Irene FLICK, Plaintiff-Appellant, v. LIBERTY MUTUAL FIRE INSURANCE COMPANY, Defendant-Appellee.
No. 98-16485.
United States Court of Appeals, Ninth Circuit.
Argued and Submitted Nov. 5, 1999. Filed Feb. 15, 2000.
386
Heidi Loken Benas and James Sell, Lynch, Gilardi & Grummer, San Francisco, California, for the defendant-appellee.
Before: GOODWIN, SCHROEDER, and ALARCON, Circuit Judges.
Opinion by Judge ALARCON; Dissent by Judge SCHROEDER.
Irene Flick (“Flick“) appeals from the order granting summary judgment in favor of the Liberty Mutual Fire Insurance Company (“Liberty Mutual“). Flick filed a civil complaint seeking damages resulting from Liberty Mutual‘s denial of a claim under a standard flood insurance policy that was underwritten by Liberty Mutual as part of the National Flood Insurance Program. The district court granted summary judgment in favor of Liberty Mutual on the basis that Flick had failed to comply strictly with the policy‘s 60 day sworn proof of loss requirement. Flick contends that the district court erred in applying the rule of strict compliance to the policy‘s sworn proof of loss requirement. We affirm. We conclude that the strict compliance rule is applicable to policies written by private insurance companies under the National Flood Insurance Program, because those insurers draw funds from the United States Treasury (“Treasury“) to pay flood loss claims.
I
Congress enacted the National Flood Insurance Act of 1968 in response to a growing concern that the private insurance industry was unable to offer reasonably priced flood insurance on a national basis. See
The National Flood Insurance Act, therefore, authorizes the federal government to establish the National Flood Insurance Program (“NFIP“), a program with “large-scale” federal involvement, to provide affordable flood insurance on a national basis and to discourage the construction of new structures in flood prone areas. See
The National Flood Insurance Act outlines two alternative frameworks for implementing the NFIP. See generally National Flood Insurers Ass‘n v. Harris, 444 F.Supp. 969, 970-72 (D.D.C.1977) (discussing the two authorized methods for implementing the NFIP). Part A allows an associated pool of private insurance companies to implement a privately operated program. See
Initially, the NFIP was implemented under Part A and administered by an associated pool of private insurance companies pursuant to an annual contract with HUD. See
In 1977, HUD decided to discontinue the private operation of the NFIP under Part A. It communicated its intent to Congress to provide flood insurance through the “facilities of the federal government” pursuant to Part B of the National Flood Insurance Act. See
In 1978, HUD delegated to the Federal Emergency Management Agency (“FEMA“) its authority to operate both the NFIP and the Federal Insurance Administration.3 See Reorganization Plan No. 3 of 1978, §§ 202, 304, 43 Fed.Reg. 41943, 41943-45 (1978). FEMA assumed managerial responsibility for the operation of the program and took full control of the payment or disallowance of all flood insurance claims. See Berger v. Pierce, 933 F.2d 393, 395 (6th Cir.1991). It then established the National Flood Insurance Fund in the Treasury of the United States to pay claims and administrative expenses. See
In 1983, FEMA exercised its regulatory authority under
II
Liberty Mutual insured Flick for flood loss under an insurance policy that it issued as part of the WYO program. The Liberty Mutual policy, which was written as a standard flood insurance policy, required Flick to submit a sworn proof of flood loss within 60 days of any flood loss. On December 11, 1995, flooding caused the foundation of Flick‘s house to subside. Flick notified Liberty Mutual of her flood loss on February 6, 1996. She did not, however, submit a sworn proof of loss at that time. Liberty Mutual denied the claim on April 8, 1996, because, among other reasons, Flick had failed to file a sworn proof of loss within 60 days. Flick finally submitted a sworn proof of loss on September 17, 1996, approximately nine months after the flood loss had occurred.
Flick then commenced this lawsuit in district court, asserting state law causes of action for breach of contract and breach of the covenant of good faith and fair dealing. Both parties stipulated that the National Flood Insurance Act preempted those claims. Liberty Mutual moved to bifurcate the trial and to try the issue of whether Flick had failed to submit a sworn proof of loss within 60 days of the flood loss. Flick agreed that the sworn proof of loss issue should be summarily adjudicated before trial. In a pretrial conference, the district court granted summary judgment in favor of Liberty Mutual, because Flick had failed to file a sworn proof of loss within 60 days of her flood loss.
III
In this appeal, Flick contends that the district court erred in granting summary judgment. She argues that the rule of strict compliance, which is applicable to policies issued by the federal government that provide for payment of losses from public funds, is inapplicable to the sworn
We have jurisdiction pursuant to
“The law is clear that, as contracts, [standard flood insurance policies] issued under the National Flood Insurance Program ... are governed by federal law applying standard insurance law principles.” McHugh v. United Serv. Auto. Assoc., 164 F.3d 451, 454 (9th Cir.1999) (citing Brazil v. Giuffrida, 763 F.2d 1072, 1074-75 (9th Cir.1985)). There is a compelling interest in assuring uniformity of decision in cases involving the NFIP. See Brazil, 763 F.2d at 1075 (quoting West v. Harris, 573 F.2d 873, 881 (5th Cir.1978)). “Since the flood insurance program is a child of Congress, conceived to achieve policies which are national in scope, and since the federal government participates extensively in the program both in a supervisory capacity and financially, it is clear that the interest in uniformity of decision present in this case mandates the application of federal law.” Id.
Federal law has long recognized that an insured must comply strictly with the terms and conditions of a federal insurance policy. See Federal Crop Ins. Corp. v. Merrill, 332 U.S. 380, 384-85 (1947). In Merrill, the Supreme Court recognized a general “duty of all courts to observe the conditions defined by Congress for charging the public treasury.” Id. at 385. The Court held that a group of farmers could not recover for crop losses under a federal crop insurance policy, because their claims did not comply with the terms and conditions for coverage set forth in the Wheat Regulations.5 See id. In so holding, the Court noted that “not even the temptations of a hard case” may provide a basis for a recovery that is contrary to federal regulations. Id. at 386.
In the context of flood insurance, we have recognized the heavy burden that a claimant must overcome in order to avoid the sworn proof of loss requirement in the standard flood insurance policy. See Wagner v. Director, Fed. Emergency Management Agency, 847 F.2d 515, 518-19 (9th Cir.1988). In Wagner, we held that a group of claimants could not estop FEMA from denying their claims for failure to file a timely sworn proof of loss. Id. at 519-20. In reaching that decision, we reasoned that the sworn proof of loss requirement is
While our result in Wagner is sound, the Supreme Court has since recognized that our power to avoid the terms and conditions of a federal insurance policy is even more curtailed. In Office of Personnel Management v. Richmond, 496 U.S. 414 (1990), the Court acknowledged that the Appropriations Clause prohibits the judiciary from granting any money claim against the federal government that is not authorized by statute. Id. at 424, 434. That clause succinctly provides that “No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law.”
In Richmond, the Supreme Court considered whether a retired federal employee could prevent the federal government from enforcing a statutory earnings limit in a federal disability annuity. See id. at 415-16. The employee had qualified for disability payments under the annuity, but after receiving erroneous advice from a federal official, had disqualified himself by exceeding the earnings limit. See id. at 417-18. The employee sued the federal government to recover the unpaid disability benefits, alleging that it was estopped from applying the earnings limit. See id. at 415-16. The Supreme Court held that the employee could not recover the unpaid disability payments, because, in enacting the disability statute, Congress had appropriated funds to pay benefits to only those individuals who earned less than a specified amount. See id. at 424-27, 434. In reaching that decision, the Court recognized that the Appropriations Clause prohibits the judiciary from awarding claims against the United States that are not authorized by statute. See id. at 424-26. It then concluded that the “judicial use of the equitable doctrine of estoppel cannot grant [a claimant] a money remedy that Congress has not authorized.” Id. at 426.
Because the holding in Richmond was based on the Appropriations Clause, its scope is not limited to the applicability of estoppel to the federal government. See Richmond, 496 U.S. at 426 (noting that the presidential power to pardon does not override the command of the Appropriations Clause) (citing Knote v. United States, 95 U.S. 149 (1877)). It is an axiomatic principle of constitutional law that the judiciary‘s power is limited by a valid reservation of congressional control over public funds. See Richmond, 496 U.S. at 425. “Any exercise of a power granted by the Constitution to one of the other branches of Government is limited by a valid reservation of congressional control over funds in the Treasury.” Id. Indeed, we would equally usurp Congress‘s exclusive power to appropriate money were we to award an unauthorized money claim based on a theory of substantial compliance or notice prejudice. We therefore interpret Richmond to preclude a court from granting a remedy that draws funds from the Treasury in a manner that is not authorized by Congress.
In light of that conclusion, it is clear that a claimant under a standard flood insurance policy may not avoid strict enforcement of the 60 day sworn proof of loss requirement, except through a valid waiver by the Federal Insurance Adminis-
Under the NFIP regulations, WYO insurers also pay claims out of the National Flood Insurance Fund. The federal government is a guarantor and assumes full liability for flood insurance policies that are issued by WYO insurers. See
Flick contends that WYO insurers retain a sufficient amount of premiums in segregated accounts to pay flood losses as they occur.7 We reject that assertion. The NFIP regulations plainly indicated that
We do not believe, nor has Flick provided any basis for us to believe, that WYO insurers’ retained funds are sufficient to cover claims for flood losses. Flood losses, when they occur, are typically sudden, widespread, and costly. A large percentage of those losses are insured under policies that have been issued at below actuarial rates.9 It is doubtful, then, that WYO insurers can satisfy their obligations to pay flood losses entirely with the funds that they have retained to meet current expenditures. We thus join the Third and Fifth Circuits in concluding that WYO insurers typically deplete their net premium income and draw funds from the National Flood Insurance Fund to pay losses under standard flood insurance policies.10 See Van Holt, 163 F.3d at 165 (stating “when WYO companies deplete
Because flood losses, whether insured by FEMA or by a participating WYO insurer, are paid out of the National Flood Insurance Fund, a claimant under a standard flood insurance policy must comply strictly with the terms and conditions that Congress has established for payment. See
Flick nevertheless suggests that the rule of strict compliance should be inapplicable where the National Flood Insurance Program earns sufficient premiums to pay flood losses entirely out of written premiums.13 We decline to accept that suggestion, because it ignores the simple fact that policyholder premiums are deposited in the National Flood Insurance Fund. That fund is located in the Treasury. See
We also decline to accept Flick‘s suggestion that we find an exception to the rule of strict compliance for flood induced subsidence cases. The terms and conditions of the standard flood insurance policy, which are defined by FEMA under authority from Congress, specifically limit the payment of funds from the National Flood Insurance Fund to claimants who submit a sworn proof of loss within 60 days of a flood loss. See
Though our decision is premised on the Appropriations Clause, the outcome of this case is equally supported by the unique interests involved when the federal government participates extensively in a flood insurance program that is national in scope. The success of the NFIP, so far, has depended on the ability of the federal government and participating insurers to offer flood insurance at below actuarial rates. We find no reason to conclude that FEMA has structured flood insurance premiums in anticipation of the possibility that the federal government may have to pay the additional claims of policyholders who fail to comply strictly with the sworn proof of loss requirement or who fail to obtain a valid waiver from the Federal Insurance Administrator. In adhering to a rule of strict compliance, we thus avoid disturbing the delicate balance, which FEMA has sought to strike, between the need to pay claims and the need to ensure the long term sustainability of the NFIP. We also avoid the inconsistent results that would occur were we to treat standard flood insurance policies differently depending on whether they are written by WYO insurers or FEMA.14
Our holding does not suggest that claimants must always strictly comply with the 60 day sworn proof of loss requirement. In the case of a loss due to flood induced subsidence or a similar misfortune, the federal government may well wish to grant relief from the rule of strict compliance. In fact, FEMA has designed a specific mechanism for requesting such relief. See
IV
Having decided that a claimant under a standard flood insurance policy must
AFFIRMED.
SCHROEDER, Circuit Judge, Dissenting:
This flood insurance claimant gave the insurance company timely notice of the existence of her claim and informed it of the full amount of the claim as soon as it was known. In holding she must nevertheless be denied insurance benefits because of a failure to comply to the letter with the policy provision requiring a sworn proof of loss within 60 days, the majority announces an unduly harsh and unworkable rule. The holding conflicts with our prior recognition that standard insurance law principles should apply to the administration of the National Flood Insurance Program and with generally recognized state-law principles that literal compliance with a proof of loss provision is not required where compliance was not possible, or where substantial compliance provided the insurer with adequate notice of the claim.
In this case, Irene Flick made a claim on February 6, 1996, under a flood insurance policy underwritten by Liberty Mutual. This was 56 days after the flood loss occurred. Liberty Mutual dispatched a claims adjuster who inspected the home, completed a national flood insurance report, and noted the resettlement under the home, but concluded that the damage was not a result of the December 11th flooding. Flick attempted repeatedly to provide further information. On March 28, 1996, Flick‘s attorney offered to provide any information available in a proof of loss and requested a blank form for that purpose. However, the adjuster handling the claim insisted that Flick sign the report prepared by the adjuster which, according to Flick, contained numerous errors. Flick‘s claim was formally denied on April 8, 1996. On May 24, 1996, Flick‘s attorney again requested a form to be used for submitting proof of loss; on June 14, 1996, the adjusters again insisted that Flick sign the allegedly erroneous report.
After concluding the geophysical, structural, and financial analyses needed to evaluate the damage to her home, Flick‘s attorney submitted a sworn proof of loss on his own form on September 17, 1996. In a letter dated October 9, 1996, an adjuster rejected Flick‘s proof of loss form and stated that “the insured was given the form by the adjuster and I sent one to [Flick‘s attorney‘s] office with my 6/14/96 correspondence,” apparently referring to the flawed report prepared by the original claims adjuster. This suit followed.
Flick contends, and the government does not dispute for purposes of this appeal, that she could not have provided a complete proof of loss statement within 60 days of the date of the flooding. In fact where, as here, the damage is caused by flood-induced ground subsidence under a foundation, it is probable that the full amount of loss can almost never be known within 60 days. Flick offers reports by experts in geotechnical engineering, structural engineering, construction and real estate appraisal in support of that position.
This court has held that “[i]n creating the [National Flood Insurance] Program, Congress did not intend to abrogate standard insurance law principles.” Brazil v. Giuffrida, 763 F.2d 1072, 1074-75 (9th Cir. 1985) (citing Hanover Building Materials v. Guiffrida, 748 F.2d 1011, 1013 (5th Cir.1984)); Drewett v. Aetna Casualty & Surety Co., 539 F.2d 496, 497-98 (5th Cir.1976). Accordingly, although we are dealing with a federal insurance program, we are to “draw[ ] upon standard insurance law principles” when interpreting policies issued under this program. Id. (citing West v. Harris, 573 F.2d 873, 881 (5th Cir.1978)).
Under ordinary principles of insurance law applicable in a majority of states, including California, Flick‘s claim would be considered adequately presented and the 60-day proof of loss requirement excused on grounds of substantial compliance. See Windt, Insurance Claims and Disputes § 3.03 n. 23 (3d ed.1995) (citing cases); Croskey, Kaufman et al., California Practice Guide: Insurance Litigation § 3:166-67 (Rutter 1995). The claim Flick made on February 6, 1996, was sufficient to put the insurer on notice that further inquiry was required. In fact, after receiving Flick‘s notice of claim the insurance company did make further inquiry.
Also, in a growing majority of states an insurer can deny coverage for failure to submit a timely notification of loss only if the insurer proves prejudice as a result of the delay. See Ostrager & Newman, Handbook on Insurance Coverage Disputes § 4.02(c)(2)-(4) (9th ed.1998) (citing cases); Insurance Litigation at § 3.168-69; see also Insurance Claims and Disputes at § 3.03 n. 27 (noting that, in a majority of jurisdictions, a failure to submit a timely proof of loss will not result in denial of coverage unless prejudice is shown). It is difficult to see how the insurer was prejudiced by the failure to submit a sworn claim on a designated form until after February 10, 1996.
In rejecting the claimant‘s strong legal arguments, the majority confuses this case with cases against the United States involving sovereign immunity and claims of estoppel on the basis of inaccurate statements by government agents. See Wagner v. Director, FEMA, 847 F.2d 515, 518-20 (9th Cir.1988) (60-day proof of loss requirement for federal flood insurance claims had to be strictly construed in action against FEMA because it constituted a “condition[ ] precedent to a waiver by the federal government of its sovereign immunity“); Federal Crop. Ins. Corp. v. Merrill, 332 U.S. 380 (1947) (estoppel not available against the government despite reliance on erroneous statement by official); Office of Personnel Management v. Richmond, 496 U.S. 414 (1990) (estoppel not available against the government for monetary claim because Congress had not appropriated funds for such claims). This is not an estoppel case, nor is it a suit involving sovereign immunity. It is an insurance policy interpretation case that happens to involve insurance issued under a governmental subsidy program.
Moreover, there is nothing on the face of the policy to suggest the insured has a contractual relationship with anyone other than a private insurer, or that a claim made under the policy would be a direct charge on the public treasury. This case is therefore unlike Seattle Fur Exchange v. FCIA, in which this court required strict compliance with the terms of an insurance policy because it “specifically identifie[d a government agency] as the reinsurer” and therefore “provide[d] a direct contractual link” between the insured and the government agency. 7 F.3d 158, 163 (9th Cir.1993). In fact, the matter before us more closely resembles Lovell Mfg. v. Export-Import Bank, 777 F.2d 894 (3d Cir.1985), a case distinguished by the Seattle Fur Exchange panel. In that case, the Third Circuit held that because no provision in a privately issued insurance policy outlined the reinsurance agreement between the private insurer and a government agency, the insured‘s claim was only against the private insurer and did not involve a charge on the Treasury. See Lovell Mfg., 777 F.2d at 901.
There is no indication anywhere in the legislative history of the National Flood Insurance Act, and certainly not in the case law of our circuit, that harsher rules should apply in the flood insurance context than apply in the ordinary insurance context. Indeed, the majority‘s result thwarts one of Congress’ primary goals in enacting the National Flood Insurance Act of 1968—ensuring that flood insurance coverage is “available on reasonable terms and condi-
I therefore respectfully dissent.
Notes
Id. at pt. C-2 (internal cross reference omitted). Funds retained in the restricted account are considered accounts payable due from the Federal Insurance Administration. See id. at pt. B-5. See also, e.g., National Flood Ins. Program, Fed. Emergency Management Agency, WYO Accounting Training Manual pts. B-52, B-53 (6th ed.1996) (providing an example of the method in which cash flows between WYO insurers and the National Flood Insurance Fund).Transfer of excess funds from the restricted flood insurance account to the U.S. Treasury is mandatory and should be performed at least once a week. Excess funds are defined as those funds in the restricted account less $5,000 and established payables. Monies in the premium suspense account are to be included in the excess funds calculation. In addition, premiums and federal policy fees collected for policies with future effective dates should be included in the excess funds calculation. Established reserves for claim payments and claim loss adjustment expenses are not included when calculating the excess funds amount.
Id. (emphasis added).J. Requirements in Case of Loss: Should a flood loss occur to your insured property, you must:
...
3. Within 60 days after the loss, send us a proof of loss, which is your statement as to the amount you are claiming under the policy signed and sworn to by you and furnishing us with the following information: [information omitted];
...
6. The insurance adjuster whom we hire to investigate your claim may furnish you with a proof of loss form, and she or he may help you to complete it. However, this is a matter of courtesy only, and you must still send us a proof of loss within 60 days after the loss even if the adjuster does not furnish the form or help you complete it.
7. We may, at our option, waive the requirement for the completion and filing of a proof of loss in certain cases, in which event you will be required to sign and, at our option, swear to an adjuster‘s report of the loss which includes information about your loss and the damages sustained, which is needed by us in order to adjust your claim.