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McDowell v. USAA General Indemnity Co.

United States District Court, D. New Jersey

July 7, 2017

BRIAN R. McDOWELL, Plaintiff,

          Judith L. Rosenthal, Esq. Attorney for Plaintiff.

          Georgette Castner, Esq. Ethan A. Hougah, Esq. MONTGOMERY MCCRACKEN WALKER & RHOADS LLP Attorneys for Defendant.




         In this National Flood Insurance Program (“NFIP”) coverage action, Plaintiff Brian R. McDowell (hereinafter, “Plaintiff”) seeks damages against Defendant USAA General Indemnity Company (hereinafter, “USAA” or “Defendant”) arising from Defendant adjustment of Plaintiff's claim for property damage to his home caused by Superstorm Sandy. Before the Court is Defendant's motion for summary judgment, as well as Plaintiff's cross-motion for partial summary judgment on Plaintiff's Internal Cost of Compliance (“ICC”) claim. [Docket Items 85 and 94.] The principal issue to be decided is whether Plaintiff complied with the conditions and requirements under his Standard Flood Insurance Policy (“SFIP”). For the reasons that follow, Defendant's motion for summary judgment will be granted and Plaintiff's cross-motion for partial summary judgment will be denied.

         II. BACKGROUND[1]

         A. Factual Background[2]

         In 2005, Defendant issued an SFIP and a homeowners' policy to Plaintiff for his one-story, single-family home located in Forked River, New Jersey (Def. Statement of Undisputed Material Facts (“SUMF”) at ¶¶ 1-2.) Plaintiff is a First Class Petty Officer Builder, Rank E6, with the United States Navy and his responsibilities consist of a “complete knowledge of every aspect of building between concrete, framing, drywall, sheathing, framing, all aspects of building.” (Pl. Counterstatement of Material Facts “CSMF” at ¶ 8.)

         1. Pre-Sandy claims

         In November 2010, Plaintiff made a claim under his Homeowner's Policy for flooding that was allegedly caused by a rechargeable battery catching fire and damaging a pipe in his house; this damage required certain repairs. (Def. SUMF at ¶¶ 4-5.) Plaintiff's net claim was $48, 050 with $15, 623.60 in recoverable depreciation. (Id. at ¶ 7.) Defendant covered the fire loss under Plaintiff's Homeowner's Policy, not the SFIP Policy, and paid Plaintiff $31, 926.40 in connection with the loss. (Pl. CSMF at ¶¶ 30, 34.) Plaintiff testified that immediately following the fire, he “fixed the electrical, the boiler, the ceiling tile” and cleaned. (Pl. CSMF at ¶ 35.)

         Plaintiff made a claim under his SFIP in July 2011 for water damage allegedly caused by rainwater infiltration. (Def. SMF at ¶ 11.) By letter dated February 20, 2013, Defendant notified Plaintiff that “there was no demonstrable damage to [his] dwelling from the . . . flooding event . . . we are closing our file without payment or further activity.” (Plaintiff's Response to Def. SMF at ¶ 13.) Further, Defendant stated that the basis of denial was that the water was due to “storm drains overflowing.” (Pl. CSMF at ¶ 58.) On August 14, 2011, Plaintiff experienced flooding at his home. (Id. at ¶ 14; Pl. CSMF at ¶ 60.) Plaintiff did not make a claim for any loss, and Defendant did not inspect Plaintiff's home in connection with this event. (Pl. CSMF at ¶¶ 61-62.)

         Then, on August 28, 2011, Plaintiff experienced a loss to his home due to Hurricane Irene; specifically, approximately 12 inches of the right wall of the home bowed out due to the entry of water into the home. (Id. at ¶ 65.) Plaintiff submitted a claim for damages in connection with this loss, and on September 13, 2011, an adjuster for Defendant inspected Plaintiff's home. (Def. SMF at ¶ 15; Pl. CSMF at ¶ 67.) On his Preliminary Report, the adjuster checked “No” in response to the form question, “Was there a general and temporary condition of flooding[?]” (Pl. CSMF at ¶ 69.) In late October/early November 2011, Plaintiff's friend Michael Carey helped him repair the drywall. (Id. at ¶¶ 44-47, 112-113.) Another friend, Kenneth Bradley, helped Plaintiff with electrical work. (Pl. CSMF at ¶¶ 124-25.) However, Plaintiff did not take any photographs of the repair work, nor did he take any photographs inside his home following the completion of the repairs. (Def. SMF at ¶ 48.) With respect to the displaced right wall, Plaintiff stated that he “jacked it up . . . and pushed it back in [onto the foundation].” (Id. at ¶ 50.) Plaintiff did not install any anchor bolts to secure the wall to the slab. (Id. at ¶ 51.) Plaintiff testified that he made a variety of repairs following Hurricane Irene. (Pl. CSMF at ¶ 38.)

         Defendant commissioned Atlantic Professional Services, Inc. (“Atlantic”) to determine the cause of the 2011 Irene loss. (Id. at ¶ 70.) On October 26, 2011, Atlantic inspected Plaintiff's home. (Def. SMF at ¶¶ 16-17.) Atlantic then issued a report on November 3, 2011, where it concluded that the “right wall displaced outward as a result of inadequate anchoring (lack of anchoring) of the base plate to the slab. The base plate and the base of the sheathing were replaced approximately 12 years ago prior to the installation of the vinyl siding due to rot.” (Id. at ¶¶ 19-20.) Atlantic further concluded that the “structure is located below elevation of the street and there are no provisions of drainage away from the structure.” (Id. at ¶ 21.) Atlantic recommended in the report that the right wall be pushed back into position and anchored, and that the property be properly graded. (Id. at ¶ 22.) Defendant later admitted that the Atlantic report “is not a repair report.” (Pl. CSMF at ¶¶ 72, 75.) In addition, Plaintiff testified that he never received the 2011 Atlantic Report. (Id. at ¶ 83.)

         On February 13, 2012, Defendant denied Plaintiff's Hurricane Irene claim, stating that “there is no evidence of a general condition of flooding as described in Section II-Definition, ‘Flood, ' of the flood insurance policy.” (Def. SMF at ¶ 23; Pl. CSMF at ¶¶ 23, 93.) Defendant also advised Plaintiff of his right to file an appeal, but Plaintiff did not do so. (Def. SMF at ¶ 24.)

         2. Superstorm Sandy claim

         On October 29, 2012, Plaintiff's home experienced a loss due to the infiltration of several feet of flood waters as a result of Superstorm Sandy; Plaintiff immediately notified Defendant of the flood loss claim on November 2, 2012. (Id. at ¶¶ 25-26; Pl. CSMF at ¶¶ 95-96, 109.)[3] Plaintiff told Defendant that he had just been allowed back into his home and that he had 22-23 inches of water in the entire home. (Def. SMF at ¶ 27.) He further informed Defendant that he had extensive damage to the walls, floors, doors and exterior of the home in addition to his personal property. (Id. at ¶ 28.) Plaintiff removed all of his furniture and tore down all of the sheetrock and insulation, while also removing all of his appliances (dishwasher, stove, refrigerator, washer and dryer), which were taken from the side of his home. (Id. at ¶¶ 52-53.)

         Soon after notification, Defendant began adjusting the claim and assigned the claim to Allcat Claims, an independent claims adjusting firm. (Id. at ¶ 29.) On November 8, 2012, Plaintiff was advised to mitigate damages as needed as required by the SFIP, and in response Plaintiff advised that he “gutted” the house to prevent further damage from happening as the insulation was soaking up the water into the walls. (Pl. CSMF at ¶¶ 111-12.) On either November 9 or 10, 2012, Chris Herrera of Allcat Claims inspected Plaintiff's home and took preliminary photos; but on November 12, 2012, the claim was reassigned to Richard Carlson, an adjuster with Defendant, [4] and Mr. Carlson inspected the property on November 15, 2012. (Def. SMF at ¶¶ 30, 32-33.) During the inspection, Mr. Carlson noted the following:

[H]ouse is gutted with all drywall out of house except the master closet. Kitchen cabinets and appliances gone. ¾ bath is not gutted. Interior doors gone. Member claims he gutted house himself after flood and piled debris by street and city picked it all up. He claims that someone broke into house and took baseboard heaters and copper piping and wiring. Asked him if he had any photos of the damage prior to the demo and he had a few on his phone but I couldn't tell if there was drywall up. He will email them to me. Advised him I would have to review prior claim files and look at the photos. He understands.

(Id. at ¶ 34.) The next day, Mr. Carlson checked the prior loss photos, and concluded that the “house is in the same condition now as it was [in 2011]. Drywall was gutted and photos appear to match what is there now.” (Id. at ¶ 35.) The following day, Mr. Carlson informed Plaintiff of his conclusion, and Plaintiff replied that “the repairs were done and the house had been repaired prior to this flood.” (Id. at ¶ 36.) On November 19, 2012, Mr. Carlson advised Plaintiff that he had prepared an estimate of the damage due to Superstorm Sandy in the amount of approximately $16, 000. (Id. at ¶ 38.)

         On November 24, 2012, Defendant received a letter of representation from Asset Protection Public Adjustment for Plaintiff's flood claim, and Defendant informed Asset Protection that they needed a statement from Plaintiff to understand what is being claimed, the prior damages and repairs that were made as well as to inspect and verify the photographs submitted by Plaintiff. (Id. at ¶¶ 42-43.) On December 7, 2012, Plaintiff's neighbor, Chris Haier, stated that he had seen Plaintiff gutting the residence following the Hurricane and pointed to several tubs and other household items strewn about the front of the property. (Pl. CSMF at ¶ 120(a).) On December 19, 2012, Defendant requested documentation from Asset Protection regarding the repairs that were made by Plaintiff. (Id. at ¶ 54.)

         Then, On January 2, 2013, Plaintiff was paid $15, 212.99 by Defendant for those damages that were directly caused by Sandy. (Id. at ¶ 56.) On January 18, 2013, Asset Protection provided Defendant with an affidavit from Plaintiff's friend Mr. Carey, stating that Mr. Carey assisted Plaintiff in re-hanging drywall in the living room and master bedroom following Hurricane Irene. (Id. at ¶ 60.) On February 19, 2013, Asset Protection provided an estimate to Defendant of $259, 113.97 to demolish and rebuilt the Plaintiff's home. (Id. at ¶ 69.) On March 25, 2013, Asset Protection hired a structural engineer (Careaga Engineering, Inc.) to report the damage caused by Sandy, and Careaga inspected Plaintiff's home on March 29, 2013. (Id. at ¶¶ 74-75.) Careaga concluded that “standing floodwaters remained in the house after the floodwaters on the property receded . . . [and] exerted an outwards hydrostatic pressure on the exterior walls . . . [that] pushed the rear wall of the house and caused it to be become displaced off the slab foundation . . . The remaining walls were not displaced.” (Id. at ¶ 76.) Careaga concluded that the displacement of the rear exterior wall caused the structural damage inside the home, including the roof ridge to shift, the loose connections between the roof rafters and the ridge beam, gaps between the wood members and the buckling of the load bearing wall. (Id. at ¶ 78.)

         On June 14, 2013, Defendant advised Asset Protection that based on the claims history, Plaintiff's home remained substantially unchanged since the 2010 fire, and that while the home did sustain flood damage as a result of Sandy, the extent of the damage had to be determined. (Id. at ¶¶ 81-82.) Defendant further advised that an inspection had been done in 2011 that confirmed structural issues with the home that were not the result of the 2011 flood; as a result, Defendant advised that an inspection by an engineer would be required. (Id. at ¶ 83.)

         On July 1, 2013, Defendant's engineer, Atlantic, prepared a report, and concluded that “the structure has not been repaired since the fire of 2010 and since the Atlantic inspection of October 26, 2011. Most importantly the base of the walls has not been anchored as recommended in the November 3, 2011 Atlantic report.” (Id. at ¶ 86.) Atlantic therefore determined that the “structure was in major need of repair well before [Sandy] and the additional damages are strictly the result of failure to perform repairs.” (Id.) On July 18, 2013, Defendant issued a partial denial of Plaintiff's claim based on the policy provision that states that “[w]e are not liable for loss that occurs while there is a hazard that is increased by any means within your control or knowledge.” (Id. at ¶ 87.) Defendant further stated that Plaintiff's home “has not been repaired since the fire of 2010 and since the Atlantic inspection of October 26, 2011.” (Pl. CSMF at ¶ 168.)

         Then, on August 27, 2013, Keith Shackelford from the NFIP conducted an inspection of Plaintiff's home, and on September 6, 2013, FEMA issued a report in which it agreed with Atlantic's July 1, 2013 findings that the right wall had displaced prior to Sandy. (Id. at ¶¶ 89-90.) FEMA recommended that Atlantic provide an addendum to the July 1st report outlining the percentage of damage to the rear wall that can be contributed to Sandy, and a method of repair. (Id. at ¶ 91.)

         On September 30, 2013, Defendant notified Plaintiff of his duties under the policy with respect to Article VII(J)(4) and (9) of the SFIP, as well as the new deadline of April 28, 2014 to submit a Proof of Loss (hereinafter, “POL”). (Id. at ¶ 93.) On October 1, 2013, Atlantic issued an addendum to its report, and determined that if repairs to secure the exterior walls had been made prior to Sandy, “then the additional outward movement would not have occurred.” (Id. at ¶ 95.) Atlantic concluded that “there is no additional damage that would have created any additional repair methods or costs than what would have been required prior to SS Sandy as hereinbefore outlined even though the rear wall has displaced slightly more than after SS [S]andy as hereinbefore discussed, keeping in mind that this additional displacement was the direct result of flood waters and lack of attachment of the walls to the slab and lack to perform the recommended repairs after the October 26, 2011 Atlantic inspection.” (Id. at ¶ 97.)

         On October 9, 2013, Defendant advised Plaintiff that the flood policy would cover the cost to reset the rear wall and anchor it in the same fashion that it was at the time of loss. (Id. at ¶ 98.) Defendant advised that a revised estimate would be prepared to see if an agreement could be reached regarding the scope and cost of making the repairs. (Id. at ¶ 99.) On November 14, 2013, Allcat Claims issued a revised repair estimate for $25, 238.48 and calculated the cost to rebuild the home as $90, 480.42. (Id. at ¶ 100.)

         Furthermore, on November 15, 2013, a Construction Official of Lacey Township issued a “Substantial Damage” letter advising that the Plaintiff's home had “sustained damage over 50% of the market value of $68, 100” and thus fell within FEMA guidelines for substantial damage.” (Pl. CSMF at ¶ 105.) The representative further stated that Plaintiff's home would “have to be raised to new advisory flood elevation or demolished” and rebuilt to the new elevation. (Id.)

         On November 23, 2013, Plaintiff submitted a signed POL for $20, 271.74 to Defendant as to the undisputed loss, and based on Allcat Claims, Plaintiff was paid $10, 025.89 on December 10, 2013. (Def. SMF at ¶¶ 101-02.)[5]

         Then, on March 6, 2014, Asset Protection submitted a POL on behalf of Plaintiff seeking $250, 000 in damages; the POL was not signed by Plaintiff and there were no estimates attached. (Id. at ¶ 103.) On April 14, 2014, Plaintiff submitted another POL to Defendant for $250, 000; the estimates attached to the POL were estimates to completely tear down and rebuilt the house as if it was a total loss. (Id. at ¶¶ 104-05, 118.) Defendant rejected Plaintiff's April 14, 2014 POL because the values were allegedly not substantiated and/or agreed to, the scope of damage was beyond direct physical loss caused by or from flood and the values included code compliance, which is not covered under the policy. (Id. at ¶ 106.) Defendant's corporate designee stated that Plaintiff's April 13, 2014 POL was deficient because the attached estimates were for a rebuild, and not to repair flood damage. (Id. at ¶¶ 126-27.) The designee explained that “this is not a total loss, this is a repairable home as a result of Superstorm Sandy, ” and that Plaintiff's policy “only pays for direct physical loss by flood . . . [i]t does not pay for code compliance, except for the $30, 000 for [Increased Cost of Compliance] . . . this isn't a valued policy[.]” (Id. at ¶¶ 128-29.) The designee also testified how Defendant determined the estimated replacement cost value (“RCV”) of $90, 480.42 for the home, and that the RCV is based on the condition of the home at the time of Sandy, not as a result of damages from Sandy, so the adjuster would have evaluated the home . . . It's based on what is inside the home or how the home is finished[.]” (Id. at ¶¶ 130-31.)

         Then, on April 28, 2014, Defendant issued a denial letter on three bases: (1) the values in the POL were allegedly not substantiated or agreed to; (2) the scope of damage was not direct physical loss due to Sandy; and (3) the estimates allegedly included code compliance. (Pl. CMF at ¶ 173.) On the same day, FEMA extended the deadline for filing a Proof of Loss to two years following the date of loss until October 29, 2014. (Def. SMF at ¶ 107.) On June 26, 2014, Plaintiff filed an appeal with FEMA claiming that the cost to rebuild his home exceeds the policy limits of $250, 000. (Id. at ¶ 108.) Plaintiff included the POL documents along with Careaga's Report, bank statements, Carey Certification, and photographic documentation of the structural damage. (Pl. CUMF at ¶ 137.) On August 28, 2015, Plaintiff submitted a claim for Increased Cost of Compliance (“ICC”) to Defendant, including a signed and sworn Proof of Loss with all required documents, including permits, receipts and photographs. (Id. at ¶ 209.) Defendant did not deny the ICC claim. (Id. at ¶ 210.)

         On December 23, 2015, Plaintiff submitted an amended proof of loss for $129, 292.37 (in an attempt to reach a settlement), reducing his claim for the amount he received ($74, 525.00) from the New Jersey Department of Community Affairs, Sandy Recovery Division (“DCA”), his $1, 000 deductible, and the amounts already received from Defendant ($25, 238.88). (Def. SMF at ¶ 134.) Plaintiff stated that he made this offer “on a settlement basis only . . .” (Pl. CSMF at ¶ 178.) On December 24, 2015, Defendant rejected Plaintiff's amended POL and settlement offer as untimely and beyond FEMA's deadline to submit a POL. (Def. SMF at ¶ 135.) Defendant never obtained a waiver from FEMA for Plaintiff's POL. (Id. at ¶ 136.) On February 11, 2016, Plaintiff submitted another amended POL for $84, 179.99 with a detailed estimate from Asset Protection for the full cost of repair of Plaintiff's home. (Id. at ¶ 137.) Defendant has not paid Plaintiff more than the $15, 212.99 on January 2, 2013 and the $10, 025.89 on December 10, 2013. (Pl. SMF at ¶ 166.)

         B. Procedural History

         Plaintiff initially filed his Complaint against Defendant alleging breach of contract (Count I), bad faith (Count II), and declaratory relief (Count III) related to Defendant's adjustment of Plaintiff's Superstorm Sandy claim. [Docket Item 1.] The Court granted Defendant's motion for judgment on the pleadings, dismissing Plaintiff's extra-contractual and state tort-based claims (thereby striking Count II of the Complaint), and denied Plaintiff's motion to amend the Complaint. [Docket Item 79.} After discovery, Defendant has filed its extensive and highly detailed motion for summary judgment on Plaintiff's breach of contract claim [Docket Item 85], and Plaintiff cross-moved for partial summary judgment on his ICC claim. [Docket Item 94.]


         A. Summary Judgment Standard

         Summary judgment is appropriate if “there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law.” Alabama v. North Carolina, 560 U.S. 330, 344 (2010) (citations and ...

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