Melanson v. U.S. Forensic, LLC, 15–cv–4016 (ADS)(GRB)

183 F.Supp.3d 376

Adam Melanson, Plaintiff,

v.U.S. Forensic, LLC, Gary Bell, Hui Zeng, the Standard Fire Insurance Company, National Flood Service, Fountain Group Adjusters and Jason Sauve, Defendants.

15–cv–4016 (ADS)(GRB)

United States District Court, E.D. New York.

Signed April 30, 2016

The Mostyn Law Firm, 3810 W. Alabama Street, Houston, TX 77027, By: John S. Mostyn, Esq., Of Counsel, Co-Counsel for the Plaintiff.

Denis G. Kelly & Associates, P.C., 74 West Park Avenue, Long Beach, NY 11561, By: Denis G. Kelly, Esq., Of Counsel, Co-Counsel for the Plaintiff.

The Demmons Law Firm, LLC, 7461 Jade Street, Metairie, LA 70002, By: Larry E. Demmons, Esq., Of Counsel, Attorneys for Defendants U.S. Forensic, LLC and Gary Bell.

Milber Makris Plousadis & Seiden, LLP, 1000 Woodbury Road, Suite 402, Woodbury, NY 11797, By: Thomas M. Fleming, II, Esq., Of Counsel, Attorneys for Defendant Hui Zeng.

Robinson & Cole LLP, 280 Trumbull Street, Hartford, CT 06103, By: Stephen E. Goldman, Esq., Wystan M. Ackerman, Esq., Of Counsel, Attorneys for Defendant Standard Fire Insurance Company.

Foley & Lardner LLP, 90 Park Avenue, New York, NY 10016, By: Anne B. Sekel, Esq., Of Counsel, Attorneys for Defendant National Flood Service.

Lewis Brisbois Bisgaard & Smith, 77 Water Street, 21st Floor, New York, NY 10005, By: Seth I. Weinstein, Esq., Of Counsel, Attorneys for Defendants Fountain Group Adjusters and Jason Sauve.

MEMORANDUM OF DECISION AND ORDER

SPATT, District Judge

On July 8, 2015, the Plaintiff Adam Melanson ("Melanson" or the "Plaintiff") commenced this action against the Defendants U.S. Forensic, LLC ("US Forensic"), Gary Bell ("Bell"), Hui Zeng ("Zeng"), the Standard Fire Insurance Company ("Standard Insurance"), the National Flood Service ("National Flood"), Fountain Group Adjusters ("Fountain Group"), and Jason Sauve ("Sauve"), alleging violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq., and common law breach of contract. In general, the Plaintiff alleges that the Defendants participated in a fraudulent scheme to deny his claim for insurance proceeds arising from property damage he sustained during Superstorm Sandy.

Each of the Defendants has moved to dismiss the complaint.

I. Background

A. Overview of the Relevant Statutory Framework

Before delving into the specific facts of this case, the Court finds that it will be helpful to provide an overview of the complex regulatory framework governing federal flood insurance policies.

At the heart of the relevant statutory regime is the National Flood Insurance Act of 1968 ("NFIA" or the "Act"), 42 U.S.C. §§ 4001 –4127, which was enacted with a legislative "recogni[tion] that ‘many factors have made it uneconomic for the private insurance industry alone to make flood insurance available to those in need of such protection on reasonable terms and conditions,’ " Jacobson v. Metro. Prop. & Cas. Ins. Co., 672 F.3d 171, 174 (2d Cir.2012) (quoting 42 U.S.C. § 4001(b) ). Thus, under the Act, " ‘the federal government provides flood insurance subsidies and local officials are required to adopt and enforce various management measures.’ " Id. (quoting Palmieri v. Allstate Ins. Co., 445 F.3d 179, 183 (2d Cir.2006) ).

Within the purview of the Act is a program known as the National Flood Insurance Program ("NFIP" or the "Program"), which is administered by the Federal Emergency Management Agency ("FEMA"), and is "supported by taxpayer funds, which pay for claims that exceed the premiums collected from the insured parties." Jacobson, 672 F.3d at 174 (citing Van Holt v. Liberty Mut. Fire Ins. Co., 163 F.3d 161, 165 n. 2 (3d Cir.1998) ). Simply stated, "[t]he NFIP is a federally-subsidized program designed to make flood insurance available to the general public at or below actuarial rates." Moffett v. Computer Scis. Corp., 457 F.Supp.2d 571, 573 (D.Md.2006).

Under the Program, among other things, "FEMA is authorized to promulgate regulations [1] as to ‘the general terms and conditions of insurability which shall be applicable to properties eligible for flood insurance coverage,’ and [2] as to ‘the general method or methods by which proved and approved claims for losses under such policies may be adjusted and paid.’ " Id. at 573 (citing Battle v. Seibels Bruce Ins. Co., 288 F.3d 596, 599 (4th Cir.2002) ). "In other words, FEMA writes the policies and makes the rules as to claims made under them." Id.

For example, FEMA has established the precise terms and conditions of coverage available under the Program in the form of a so-called Standard Flood Insurance Policy ("SFIP"). See 44 C.F.R. § 61.13 (codifying the terms and conditions of the SFIP); see also Van Holt, 163 F.3d at 165–66 ("FEMA fixes the terms and conditions of the flood insurance policies, which, barring the express written consent of the Federal Insurance Administrator, must be issued without alteration as a Standard Flood Insurance Policy"); Moffett, 457 F.Supp.2d at 574 (noting that "[t]he terms and conditions of coverage are fixed by FEMA regulation in the form of [an SFIP] and do not vary ..."); Eodice v. Selective Ins. Co. of Am., No. 08–cv–151, 2010 U.S. Dist. LEXIS 13090, at *2 (D.N.J. Feb. 8, 2010) (same).

"In 1983, FEMA created the Write Your Own ["WYO"] program, which allows private insurance companies to issue and administer SFIPs in their own names as ‘fiscal agent[s] of the Federal Government.’ " Ravasio v. Fid. Nat'l Prop. & Cas. Ins. Co., 81 F.Supp.3d 274, 277 (E.D.N.Y.2015) (Spatt, J.) (quoting 42 U.S.C. § 4071(a)(1) ). Under this expansion, private insurance companies are authorized to "write their own" federally-underwritten SFIPs, Van Holt, 163 F.3d at 165, but in doing so, assume "significant administrative responsibilities under the NFIP," Moffett, 457 F.Supp.2d at 574.

For example, "[f]or the policies they issue, [WYO companies] are responsible for the adjustment, settlement, payment and defense of all claims." Id. ; see 44 C.F.R. §§ 62.21(a), 62.23. "The Government, in return, ... reimburse[s] the WYO insurer for claims paid under the SFIPs and related litigation costs, and pays the WYO insurer a flat 3.3% commission on claims paid." Eodice, 2010 U.S. Dist. LEXIS 13090, at *2. Thus, under the WYO program, "the private insurance companies administer the federal program," but ultimately, " ‘it is the Government, not the companies, that pays the claims.’ " Ravasio, 81 F.Supp.3d at 277 (quoting Jacobson, 672 F.3d at 175 ); see Gunter v. Farmers Ins. Co., 736 F.3d 768, 770 (8th Cir.2013) (noting that "WYO insurers deposit SFIP premiums in the United States Treasury and pay SFIP claims and litigation costs with federal money") (citations omitted).

Relevant here, the NFIA contains a remedial provision, which creates a right of action for insureds against the Federal Insurance Administrator, to be brought in federal court within one year after the cause of action accrues:

[U]pon the disallowance by the Administrator of any such claim [for losses covered by an SFIP], 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 Administrator, may institute an action against the Administrator 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 ; see Moffett, 457 F.Supp.2d at 575 (explaining that "[if] an insured is dissatisfied with the handling of a claim, he or she may ... bring an action in federal district court") (citing 44 C.F.R., Part 61, App. A(1), Art. VII(P); 42 U.S.C. § 4072 ).

With this statutory framework in mind, the Court now turns to the relevant facts of this case, which, unless otherwise indicated, are drawn from the complaint and construed in favor of the Plaintiff.

B. The Relevant Facts

The Plaintiff Adam Melanson is an individual who, at all relevant times, owned and derived rental income from a residential property located at 101 Michigan Street in Long Beach (the "Long Beach Residence"). See Compl. ¶ 7. On an unspecified date, the Plaintiff purchased a policy of flood insurance from the Defendant Standard Insurance (the "Policy"). See id. ¶ 68. Although the Policy is not attached to the complaint, and few specific facts are alleged as to its contents, it appears that the Policy was a Standard Flood Insurance Policy (previously defined as "SFIP"), issued by Standard Insurance in its capacity as a "Write Your Own" (previously defined as "WYO") company pursuant to the National Flood Insurance Program (previously defined as "NFIP" or the "Program") and its implementing regulations, and contained coverage limits of $250,000. See, e.g., Compl. ¶¶ 11, 22, 39, 60.

On October 29, 2012, Superstorm Sandy decimated parts of Long Beach and the surrounding areas. According to the complaint, the Long Beach Residence sustained severe damage. See id. ¶ 25. Accordingly, on an unspecified date after the storm, the Plaintiff submitted a claim to Standard Insurance for coverage under the Policy.See id. ¶ 26.

The complaint alleges that Standard Insurance "contracted with" the Defendant National Flood "to handle the management and adjustment of its Hurricane Sandy claims," id. which, apparently, included the Plaintiff's claim at issue in this case. Id. It is further alleged that Standard Insurance, together with National Flood, then retained the Defendant Fountain Group, a Louisiana-based adjusting firm, and the Defendant Jason Sauve, an individual claims adjuster, to inspect the Long Beach Residence and investigate the claim. See id. ¶¶ 12–13, 26.

After performing an inspection of the Long Beach Residence, during which he allegedly observed substantial damage, Sauve requested that an engineer...