Matusevich v. Middlesex Mutual Assurance Com , 782 F.3d 56 ( 2015 )

United States Court of Appeals
For the First Circuit
No. 14-1370
JACOB MATUSEVICH,
Plaintiff, Appellant,
v.
MIDDLESEX MUTUAL ASSURANCE COMPANY,
Defendant, Appellee,
FEDERAL EMERGENCY MANAGEMENT AGENCY,
Defendant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. George A. O'Toole, U.S. District Judge]
Before
Lynch, Chief Judge,
Torruella and Kayatta, Circuit Judges.
Seth H. Hochbaum, with whom Regnante, Sterio & Osborne LLP,
was on brief, for appellant.
Joseph J. Aguda, Jr., with whom Gerald J. Nielsen, Nielsen
Carter & Treas, LLC, David W. Zizik, and Zizik, Powers, O'Connell,
Spaulding & LaMontagne PC, were on brief, for appellee.
April 1, 2015
TORRUELLA, Circuit Judge. This case arises from Appellee
Middlesex Mutual Assurance Company's ("Middlesex Mutual") denial of
Appellant Jacob Matusevich's flood loss claim following a flood
that damaged the lower level of his home and numerous belongings.
After the parties filed cross motions for summary judgment, the
district court granted Middlesex Mutual's motion and denied
Matusevich's. Matusevich now appeals, arguing that the district
court erred in holding that the lower level of his home qualified
as a "basement" under the Standard Flood Insurance Policy ("SFIP")
issued by Middlesex Mutual and authorized by the Federal Emergency
Management Agency ("FEMA") as part of the National Flood Insurance
Program ("NFIP"). Finding no error with the district court's
interpretation of the SFIP, we affirm.
I. Background
A. The National Flood Insurance Program
In the 1960s, there was a concern that, due to the high
costs and damages associated with floods, private insurers were not
providing adequate flood insurance in many areas prone to flooding.
See 42 U.S.C. § 4001(b)(1). To address this growing problem,
Congress enacted the National Flood Insurance Act of 1968 ("NFIA").
See id. §§ 4001-4131. The NFIA, in turn, created the NFIP, which
is administered by FEMA and backed by the federal treasury. Id.
§§ 4011(a), 4017(a). The purpose of the NFIP is, in part, to
remedy the lack of flood insurance in flood-prone areas by offering
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subsidized flood insurance, thus increasing its availability. Id.
§ 4001(b). The NFIP is also intended to change building practices
in order to deter future flood risk -- and thus hopefully reduce
future losses to life and property due to floods -- through the
adoption of floodplain management and mitigation initiatives. Id.
§§ 4001(e), 4002(b)(3); 44 C.F.R. § 60.1.
The NFIP is administered by FEMA, which, in turn, is
authorized to "prescribe regulations establishing the general
method or methods by which proved and approved claims for losses
may be adjusted and paid." 42 U.S.C. § 4019. Accordingly, in
1983, FEMA created the Write-Your-Own ("WYO") program, which
allowed private insurance companies, such as Middlesex Mutual, to
issue flood insurance policies as part of the NFIP. 44 C.F.R.
§§ 62.23-24. Under the WYO program, the companies are essentially
administrators of the federal program who "act as 'fiscal agents of
the United States'"; they are not general agents. McGair v. Am.
Bankers Ins. Co. of Fla., 693 F.3d 94, 96 (1st Cir. 2012) (quoting
Palmieri v. Allstate Ins. Co., 445 F.3d 179, 183-84 (2d Cir.
2006)). Indeed, "[i]t is the Government, not the companies, that
pays the claims." Id. (quoting Palmieri, 445 F.3d at 183-84).
Private insurance companies participating in the WYO
program are required to issue SFIPs containing the terms and
conditions prescribed by FEMA and "subject to interpretation by the
Federal Insurance Administrator as to scope of coverage." 44 C.F.R
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§ 61.4; see also id. pt. 61, App. A(1) (providing the SFIP). The
regulations provide that "no provision of the [policy] shall be
altered, varied, or waived other than by the express written
consent of the Federal Insurance Administrator." Id. § 61.13(d).
B. Matusevich's Claim
The parties do not dispute the material facts. Since
1992, Matusevich has owned a two-level house in Swampscott,
Massachusetts. The floor of the lower level, which consists of
several finished rooms, is subgrade on three sides. The fourth
side of the lower level is located at the rear of the house and
contains a doorway which directly opens out into a backyard. The
backyard contains an in-ground swimming pool (built by the prior
owners in 1977) surrounded by a concrete apron which slopes down
from the edge of the pool to the rear of the house. Though there
are neither steps nor a ramp, one must step up slightly to exit the
house onto the concrete apron.
In November 2008, Matusevich obtained an SFIP from
Middlesex Mutual (the "Policy"). The Policy afforded coverage for
"direct physical loss by or from flood to [Matusevich's] insured
property" so long as Matusevich: (1) "paid the correct premium";
(2) "compl[ied] with all terms and conditions of the policy"; and
(3) "furnished accurate information and statements." The Policy
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excluded coverage1 for damage occurring in a "basement," which the
Policy defined as "[a]ny area of the building, including any sunken
room or sunken portion of a room, having its floor below ground
level (subgrade) on all sides." The Policy's term was for one year
but was renewed for successive one-year terms in November 2009 and
November 2010. Throughout the three years of coverage, Matusevich
paid his premiums on time and in full.
On October 4, 2011, Swampscott was hit with torrential
rain and flash flooding. Between thirty-nine and fifty inches of
water flooded the lower level of Matusevich's home, causing damage
to the lower level and its contents. Matusevich filed two flood
loss claims to Colonial Claims Corp. -- the adjuster retained by
Middlesex Mutual -- in the amounts of $12,159.82 and $136,588.19.
Middlesex Mutual paid the smaller claim but rejected the larger
claim because it concluded that the lower level of his home was a
"basement" under the Policy.2 Matusevich appealed the decision to
1
The Policy does provide limited coverage for a small number of
enumerated items even if the item is located in a basement. These
items include certain fixtures (e.g., central air conditioners,
furnaces, insulation, and water pumps) and personal property (e.g.,
major appliances like washers, dryers, and freezers).
2
The smaller claim was submitted "strictly as an advance Partial
Proof of Loss for undisputed amounts owed." According to a
November 29, 2011, letter from Middlesex Mutual to Matusevich,
Middlesex Mutual was denying the larger claim due to the basement
exclusion but was paying the smaller claim because some of the
damage was to items specifically enumerated in the Policy as being
covered regardless of location. See supra note 1.
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FEMA's Federal Insurance Administrator, but the decision was
upheld.
Following this denial, Matusevich filed suit in the
district court. As part of discovery, the parties' representatives
inspected Matusevich's home and took field measurements. The floor
of the lower level of the house was found to be 3.49" higher than
the soil/ground underneath the concrete apron. The concrete apron,
meanwhile, is 4.25" thick, so the lower level of the house was
found to be 0.76" lower than the surface of the concrete apron. As
a result, if the soil/ground underneath the concrete apron is the
proper measuring point for determining if the fourth side of the
lower level is "below ground level (subgrade)," then all four sides
of the lower level are not "below ground level (subgrade)," the
lower level is not a "basement," and the damage caused by the flood
is covered under the Policy. If, however, the proper measuring
point is the top of the concrete apron, then all four sides of the
lower level are "below ground level (subgrade)," the lower level is
a "basement," and the damage from the flood is excluded under the
Policy.
Given these stipulated measurements, the parties filed
cross motions for summary judgment. The district court concluded
that the proper measuring point is the top of the concrete apron,
and therefore the lower level of Matusevich's home qualifies as a
"basement" under the Policy. Accordingly, the district court
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granted Middlesex Mutual's motion and denied Matusevich's motion.
Matusevich timely appealed.
II. Discussion
A. Standard of Review
We review a district court's grant or denial of summary
judgment de novo. See DeCosta v. Allstate Ins. Co., 730 F.3d 76,
81 (1st Cir. 2013); McGair, 693 F.3d at 99. "Summary judgment is
warranted where 'there is no genuine dispute as to any material
fact and the movant is entitled to judgment as a matter of law.'"
McGair, 693 F.3d at 99 (quoting Fed. R. Civ. P. 56(a)). Where, as
here, there are cross motions for summary judgment, we evaluate
each motion independently and determine "whether either of the
parties deserves judgment as a matter of law on facts that are not
disputed." Barnes v. Fleet Nat'l Bank, N.A., 370 F.3d 164, 170
(1st Cir. 2004) (quoting Wightman v. Springfield Terminal Ry. Co.,
100 F.3d 228, 230 (1st Cir. 1996)) (internal quotation marks
omitted). Because this is a dispute over the coverage of insurance
policies under the NFIP, federal common law controls. Atlas
Pallet, Inc. v. Gallagher, 725 F.2d 131, 135 (1st Cir. 1984).
B. The Lower Level of Matusevich's Home Is a "Basement"
In the insurance context, if the facts upon which
liability is claimed or denied are undisputed, then "the existence
or amount of liability depends solely upon a construction of the
policy, [and] the question presented is one of law for the court to
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decide." Id. at 134. That is the precise scenario currently
before us: the parties do not dispute that the fourth side of the
lower level of Matusevich's home is 0.76" lower than the surface of
the concrete apron and 3.49" higher than the soil/ground underneath
it. Rather, the debate is over which measurement is applicable in
deciding whether this fourth side is "below ground level
(subgrade)," and thus whether the lower level falls under the
Policy's basement exclusion. After careful consideration, we
conclude that the proper measuring point is the surface of the
concrete apron.
The Policy defines a "basement" as "[a]ny area of the
building, including any sunken room or sunken portion of a room,
having its floor below ground level (subgrade) on all sides." As
the Third Circuit succinctly stated in Linder & Associates, Inc. v.
Aetna Casualty & Surety Co.,
[c]overage under a flood insurance policy is
predicated upon the occurrence of a flood.
There cannot be a flood unless water rises
above and flows over the existing ground
level. It only makes sense, therefore, to
equate 'ground level' in the flood insurance
policy as the ground level that was actually
flooded . . . .
166 F.3d 547, 551 (3d Cir. 1999). We agree. Here, the water rose
over the concrete apron, flowed down the slope of the apron towards
Matusevich's home, and dropped an additional 0.76" into the lower
level where it pooled.
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Moreover, in order to exit the lower level of the house
and reach the outside, one must step up. "If a person must step up
when exiting the lower level to the outside, the lower level is
below ground level and, thus, is a basement." Linder, 166 F.3d at
550. It is irrelevant that the step is only 0.76". Claims under
the NFIP are directly charged to the U.S. Treasury, and as such the
terms of the Policy (as with any SFIP) must be strictly construed
and enforced. DeCosta, 730 F.3d at 83; McGair, 693 F.3d at 100
(quoting Jacobson v. Metro. Prop. & Cas. Ins. Co., 672 F.3d 171,
175 (2d Cir. 2012)). The policy draws a line at any step up, not
at some arbitrary height. See King v. Casa Grande Condo. Ass'n,
Inc., 416 F. App'x 363, 368 (5th Cir. 2011) ("Courts that have
applied the SFIP's basement provision have held that the clear
language of the provision establishes that property at any depth
below ground level on all sides is a basement as defined by the
SFIP."); Linder, 166 F.3d at 550 ("This is true even if one must
step up only an inch when going outside."); Nelson v. Becton, 929
F.2d 1287, 1289 (8th Cir. 1991) ("The extent to which [properties
are] subgrade, whether 6, 8, or 40 inches, is immaterial under the
policy. The only question is whether they [are] subgrade or at
ground level.").
Still, Matusevich asks us to ignore the fact that one
steps up and out directly onto the concrete apron, and to instead
compare the elevation of the lower level to the inaccessible soil
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underneath. Such an approach would belie common sense. See VFC
Partners 26, LLC v. Cadlerocks Centennial Drive, LLC, 735 F.3d 25,
31 (1st Cir. 2013) ("'Common sense is as much a part of contract
interpretation as is the dictionary or the arsenal of cannons
[sic].'" (alteration in original) (quoting Bukuras v. Mueller Grp.,
LLC, 592 F.3d 255, 262 (1st Cir. 2010))); Atlas Pallet, Inc., 725
F.2d at 134 (noting that insurance policies are nothing but
contracts). It is the current elevation adjacent to the structure
that is the relevant measuring point, not some arbitrary baseline
which has no effect on current flood risks. Indeed, of the handful
of cases nationwide addressing the basement exclusion, not one
makes the distinction Matusevich argues for. See, e.g., King, 416
F. App'x at 368 (holding that a unit flooded after Hurricane
Katrina was a basement for purposes of the SFIP because the unit's
"elevation is 2.6 feet, while the lowest adjacent grade is 4.4
feet. Thus . . . [the] floor is at least 1.8 feet lower than the
lowest elevation adjacent to the building, and therefore, below
ground level on all sides."); Linder, 166 F.3d at 550-51 (finding
the basement exclusion applied and that "ground level" was the
elevation of the built-up alley adjacent to the building and not
the soil at the time of construction);3 Uddoh v. Selective Ins.
3
Matusevich attempts to distinguish Linder by arguing that the
question in Linder was "when" to measure -- either at the time of
the flood or at the time of construction -- whereas the question
here is "what" to measure -- either the soil or the architectural
figure built on top. This argument is unpersuasive. Though the
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Co., Civ. No. 2:10-cv-01804(WJM), 2012 WL 2979052, at *4 (D.N.J.
July 20, 2012) (finding that the lower level of plaintiff's
building was below ground level because "the lower level of his
building was 8 inches below the actual street level at the time of
the floods" (emphasis added) (internal quotation marks omitted));
TAF, L.L.C. v. Hartford Fire Ins. Co., 549 F. Supp. 2d 1282, 1287-
88 (D. Colo. 2008) (finding the building subgrade because "in order
to exit the lower floor, a person would walk out the door onto the
landing, then traverse eight to ten steps across an excavated
landing, and then walk up the eight-step stairway to access the
natural grade or street level" (emphasis added)); Unger v. Liberty
Mut. Ins. Co., 849 F. Supp. 839, 841, 846 (E.D.N.Y. 1994) (finding
the lower level of plaintiff's home to not be a basement because
one had to step down from the lower level to the driveway adjacent
to the door).
Here, the concrete apron is directly adjacent to the
lower level of Matusevich's home, and thus it is the relevant
"ground level" elevation for determining whether the lower level is
a "basement." Because the floor of the fourth side of the lower
level is 0.76" lower than the concrete apron, all four sides of
Linder court framed the issue in terms of timing, this was just
another way of asking the same question: whether to measure from
the soil or from the crushed limestone artificially added on top of
it.
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Matusevich's lower level are below ground, and it therefore
constitutes a "basement" under the SFIP.
Besides qualifying as a "basement" under a plain and
commonsense understanding of the basement exclusion, policy
rationales behind the NFIP also support a finding that Matusevich's
lower level is a "basement" under the Policy. As noted above, one
purpose of the NFIP is to change building practices to deter future
flood risk. See 42 U.S.C. §§ 4001(e), 4002(b)(3); 44 C.F.R.
§ 60.1. When Matusevich's home was first built, it was 3.49"
higher than the adjacent ground level. After the in-ground pool
and concrete apron were built in 1977, however, the floor of
Matusevich's lower level was 0.76" below the adjacent ground level.
Thus, Matusevich's lower level is at a greater risk for flood
damage now, after the installation of the pool and concrete apron,
than it was when it was initially built. The fact that
Matusevich's yard (including the concrete apron) slopes down
towards the lower level of his home only increases this risk;
indeed, there is a drain just outside the entrance to the lower
level for excess water flow. Interpreting the basement exclusion
to not encompass Matusevich's lower level could encourage similar
building practices in future constructions, which is exactly what
the NFIP was designed to deter.
Finally, in a last ditch effort to save his claim,
Matusevich invokes the doctrine of reasonable expectations and
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argues that his reasonable expectation as to the meaning of "ground
level" should control to the extent of his Policy's coverage, or at
the very least create an issue of fact to defeat summary judgment.
In support of this argument, Matusevich points to three supposed
facts: (1) that the common interpretation of the terms "ground
level" and "grade" means "lawn, soil or undisturbed ground" and not
"patios, walkways, driveways or concrete aprons"; (2) that the
physical characteristics of Matusevich's lower level indicate that
it is not a basement; and (3) that a Middlesex Mutual
representative told him the lower level of his home was not a
basement. None create a reasonable expectation that his lower
level was not a basement.4
Regarding his first point, we have already rejected
Matusevich's "common interpretation" of ground level and grade, as
have numerous other courts when faced with similar facts, all of
which made no distinction between lawn, soil, or other undisturbed
4
The First Circuit has yet to rule on whether the reasonable
expectations doctrine is applicable in NFIP litigation. Because we
find that none of Matusevich's arguments create a reasonable
expectation even if the doctrine were applicable, we decline to
decide the issue. We note, however, that at least two other
circuits have refused to adopt the doctrine in NFIP litigation.
See C.E.R. 1998, Inc. v. Aetna Cas. & Sur. Co., 386 F.3d 263, 270
(3d Cir. 2004) ("In the realm of private insurance, common law
doctrines (such as 'reasonable expectations,' 'notice/prejudice,'
and 'substantial compliance') govern the evaluation of claims. By
contrast, a WYO insurer must strictly follow the claims processing
standards set out by the federal Government."); Becton, 929 F.2d at
1291 (explaining that applying the doctrine of reasonable
expectations would "frustrate [the] specific objective[]" of
creating a unified nationwide flood insurance program).
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ground and patios, walkways, or driveways. See Linder, 166 F.3d at
550-51 (finding "ground level" to be the elevation of the built-up
limestone alley); Uddoh, 2012 WL 2979052, at *4 (referring to the
"actual street level" as ground level); Unger, 849 F. Supp. at 846
(equating the driveway adjacent to the lower level door with the
ground level).
We also reject Matusevich's second argument that the
physical characteristics of the lower level indicate that it is not
a "basement." The only requirement for being a "basement" under
the SFIP is that "[a]ny area of the building, including any sunken
room or sunken portion of a room, [have] its floor below ground
level (subgrade) on all sides." 44 C.F.R pt. 61, App. A(1). All
other features of the room are irrelevant. Moreover, Matusevich
himself had notice that the lower level was considered a
"basement." His SFIP Application explicitly stated under the
"Building Type" heading that the property was "(Including basement
enclosure) Two Floors." (Emphasis added). Similarly, each of the
three Flood Policy Declarations that Matusevich received (one in
2008, one in 2009, and one in 2010) included a "Building
Description" describing the property as a "Single Family, Two
Floors" with either a "Basement or Enclosure" (in 2008) or
"Finished Basement/Enclosure" (in 2009 and 2010). (Emphasis added).
Matusevich never objected to these characterizations.
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Matusevich's last argument is that a representative of
Middlesex Mutual told him and his wife that the lower level was not
a "basement." Even accepting this statement to be true (as we must
in the summary judgment context), it was not reasonable for
Matusevich to rely on it. First, because this is federal
insurance, regulated by federal law and paid out of the federal
coffers, "the person seeking those funds is obligated to
familiarize himself with the legal requirements for receipt of such
funds." McGair, 693 F.3d at 100 (quoting Jacobson, 672 F.3d at
175) (internal quotation marks omitted). This includes
understanding that a "basement" is defined under the Policy as any
room with all four sides of its floor below ground level. Second,
the regulations administering the NFIP provide that "no provision
of the [policy] shall be altered, varied, or waived other than by
the express written consent of the Federal Insurance
Administrator." 44 C.F.R § 61.13(d); see also DeCosta, 730 F.3d at
87 (quoting Jacobson, 672 F.3d at 175). Thus, unlike a private
insurance contract where an agent can alter or waive a term of the
agreement, even if Matusevich did interpret this statement as an
alteration or waiver of his Policy, the alteration or waiver was
unenforceable. We have "previously enforced the written waiver
requirement, noting that the SFIP 'explicitly preclude[s] oral
waiver or waiver by conduct,'" DeCosta, 730 F.3d at 87 (alteration
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in original) (quoting Phelps v. FEMA, 785 F.2d 13, 19 (1st Cir.
1986)), and we see no reason to divert from that practice here.
III. Conclusion
We agree with both Middlesex Mutual and the district
court that the lower level of Matusevich's home qualifies as a
"basement" under the Policy, and thus Middlesex Mutual
appropriately denied his claim of loss for damages sustained during
the October 4, 2011, flood. Accordingly, the district court
properly granted Middlesex Mutual's motion for summary judgment and
denied Matusevich's motion.
AFFIRMED.
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