Shapiro v. Wright National Flood Insurance Co.

          OPINION AND ORDER ^[1]

          SHERI POLSTER CHAPPELL UNITED STATES DISTRICT JUDGE.

         Before the Court is Wright National Flood Insurance Company's Motion to Dismiss Claims for Fees and Costs Under the Equal Access to Justice Act (Doc. 7) filed on October 11, 2019 and Plaintiff's Response in Opposition (Doc. 15) filed on October 29, 2019. For the reasons set forth below, the Motion is denied.

         BACKGROUND

         In this single-claim Complaint for Breach of Contract (Doc. 1), Plaintiff Martin Shapiro seeks relief for flood damage caused to his property on or about September 10-11, 2017, by Hurricane Irma. Plaintiff submitted a claim to Defendant seeking coverage for the damage under a federally-sponsored Standard Flood Insurance Policy (SFIP) issued by Defendant Wright National Flood Insurance Company (Wright) for the property under the National Flood Insurance Act, 42 U.S.C. § 4001, et seq. Defendant hired an independent adjuster who prepared an estimate which Plaintiff disagreed with. Plaintiff alleges that Defendant has failed or refused to pay the full amount due under the Policy or otherwise failed or refused to comply with the terms and provisions of the Policy. In addition to its flood damages, Plaintiff's requested relief includes reasonable attorney's fees, costs, and case expenses incurred in filing and prosecuting this action payable under the Equal Access to Justice Act (EAJA). (Doc. 1, at 5).

         Defendant moves to dismiss the request for EAJA attorney's fees, costs, and case expenses pursuant to Federal Rule of Civil Procedure 12(b)(6) because defendant is not an agency of the United States from which EAJA fees may be obtained. Although this lawsuit is not a suit against the federal government, Plaintiff nevertheless responds that the EAJA should apply to SFIP policyholders because private insurance companies (such as Wright) that issue SFIPs merely carry out the duties as “fiscal agents” of the Federal Emergency Management Agency (FEMA).

         A. The National Flood Insurance Program

         Wright National Flood Insurance Company, a private insurance company, is a Write-Your-Own (WYO) Program carrier participating in the United States government's National Flood Insurance Program (NFIP). Congress created the NFIP under the National Flood Insurance Act of 1968, 42 U.S.C. § 4001, et seq. to limit the damage caused by flooding by spreading the risk among private insurers and the federal government. FEMA administers the program and has established, by regulation, the Standard Flood Insurance Policy, 44 C.F.R. § 61.13.

         By statute, the Director of FEMA is authorized to promulgate regulations “for the general terms and conditions of insurability which shall be applicable to properties eligible for flood insurance coverage.” 42 U.S.C. §§ 4013, 4019. Pursuant to FEMA regulations, “all policies issued under the NFIP must be issued using the terms and conditions of the SFIP found in 44 C.F.R. Part 61, Appendix A.” 42 U.S.C. §§ 4013, 4019. The Director of FEMA is authorized to use private insurance companies as “fiscal agents of the United States” and to enter into any necessary contracts with insurance companies to implement the NFIP. 44 C.F.R. § 62.23(g).

         FEMA created the WYO program in 1983 pursuant to regulatory authority granted to it by Congress. Battle v. Seibels Bruce Ins. Co., 288 F.3d 596, 599 (4th Cir. 2002). “The WYO Program is a program whereby private insurance companies are allowed to issue, under their own names as insurers, flood insurance policies under the Government Program.” Id. (citing 44 C.F.R. § 62.23). “Insurance companies which participate in the WYO Program are known as ‘WYO Companies.'” Id.Importantly, “all flood insurance policies issued by WYO Companies under the WYO Program must mirror the terms and conditions of the SFIP, ” and the terms and conditions of the SFIP “cannot be varied or waived other than by the express written consent of the Federal Insurance Administrator.” Id.A WYO company issuing flood insurance coverage is responsible for the “adjustment, settlement, payment and defense of all claims arising from policies of flood insurance it issues under the [NFIP], based upon the terms and conditions of the [SFIP].” Id.

         “Premiums collected by WYO Companies, after deducting fees and costs, must be deposited in the National Flood Insurance Fund in the United States Treasury.” Battle, 288 F.3d at 599 (citing 42 U.S.C. § 4017(d)). “When the funds retained by WYO Companies are insufficient to satisfy outstanding claims and refunds, the WYO Companies must draw upon letters of credit from FEMA.” Id. at 599-600 (citing 44 C.F.R. Pt. 62, App. A, Art. IV (A)). Simply put, “premiums collected on policies written by WYO Companies do not belong to those companies.” Id. at 600 (citing Newton v. Capital Assurance Co., 245 F.3d 1306, 1311 (11th Cir. 2001)). Claim payments made by WYO companies under the SFIP “are a direct charge on the United States Treasury, ” and are not paid out of the WYO carrier's own funds. Id.; see also in re Van Holt, 163 F.3d 161, 165 (3d Cir. 1998).

         B. The No-Interest Rule Case

         Although the Eleventh Circuit has not considered the exact issue raised in this case - whether attorney's fees and costs are payable to WYO companies under the EAJA - the Eleventh Circuit has considered an analogous issue of prejudgment interest awards. In Newton v. Capital Assurance Co., the Eleventh Circuit cited Van Holt for the proposition that for jurisdictional purposes a suit against a WYO company is the “functional equivalent” of a suit against FEMA. Newton, 245 F.3d at 1309. The Newton case involved whether prejudgment interest awards (in that case awarded after a bench trial) in suits against WYO companies selling federally-sponsored SFIP policies violate the “no- interest rule” - a sovereign immunity principle that the United States is immune from an interest award in the absence of express congressional consent to the award. Id. at 1309. The court held that the no-interest rule prohibits the award of prejudgment interest against WYO companies because the regulations detailing the financial relationship between FEMA and WYO companies establish that the interest charges against WYO companies are in reality “direct charges against FEMA.” Id. at 1311.

[Defendant] also points out the functionary status of the WYO companies in relation to FEMA. Under the statute, WYO companies act as the “fiscal agents of the United States, ” 42 U.S.C. § 4071(a)(1); see also44 C.F.R. § 62.23(f) (characterizing the relationship between the federal government and WYO companies as “one of a fiduciary nature” and intended to “assure that any taxpayer funds are accounted for and appropriately expended”). WYO companies may not alter the terms of SFIPs, or insert flood coverage into other policies. 44 C.F.R. § 62.23(c), (h)(6). Finally, they must adjust claims under NFIP guidelines. Id. § 62.23(i)(1).

[Defendant] persuades us with these points - FEMA's inevitable liability for claims and its substantial administrative oversight - to join our fellow circuits in concluding that the line between a WYO company and FEMA is too thin to matter for the ...