Edgar Allen Gibson and Leslie Gibson v. American Bankers Insurance Company

289 F.3d 943, 2002 U.S. App. LEXIS 9212, 2002 WL 991689

• Court: Court of Appeals for the Sixth Circuit
• Decided: May 16, 2002
• Docket: 00-5560
• Status: Published

Opinions

RALPH B. GUY, JR., J., delivered the opinion of the court, in which HULL, D.J., joined. MOORE, J. (pp. 950-58), delivered a separate opinion concurring in part and dissenting in part.

OPINION

RALPH B. GUY, JR., Circuit Judge.

Plaintiffs, Edgar Allen Gibson and Leslie Gibson, appeal the dismissal of their suit seeking recovery under a standard flood insurance policy. Plaintiffs argue that their claims were not barred by the statute of limitations and that their state law claims should have been remanded to state court. We affirm.

I.

Plaintiffs purchased a standard flood insurance policy (SFIP) issued by defendant, American Bankers Insurance Company, under authority of the National Flood Insurance Act (NFIA), 42 U.S.C. § 4001. Plaintiffs claimed their home and its contents were damaged by a flood on April 19, 1998. On June 10, 1998, defendant denied coverage under the SFIP. On June 9,1999, plaintiffs filed this action in Kentucky state court alleging breach of contract, violation of Kentucky law, and breach of the fiduciary obligations of good faith and fair dealing. On June 29, 1999, pursuant to 28 U.S.C. § 1441, defendant removed the case on the basis of federal question jurisdiction. 28 U.S.C. § 1331. Defendant argued that plaintiffs’ claims could only be pursued under the NFIA.

After removal, a magistrate judge granted defendant’s motion to dismiss under Fed.R.Civ.P. 12(b)(6).¹ The judge found that (1) plaintiffs’ claims were based on defendant’s denial of coverage under an SFIP issued under the NFIA, (2) claim disputes under SFIPs are within the exclusive jurisdiction of the federal district courts, (3) plaintiffs failed to file their claims in federal district court within NFIA’s one year statute of limitations, and (4) the statute of limitations was not tolled by plaintiffs’ filing in state court because that court did not have jurisdiction under NFIA. The magistrate judge found that plaintiffs’ challenge to the disposition of their SFIP claim must be adjudicated exclusively in federal court under the NFIA and refused to remand the state law claims. Plaintiffs appealed.

II.

A dismissal pursuant to a Rule 12(b)(6) motion is reviewed de novo. See S.W. Williamson County Cmty. Ass’n v. Slater, 173 F.3d 1033, 1035 (6th Cir.1999). Dismissal of a complaint because it is barred by the statute of limitations is proper when “the statement of the claim affirmatively shows that the plaintiff can prove no set of facts that would entitle him to relief.” Duncan v. Leeds, 742 F.2d 989, 991 (6th Cir.1984) (emphasis in original) (internal quotation marks and citation omitted).

Plaintiffs argue that their claims are not barred by the statute of limitations because the filing in state court tolled the one-year statute under NFIA. The filing in a state court of competent jurisdiction tolls the statute of limitations during the pen-dency of the state action. Burnett v. N.Y. Cent. R.R. Co., 380 U.S. 424, 85 S.Ct. 1050, 13 L.Ed.2d 941 (1965). We agree with the district court that plaintiffs’ claims disputing the handling and denial of coverage under the SFIP were within the exclusive jurisdiction of the federal district court and, therefore, the filing in state court did not toll the statute of limitations.

NFIA was enacted to provide a unified national program to reduce and avoid losses due to flood by making reasonably priced flood insurance available for residential and commercial properties. The Federal Emergency Management Administration (FEMA) administers the National Flood Insurance Program. 42 U.S.C. § 4081(a). Congress authorized 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.” 42 U.S.C. § 4019. FEMA established a comprehensive regulatory scheme setting forth the rights and responsibilities of insureds and insurers under the National Flood Insurance Program. See 44 C.F.R. Pts. 61-78 (2000). Under regulatory authority granted by Congress in 42 U.S.C. § 4081(a), FEMA created the “Write Your Own” (WYO) program, which authorizes private insurance companies, such as defendant, to issue SFIPs.

Jurisdiction and the statute of limitations for claims made under NFIA are defined in 42 U.S.C. § 4072:

[U]pon the disallowance by the Director of any such claim, or upon the refusal of the claimant to accept the amount allowed upon any such claim, the claimant, within one year after the date of mailing of notice of disallowance or partial disal-lowance by the Director, may institute an action against the Director on such claim in the United States district court for the district in which the insured property or the major part thereof shall have been situated, and original exclusive jurisdiction is hereby conferred upon such court to hear and determine such action without regard to the amount in controversy.

See also 44 C.F.R. § 62.22. We have concluded that this language mandates that federal district courts have exclusive jurisdiction over suits under NFIA. See State Bank of Coloma v. Nat’l Flood Ins. Program, 851 F.2d 817 (6th Cir.1988).

The insurance policy in State Bank was issued directly by FEMA, as opposed to a policy, like the one in this case, that was issued by a private insurance company under the WYO program. In Van Holt v. Liberty Mutual Fire Insurance Company, 163 F.3d 161, 166-67 (3d Cir.1998), the Third Circuit addressed this difference and concluded:

For several reasons, a suit against a WYO company is the functional equivalent of a suit against FEMA. First, a WYO company is a fiscal agent of the United States. 42 U.S.C. § 4071(a)(1). Second, FEMA regulations require a WYO company to defend claims but assure that FEMA will reimburse the WYO company for defense costs. 44 C.F.R. § 62.23(i)(6). Third, an insured’s flood insurance claims are ultimately paid by FEMA. After a WYO company depletes its net premium income, FEMA reimburses the company for the company’s claims payments. 44 C.F.R. Pt. 62, App. A, Art. IV(A). When a WYO company’s proceeds from insurance premiums exceeds its current expenditures, it must pay the excess proceeds to the FIA. 44 C.F.R. Pt. 62, App. A, Art. VII(B). Although a WYO company collects premiums and disburses claims, only FEMA bears the risk under the flood insurance program. Thus, a lawsuit against a WYO company is, in reality, a suit against FEMA.

The Third Circuit noted that to construe § 4072 narrowly to confer exclusive jurisdiction only in cases against FEMA would cause anomalous results:

Because FEMA bears the risk and financial responsibility regardless of whether the lawsuit formally names FEMA or a WYO company as the defendant, it would make little sense for Congress to have intended to create original exclusive jurisdiction for suits against FEMA but not for suits in which FEMA’s fiscal agent is the nominal defendant.

Id. at 167.

We adopt the Third Circuit’s reasoning and hold that § 4072 provides exclusive subject matter jurisdiction over suits against a WYO insurance company arising out of a disputed flood insurance claim. See also Hairston v. Travelers Cas. & Sur. Co., 232 F.3d 1348, 1349 (11th Cir.2000) (holding that federal courts have jurisdiction over suits brought under policies issued by WYO companies). But see Downey v. State Farm Fire & Cas. Co., 266 F.3d 675, 680 (7th Cir.2001) (declining to follow the Third Circuit’s reasoning in Van Holt).

We have also held, however, that if the state court does not clearly lack jurisdiction, equitable tolling may still apply. Farrell v. Auto. Club of Mich., 870 F.2d 1129, 1133 (6th Cir.1989). Equitable tolling should be applied sparingly and only when exceptional circumstances prevented timely filing through no fault of the plaintiff. Ayers v. United States, 277 F.3d 821, 828 (6th Cir.2002).

When plaintiffs filed their suit in state court, the Sixth Circuit had not addressed whether such claims were within the exclusive jurisdiction of the federal district courts. At that time, however, every court that had addressed this issue concluded that § 4072 conferred federal district court jurisdiction over suits against WYO companies for SFIP payment disputes. See Van Holt, 163 F.3d at 166; Miller v. Am. Banker’s Ins. Group, 85 F.Supp.2d 1297, 1300 (S.D.Fla.1999); Parsons Footwear, Inc. v. Omaha Prop. & Cas. Co., 19 F.Supp.2d 588, 591 (N.D.W.Va.1998); Webb v. Aetna Ins. Co., No. CIV. A. 97-0550, 1997 WL 433500 (E.D.La. July 31, 1997). There were, therefore, no competing jurisdictional theories to justify the application of equitable tolling. See Fox v. Eaton Corp., 615 F.2d 716, 718-20 (6th Cir.1980).

In addition, plaintiffs’ SFIP specifically stated:

Conditions for Filing a Lawsuit: You may not sue us to recover money under this policy unless you have complied with all the requirements of the policy. If you do sue, you must start the suit within 12 months from the date we mailed you notice that we have denied your claim, or part of your claim, and you must file the suit in the United States District Court of the district in which the insured property was located at the time of loss.

44 C.F.R., pt. 61, App. A(l), Art. 9, R (1997).² While forum selection clauses in contracts do not deprive courts of jurisdiction, they are presumptively valid. See Stewart Org. v. Ricoh Corp., 487 U.S. 22, 108 S.Ct. 2239, 101 L.Ed.2d 22 (1988); M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972). In light of the lack of any judicial authority supporting the filing of plaintiffs’ suit in state court and given that plaintiffs were explicitly put on notice of the need to sue defendant in federal court through the specific contractual language of the SFIP, there are no exceptional circumstances that justify the tolling of the statute of limitations. See Hairston v. Travelers Cas. & Sur. Co., 232 F.3d 1348 (11th Cir.2000) (filing in state court did not toll statute of limitations on plaintiffs SFIP claims because state court did not have jurisdiction).

That leaves plaintiffs’ final argument that their claims under the Kentucky Unfair. Claims Settlement Statute, Ky.Rev.Stat. § 304.12-230, should be remanded to state court. If plaintiffs’ claims under the Kentucky statute are preempted by NFIA, there are no claims to remand to state court. Under the Supremacy Clause of the United States Constitution, “state laws that ‘interfere with, or are contrary to the laws of congress, made in pursuance of the constitution’ are invalid.” Wis. Pub. Intervenor v. Mortier, 501 U.S. 597, 604, 111 S.Ct. 2476, 115 L.Ed.2d 532 (1991) (quoting Gibbons v. Ogden, 22 U.S. (9 Wheat) 1, 211, 6 L.Ed. 23 (1824)). Whether federal law preempts state law turns principally on congressional intent. N.W. Cent. Pipeline Corp. v. State Corp. Comm’n of Kan., 489 U.S. 493, 509, 109 S.Ct. 1262, 103 L.Ed.2d 509 (1989).

This court will give preemptive effect to federal law where (1) a federal statute expressly preempts state law, (2) a federal law impliedly preempts state law, or (3) federal law and state law actually conflict. Gustafson v. City of Lake Angelus, 76 F.3d 778, 782-83 (6th Cir.1996). State and federal law actually conflict when “compliance with both federal and state regulations is a physical impossibility,” Fla. Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 132, 142-43, 83 S.Ct. 1210, 10 L.Ed.2d 248 (1963), or when a state law “stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress,” Hines v. Davidowitz, 312 U.S. 62, 67, 61 S.Ct. 399, 85 L.Ed. 581 (1941). Implied preemption occurs “if a scheme of federal regulation is ‘so pervasive as to make reasonable the inference that Congress left no room for the States to supplement it,’ if ‘the Act of Congress ... touch[es] a field in which the federal interest is so dominant that the federal system will be assumed to preclude enforcement of state laws on the same subject,’ or if the goals ‘sought to be obtained’ and the ‘obligations imposed’ reveal a purpose to preclude state authority.” Mortier, 501 U.S. at 605, 111 S.Ct. 2476 (quoting Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230, 67 S.Ct. 1146, 91 L.Ed. 1447 (1947)).

While this circuit has not addressed this issue, most courts have consistently found that NFIA preempts state law claims that are based on the handling and disposition of SFIP claims. See Novikov v. Allstate Ins. Co., No. Civ. S-01-0305 WBS/G, 2001 WL 880852 (E.D.Cal. July 11, 2001) (state law claims of breach of contract, breach of the covenant of good faith and fair dealing, and intentional and negligent infliction of emotional distress under an SFIP were preempted by NFIA because applicability of state law would undermine a nationally unified program of flood insurance); Jamal v. Travelers Lloyds of Texas Ins. Co., 129 F.Supp.2d 1024 (S.D.Tex.2001) (claims of breach of duty of good faith and fair dealing and violations of Texas law are preempted by NFIA); Neill v. State Farm Fire & Cas. Co., 159 F.Supp.2d 770, (E.D.Pa.2000) (ex-contractual causes related to the insurance company’s claims handling under state law was preempted). Some cases have distinguished between state law claims based on the handling of an SFIP claim and those that are related to the procurement of the policy. See Messa v. Omaha Prop. & Cas. Ins. Co., 122 F.Supp.2d 513, 522-23 (D.N.J.2000) (state law claims were nothing more than disagreement with disposition of SFIP claim and are barred by field preemption under NFIA). Some courts have found that claims relating to the procurement of the policy are not preempted by NFIA. See Spence v. Omaha Indem. Ins. Co., 996 F.2d 793 (5th Cir.1993); Powers v. Autin-Gettys-Cohen Ins. Agency, No. CIV. A. 00-1821, 2000 WL 1593401 (E.D.La. Oct.24, 2000). But see Bleecker v. Standard Fire Ins. Co., 130 F.Supp.2d. 726 (E.D.N.C.2000) (po preemption because federal funds would not be used to pay damages for torts committed by WYO companies).

In this case, plaintiffs claim defendant violated the Kentucky statute by failing to act promptly on communications, refusing to pay the claim, failing to affirm coverage, and not attempting a good faith settlement. All of these claims are in essence over the disposition of the SFIP claim. They are all based on defendant’s handling and denial of coverage under the SFIP. Congress and FEMA have regulated the claims adjustment process and judicial review of coverage claims under flood insurance policies. Uniformity of decision requires the application of federal law and precludes the enforcement of state laws on the same subject. If plaintiffs prevail, their coverage claims will be paid with federal funds. The defense costs incurred by defendant are also covered by federal funds. See 44 C.F.R. § 62.23(i)(6). It is unnecessary for us to decide whether policy procurement type state law claims are preempted by NFIA. The claims asserted by plaintiffs clearly are preempted by NFIA and are within the exclusive jurisdiction of the federal courts. These claims, therefore, are likewise barred by the statute of limitations; and there are no claims to remand to state court.

AFFIRMED.

1 . Pursuant to 28 U.S.C. § 636(c)(1), the parties consented to the assignment of the case to a magistrate judge for final disposition.

2 . The terms of the SFIP are set forth in 44 C.F.R. pt. 61, App. A, and must be issued by WYO companies without alteration. 44 C.F.R. §§ 61.4(b), 61.13(d), 62.23(c), 63.23(d). See Neuser v. Hocker, 246 F.3d 508, 510 (6th Cir.2001). The language in Article 9, R of the SFIP was amended on October 12, 2000, as part of a "plain English” revision that did not result in any substantive changes.