Alex Newton suffered a flood loss to his vacation home in 1995. The home was located in Alabama, on the Gulf of Mexico, and it was insured under a flood policy issued by Capital Assurance, Inc. Capital participates in the National Flood Insurance Program's (NFIP) Write-Your-Own program (WYO) which allows private insurers to market the NFIP's standard flood policies under their own name.
Capital denied a portion of Newton's loss and Newton filed a lawsuit to have his full claim paid. The lower court found in favor of Newton and, besides compensatory damages and costs, he was awarded prejudgment interest.
Capital appealed the latter award. It claimed that, as a "WYO" insurer, it was protected under governmental immunity from prejudgment awards. Capital argued that, within the scope of its handling flood insurance, it held the status of a government entity, thus acquiring a sovereign position.. Since the claim dispute arose out of its actions as a flood insurer, immunity applied and it was not obligated to pay prejudgment interest. In Capital's opinion, payment of prejudgment interest would be the equivalent of a charge paid out of public funds.
The appeals court examined the applicable sections
of the Code of Federal Regulations, specifically the "no
interest" rule which does grant immunity against interest
awards. It also reviewed the relationship between the Federal
Emergency Management Agency, which administers the NFIP, and WYO
companies. While the higher court recognized that a WYO company
is entitled to some protection due to its acting as a government
agent, the protection is quite narrow. In its opinion, a WYO's
ability to use its normal business practices when handling flood
insurance makes it liable for any damages that are related to
its actions. Under this circumstances, the court held that Capital
could not use its status as a WYO to shield it from the prejudgment
award. It also held that prejudgment interest does not qualify
as a cost for which a WYO could claim reimbursement from the NFIP.
The lower court decision was affirmed.
Alex W. Newton :Plaintiff-Appellee v. Capital Assurance Company, Incorporated, Defendant-Appellant. 11thCir. Nos. 98-7015 and 99-10305. Filed April 20, 2000. Affirmed CCH 2000 Fire and Casualty Cases, Paragraph 9014.