4.24.2006

Second Circuit Weighs in on Split re Whether NFIA Creates SMJ Over Claims Against Fiscal Agents

Per Palmieri v. Allstate Ins. Co, --- F.3d ----, 2006 WL 957252 (2d Cir. Apr. 13, 2006):

This contract dispute over a flood insurance policy requires us to determine whether we have jurisdiction to hear claims involving policies issued by private insurers pursuant to the National Flood Insurance Act (“NFIA” or the “Act”), codified at 42 U.S.C. §§ 4001-4129. We hold that 42 U.S.C. § 4072 gives us jurisdiction to hear such claims. . .

. . .

Pursuant to 42 U.S.C. § 4081(a), FEMA created the Write-Your-Own Program (“WYOP”), which allows private insurers, sometimes called “WYO companies,” to issue and administer flood-risk policies under the Government Program. Although FEMA may issue policies directly under the Government Program,more than 90% are written by WYO companies. These private insurers may act as ‘fiscal agents of the United States. . . .

. . .

Section § 4072 states that when “the program is carried out as provided in [42 U.S.C. § 4071], the Director [of Federal Emergency Management Agency (FEMA)] shall be authorized to adjust and make payment of any claims for proved and approved losses covered by flood insurance.” The statute includes the following jurisdictional language:

[U]pon the disallowance by the Director of any such claim, or upon the refusal of the claimant to accept the amount allowed upon any such claim, the claimant, within one year after the date of mailing of notice of disallowance or partial disallowance by the Director, may institute an action against the Director on such claim in the United States district court . . . .

Id. This case requires us to determine whether an action against the Director's fiscal agent [i.e. WYO companies] is “an action against the Director” under § 4072.

In Van Holt [v. Liberty Mut. Fire Ins. Co., 163 F.3d 161 (3d Cir.1998)], the Third Circuit held that § 4072 creates subject-matter jurisdiction for claims against WYO insurance companies. 163 F.3d at 167. . . .

. . .

The Sixth Circuit adopted the reasoning of Van Holt in Gibson [v. Am. Bankers Ins. Co., 289 F.3d 943, 947 (6th Cir.2002)].

. . .

In Downey [v. State Farm Fire & Cas. Co., 266 F.3d 675, 678 (7th Cir.2001)], the Seventh Circuit took a different view of whether 42 U.S.C. § 4072 creates jurisdiction over suits of this kind. See266 F.3d at 679. The court noted that § 4072 grants “original exclusive jurisdiction” in the district court for actions “against the Director” of FEMA, not WYO companies. Id.

. . .

To hold that a suit against a WYO company is not a suit “against the Director” would be to ignore the structure of the NFIA, under which insurance companies act on behalf of the federal government, and the purpose of the Government Program, which is to ensure that private companies may “serve as administrators for the federal program.” [citation omitted]. . . .

The general design of the Act also evidences an intent to ensure that claims involving the programs it creates are heard in the federal courts. . . .

Accordingly, we join the Third and Sixth Circuits in holding that § 4072 gives rise to jurisdiction over claims against WYO companies.

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