United States District Court, D. South Carolina, Columbia Division
Monticello Road, LLC, Monticello Road C Store, LLC, Plaintiffs,
Auto-Owners Insurance, AmGuard Insurance Company, Defendants.
ORDER AND OPINION
Honorable Margaret B. Seymour Senior United States District
February 14, 2017, Plaintiffs Monticello Road, LLC and
Monticello Road C Store, LLC (collectively,
“Plaintiffs”) sued Defendants Auto-Owners
Insurance Company and AmGuard Insurance Company in the Court of
Common Pleas for Richland County, South Carolina for bad
faith failure to pay an insurance claim. ECF No. 1-1. On
March 16, 2017, Defendant Auto-Owners Insurance Company
(“Defendant”) timely removed this action to
federal court citing federal question jurisdiction pursuant
to 28 U.S.C. § 1331 or 42 U.S.C.§ 4072. ECF Nos.
15-2, 22. Plaintiffs moved to remand on May 13, 2017. ECF No.
LEGISLATIVE & FACTUAL BACKGROUND
The National Flood Insurance Program
(“NFIP”) Congress established the NFIP under
the National Flood Insurance Act of 1968 to provide
affordable flood insurance coverage for residential and
commercial properties. 42 U.S.C. §§ 4001 et
seq.; see Battle v. Seibels Bruce Ins. Co., 288
F.3d 596, 598 (4th Cir. 2002). NFIP is federally subsidized
and federally administered. The Federal Emergency Management
Agency (“FEMA”) is responsible for the
administration of NFIP. 42 U.S.C. § 4011. In 1983, FEMA
created the “Write-Your-Own” program, which
allows private insurance companies to issue Standard Flood
Insurance Policies (“SFIPs”) under the NFIP. 44
C.F.R § 62.23 (2017). These insurance companies are
referred to as “Write-Your-Own” companies
(“WYO”). Id. at § 62.23(b).
are responsible for the “adjustment, settlement,
payment and defense of all claims arising from policies of
flood insurance it issues under the Program, based upon the
terms and conditions of the Standard Flood Insurance
Policy.” Id. at § 62.23(d). WYOs are
fiscal agents of the United States of America. 42 U.S.C.
§ 4071(a)(1); 44 C.F.R. § 62.23(g). As fiscal
agents, WYOs collect SFIP premiums in segregated accounts,
deduct their fees and costs from those premiums, and then
deposit the remainder of the premiums in the National Flood
Insurance Fund in the United States Treasury. 42 U.S.C.
§ 4017(b)(2). FEMA sets the terms, rate structures, and
premium costs of the SFIPs, and is ultimately responsible for
the payment of all claims. Id. at § 4014. If an
insurance claim is more than the WYO has received in
premiums, WYOs must draw upon the letters of credit from
FEMA. Battle, 288 F.3d at 600; see also 44
C.F.R. § 62.23(f). According to the arrangement entered
into with FEMA, WYOs retain a standard percentage of claims
paid to the insured, which is essentially a commission for
the WYOs for their participation in the WYO program.
Southpointe Villas Homeowners Ass'n v. Scottis Ins.
Agency Inc., 213 F.Supp.2d 586, 588 (D.S.C. 2002)
(citing 44 C.F.R. § 62.23(a)). FEMA disburses additional
funding to cover certain costs incurred by WYO's when
defending against claims. 44 C.F.R. § 62.23(i)(6).
“In short, premiums collected on policies written by
WYO[s] do not belong to those companies.”
Battle, 288 F.3d at 600 (citing Newtown v.
Capital Assurance Co., 245 F.3d 1306, 1311 (11th Cir.
2016 Storm and Subsequent Insurance Claim
are South Carolina limited liability companies that operate a
convenience store at 6000 Monticello Road, Columbia, South
Carolina. ECF No. 1-1 at ¶ 1. On February 26, 2015,
Defendant, issued Plaintiffs a flood insurance policy (SFIP
No. 4100766692) under the NFIP. ECF No. 22-1. Plaintiffs
allege that in or about 2016 their convenience store
sustained flood and water damage during a severe storm. ECF
No. 1-1 at ¶ 3. Plaintiffs alleged that, “the
flood, the water, the wind and the overall havoc”
damaged the store and its inventory. Id. at ¶
7. Plaintiffs claim that Defendant breached their insurance
contract by failing to provide the entire amount due on their
insurance claim. Id. at ¶ 8. Plaintiffs request
$74, 500 in damages. Id.
from state court is governed by 28 U.S.C. § 1441. Under
§ 1441, “any civil action brought in a State court
of which the district courts of the United States have
original jurisdiction, may be removed by the defendant or the
defendants . . . .” A federal court may have original
jurisdiction through federal question jurisdiction, 28 U.S.C.
§ 1331, or diversity jurisdiction, 28 U.S.C. §
1332. “A defendant or defendants desiring to remove any
civil action . . . shall file in the district court . . . a
pending notice or removal” within thirty days after
receipt of the initial pleading. 28 U.S.C. § 1446. Once
an action has been removed, a plaintiff may file a motion to
remand “on the basis of any defect other than lack of
subject matter jurisdiction . . . within 30 days after the
filing of the notice of removal . . . .” 28 U.S.C.
removing party has the burden of establishing federal
jurisdiction, and the court should construe any uncertainty
of federal jurisdiction in favor of remand. Mulcahey v.
Columbia Organic Chems. Co., Inc., 29 F.3d 148, 151 (4th
Cir. 1994). Removal jurisdiction is determined on the basis
of the state court complaint at the time of removal.
Woodward v. Newcourt Comm. Fin. Corp., 60 F.Supp.2d
530, 531 (D.S.C. 1999). Defendant does not claim diversity
jurisdiction; therefore, the court must determine whether
there is federal question jurisdiction pursuant to 28 U.S.C.
§ 1331 or 42 U.S.C. § 4072.
plaintiff's cause of action arises under federal law only
when a “well-pleaded complaint” raises an issue
of federal law. Metro. Life Ins. Co. v. Taylor, 481
U.S. 58, 63 (1987). The rule provides that “whether a
case is one arising under the Constitution or a law or treaty
of the United States . . . must be determined from what
necessarily appears in the plaintiff's statement of his
own claim.” Aetna Health Inc. v. Davila, 542
U.S. 200, 207 (2004); (citing Taylor v. Anderson,
234 U.S. 74, 75-76 (1914)). The district court has
jurisdiction to hear a case only when a well-pleaded
complaint “establishes either that federal law creates
the cause of action or that the plaintiff's right to
relief necessarily depends on resolution of a substantial
question of federal law.” Battle, 288 F.3d at
606-07. If the outcome of the lawsuit turns on a question of
federal law, then relief necessarily depends on the
resolution of a substantial question of federal law and there
is federal question jurisdiction. Franchise Tax Bd. v.
Constr. Laborers Vacation Trust, 463 U.S. 1, 13 (1983).
A defense based on federal law is not sufficient to establish
federal question jurisdiction. E.g., Merrell Dow
Pharm., Inc. v. Thompson, 478 U.S. 804, 809 (1986)
(“A defense that raises a federal question is
inadequate to confer federal jurisdiction.”).
who brings a suit may decide whether to rely on state or
federal law, but “may not defeat removal by omitting to
plead necessary federal questions in a complaint.”
Rivet v. Regions Bank of Louisiana, 522 U.S. 470,
475 (1998). A court may uphold removal if it concludes that a
plaintiff has “artfully pleaded” claims in order
to avoid federal questions. Id. Additionally, if
federal law completely preempts a plaintiff's state law
claim, the artful pleading doctrine permits removal.
Id.; see Metro. Life Ins. Co., 481 U.S. at
assert that there is no federal question jurisdiction under
28 U.S.C. § 1331. Plaintiffs allege that they are
relying solely on state common law. ECF No. 15-1 at 1. In
Studio Frames Ltd. v. Standard Fire Insurance. Co.,
369 F.3d 376, 380 (4th Cir. 2004), the Fourth Circuit Court
of Appeals held that a plaintiff's “right to relief
on its claims for breach of contract, which hinge[d] on the
court's interpretation of a [SFIP] issued pursuant to the
NFIP and codified in federal regulations, necessarily
depend[ed] on the resolution of a substantial question of
federal law.” See also Leland v. Fed. Ins.
Adm'r, 934 F.2d 524, 529 (4th Cir. 1991)
(“Federal common law controls the interpretation of
insurance policies issued pursuant to the NFIP.”). As
the resolution of Plaintiffs' claim is based on a SFIP
issued pursuant to the NFIP and codified federal regulations,
their claims necessarily depend on the interpretation of a
substantial question of federal law. Plaintiffs' SFIP
explicitly states: “This policy and all disputes
arising from the handling of any claim ...