The National Flood Insurance Program (“NFIP”) reports that from 2008 to 2012, the average residential flood claim amounted to more than $38,000 and that is why the NFIP on its website “encourages people to purchase both building and contents coverage.”
However, on April 1, 2015, an unfortunate Swampscott homeowner, Jacob Matusevich, who had purchased flood coverage under the NFIP for his home and its contents, had his $136,000 flood claim appeal denied by the Federal Court of Appeals in Boston.
Mr. Matusevich had purchased his flood insurance policy through Middlesex Mutual Assurance (“Middlesex”). In 2011, the home’s lower walk-out level suffered a substantial flood loss. Mr. Matusevich filed two flood loss claims for $12,159.82 and $136,588.19, respectively. Middlesex paid the smaller claim and denied the larger claim. Middlesex stated that the larger loss was barred by the policy’s exclusion for damage in a “basement” as defined in the policy.
In this case Mr. Matusevich’s lower level, where the damage occurred, was ruled to be a basement and therefore subject to exclusion under the standard NFIP policy. The Court based its ruling on a three-quarter of an inch difference between the house’s lower level and a concrete apron that surrounded an in-ground pool at the back of the house.
The Standard Flood Insurance Policy purchased by the insured
Mr. Matusevich first purchased a Standard Flood Insurance Policy (“SFIP”) for his property from Middlesex in 2008.
Middlesex issued the policy under FEMA’s Write-Your-Own (“WYO”) program that allows private insurance companies, such as Middlesex to issue flood insurance policies as part of the NFIP. Under the WYO program, the companies only administer the federal program. The participating companies are required to issue SFIPs containing the terms and conditions prescribed by FEMA and apply the interpretation of FEMA’s Federal Insurance Administrator as to the scope of coverage.
The SFIP issued to Mr. Matusevich afforded coverage for “direct physical loss by or from flood to [Mr. Matusevich’s] insured property” for a term one year but was renewed for successive one-year terms in November 2009 and November 2010.
The flood loss to the insured property’s lower level
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 Mr. Matusevich’s home, causing damage to the lower level and its contents. Mr. Matusevich filed two flood loss claims with Middlesex in the amounts of $12,159.82 and $136,588.19.
Middlesex 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.
The layout of the home insured under the flood policy
Mr. Matusevich’s property insured under the SFIP had two-levels. The lower level had several finished rooms and was subgrade on three sides because of the downward slope of the lot towards the back of the house. The fourth side of the lower level, located at the rear of the house had a doorway that opened directly into a backyard. The backyard contained an in-ground swimming pool surrounded by a concrete apron that sloped slightly from the edge of the pool to the rear of the house. (See picture).
Appeal over meaning of “basement” and “ground level” in a standard flood insurance policy
Following Middlesex’s denial, Mr. Matusevich appealed to FEMA. FEMA denied his appeal and he filed suit in against Middlesex and FEMA in the United States District Court in Boston. The case in the district court went against Mr. Matusevich and he appealed to the First Circuit Court of Appeals.
In both the district court and the First Circuit the sole question was over what is a “basement” under the SFIP.
The SFIP 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.
Mr. Matusevich’s argued that Middlesex and FEMA incorrectly determined that his lower level fit the policy definition because the floor of his lower level was not in fact below ground level based on the topography of the land. Middlesex and FEMA argued that the top of the concrete apron and not the land underneath the concrete apron was the proper measuring point for coverage purposes.
As a result of surveys conducted in the course of the suit, the parties agreed that:
- The concrete pool apron was 4.25″ thick.
- The floor of the lower level of the house was 3.49″ higher than the ground level underneath the concrete pool apron.
- The lower level of the house was found to be 0.76″ lower than the top surface of the concrete apron.
As a result of the agreed measurements, the court had to decide which of the following two possible points of measurement applied to either allow coverage or deny coverage:
- If the soil or ground underneath the concrete apron was the proper measuring point for determining ground level, the lower level is not “below ground level (subgrade),” and therefore since “all sides” of the lower level were not below ground level 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 were “below ground level (subgrade),” the lower level was a “basement,” and the damage from the flood is excluded under the policy.
The Appeals Court rules lower level is a basement by three-quarters of an inch
The Court conclude that the proper measuring point was the surface of the concrete apron. In explaining the decision the Court quoted and agreed with the case of Linder & Associates, Inc. v. Aetna Casualty & Surety Co., 166 F.3d 547, 551 (3d Cir. 1999) which ruled that:
[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…
In Mr. Matusevich’s case the Court stated that the flood resulted from the difference in height between the concrete apron and the lower level floor. “Here, the water rose over the concrete apron, flowed down the slope of the apron towards Mr. Matusevich’s home, and dropped an additional 0.76″ into the lower level where it pooled.”
The Court also observed that “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.” The Court found that it was irrelevant that the step was only 0.76″.
The First Circuit decision is worth reading if anyone deals with SFIP policies or claims
While the decision is certainly disappointing reading to Mr. Matusevich and his attorneys, it does have an excellent discussion relating to the National Flood Insurance Program. The decision also explains that the regular rules of interpretation that apply to insurance policies issued in the voluntary market do not apply to Standard Flood Insurance Policies issued on behalf of FEMA.
We have put the link below to the court decision related to this article and hope that if you access it that you have signed up on our mail list.