U.S. District Court Judge L.T. Senter, Jr. has denied a motion by plaintiffs to remand their case to Mississippi state court. The plaintiffs had sued both Nationwide, their putative flood insurer, and Michael Felsher, a Nationwide agent the plaintiffs said negligently failed to process their check, allowing their flood insurance policy to lapse. They were in a 30-day waiting period for a new policy when Hurricane Katrina struck, damaging their property. How badly, I don’t know, the case doesn’t say.
The case was originally filed in state court, but Nationwide removed it to federal court, claiming Felsher had been fraudulently joined as a defendant solely to defeat diversity jurisdiction. Senter did not buy this: he said the plaintiffs, Michael and Lucille Catchot, could recover against Felsher if they prove their claims (which Senter referred to as "a big if," adding his ruling is not meant to imply he holds any opinion about the merits of the claims). Nevertheless, he denied the motion to remand. Before explaining why, it might be useful to discuss the Catchots’ claims. The Catchots claim they delivered a $319 check to Felsher’s office through his mail slot on August 12 or 13, 2005, the customary way they delivered their payment. This was about 26 days after the premium was due, but within the 30-day grace period to keep the policy in force. For some reason that the parties’ have not yet explained, Nationwide either did not receive or did not cash the check within the 30-day period, and the policy lapsed. Nationwide did negotiate the check on August 17, one day too late. Felsher got a new policy for the Catchots, but new flood policies have a 30-day waiting period and the policy was not yet in force when the hurricane hit. Senter said, if proven, these allegations create a reasonable probability the plaintiffs would prevail against Felsher in negligence, so his joinder as a defendant was not fraudulent.
However, federal courts have exclusive jurisdiction of the interpretation of flood insurance policies. Because the Catchots’ theory is their payment was actually or constructively received by Felsher and therefore Nationwide within the grace period, Senter said, they also claim the old policy continued in force and are seeking to recover under it, therefore at least arguably requiring interpretation of the old policy, and the case will therefore stay in federal court. He noted that the plaintiffs did not actually articulate this legal theory in their complaint, but he is required to read the complaint liberally in a motion to remand. A good, clear opinion by Judge Senter.
One final note: flood insurance is underwritten by the federal government through so-called Write Your Own insurers, of which Nationwide is one. Insurers in reality aren’t liable for flood claims — the government reimburses them for claims paid, as well as for defense costs and fees in defending against claims.