PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

WILLIAM W. SMOAK; ROSA J. SMOAK,
Plaintiffs-Appellees,

v.
                                                                  No. 95-1100
INDEPENDENT FIRE INSURANCE
COMPANY,
Defendant-Appellant.

Appeal from the United States District Court
for the District of South Carolina, at Columbia.
Joseph F. Anderson, Jr., District Judge.
(CA-94-521)

Argued: September 28, 1995

Decided: June 23, 1999

Before WIDENER and MOTZ, Circuit Judges,
and HALL, Senior Circuit Judge.

_________________________________________________________________

Vacated and remanded by published opinion. Judge Widener wrote
the majority opinion, in which Judge Motz concurred. Judge Hall
wrote a dissenting opinion.

_________________________________________________________________

COUNSEL

ARGUED: Allan Levin, COZEN & O'CONNOR, Columbia, South
Carolina, for Appellant. George W. Speedy, FURMAN, SPEEDY &
STEGNER, Camden, South Carolina, for Appellees. ON BRIEF:
Tracy L. Eggleston, COZEN & O'CONNOR, Columbia, South Caro-
lina, for Appellant.
OPINION

WIDENER, Circuit Judge:

Defendant Independent Fire Insurance Co. (Independent) appeals
the district court's grant of summary judgment holding the subsidence
of land beneath plaintiffs William and Rosa Smoak's lakefront home
to be a covered loss under a Standard Flood Insurance Policy (policy
or SFIP) issued by Independent pursuant to the National Flood Insur-
ance Act of 1968, (the Act) 42 U.S.C. § 4001 et seq. We vacate the
district court's judgment and remand this case for further consider-
ation.

Following heavy rains in January 1993, the waters of Hermitage
Lake in Camden, South Carolina rose to the level of the foundation
of the Smoaks' home and stood for three days. When the waters
receded, the land beneath the home subsided, cracking a concrete slab
that formed part of the foundation and causing an undisputed $23,256
in damages to the foundation and walls of the house. The Smoaks
held a flood insurance policy issued by Independent with effective
dates of July 27, 1992 to July 27, 1993. Independent denied the
Smoaks' insurance claim, however, on the basis that the policy
excluded the earth movement that damaged their home.

The Smoaks' policy promised to indemnify them for"Direct Physi-
cal Loss by or from Flood" as that phrase is defined in the policy but
specifically excluded:

           Loss caused by . . . land sinkage, land subsidence, land-
          slide, destabilization or movement of land resulting from the
          accumulation of water in subsurface land areas, gradual ero-
          sion, or any other earth movement except such mudslides
          (i.e. mudflows) or erosion as is covered under the peril of
          flood.

The policy defined a "flood" to be:

           A. A general and temporary condition of partial or com-
          plete inundation of normally dry land areas from:

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          1. The overflow of inland or tidal waters.

          2. The unusual and rapid accumulation or runoff of sur-
         face waters from any source.

          3. Mudslides (i.e. mudflows) which are proximately
         caused by flooding as defined in subparagraph A-2 above
         and are akin to a river of liquid and flowing mud on the sur-
         faces of normally dry land areas . . . as when earth[is]1 car-
         ried by a current of water and deposited along the path of
         the current.

          B. The collapse or subsidence of land along the shore of
         a lake or other body of water as a result of erosion or under-
         mining caused by waves or currents of water exceeding the
         cyclical levels which result in flooding as defined in A-1
         above.

Thus, under the terms of the policy, the earth movement that caused
the Smoaks' loss -- land subsidence -- was a covered peril only if
it was "a result of erosion or undermining caused by waves or cur-
rents exceeding cyclical levels . . . ."

To find that the Smoaks' casualty was a covered loss, the district
court relied on a difference in the definition of flood between the pol-
icy and other Federal Emergency Management regulations which
expanded the definition of flood.2 The district court, however, failed
_________________________________________________________________
1 The definition of flood contained in the Smoaks' policy is verbatim
the definition of flood in the policy effective when the policy was issued,
44 C.F.R. Pt. 61, App. A(1)(1991) at 255, except for this omission of the
word "is."
2 An expanded definition appears at 44 C.F.R. § 59.1 that defines not
only flood but also the term "flooding." It is identical to the definition
contained in the Policy and the Smoaks' policy except for subparagraph
3(b), which adds the language italicized below:

         (b) The collapse or subsidence of land along the shore of a lake
         or other body of water as a result of erosion or undermining
         caused by waves or currents of water exceeding anticipated

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to recognize that the policy explicitly limits the definition of flood to
the definition set forth in the policy itself. The policy insured the
Smoaks from "Direct Physical Loss by or from Flood as defined in
Article II of this Agreement . . . ." 44 C.F.R. Pt. 61, App. A(1) (1991)
at 288. In defining Direct Physical Loss by or from Flood, Article II
constrains the meaning of flood to the definition contained in the pol-
icy:

          Direct Physical Loss by or from Flood means any loss in
          the nature of actual loss of or physical damage evidenced by
          physical changes to the insured property (building or con-
          tents (personal property)) which is directly and proximately
          caused by a flood (as defined in this Agreement) . . . .

44 C.F.R. Pt. 61, App. A(1) (1991) at 289 (emphasis added). The pol-
icy has restricted the meaning of flood since at least March 31, 1973,
the effective date of the oldest policy construed in West v. Harris, the
first case to consider the question. 573 F.2d 873, 875-76 (5th Cir.
1978), cert. denied, 440 U.S. 946 (1979); see also 37 Fed. Reg. 1036
(1972) (limiting the definition of flood, before erosion and undermin-
ing coverage were added, to allow expansion of the National Flood
Insurance). Therefore, the district court's decision was incorrectly
based on a definition of "flood" not contained in the policy.
_________________________________________________________________

          cyclical levels or suddenly caused by an unusually high water
          level in a natural body of water, accompanied by a severe storm,
          or by an unanticipated force of nature, such as a flash flood or
          an abnormal tidal surge, or by some similarly unusual and
          unforeseeable event which results in flooding as defined in (a)(1)
          of this section.

44 C.F.R. § 59.1 (1995) (emphasis added). The district court altered the
policy's definition of flood by reading the expanded definition into the
policy. The court reasoned that since the Act gives the Director of FEMA
power to, by regulation, define "flood," and establish mandatory "terms
and conditions relating to insurance coverage or exclusion," and since
flood insurance issued under the NFIP is subject to FEMA's regulations,
the policy would provide less coverage than the regulations required
unless the Policy incorporated the expanded definition of flood.

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Coverage for the Smoaks' loss could properly be extended by oper-
ation of the policy liberalization clause, but only if coverage for land
subsidence was made effective by statute or regulation prior to the
date of the Smoaks' loss in January 1993. The liberalization clause in
the Smoaks' Policy provides:

          While this policy is in force, should we have adopted any
          forms, endorsements, rules or regulations by which this pol-
          icy could be broadened or extended for your benefit by
          endorsement or substitution of policy form, then, such mat-
          ters shall be considered to be incorporated in this policy
          without additional premium charge and shall inure to your
          benefit as though such endorsement or substitution has been
          made.

44 C.F.R. Pt. 61 App. A(1) (1991) at 300. In Leland v. Federal Insur-
ance Administrator, 934 F.2d 524, 528 (4th Cir. 1991), we construed
identical language and determined "[t]he liberalization provision does
not give retroactive effect to new Policy terms; rather, it serves as a
device for automatically reading into existing policies beneficial
changes as soon as FEMA makes them and declares them to be in
force." Citing Criger v. Becton, 902 F.2d 1348, 1352 (8th Cir. 1990).
On October 1, 1994, a final rule became effective that amended the
policy to add coverage for land subsidence provided certain condi-
tions are met.3 Since the Smoaks' loss occurred before the effective
_________________________________________________________________
3 The amendment added a new paragraph B.3 at Article 3 -- Losses
Not Covered of all three Policy policies which reads:

          Land subsidence, sewer backup, or seepage of water unless, sub-
          ject to additional deductibles as provided for at Article 7, (a)
          there is a general and temporary condition of flooding in the
          area, (b) the flooding is the proximate cause of the land subsi-
          dence, sewer backup, or seepage of water, (c) the land subsi-
          dence, sewer backup, or seepage of water damage occurs no later
          than 72 hours after the flood has receded, and (d) the insured
          building must be insured, at the time of the loss, for at least 80
          percent of its replacement cost or the maximum amount of insur-
          ance available under the National Flood Insurance Program.

58 Fed. Reg. 62420, 62426 (November 26, 1993).

                     5
date of the new coverage, this amendment cannot be used to provide
coverage under the policy.

We note that other circuits have considered the earth movement
exclusion and the policy's language in determining whether the policy
provides coverage for losses similar to that incurred by the Smoaks.
Upon remand, the district court should determine which precedent to
follow and whether the facts here are more analogous to those in
Quesada v. Director, FEMA, 753 F.2d 1011 (11th Cir. 1985), in
which the court found coverage, or more similar to those in Wagner
v. Director, FEMA, 847 F.2d 515 (9th Cir. 1988), Sodowski v. Nat'l
Flood Insurance Program, 834 F.2d 653 (7th Cir. 1987), cert. denied,
486 U.S. 1043 (1988), and West, 573 F.2d at 873, in which the courts
did not find coverage under the Policy.

For the foregoing reasons, the district court's judgment is

VACATED AND REMANDED
FOR FURTHER CONSIDERATION.

HALL, Senior Circuit Judge, dissenting:

I respectfully dissent. I would affirm on the reasoning of the district
court. Smoak v. Independent Fire Insurance Co. , C/A No. 3:94-521-
17 (D. S.C., Dec. 12, 1994) (Memorandum Opinion and Order).

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