Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-alsd-1_15-cv-00525/USCOURTS-alsd-1_15-cv-00525-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 42:4053 Breach of Insurance Contract

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IN THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF ALABAMA

SOUTHERN DIVISION

LARRY JAMES BURKE and )

DARLA BURKE, )

Plaintiffs, )

)

v. ) CIVIL ACTION NO. 15-00525-CG-N

)

NEW HAMPSHIRE INSURANCE )

COMPANY and )

FLAGSTAR BANK FSB, )

Defendants. )

REPORT AND RECOMMENDATION

This action is before the Court on the Motion to Dismiss Plaintiffs’ Second 

Cause of Action under Federal Rule of Civil Procedure 12(b)(6) (Doc. 5) filed by 

Defendant New Hampshire Insurance Company (“NHIC”). Though given the 

opportunity to do so (see Doc. 9), Plaintiffs Larry James Burke and Darla Burke 

(collectively, “the Burkes”) have not filed any response in opposition to the motion, 

which is now under submission.

Under S.D. Ala. GenLR 72(b), the motion to dismiss has been referred to the 

undersigned Magistrate Judge for entry of a report and recommendation as to the 

appropriate disposition, in accordance with 28 U.S.C. § 636(b)(1)(B)-(C), Federal 

Rule of Civil Procedure 72(b)(1), and S.D. Ala. GenLR 72(a)(2)(S). Upon 

consideration, and for the reasons stated herein, the undersigned RECOMMENDS

that the motion to dismiss (Doc. 5) be GRANTED.

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I. Background1

On November 10, 2015, the Burkes initiated this action by filing a Complaint 

(Doc. 1) with this Court. The Complaint alleges that NHIC is “a Write-Your-Own 

Company participating in the U.S. Government’s National Flood Insurance 

Program pursuant to the National Flood Insurance Act of 1968, as amended, 42 

U.S.C. §4001 et seq.” (Id. at 1, ¶ 2).2 The Burkes allege that they “procured flood 

insurance for their property from” NHIC, that the insured property “sustained 

significant damages ... during a massive flood event” on or about April 30, 2014. 

(Id. at 2, ¶¶ 6 – 7). Defendant Flagstar Bank FSB (“Flagstar”) held a mortgage on 

the insured property and was thus listed on the flood policy. (Id., ¶ 2). Flagstar 

“foreclosed on the property on May 12, 2014 with a bid at auction for the full 

amount owed by Plaintiffs on the mortgage.” (Id., ¶ 10). 

 1 In deciding a motion to dismiss under Rule 12(b)(6) for “failure to state a claim upon 

which relief can be granted,” the Court must construe the complaint in the light most 

favorable to the plaintiff, “accepting all well-pleaded facts that are alleged therein to be 

true.” Miyahira v. Vitacost.com, Inc., 715 F.3d 1257, 1265 (11th Cir. 2013) (citing Bickley v. 

Caremark RX, Inc., 461 F.3d 1325, 1328 (11th Cir. 2006)).

2 “The Federal Emergency Management Agency (FEMA) uses ‘Write–Your–Own’ 

(WYO) companies ... to aid it in its statutory duty to administer the National Flood 

Insurance Program (NFIP). See 42 U.S.C. § 4081(a) (permitting FEMA’s Director to enter 

into arrangements with private insurance companies in order to make use of their ‘facilities 

and services’); 44 C.F.R. § 62.23(a)-(d) (establishing the WYO program to permit private 

insurers to sell and administer SFIPs).” Newton v. Capital Assur. Co., 245 F.3d 1306, 1308 

(11th Cir. 2001). See also Shuford v. Fid. Nat. Prop. & Cas. Ins. Co., 508 F.3d 1337, 1339 

(11th Cir. 2007) (“Fidelity served as a ‘Write–Your–Own’ insurance provider—a private 

provider that participated in the National Flood Insurance Program. See 44 C.F.R. § 62.23. 

The providers administer National Flood Insurance Program policies as fiscal agents of the 

United States. See 42 U.S.C. § 4071(a)(1).”).

NHIC admits that it is a WYO company in both its answer (Doc. 6) and its motion to 

dismiss (Doc. 5).

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After determining damages on the property, on July 24, 2014, NHIC “issued 

a check in the amount of $29,670.70 made payable to” the Burkes and Flagstar. (Id. 

at 2 – 3, ¶¶ 8, 11). The Burkes, through counsel, requested that NHIC reissue the 

check to the Burkes only; NHIC denied the request. (See id. at 3, ¶¶ 12 – 14). 

Though the Burkes’ counsel subsequently provided additional information to NHIC, 

NHIC reissued the check to Flagstar solely. (See id., ¶¶ 14 – 15). At the time this 

action was initiated, neither Defendant had remitted the subject proceeds to the 

Burkes. 

Based on the foregoing allegations, the Complaint alleges the following 

causes of action: breach of contract (First Cause of Action) against both Defendants; 

bad faith (Second Cause of Action) against NHIC only; and conversion (Third Cause 

of Action) against Flagstar only. The present motion to dismiss seeks dismissal of 

the Burkes’ bad faith claim on the basis that “state law extra-contractual claims are 

expressly preempted by the governing federal law.” (Doc. 5 at 1).3

 3 The Complaint does not contain “a short and plain statement of the grounds for the court’s 

jurisdiction...” Fed. R. Civ. P. 8(a)(1). The Complaint’s allegations do not clearly show 

jurisdiction under 28 U.S.C. § 1332(a), based on diversity of citizenship. However, the 

Complaint’s breach of contract claim against both Defendants arises out of an insurance 

policy issued under the NFIP. Such contracts “are interpreted using principles of federal 

common law rather than state contract law[,]” thus providing for federal question 

jurisdiction under 28 U.S.C. § 1331. Newton v. Capital Assur. Co., 245 F.3d at 1308-09. 

Accord Hairston v. Travelers Cas. & Sur. Co., 232 F.3d 1348, 1350 n.2 (11th Cir. 2000). 

Moreover, it appears that the NFIP’s statutorily authorized implementing regulations may 

provide jurisdiction over all claims. See also Shuford, 508 F.3d at 1341 (“Shuford filed a 

complaint for breach of contract and the tort of bad faith refusal to pay against Fidelity in 

state court. Fidelity removed the action to federal court, which is the exclusive forum for 

claims arising under the National Flood Insurance Act. See 44 C.F.R. pt. 61, app. A(2), art. 

VII.R.”). Regardless, to the extent the Burkes’ bad faith and conversion claims do not 

similarly invoke federal question jurisdiction under § 1331, this Court may exercise 

supplemental jurisdiction over those claims under 28 U.S.C. § 1367(a). Thus, it is the 

opinion of the undersigned that subject matter jurisdiction exists over this action.

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II. Analysis

“Preemption is the power of federal law to displace state law substantively. 

The federal preemptive power may be complete, providing a basis for jurisdiction in 

the federal courts, or it may be what has been called ‘ordinary preemption,’ 

providing a substantive defense to a state law action on the basis of federal law. 

[]More specifically, ordinary preemption may be invoked in both state and federal 

court as an affirmative defense to the allegations in a plaintiff's complaint. Such a 

defense asserts that the state claims have been substantively displaced by federal 

law.” Geddes v. Am. Airlines, Inc., 321 F.3d 1349, 1352 (11th Cir. 2003) (footnote 

omitted). NHIC’s motion to dismiss argues that “ordinary preemption” applies to 

the Burkes’ bad faith claim. As noted previously, the Burkes have filed no response 

to the motion.4 

“[G]enerally, the existence of an affirmative defense will not support a rule 

12(b)(6) motion to dismiss for failure to state a claim. A district court, however, may 

dismiss a complaint on a rule 12(b)(6) motion ‘when its own allegations indicate the 

existence of an affirmative defense, so long as the defense clearly appears on the 

face of the complaint.’ ” Fortner v. Thomas, 983 F.2d 1024, 1028 (11th Cir. 1993)

(quoting Quiller v. Barclays American/Credit, Inc., 727 F.2d 1067, 1069 (11th Cir. 

1984)).

 4 Nevertheless, “until the Eleventh Circuit (or Supreme Court) speaks more clearly to the 

issue or a sister Court (or litigant) provides a more compelling rationale, the Court will not 

treat a claim as abandoned merely because the plaintiff has not defended it in opposition to 

a motion to dismiss.” Gailes v. Marengo Cnty. Sheriff's Dep't, 916 F. Supp. 2d 1238, 1243 

(S.D. Ala. 2013) (Steele, C.J.). See also Cochran v. Southern Co., Civil Action No. 14-0569-

WS-N, 2015 WL 3508018, at *1 (S.D. Ala. June 3, 2015) (Steele, C.J.) (reaffirming Gailes).

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In support of its motion, NHIC cites Shuford v. Fidelity National Property & 

Casualty Insurance Co., 508 F.3d 1337 (11th Cir. 2007), in which the Eleventh 

Circuit found that an insured’s bad faith “tort claim [wa]s expressly preempted by 

federal law because it arises from the handling of a claim under a Standard Policy” 

issued under the NFIP. 508 F.3d at 1344. In so holding, the court stated:

The plain language of the Standard Policy, which is embodied in a 

federal regulation, reflects a clear intent to preempt claims under state 

law:[5]

IX. What Law Governs

This policy and all disputes arising from the handling of any 

claim under the policy are governed exclusively by the flood 

insurance regulations issued by FEMA, the National Flood 

Insurance Act of 1968, as amended (42 U.S.C. 4001, et seq.), and 

Federal common law.

44 C.F.R. pt. 61, app. A(1), art. IX (emphasis added). This provision 

became effective on December 31, 2000, before Fidelity issued 

Shuford’s policy.

When the Federal Emergency Management Agency proposed the 2000 

amendment to the Standard Policy, the Agency provided a statement 

of intent that bolsters the conclusion that Shuford's state law tort 

claim is preempted:

Standard Flood Insurance Policies are sold by a number of 

private Write Your Own (WYO) insurance companies and 

directly to the public by the Federal Insurance Administration. 

Because the National Flood Insurance Program is national in 

scope and accomplishes a number of programmatic missions in 

addition to making affordable flood insurance generally 

available to the public, the SFIP provides that its terms cannot 

be altered, varied or waived except by the written authority of 

the Federal Insurance Administrator. The Administrator 

 5 “A claim under state law is expressly preempted when Congress has manifested its intent 

to preempt state law explicitly in the language of the statute. Federal regulations have the 

same preemptive effect as federal statutes.” Shuford, 508 F.3d at 1344 (citation and 

quotation omitted).

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intends that the same benefits should be available to insureds 

wherever the insured property is located, or whether the policy 

is purchased from a WYO insurance company or from the 

Federal Government. Thus, there is a need for uniformity in the 

interpretation of and standards applicable to the policies and 

their administration. Therefore, we have clarified the policy 

language pertaining to jurisdiction, venue and applicable law to 

emphasize that matters pertaining to the Standard Flood 

Insurance Policy, including issues relating to and arising out of 

claims handling, must be heard in Federal court and are 

governed exclusively by Federal law.

65 Fed. Reg. 34,824, 34,826–27 (May 31, 2000) (emphasis added).

Id. “In the light of the plain language of the 2000 amendment and the statement of 

intent,” the court affirmed dismissal of the insured’s bad faith claim on the ground 

that federal law preempted it. Id. at 1344-45.

Here, the Burkes’ complaint alleges only that they procured their flood 

insurance policy “[p]rior to April 30, 2014[,]” the date of the flooding event that 

damaged their property. (Doc. 1 at 2, ¶¶ 6 – 7). The Burkes did not attach a copy of 

the policy as an exhibit to their complaint. However, with leave of the Court (see

Doc. 15), NHIC has supplemented its motion to dismiss with a copy of the Burkes’

policy (Doc. 20).6 A review reveals that it is an NFIP Standard Policy issued in 2013

and containing a “What Law Governs” section identical to the one quoted in 

 6 “In ... Rule 12(b)(6) dismissals, it is generally true that the scope of the review must be 

limited to the four corners of the complaint.” Speaker v. U.S. Dep't of Health & Human 

Servs. Centers for Disease Control & Prevention, 623 F.3d 1371, 1379 (11th Cir. 2010) 

(quotation omitted). However, the Eleventh Circuit “has recognized an important 

qualification to this rule where certain documents and their contents are undisputed: In 

ruling upon a motion to dismiss, the district court may consider an extrinsic document if it 

is (1) central to the plaintiff's claim, and (2) its authenticity is not challenged.” Id. 

(quotation omitted). The insurance policy is certainly central to the Burkes’ claims, and 

they have not challenged the policy’s authenticity after being granted the opportunity to do 

so (see Doc. 15).

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Shuford. (See Doc. 20 at 1, 24). Accordingly, Shuford compels the determination 

that federal law preempts the Burkes’ bad faith tort claim. Thus, NHIC’s motion to 

dismiss (Doc. 5) is due to be GRANTED.

III. Conclusion and Recommendation

In accordance with the foregoing analysis, it is RECOMMENDED that 

NHIC’s Motion to Dismiss Plaintiffs’ Second Cause of Action under Federal Rule of 

Civil Procedure 12(b)(6) (Doc. 5) be GRANTED and that the Burkes’ Second Cause 

of Action in their Complaint (Doc. 1) be DISMISSED.

IV. Notice of Right to File Objections

A copy of this report and recommendation shall be served on all parties in the 

manner provided by law. Any party who objects to this recommendation or 

anything in it must, within fourteen (14) days of the date of service of this 

document, file specific written objections with the Clerk of this Court. See 28 U.S.C. 

§ 636(b)(1); Fed. R. Civ. P 72(b); S.D. Ala. GenLR 72(c). The parties should note 

that under Eleventh Circuit Rule 3-1, “[a] party failing to object to a magistrate 

judge's findings or recommendations contained in a report and recommendation in 

accordance with the provisions of 28 U.S.C. § 636(b)(1) waives the right to challenge 

on appeal the district court's order based on unobjected-to factual and legal 

conclusions if the party was informed of the time period for objecting and the 

consequences on appeal for failing to object. In the absence of a proper objection, 

however, the court may review on appeal for plain error if necessary in the interests 

of justice.” 11th Cir. R. 3-1. In order to be specific, an objection must identify the 

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specific finding or recommendation to which objection is made, state the basis for 

the objection, and specify the place in the Magistrate Judge’s report and 

recommendation where the disputed determination is found. An objection that 

merely incorporates by reference or refers to the briefing before the Magistrate 

Judge is not specific.

DONE this the 17th day of March 2016.

/s/ Katherine P. Nelson

KATHERINE P. NELSON

UNITED STATES MAGISTRATE JUDGE

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