United States District Court, D. New Jersey
THE RESIDENCES AT BAY POINT CONDOMINIUM ASSOCIATION, INC., Plaintiff,
THE STANDARD FIRE INSURANCE COMPANY, doing business as TRAVELERS INDEMNITY AND AFFILIATES, CHERNOFF DIAMOND & CO, LLC, ALBERT J. DWECK, and THE RESIDENCES AT BAY POINT, LLC, Defendants
For THE RESIDENCES AT BAY POINT CONDOMINIUM ASSOCIATION, INC., Plaintiff: LOUIS JAMES LAMATINA, LEAD ATTORNEY, PARAMUS COMMONS, PARAMUS, NJ.
For THE STANDARD FIRE INSURANCE COMPANY, doing business as TRAVELERS INDEMNITY AND AFFILIATES, Defendant: BENJAMIN EVAN GORDON, LEAD ATTORNEY, STRADLEY RONON STEVENS & YOUNG LLP, PHILADELPHIA, PA.
For CHERNOFF DIAMOND & CO, LLC, Defendant: DEBRA MILLER KREBS, LEAD ATTORNEY, KEIDEL, WELDON & CUNNINGHAM, LLP, WHITE PLAINS, NY.
Honorable Freda L. Wolfson, United States District Judge.
Before the Court is the Motion of Defendant, the Standard Fire Insurance Company (" Standard" ), to dismiss certain counts of the Second Amended Complaint of the Residences at Bay Point Condominium Association (" Plaintiff" ) for failure to state a claim, pursuant to Federal Rule of Civil Procedure 12(b)(6), along with the Cross-Motions of both Plaintiff and Defendant, Chernoff Diamond and Co., LLC (" Chernoff" ), for summary judgment in favor of Plaintiff on its claims against Standard. Plaintiff claims (i) in its Second Cause of Action, that Standard breached the General Property (" GP" ) Standard Flood Insurance Policies (" SFIPs" ) on Plaintiff's Buildings 10 and 12 by reforming those policies to Residential Condominium Building Association Policies (" RCBAPs" ) in the wake of Hurricane Sandy in October of 2012, because neither building was " residential" under the terms of the SFIPs; (ii) in its Third Cause of Action, that Standard breached the reformed RCBAP SFIPs on all four of Plaintiff's buildings by applying coinsurance penalties, because Plaintiff carried the " maximum amount of insurance coverage available" under its original GP SFIPs and/or under its reformed RCBAP SFIPS; and (iii) in its Fourth Cause of Action, that Standard breached the reformed RCBAP SFIPs on all four of Plaintiff's buildings by denying Plaintiff the opportunity to purchase additional coverage after the flood loss.
For the reasons set forth below, this Court concludes that, under the National Flood Insurance Program (" NFIP" ), of which all SFIPs are a part, (i) " residential" means designed for principal use as a dwelling place, (ii) " maximum amount of insurance coverage available" means the maximum amount of insurance coverage legally available to a property owner before the occurrence of a flood-related loss, and (iii) no provision of the NFIP allows for the purchase of insurance coverage after a flood loss. Accordingly, the Court grants Standard's Motion and dismisses the Second, Third, and Fourth Causes of Action in the Second Amended Complaint. The Cross-Motions for Summary Judgment of Plaintiff and Chernoff are denied as moot.
I. BACKGROUND OF THE NATIONAL FLOOD INSURANCE PROGRAM
Congress passed the National Flood Insurance Act (" NFIA" ) to " limit the damage caused by flood disasters through prevention and protective measures," namely through the creation of a comprehensive, federally-run system of flood insurance. Van Holt v. Liberty Mut. Fire Ins. Co., 163 F.3d 161, 165 (3d Cir. 1998). The
NFIA entrusted the Federal Emergency Management Agency (" FEMA" ) with the administration of the NFIP and funded the NFIP through the National Flood Insurance Fund, located in the United States Treasury and overseen by FEMA. Id. at 165 n. 2. The NFIA further 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 insurance." 42 U.S.C. § 4019. The resulting regulatory scheme, promulgated by FEMA, can be found in 44 C.F.R. § § 61.1-78.14. Because the NFIP is a completely federally funded and administered program, states have no regulatory control over the NFIP's operations. Linder & Assocs. Inc. v. Aetna Cas. & Sur. Co., 166 F.3d 547, 550 (3d Cir. 1999) (" It is well settled that federal common law governs the interpretation of [NFIP policies]. Accordingly, neither the statutory nor decisional law of any particular state is applicable to the case at bar. . . . [W]e interpret the [policy] in accordance with its plain, unambiguous meaning, remaining cognizant that its interpretation should be uniform throughout the country and that coverage should not vary from state to state." )(quotations omitted).
Pursuant to another part of the NFIA, 42 U.S.C. § 4081(a), FEMA created the " Write-Your-Own" (" WYO" ) Program whereby SFIPs may be issued by private insurance companies like Standard (" WYO companies" ). Though FEMA may issue SFIPs directly, " more than 90% are written by WYO companies. These private insurers may act as 'fiscal agents of the United States,' 42 U.S.C. § 4071(a)(1), but they are not general agents. Thus they must strictly enforce the provisions set out by FEMA and may vary the terms of [an SFIP] only with the express written consent of the Federal Insurance Administrator. 44 C.F.R. § § 61.4(b), 61.13(d) & (e), 62.23(c) & (d). In essence, the insurance companies serve as administrators for the federal program. It is the Government, not the companies, that pays the claims. And when a claimant sues for payment of a claim, 'the responsibility for defending claims will be upon the Write Your Own Company and defense costs will be part of the ... claim expense allowance' [reimbursed by the government]. 44 C.F.R. § 62.23(i)(6)." C.E.R. 1988, Inc. v. Aetna Cas. & Sur. Co., 386 F.3d 263, 267 (3d Cir. 2004).
Private insurers participating in the WYO Program are authorized to issue policies under a number of different forms of the SFIP. Which SFIP form is used to insure a property is determined by the type of the insured property's intended occupancy. See FEMA National Flood Insurance Manual, GR 5, III, D, effective May 1, 2011, available at http://www.fema.gov/flood-insurance-manual/flood-insurance-manual-effective-may-1-2011 (hereinafter " Manual" ). For an example relevant to this case, the General Property form of the SFIP is used for apartment buildings, while the Residential Condominium Building Association Policy (" RCBAP" ) form of the SFIP is used for residential condominium buildings. 44 C.F.R. § 61, app. A(2)-(3). Other than the type of building each insures, the other primary difference between the different forms of the SFIP is the type of compensation and coverage available after a qualifying flood loss has occurred. The General Property form provides flood insurance coverage on an Actual Cash Value (" ACV" ) basis. Under ACV policies, insureds are compensated for the cash value of lost or damaged property at the time of the flood loss, up to the total amount of ACV insurance purchased and subject to any deductible on the policy. [RCBAP SFIP, 17; 44 C.F.R. § 61, app. A(3)(V)(A)(4)].
The RCBAP form, by contrast, provides coverage on a Replace Cost (" RC" ) basis. Under RC policies, insureds are compensated for the cost to replace lost or damaged property with new versions of the same or substantially similar property at the time of the loss, again up to the total amount of the RC insurance purchased and subject to any deductible, but also subject to " coinsurance penalties" unique to the RCBAP policy. Because FEMA wished to encourage condominium owners insuring their properties under the RCBAP form to carry adequate insurance to replace all or substantially all of the damaged property, it added " coinsurance penalties" or " copays" to the RCBAP SFIP, whereby policyholders who purchased insurance for less than 80% of the replacement value of the insured property would suffer reductions in the payouts of their policies. [RCBAP SFIP, 10; 44 C.F.R. § 61 app. (A)(3)(VII)]. The dispute presently before the Court arises out of the different eligibility requirements and methods of compensation provided by the General Property and RCBAP forms of SFIPs.
II. FACTUAL BACKGROUND
This Court extensively discussed the facts of this case in its Opinion dated December 4, 2013. In that Opinion, the Court decided Standard's Motion for Partial Summary Judgment, and was called upon to rely on facts outside of the Complaint, which were submitted by the parties in supplementary affidavits and declarations. In considering Standard's present Motion to Dismiss the Second Amended Complaint, however, this Court relies exclusively upon those facts articulated within the Second Amended Complaint itself. Although both the parties and the Court are, by this time, intimately familiar with the facts surrounding this dispute, those facts relevant to the present Motion are as follows.
At some point prior to the year 2012, Plaintiff, through its broker Defendant Chernoff Diamond & Co., LLC, secured four SFIPs underwritten as part of the WYO Program of the NFIP by Defendant Standard. [Second Amended Complaint, hereinafter " SAC," p. 5, ¶ 13]. All four policies were written onto the GP form of the SFIP. [SAC, p. 5, ¶ 14]. Each policy provided $250,000 of flood insurance coverage to a different one of the buildings in Plaintiff's " residential condominium complex." [SAC, p. 3, ¶ 4; p. 5, ¶ 14]. In October of 2012, all four of Plaintiff's buildings suffered flood damage as a result of Hurricane Sandy. [SAC, p. 5, ¶ 13]. Plaintiff submitted a timely insurance claim on all four of its GP SFIPs. [SAC, p. 6, ¶ 16].
After reviewing Plaintiff's claims, Standard reformed all four of Plaintiff's GP SFIPs, rewriting them onto RCBAP forms, reasoning that Plaintiff's buildings were in fact " residential condominiums" under the NFIP at the time of Plaintiff's last policy renewal and of the flood loss. [SAC, p. 6, ¶ 17]. Standard, applying the provisions of the reformed RCBAP SFIPs, then applied coinsurance penalties to the claims made on each of Plaintiff's buildings because Plaintiff's $250,000 of reformed RCBAP coverage per building was less than 80% of the replacement value of each building. Standard reduced Plaintiff's insurance claims by $361,696.87 and offered to pay $221,131.24 in full satisfaction of Plaintiff's claims. [SAC, pp. 6-7, ¶ ¶ 19-20]. Plaintiff disputed Standard's adjustment
of its claims, and filed suit. Since the filing of the original Complaint in this action, Standard has paid Plaintiff $221,131.24 on its reformed RCBAP SFIPs. [SAC, p. 7, ¶ 22].
III. PROCEDURAL HISTORY
Plaintiff commenced this action by a Complaint on April 10, 2013, naming the Standard Fire Insurance Company and Chernoff Diamond & Co., LLC as defendants. On May 14, 2013, Standard responded by filing a pre-Answer Motion to Dismiss all claims against it pursuant to Rule 12(b)(6). Chernoff Answered the Complaint on June 10, 2013, and, shortly thereafter, on June 17, filed a Response in Opposition to Standard's Motion. Plaintiff also submitted its Response in Opposition to the Motion on June 17. Standard filed its Reply to both Oppositions on July 29, 2013. Along with their Opposition papers, both Plaintiff and Chernoff submitted affidavits and other evidence not contained within the Complaint, along with a request that Standard's Motion be treated as one for Summary Judgment under Rule 56. Standard, in its Reply, agreed that the Motion should be converted. Accordingly, the Court, pursuant to Rule 12(d), converted Standard's Motion to one for Summary Judgment on October 9, 2013, simultaneously also granting Plaintiff's request to supplement the record. Plaintiff filed its supplementary Reply brief on October 24. Standard responded with a request to file a Sur-Reply on October 28, which was granted by the Court. Standard filed its Sur-Reply on November 6, 2013, completing briefing on the converted Motion for Summary Judgment.
On December 4, 2013, this Court issued its Opinion on Standard's initial Motion. The Court dismissed, with prejudice, Plaintiff's federal breach of contract claim concerning the reformation of the SFIPs issued on Plaintiff's Buildings 9 and 11. The Court then dismissed, without prejudice, Plaintiff's federal breach of contract claim concerning the reformation of the SFIPs issued on Plaintiff's Buildings 10 and 12. The Court also dismissed, with prejudice, all of Plaintiff's state law claims against Standard. Acknowledging the novel legal arguments introduced by both parties in briefing, and in light of the significant additional factual matter produced, the Court granted Plaintiff leave to amend its Complaint to claim (i) that reformation of the GP SFIPs issued on Buildings 10 and 12 was improper because these buildings were not " residential condominiums" as defined under the NFIP, and (ii) that, even if reformation of all four of Plaintiff's SFIPs was appropriate, Standard should not have applied coinsurance penalties to Plaintiff's insurance claims because Plaintiff held the " maximum amount of insurance available" under the NFIP.
Plaintiff filed an Amended Complaint on December 24, 2013, in which it raised these arguments in three separate causes of action. Plaintiff claims (i) in its Second Cause of Action, that Standard breached the General Property (" GP" ) Standard Flood Insurance Policies (" SFIPs" ) on Plaintiff's Buildings 10 and 12 by reforming those policies to Residential Condominium Building Association Policies (" RCBAPs" ) in the wake of Hurricane Sandy in October of 2012, because neither building was " residential" under the terms of the SFIPs; (ii) in its Third Cause of Action, that Standard breached the reformed RCBAP SFIPs on all four of Plaintiff's buildings by applying coinsurance penalties, because Plaintiff carried the " maximum amount of insurance coverage available" under its original GP SFIPs and/or under its reformed RCBAP SFIPS; and (iii) in its Fourth Cause of Action, that Standard breached the reformed RCBAP SFIPs on all four of Plaintiff's buildings by
denying Plaintiff the opportunity to purchase additional coverage after the flood loss.
On January 14, 2014, Plaintiff was granted leave to file and did file a Second Amended Complaint, with claims against Standard identical to those raised in the Amended Complaint, but adding claims against additional defendants, Albert J. Dweck, and the Residences at Bay Point LLC. Standard moved to dismiss the Second Amended Complaint on January 31. Plaintiff opposed Standard's Motion and filed its own Cross-Motion for Summary Judgment on all three of its breach of contract claims against Standard on March 17, 2014. On the same day, Defendant Chernoff also filed an Opposition to Standard's Motion and made its own Cross-Motion for Summary Judgment in favor of Plaintiff on all three of Plaintiff's claims against Standard. Mr. Dweck and the Residences at Bay Point LLC joined in Plaintiff's and Chernoff's Motions by letter brief. The Motion and Cross-Motions were subsequently fully briefed and are now before the Court.
IV. STANDARD OF REVIEW
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), a court must accept all well-pleaded allegations in the complaint as true and view them in the light most favorable to the plaintiff. Evancho v. Fisher, 423 F.3d 347, 351 (3d Cir. 2005). 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). However, " [a]lthough 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." Baldwin Cnty. Welcome Ctr. v. Brown, 466 U.S. 147, 149-50 n. 3, 104 S.Ct. 1723, 80 L.Ed.2d 196 (1984) (quotation and citation omitted). A district court, in weighing a motion to dismiss, asks " 'not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claim.'" Bell Atlantic v. Twombly, 550 U.S. 544, 583, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (quoting Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974)); see also Ashcroft v. Iqbal, 556 U.S. 662, 684, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (" Our decision in Twombly expounded the pleading standard for all civil actions." ) (internal citations omitted); Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009) (" Iqbal. . . provides the final nail-in-the-coffin for the 'no set of facts' standard that applied to federal complaints before Twombly." ).
Following the Twombly/Iqbal standard, the Third Circuit applies a two-part analysis in reviewing a complaint under Rule 12(b)(6). First, a district court must accept all of the complaint's well-pleaded facts as true, but may disregard any legal conclusions. Fowler, 578 F.3d at 210. Second, a district court must determine whether the facts alleged in the complaint are sufficient to show that the plaintiff has a " plausible claim for relief." Ibid. A complaint must do more than allege the plaintiff's entitlement to relief. Ibid.; see also Phillips v. Cnty. of Allegheny, 515 F.3d 224, 234 (3d Cir. 2008) (stating that the " Supreme Court's Twombly formulation of the pleading standard can be summed up thus: 'stating ... a claim requires a complaint with enough factual ...