Bad Faith - District Court Holds That Federal Jurisdiction Is Not Exclusive for Claim Against Insurer Involved in National Flood Insurance Program
The U.S. District Court for the Eastern District of Virginia recently held in Dugdale v. Nationwide Mutual Fire Insurance Co., No. Civ.A. 4:05CV138 (Feb. 14, 2006) that a plaintiff’s bad faith claim involving a policy
issued pursuant to the National Flood Insurance Program was not subject to exclusive federal jurisdiction. It further held that, notwithstanding a forum selection clause requiring that any lawsuit arising out of the policy
be filed in federal court, the plaintiff’s claim could proceed in state court because the insurer had not raised a timely objection to venue when sued in state court.
The Dugdale litigation arose from a claim for damages caused by Hurricane Isabel. In late 2004, the plaintiff filed an action in Virginia state court alleging beach of contract and bad faith claim handling under a
flood insurance policy issued by Nationwide. Nationwide ultimately removed the action to federal court and filed a motion to dismiss arguing that the plaintiff’s claim was preempted by federal law. The plaintiff
sought remand.
In deciding the remand motion, Judge Jerome Friedman noted that a split existed among the federal circuits as to whether 42 U.S.C. §4072 created exclusive federal jurisdiction for claims under the National Flood Insurance Program.
In the absence of controlling Fourth Circuit precedent, Judge Friedman adopted the reasoning of the Seventh Circuit in Downey v. State Farm Fire & Casualty Co., 276 F.3d 243 (7
th Cir. 2001) and concluded that the statutory language of 42 U.S.C. §4072 could not be properly construed as creating exclusive jurisdiction for claims against private insurers.
After holding that federal jurisdiction was not exclusive, Judge Friedman then considered whether the court’s federal question jurisdiction under 28 U.S.C. §1331 had been properly invoked by removal. In this regard,
he determined that the removal was not timely because the insurer’s notice was not filed within 30 days after the action had been filed in state court. The district court also considered the impact of the policy’s
forum selection clause requiring that any claim under the policy or any dispute arising out of the handling of any claim thereunder be filed in federal court. Judge Friedman held that the insurer had waived this forum selection
clause by failing to object to venue within the time provided in the Virginia courts for filing a responsive pleading. The court accordingly granted plaintiff’s motion to remand. In so doing, it commented that
the Federal Emergency Management Agency clearly desired that all such disputes be litigated in federal court, but nevertheless concluded that “the instant matter represents one of the rare situations where such dispute must
be adjudicated by a state court, as the defendant failed to timely remove this matter or to timely enforce the forum-selection clause created by FEMA.”