud, misrepresentation, or wrongful act. ‘This policy

is void from its inception and has no legal force

under the following conditions:

a. If the property is located in a community that was

not participating in the NFIP on the policy's

inception date and did not join or reenter the

program during the policy term and before the loss

occurred; or

b. If the property listed on the application is

otherwise not eligible for coverage under the NFIP.

C. Other Insurance

Sida

1. If a loss covered by this policy is also covered by

other insurance that includes flood coverage not

issued under the Act, we will not pay more than the

amount of insurance you are entitled to for lost,

damaged, or destroyed property insured under this

policy subject to the following:

a. We will pay only the proportion of the loss that the

amount of tnsurance that applies under this policy

bears to the total amount of insurance covering the

loss, unless C.1.b. or c. immediately below applies.

b. If the other policy has a provision stating that it is

excess insurance, this policy will be primary.

ec. This policy will be primary (but subject to its own

deductible) up to the deductible in the other flood

policy (except another policy as described in C.1.b.

above). When the other deductible amount is

reached, this policy will participate in the same

preportion that the amount of insurance under this

policy bears to the total amount of both policies, for

the remainder of the loss.

2. If there is other insurance in the name of your

condominium association covering the same property

covered by this policy, then this policy will be in

excess over the other insurance.

D. Amendments, Waivers, Assignment

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This policy cannot be changed nor can any of its

provisions be waived without the express written

consent of the Federal Insurance Administrator. No

action we take under the terms of this policy

constitutes a waiver of any of our rights. You may

assign this policy in writing when you transfer title

of your property to someone else except under these

conditions:

1. When this policy covers only personal property; or

2. When this policy covers a structure during the

course of construction.

E. Cancellation of the Policy by You

1. You may cance] this policy in accordance with the

applicable rules and regulations of the NFIP.

2. If you cancel this policy, you may be entitled to a

full or partial refund of premium also under the

applicable rules and regulations of the NFIP.

F. Non-Renewal of the Policy by Us

Your policy will not be renewed:

1. If the community where your covered property is

located stops participating in the NFIP, or

2. If your building has been declared ineligible under

86a

section 1316 of the Act.

G. Reduction and Reformation of Coverage

1. If the premium we received from you was not

enough to buy the kind and amount of coverage you

requested, we will provide only the amount of

coverage that can be purchased for the premium

payment we received.

2. The policy can be reformed to increase the amount

of coverage resulting from the reduction described in

G.1. above to the amount you requested as follows:

a. Discovery of Insufficient Premium or Incomplete

Rating Information Before a Loss:

(1) If we discover before you have a flood loss that

your premium payment was not enough to buy the

requested amount of coverage, we will send you and

any mortgagee or trustee known to us a bill for the

required additional premium for the current policy

term (or that portion of the current policy term

following any endorsement changing the amount of

coverage). If you or the mortgagee or trustee pay the

additional premium within 30 days from the date of

our bill, we will reform the policy to increase the

amount of coverage to the originally requested

amount effective to the beginning of the current

policy term (or subsequent date of any endorsement

changing the amount of coverage).

87a

(2) If we determine before you have a flood loss that

the rating information we have is incomplete and

prevents us from calculating the additional}

premium, we will ask you to send the required

information. You must submit the information

within 60 days of our request. Once we determine

the amount of additional premium for the current

policy term, we will follow the procedure in G.2.a.(1)

above.

(3) If we do not receive the additional premium (or

additional information) by the date it is due, the

amount of coverage can only be increased by

endorsement subject to any appropriate waiting

period.

b. Discovery of Insufficient Premium or Incomplete

Rating Information After a Loss:

(1) If we discover after you have a flood loss that your

premium payment was not enough to buy the

requested amount of coverage, we will send you and

any mortgagee or trustee known to us a bill for the

required additional premium for the current and the

prior policy terms. If you or the mortgagee or trustee

pay the additional premium within 30 days of the

date of our bill, we will reform the policy to increase

the amount of coverage to the originally requested

amount effective to the beginning of the prior policy

term.

88a

(2) If we discover after you have a flood loss that the

rating information we have is incomplete and

prevents us from calculating the additional

premium, we will ask you to send the required

information. You must submit the information before

your claim can be paid. Once we determine the

amount of additional premium for the current and

prior policy terms, we will follow the procedure in

G.2.b.(1) above.

(3) If we do not receive the additional premium by

the date it is due, your flood insurance claim will be

settled based on the reduced amount of coverage.

The amount of coverage can only be increased by

endorsement subject to any appropriate waiting

period.

3. However, if we find that you or your agent

intentionally did not tel! us, or falsified, any

important fact or circumstance or did anything

fraudulent relating to this insurance, the provisions

of Condition B. Concealment or Fraud and Policy

Voidance apply.

H. Policy Renewal

1. This policy will expire at 12:01 a.m. on the last day

of the policy term.

2. We must receive the payment of the appropriate

89a

renewal premium within 30 days of the expiration

date.

3. If we find, however, that we did not place your

renewal notice into the U.S. Postal Service, or if we

did mail it, we made a mistake, e.g., we used an

incorrect, incomplete, or illegible address, which

delayed its delivery to you before the due date for the

renewal premium, then we will follow’ these

procedures:

a. If you or your agent notified us, not later than one

year after the date on which the payment of the

renewal premium was due, of non-receipt of a

renewal notice before the due date for the renewal

premium, and we determine that the circumstances

in the preceding paragraph apply, we will mail a

second bill providing a revised due date, which will

be 30 days after the date on which the bill is mailed.

b. If we do not receive the premium requested in the

second bill by the revised due date, then we will not

renew the policy. In that case, the policy will remain

an expired policy as of the expiration date shown on

the Declarations Page.

4. In connection with the renewal of this policy, we

may ask you during the policy term to recertify, on a

Recertification Questionnaire we will provide to you,

the rating information used to rate your most recent

application for or renewal of insurance.

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I. Conditions Suspending or Restricting Insurance

We are not liable for loss that occurs while there is a

hazard that is increased by any means within your

control or knowledge.

J. Requirements in Case of Loss

In case of a flood loss to insured property, you must:

1. Give prompt written notice to us;

2. As soon as reasonably possible, separate the

damaged and undamaged property, putting it in the

best possible order so that we may examine it;

3. Prepare an inventory of damaged property

showing the quantity, description, actual cash value,

and amount of loss. Attach all bills, receipts, and