Joseph Battle v. Seibels Bruce Insurance Company

This appeal primarily presents a subject matter jurisdiction ques-
tion with respect to certain claims emanating from a coverage dispute
between a homeowner and the South Carolina Insurance Company
(SCIC) which involves a flood insurance policy issued under the
National Flood Insurance Program (NFIP), see 42 U.S.C. SS 4001-
4129. The claims allege breach of the implied covenant of good faith
and fair dealing and the temporary conversion of money. We hold the
district court possessed subject matter jurisdiction over these claims
under the federal question statute, 28 U.S.C. S 1331, and, therefore,
we vacate the district court's remand of those claims to state court.

We remand this case to the district court for further proceedings on
those claims consistent with this opinion.

On October 23, 1995, SCIC issued Joseph Battle (Battle) a flood
insurance policy under the NFIP for his beach-front home (the Prop-
erty) located at 911 Canal Drive, Carolina Beach, North Carolina.
Before we continue setting forth the facts and procedural history rele-
vant to the issues on appeal, we deem the immediately following
explanation of the NFIP necessary to put such information in proper
context.

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Congress established the NFIP under the National Flood Insurance
Act of 1968, 42 U.S.C. SS 4001-4129, in order to make flood insur-
ance available on reasonable terms and conditions to those in need of
such protection, id. at S 4001. Furthermore, as the Seventh Circuit
recently explained:

When Congress created the NFIP it gave the program's
administrator two ways to execute the program and discre-
tion to choose between them. The first method, the "Industry
Program," allows a pool of private insurers to underwrite
flood insurance with financial backing from the government.
The "Government Program," the second option, allows the
government to run the NFIP itself--offering federally
underwritten policies--with the potential for administrative
assistance from private insurers. In 1977[,] the Secretary of
Housing and Urban Development, who ran the NFIP at the
time (it has since been taken over by the Federal Emergency
Management Agency), decided that the Industry Program
was unworkable and ended it. He then implemented the
Government Program, which has continued to the present.

Downey v. State Farm Fire & Cas. Co., 266 F.3d 675, 678-79 (7th
Cir. 2001) (internal citations omitted).

For more than twenty years, the Director of the Federal Emergency
Management Agency (FEMA) has been charged as the sole adminis-
trator of the NFIP. Exec. Order No. 12127, 44 Fed. Reg. 19367 (Mar.
31, 1979), reprinted in 15 U.S.C. S 2201 (making effective Reorgani-
zation Plan No. 3 of 1978, 43 Fed. Reg. 41943 (June 19, 1978),
reprinted in 15 U.S.C. S 2201). Moreover, the Director of FEMA is
statutorily authorized to provide, by regulation, not only "for the gen-
eral terms and conditions of insurability which shall be applicable to
properties eligible for flood insurance coverage" under the NFIP, but
also for the general method or methods by which proved and
approved claims for losses under such policies may be adjusted and
paid. 42 U.S.C. SS 4013, 4019. Significantly, by FEMA regulation, all
policies issued under the NFIP must be issued using the terms and
conditions of the Standard Flood Insurance Policy (SFIP) found in 44
C.F.R. Part 61, Appendix A. 44 C.F.R. SS 61.4(b), 61.13(d), (e),
62.23(c).

The Director of FEMA operates the Government Program of the
NFIP "through the facilities of the Federal Government . . . ." 42
U.S.C. S 4071(a). In so doing, the Director of FEMA is authorized to
use private insurance companies "as fiscal agents of the United
States," id. at S 4071(a)(1), and to enter into with insurance compa-
nies any necessary "contracts, agreements, or other appropriate
arrangements," id. at S 4081(a).

In 1983, the Director of FEMA used this authorization to create the
"Write-Your-Own Program" (WYO Program). 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. 44 C.F.R. S 62.23. Insurance companies which
participate in the WYO Program are known as "WYO Companies."
Id. Notably, all flood insurance policies issued by WYO Companies
under the WYO Program must mirror the terms and conditions of the
SFIP, which terms and conditions cannot be varied or waived other
than by the express written consent of the Federal Insurance Adminis-
trator. 44 C.F.R. SS 61.4(b), 61.13(d), (e), 62.23(c), (d). Additionally,
"[a] WYO Company issuing flood insurance coverage shall arrange
for the adjustment, settlement, payment and defense of all claims aris-
ing from policies of flood insurance it issues under the [NFIP], based
upon the terms and conditions of the [SFIP]." 44 C.F.R. S 62.23(d).

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Click the case caption above for the full text of the Court's opinion.

Affirmed in part, vacated in part, and remanded

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