Downey, Michael v. State Farm Fire

In the
United States Court of Appeals
For the Seventh Circuit

No. 00-3473

Michael Downey,

Plaintiff-Appellee,

v.

State Farm Fire & Casualty Co.,

Defendant-Appellant.

Appeal from the United States District Court
for the Central District of Illinois.
No. 98-1118--Michael M. Mihm, Judge.

On Petition for Rehearing and
Rehearing En Banc

Before Easterbrook, Rovner, and Diane P.
Wood, Circuit Judges.

Per Curiam. State Farm has filed a
petition for rehearing, with the support
of the Federal Emergency Management
Agency as amicus curiae. The fema contends
that our conclusion with respect to the
jurisdictional issue--that suits seeking
indemnity on flood insurance policies may
be filed under 28 U.S.C. sec.1331 because
the interests of the United States are at
stake, but not under 42 U.S.C. sec.4072
unless the Director of fema is named as a
defendant--"does great harm to the
National Flood Insurance Program." With
all due respect to the fema’s position, we
think that this considerably overstates
matters.

According to the fema, our decision has
three adverse consequences: first, it
will induce insureds to sue the Director,
which will strain available federal
resources; second, it will allow insureds
to sue in state court despite the
exclusive-jurisdiction language in
sec.4072; third, it will allow insureds
to delay suit past the one-year period of
limitations in sec.4072. Our decision has
none of these consequences, however.

First, the possibility of suit directly
against the Director is created not by
our decision but by the language of
sec.4072 itself. It is an option,
however, only when the Director has
disallowed a claim. According to the
fema’s amicus brief, the Director deals
directly with claims in only some 5% of
all cases; in the remainder, therefore,
sec.4072 does not permit suit against the
Director. Our opinion does not increase
the Director’s exposure beyond what the
statute itself provides. What we held is
instead that sec.4072 does not allow
suits directly against insurers, which
cannot be called "the Director" even when
they administer the program on behalf of
the fema. Nothing in the amicus brief
persuades us that we should disregard the
express language of sec.4072 and treat it
as creating federal jurisdiction over
suits against private insurers. Private
entities often carry out governmental
programs, but statutes authorizing suit
against the Secretary of Defense do not
create jurisdiction over litigation
against defense contractors, and laws
permitting suit against the Administrator
of Social Security do not create
jurisdiction of litigation against the
private fiscal intermediaries in the
Medicare program. We see no good reason
why sec.4072 should be read to mean
something that it does not say.

Second, the possibility of suit in state
court is hardly a major concern, given
the option of removal under 28 U.S.C.
sec.1441(b). All claims seeking indemnity
under flood insurance policies arise
under federal law, we held, and therefore
all may be removed. That is not all: The
fema can, and did, preclude filing in
state court in the first place. Insureds
and insurers alike must live by the
language in the policies--language that
has been established by federal
regulation. Like every other residential
flood insurance policy, Downey’s
provided: "you must file [any] suit in
the United States District Court of the
district in which the insured property
was located at the time of loss." 44
C.F.R. Part 61, App. A(1), Article 9,
Clause R. This forum-selection clause is
enforceable, see Carnival Cruise Lines,
Inc. v. Shute, 499 U.S. 585 (1991), and
prevents litigation in state court just
as sec.4072 would do.

Third, the amicus brief’s concern about
delay in filing suit is addressed by the
same clause of the policy. It provides:
"[i]f you do sue, you must start the suit
within 12 months from the date we mailed
you notice that we have denied your
claim". The fema’s brief, though full of
dire predictions, pays no attention to
language in the policy that prevents the
outcomes about which the fema expresses
such concern. Has the fema forgotten the
terms of its own regulations? At all
events, it is unnecessary for us to grant
rehearing and warp the language of
sec.4072 in order to bring about a state
of affairs that the fema has achieved
byregulation without inflicting any
distress on the United States Code.

All three members of the panel have
voted to deny rehearing, and no judge in
active service has called for a vote on
the petition for rehearing en banc.
Rehearing and rehearing en banc are
accordingly denied.