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STEVENS v. BANKERS INS. CO.

July 8, 1997

ROBERT STEVENS, et al., Plaintiffs,
v.
BANKERS INSURANCE CO., Defendant.



The opinion of the court was delivered by: LYNCH

 I. INTRODUCTION

 On plaintiffs' motion for summary judgment, the Court must decide whether loss of inventory not submerged under water but damaged by flood water is a covered loss under a Standard Flood Insurance Policy ("SFIP") issued pursuant to the National Flood Insurance Act. See 42 U.S.C. §§ 4001-4128. Simply put, the Court's answer is yes.

 II. BACKGROUND

 Plaintiffs Bob and Mary Stevens own and operate a decorating supply store in Napa, a town about 50 miles north of San Francisco in California's wine country. As would be expected of a fertile valley, many rivers wind through the area. These rivers not infrequently flood and property damage ensues. Plaintiffs sought to steel themselves against potentially devastating loss by purchasing a flood insurance policy from defendant Bankers Insurance Company. The policy was issued pursuant to the National Flood Insurance Act of 1968 and applicable amendments, and interpretive rules of Title 44 of the Code of Federal Regulations.

 In March 1995, the Napa River overflowed and substantial floodwater entered the decorating store. Plaintiff's wallpaper stock was destroyed. While the inventory was not submerged, ambient moisture was trapped in the plastic wrapping around each roll and the paper was rendered unsalable. Plaintiffs timely filed a claim for their lost wallpaper.

 Plaintiffs promptly filed suit. They argue that defendant's denial constitutes breach of contract and tortious breach of contract (bad faith). Earlier this year, the Court denied defendant's motion for summary judgment finding that the policy did not exclude, as a matter of law, the type of loss claimed by plaintiffs. Plaintiffs now ask the Court for summary judgment on both liability and damages.

 For the reasons stated below, the Court finds that, as a matter of law, plaintiffs' lost wallpaper inventory is a loss compensable under the flood insurance policy. The Court, therefore, grants plaintiffs' motion for liability on the breach of contract claim. Because the facts do not demonstrate bad faith, the Court denies summary judgment on the tort claim. Finally, the Court finds that summary judgment on damages would be inappropriate at this time because plaintiffs have failed to establish precisely the amount of their loss.

 III. JURISDICTION

 Federal district court has exclusive original jurisdiction over cases involving challenged denial of claims by holders of insurance policies written consistent with the National Flood Insurance Program. 42 USC § 4072; see 42 U.S.C. §§ 4001-4128. Interpretation of an insurance policy is a question of law properly resolved by the court. Aschenbrenner v. United States Fidelity & Guaranty Co., 292 U.S. 80, 78 L. Ed. 1137, 54 S. Ct. 590 (1934). Federal common law controls. See, e.g., Smoak v. Independent Fire Ins. Co., 874 F. Supp. 110, 111 (D.S.C. 1994).

 IV. APPLICABLE LAW AND ANALYSIS

 A. Breach of Contract Liability

 The SFIP is a single-risk insurance policy that protects against all "direct physical loss by or from flood." "Direct physical loss by or from flood" is defined as:

 
Any loss in the nature of actual loss of or physical damage, evidenced by physical changes, to the insured property (building or personal property) which is directly and proximately ...

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