                                                                                                                           Opinions of the United
1999 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


1-27-1999

Linder & Assoc Inc v. Aetna Cslty & Surety
Precedential or Non-Precedential:

Docket 98-3049




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Recommended Citation
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Filed January 26, 1999

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

No. 98-3049

LINDER AND ASSOCIATES, INC.,

       Appellant

v.

AETNA CASUALTY AND SURETY COMPANY

On Appeal from the United States District Court
for the Western District of Pennsylvania
(D.C. No. 96-cv-01124)
Honorable Francis X. Caiazza, District Judge

Argued: October 29, 1998

BEFORE: SLOVITER, GARTH and MAGILL,*
Circuit Judges

(Opinion Filed January 26, 1999)

Jeffrey P. Ward, Esq.
Richard A. Ejzak, Esq. (Argued)
Cohen & Grigsby
11 Stanwix Street
15th Floor
Pittsburgh, PA 15222-3115
Counsel for Appellant



_________________________________________________________________
*Honorable Frank Magill, Senior United States Circuit Judge for the
Eighth Circuit Court of Appeals, sitting by designation.
       S. Asher Winikoff (Argued)
       DiBella & Geer
       322 Boulevard of the Allies
       3rd Floor
       Pittsburgh, PA 15222
       Counsel for Appellee

OPINION OF THE COURT

MAGILL, Senior Circuit Judge.

Linder and Associates, Inc. (Linder) appeals from the
Magistrate Judge's1 order denying recovery for damages
Linder sustained in the lower level of its building during a
flood in 1996. Linder bases its claim for recovery on a flood
insurance policy issued by Aetna Casualty and Surety
Company (Aetna) pursuant to the National Flood Insurance
Program (NFIP). The district court denied coverage,finding
that the lower level was a basement and, thus, that Linder's
damages were excludable under the policy's basement
exclusion. We affirm.

I.

Linder owns a multi-level building located on Yunker
Street in McKees Rocks, Pennsylvania, and uses the
building to conduct its furniture retail and refurbishing
business. Since 1988, Linder has obtained flood insurance
for its building through Aetna, a "Write Your Own" (WYO)
company under the NFIP. See 44 C.F.R. S 62.23-62.24.2
Aetna issued Linder a standard flood insurance policy
(SFIP), the terms of which are prescribed by the Federal
Emergency Management Agency's (FEMA's) regulations. See
Nelson v. Becton, 929 F.2d 1287, 1288 (8th Cir. 1991); 42
U.S.C. S 4013; 44 C.F.R. S 61.4(a), 61.13. The SFIP
_________________________________________________________________

1. The Honorable Francis X. Caiazza, United States Magistrate Judge for
the Western District of Pennsylvania, who presided with the consent of
the parties pursuant to 28 U.S.C. S 636(c).

2. Unless noted otherwise, all citations to the Code of Federal
Regulations are to those revised as of October 1, 1995.

                                2
specifically excludes coverage for damages occurring in a
"basement" of a building, see Article 6(F)(2), reprinted in
App. at 18, and defines "basement" as "any area of the
building, including any sunken room or sunken portion of
a room, having its floor subgrade (below ground level) on all
sides." Article 2, reprinted in App. at 11.

The lower level or alley side of Linder's building includes
two garage doors used by trucks to pick up and deliver
furniture incident to Linder's business. The lower level floor
is approximately four inches below the threshold of the
garage doors, and concrete ramps have been installed to
facilitate entering and leaving. According to Linder's owner,
the alley also was "a few inches down from the threshold"
when he purchased the building in 1978. Trial Tr. at 105,
reprinted in App. at 310. However, no one knows the exact
height differential between the alley and the threshold at
that time.

Between 1978 and 1996, crushed limestone gravel was
dumped into the alley on four different occasions, raising
the surface level of the alley to the same height as the
threshold. The limestone had been dumped over the years
for the sole purpose of keeping the alley level. No one is
sure how much the alley has risen since 1978, but Linder's
expert testified that he found two inches of crushed
limestone adjacent to the garage doors in 1997.

A flood in January 1996 damaged most of the furniture
stored in the lower level of Linder's building. After Linder
filed a claim with Aetna under the SFIP, Aetna's claims
adjuster, Robert Massof, investigated Linder's building. Mr.
Massof determined that the entire lower level floor was
below ground level. He believed that the lower levelfloor at
the rear side of the building was below ground level
because the floor was lower than the alley. Aetna, relying
on the basement exclusion and Mr. Massof 's findings,
refused to provide coverage for damages occurring in the
lower level.

Linder subsequently filed suit,3 contending that the lower
_________________________________________________________________

3. Linder based federal jurisdiction under, inter alia, 42 U.S.C. S 4072.
Although we originally questioned the existence of federal subject matter

                                3
level was not a "basement" as defined in the policy. Linder
conceded that three sides of the lower level floor were well
below ground level, but argued that the floor at the rear
side of the building was not below ground level. Without
supporting evidence, the insured argued the term"ground
level" should be defined as the natural grade existing at the
time the building was built, and not as the surface level of
the built-up alley. The Magistrate Judge disagreed with
Linder and, after a one day bench trial, entered judgment
in favor of Aetna.

II.

It is well settled that federal common law governs the
interpretation of the SFIP at issue here. See McHugh v.
United Serv. Auto. Ass'n, ___ F.3d #6D6D 6D#, 1998 WL 665857, at
*2 (9th Cir. Sept. 29, 1998); Carneiro da Cunha v. Standard
Fire Ins. Co./Aetna Flood Ins. Program, 129 F.3d 581, 584
(11th Cir. 1997); Leland v. Federal Ins. Adm'r , 934 F.2d
524, 529 (4th Cir. 1991). Accordingly, "neither the statutory
nor decisional law of any particular state is applicable to
the case at bar." Sodowski v. National Flood Ins. Program,
834 F.2d 653, 655 (7th Cir. 1987) (quotations omitted).

We utilize "standard insurance law principles" to
construe the SFIP. Id. (quotations omitted); see also
Carneiro da Cunha, 129 F.3d at 584; Leland , 934 F.2d at
530. Under these principles, we interpret the SFIP in
accordance with its plain, unambiguous meaning, see
Carneiro da Cunha, 129 F.3d at 585; Sodowski , 834 F.2d at
656, remaining cognizant that its interpretation should be
"uniform throughout the country" and that"coverage
should not vary from state to state." Becton , 929 F.2d at
1291. Although exclusions and ambiguities in the policy are
strictly construed against the insurer, we must give effect to
the "[c]lear policy language," and refrain from "tortur[ing]
_________________________________________________________________

jurisdiction under this statute and asked the parties for supplemental
briefs, this court's recent decision in Van Holt v. Liberty Mutual Fire
Insurance Co., ___ F.3d ___, No. 97-5098 (3d Cir. Nov. 25, 1998), makes
clear that this statute does, indeed, confer subject matter jurisdiction
of
this action in federal court. Id. at 10.

                               4
the language to create ambiguities." Selko v. Hole Ins. Co.,
139 F.3d 146, 152 n.3 (3d Cir. 1998) (quotations omitted).
If the policy is susceptible to two constructions, however,
we will adopt the one more favorable to the insured. See
Aschenbrenner v. United States Fidelity & Guar. Co. , 292
U.S. 80, 84-85 (1934).

In this case, we conclude that the SFIP clearly and
unambiguously precludes coverage for damages in Linder's
lower level. The SFIP defines "basement" as"any area of the
building . . . having its floor subgrade (below ground level)
on all sides." Article 2, reprinted in App. at 11. Each court
considering the SFIP's basement exclusion has found its
language to be clear and unambiguous. See Becton , 929
F.2d at 1289-90; Unger v. Liberty Mut. Ins. Co. , 849 F.
Supp. 839, 846 (E.D.N.Y. 1994). "[I]t is obvious from Becton
that the `ground level' referred to in the policy definition[ ]
is intended to be that area close and adjacent to the lower
level door." Unger, 849 F. Supp. at 846. 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.
See Becton, 929 F.2d at 1289 ("In order to go from that
level out to the yard, it was necessary to go up at least one
step. The floor levels therefore were subgrade . .. ."). This
is true even if one must step up only an inch when going
outside. See id. ("The extent to which they were subgrade,
whether 6, 8, or 40 inches, is immaterial under the policy.
The only question is whether they were subgrade or at
ground level."). Conversely, if "one has to step up to enter
the lower level and must step down when leaving the lower
level," the lower level is not a basement. Unger, 849 F.
Supp. at 846.

The parties disagree only as to whether the rear side of
the lower level is below ground level. Aetna's claims
adjuster testified that shortly after the flood, the alley was
even with the threshold, which is approximately four inches
above the lower level floor. To enter the lower level from the
alley, it was thus necessary to step down onto the lower
level floor. The lower level floor at the rear side of the
building, therefore, is below ground level and, hence, is a
"basement" as that term is defined in the SFIP. The district
court did not err in its conclusion.

                               5
In an effort to avoid this obvious policy exclusion, Linder
makes two arguments: (1) the district court clearly erred
when finding that the alley surface was above the lower
level floor at the time of the flood, and (2) the district court
erred in defining "ground level" as the level of the alley
outside the garage doors at the time of the flood. We
summarily dispose of Linder's first argument. Linder points
to testimony by its witnesses that the alley was lower than
the lower level floor at the time of the flood. However, as
explained above, Mr. Massof examined the building shortly
after the flood and testified that the alley was even with the
threshold, which is four inches above the lower level floor.
Moreover, Linder's expert found only two inches of crushed
limestone adjacent to the garage doors, thus suggesting
that the alley was at least two inches higher than the lower
level floor before the flood. When there are two permissible
views of the evidence, the factfinder's choice between them
cannot be clearly erroneous. See Anderson v. City of
Bessemer City, 470 U.S. 564, 574 (1985). Accordingly, the
district court did not clearly err in finding that the lower
level was below the alley surface.

We also reject Linder's second argument. Linder contends
that the term "ground level" is ambiguous and should be
defined as the existing grade at the time Linder's building
was originally constructed, which supposedly was lower
than the lower level floor. However, construing"ground
level" in the policy to mean the ground level surrounding
Linder's building at some point in time other than the time
of flooding seems unreasonable. Coverage under aflood
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 theflood insurance
policy as the ground level that was actually flooded, i.e., as
the ground level at the time of the flood.

Moreover, Linder failed to present any admissible
evidence suggesting that its proposed definition is a
reasonable interpretation of the term "ground level." Linder
contends that its proposed definition is supported by an
"Outline Guide to the Standard Flood Insurance Policy"
which should have been considered as a party admission

                               6
under Federal Rule of Evidence 801(d)(2)(C) and (D). 4 We
believe that the district court appropriately exercised its
discretion in excluding this document, see Glass v.
Philadelphia Elec. Co., 34 F.3d 188, 191 (3d Cir. 1994)
(review for abuse of discretion), because it is clear that the
Outline Guide was not admissible as a party admission.

The Outline Guide was drafted by Computer Sciences
Corporation, a "fiscal agent" of the NFIP that"does not
underwrite flood insurance policies" and does not have
"ultimate authority over the issuance of policies and the
approval or denial of claims." Berger v. Pierce, 933 F.2d
393, 395 (6th Cir. 1991). Apparently, Liberty Mutual
Insurance Company, a WYO company like Aetna, produced
the Outline Guide during trial in a different suit concerning
coverage under a SFIP. See Unger v. Liberty Mutual Ins. Co.,
849 F. Supp. 839, 841 (E.D.N.Y. 1994). In that litigation,
Liberty Mutual asserted that the Outline Guide provided a
binding interpretation of the term "ground level" in the
SFIP. Because Liberty Mutual was defending itself in its
capacity as a WYO company in that case, Linder contends
that the Outline Guide should have been admitted in this
case as a party admission. Linder's argument proceeds
along these lines: Liberty Mutual, as a WYO, is an agent of
FEMA; Liberty Mutual's assertion that the Outline Guide
provided a binding interpretation of the term "ground level"
in the SFIP constitutes a binding admission on behalf of
_________________________________________________________________

4. In pertinent part, the Outline Guide provides the following:

       2. basements*

       a. a basement is any area of a building whosefloor is below
       ground level on all sides

        (1) ground level means the naturally existing grade at the time
       of original construction

         (a) backfill against the structure after original construction
       does not create a basement

        . . . .

        (5) if any portion of the floor in question is at or above ground
       level, the area is not a basement.

Outline Guide S VI(B)(2), reprinted in   App. at 70-71.

                               7
FEMA to the same effect; FEMA's purported admission of
the Outline Guide's applicability to determinations of
coverage under the SFIP is binding on FEMA's agents; and
Aetna, as a WYO company, is now bound by the Outline
Guide's definition of "ground level."

There are several flaws in Linder's argument. Most
notably, this court recently explained that "WYO companies
are not general agents of the federal government." Van Holt
v. Liberty Mut. Fire Ins. Co., ___ F.3d ___, No. 97-5098, at
7 (3d Cir. Nov. 25, 1998). The Federal Regulations support
this conclusion. See 44 C.F.R. S 62.23(g) ("WYO Companies
shall not be agents of the Federal Government"). Moreover,
counsel for FEMA has asserted that "[t]he Outline Guide
was not adopted by FEMA nor was it approved by FEMA;
and therefore it is not an official FEMA document." Letter
from Margaret M. Bees, Trial Attorney for FEMA, to David
M. Paul, counsel for Linder, and Stanley A. Winikoff,
counsel for Aetna (Nov. 4, 1997), reprinted in App. at 146.
Furthermore, when advocating this particular definition of
"ground level" before the district court, Linder's counsel
told the court that "we right now can't represent to the
Court that [this proposed definition] is an existing PHEMA
[sic] guideline . . . ." Trial Tr. at 83, reprinted in App. at
288. Accordingly, the district court did not abuse its
discretion in refusing to admit the Outline Guide as a party
admission.5

In sum, FEMA, which "fixes the terms and conditions of
the" SFIP, Van Holt, No. 97-5098, at 7, explicitly disavows
Linder's proposed definition of the term "ground level."
Moreover, neither FEMA nor any court has ever advocated
or accepted a definition of "ground level" other than that
espoused by the Becton and Unger courts. To give credence
to Linder's proposed definition, we would be straining to
_________________________________________________________________

5. In one paragraph of the fact section of its opening brief, Linder also
complains that the Magisrate Judge wrongfully excluded a government
document setting forth a definition of "natural grade." See Appellant's
Br.
at 12-13. Because Linder failed to present any argument on this matter,
we hold that Linder has waived any challenge to the exclusion of that
document. See Kost v. Kozakiewicz, 1 F.3d 176, 182 (3d Cir. 1993)
(holding that "casual mention of an issue in a brief is cursory treatment
insufficient to preserve the issue on appeal").

                               8
find an ambiguity where none exists, an exercise that we
will not undertake. See St. Paul Fire & Marine Ins. Co. v.
United States Fire Ins. Co., 655 F.2d 521, 525 (3d Cir.
1981).

III.

For the foregoing reasons, we will affirm the order of the
Magistrate Judge.

A True Copy:
Teste:

       Clerk of the United States Court of Appeals
       for the Third Circuit

                                9
