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PLYWOOD PROP. ASSOCS. v. NATIONAL FLOOD INS. PROGR

June 18, 1996

PLYWOOD PROPERTY ASSOCIATES, et al., Plaintiffs,
v.
National Flood Insurance Program, et al., Defendants, and UNITED STATES OF AMERICA, Third-Party Plaintiff, vs. PLYWOOD PROPERTY ASSOCIATES, et al., Third-Party Defendants.



The opinion of the court was delivered by: ORLOFSKY

 ORLOFSKY, District Judge:

 This matter comes before the Court on the cross-motions of Defendant, Director, Flood Emergency Management Agency ("FEMA"), an agency of the United States Government, Third Party Defendants, Plywood Property Associates, Saul Friedman, and Morris Friedman, and Third Party Defendant, Merit Adjustors, Inc. ("Merit"), for summary judgment pursuant to Fed. R. Civ. P. 56. The cross-motions present novel questions of law, unaddressed in this Circuit, involving the extent of coverage available under the Standard Flood Insurance Policy issued pursuant to the National Flood Insurance Act of 1968, 42 U.S.C. §§ 4001 et seq., and whether a Proof of Loss submitted by an insured under such a Policy constitutes a "claim" within the meaning of the False Claims Act, 31 U.S.C. §§ 3729 et seq. For the reasons set forth below, all three of the pending cross-motions for summary judgment in this case will be denied.

 I. Procedural Background

 On May 19, 1994, Plaintiffs, Plywood Property Associates, Saul Friedman, and Morris Friedman, *fn1" filed a complaint for declaratory judgment against Defendants, Director of the Federal Emergency Management Agency and /or the National Flood Insurance Program ("FEMA"), and the Pennsylvania Lumbermans Mutual Insurance Company, to determine their right to insurance coverage under their respective policies for alleged flood damage to their commercial property. A Stipulation of Dismissal with Prejudice as to Defendant, Pennsylvania Lumbermans Mutual Insurance Company, was filed with this Court on November 27, 1995.

 The United States of America, as Third Party Plaintiff, filed a third party complaint against Plaintiffs and Merit, Plaintiffs' claims adjustor, contending that Plaintiffs and Merit knowingly submitted false Proofs of Claim to them in violation of the False Claims Act, 31 U.S.C. §§ 3729 et seq.

 FEMA now moves for summary judgment on Plaintiffs' declaratory judgment complaint. In addition, Plywood and Merit, as Third Party Defendants, have also separately moved for summary judgment on the United States' third party complaint. These three motions are presently before this Court.

 II. Facts

 On December 11, 1992, Plaintiffs were the owners of real property and a warehouse building located at 33 Gregg Street in Lodi, Bergen County, New Jersey. On that date, a severe storm occurred in many areas of the northeastern United States, including Lodi, New Jersey, where over two inches of rain fell. A limited state of emergency was declared by Governor James Florio on December 11, 1992, in all of the counties of New Jersey, due to the intensity of the storm. Plaintiffs contend that their warehouse was damaged as a result of floods produced by this storm.

 The Plaintiffs had insured their property with a Standard Flood Insurance Policy ("SFIP") issued by the National Flood Insurance Program ("NFIP"), which provides federally subsidized flood insurance benefits. *fn2" This policy was in force on December 11, 1992, the date of the storm. (Braunreuther Dec., Exhibit A). By way of two Proofs of Loss, dated February 9, 1993, and April 8, 1993, respectively, submitted by Plaintiffs' claims adjustor, Merit, Plaintiffs notified FEMA of their intention to recover under the SFIP for damages allegedly sustained during the storm. In their second and final Proof of Loss, Plaintiffs indicated that they sustained damages to their property in an amount of $ 484,000, and therefore sought to recover their policy limit of $ 250,000. By letter dated May 24, 1993, Plaintiffs were informed that their claim was denied by FEMA. (Complaint, P21).

 III. Summary Judgment Standard

 A party seeking summary judgment must "show that there is no genuine issue as to any material fact and that [he or she] is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). See also Hersh v. Allen Products, Co., 789 F.2d 230, 232 (3d Cir. 1986); Lang v. New York Life Ins. Co., 721 F.2d 118, 119 (3d Cir. 1983). In deciding whether there is a disputed issue of material fact the Court must view all inferences, doubts and issues of credibility in favor of the non-moving party. See Hancock Indus. v. Schaeffer, 811 F.2d 225, 231 (3d Cir. 1987) (citation omitted); Meyer v. Riegel Prods. Corp., 720 F.2d 303, 307 n.2 (3d Cir. 1983), cert. denied, 465 U.S. 1091, 79 L. Ed. 2d 910, 104 S. Ct. 2144 (1984). The threshold inquiry is whether there are "any genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986).

 Moreover, Federal Rule of Civil Procedure 56(e) provides:

 
When a motion for summary judgment is made and supported as provided in this rule, an adverse party may not rest upon the mere allegations or denials of the adverse party's pleading, but the adverse party's response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial. If the adverse party does not so respond, summary judgment, if appropriate, shall be entered against the adverse party.

 Fed. R. Civ. P. 56(e).

 Under this rule, a movant must be awarded summary judgment on all properly supported issues identified in its motion, except for those for which the opposing party has provided evidence to show that a question of material fact remains. Put another way, once the moving party has properly supported its motion, "its opponent must do more than simply show that there is some metaphysical doubt as to material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 89 L. Ed. 2d 538, 106 S. Ct. 1348 (1986). Nonetheless, the moving party on the motion, bears the initial responsibility of demonstrating the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 325, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986).

 III. FEMA's Motion for Summary Judgment on Plaintiffs' Complaint

 FEMA presents a two-pronged argument in support of its motion for summary judgment. FEMA first contends that the damages that Plaintiffs claim that their property sustained as a result of the storm on December 11, 1992, are not covered by the Standard Flood Insurance Policy ("SFIP"), and therefore, Plaintiffs cannot recover any proceeds under the policy. FEMA also asserts that, even if some of Plaintiffs' alleged damages are within the scope of the SFIP's coverage, their claims are unsupported by sufficient expert testimony contained in the summary judgment record. The Court will first consider FEMA's contention that Plaintiff's damages do not fall within the scope of the SFIP's coverage.

 A. Coverage of the Standard Flood Insurance Policy

 The policy issued to Plaintiffs was a Standard Flood Insurance Policy issued by the National Flood Insurance Program ("NFIP") pursuant to the National Flood Insurance Act of 1968, 42 U.S.C. §§ 4001 et seq., and administered by FEMA. (Braunreuther Dec., Exhibit A). The meaning and effect of the SFIP "depends on the meaning and effect of the legislation, especially the statute authorizing and directing the regulations and defining the policy coverage." Chesapeake Ship Propeller Co. v. Stickney, 820 F. Supp. 995, 997 (E.D. Va. 1993).

 The NFIP was created "because private insurance companies were unable to write flood insurance policies on an economically feasible basis and something had to be done to alleviate some of the extreme hardships suffered by flood victims." Quesada v. Director, Federal Emergency Management Agency, 753 F.2d 1011, 1014 (11th Cir. 1985) (Tjoflat, J., dissenting). *fn3"

 The SFIP is a "single-risk" insurance policy, as it only provides coverage for "direct physical loss by or from flood." *fn4" (Braunreuther Dec., Exhibit A). See also Wagner v. Director, Federal Emergency Management Agency, 847 F.2d 515, 521 (9th Cir. 1988); Chesapeake, 820 F. Supp. at 998. The term "flood," is defined in the SFIP as:

 
(a) A general and temporary condition of partial or complete inundation of normally dry land areas from:
 
(1) The overflow of inland or tidal waters.
 
(2) The unusual and rapid accumulation or runoff of surface waters from any source.
 
(3) Mudslides (i.e. mudflows) which are proximately caused by flooding as defined in subparagraph A-2 above and are akin to a river of liquid and flowing mud on the surfaces of normally dry land areas, as when earth carried by a current of water and deposited along the path of the current.
 
(b) The collapse or subsidence of land along the shore of a lake or other body of water as a result of erosion or undermining caused by waves or currents of water exceeding the cyclical levels which result in flooding as defined in A-1 above.

 (Braunreuther Dec., Exhibit A). *fn5"

 The SFIP, however, excludes from its coverage certain losses as set forth below:

 
PERILS EXCLUDED: The Insurer shall not be liable for loss...[caused by] land sinkage, land subsidence, landslide, gradual erosion, or any other earth movement except such mudslides (i.e. mudflows) or erosion as is covered under the peril of flood.

 (Braunreuther Dec., Exhibit A (emphasis supplied)). Erosion "as is covered under the peril of flood," or "flood-related erosion," is defined in subpart (b) to the definition of "flood" in both the Regulations promulgated ...


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