IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
February 17, 2009
No. 07-31149 Charles R. Fulbruge III
Clerk
TARA MONISTERE; BRANDON MONISTERE
Plaintiffs-Appellees
v.
STATE FARM FIRE AND CASUALTY COMPANY
Defendant-Appellant
Appeal from the United States District Court
for the Eastern District of Louisiana
Before JONES, Chief Judge, and OWEN and SOUTHWICK, Circuit Judges.
Leslie H. Southwick, Circuit Judge:
This litigation concerns a home located in Metairie, Louisiana that was
severely damaged in 2005 by Hurricane Katrina. State Farm Insurance
Company issued a flood insurance policy to Tara and Brandon Monistere
pursuant to the National Flood Insurance Program. The Monisteres were
unsatisfied with the amount paid under the policy and filed suit. The district
court entered judgment in favor of the homeowners for the full policy amount
after applying a legal theory occasionally used to determine coverage under
certain private insurance policies. That theory is inapplicable to this federal
program. We REVERSE and RENDER judgment in favor of State Farm.
No. 07-31149
I. FACTS AND PROCEDURAL BACKGROUND
The Monisteres maintained a flood policy on their home. State Farm
issued them a standard flood insurance policy in which coverage is provided by
the federal government. On August 29, 2005, Hurricane Katrina caused
substantial damage to their home. What is at issue is the appropriate amount
to be paid under the policy.
The State Farm policy contained four separate coverages on the home, only
two of which are relevant in this appeal: (1) building coverage (“Coverage A”),
which has a $227,600 limit; and (2) increased cost of compliance coverage
(“Coverage D”), which has a $30,000 limit under the policy.
In the aftermath of Hurricane Katrina, State Farm sent an adjuster,
Michael Boudreaux, to inspect the property. Boudreaux’s initial estimate was
$231,812.93. State Farm asserts this figure was simply the pre-storm value of
the home.1 One week later, Boudreaux issued an estimate of $133,212. State
Farm paid the Monisteres that amount, less a $500 deductible.
After receipt of payment, the Monisteres provided State Farm with
estimates of their own. The Monisteres submitted an estimate from Whites &
Whites Redevelopment Corporation, dated November 8, 2005, which determined
that repairs would cost $154,843. In January 2007, Whites & Whites revised its
1
The parties take different positions on the relevance of Boudreaux’s initial estimate.
The Monisteres argue that Boudreaux’s estimate supports their position that their “direct
physical loss” exceeded the policy’s limits. Tara Monistere testified at trial that Boudreaux
assured her that the home would be deemed a total loss. State Farm contends that
Boudreaux’s initial estimate revealed his assessment of the replacement cost of the structure,
not merely the “direct physical loss.” Boudreaux testified about this. Even assuming that the
district court made a credibility determination on this point, we find Boudreaux’s actions
immaterial. The ultimate burden to prove damage fell on the Monisteres, not State Farm. 44
C.F.R. pt. 61, app. A(1)(J)(7) (“The insurance adjuster whom we hire to investigate your claim
may furnish you with a proof of loss form, and she or he may help you complete it. However,
this is a matter of courtesy only, and you must still send us a proof of loss within 60 days after
the loss even if the adjuster does not furnish the form or help you complete it.”).
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No. 07-31149
estimate, which was now $171,638. State Farm never re-evaluated the premises
nor paid out any additional amount under Coverage A.
In January 2006, the Department of Emergency Management for Jefferson
Parish, Louisiana, where this property is located, issued a “Substantial Damage
Determination” letter on the home. Under Federal Emergency Management
Agency requirements, such a determination meant the home would have to be
rebuilt to a new height before future flood insurance could be obtained. State
Farm paid the full amount of the $30,000 compliance coverage provided under
the policy. Compliance costs were far more than that.
It was determined that the damaged structure could not feasibly be raised.
As a result, the Monisteres obtained an estimate from Highland Homes for
demolishing the old home and building a new one that would comply with
elevation requirements. The estimate was for $477,692. A demand was made
for the remainder of the amount of Coverage A under the policy, which
compensated for physical losses to the premises. State Farm refused, notifying
the Monisteres that nothing more was owed under that coverage. An entirely
new home was eventually built at a cost of about $535,000.
In August 2006, the Monisteres brought suit in United States District
Court for the Eastern District of Louisiana. A bench trial was held in November
2007. Both of the Monisteres testified. Also testifying were Jefferson Parish’s
building permit manager and the Parish’s flood plain manager/community rating
system coordinator. The undisputed testimony was that the Monisteres were
forced to demolish and rebuild their home in order to comply with FEMA
regulations. Two State Farm adjusters assigned to the Monisteres’ case, Michael
Boudreaux and David Andras, testified. Their testimony discussed the costs
required to repair the damaged portions of the Monisteres’ home.
The district court, after hearing all of the testimony, entered judgment in
favor of the Monisteres. There was no written opinion in the case. Instead, oral
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No. 07-31149
reasons were announced from the bench. An award was made of the remainder
of the amount available under Coverage A, or $86,787.34. Legal interest from
the date of judgment was to be paid. State Farm timely appealed.
II. DISCUSSION
As we noted previously, the Monisteres’ Standard Flood Insurance Policy
was purchased under the National Flood Insurance Program. The program is
controlled by federal regulations. See 44 C.F.R. § 61.4. A standard policy
appears in the regulations. Id. at pt. 61, app. A(1). We will refer to the
regulations and the policy somewhat interchangeably, but it is critical in our
analysis that the source for these obligations and restrictions is federal law. Our
review of a district court’s interpretation of a statute or regulation is de novo.
Teemac v. Henderson, 298 F.3d 452, 456 (5th Cir. 2002).
A. The district court’s mode of analysis
The district court concluded that the Monisteres were entitled to an award
of $86,787.34. This was the amount available under Coverage A of the
Monisteres’ policy after deducting what State Farm already paid. We review the
method by which that amount was calculated.
Article VII(V)(2) of the Monisteres’ policy establishes the means of
calculating compensable damages in the event of flood loss:
A. We will pay to repair or replace the damaged dwelling after
application of the deductible and without deduction for appreciation,
but not more than the least of the following amounts:
(1) The building limit of liability shown on your declarations page;
(2) The replacement cost of that part of the dwelling damaged, with
materials of like kind and quality and for like use; or
(3) The necessary amount actually spent to repair or replace the
damaged part of the dwelling for like use.
The Monisteres’ “building limit of liability,” also known as Coverage A, was
capped at $227,000 for “direct physical loss.” See 44 C.F.R. pt. 61, app. A(1), art.
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No. 07-31149
III(A). “Direct physical loss” is defined under the policy as “[l]oss or damage to
insured property, directly caused by a flood. There must be evidence of physical
changes to the property.” Id. at art. II(A)(12).
In determining the Monisteres’ “direct physical loss,” the district court
utilized the judicially created “constructive total loss doctrine.” See Greer v.
Owner’s Ins. Co., 434 F. Supp. 2d 1267, 1279 (N.D. Fla. 2006). In Greer, it was
said that a “constructive total loss occurs when a building, although still
standing, is damaged to the extent that ordinances or regulations in effect at the
time of the damage actually prohibit or prevent the building’s repair, such that
the building has to be demolished.” Id.2 Applying this definition, the district
court awarded the Monisteres their building coverage limits, holding that the
home “was rendered a constructive total loss by the flood damage, because [the
court was] convinced that requiring them to elevate the home . . . , plus the cost
to repair it, could have clearly and easily exceeded the market value of the home
pre-Katrina.” The court justified this conclusion based on the evidence, “on logic,
[and] on common sense.”
The district court’s common sense view did not give sufficient meaning to
the regulations that control us. Certainly, the Monisteres were required to
(re)build at a higher elevation. The very real costs associated with that
requirement are covered only to the extent permitted by policy and regulatory
language. We have already quoted the relevant policy language. Payment for
direct physical losses – the coverage under which the additional amounts were
awarded below – are made for the lesser of the coverage limit ($227,600), the
replacement cost of that part of the dwelling damaged (depends on adequately
documented proof of loss, the largest timely submitted being about $155,000, and
the evidence to support that amount), or the amount actually spent to repair
2
The Greer court did not apply the “constructive total loss doctrine” but simply
discussed the doctrine and explained why it did not apply. Greer, 434 F. Supp. 2d at 1279-83.
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No. 07-31149
(building an entirely new home cost $535,000). Article VII(V)(2) of the policy; 44
C.F.R. pt. 61, app. A(1)-(2)(J)(4), art. II(A)(12). By utilizing the “constructive
total loss doctrine,” the district court overrode these requirements.3
The home was effectively a total loss, but that was due to the costs that
regulatory authorities imposed for rebuilding. Such costs were specifically
addressed in Coverage D of the Monisteres’ policy, capped at $30,000. The
Monisteres concede that they were paid the full amount of compliance coverage.
The district court was without authority to balance equities – Congress did that
ahead of time and determined the maximum amount that would be paid. See
Thomas v. Standard Fire Ins. Co., 414 F. Supp. 2d 567 (E.D. Va. 2006) (finding
that increased cost of compliance under Coverage D should not be considered in
determining what constitutes a “direct physical loss” under Coverage A).
Our analysis is channeled by the requirement that a policy of “insurance
issued pursuant to a federal program must be strictly construed and enforced
. . . .” Gowland v. Aetna, 143 F.3d 951, 954 (5th Cir. 1998). Because insurance
companies act as “fiscal agents” of the government under the National Flood
Insurance Program, all policy awards deplete federally allocated funds. In re
Estate of Lee, 812 F.2d 253, 256 (5th Cir. 1987). Therefore, “‘not even the
temptations of a hard case’ will provide a basis for ordering recovery contrary to
the terms of a regulation, for to do so would disregard ‘the duty of all courts to
observe the conditions defined by Congress for charging the public treasury.’”
3
It is of some moment also that the “constructive total loss doctrine” finds support only
in value policy cases involving local ordinances. E.g., Hart v. N. British & Mercantile Ins. Co.,
162 So. 177 (La. 1935); Palatine Ins. Co. v. Nunn, 55 So. 44 (Miss. 1911). In those cases, courts
applied the doctrine and held that repair damages are inadequate when a local law prevents
an insured from repairing a damaged structure. The idea is that, for sake of equity, the
insured should not be forced to absorb compliance costs. Comment, Scott Edwards, The Wind
and the Waves: The Evolution of Florida Property Insurance Law in Response to Multiple-
Causation Hurricane Damage, 34 FLA . ST . U. L. REV . 541, 543-46 (2007). These flood policies
are not “value polices.” 44 C.F.R. pt. 61, app. A(1), art. II(B)(28).
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No. 07-31149
Forman v. Fed. Emergency Mgmt. Agency, 138 F.3d 543, 545 (quoting Office of
Pers. Mgmt. v. Richmond, 496 U.S. 414, 420 (1990)).
Because we are reversing the judgment in favor of the Monisteres, the
issue arises of whether to enter judgment here or instead to remand for further
proceedings. State Farm asks us to hold that the Monisteres are not entitled to
anything more than what has already been paid under the policy. Conversely,
the Monisteres have made an alternative argument on appeal that they should
receive $38,925.34, which is the difference between what they were paid and the
2007 Whites & Whites estimate. The issue of awarding a lesser amount as an
alternative was presented by the Monisteres in the district court, and thus is
properly before us. We resolve this dispute by looking to the procedures and
requirements for loss recovery under the regulations.
B. Loss recovery under the regulations
The National Flood Insurance Act and the regulations created standard
requirements for submitting proof of a flood loss. However, following the
widespread devastation that resulted from Hurricane Katrina, the Acting
Federal Insurance Administrator altered the usual rules in an August 31, 2005
memorandum. Contemplating a shortage of qualified adjusters, the
memorandum cited “an urgent need to expedite claims payments to
policyholders.” To accomplish this goal, the Administrator waived the proof of
loss requirement in cases where policy holders agreed with the insurance
carrier’s adjustment. When there was not acceptance, the policy memo placed
the homeowner back into the usual process, with a few exceptions:
I am waiving the requirement in VII.J.4 of the SFIP . . . for
the policyholder to file a proof of loss prior to receiving insurance
proceeds. Instead, payment of the loss will be based on the
evaluation of damage in the adjuster's report . . . .
In the event a policyholder disagrees with the insurer’s
adjustment, settlement, or payment of the claim, a policyholder may
submit to the insurer a proof of loss within one year from the date
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No. 07-31149
of the loss. The proof of loss must meet the requirements of VII.J.4
of the SFIP . . . . The insurer will then process the policyholder’s
proof of loss in its normal fashion. If the insurer rejects the proof of
loss in whole or in part, the policyholder may file a lawsuit against
the insurer within one year of the date of the written denial of all or
part of the claim as provided in VII.R of the SFIP . . . .
See Marseilles Homeowners Condo. Ass’n v. Fid. Nat’l Ins. Co., 542 F.3d 1053,
1055 (5th Cir. 2008).
It is undisputed that the Monisteres disagreed with State Farm’s offer.
The November 2005 estimate was given to State Farm. A proof of loss was later
filed on August 28, 2006, just within the one-year deadline. The 2006 document
claimed about $94,000 more in compensation.
Since State Farm’s initial assessment of damage was not accepted by the
Monisteres, the Acting Federal Insurance Administrator’s memorandum
provided that their claim would thereafter be processed basically in the usual
way. That usual way is for a policy holder to supply the insurance carrier with
the following information:
[S]end us a proof of loss, which is your statement of the amount you
are claiming under the policy signed and sworn to by you, and which
furnishes us with the following information:
...
f. Specifications of damaged buildings and detailed repair estimates
....
44 C.F.R. pt. 61, app. A(2)(J)(4). After receiving the proof of loss, the insurance
carrier, at its option, also may request additional information:
2. We may request, in writing, that you furnish us with a complete
inventory of the lost, damaged or destroyed property, including:
a. Quantities and costs;
b. Actual cash values or replacement cost (whichever is
appropriate);
c. Amounts of loss claimed;
d. Any written plans and specifications for repair of the
damaged property that you can reasonably make
available to us; and
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e. Evidence that prior flood damage has been repaired.
Id. at (K)(2).
State Farm never requested additional information. The first question is
whether the Monisteres’ proof of loss was initially supported by “detailed repair
estimates.” Three estimates appear in the record: (1) a November 8, 2005
estimate from Whites & Whites Redevelopment Corporation in the amount of
$154,843; (2) a June 20, 2006 estimate from Highland Homes in the amount of
$477,692; and (3) a January 25, 2007 estimate from Whites & Whites in the
amount of $171,638. Each of those included an estimate of all the damages. The
money already received from State Farm ($132,712) would be deducted from any
further payment, and the amount paid would be capped by the policy limit. Both
Whites & Whites estimates set forth the same areas to be repaired or replaced.
The Monisteres explain that the January 2007 estimate includes some items
that were overlooked in the November 2005 estimate, and it also incorporates
market increases in the cost of construction.
We note that the Highland Homes estimate could not have satisfied the
documentation requirement, as it is not an estimate for repairs. It was issued
in order to determine the demolition cost of the old home and the proposed price
of building a new one. The later of the two Whites & Whites estimates, which
is dated January 25, 2007, was furnished more than one year after the date of
loss. As we discussed, the usual 60-day deadline for presenting a proof of loss
was extended to one year from the date of the loss. The 2007 estimate was well
after that, though it is argued that the policyholder was merely submitting a
revised estimate reflecting inflation-caused increases in repair costs.
The earliest estimate is dated November 8, 2005. It listed twenty-three
areas that required repair or replacement and, for each, stated a cost estimate
made by Whites & Whites to the Monisteres. To give a sense of the document,
we show the caption and list the first three items:
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No. 07-31149
Work Description
Project - Gut storm-damaged portions of 604 Atherton Dr. and
renovate.
1. Gut 1st floor entirely and 2nd floor as required (wiring and
HVAC, at a minimum). $ 9,000.00
2. Steam clean upstairs carpets $ 300.00
3. Mold Remediation $ 4,000.00
A clear line has not been drawn in this Circuit between what is and what
is not sufficient detail for the repair estimate. We do not draw one today. The
estimate here does provide more detail than those we have previously held
inadequate. See Wright v. Allstate Ins. Co., 415 F.3d 384, 386-89 (5th Cir. 2005);
Forman, 138 F.3d at 545. State Farm eschews reversal based on an argument
that the document was not a “detailed repair estimate.” We were informed by
letter after briefing was closed that “State Farm desires to make clear that it is
not making any argument in this case as to the sufficiency of the documentation
that had been submitted by the Plaintiffs in this matter.” Instead of arguing
that the Monisteres failed to meet the threshold requirements of submitting a
proper estimate, State Farm argues that the Monisteres never, not even at trial,
provided the evidence that would allow more to be paid. In State Farm’s view,
whether the estimate was sufficiently detailed is irrelevant.
In reviewing the issue, we note again that the Monisteres could receive
compensation for the lowest of the coverage limit, the replacement cost of that
part of the dwelling damaged, or the amount actually spent to repair. As
plaintiffs who sought additional benefits at trial, the Monisteres shouldered the
burden of proving that the $132,712 received from State Farm did not
sufficiently cover their provable damage. State Farm submits that the
November 2005 and January 2007 estimates “are the only evidence of record
available to support an award of federal funds,” and that the these documents
are insufficient to establish that more is owed under the policy.
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No. 07-31149
We examine some of the evidence. Two representatives of the parish
government testified for the Monisteres. They spoke to the fact that the house
could not be rebuilt as it was and had to be elevated. Brandon Monistere
testified about the conditions inside the house, including the muck and destroyed
possessions and the dreadful general conditions. Photographs of the damage
that he had taken were introduced into evidence and discussed. Describing the
mold above the level that the flood waters reached was part of his testimony. He
also testified about some of the adjusting procedures and visits. Tara Monistere
testified about the damage, the claims process involving State Farm, and her
contacts with the parish government. Both homeowners testified as to the
waterline in the house, which usually was described as being at three and a half
to four feet above the floor. On cross-examination, State Farm’s attorney made
the point in the form of questions that, though the water only reached that level,
the estimate included repairs above that level.
Also called as a witness was State Farm adjuster Michael Boudreaux. He
testified that the amount paid to the Monisteres was based on the entire bottom
floor being in need of repair up to the flood water level. The adjuster further
explained that the policy would pay for gutting the entire house to that level, but
not above. There was some ambiguity in the adjuster’s records about just what
the flood level was, which he explained.
David Andras, a second State Farm adjuster, was another witness. When
questioned by State Farm’s attorney, Andras testified as to the defects from the
company’s perspective in the repair estimate on which the Monisteres relied at
trial. That estimate remains the primary evidence on appeal. Andras discussed
the impossibility of determining from the estimate what amounts were for
repairs below the floodwater level and which for damage above. Removing all
drywall from the first floor, all molding, and all wiring would go above the flood
policy’s limits. Other claims also were not well developed. The first item was an
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No. 07-31149
estimate of $9,000 for gutting the first floor and the second floor “as required.”
No evidence was introduced at trial as to the second-floor requirements. Item
three provides another example. It was $4,000 for “mold remediation.” No effort
was made to demonstrate the type of remediation that was to occur or the
specific areas that needed to be addressed. Item seven lists rewiring the entire
home at a cost of $19,500. The Monisteres offered no evidence to elaborate on
why the policy would cover rewiring the entire home when the flood waters did
not reach the second floor. Another questioned entry on the estimate because
it was higher than the water level was this: “Repair sag in 1st floor entry
overhang and replace corroded ironwork – $6,000.”
To award additional benefits based on such claims requires that we find
that there is enough in the evidence to support them. State Farm’s witnesses
indicated that the physical limit of the flood coverage was at the level of the flood
waters. Various policy provisions are relevant here. In an earlier section of the
opinion, we noted that only “direct physical loss” was covered. That was defined
in the policy as “[l]oss or damage to insured property, directly caused by a flood.”
Not included in that term were damages, including mold damage, resulting from
water remaining in the home after flood waters receded. All witnesses
questioned on the matter agreed that no mitigation of damages had occurred,
such as removing drywall, carpet, or other saturated material. The effect on
such policy exclusions of the fact that repairs or other mitigation in the turmoil
after Katrina would likely have been impractical is not discussed by either party.
It is important, though, that this is a congressionally created program, with
rather severe limits in some respects.
The problem with the argument on appeal that more should be paid is that
the Monisteres presented only their own testimony and submitted the estimates
provided by Whites & Whites. Among the factual issues unaddressed by that
evidence are how this damage avoided the policy requirement of direct physical
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No. 07-31149
loss, and of not paying for damage such as from mold that occurs after the flood
waters recede. No evidence was offered to justify paying for damage on the
second floor resulting from the flood waters on the first floor. We do not know
if the Monisteres could have factually supported the type of causation that was
consistent with the policy terms. We are finding only that they never did.
We close with one piece of obviously self-serving but instructive testimony
by State Farm. One of the adjusters testified that if the repairs for which no
coverage or at least some question existed were removed, State Farm had
already paid more than the Monisteres’ estimate would justify. Whether that
is true or not, it identifies why we cannot go through the estimate in a search for
some clearly appropriate claims. No one questions that the Monisteres were
entitled to substantial coverage under the flood policy. This whole suit has been
about whether they were entitled to more than they had already received. We
find no basis in this record on which the district court could have awarded a
specific additional sum or even have determined that more was owed.
C. Legal interest
Because we are reversing the district court’s decision and rendering
judgment in favor of State Farm, the issue of whether it was appropriate for the
district court to award legal interest on the Monisteres’ judgment is now moot.
We note that both parties agreed that the National Flood Insurance Program
does not authorize interest, before or after judgment. See Newton v. Capitol
Assurance Co., 245 F.3d 1306 (11th Cir. 2001); Sandia Oil Co. v. Beckton, 889
F.2d 258 (10th Cir. 1989); In re Estate of Lee, 812 F.2d at 256.
III. CONCLUSION
The judgment of the district court is REVERSED, and judgment is
RENDERED in favor of State Farm.
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