United States District Court, Northern District of California, San Jose Division
August 28, 2000
ROBERT BIANCHI AND JANET BIANCHI, PLAINTIFFS,
STATE FARM FIRE AND CASUALTY COMPANY, RON EMILIO, DEFENDANTS.
The opinion of the court was delivered by: Ware, District Judge.
AMENDED ORDER GRANTING DEFENDANTS' MOTION TO DISMISS
PLAINTIFFS' SECOND CAUSE OF ACTION AND GRANTING DEFENDANTS'
MOTIONS TO STRIKE*fn1
Defendants move to dismiss Plaintiffs' state law claim for breach of
the implied covenant of good faith and fair dealing and to strike their
prayers for punitive and emotional distress damages and attorneys' fees on
the ground that the National Flood Insurance Act of 1968 ("NFIA")
preempts such a state law claim. The Court finds that the state law claim
is barred by the NFIA and dismisses it from this case. In addition,
remedies sought by Plaintiffs are disallowed by NFIA and thus, the Court
orders the prayer for punitive damages, emotional distress damages and
attorneys' fees stricken.
In February 1997, Plaintiffs Robert and Janet Bianchi purchased flood
insurance from Defendant State Farm and Casualty Company through its
authorized agent Ron Emilio. The policy was issued pursuant to the
National Flood Insurance Act ("NFIA") of 1968. Ron Emilio sold to
Plaintiffs a standard State Farm flood insurance policy which insured the
"dwelling" of Plaintiffs' home at 1530 Dana Avenue, Palo Alto,
California, against loss of damage by or from a flood in an amount of up
to $188,100.00. The policy was effective from February 23, 1997 to
February 23, 1998. On February 3, 1998, Plaintiffs' home was flooded when
water from the
nearby San Francisquito Creek overflowed and poured onto Plaintiffs'
property. The flood allegedly damaged both Plaintiffs' dwelling and
personal property in an amount exceeding the limits of the flood insurance
policy. In accordance with the policy, Plaintiffs submitted a written
proof of loss to Defendants on April 27, 1998. In response, Defendant
State Farm tendered a check to Plaintiffs for $75,000.00.
Plaintiffs contend that the $75,000.00 is insufficient to pay the
covered loss. Plaintiffs contend that State Farm has breached the policy
and has in bad faith refused to pay Plaintiffs the full benefits under
the policy. Plaintiffs brought the current action against both State Farm
and its agent, Ron Emilio. Plaintiffs are suing State Farm for breach of
the insurance contract and breach of the covenant of good faith and fair
dealing. Plaintiffs are suing Ron Emilio for negligently procuring an
insurance policy with a coverage limitation that is inconsistent with the
coverage limitation the Bianchis had originally agreed to.
Defendants move to dismiss Plaintiffs' second cause of action for
breach of the implied covenant of good faith and fair dealing. Defendants
also move to strike Plaintiffs' request for emotional distress damages,
exemplary damages and attorneys fees and to strike Plaintiffs'
surrebuttal and notice of newly published case law.
Pursuant to Rule 12(b)(6), Fed.R.Civ.P., a claim may be dismissed as a
matter of law for one of two reasons: "(1) lack of a cognizable legal
theory or (2) insufficient facts under a cognizable legal theory."
Robertson v. Dean Witter Reynolds, Inc., 749 F.2d 530, 534 (9th Cir.
1984). When ruling on a motion to dismiss, "[a]ll material allegations in
the complaint are to be taken as true and construed in the light most
favorable to the non-moving party." Sanders v. Kennedy, 794 F.2d 478, 481
(9th Cir. 1986); NL Indus., Inc. v. Kaplan, 792 F.2d 896, 898 (9th Cir.
1986). However, the Court will not accept wholly conclusory allegations.
Western Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir. 1981), cert.
denied, 454 U.S. 1031, 102 S.Ct. 567, 70 L.Ed.2d 474 (1981); Kennedy v. H
& M Landing, Inc., 529 F.2d 987, 989 (9th Cir. 1976). Further, when on
the basis of a dispositive issue of law, no construction of factual
allegations of a complaint will support the cause of action, dismissal of
the complaint is appropriate. Executive 100, Inc. v. Martin County,
922 F.2d 1536 (11th Cir. 1991), cert. denied, 502 U.S. 810, 112 S.Ct.
55, 116 L.Ed.2d 32 (1991).
A. Plaintiffs' Claim for Breach of the Covenant of Good Faith and Fair
Dealing is Not Recognized Under the NFIA
The National Flood Insurance Act of 1968 has enabled the availability
of flood insurance due to a joint partnership between the federal
government and the private insurance industry. 42 U.S.C. § 4001(b),
(d). The National Flood Insurance Program is a federally supervised and
guaranteed program that is administered by the Federal Emergency
Management Agency ("FEMA") pursuant to the NFIA and its corresponding
regulations. See 44 C.F.R. § 59.1-77.2. Congress enacted this statute
in order to limit damage caused by flood disasters through prevention and
protective measures, and to make flood insurance "available on reasonable
terms and conditions" to those who qualify. 42 U.S.C. § 4001(a)(1)-(4).
In addressing the issue of whether state or federal law should apply in
resolving disputes arising from a policy issued pursuant to the NFIA, the
5th Circuit in West v. Harris, 573 F.2d 873, 881 (5th Cir. 1978),
Since the flood insurance program is a child of
Congress, conceived to achieve policies which are
national in scope, and
since the federal government participates extensively
in the program both in a supervisory capacity and
financially, it is clear that the interest in
uniformity . . . mandates the application of federal
See also, Seattle Fur Exchange, Inc., v. Foreign Credit Insurance
Association, 7 F.3d 158
, 160 (9th Cir. 1993) (federal law applies where
an action was brought seeking compensation for a loss under a federal
flood insurance policy); Brazil v. Giuffrida, 763 F.2d 1072
, 1075 (9th
Cir. 1985) (federal law controls the interpretation of the NFIA policy in
issue); Robert Stevens, et al., v. Bankers Insurance Co., 970 F. Supp. 769,
771 (N.D.Cal. 1997) (federal law controls the interpretation of Standard
Flood Insurance Policy issued pursuant to the NFIA).
Although it is clear that federal law governs disputes over
coverage arising under the NFIA, the issue before this Court is whether
Plaintiffs' state claim for breach of the covenant of good faith and fair
dealing claim is recognized under the NFIA. Based upon the statutory
language of the NFIA and case law, the Court finds that it is not.
A plain reading of the NFIA supports the Court's conclusion that
Plaintiffs' bad faith claim is preempted by the NFIA. The NFIA states
that upon the "disallowance of the claim [under a policy of insurance
issued pursuant to the National Flood Insurance Act of 1968, the insured]
may institute an action on such claim against [the] company or other
insurer." 42 U.S.C. § 4072. The Court interprets this language to
refer to claims challenging the insurer's failure to pay a "claim." The
full text of 42 U.S.C. § 4072 provides:
In the event the program is carried out as provided
in section 4071 of this title, the Director shall be
authorized to adjust and make payment of any claims
for proved and approved losses covered by flood
insurance, and upon 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 for
the district in which the insured property or the
major part thereof shall have been situated, and
original exclusive jurisdiction is hereby conferred
upon such court to hear and determine such action
without regard to the amount in controversy.
42 U.S.C. § 4072 (emphasis added). Section 4072 originally provided
that upon disallowance of a claim, the insured could file an action in
the "district court in which the insured property was situated." In
1983, Congress amended the statute to add the words "original exclusive"
to define jurisdiction conferred on the district court. The amendment
underscores Congress' intent to make district court jurisdiction
exclusive and to disallow remedies in state court. 42 U.S.C. § 4072.
It is important to note that the language of Section 4072 makes no
mention of other causes of action that may be brought as a result of the
insurer's failure to pay a claim. At least one court has noted that
Congress could have chosen to use broader language, such as "relating to
the insurance policy" or "relating to the claim's investigation or
adjustment," but chose not to do so. Van Holt v. Liberty Mutual Fire
Insurance Co., 143 F.3d 783, 787 (3rd Cir. 1998). Since Congress intended
to choose such narrow language when it drafted the NFIA, a plain reading
of the statute indicates that other causes of action, including state
claims, are not cognizable under the NFIA.
Furthermore, several recent cases have held that state law causes of
action, arising under policies issued pursuant to NFIA, are preempted by
the NFIA. Stapleton v. State Farm Fire and Casualty Co., 1998 WL 449282
at *3 (M.D.Fla. 1998) (citing Friedman v. South Carolina Insurance
Co. et al., 855 F. Supp. 348, 350 (M.D.Fla. 1994)). Most notably, in
Stapleton, the court granted Defendant's motion to dismiss Plaintiffs'
state claims because they were preempted by the NFIA. Defendant State
Farm Fire and Casualty Company issued an insurance policy covering
Plaintiffs' home for flood insurance pursuant to the NFIA. During the
period of coverage, Plaintiffs' home suffered from flood damage and
Plaintiffs subsequently filed a claim. State Farm denied complete
coverage as to the lowest floor of the Plaintiffs' property. Plaintiffs
filed suit alleging the following causes of action: breach of contract,
fraud in the inducement, and deceptive and unfair trade practices.
Defendants filed a motion to dismiss Plaintiffs' state claims arguing
that those claims are barred by the NFIA. The Court agreed with State
Farm and granted Defendants' motion to dismiss on the ground that state
law causes of action are preempted by the NFIA. Id.
Similarly here, Plaintiffs' claim for breach of the implied covenant of
good faith and fair dealing is a state claim and therefore should be
barred. This conclusion is consistent with the original intent of
Congress in enacting the NFIA and fosters uniformity in this federal
statutory scheme. Furthermore, by not permitting Plaintiffs to pursue a
bad faith claim under the NFIA, the cost of providing flood insurance at
an affordable rate will remain possible.
In sum, based on the statutory language of the NFIA and case law,
Plaintiffs' claim for breach of the covenant of good faith and fair
dealing is not recognized under the NFIA and is therefore barred.
Accordingly, this Court grants Defendants' Motion to Dismiss the second
cause of action for breach of covenant of good faith and fair dealing
B. Punitive Damages, Emotional Distress Damages, And Attorneys' Fees Are
Pursuant to FRCP 12(f), "the court may order stricken from any
pleading any insufficient defense or any redundant, immaterial,
impertinent, or scandalous matter." A motion to strike serves two basic
functions. It provides an early challenge to the legal sufficiency of a
defense, California v. United States, 512 F. Supp. 36, 38 (N.D.Cal.
1981), and is also the primary method to attack defects or objections
that cannot be addressed by a motion to dismiss.
"Under the express language of the rule, only pleadings are subject to
motions to strike." Sidney-Vinstein v. A.H. Robins Co., 697 F.2d 880, 885
(9th Cir. 1983). A 12(f) motion is proper "when the defense is
insufficient as a matter of law." Kaiser Aluminum, Etc. v. Avondale
Shipyards, Inc., 677 F.2d 1045, 1057 (5th Cir. 1982). A motion to strike
may also be granted where "it is clear that the matter to be stricken
could have no possible bearing on the subject matter of the litigation."
LeDuc v. Kentucky Central Life Ins. Co., 814 F. Supp. 820, 820 (N.D.Cal.
1992). "Motions to strike on the grounds of insufficiency,
immateriality, irrelevancy, and redundancy are not favored . . . and will
usually be denied unless the allegations have no possible relation to the
controversy and may cause prejudice to one of the parties." Dah Chong
Hong, Ltd. v. Silk Greenhouse, Inc., 719 F. Supp. 1072 (M.D.Fla. 1989).
The Court grants Defendants' Motion to Strike on three grounds.
First, in federal breach of contract actions where the contract is issued
pursuant to the NFIA, "the damages recoverable are pecuniary in nature and
not personal." Friedman v. South Carolina Ins., 855 F. Supp. 348, 351
(M.D.Fla. 1994) (citing West v. Harris, 573 F.2d 873, 883 (5th Cir.
1978)). Emotional distress damages are clearly personal in nature rather
than pecuniary. They are not recoverable. Id. Thus, Plaintiffs cannot
recover emotional distress damages in a breach of contract action where
the contract is issued pursuant to the NFIA. Id.
Second, there is no authorization within the statutes or the
regulations of the National Flood Insurance Act which allow the recovery
of punitive damages. Eddins v. Omega Insurance Co., 825 F. Supp. 752, 753
Lastly, in breach of contract actions where the contract had been
issued pursuant to the NFIA, prevailing Plaintiffs have tried to seek
attorneys' fees pursuant to their respective state statutory remedies.
The courts, however, uniformly refused to apply the state remedies and
have held that there is no basis in federal law for the assessment of
attorneys' fees. See Friedman v. South Carolina Insurance Co.,
855 F. Supp. 348, 350 (M.D.Fla. 1994). California's statutory law
permitting the recovery of attorneys' fees is preempted by federal law
which does not allow it. Defendants' motion to strike Plaintiffs' request
for emotional distress damages, exemplary damages and attorneys' fees is
C. Plaintiffs' Sur-rebuttal and Notice of Newly Published Case Law Are
The Court grants both Defendants' motions to strike Plaintiffs'
Sur-rebuttal and Plaintiffs' Notice of Newly Published Case Law. Civil
Local Rule 7-3(e) states that "once a reply is filed, no additional
memoranda, papers or letters shall be filed without prior court
approval." However, prior to the noticed hearing date, counsel "may bring
to the court's attention a relevant judicial opinion published after the
date the reply was filed by serving and filing a Statement of Recent
Decision, containing a citation to and providing a copy of the new
opinion without argument."
In this case, counsel for Plaintiffs has clearly violated Local Rule
7-3(e) by filing a sur-rebuttal without prior court approval. Secondly,
the recent decision that Plaintiffs' counsel refers to is a 1997 case
that was published and available before the date the reply brief was
filed. Therefore, Defendants' motions to strike are granted.
For the reasons stated herein, Defendants' motion to dismiss the second
cause of action and motions to strike are granted.