Richard Pecarovich v. Allstate Insurance Company

Citations: 309 F.3d 652; 2002 Cal. Daily Op. Serv. 10825; 2002 Daily Journal DAR 12531; 2002 U.S. App. LEXIS 22647; 2002 WL 31429828Docket: 00-55400

Court: Court of Appeals for the Ninth Circuit; October 31, 2002; Federal Appellate Court

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Richard Pecarovich's home was significantly damaged during a torrential rainstorm in February 1998, leading him to file a claim under his Standard Flood Insurance Policy with Allstate Insurance Company, which operates under the National Flood Insurance Program. The district court initially ruled in favor of Allstate, determining that the damage did not result from a covered "flood." Pecarovich's home, located at the base of a canyon in Laguna Beach, experienced flooding as water from the hills surged through a drainage system and pooled in his backyard, causing severe structural damage.

After reporting the damage, Pecarovich’s claim was assigned to an independent adjuster, Richard Rossi, who was hindered in his investigation due to a lack of necessary engineering reports; Allstate had engaged engineers to provide these reports but failed to compensate them, leading to their refusal to complete the work. Pecarovich subsequently filed a complaint in district court in February 1999.

In reviewing the summary judgment favoring Allstate, the appellate court emphasized that the evidence should be viewed in the light most favorable to Pecarovich. Allstate contended that the damage fell under two policy exclusions: one stating that coverage does not apply if the flood is confined to the insured premises and another concerning damage caused by "movement of land." The court noted that any ambiguity within these exclusions must be interpreted against Allstate and in favor of coverage. Notably, a declaration from an adjacent property owner, Peter Savage, indicated that significant water runoff from the hills affected his property as well, suggesting that the flooding may not have been confined solely to Pecarovich's premises. The appellate court thus reversed the district court's decision, allowing the case to proceed.

Allstate contends that Savage's property damage is attributed to a distinct "flood," citing a lack of evidence showing a unified inundation of both Savage's and Pecarovich's properties. Article 3(C)(2) excludes floods confined to the insured's premises but incorporates the broader definition of "flood" from Article 2, which includes "general and temporary condition of partial or complete inundation." The separate paths of stormwater leading to the inundation of both properties do not negate the possibility that they experienced the same "condition of inundation."

Allstate also seeks to invoke a second exclusion for damage from "movement of land," while Pecarovich claims the damage resulted from "land subsidence," which is covered under the policy due to a FEMA amendment in 1994. Allstate argues that any land subsidence falls under the land movement exclusion. However, this argument undermines the intended coverage expansion for land subsidence, as per FEMA's amendment.

Additionally, Allstate argues for summary judgment based on Pecarovich's alleged failure to meet the procedural requirements for submitting a claim, specifically the sixty-day proof of loss submission. To ease this requirement, Article 9(J)(7) allows for a streamlined process where Allstate may waive the proof of loss requirement, enabling Pecarovich to submit an adjuster's report instead. Pecarovich asserts that Allstate exempted him from the proof of loss requirement and allowed him to submit the adjuster's report.

Allstate maintains that only FEMA can grant exceptions to the proof of loss requirement, interpreting "we" in Article 9(J)(7) as FEMA rather than Allstate. However, the policy's preamble incorrectly states that "we" refers to FEMA, as the Write Your Own (WYO) program permits private insurers, like Allstate, to administer flood insurance policies. Therefore, Pecarovich’s policy is effectively a contract with Allstate, not FEMA.

Allstate's policy was deemed ambiguous due to its failure to replace "FEMA" with its own name in the contract with Pecarovich, as permitted by regulations. The contract's use of "we" refers to Allstate, not FEMA, which is supported by a precedent case. Article 9(J)(7) of the contract allows Allstate to waive the requirement for a proof of loss under certain conditions. This aligns with the "Write Your Own" program's intent to empower private insurers to manage flood claims effectively. Allstate's argument against this interpretation conflicts with prior rulings that emphasize strict compliance with policy terms for flood insurance claims, which are funded by the National Flood Insurance Fund. Pecarovich asserts he received valid permission under Article 9(J)(7) to submit his claim using an alternative procedure, focusing on contract interpretation rather than avoiding compliance with congressional payment conditions. The interpretation suggests Allstate had the discretion to approve this alternative claim submission process.

Allstate's authority to approve an alternative claim procedure under Article 9(J)(7) is not hindered by Article 9(D), which requires express written consent from the Federal Insurance Administrator for any policy amendments or waivers. A precedent established in Flick indicates that a private insurer cannot unilaterally alter policy terms, such as extending a proof of loss submission deadline. Pecarovich did not seek to change his policy but intended to follow the alternative submission process. Despite Allstate's claims, evidence suggests an Allstate supervisor assured Pecarovich that he would be supported in filing his claim. An adjuster, Rossi, instructed Pecarovich on claim submission but failed to complete the necessary report. This creates an inference that Rossi, acting with Allstate's authority, accepted a signed report in place of a proof of loss. The legal standard for summary judgment favors the nonmoving party's evidence and reasonable inferences. Allstate continued to process Pecarovich's claim for almost a year without requesting a proof of loss until March 1998, potentially complicating his ability to comply. Pecarovich has raised a genuine factual dispute regarding his claim submission. Consequently, the district court's summary judgment is reversed and the case is remanded. Additionally, the court noted that it reviewed Pecarovich's improperly submitted evidence regarding flood conditions, which should not be disregarded despite procedural issues.

Allstate's policy, as outlined in Article 3(B), excludes coverage for various causes of loss, including theft, fire, windstorm, and certain earth movements, except for mudslides or erosion covered under flood peril. Specifically, land subsidence, sewer backups, or water seepage are only covered if a temporary flooding condition exists, the flooding is the proximate cause, damage occurs within 72 hours post-flood, and the insured property is valued at 80% of replacement cost or the maximum National Flood Insurance Program coverage. Allstate argues there is insufficient evidence linking flooding to the subsidence, but an expert's report creates a material issue for trial.

Under Article 9(J)(3), Pecarovich must submit a proof of loss within 60 days detailing several specific elements, including the date of loss, cause, property interests, damage valuation, and other insurance details. The referenced provisions are related to the validity of the contract terms at the time of the agreement. FEMA amended the Standard Flood Insurance Policy to clarify that "we," "us," and "our" refer to private insurers, not FEMA, to enhance clarity without altering substance.

In Gowland, the Fifth Circuit ruled that the insured did not meet the requirement of submitting an adjuster's report as mandated in Article 9(J)(7). Pecarovich also failed to submit this report but contended he is excused from this requirement due to Allstate's failure to provide it. This raises a genuine issue for trial, invoking the prevention doctrine, which allows for waiving or excusing conditions if one party hinders the fulfillment of obligations.

Article 9(J)(7) allows for exceptions to the 60-day sworn proof of loss requirement under certain circumstances, but does not mandate strict compliance in every case. Although it was initially assumed that only FEMA could grant exceptions, the plaintiff did not invoke Article 9(J)(7) in this instance. Even if Article 9(D) could imply a need for FEMA's approval, Article 9(J)(7) explicitly grants Allstate discretion to approve alternative claim procedures. Established legal principles dictate that specific provisions take precedence over general ones.

Allstate’s argument that Pecarovich's declaration constituted a sham affidavit contradicting his deposition is rejected. Pecarovich's deposition indicated uncertainty regarding Allstate's final decision on his claim, differing from his later declaration about whether Allstate consented to an alternative claims procedure.

Dissenting opinion argues that Pecarovich's claim is procedurally barred, emphasizing the necessity for strict compliance with the Standard Flood Insurance Policy (SFIP). This requirement is crucial as it relates to the waiver of the federal government's sovereign immunity. Pecarovich failed to meet these procedural requirements by not submitting a proof of loss within the stipulated 60 days, nor did he file one at all. His only potential recovery route was via Article 9(J)(7), which requires that Allstate expressly waive the proof of loss and that Pecarovich sign the adjuster's report—conditions that were not met.

The court's conclusion that Allstate waived the proof of loss requirement based on assurances made to Pecarovich is challenged, as Pecarovich himself acknowledged that Allstate never explicitly waived this requirement.

Allstate's statements do not constitute an express waiver of the proof of loss requirement nor suggest an inference of waiver. Pecarovich's declaration indicates that an Allstate supervisor assured him that Allstate would "take care of everything," but this is deemed mere puffery and not a waiver of procedural requirements under the Standard Flood Insurance Policy (SFIP). Adjuster Rossi’s assertions that he was in charge and would guide Pecarovich did not imply a waiver of these requirements. Pecarovich could argue for constructive waiver or equitable estoppel, but case law has generally dismissed such theories in SFIP contexts due to the involvement of public funds. Even if Allstate had acted to waive the proof of loss requirement, Pecarovich was still required to sign an adjuster's report to comply with Article 9(J)(7) of the SFIP. Previous cases reinforce that a signed adjuster's report is essential for waiving the proof of loss requirement, and mere substantial compliance does not suffice. Pecarovich failed to file a proof of loss within the mandated 60 days, leading to the conclusion that there was no waiver of this requirement, thus justifying summary judgment in favor of Allstate.

The SFIP contract requires strict compliance with procedural terms, stating that a claimant cannot sue for recovery unless all policy requirements are met. There's ambiguity regarding whether "We" in Article 9(J)(7) refers to Allstate or FEMA; if it refers to FEMA, Pecarovich's claim is barred due to FEMA's non-waiver of the proof of loss requirement. In deposition, Pecarovich confirmed he was never informed by Allstate representatives about any decisions made regarding his claim or advised against submitting a proof of loss form. However, Allstate's actions, including pursuing the claim past the filing deadline, do not constitute a waiver of SFIP conditions, as supported by case law indicating that reliance on any representations from NFIP representatives is unreasonable. The SFIP explicitly warns that assistance in completing a proof of loss form is merely a courtesy and that the insured is still required to submit the form within 60 days of loss, reinforcing that Pecarovich should not have relied on Allstate for compliance with this requirement.