Hello, this is State Farm and we didn’t get a chance to completely screw this policyholder; so…

We were informed by letter after briefing was closed that “State Farm desires to make clear that it is not making any argument in this case as to the sufficiency of the documentation that had been submitted by the Plaintiffs in this matter.” Instead of arguing that the Monisteres failed to meet the threshold requirements of submitting a proper estimate, State Farm argues that the Monisteres never, not even at trial, provided the evidence that would allow more to be paid. In State Farm’s view, whether the estimate was sufficiently detailed is irrelevant.

No doubt it was irrelevant – to State Farm.  Earlier in the 5th Circuit’s Opinion in Monistere v State-farm, the Court noted:

State Farm never requested additional information.

The Fifth Circuit summarized the case and reasoning for the decision to Reverse and Render judgment in favor of State Farm:

This litigation concerns a home located in Metairie, Louisiana that was severely damaged in 2005 by Hurricane Katrina. State Farm Insurance Company issued a flood insurance policy to Tara and Brandon Monistere pursuant to the National Flood Insurance Program. The Monisteres were unsatisfied with the amount paid under the policy and filed suit. The district court entered judgment in favor of the homeowners for the full policy amount after applying a legal theory occasionally used to determine coverage under certain private insurance policies. That theory is inapplicable to this federal program. We REVERSE and RENDER judgment in favor of State Farm.

However, is it “that theory” or the federal program rules cited by the 5th that are “inapplicable”?  Let’s take a look.

…As we noted previously, the Monisteres’ Standard Flood Insurance Policy was purchased under the National Flood Insurance Program. The program is controlled by federal regulations. See 44 C.F.R. § 61.4. A standard policy appears in the regulations. Id. at pt. 61, app. A(1). We will refer to the regulations and the policy somewhat interchangeably, but it is critical in our analysis that the source for these obligations and restrictions is federal law. Our review of a district court’s interpretation of a statute or regulation is de novo…

44 C.F.R is the entire Code section with links to all citations in the Opinion and this post.

61.4 – Limitations on coverage.

All flood insurance made available under the Program is subject: (a) To the Act, the Amendments thereto, and the Regulations issued under the Act; (b) To the terms and conditions of the Standard Flood Insurance Policy, which shall be promulgated by the Administrator for substance and form, and which is subject to interpretation by the Administrator as to scope of coverage pursuant to the applicable statutes and regulations; (c) To the specified limits of coverage set forth in the Application and Declarations page of the policy; and (d) To the maximum limits of coverage set forth in 61.6.

The Code at 61.4 and 61.6  IMO does not speak to the issues of the case before the Court .

Those issues are addressed in SUBCHAPTER B – INSURANCE AND HAZARD MITIGATION;  PART 63 – IMPLEMENTATION OF SECTION 1306(C) OF THE NATIONAL FLOOD INSURANCE ACT OF 1968;  subpart a – GENERAL.

63.7 – Amount of coverage and deductible on effective date of condemnation or certification.

The amount of building coverage and the deductible applicable to a claim for benefits under section 1306(c) of the Act are what was in effect on the date of condemnation or the date of application for certification.

63.8 – Limitation on amount of benefits.

(a) In section 1306(c)(3)(C) of the Act, the phrase under the flood insurance contract issued pursuant to this title means the value of the structure under section 1306(c)(3)(C) of the Act is limited to the amount of building coverage provided by the insured’s policy.

(b) Where the amount payable under section 1306(c)(1)(A)(ii) of the Act for the cost of demolition, together with the amount payable under section 1306(c)(1)(A) of the Act for the value of the structure under the demolition option, exceeds the amount of building coverage provided by the insured’s policy, such amounts will be paid beyond the amount of that building coverage, even if this payment exceeds the limits of coverage otherwise authorized by section 1306(a) of the Act for the particular class of property.

Perhaps, the Court should reconsider the Opinion in light of the Code sections specific to the case.

In January 2006, the Department of Emergency Management for Jefferson Parish, Louisiana, where this property is located, issued a “Substantial Damage Determination” letter on the home. Under Federal Emergency Management Agency requirements, such a determination meant the home would have to be rebuilt to a new height before future flood insurance could be obtained. State Farm paid the full amount of the $30,000 compliance coverage provided under the policy. Compliance costs were far more than that.

It was determined that the damaged structure could not feasibly be raised. As a result, the Monisteres obtained an estimate from Highland Homes for demolishing the old home and building a new one that would comply with elevation requirements. The estimate was for $477,692. A demand was made for the remainder of the amount of Coverage A under the policy, which compensated for physical losses to the premises. State Farm refused, notifying the Monisteres that nothing more was owed under that coverage. An entirely new home was eventually built at a cost of about $535,000.

If it doesn’t put them out too much, they also might want to take a look at the one the skipped over in reaching their decision.

61.5 – Special terms and conditions.

(e) The standard flood insurance policy is authorized only under terms and conditions established by Federal statute, the program’s regulations, the Administrator’s interpretations and the express terms of the policy itself. Accordingly, representations regarding the extent and scope of coverage which are not consistent with the National Flood Insurance Act of 1968, as amended, or the Program’s regulations, are void, and the duly licensed property or casualty agent acts for the insured and does not act as agent for the Federal Government, the Federal Emergency Management Agency, or the servicing agent.

Last week’s Opinions give cause to wonder if the 5th is familiar with the federal law governing either the False Claims Act or the National Flood Insurance Program – reading both, instead of letters sent by State Farm after the briefing period, would better serve justice IMO.

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