Steven A. Meyerowitz, Esq., is the Director of FC&S Legal–a Summit Professional Networks Publication–and the Editor-in-Chief of the Insurance Coverage Law Report.

A federal district court in Mississippi has ruled that sovereign immunity required that it dismiss litigation brought by a number of insureds against the U.S. Department of Homeland Security's Federal Emergency Management Agency (“FEMA”), FEMA's administrator, and FEMA's director of claims, where the insureds' claims had been denied by the “Write Your Own” (“WYO”) insurance carriers that had issued each of them a standard flood insurance policy (“SFIP”) under the National Flood Insurance Program (“NFIP”).

The Case

The plaintiffs in this case each had purchased an SFIP from their insurance companies to insure real property from flood damage near the Mississippi River in Bolivar County, Mississippi. After flood damage to the area, FEMA issued a bulletin to WYO insurance carriers containing a start date of the flood relevant for the community, and advised that the insurance companies would need to adjust the claims on an individual basis because information might indicate that the flood in progress exclusion should not apply to a claim. FEMA's bulletin indicated that the flooding in Bolivar County, Mississippi, began on April 25, 2011. The plaintiffs alleged that they had sustained flood damage at dates ranging from May 5, 2011 to May 10, 2011 and contended that on April 25, 2011 the gauge in Arkansas City – the nearest gauge to the plaintiffs' property used to determine the Mississippi River flood stages – had recorded a depth of 33.19 feet, which was almost four feet below flood stage.

The plaintiffs' insurance companies denied their claims, stating that the flood was deemed to be in progress prior to the plaintiffs' policies' effective dates. The plaintiffs all appealed the decision to the NFIP's director of claims, who affirmed the insurance companies' disallowance of the plaintiffs' claims.

The plaintiffs sued, seeking a declaration from the court that FEMA's flood in progress date was selected in an arbitrary and capricious manner and was inaccurate.

FEMA and its administrators moved to dismiss.

The Court's Decision

The court granted the motion.

It explained that federal law provides that when “the Administrator” adjusts, makes payment, and disallows SFIP claims, policyholders may institute an action against the Administrator on the claims. 42 U.S.C. § 4072. It added that this limited waiver of sovereign immunity applied “exclusively” to the situation where FEMA directly denied an application, and that federal rules provided that when a WYO company issued a SFIP, the company “shall arrange for the adjustment, settlement, payment and defense of all claims arising from policies of flood insurance … under the Program, based upon the terms and conditions of the Standard Flood Insurance Policy.” 44 C.F.R. § 62.23(d).

Further, it continued, federal regulations provided:

A WYO company shall act as a fiscal agent of the Federal Government, but not as its general agent. WYO Companies are solely responsible for their obligations to their insured under any flood insurance policies issued under agreements entered into with the Federal Insurance Administrator, such that the Federal Government is not a proper party defendant in any lawsuit arising out of such policies.

44 C.F.R. § 62.23(g).

The court then ruled that the plaintiffs' allegation that FEMA essentially denied the claims through its selection of a flood start date was “too tenuous to constitute a waiver of sovereign immunity.” The individual insurance companies were the entities that processed and disallowed the plaintiffs' claims, it found. Moreover, it added, FEMA's affirmance of the insurance companies' denials “did not waive its immunity, as it did not provide the policy or actually disallow the claim.” The statutory waiver simply did “not apply to the facts of this case,” the court ruled, concluding that the plaintiffs therefore had not asserted a proper basis of jurisdiction over the federal defendants.

The case is McCaskill v. U.S. Dep't of Homeland Security, Nos. 2:12CV43–B–A, 2:12cv120–B–A, 2:12CV136–B–A, 2:12CV137–B–A, 2:12CV138–B–A (N.D. Miss. Sept. 27, 2013). Steven Todd Jeffreys, Povall & Jeffreys, PA, Cleveland, MS, William Hunter Nowell, Povall & Jeffreys, PA, Cleveland, MS, for Plaintiff; Ava Nicola Jackson, U.S. Attorney's Office, Oxford, MS, William T. Treas, Nielsen, Carter & Treas, LLC, Metairie, LA, Michael E. Whitehead, Page, Mannino, Pereisch, Dickinson & Mcdermott, P.L.L.C., Biloxi, MS, for Defendants.

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Sovereign Immunity Bars Insureds&rsquo; Claims Against FEMA

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