Lawyers are often called upon to predict or at least estimate the potential outcomes of litigation. Doing so is, at best, an imprecise art. An example of why that is so is reflected in the decision of the United States Court of Appeals for the Eleventh Circuit in Feaz v. Wells Fargo Bank, N.A., Case No. 13-10230 (decided February 10, 2014). In deciding that case, the Eleventh Circuit addressed a question identical to one addressed by several other federal courts. Those courts, looking at the same statutes, regulations and contract language, have reached divergent outcomes.
The Feaz case involved flood insurance for mortgages insured by the Federal Housing Administration (“FHA”). When FHA guarantees a mortgage for a home located in a designated special flood hazard area, the applicable statute and regulations require that the home be covered by flood insurance in “an amount at least equal to either the outstanding balance of the mortgage, less estimated land cost, or the maximum amount of the [National Flood Insurance Program] insurance available with respect to the property improvements, whichever is less.” Opinion, p. 4. Pursuant to federal regulation, every FHA-insured mortgage-loan contract includes the following provision:
Fire, Flood and Other Hazard Insurance. Borrower shall insure all improvements on the Property, whether now in existence or subsequently erected, against any hazards, casualties, and contingencies, including fire, for which Lender requires insurance. This insurance shall be maintained in the amounts and for the periods that the Lender requires. Borrower shall also insure all improvements on the Property, whether now in existence or subsequently erected, against loss by floods to the extent required by the Secretary.
Opinion, p. 5.
The legal controversy that has arisen is whether or not the third sentence directing the borrower to have flood insurance “to the extent required by the Secretary” makes the amount of flood insurance required by the federal regulations a minimum that the lender can exceed or a maximum that limits that the lender can require. In deciding Feaz, the Eleventh Circuit looked at the purpose of the flood insurance program, the regulations, and the language in the entire insurance clause and concluded that a lender is free to require flood insurance in amounts over and above what the federal regulations require. Opinion, p. 13. However, as is noted by the Eleventh Circuit in its opinion, many other courts have reached the exact opposite conclusion. Opinion, p. 6, n.2. To resolve these conflicts, this issue may ultimately have to be decided by the United States Supreme Court.
These cases do not involve the credibility of witnesses or the weighing of conflicting testimony. These courts is looking at the same contract clause and the same regulations and reaching different results. That such conflicting outcomes are possible highlights the risks inherent in any litigation.
The Feaz opinion is available at http://www.ca11.uscourts.gov/opinions/ops/201310230.pdf