Lowery v. Fid. Nat. Prop. & Cas. Ins. Co.

805 F.3d 204

Brian LOWERY, et al, Plaintiffs

v.FIDELITY NATIONAL PROPERTY AND CASUALTY INSURANCE COMPANY, a corporation, Defendant.

Jeffrey M. Pye;

Theresa Pye, Plaintiffs–Appellees Cross–Appellants

v.Fidelity National Property and Casualty Insurance Company, a corporation, Defendant–Appellant Cross–Appellee.

No. 14–40135.

United States Court of Appeals, Fifth Circuit.

Nov. 6, 2015.

Martin L. Mayo, Esq. Martin L. Mayo & Associates, P.C. Houston, TX, for Plaintiffs–Appellees Cross–Appellants.

Gerald Joseph Nielsen, Esq., Trial Attorney, William Ross DeJean, William Truman Treas, Esq., Attorney, Nielsen, Carter & Treas, L.L.C., Metairie, LA, for Defendant–Appellant Cross–Appellee.

Appeals from the United States District Court for the Southern District of Texas.

Before JOLLY, HIGGINSON, and COSTA, Circuit Judges.

Opinion

COSTA, Circuit Judge:

Along with countless other structures on Galveston Island, Jeffrey and Theresa Pye's home was left in shambles after Hurricane Ike. Although they received some compensation from both their flood and wind insurers, they brought this suit seeking additional coverage under the flood policy. After a bench trial, the court denied the Pyes' claim for additional building coverage on the ground that the total recovery they had already received from insurers exceeded their total loss. As for contents coverage, the court awarded $2,500 for some car parts damaged in the storm. Both sides appeal. Concluding that federal common law governing the National Flood Insurance Program recognizes the rule against double recovery, we affirm the ruling that the Pyes are not entitled to additional building coverage. But we vacate the personal property award to the Pyes as they now concede it was in error.

I.

Jeffrey and Theresa Pye owned a two-unit residential building in Galveston. In 2007, an appraiser estimated the market value to be $195,000. They lived in one of the units and rented the other. The building was insured against floods by Fidelity National Property and Casualty Insurance Co., which participates in the National Flood Insurance Program. Under the Program, FEMA allows private insurers to issue government-backed flood insurance using FEMA's Standard Flood Insurance Policies (SFIPs). The Pyes had a SFIP issued by Fidelity with policy limits of $205,400 for building coverage and $50,000 for contents coverage, and $1,000 deductibles for each. A separate policy issued by the Texas Windstorm Insurance Association insured against wind damage.

Hurricane Ike severely damaged the Pyes' property when it made landfall in September 2008. They sought coverage from their wind insurer, and eventually brought suit and settled for $66,765.84, plus attorneys' fees and expenses. The Pyes also made claims on their flood policy. Fidelity's adjuster inspected the damage and prepared a proof of loss—“a policyholder's statement of the amount of money being requested, signed to and sworn to by the policyholder with documentation to support the amount requested”¹ —that the Pyes signed. Fidelity paid $76,968.23 for building damage and $30,367.49 for contents damage. The payment excluded damaged car parts valued at $2,500.

The Pyes felt shortchanged. Their lawyer commissioned a new estimate by Halley Lovato, who determined that the flood damage to their house amounted to $175,180. The lawyer then prepared a new proof of loss that claimed the policy limit (over $250,000), despite Lovato's much lower estimate. Fidelity rejected the claim. In 2010, the Pyes sold their property, unrepaired, for $58,000.

The Pyes filed this suit against Fidelity in 2011. Fidelity hired John Crawford to prepare a new damage assessment. He measured the actual cash value of the flood damage at $147,340.01—significantly more than what Fidelity initially paid.

The parties consented to have the case tried by a magistrate judge and it proceeded to a bench trial. Fidelity argued that the Pyes' proof of loss was invalid because the amount claimed (the full policy limit) was not supported by Lovato's estimate, and thus the company could not be held liable. The court rejected this argument, holding that the Pyes were not responsible for their lawyer's “unauthorized” overstatement of their claim, and that the proof of loss need not exactly match the submitted documentation in order to be valid. It therefore considered the proof of loss to be for the lower amount supported by the supporting documentation in the form of the Lovato estimate.

Once it resolved the proof of loss issue, the court determined the actual cash value of the flood damage. It found the estimate Crawford did for Fidelity, at a value of $147,340.01, to be more credible than Lovato's. It then applied Texas's “one satisfaction rule,” which bars plaintiffs from recovering twice for the same injury; the Pyes, the court held, could not recover more than the total damage to their home collected from both their wind and flood policies. It determined that the $143,734.07 the Pyes had already received for building damage—the $66,765.84 settlement from their wind insurer² and the $76,968.23 that Fidelity had already paid for building damage—plus the $58,000 received from the sale of the property exceeded the pre-Ike market value of $195,000.00. The court thus awarded nothing for building damage. With little discussion, however, it awarded $2,500 for car parts damaged in the flood. The parties filed cross appeals.

II.

“The standard of review for a bench trial is well established: findings of fact are reviewed for clear error and legal issues are reviewed de novo. ” One Beacon Ins. Co. v. Crowley Marine Servs., Inc., 648 F.3d 258, 262 (5th Cir.2011).

III.

Fidelity argues that the $2,500 judgment for damaged car parts should be reversed because the policy does not cover “[s]elf-propelled vehicles or machines, including their parts and equipment.” 44 C.F.R. pt. 61, app. A(1) (SFIP) Art. IV(5).³ Because the Pyes concede this was error, we reverse that award. We therefore need not address the other challenge Fidelity raises to the contents award: that the mismatch between the amount sought in the proof of claim and the estimate provided as supporting documentation renders the proof of claim invalid.

IV.

The only contested issue is thus the Pyes' appeal of the ruling denying them additional coverage for damage to their building. The Pyes argue that the trial court erred in applying Texas's “one satisfaction rule” to reduce the Pyes' award by amounts they already received from Fidelity, their wind insurer, and from the sale of their property. Both parties agree it was error to apply Texas law. Federal common law, not state law, governs the interpretation of the SFIP. SFIP Art. IX; Hanover Bldg. Materials, Inc. v. Guiffrida, 748 F.2d 1011, 1013 (5th Cir.1984) (“When [SFIP coverage] disputes arise, they are resolved under federal law by drawing upon standard insurance law principles.” (internal citation and quotation omitted)). Fidelity argues, however, that federal common law likewise limits the Pyes' coverage total recovery from both of their insurers to the total value of their loss.

We agree. “[T]he reference to federal common law in the SFIP directs courts to employ standard insurance principles when deciding coverage issues under the policy.” Wright v. Allstate Ins. Co., 500 F.3d 390, 394 (5th Cir.2007) (emphasis omitted). The rule applied by the magistrate judge is one such “standard insurance principle.” “One satisfaction rule” is, however, a label rarely used outside of Texas law or in the insurance context; courts and treatises more commonly refer to a bar on “double recovery.” See, e.g., Bradley v. Allstate Ins. Co., 620 F.3d 509, 521–22 (5th Cir.2010) (discussing Louisiana's law against “double recovery”); AAA Mid–Atl. Ins. Co. v. Ryan, 624 Pa. 93, 84 A.3d 626, 634 (2014) (recognizing a “long-standing prohibition” on “double recovery” for the same injury); Robichaux v. Nationwide Mut. Fire Ins. Co., 81 So.3d 1030, 1038 (Miss.2011) (stating that “double recovery for the same harm is not permissible”); 12 Couch on Insurance § 175:6 (discussing when the issue of “double recovery” arises). The rule flows from the principle that “[p]roperty insurance creates a contract of indemnity.” Id. § 175:5.

“The fundamental principle of a property insurance contract is to indemnify the owner against loss, that is to place him or her in the same position in which he would have been had no accident occurred.” Bradley, 620 F.3d at 521 (internal quotation, citation, and punctuation omitted). Thus “both the extent and the limitation of recovery is found in the concept of making good the loss which the insured has sustained.” 12 Couch on Insurance § 175:5 ; see also 2 Allan D. Windt, Insurance Claims & Disputes § 10:1 (6th ed.) (“The total amount that an insured recovers under all applicable insurance policies cannot exceed the amount of the loss.”). We thus hold that the standard principle of property insurance barring double recovery applies to SFIP coverage.

The Pyes argue that even if the bar applies generally, it is inapplicable here because the wind and flood policies are contracts that cover mutually exclusive risks. They cite our reasoning in GE Capital Commercial, Inc. v. Worthington National Bank, 754 F.3d 297 (5th Cir.2014), a case applying Texas law. In that case, the recipient of a fraudulent transfer sought a credit for another party's settlement of a breach of contract suit arising out of the same transaction. Id. at 300–02. We denied the credit, holding that Texas's one-satisfaction rule is “limited to cases in which a plaintiff settles with an alleged joint tortfeasor.” Id. at 308. That conclusion, however, involved the application of Texas's one-satisfaction rule when “one claim sounds in contract and the other in tort,” and thus the settling and nonsettling parties “do not share a common theory of legal liability.” Id. at 305 n. 6. We noted that “whether Texas's one-satisfaction rule precludes multiple...