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Sutor v. Federal Emergency Management Agency

July 9, 2009

ROBERT M. SUTOR AND TERESA Y. SUTOR
v.
FEDERAL EMERGENCY MANAGEMENT AGENCY, LIBERTY MUTUAL FIRE INSURANCE COMPANY, AND M&N ADJUSTING, INC.
ROBERT M. SUTOR AND TERESA Y. SUTOR
v.
FEDERAL EMERGENCY MANAGEMENT AGENCY, LIBERTY MUTUAL FIRE INSURANCE COMPANY, AND PILOT CATASTROPHE SERVICES, INC.



The opinion of the court was delivered by: R. Barclay Surrick, J.

SURRICK, J.

MEMORANDUM

Plaintiffs Robert and Teresa Sutor have filed two actions in this Court based upon Standard Flood Insurance Policies ("SFIPs") that were issued by Defendant Liberty Mutual Fire Company. Both actions raise the question of whether parties insured under the National Flood Insurance Program ("NFIP" or the "Program") may sue independent insurance adjusters on negligence and third-party beneficiary contract claims arising from the handling of SFIPs. Presently before the Court are the Motion of for Summary Judgment of Defendant, M&N Adjusting, Inc. (06-1371, Doc. No. 21) and the Motion of Defendant, Pilot Catastrophe Services, Inc., to Dismiss Plaintiffs' Complaint Pursuant to F.R.C.P. 12(b)(6) and/or for a More Definite Statement Pursuant to F.R.C.P. 12(e) (07-2477, Doc. No. 15). For the following reasons, we conclude that Plaintiffs cannot bring negligence or third-party beneficiary contract claims against Liberty Mutual's adjusters, M&N Adjusting Inc. and Pilot Catastrophe Services Inc. (collectively, the "Adjuster Defendants"). Accordingly, M&N's Motion for Summary Judgment and Pilot's Motion to Dismiss will be granted.*fn1

I. BACKGROUND

A. Statutory Framework

Congress passed the National Flood Insurance Act ("NFIA"), 42 U.S.C. §§ 4001, et seq., in 1968 with the goal of "limit[ing] the damage caused by flood disasters through prevention and protective measures, spread[ing] the risk of flood damage among many private insurers and the federal government, and mak[ing] flood insurance 'available on reasonable terms and conditions' to those in need of it." Van Holt v. Liberty Mutual Fire Ins. Co., 163 F.3d 161, 165 (3d Cir. 1998) (on rehearing) (quoting 42 U.S.C. § 4001(a)); see also 42 U.S.C. § 4001(b) ("Many factors have made it uneconomic for the private insurance industry alone to make flood insurance available to those in need of such protection on reasonable terms and conditions."). The NFIA established the NFIP, designated the Federal Emergency Management Agency as the agency responsible for administering the Program, and provided for funding from the U.S. Treasury. Palmieri v. Allstate Ins. Co., 445 F.3d 179, 183 (2d Cir. 2006); see also 42 U.S.C. § 4017 (directing FEMA to establish a National Flood Insurance Fund in the U.S. Treasury). The NFIA authorizes FEMA "to prescribe regulations establishing the general method or methods by which proved and approved claims for losses may be adjusted and paid for any damage to or loss of property which is covered by flood insurance made available under the provisions of this title."

42 U.S.C. § 4019. The regulatory scheme promulgated by FEMA is set out in the Code of Federal Regulations at 44 C.F.R. §§ 61.1 to 78.14.

FEMA initially administered the Program under a provision of the NFIA known as Part A, 42 U.S.C. §§ 4251-56, which created a "pool of private insurance companies [that] issued policies and shared the underwriting risk[] with financial assistance from the federal Government." C.E.R. 1988, Inc. v. Aetna Cas. & Sur. Co., 386 F.3d 263, 266 (3d Cir. 2004). Since 1978, FEMA has administered the Program under Part B of the NFIA, 42 U.S.C. §§ 4071-72. C.E.R., 386 F.3d at 266; 42 U.S.C. § 4041(granting FEMA discretion to implement the Program under Part B). Part B of the NFIA provides for federal operation of the Program with the assistance of private insurers.

In 1983, FEMA created the Write-Your-Own ("WYO") program. See 44 C.F.R. §§ 62.23 to 62.24. The WYO program permits private insurers ("WYO companies") to write SFIPs in their own names. Although the WYO companies write the SFIPs, FEMA regulations set the terms and conditions of the policies, including the rate structures and premium costs. See 44 C.F.R. §§ 61.4(b), 62.23(a), (c), (d); 44 C.F.R. pt. 61, app. A(1) (setting forth SFIP terms for dwellings). Under the WYO program framework, "the federal government underwrites the policies and private WYO carriers perform significant administrative functions including 'arrang[ing] for the adjustment, settlement, payment and defense of all claims arising from the policies.'" Campo v. Allstate Ins. Co., 562 F.3d 751, 754 (5th Cir. 2009) (footnote omitted; alteration in original). "WYO companies remit premiums collected, after deducting a scheduled amount for administrative expenses, to FEMA for deposit in the National Flood Insurance Fund. Claims are thus paid from federal funds." Studio Frames Ltd. v. Standard Fire Ins. Co., 483 F.3d 239, 244 (4th Cir. 2007) (citation omitted); see also Gallup v. Omaha Prop. & Cas. Ins. Co., 434 F.3d 341, 342 (5th Cir. 2005) (observing that SFIP "[c]laims are ultimately paid of out of the U.S. Treasury"). WYO companies are fiscal agents of the United States. 42 U.S.C. § 4071(a)(1). They are not, however, general agents of the of the federal government. 44 C.F.R. § 62.23(g) ("A WYO Company shall act as a fiscal agent of the Federal Government, but not as its general agent.").

B. Factual Background

1. 2005 Policy and Flood

In December 2004, Plaintiffs entered into a renewal SFIP with Defendant Liberty Mutual.*fn2 (2006 Compl., Ex. A. (hereinafter, the "2005 Policy").) The 2005 Policy provided Plaintiffs with flood insurance coverage of the property located at 126 South Bell Avenue, Yardley, Pennsylvania (the "Property") for the year starting December 31, 2004, and ending December 31, 2005. A flood (the "2005 Flood") severely damaged the Property in April 2005. (Id. ¶ 13.) Plaintiffs allege that "M&N was hired by FEMA as intermediary insurance adjusters to handle and adjust claims under the [2005] Policy as a result of the [2005] Flood."*fn3 (Id. ¶ 15.) On June 21, 2005, Plaintiffs submitted a proof of loss under the 2005 Policy. (Id. ¶ 16.) Starting on April 4, 2005, Plaintiffs "submitted information including, but not limited to damage and repair estimates of various contractors and engineers to M&N . . . ." (Id. ¶ 17.) Plaintiffs allege that M&N did not "properly and accurately evaluate, adjust and/or timely transmit the damage and repair information" to FEMA (or Liberty Mutual). (Id. ¶ 18.) Plaintiffs contend that as a result of M&N's failure to transmit information to FEMA (or Liberty Mutual), "FEMA denied, constructively denied, and/or partially denied" Plaintiffs' proof of loss. (Id. ¶ 19.) The 2006 Complaint alleges a breach of contract claim against Liberty Mutual (id. ¶¶ 21-24), a negligence claim against M&N (id. ¶¶ 25-29), and a third-party beneficiary contract claim against M&N (id. ¶¶ 30-32).

2. 2006 Policy and Flood

In December 2005, Plaintiffs entered into a renewal SFIP with Liberty Mutual. (2007 Compl., Ex. A. (hereinafter, the "2006 Policy").) The 2006 Policy provided coverage from December 31, 2005, to December 31, 2006. (Id.) In June 2006, a second flood (the "2006 Flood") severely damaged the Property. (Id. ¶ 12.) After the 2006 Flood, Pilot served as an intermediary insurance adjuster to handle claims under the Policy that arose from the 2006 Flood. (Id. ¶ 15.) Plaintiffs submitted a proof of loss to FEMA and Liberty Mutual in August 2006. (Id. ¶ 16.) In addition, Plaintiffs submitted claims for benefits to Pilot, including damage and repair estimates of various contractors and engineers. (See id. ¶ 17.)

Plaintiffs allege that Pilot "failed to properly and accurately evaluate, adjust, and/or timely transmit to FEMA the damage and repair information Plaintiffs had provided to Pilot." (Id. ¶ 19.) Plaintiffs contend that as a result of Pilot's failure, Liberty Mutual "denied and/or partially denied certain damages to the Property as a result of the Flood claimed by Plaintiffs under the Policy." (Id. ¶ 28.) The 2007 Complaint alleges a breach of contract claim against Liberty Mutual (id. ¶¶ 21-24), a ...


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