request for punitive damages, interest, costs and attorneys fees.
Defendant has now moved for dismissal of plaintiff's claims for
punitive damages and attorney's fees pursuant to Fed.R.Civ.P.
12(b)(6) for failure to state a claim upon which relief can be
granted because plaintiff's state law based claims are barred and
preempted in cases involving claims against a National Flood
Insurance Program policy, and because federal law does not
provide for such a recovery.
Standard for Dismissal
When considering a motion to dismiss a complaint for failure to
state a claim upon which relief can be granted pursuant to
Fed.R.Civ.P. 12(b)(6), the court must accept all well pleaded
allegations in the complaint as true and view them in the light
most favorable to the plaintiff. Schrob v. Catterson,
948 F.2d 1402 (3d Cir. 1991); Rogin v. Bensalem Twp., 616 F.2d 680, 685
(3d Cir. 1980), cert. denied, 450 U.S. 1029, 101 S.Ct. 1737, 68
L.Ed.2d 223 (1981). A court may not dismiss the complaint for
failure to state a claim "unless it appears beyond doubt that the
plaintiff can prove no set of facts in support of his claim which
would entitle him to relief." Conley v. Gibson,
355 U.S. 41,45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957) (citations omitted);
D.P. Enterprises, Inc. v. Bucks County Community College,
725 F.2d 943, 944 (3d Cir. 1984).
It is well-settled that a pleading is sufficient if it contains
"a short and plain statement of the claim showing that the
pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2). Under the
liberal federal pleading rules, a complaint need not spell out
the theory of liability under which the plaintiff hopes to
recover. See Evans Products Co. v. West Am. Ins. Co.,
736 F.2d 920, 923 (3d Cir. 1984). It is not necessary to plead evidence,
and it is not necessary to plead all the facts that serve as a
basis for the claim. Bogosian v. Gulf Oil Corp., 561 F.2d 434,
446 (3d Cir. 1977), cert. denied, 434 U.S. 1086, 98 S.Ct. 1280,
55 L.Ed.2d 791 (1978).
However, as stated above, the Federal Rules of Civil Procedure
do require that a complaint set forth "a short and plain
statement of the claim showing that the pleader is entitled to
relief." Fed.R.Civ.P. 8(a). See also Baldwin County Welcome
Center v. Brown, 466 U.S. 147, 149-50 n. 3, 104 S.Ct. 1723, 80
L.Ed.2d 196 (1984) ("Although the Federal Rules of Civil
Procedure do not require a claimant to set forth an intricately
detailed description of the asserted basis for relief, they do
require that the pleadings `give defendant fair notice of what
the plaintiff's claim is and the grounds upon which it rests.'")
(quoting Conley, 355 U.S. at 47, 78 S.Ct. 99).
History of the National Flood Insurance Program
The National Flood Insurance Act (NFIA) of 1968 was created to
make flood insurance available through a program in which both
the national government and the private insurance industry play a
large role. 42 U.S.C.A. § 4001(b), (d). This program was
instituted because insurance companies could not afford to offer
flood insurance at competitive or affordable rates due to the
high cost of covering flood losses. Gowland v. Aetna,
143 F.3d 951 (5th Cir. 1998). Thus, the National Flood Insurance Program
(NFIP) was instituted to provide a unified national program to
reduce and avoid future losses due to floods by creating a
reasonable method to share the risk of flood losses. 42 U.S.C.A.
§§ 4001(a), (c), 4002(b). As a result, the NFIP provides low cost
flood insurance to homeowners and small businesses that may
suffer losses through damage to real and personal property from
flooding. Hidenfelter v. Director, Federal Emergency Management
Agency, 603 F. Supp. 434 (D.C.Mich. 1985).
Originally, the NFIP was supervised by the Department of
Housing and Urban Development, but it was run by a pool of
private insurance companies that shared the underwriting risks,
with federal financial participation. West v. Harris, 573
502 F.2d 873, 875 n. 1(5th Cir. 1978), cert. denied, 440 U.S. 946,
99 S.Ct. 1424, 59 L.Ed.2d 635 (1979); 42 U.S.C. § 4011(c)(1).
However, in 1978 the federal government took control of all
operational responsibilities of the program. Sodowski v.
National Flood Ins. Program of Federal Emergency Management
Agency, 834 F.2d 653, 657 (7th Cir. 1987), cert. denied,
486 U.S. 1043, 108 S.Ct. 2035, 100 L.Ed.2d 619 (1988). As a result,
the NFIP is currently administered by the Federal Emergency
Management Agency (FEMA) and is operated financially through the
National Flood Insurance Fund established by the Director of FEMA
in the Treasury of the United States. 42 U.S.C.A. § 4017(a).
In 1983, Congress created the "Write Your Own" ("WYO") program,
which allows private insurance companies like South Carolina
Insurance Company to write their own insurance policies, and then
submit them to the Flood Insurance Administration. See
44 C.F.R. § 62.23.24. After depleting their net premium income,
"WYO" companies then draw money from FEMA through letters of
credit to disburse claims. Id. Therefore, regardless of whether
FEMA or a "WYO" company issued a flood insurance policy, the
United States Treasury funds pay the insureds' claims. Van Holt
v. Liberty Mutual Fire Ins. Co., 163 F.3d 161, 165 (3d Cir.
1998) (citing Gowland v. Aetna, 143 F.3d 951, 955 (5th Cir.
1998)). As a result, "WYO's" are fiscal agents of the Unites
States. 42 U.S.C. § 4071(a)(1).
Federal Law Governs Claims Arising Under the NFIA
Federal law controls the interpretation of insurance policies
issued pursuant to the National Flood Insurance Program in order
to maintain uniformity. Sodowski, 834 F.2d at 655; Hanover
Building Materials v. Guiffrida, 748 F.2d 1011, 1013 (5th Cir.
1984). Moreover, federal law is applicable to claims arising
under the NFIA because the flood insurance program is a "child of
Congress, conceived to achieve policies which are national in
scope . . . and the federal government participates extensively
in the program both in a supervisory capacity and financially . .
." West, 573 F.2d at 881.
Along with the principle that federal law governs claims
arising under this Act, it is also well established that
plaintiffs who assert flood insurance claims cannot recover
penalties and attorney's fees because federal law preempts such
state law claims. Hanover Building Materials, 748 F.2d 1011;
West, 573 F.2d at 879; Drewett v. Aetna Cas. & Sur. Co.,
405 F. Supp. 877 (D.C.La. 1975). Similarly, this Court has found no
case brought under the NFIA in which attorney's fees were awarded
pursuant to common law.
Further, there is no provision within the statutes or
regulations of the National Flood Insurance Act which allows the
recovery of punitive damages. Eddins v. Omega Insurance Co.,
825 F. Supp. 752 (N.D.Miss. 1993). Ordinarily, the threat of
punitive damages deters insurance companies from arbitrarily
denying legitimate claims in order to be unjustly enriched. Id.
at 753. In the flood insurance arena however, private insurance
companies do not have a pecuniary incentive to deny a claim under
a policy issued pursuant to the NFIA because all claims are paid
by the federal government. Id. at 754. Furthermore, allowing
recovery of punitive damages under the NFIA would "simply defeat
the philosophy behind the program." Id. at 754. Thus, although
the Third Circuit has declined to address the question of whether
the NFIA preempts State law claims, this Court holds that it
would be contrary to the purpose and functioning of that Act to
allow plaintiff's State common law claims for punitive damages
and attorney's fees to proceed in this case.
Plaintiff has argued that New Jersey common law is applicable
in the present case, citing Pickett v. Lloyds, 131 N.J. 457,
621 A.2d 445 (1993). However, although that case discussed how
New Jersey common law requires the parties to an insurance
contract to act in good faith, the claim in Pickett did not
arise under the NFIA and therefore the case is not directly
applicable. Plaintiff also argues that under Van Holt an
insured can bring a claim under New Jersey common law based on
Pickett. (Plaintiff's Brief, p. 5). However, in Van Holt the
court never addressed the issue of whether an award of punitive
damages and attorney's fees would be appropriate because the
court determined that the insurance company's denial of coverage
was not fraudulent and the claim was therefore dismissed. Thus,
it cannot be inferred that the court would have allowed an award
of punitive damages or attorney's fees, especially when the
majority of case law has determined that punitive damages and
attorney's fees are not recoverable under federal law in cases
arising under the NFIA.
The NFIP was designed to make flood insurance available with
the combined cooperation of the national government and the
private insurance industry. It is well established that for
purposes of uniformity of application throughout the country,
federal common law governs claims arising under the NFIA and,
accordingly, "neither the statutory nor decisional law of any
particular state is applicable." Linder and Assoc., Inc. v.
Aetna Cas. & Sur. Co., 166 F.3d 547, 550 (3d Cir. 1999)
(citations omitted). As a result, plaintiff's State common law
claims of punitive damages and attorney's fees are not cognizable
in this case brought pursuant to the NFIA. Even accepting
plaintiff's allegations as true and viewing them in the light
most favorable to the plaintiff, this Court cannot hold that the
plaintiff has pleaded a set of facts which would entitle it to
relief of punitive damages and attorney's fees. Therefore, the
State common law based claims for punitive damages and attorney's
fees found in paragraph 6 of plaintiff's complaint will be
dismissed pursuant to Rule 12(b)(6) of the Federal Rules of Civil
Procedure for failure to state a claim upon which relief can be
An appropriate Order will be entered.
For the reasons set forth in this Court's Opinion, filed even
IT IS ORDERED on this 26th day of July, 1999 that defendants'
motion to dismiss the claims for punitive damages and attorney's
fees for failure to state a claim upon which relief can be
granted is GRANTED.
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