The Standard Flood Insurance Policy (SFIP) provides that policyholders are to be covered for “direct physical loss by or from flood.”1 However, what about compensation for damages such as attorney’s fees, costs and interest? This issue was recently addressed by the federal district court in New Jersey. In Ryan v. Selective Insurance Company of America,2 the Ryan’s obtained a flood policy from Selective for two buildings they owned which were destroyed by high winds and flooding during Superstorm Sandy. The Ryans commenced a lawsuit against Selective for breach of contract and declaratory judgment. Included in their claims were extra-contractual claims for interest and costs related to the lawsuit. Selective moved to dismiss these claims arguing that any relief other than compensation for “direct physical loss” is beyond the scope of coverage provided for in the SFIP
The court held that attorney’s fees were not recoverable as they are unauthorized by Congress, citing to West v. Harris, 573 F.2d 873, 881 (5th Cir.1978) (“[A] prevailing plaintiff in a suit on a flood insurance policy issued pursuant to the National Flood Insurance Act is not entitled to recover the statutory penalty and attorney’s fees allowed by state insurance law for arbitrary denial of coverage.”); Eddins v. Omega Ins. Co., 825 F.Supp. 752, 753 (N.D.Miss.1993) (“There is no authorization within the statutes or the regulations of the National Flood Insurance Act which allow the recovery of punitive damages.”).
In support of its holding, the court also cited to a 1999 decision from the N.J. District Court:3
And there is a relevant decision from within this District that Selective failed to cite. In 3608 Sounds Ave. Condo. Ass’n v. South Carolina Ins. Co., 58 F.Supp.2d 499, 502 (D.N.J.1999), District Judge Rodriguez found that neither attorney’s fees nor punitive damages were recoverable in NFIA coverage claims. He reasoned that such damages were not provided for by statute, and that any claims for such damages under state law were preempted. Id.
Costs, Interest, Incidental and Consequential Damages
The Ryans demanded “compensatory damages” in their claims. The court, noting that case law does not provide clear guidance on recovery of costs, interest, incidental and consequential damages, reviewed an earlier district court decision:4
Some indirect guidance, however, may be found in Messa v. Omaha Prop. & Cos. Ins. Co., 2000 U.S. Dist. LEXIS 18661 (D.N.J.2000). There, District Judge Simandle observed that various Courts of Appeals had held generally that the NFIA “specifically preempt[s] state principles of contract law for purposes of the interpretations of policies issued pursuant to the NFIA.” Id. at *22. Judge Simandle therefore dismissed, as preempted, “extra-contractual claims for … consequential damages and incidental damages.” Those damages claims, as it happened, were contained in state common law causes of action other than breach of contract, so Messa does not squarely hold that they are unavailable for breach of contract. See id. at *30. Still, I see no basis to confine that limitation to non-contract causes of action. Indeed, SFIP policies limit their coverage to “direct physical loss,” see 44 CFR pt. 61 app. A(l), Art. I. Consequential and incidental damages, by contrast, are indirect in nature, arising from related harms and expenses. See Black’s Law Dictionary 9th Ed. at 445–446. Their exclusion would not seem to depend on whether they are claimed under a contract theory, a tort theory, or some other theory. Cf. Messa at *22.
Therefore, the Ryans could “potentially recover sums which should have been, but were not paid by Selective under the SFIP.” However, the court noted that consequential or incidental damages are excluded and therefore granted Selective’s motion to dismiss.
As to the demand for interest and costs, the court declined to rule in favor of Selective and commented that the cases cited by Selective in their motion did not disallow interest or costs, and that the issue was insufficiently briefed. However, the court noted that it will reassess the issue if it becomes relevant and is raised again.
1 Article I of 44 C.F.R. pt. 61 app. A(l)
2 Ryan v. Selective Ins. Co. of Am., No. 13-6823, 2014 WL 2872089 (D.N.J. June 23, 2014).
3 Id. at 3.