Keogh Cox's Win in Toledo Bend Litigation Could Have National Impact in Flood Hazard Litigation

In a decision released October 9, 2013, the U.S. Fifth Circuit upheld the grant of the defendants' Motion to Dismiss by concluding that the Federal Power Act ("FPA") preempts property damage claims based in Louisiana state tort law where the alleged damage is the result of operations that comply with the FERC-issued license. Simmons v. Sabine River Authority, No. 12-30494, - F.3d - , (5th Cir. 10/09/2013).

This issue, recognized as a question of first impression in the Fifth Circuit, arose in a case where the plaintiffs, all Louisiana owners and residents of property located downstream from the federally-licensed hydroelectric Toledo Bend Dam situated on the Sabine River, sued Sabine River Authority of Louisiana and various Entergy defendants to recover damages for flooding incidents and to enjoin the opening of the Dam's flood gates in such a way as to cause inundation of the downstream properties.

On behalf of defendants, Keogh Cox moved to dismiss the suit by claiming state tort law claims for damages and injunctive relief interferes with the exclusive authority of the Federal Energy Regulatory Commission ["FERC"] to regulate and control the operations of the federally-licensed Toledo Bend project such that the plaintiffs' claims were preempted under the FPA. The District Court granted the motion after extensive briefing and argument by Keogh Cox attorneys, John P. Wolff, III, Nancy B. Gilbert, Martin E. Golden, and Virginia J. McLin.

In affirming the district court's ruling, the Fifth Circuit recognized U.S. Supreme Court precedent that has interpreted the FPA as "occupying the field of public water use and power generation except for water use rights." As a result, in accord with Ninth Circuit law, it interpreted the general savings clause in the FPA [16 U.S.C. § 821] narrowly to exempt only "a state property law regime [that] enables users of streams and wells to obtain proprietary rights in a continuing quantity of water." The Court also recognized that state damage claims can have the same effect as a state regulation and may serve as a collateral attack on a federal license, such that it refused to interpret the limited savings clause [16 U.S.C. § 803(c)] to permit "state tort law to supplant FERC's exclusive control of dam operations." Because "applying state tort law to set the duty of care for the operation of the FERC-licensed project would 'stand as an obstacle to the accomplishment and execution of the full purposes and objectives' of the FPA," the Fifth Circuit held plaintiffs' state law property damages claims were conflict preempted under the FPA.

That a single federal agency should control public water use and dam operations was noted to be especially appropriate because the Toledo Bend Dam spans Texas and Louisiana state lines and, if not preempted, different causes of action and standards of conduct could have been imposed under the laws of the two states.

Many insurance policies contain a Concealment or Fraud provision that provides no coverage where the insured concealed or misrepresented any material fact or circumstance, engaged in fraudulent conduct, or made false statements related to the insurance.

But will a court enforce the Concealment or Fraud provision to deny an insured recovery on an otherwise covered peril? According to a recent decision out of the Eastern District of Louisiana, the answer is YES.

In Fahimipour v. United Property & Casualty Insurance Company, the plaintiffs sought contractual and extra-contractual damages from their insurance carrier for damages to their residential property allegedly sustained during Hurricane Zeta. After a bench trial, Judge Morgan concluded Plaintiffs’ application for insurance included a false statement made with knowledge of its falsity and voided the insurance policy from inception, in its entirety.

Citing Talbert v. State Farm Fire & Cas. Ins. Co., the Fahimipour court noted that “Under Louisiana law, an insurance policy is voided entirely and from its inception when the insured makes a material misrepresentation in the application for insurance with the intent to deceive the insurer.” The insurer must prove by a preponderance of the evidence the following elements in order to succeed on such a claim:

(1) the insured made a false statement;

(2) the false statement was material; and

(3) the false statement was made with intent to deceive.

With regard to the first factor, the Court found the insureds obtained and read an inspection report in connection with their purchase of the property. They “were concerned enough about the findings of the inspectors to contact their real estate agent” about the issues. The insureds represented in their insurance application that the property was well maintained, and free of damage, debris, and liability hazards, despite the extensive contradictory findings in the inspection report.

Regarding the second element, the carrier’s in-house expert testified that the insurer would not have bound coverage if the application contained the information from the inspection report. Therefore, the court found the insured’s false statements were material.

The third element – intent to deceive – “must be determined from the surrounding circumstances indicating the insured’s knowledge of the falsity of the representations made in the application and his recognition of the materiality of his representations, or from circumstances which create a reasonable assumption that the insured recognized the materiality.”

In finding the insurer established the third element, the Court noted the insureds were “sophisticated users of insurance.” Evidence showed the insureds previously purchased houses for renovation and resale, owned multiple properties, submitted insurance applications before, and also submitted claims for coverage on at least three prior occasions.

Ultimately, the Court denied plaintiffs any recovery for alleged hurricane damages because of the misrepresentations they made in their application for insurance coverage.

Prior to Fahimipour,Courts had found that post-loss misrepresentations may also void a policy. In Roach v. Allstate Indem. Co., 476 Fed. App’x 778, 779 (5^th Cir. 2012), the plaintiff’s house was damaged in a fire. The Fifth Circuit upheld a summary judgment that voided the plaintiff’s policy after he submitted a falsified claim that included contents not located on inspection following a fire at the residence.

The policy at issue in Roach included a similar Concealment or Fraud provision that stated the policy would provide no coverage if the insured misrepresented any material fact before or after a loss. In granting summary judgment, the district court applied the same three factors used in the Fahimipour case to find the plaintiff made material misrepresentations in his personal property claim when he claimed items not located on inspection.

While the policy in Fahimipour was voided in part because the insureds were “sophisticated users of insurance,” it remains to be seen whether a Louisiana court will void coverage based on a similar provision brought by a less sophisticated insured under a different set of facts.

However, the Fahimipour and Roach decisions show that a court can void a policy, from its inception, because of an insured’s misrepresentations, whether they occur in connection with the application for the policy or after a loss. These rulings also suggest that Louisiana law recognizes an insured also has a reciprocal duty of good faith in its relationship with its insurer.

Case References: Behnaz Fahimipour, et al. v. United Property & Casualty Insurance Company, 2022 WL 16833693 (E.D. La. Nov. 9, 2022); Roach v. Allstate Indem. Co., 476 Fed. App’x 778, 779 (5^th Cir. 2012); Talbert v. State Farm Fire & Cas. Ins. Co., 971 So.2d 1206 (La. App. 4 Cir. 2007).

The United States District Court for the Eastern District of Louisiana grants defendant, Circle K's, Motion to Dismiss concluding that plaintiff has no right to claim loss of opportunity to win the Louisiana Lottery Powerball jackpot, $103,100,000.00, because of an expired ticket issued in error.

This matter arose from plaintiff's purchase of two sets of Powerball tickets on or about January 19, 2012. The drawing that was the subject of the purchase was to be held on January 21, 2012 with a jackpot of $103,100,000.00. Sometime after the drawing date, plaintiff discovered the purchased tickets were printed on January 18, 2012 and worthless for the January 21, 2012 drawing. Plaintiff filed suit seeking damages in the amount of the Powerball jackpot.

After removal to Federal Court, on behalf of Circle K, Keogh Cox moved to dismiss the suit by claiming that Louisiana law affords no relief to plaintiff for the alleged claims. Specifically, Louisiana law explicitly precludes any relief to the plaintiff.

Keogh Cox cited La. R.S. 47:9009 which states "that there shall be no liability on the part of and no cause of action shall arise against the corporation, its governing board, staff, agents, vendors, or employees, arising out of or in connection with the issuance, failure to issue, or delivery of a lottery ticket."

Moreover, Keogh Cox asserted that the Louisiana Statute precludes payment of prize money on the basis of lottery tickets produced or issued in error. The United States District Court found merit in these assertions after extensive briefing and arguments by Keogh Cox attorneys, John P. Wolff, III, Nancy B. Gilbert, Richard W. Wolff and Mark Assad.

The United States District Court found that Circle K was statutorily exempt from the suit and, under the directives of the lottery itself, it is the sole responsibility of plaintiff to verify the accuracy of the game play. Plaintiff failed to do so and, as such, was barred from suit.