Recovery of Attorney’s Fees in Federal Flood Cases Under the Equal Access to Justice Act?

Shane Smith | Property Insurance Coverage Law Blog | September 2, 2019

A recent Southern District of Florida decision addressed this issue.1

A property in Islamorada, Florida, which was owned by the estate of Raymond K. Hampson, was damaged by Hurricane Irma in September 2017. The personal representative for the estate, Timothy R. Hampson (“Hampson”) made a claim for damages under the standard flood insurance policy (“SFIP”) covering the property. When Hampson sued Wright National Flood Insurance Company, a Write Your Own (“WYO”) carrier, for breach of the insurance contract, Hampson also sought an award of attorney’s fees, costs and case expenses under the Equal Justice to Access Act (the “EAJA”), 28 U.S.C. § 2412.

In 1980, Congress enacted the EAJA and significantly expanded the federal government’s liability to pay the attorney’s fees of parties that prevail against the government in litigation or administrative proceedings.

A party may recover attorney’s fees and costs under the EAJA as the prevailing party in a case “brought by or against the United States. . . unless the court finds that the position of the United States was substantially justified.”2 The statute defines “United States” to include “any agency and any official of the United States acting in his or her official capacity.”3

Wright filed a motion to dismiss Hampson’s claims for attorneys’ fees, costs, and case expenses under the EAJA. Wright argued that Hampson could not recover attorneys’ fees, costs, and case expenses under the EAJA against a WYO carrier.

Chief District Judge K. Michael Moore of the Southern District of Florida agreed:4

[A]ttorney’s fees are not recoverable under the EAJA in cases for breach of an SFIP brought against a WYO program insurance carrier participating in the United States Government’s NFIP because WYO carriers are not considered “agencies” under the EAJA. Dwyer v. Fidelity Nat’l Prop. & Cas. Ins. Co., 565 F.3d 284, 289(5th Cir. 2009) (“[S]erving as a fiscal agent and a participant in a heavily regulated federal program did not transform Fidelity into a federal agency under the EAJA.”). The EAJA must be applied according to its express terms and attorney’s fees against a WYO carrier in a suit for SFIP funds may not be maintained under the EAJA. Id. at 289–90.

District Courts in this circuit have uniformly found that a plaintiff is not entitled to attorney’s fees and costs under the EAJA. See e.g.Cosgrove v. Wright Nat’l Flood Ins. Co., No.4:18-cv-10117-KMM, Paperless Order Denying Plaintiff’s Request for EAJA Fees (S.D. Fla. June 3, 2019), ECF No. 29 (holding that EAJA fees were not recoverable against a WYO Company because it was not an “agency” under the EAJA); Island Club Condo., Inc. v. Wright Nat’l Flood Ins. Co., 4:18-cv-10303-JLK (S.D. Fla. May 9, 2019), ECF No. 16 (granting motion to dismiss claim for attorney’s fees under the EAJA because “serving as ‘fiscal agents,’ without more, does not convert WYO insurers into official government agencies”); Chatman v. Wright Nat’l Flood Ins. Co., No. 3:17-CV-00125-HES-PDB, 2017 WL 3730558, at *1–2 (M.D. Fla. June 21, 2017) (granting motion to dismiss claim for attorney’s fees pursuant to the EAJA because Wright National Flood Insurance Company, a WYO carrier participating in the NFIP, “is not an agency of the United States as required by the EAJA”)(citation omitted); Perdido Sun Condo. Ass’n v. Nationwide Mut. Ins. Co., 2007 WL 2565990, at *4 (N.D. Fla. Aug. 30, 2007). Here, Plaintiff brings a claim for breach of an SFIP against Defendant, a WYO carrier participating in the NFIP pursuant to the NFIA. Compl.¶¶ 1–5. Thus, Plaintiff’s claims for attorney’s fees, costs, and case expenses pursuant to the EAJA are dismissed.

The Hampson court cited an earlier Middle District of Florida case but disagreed with the holding in that case:5

Plaintiff relies on Arevalo v. Am. Bankers Ins. Co. of Fla., No. 219CV159FTM99UAM, 2019 U.S. Dist. LEXIS 99000, 2019 WL 2476644, at *3 (M.D. Fla. June 13, 2019) to support its arguments that attorney’s fees and costs are warranted. Therein, the Middle District of Florida found that “it is not so much whether American Bankers is an ‘agency’ of the United States under the Act. Rather, it seems to matter more whether the government is the source of the funds or who would pay an award of attorney’s fees.” Id. Therefore, the Middle District of Florida concluded that “it is at least plausible at this point in the litigation that attorney’s fees may be paid from federal funds by FEMA.” Id. However, this Court disagrees and declines to depart from the case law in this circuit and other courts finding that a WYO carrier is not an agency of the United States as required by the EAJA.

The Hampson holding demonstrates that a policyholder cannot recover attorney’s fees, costs and expenses from a WYO carrier under the EAJA in Hurricane Irma flood insurance cases filed in the Southern District of Florida.
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1 Hampson v. Wright National Flood Ins. Co., No. 4:19-cv-10083 (S.D. Fla. Aug. 12, 2019).
2 28 U.S.C. § 2412(d)(1)(A), (b).
3 28 U.S.C. § 2412(d)(2)(C).
4 Hampson v. Wright National Flood Ins. Co., No. 4:19-cv-10083 (S.D. Fla. Aug. 12, 2019) at *3-4.
5 Id. at *4, fn 3.

Wind Versus Water Causing Insurance Payment Delays? The Sad Song Remains The Same For Michael Victims as In Other Storms

Chip Merlin | Property Insurance Coverage Law Blog | June 30, 2019

The Tampa Bay Times ran an excellent story, Hurricane Michael Destroyed Their Homes Then The Insurance Heartache Began, which tells a sad but familiar theme about insurance company denials and delayed payments following hurricane losses. I was quoted in the piece:

Chip Merlin, a Tampa insurance lawyer, said the same conflict happened in the last 15 years after Hurricane Katrina and Hurricane Ike. He said companies try to avoid making payment even when a slab is all that’s left of a property, as is the case in much of Mexico Beach.

‘Typically you have the strongest wind speeds come first, and then the storm surge follows it,’ Merlin said. Both cause damage. But residents and their attorneys, he said, may need to pay meteorologists and engineers to prove that flood and wind are to blame, and how much.

Over a decade ago, I warned that exactly what has happened in Hurricane Michael was going to repeat in, Are We Doomed To Repeat This Again?

I truly think that by raising the National Flood Insurance limits to at least $600,000 for residential structures and $1,500,000 for commercial structures on a replacement cost basis, increase the Law and Ordinance coverage to $100,000 for each, and add co-insurance requirements to the limits available, many of these cases will go away and the National Flood Program will be more sound from a actuarial standpoint because it will be able to insure to value. I suggested something similar to this in a post, Is One Practical Answer to Many Coverage Disputes Involving Storm Surge Versus Wind to Raise National Flood Limits and Underwrite Insurance to Value Properly?

From an educational standpoint about the current limits of the National Flood Program, please remember that the current limits available for purchase are $250,000 for a residential structure at replacement cost and $500,000 for a commercial structure, but only on an actual cash value basis. Neither limit has been raised in years to keep pace with inflation.

There is a huge need to increase the limits for a number of reasons. There is also a strong public policy in a free market economy to encourage the development of a private flood insurance market.

Broken Water Main Damage: Flood or Not Flood Under Homeowner’s Insurance Policy?

Paul LaSalle | Property Insurance Coverage Law Blog | May 9, 2019

In a recent court opinion,1 the New Jersey Appellate Division interpreted a homeowner’s insurance policy’s water damage exclusion and determined whether damage from a broken municipal water main under a public street was covered under the policy. In that case, a homeowner brought an action against his insurer for breach of contract after the insurer disclaimed coverage on the basis that damage to his real and personal property resulting from a broken water main was excluded under the policy as flood, surface and ground water intrusion.

The homeowner’s insurance policy at issue in that case provided all risk coverage for damage to the dwelling and other structures and named peril coverage for damage to personal property. The insurance policy’s form excluded losses caused by water damage, which was modified in reach by a “Water Back-Up and Sump Pump Discharge or Overflow” endorsement. The water damage exclusion included: “(1) Flood, surface water, waves …[the] overflow of any body of water … including storm surge” (Exclusion 1); and “(3) Water below the surface of the ground, including water which exerts pressure on, or seeps, leaks or flows through a building … or other structure” (Exclusion 3).

The insurance company claimed that Exclusion 1 applied because the water that caused the damage to the homeowner’s home was a “flood or surface water.” The insurance company also claimed that Exclusion 3 applied because below-ground water “exerted pressure on, … seeped, leaked or flowed through a building, sidewalk … driveway…or other structure.” The court disagreed.

The court initially noted that the insurance policy did not exclude all losses resulting from water, and that unless the kind of water that caused the damage to the homeowner’s dwelling satisfied one of the identified forms of water, the water damage exclusion did not apply. With respect to “flood” as defined in Exclusion 1, the court ruled that flood does not clearly encompass water released from a broken water main. In ruling so, the court noted that the insurance company’s Notice Regarding Flood Damage Coverage (which the insurance company invoked to define flood because the term was undefined by the water exclusion) provided that a “flood” “is a general and temporary condition of partial or complete inundation of normally dry areas.” Therefore, even if it was assumed that the homeowner’s driveway, a “normally dry land area,” was partially or completely inundated because of the broken water main, and that inundation caused damage to the dwelling, the condition was not a “general” one, i.e., a water condition that was “not limited in scope, area, or application.” In other words, in order for the water condition to be considered a flood, it must affect a wide area and precludes the isolated water condition that specifically damaged the homeowner’s property.

The court commented that its definition of a flood was consistent with the view of other jurisdictions that have found that a flood “connotes a great inundation or deluge affecting a broad area, and not the kind of localized water damage that a water-main break causes.” The court further provided this line of thought is clearly connected to the position that “the principal defining characteristic of a flood is not that it is a natural phenomenon – it may arise from human actions – but that it involves the overflow of a body of water”—and a water main is not a body of water.

With respect to the insurance company’s claim that the broken water main damage was excluded as “surface water” in Exclusion 1, the court concluded that the term “surface water” was ambiguous.2 Nevertheless, the court found the water main break’s water did not qualify as surface water under both definitions of the term. Therefore, water from a water main break is not, unambiguously, surface water.

Moreover, the court rejected the insurance company’s claim that Exclusion 3 prevented the homeowner’s recovery because the water that damaged the home was no longer “below the surface of the ground” when it reached the property; it was above ground. The court found that by its plain meaning, Exclusion 3 does not address damage caused by above-ground water. Furthermore, water below the surface of a public street adjoining an insured’s property is neither mentioned, nor implied by Exclusion 3.

Finally, it bears noting that while the court reversed the trial court’s determination that the broken water main damage was barred by the water damage exclusion, the court affirmed the trial court’s order that the insured had not established that his personal property claim satisfied a named peril. While the court commented that the only named peril that would appear to apply would be coverage for personal property by the “accidental discharge or overflow of water…,” and that provision does not extend if the discharge occurred off the “residence premises,” the court would leave the coverage determination to the trial court because the provision had not been addressed by the parties.
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1 Sosa v. Massachusetts Bay Ins. Co., No. A-5349-16T3, 2019 WL 1780983 (N.J. Super. Ct. App. Div. Apr. 24, 2019).
2 The insurance policy did not define “surface water” and the court found there were two competing but plausible meanings of the term. Surface water has been defined by the New Jersey Administrative Code to possess a permanent nature, akin to a body of water (such as water in lakes, ponds, streams, etc.). Alternatively, a prior opinion of a New Jersey court found surface waters “are those which fall on the land from the skies or arise in springs” and embrace waters derived from falling rain and melting snow, whether on the ground or on the roofs of buildings thereon.

Mold/Remediation: Michigan Appellate Court Addresses Duty Owed Homeowner by Insurance Company and Cleanup Contractor

Walter G. Wright and Claire Maddox | Mitchell Williams | September 12, 2018

The Court of Appeals of Michigan (“Court”) in an August 21st opinion addressed an issue regarding the duty and liability of Farmers Insurance Exchange (“Farmers”) and U.S. Disaster Services LLC (“U.S. Disaster”) owed to an insured homeowner in addressing flood damage. See Abraham v. Farmers Insurance Exchange, No. 335353, 2018 WL 3998728 (Mich. Ct. App. August 21, 2018).

The damage caused by interior flooding included significant mold growth.

The daughter of the homeowner (“Plaintiff”), reported flood damage in her mother’s home to the insurance company (Farmers). Farmers recommended using U.S. Disaster to mitigate the damage caused by the flooding. U.S. Disaster began working on the home after the Plaintiff signed a “Work and Direct Payment Authorization” document.

U.S. Disaster conducted remediation services. In the course of doing so it discovered mold in the subfloor. In response to this discovery the Court notes:

. . . the contract between the homeowner and U.S. Disaster provided that U.S. Disaster “will undertake best efforts to clean and remove only mold and mildew it discovers.” However, when the mold was discovered, U.S. Disaster employees did not attempt to “clean and remove any mold” other than to spray the subfloor with an antimicrobial chemical, an action which U.S. Disaster concedes, is at best, a means to prevent mold from spreading, not to eliminate or contain it. After spraying, U.S. Disaster ceased work and left the premises never to return.

The Plaintiff testified that she overheard a phone call between Farmers and U.S. Disaster in which Farmers told the employee of U.S. Disaster to leave the subfloor in place and not complete remediation.

U.S. Disaster conceded that after discovering the mold, it stopped working and recommended that the Plaintiff hire an environmental consultant.

The trial court granted summary disposition to Farmers and U.S. Disaster. In reviewing the trial court’s decision, the Court stated it must address three questions:

  1. Whether Defendant owed a duty to the Plaintiff
  2. Whether there is a question of fact that this duty was violated
  3. Whether any claim was extinguished by release

The Plaintiff argued Farmers:

  1. owed her a duty to hire a qualified mitigation company to mitigate the water damage,
  2. warn her of the risks associated with mold and advise her to leave the home, and
  3. not to direct or control the scope of U.S. Disaster’s work.

The Court rejected all three arguments. It held the Plaintiff failed to establish any evidence which held the insurance company to such duty, failed to establish U.S. Disaster was not qualified, and failed to state a specific claim in relation to her testimony about overhearing the two Defendants.

The Plaintiff also argued that U.S. Disaster owed her a common law duty to take reasonable precautions to assure that their work did not harm her or make an existing hazard more dangerous. A common law duty analysis balances factors such as relationship of the parties and the foreseeability of harm.

The Court agreed that U.S. Disaster owed the Plaintiff a duty for two reasons:

  1. The duty was to undertake the best efforts to clean and remove any mold
  2. The harm was foreseeable, and U.S. Disaster admitted understanding the risk mold poses

Therefore, given the relationship and foreseeability of harm, U.S. Disaster was held to owe Plaintiff a duty to perform its work so as not to create any new harm or worsen already existing risk of harm.

U.S. Disaster also argued that the case should be dismissed because the Plaintiff signed a release. The Court rejected that argument for three reasons:

  1. There is a question of fact as to when the release was signed and what was known at the time;
  2. There is, at minimum, a question of fact as to whether Plaintiff signed the release as her mother’s attorney-in-fact or in her individual capacity;
  3. There is no evidence in the record that the release was signed in exchange for some consideration

The Court affirmed the grant of summary disposition to Farmers Insurance and reversed the grant of summary disposition to U.S. Disaster.

copy of the opinion can be found here.

Policyholders Can Fully Collect Under a Flood Policy and a Wind Policy at the Same Time

Chip Merlin – July 18, 2014

Intelligent policyholders are not sticking around when their house is being destroyed documenting how much damage was caused by wind and then the flood that accompanies most of these catastrophic events. Yet, their insurance companies want to act as if their policyholders can play god. They demand that policyholder determine what damage was exactly caused by wind before the flood storm surge washed a lot of the evidence away.

Some insurance companies even claim their policyholders are crooks and cheats if they ask each company – the flood and wind carrier – to pay. I am hearing this from some Superstorm Sandy insurance adjusters. Most policyholders are underinsured following a major tropical storm or hurricane and need both policies to pay, at least in part, to be fully indemnified.

This is not the first time this issue has arisen. A good legal discussion of this factual pattern is found in Robichaux v. Nationwide Mutual Insurance Company:1

“Nationwide is contending that…an insured who submits a claim under a SFIP that does not segregate wind damage from flood damage or who submits a claim under a SFIP that includes claims for property damage that are doubtful or uncertain in origin does so at the peril of losing the wind damage benefits that would otherwise be payable under his homeowners policy.

. . .In essence, Nationwide is arguing that the burden is on the insured to properly segregate his losses at the time he makes a claim for SFIP benefits, and that if the insured errs and claims any damages under the SFIP that actually prove to be wind damages, the insured is estopped to make a subsequent claim for these wind damages under his homeowners policy. If this rule were established and followed, the wind insurer, the insurer who sold the homeowners policy, would then have no obligation to pay benefits for wind damages that would otherwise be covered.

. . .I find no authority to support Nationwide’s argument that by making a claim for damages under one policy an insured forfeits his rights under another policy if his original claim proves to be erroneous or over inclusive. In my opinion this would lead to an unjust result.

Insureds are entitled to recover their storm losses under all available insurance policies in accordance with the terms of those policies and the evidence showing the cause of the losses. In the context of catastrophic hurricane losses, the cause of the insured’s property damage is more often than not uncertain and more often than not disputed. It would be unreasonable and unjust to require an insured to correctly segregate his damages between flood losses and wind losses at the time he makes his initial claims at the peril of losing the insurance benefits he has paid for if his attempt at segregating these damages later proves to be incorrect. See: Palmer v. State Farm Fire and Cas. Co., 2007 WL 1459391 (S.D.Miss.2007).

In Ferguson v. State Farm Ins. Co., 2007 WL 1378507 (E.D.La.2007) Judge Berrigan faced a similar factual situation to this. The plaintiffs were insured under both a SFIP and a homeowners policy. Plaintiffs apparently claimed their hurricane losses were payable under both policies. On the basis of a telephone conversation, the SFIP benefits were paid, and State Farm argued that the plaintiffs should be estopped from claiming additional benefits under their homeowners policy. The Court disagreed, holding that the plaintiffs had a right to recover the wind damages covered by the homeowners policy. The Court determined that estoppel did not apply on the facts then before it.

This issue is important in New Jersey and New York as Superstorm Sandy litigation is getting in full swing and those clever insurance defense attorneys are trying their best to keep their neighbors from collecting benefits.

1 Robichaux v. Nationwide Mut. Ins. Co., No. 06-1165, 2007 WL 2783325 (S.D. Miss. Sept. 21, 2007).

via Policyholders Can Fully Collect Under a Flood Policy and a Wind Policy at the Same Time : Property Insurance Coverage Law Blog.