FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
FRANK J. MCHUGH, husband; MARY
S. MCHUGH, wife,
No. 97-35019
Plaintiffs-Appellants,
D.C. No.
v.
CV-95-05702
UNITED SERVICE AUTOMOBILE
OPINION
ASSOCIATION, a Texas corporation,
Defendant-Appellee.
Appeal from the United States District Court
for the Western District of Washington
J. Kelley Arnold, Magistrate Judge, Presiding
Argued and Submitted
June 4, 1998--Seattle, Washington
Filed September 29, 1998
Before: Donald P. Lay,* Harry Pregerson and
Susan P. Graber, Circuit Judges.
Opinion by Judge Lay; Dissent by Judge Graber
COUNSEL
Matthew T. Boyle, Mitchell, Lang & Smith, Seattle, Wash-
ington, for the plaintiffs-appellants.
D. Bradley Hudson, Hudson Youngblood, Seattle, Washing-
ton, for the defendant-appellee.
OPINION
LAY, Circuit Judge:
Frank and Mary McHugh purchased a Standard Flood
Insurance Policy ("SFIP") from the United Service Automo-
bile Association insurance company ("USAA") to provide
coverage for their beach house located on the Hood Canal in
Seabeck, Washington. Under the National Flood Insurance
Act of 1968, codified at 42 U.S.C. SS 4001 et seq. (1994), the
Federal Emergency Management Agency ("FEMA") is autho-
rized to provide federally subsidized flood insurance to indi-
vidual homeowners. The language of the SFIP is prescribed
by the Act and FEMA regulations, although the policy itself
is issued through a private insurer.
Under the terms of the SFIP, the policyholder is insured
against "Direct Physical Loss by or from Flood. " ER at 29. A
"Flood" is defined in the policy to include
[a] general and temporary condition of partial or
complete inundation of normally dry land area from:
. . . Mudslides (i.e. mudflows) which are proximately
caused by flooding . . . and are akin to a river of liq-
uid and flowing mud on the surfaces of normally dry
land areas, including your premises, as when earth is
carried by a current of water and deposited along the
path of the current.
Id. at 31-32. Under losses not covered, the policy lists losses
caused by "landslide . . . or any other earth movement except
such mudslides (i.e. mudflows) or erosion as is covered under
the peril of flood." Id. at 33.
On December 28, 1994, the McHughs reported to USAA
that their beach house had been damaged by a flood-related
mudslide that occurred after heavy rains. The house, located
at the base of a steep sloping hill, was knocked off its founda-
tion and partially destroyed after being hit by a saturated mix-
ture of soil, gravel, vegetation, and rock.
After receiving the McHughs' claim under the SFIP,
USAA hired Martin Page from the geotechnical engineering
firm of Shannon & Wilson to determine the exact cause of the
damage to the McHughs' house. In a written report, Page con-
cluded that the slide was caused by a combination of factors
including saturation of the surface soils by heavy rainfall and
a buildup of groundwater in the underlying sand and gravel.
However, Page's report concludes that "it is our opinion that
the soil instability that occurred at the subject site is classified
as a landslide, not a mudslide." ER at 16.
The McHughs hired their own geotechnical engineer, Rob-
ert Pride, to assess the cause of the damage. Contrary to
Page's report, Pride found that the damage to the beach house
was caused by a mudslide, not a landslide, precipitated by soil
saturation and surface-water runoff from a natural drainage
channel above the slide area.
In December 1995, the McHughs filed a complaint against
USAA and the director of FEMA seeking coverage for dam-
age to the beach house.1 USAA moved for summary judgment
in November 1996 to dismiss all claims with prejudice. The
McHughs filed a cross-motion for summary judgment a
month later asking the district court to hold that their claim
was covered by the policy as a matter of law.
On December 6, 1996, the district court2 granted USAA's
motion for summary judgment, holding the damage to the
McHughs' home was caused by a landslide, not a mudslide,
and therefore was excluded from coverage under the SFIP.
See McHugh v. United Service Automobile Ass'n, No. C95-
5702JKA (W.D. Wash. Dec. 6, 1996) (Order Granting Defen-
dant's Motion for Summary Judgment). This appeal followed.
The law is clear that, as contracts, SFIPs issued under the
National Flood Insurance Program ("NFIP") are governed by
federal law applying standard insurance law principles. See,
e.g., Brazil v. Giuffrida, 763 F.2d 1072, 1075 (9th Cir. 1985);
Carneiro Da Cunha v. Standard Fire Ins. Company/Aetna
Flood Ins. Program, 129 F.3d 581, 584 (11th Cir. 1997). Fed-
eral common law therefore controls the interpretation of these
insurance policies. Sodowski v. National Flood Ins. Program
of Federal Emergency Management Agency, 834 F.2d 653,
655 (7th Cir. 1987).
A. The Meaning of the Insurance Coverage
The district court granted summary judgment to the insur-
ance company denying coverage examining only whether
"reasonable minds could differ on the cause of damage to
plaintiffs home." McHugh v. United Service Automobile
Ass'n, No. C95-5702JKA (W.D. Wash. Dec. 6, 1996) (Order
Granting Defendant's Motion for Summary Judgment), at 1.
On appeal, McHughs urge the language of the policy is open
to two constructions and that the construction most favorable
to the insured must be accepted. Both sides presented evi-
dence from geotechnical engineers. As we discuss, their testi-
mony and reports conflict as to their findings and conclusions.3
The plaintiffs presented the report and declaration of geo-
technical engineer Robert Pride indicating the event which
occurred on the McHughs' property in December 1994 was
caused by flooding and "akin to a river of liquid and flowing
mud on the surfaces of normally dry land areas. . . ." ER at
115-16. He characterized the event as a "saturated soil mass"
that moved down toward the house, see Pride Dep. of 10/2/96,
at 79, ER at 138, and stated that the term "mudflow" simply
signifies the fluid movement of saturated soils, whatever their
makeup. See Pride Declaration of 11/27/96, at 2. In contrast,
he stated that landslide conditions did not exist in a geotechni-
cal sense. Id.4
[1] The policy indicates covered flood damage includes:
"Mudslides (i.e., mudflows) which are proximately caused by
flooding . . . and are akin to a river of liquid and flowing mud
on the surfaces of normally dry land areas . . . . " (emphasis
added). Events "akin" or similar to a river of liquid or flowing
mud could include a broad range of occurrences including the
"saturated soil mass" that damaged the McHughs' home.
[2] A similar meaning can be generated by the common
usage of the term mudflow. According to Webster's Ninth
New Collegiate Dictionary 778 (1984), mudflow is defined as
"a moving mass of soil made fluid by rain or melting snow."
See also Webster's Third New International Dictionary at
1482. Again, such a definition clearly could be applied to the
December 1994 occurrence on the McHughs' property.
[3] The Act mandates that coverage under the term "flood"
includes "inundation from mudslides which are proximately
caused by accumulations of water on or under the ground.
. . ." (emphasis added). 42 U.S.C. S 4121(b) (1994). See also
42 U.S.C. S 4001(f) (1994) ("It is therefore the further pur-
pose of this chapter to make available . . . protection against
damage and loss resulting from mudslides that are caused by
accumulations of water on or under the ground.") Even the
district court's conclusion that soil saturation was the pre-
dominant cause of the damage at the McHughs' property fits
within the definition of a slide proximately caused by accu-
mulations of water on or under the ground.
[4] The defendant company, however, points to other evi-
dence to suggest the damage was caused by a landslide, not
a mudslide, and therefore was excluded under the terms of the
policy. The evidence includes a report from the geotechnical
engineering firm hired by USAA, as well as a description of
"mudslide" within the federal regulations governing the NFIP.5
Federal courts have stated that flood insurance policies nor-
mally are subject to limitations on coverage imposed by appli-
cable federal regulations, see Carneiro Da Cunha , 129 F.3d
at 585, and FEMA's interpretation of its own regulations
regarding coverage is entitled to great deference. See Criger
v. Becton, 902 F.2d 1348, 1351 (8th Cir. 1990).
[5] Nonetheless, the defendant's argument only points up
the ambiguous nature of the policy's mudslide/landslide dis-
tinction. USAA's evidence points to one reasonable construc-
tion of the policy -- that a mudslide must actually consist of
"liquid mud" in order to trigger coverage -- while evidence
presented by the plaintiffs points to a broader, but equally rea-
sonable reading.6 Under this second construction, a moving
mass of soil made fluid by rain or melting snow also would
fit the "mudslide" definition.
B. The Doctrine of Ambiguity
[6] The doctrine of ambiguity, or contra proferentem, holds
that ambiguities in insurance contracts are construed against
the insurance company and in favor of coverage. See, e.g.,
Lang v. Long-Term Disability Plan of Sponsor Applied
Remote Technology, Inc., 125 F.3d 794, 799 (9th Cir. 1997);
Berry v. Commercial Union Ins. Co., 87 F.3d 387, 392 (9th
Cir. 1996). This rule is most rigorously applied to ambiguous
exclusionary language, and for this reason exclusionary provi-
sions act to deny coverage only when their terms are clear,
definite, and explicit. See Playboy Enterprises, Inc. v. St. Paul
Fire & Marine Ins. Co., 769 F.2d 425, 428 (7th Cir. 1985);
see also Insurance Co. of North America v. Howard , 679 F.2d
147, 150 (9th Cir. 1982) (rule that ambiguities must be
resolved in favor of insured is even stronger when a court is
required to interpret exclusionary clauses in policy); Potts v.
Continental Cas. Co., 453 F.2d 276, 277 (9th Cir. 1971) (An
ambiguity in an insurance policy is to be construed against
insurer, particularly when an exclusionary clause is inter-
preted.). Words used in an insurance contract are to be inter-
preted according to the plain meaning that a layperson would
attach to them. See, e.g., Bullwinkel v. New England Mut. Life
Ins. Co., 18 F.3d 429, 431 (7th Cir. 1994) (Words used in
insurance policy are interpreted in light of plain meaning
when applying federal common-law rules of contract interpre-
tation.); see also Blue Ridge Ins. Co. v. Stanewich, 142 F.3d
1145, 1147 (applying California law); Aetna Cas. and Sur.
Co., Inc. v. Pintlar Corp., 948 F.2d 1507, 1512 (9th Cir.
1991) (applying Idaho law).
[7] The burden of proving that a claim falls within an
exclusion rests squarely with the insurer. See Hurst-Rosche
Engineers, Inc. v. Commercial Union Ins. Co., 51 F.3d 1336,
1342 (7th Cir. 1995). Therefore in order to deny coverage, an
insurer bears the burden of proving that an exclusionary pro-
vision is clear, definite, explicit, and incapable of two or more
reasonable constructions.
[8] Federal courts have applied the doctrine of ambiguity
directly to provisions within SFIPs. In Hanover Bldg. Materi-
als, Inc. v. Guiffrida, 748 F.2d 1011 (5th Cir. 1984), the Fifth
Circuit held that the word "enclosed" was ambiguous in
regard to what property was covered under the SFIP because
the term was "susceptible of different constructions." Id. at
1014 (quotation omitted). Because neither the language of the
policy nor the regulations governing it unambiguously
excluded the property from coverage, the court ruled the
ambiguity must be resolved in favor of coverage. Id. at 1014-
15. See also Looney v. Great Am. Ins. Co., 71 F.R.D. 211, 215
(E.D.N.Y. 1976) (effective date of increased coverage under
flood insurance policy was ambiguous on its face, precluding
summary judgment on such an issue).
C. The Doctrine of Reasonable Expectations
[9] We believe, however, that an ambiguity alone does not
always mean the insured should necessarily recover. Instead,
we find, under the circumstances of this case, a question of
fact has been presented. However, we do not equate this issue
in terms of a battle of experts.
[10] In recent years, an important corollary of the doctrine
of ambiguity has developed in the common law of the state
and federal court systems. Under the doctrine of reasonable
expectations, "[t]he objectively reasonable expectations of
applicants and intended beneficiaries regarding the terms of
insurance contracts will be honored even though painstaking
study of the policy provisions would have negated those
expectations." Robert E. Keeton, Insurance Law Rights at
Variance with Policy Provisions, 83 Harv. L. Rev. 961, 967
(1970).7 This doctrine recognizes that an ambiguous term of
a policy should be resolved in favor of the insured only if a
finder of fact determines that a reasonable person in the
claimant's position would have expected coverage. Id. at 969.
The doctrine is an outgrowth of modern contract theory, and
"is based in part on the understanding that most policyholders
do not draft, negotiate, or assent to the specific provisions in
standard-form insurance policies." 1 Eugene R. Anderson, et
al., Insurance Coverage Litigation S 2.7, at 67 (1997). "By
honoring the policyholder's reasonable expectations, the court
recognizes that which was actually bargained for or
negotiated." Id. at 68.
[11] Under the reasonable expectations doctrine, the actual
terms of the policy are just one factor to consider when deter-
mining coverage under an insurance contract. Other factors to
consider include the presence of ambiguity, language which
operates as a hidden exclusion, oral communications from the
insurer explaining important but obscure conditions or exclu-
sions, and whether the provisions in a contract are known to
the public generally. Wessman v. Massachusetts Mut. Life Ins.
Co., 929 F.2d 402, 404-05 (8th Cir. 1991) (quoting Hubred v.
Control Data Corp., 442 N.W.2d 308, 311 (Minn. 1989)).
The question of whether an insured's expectations of cover-
age were reasonable is ordinarily a question of fact for the
jury. Wessman, 929 F.2d at 405.
Since the doctrine of reasonable expectations first was
articulated by Professor Keeton more than a quarter century
ago, it has gained widespread acceptance among both judges
and academic scholars.8 A majority of states, including six of
the nine states within this circuit, have utilized the reasonable
expectations doctrine in some form when interpreting insur-
ance contracts.9
The reasonable expectations doctrine recently has been
adopted in this circuit to aid in the interpretation of ERISA
insurance policies, which like SFIPs, are governed by a uni-
form federal common law. See McClure v. Life Ins. Co. of
North America, 84 F.3d 1129, 1135 (9th Cir. 1996); Peterson
v. American Life & Health Ins. Co., 48 F.3d 404, 411 (9th Cir.
1995); Saltarelli v. Bob Baker Group Medical Trust, 35 F.3d
382, 387 (9th Cir. 1994). In these cases, this court stated that,
as a principle of federal common law, "courts will protect the
reasonable expectations of . . . insureds . . . even though a
careful examination of the policy provisions indicates that
such expectations are contrary to the expressed intention of
the insurer." Saltarelli, 35 F.3d at 386 (quoting Robert E.
Keeton & Alan I. Widiss, Insurance Law: A Guide to Funda-
mental Principles, Legal Doctrines, and Commercial
Practices S 6.3 (West 1988)). The doctrine has been used by
other circuit courts in other contexts as well. See, e.g., Pitts
By and Through Pitts v. American Sec. Life Ins. Co. , 931 F.2d
351, 355-56 (5th Cir. 1991) (finding reasonable expectation of
coverage supports holding that policy was not void); Keene
Corp. v. Insurance Co. of North America, 667 F.2d 1034,
1041-42 & n.12 (D.C. Cir. 1981) (basing asbestos insurance
coverage on policyholders' reasonable expectations).
Sound policy reasons lie behind the growing acceptance of
the reasonable expectations doctrine. Insurance policies are
lengthy complicated documents that frequently are not read
by the insured. These policies are classic examples of adhe-
sion contracts because they are drafted by the insurer and
allow the consumer no bargaining power. Additionally, pro-
tecting reasonable expectations of the insured often can pre-
vent an unconscionable result when interpreting the contract.
See Nelson, 929 F.2d at 1293 (Heaney, dissenting).
[12] The defendant's reliance on the federal regulations in
this case also supports application of the doctrine. Under the
classic formulation, a policyholder's reasonable expectations
should be upheld even if "painstaking study of the policy pro-
visions would have negated those expectations." Keeton,
supra, at 967. This is especially applicable in this case where
the insurance company suggests that a homeowner should be
bound not only by the fine print of his policy, but by defini-
tions buried within the voluminous Code of Federal Regula-
tions as well.
[13] In addition to apparent ambiguity and the obscurity of
exclusionary language, other factors in this case also weigh in
favor of applying the doctrine. First, the SFIP is a long, com-
plicated document: sixteen pages containing two columns of
fine, single-spaced print on each page. It is not realistic to
expect an average person to thoroughly read and fully com-
prehend the ramifications of such a complex document. Sec-
ond, the SFIP is a classic policy of adhesion, because a
property owner who wishes to purchase flood insurance has
almost no alternative but to deal with the government and
accept the terms it dictates. Third, examining reasonable
expectations in this case could prevent the court from reach-
ing an unconscionable result. Under the reading of the policy
urged by the defendant, a policyholder whose home was hit
with water mixed with fine, granular soil would receive cov-
erage, while a homeowner unfortunate enough to be located
below a slope with sand and gravel mixed with fine, granular
soil would be excluded. While FEMA should be free to draw
a mudslide/landslide distinction when allocating its flood cov-
erage, as a matter of fairness such a distinction should not
lead to such a seemingly arbitrary result.
D. Conclusion
[14] Given the evidence presented, we find that the district
court failed to examine both the ambiguity of the policy and
the reasonable expectations of the insured. Under the circum-
stances, we believe a factual issue exists and that the district
court erred in granting summary judgment. We remand the
case for reconsideration in light of these principles.10
Judgment reversed and remanded.
GRABER, Circuit Judge, dissenting:
I respectfully dissent. The majority's opinion finds ambigu-
ity where none exists, is inconsistent with precedent on
important matters of federal law, unnecessarily alters the
common law of this circuit, effectively voids a valid federal
regulation, and reaches an unjust result.
THE INSURANCE POLICY AND
THE GOVERNING REGULATIONS
This appeal involves the interpretation of a Standard Flood
Insurance Policy (SFIP), the wording of which is prescribed
by the National Flood Insurance Act of 1968 (Act) and Fed-
eral Emergency Management Agency (FEMA) regulations,
44 C.F.R. Pt. 61, App. A(1). The Act grants to the Director
of FEMA the authority to promulgate regulations pertaining
to SFIPs. 42 U.S.C. S 4121(a)(1). The SFIP is a single-risk
insurance policy that "only provide[s] coverage for direct
physical loss by or from flood." 44 C.F.R. Pt. 61, App. A(1)
(emphasis in original).1 The emphasized phrase is defined as
"any loss in the nature of actual loss of or physical damage,
evidenced by physical changes, to the insured property (build-
ing or personal property) which is directly and proximately
caused by a `flood.' " Id. (some emphasis added; some
emphasis omitted).
The FEMA regulations define the terms "flood" and
"flooding" to include:
(a) A general and temporary condition of partial or
complete inundation of normally dry land areas
from:
. . . .
(3) Mudslides (i.e., mudflows) which are proximately
caused by flooding as defined in paragraph (a)(2) of
this definition and are akin to a river of liquid and
flowing mud on the surfaces of normally dry land
areas, as when earth is carried by a current of water
and deposited along the path of the current.
44 C.F.R. S 59.1 (emphasis added). "Inundation" is not
defined in the regulations, but commonly means, as pertinent,
"a rising and spreading of water over land not usu[ally]
submerged." Webster's Third New Int'l Dictionary 1188
(unabridged ed. 1993).
The regulations further define "mudslide (i.e., mudflow)"2
as
a condition where there is a river, flow or inundation
of liquid mud down a hillside usually as a result of
a dual condition of loss of brush cover, and the sub-
sequent accumulation of water on the ground pre-
ceded by a period of unusually heavy or sustained
rain. A mudslide (i.e., mudflow) may occur as a dis-
tinct phenomenon while a landslide is in progress,
and will be recognized as such by the Administrator
only if the mudflow, and not the landslide, is the
proximate cause of damage that occurs.
44 C.F.R. S 59.1 (emphasis added). That regulatory definition
of "mudslide (i.e., mudflow)" as "a river, flow or inundation
of liquid mud" is very similar to the SFIP's definition of the
term as "akin to a river of liquid and flowing mud." Under
either definition, a "mudslide (i.e., mudflow) " must resemble
liquid mud.
THE ISSUE FOR DECISION AND
THE FACTS IN THE RECORD
We must decide whether, based on the evidence in this
record, a "mudslide" caused the damage to plaintiffs' prop-
erty. If so, defendant must provide insurance coverage. If not,
defendant need not provide coverage.
Despite the majority's assertion that the parties' reports and
testimony conflict, majority op. at 11572-75, the material his-
torical facts are undisputed. The evidence in the record shows
without contradiction that the damage to plaintiffs' property
did not involve a movement of liquid mud.
Defendant's geotechnical engineer unequivocally con-
cluded that plaintiffs' property damage was the result of a
landslide, not a mudslide. His report stated in part:
The slide debris generally consists of gravel and
sand mixed with surface vegetation, several large
tree stumps, and previously cut tree tops. In our
opinion, the presence of cut trees and decayed tree
stumps on the surface of the slope may also have
contributed to the instability.
. . . .
Based on our visual evaluation of the property, it is
our opinion that the soil instability that occurred at
the subject site is classified as a landslide, not a
mudslide. The soils that have accumulated against
the side of the beach house appear to have slid down
the slope as a saturated mass of soil and trees . There
was no evidence of soils having flowed around the
sides of or into the house, as would have occurred if
there had been significant flowing of wet or satu-
rated soils.
(Emphasis added.)
Plaintiffs' expert, in his report, presented " arguments for
classifying this slope failure as a `mudslide' in accordance
with [defendant's] flood policy terminology. " (Emphasis
added.) Notwithstanding the availability of those
"arguments," however, plaintiffs' expert, too, ultimately con-
cluded that the damage-causing event was not a mudslide:
If the saturated soils on the slope consisted of silts
and clays, or even sands and silts, the failure most
certainly would have been labeled a "mudflow. " Sat-
urated fine-grained soils would behave more like a
slurry because of its particle size, strength and vis-
cosity characteristics. In contrast, these soils on your
slope are basically coarse-grained granular materi-
als with higher strength and greater resistance to fail-
ure -- thereby resulting in steeper natural slopes.
The causes of failure are the same (i.e.: rainfall, sur-
face runoff and groundwater seepage), but the
appearance is different. Saturated sands and gravels
are not carried as far by water flow, nor do they
create mud or slurry-like consistencies. Although
excess surface water runoff is more readily absorbed
by the native granular soils, the net effect of satu-
rated soils on your steep slope is a "sand-gravel
flow" instead of a "mudflow."
(Emphasis added.) Plaintiffs' expert did not refer to the mass
of material that damaged the house as "liquid mud " or even
"mud." Rather, the words that he used to describe the material
include "sand," "gravel," "rock,""vegetation," "coarse-
grained granular materials," and "debris."
Nowhere in the record is there any indication that the
damage-causing material was "liquid mud" or that it flowed
or resembled a river at any time, as required by the definition
of "mudslide" in the SFIP and the FEMA regulations. In col-
loquial terms, it rained a lot. The rain caused the hill behind
plaintiffs' house to fail, and the hill -- soil, rock, gravel, sand,
trees, plants, and debris -- fell on the house. That kind of
earth movement is not a "mudslide." "As the courts have all
but universally held, federal flood insurance policies do not
cover losses stemming from water-caused earth movements."
Wagner v. Director, Fed. Emergency Management Agency,
847 F.2d 515, 522 (9th Cir. 1988).
That is so because of the SFIP's requirement that property
damage be caused "directly and proximately" by a flood.
SFIP, Art. 2, at 1; 44 C.F.R. Pt. 61, App. A(1). Because of
those requirements, it is not enough for heavy rainfall to cause
an earth movement and for the earth movement in turn to
cause property damage. Rather, the flood must be the immedi-
ate and actual cause of the damage. As this court observed in
Wagner, 847 F.2d at 522, other courts that have considered
the question have concluded that SFIPs do not provide broad
coverage for water-induced slope failure. See, e.g., Sodowski
v. National Flood Ins. Program, 834 F.2d 653, 657-59 (7th
Cir. 1987) (the SFIP does not cover structural damage caused
by soil settlement that resulted from a flood); Atlas Pallet,
Inc. v. Gallagher, 725 F.2d 873, 877 (5th Cir. 1978) (the SFIP
does not cover structural damage caused by soil settlement
that resulted from a flood); Beck v. Director, Fed. Emergency
Management Agency, 534 F. Supp. 516 (N.D. Ohio 1982) (the
SFIP does not cover damage to the plaintiffs' house caused by
slippage of a hillside following heavy rainfall).
As noted, in his initial report, plaintiffs' expert classified
this slope failure as a " `sand-gravel flow' instead of a
`mudflow.' " Seventeen months later, in a declaration, the
same expert stated that the slide "met the criteria for `mud-
slides' contained in [defendant's insurance] policy." That con-
clusion is entitled to no consideration because, as this court
has held, expert testimony is inappropriate in matters of law
that are reserved for the court's determination. G.F. Co. v.
Pan Ocean Shipping Co., 23 F.3d 1498, 1507 n.6 (9th Cir.
1994). This court has "condemned the practice of attempting
to introduce law as evidence." United States v. Unruh, 855
F.2d 1363, 1376 (9th Cir. 1988). Whether the damage to
plaintiffs' property was the result of a "mudslide," as that
term is defined in the SFIP, the Act, and the FEMA regula-
tions, is a question of law for the court. See Stanford Ranch,
Inc. v. Maryland Cas. Co., 89 F.3d 618, 624 (9th Cir. 1996)
("The interpretation of an insurance policy is a question of
law."); Sodowski, 834 F.2d at 655 (analyzing the application
of the SFIP as a matter of law on de novo review).
Moreover, even if the declaration of plaintiffs' expert were
not a legal conclusion, but instead a factual conclusion, it is
entitled to no consideration. " `Conclusory allegations unsup-
ported by factual data [do] not create a triable issue of fact.' "
United States v. 1 Parcel of Real Property, Lot 4, Block 5 of
Eaton Acres, 904 F.2d 487, 492 n.3 (9th Cir. 1990) (quoting
Marks v. United States, 578 F.2d 261, 263 (9th Cir. 1978)).
The underlying facts contained in the earlier, detailed report
of plaintiffs' expert in no way support his later conclusion that
the damage-causing event was a "mudslide."
Except for the belated legal conclusion offered by plain-
tiffs' expert (which should be given no weight), the evidence
does not conflict. Both experts' reports undeniably support
only one ultimate conclusion: that the damage-causing event
was not a "mudslide (i.e., mudflow)" within the meaning of
the SFIP. That being so, defendant properly denied coverage,
and the district court properly granted summary judgment in
defendant's favor.
ABSENCE OF AMBIGUITY IN THE SFIP
The majority asserts that the use of the term "akin" in the
SFIP3 makes the policy ambiguous, because the collapse of a
hillside could be "akin to a river of liquid and flowing mud."
Majority op. at 11573-75. An ambiguity, if one existed, would
enable the court to apply the doctrine of ambiguity and would
allow plaintiffs to recover. See majority op. at 11575-76 (dis-
cussing doctrine). A court, however, should not strain to
create ambiguities when none exist. Poland v. Martin, 761
F.2d 546, 548 (9th Cir. 1985).
Things that are "akin" show "the same nature [and are]
marked by similarity of essential characteristics suggesting a
close relationship." Webster's at 48. A slope failure of the
kind that damaged plaintiffs' house and a "mudslide" do not
show the same nature. The former is the movement of solid
materials, while the latter is a movement of liquid. Thus, a
slope failure lacks the essential characteristic of a "mudslide"
as defined in the SFIP -- liquidity. Simply, those two kinds
of events are too dissimilar to be "akin," for purposes of the
SFIP.
The majority states that defendant's "evidence points to one
reasonable construction of the policy[,] . . . while evidence
presented by the plaintiffs points to a broader, but equally rea-
sonable reading." Majority op. at 11574-75 (emphasis added)
(footnote omitted). That reasoning is flawed for two reasons.
First, whether a term in an insurance policy is ambiguous
is a question of law, not of fact. Poland, 761 F.2d at 548. The
circumstances surrounding plaintiffs' loss should have no
bearing on our interpretation of the policy.
Second, the SFIP itself defines "flood" and "mudslide (i.e.,
mudflow)." When an insurance policy defines a term, the
court is bound by that definition. Enterprise Tools, Inc. v.
Export-Import Bank, 799 F.2d 437, 439 (8th Cir. 1986).
In short, a dispute over whether the damage to plaintiffs'
property falls within or without the SFIP's definitions does
not make the definitions themselves ambiguous. They are not
ambiguous.
THE DOCTRINE OF REASONABLE EXPECTATIONS
The majority adopts for this circuit the "doctrine of reason-
able expectations" as part of the federal common law govern-
ing SFIPs. Majority op. at 11576-80. Under that doctrine,
"courts will protect the reasonable expectations of applicants,
insureds, and intended beneficiaries regarding the coverage
afforded by insurance carriers even though a careful examina-
tion of the policy provisions indicates that such expectations
are contrary to the expressed intention of the insurer."
Saltarelli v. Bob Baker Group Med. Trust, 35 F.3d 382, 386
(9th Cir. 1994) (quoting Robert E. Keeton & Alan I. Widiss,
Insurance Law: A Guide to Fundamental Principles, Legal
Doctrines, and Commercial Practices S 6.3 (West 1988)).
The application of that doctrine to the SFIP here is wrong for
five reasons.
1. Clarity and Conspicuousness of Definitions in the SFIP.
The doctrine of reasonable expectations "appl[ies] only
when a provision in an insurance policy is either ambiguous
or not sufficiently conspicuous." Peterson v. American Life &
Health Ins. Co., 48 F.3d 404, 411 (9th Cir. 1995). As previ-
ously noted, the provision in the SFIP regarding what the pol-
icy covers is not ambiguous. The policy covers "[m]udslides
(i.e., mudflows) which are . . . akin to a river of liquid and
flowing mud on the surfaces of normally dry land areas, as
when earth is carried by a current of water and deposited
along the path of the current." 44 C.F.R. S 59.1. That defini-
tion is clear on its face and clear as applied to these facts.
Additionally, the pertinent provisions of the policy are con-
spicuous. The definition of "mudslide" is worded understand-
ably, it is not hidden in fine print, and it is appropriately
placed in the "definitions" section of the contract. Cf. Salta-
relli, 35 F.3d at 385-86 (noting that the placement of a policy
exclusion in the "definitions" section is not conspicuous
enough). Because neither of the two conditions precedent for
applying the doctrine of reasonable expectations is present
here, we should not even consider adopting the doctrine in
this case.
2. Protection of Reasonable Expectations Only.
We have no occasion to adopt the doctrine of reasonable
expectations, because courts can protect only an insured's
"reasonable" expectations. See Peterson, 48 F.3d at 411 (stat-
ing criterion). No reasonable purchaser of flood insurance
would expect that such insurance would cover her if, after a
rainstorm, part of the hill above her house fell on the house.
Leaving aside the policy's binding definition of "flood" and
turning to its common meaning, a "flood" is "a body of mov-
ing water[,] . . . the flowing in of the tide[,] . . . a rising and
overflowing of a body of water that covers land not usu[ally]
under water[,] . . . a great stream of something (as light or
lava) that flows in a steady course." Webster's at 873. None
of those common meanings of "flood" even remotely
describes what plaintiffs encountered when their property was
damaged. Additionally, the phrase "flood insurance" means
"insurance against loss resulting from flood, tidal wave, and
rising water," id., with no mention of loss attributable to slope
failure.
3. Effective Evisceration of a Valid FEMA Regulation.
In adopting the doctrine of reasonable expectations for
interpreting SFIPs, the majority unjustifiably modifies a valid
FEMA regulation.4 Regulations issued by an agency pursuant
to statutory authority have the force and effect of law.
Batterton v. Francis, 432 U.S. 416, 425 (1977). A court has
no power to set aside valid administrative regulations simply
because it would interpret the statute under which they were
promulgated differently. Id.
Federal statutes and regulations and federal common law
govern the construction of SFIPs. Wagner, 847 F.2d at 522.
The Act, and FEMA regulations promulgated pursuant to it,
prescribe the wording of SFIPs. The Act provides:
The Director shall from time to time . . . provide by
regulation for general terms and conditions of insur-
ability which shall be applicable to properties eligi-
ble for flood insurance coverage . . . including . ..
any . . . terms and conditions relating to insurance
coverage or exclusion which may be necessary to
carry out the purposes of this chapter.
42 U.S.C. S 4013(a)(6). The regulations provide in part:
All flood insurance made available under the Pro-
gram is subject:
(a) To the Act, the Amendments thereto, and the
Regulations issued under the Act;
(b) To the terms and conditions of the Standard
Flood Insurance Policy, which shall be promulgated
by the Administrator for substance and form, and
which is subject to interpretation by the Administra-
tor as to scope of coverage pursuant to the applicable
statutes and regulations.
44 C.F.R. S 61.4. The Act further provides that the term
"flood"
shall have such meaning as may be prescribed in
regulations of the Director, and may include inunda-
tion from rising waters or from the overflow of
streams, rivers, or other bodies of water or from tidal
surges, abnormal high tidal water, tidal waves, tsuna-
mis, hurricanes, or other severe storms or deluge.
42 U.S.C. S 4121(a)(1). As noted earlier, FEMA has promul-
gated regulations to implement the Act. 44 C.F.R.SS 59-78.
The majority's use of the doctrine of reasonable expecta-
tions when interpreting SFIPs replaces FEMA's regulatory
definitions of "flood" and "mudslide (i.e., mudflow)" with
flexible definitions of its own. The majority holds that those
terms mean whatever an objectively reasonable person would
expect them to mean. Indeed, the majority recognizes that it
is eschewing the regulatory definition when it rejects defen-
dant's reliance on the pertinent FEMA regulations:
Under the classic formulation, a policyholder's rea-
sonable expectations should be upheld even if
"painstaking study of the policy provisions would
have negated those expectations." This is especially
applicable in this case, where the insurance company
suggests that a homeowner should be bound not only
by the fine print of his policy, but by definitions bur-
ied within the voluminous Code of Federal Regula-
tions as well.
Majority op. at 11580 (emphasis in original) (citation omit-
ted).
In this manner, the majority is doing indirectly what it can-
not do directly, namely, setting aside valid regulations simply
because it would interpret the statute differently. That prob-
lem recently caused a sister circuit to refuse to adopt the doc-
trine of reasonable expectations in the context of interpreting
SFIPs. Nelson v. Becton, 929 F.2d 1287 (8th Cir. 1991).
In Nelson, the court refused to adopt the doctrine of reason-
able expectations as federal common law governing SFIPs,
because to do so would result in the court's modifying valid
federal regulations. Id. at 1291. The plaintiffs in Nelson were
seeking to recover for flood damage to their basements, under
SFIPs issued by FEMA. The court held that the SFIPs unam-
biguously excluded the plaintiffs' damages from coverage. Id.
at 1289. The plaintiffs argued that, even if the terms of their
policy were unambiguous, summary judgment was improper,
because the doctrine of reasonable expectations created issues
of material fact regarding the nature of their expectations of
coverage and the reasonableness thereof. Id. at 1291. The
court responded that "[t]o apply the doctrine of reasonable
expectations to permit the [plaintiffs] to recover for flood
damage to their `basements' under the Standard Policy, which
expressly excludes such damage, would be tantamount to our
modifying the underlying federal regulation that prescribes
the language of the basement exclusion clause." Id. (emphasis
added). The court refused to "take such a far-reaching step,
the outer limits of which cannot be perceived." Id. The Nelson
court's analysis is persuasive and, if we were to reach the
issue, we should follow Nelson's lead.
4. Distinctions from ERISA.
When justifying its adoption of the doctrine of reasonable
expectations for interpreting SFIPs, the majority points to this
circuit's application of that doctrine in the context of ERISA.
Majority op. at 11579-80. There are, however, several impor-
tant differences between the two situations.
First, unlike the ERISA policies at issue in the cases that
the majority cites, SFIPs are single-risk policies that do not
purport to provide general or comprehensive coverage. SFIPs
cover only "direct physical loss by flood." Wagner, 847 F.2d
at 521. By contrast, policies governed by ERISA usually are
much more general or comprehensive, covering everything in
a broad category of risks unless expressly excluded.
That difference in scope points to a corollary distinction. In
Saltarelli, Peterson, and McClure v. Life Ins. Co. of N. Am.,
84 F.3d 1129, 1135-36 (9th Cir. 1996), this court applied the
doctrine of reasonable expectations only in the context of
deciding whether exclusions from coverage were sufficiently
"clear, plain, and conspicuous" to be enforceable. Here we are
doing something much different.
Although Article 3 of plaintiffs' SFIP provides for several
exclusions from coverage, they are not at issue. We need not
decide whether the SFIP's exclusions are clear, plain, and
conspicuous. Rather, we need decide only whether the cause
of plaintiffs' property damage was within the risk covered by
their SFIP. It is one thing to use the doctrine of reasonable
expectations to preclude an insurance company from limiting
the type of insurance that it has agreed to provide through the
use of exclusionary clauses that are unclear, unnecessarily
complicated, or inconspicuous. It is quite another to use the
doctrine, as the majority does here, to force an insurance com-
pany to pay a claim based on a type of insurance that it did
not offer.
A third distinction is found in the nature of the underlying
statutes. The Act and the FEMA regulations promulgated pur-
suant to it dictate the exact terms of SFIPs. By contrast,
ERISA is a much more general, regulatory statute that
" `mandates no minimum substantive content for employee
welfare benefit plans.' " Peterson, 48 F.3d at 411 (quoting
Blau v. Del Monte Corp., 748 F.2d 1348, 1353 (9th Cir.
1984)). "The considerations that warrant applying the doctrine
in a suit against a private insurer . . . may be quite different
from those involved in determining the coverage of a federal
insurance policy, the language of which is mandated by a fed-
eral regulation." Nelson, 929 F.2d at 1291.
Thus, when a court applies the doctrine of reasonable
expectations to an ERISA-governed policy, it may be disre-
garding or changing terms in that particular private entity's
insurance policy, but it is not thereby modifying a federal
agency's regulation. By contrast, when a court disregards or
alters the express terms of a SFIP, because those terms are
prescribed by regulation, the court is effectively modifying or
disregarding the regulation.
It is true that both ERISA and SFIPs are governed by fed-
eral common law, and courts are charged with creating that
common law. See Peterson, 48 F.3d at 411 (holding that fed-
eral common law supplements the explicit provisions and
general policies set out in ERISA); Sodowski, 834 F.2d at 655
(holding that federal common law controls the interpretation
of SFIPs). However, the power to create federal common law
is not absolute. We have said that "[t]he authority of courts to
develop a `federal common law' under ERISA is not the
authority to revise the text of the statute." Peterson, 48 F.3d
at 411 (quoting Mertens v. Hewitt Assocs., 508 U.S. 248, 259
(1993)). Surely the ability to develop federal common law
under the Act grants us no greater power to revise valid law
than we possess under ERISA. Yet, the application of the doc-
trine of reasonable expectations to SFIPs does to the Act
exactly what Peterson forbids it to do.
5. Unconscionable Result.
The majority urges the application of the doctrine of rea-
sonable expectations to avoid an unconscionable result.
Majority op. at 11580-81. Although what befell plaintiffs was
unquestionably a disaster, disallowing recovery under an
insurance policy that plainly does not cover their loss is
entirely reasonable and just.
It is not unconscionable to require an insured to read the
terms of the contract, and it is not unconscionable to deny
coverage when the insured has not bought coverage for the
particular kind of disaster that occurred. Flood insurance is a
single-risk policy. If a flood destroys one house, while the
neighbor's identical house is destroyed by a falling tree dur-
ing the same storm on the same day, the first homeowner will
recover under flood insurance, while the second will not. That
result surely is unfortunate for the second homeowner, but it
is not unconscionable. Indeed, the opposite result is what
would be unconscionable. Others who have purchased flood
insurance must pay for the claim in the form of increased pre-
miums. Purchasers of flood insurance agree to share only the
risk of flood, not any of the many other risks for which other
forms of insurance are designed.
CONCLUSION
For the foregoing reasons, I must dissent. The judgment of
the district court should be affirmed.
Footnotes
1 The director of FEMA was dismissed as a party on March 11, 1996.
2 The parties consented for U.S. Magistrate Judge Kelley Arnold for the
Western District of Washington, to hear and decide the cross-motions for
summary judgment.
3 USAA argues that the McHughs' expert erroneously testified as to the
legal meaning of the policy. Although both experts may be said to have
done so, in a bench trial testimony on the ultimate issue may be disre-
garded by the trial judge without prejudice to the remaining relevant testi-
mony. See Fireman's Fund Ins. Companies v. Alaskan Pride Partnership,
106 F.3d 1465, 1468 (9th Cir. 1997) (The fact testimony embraces ulti-
mate issue of coverage does not make it unduly prejudicial.). Both experts
were geotechnical engineers and offered evidence as to the cause of the
damage. These experts gave their opinions aiding the court as to the geo-
technical definitions relating to the damage to the insureds' home. This
testimony was clearly admissible under Rules 702 and 704 of the Federal
Rules of Evidence.
4 Under the SFIP, a "landslide " as opposed to a mudflow is excluded
from coverage. Yet the term landslide is not otherwise defined in the pol-
icy. Webster's defines a landslide as "the rapid downward movement
under the influence of gravity of a mass of rock, earth, or artificial fill on
a slope." Webster's Third New International Dictionary 1269 (1981).
5 Federal regulations promulgated by the FEMA director state:
Mudslide (i.e., mudflow) describes a condition where there is
a river, flow or inundation of liquid mud down a hillside usually
as a result of a dual condition of loss of brush cover, and the sub-
sequent accumulation of water on the ground preceded by a
period of unusually heavy or sustained rain. A mudslide (i.e.,
mudflow) may occur as a distinct phenomenon while a landslide
is in progress, and will be recognized as such by the Administra-
tor only if the mudflow, and not the landslide, is the proximate
cause of damage that occurs.
44 C.F.R. S 59.1 (1997).
6 However, even defendant's expert Martin Page at one point in his
report stated: "The soils that have accumulated against the side of the
beach house appear to have slid down the slope as a saturated mass of soil
and trees." ER at 16-17.
7 As Professor (now U.S. District Judge) Keeton stated: "An important
corollary of the expectations principle is that insurers ought not to be
allowed to use qualifications and exceptions from coverage that are incon-
sistent with the reasonable expectations of a policyholder having an ordi-
8 See, e.g., Joseph E. Minnock, Comment: Protecting the Insured from
an Adhesion Insurance Policy: The Doctrine of Reasonable Expectations
in Utah, 1991 Utah L. Rev. 837 (1991); Roger C. Henderson, The Doc-
trine of Reasonable Expectations in Insurance Law after Two Decades, 51
Ohio St. L.J. 823 (1990); William A. Mayhew, Reasonable Expectations:
Seeking a Principled Application, 13 Pepperdine L. Rev. 267 (1986);
Mark C. Rahdert, Reasonable Expectations Reconsidered, 18 Conn. L.
Rev. 323 (1986); Kenneth S. Abraham, Judge-Made Law and Judge-Made
Insurance: Honoring the Reasonable Expectations of the Insured, 67 Va.
L. Rev. 1151 (1981).
9 See Travelers Ins. Co., Inc. v. Jones, 529 So.2d 234, 239 (Ala. 1988);
Alaska Rural Elec. Co-op. Ass'n, Inc. v. INSCO Ltd. , 785 P.2d 1193, 1194
(Alaska 1990); Averett v. Farmers Ins. Co. of Arizona, 869 P.2d 505, 506
(Ariz. 1994); AIU Ins. Co. v. Superior Court (FMC Corp.), 799 P.2d 1253,
1264-65 (Cal. 1990) (In Bank); Davis v. M.L.G. Corp., 712 P.2d 985, 989-
92. (Colo. 1986); Ceci v. National Indem. Co. , 622 A.2d 545, 550 & n.6
(Conn. 1993); Richards v. Hanover Ins. Co., 299 S.E.2d 561, 563 (Ga.
1983); AIG Hawaii Ins. Co., Inc. v. Estate of Caraang, 851 P.2d 321, 332
(Haw. 1993); Cummins v. Country Mut. Ins. Co. , 687 N.E.2d 1021, 1027
(Ill. 1997); LeMars Mut. Ins. Co. v. Joffer, 574 N.W.2d 303, 311 (Iowa
1998); Penalosa Co-op. Exchange v. Farmland Mut. Ins. Co., 789 P.2d
1196, 1998 (Kan. Ct. App. 1990); Simon v. Continental Ins. Co., 724
S.W.2d 210, 212 (Ky. 1986); Louisiana Ins. Guar. Ass'n v. Interstate Fire
& Cas. Co., 630 So.2d 759, 764 (La. 1994); Colford v. Chubb Life Ins. Co.
of America, 687 A.2d 609, 614 (Me. 1996), cert. denied, _______ U.S. _______,
117 S. Ct. 2433 (1997); Massachusetts Insurers Insolvency Fund v. Conti-
nental Cas. Co., 506 N.E.2d 118, 120 & n.4 (Mass. 1987); Brown v. Blue
Cross & Blue Shield of Mississippi, Inc., 427 So.2d 139, 141 & n.2 (Miss.
1983); Atwater Creamery Co. Western Nat. Mut. Ins. Co., 366 N.W.2d
271, 278-79 (Minn. 1985); State Farm Mut. Auto. Ins. Co. v. Estate of
Braun, 793 P.2d 253, 255-56 (Mont. 1990); National Union Fire Ins. Co.
v. Caesars Palace Hotel and Casino, 792 P.2d 1129, 1130 (Nev. 1990);
Green Mountain Ins. Co. v. George, 634 A.2d 1011, 1014 (N.H. 1993);
Werner Industries, Inc. v. First State Ins. Co., 548 A.2d 188, 190-91 (N.J.
1988); Konnick v. Farmers Ins. Co. of Arizona , 703 P.2d 889, 893 (N.M.
1985); Great American Ins. Co. v. C.G. Tate Constr. Co., 279 S.E.2d 769,
771 (N.C. 1981); Max True Plastering Co. v. U. S. Fidelity and Guar. Co.,
912 P.2d 861, 863-68 (Okla. 1996); Consulting Engineers, Inc. v. Insur-
nary degree of familiarity with the type of coverage involved." Id. at 968.
ance Co. of North America, 710 A.2d 82, 87 (Pa. Super. 1998); American
Universal Ins. Co. v. Russell, 490 A.2d 60, 63 (R.I. 1985); National Mut.
Ins. Co. v. McMahon & Sons, Inc., 356 S.E.2d 488, 496 (W.Va. 1987);
Weimer v. Country Mut. Ins. Co., 575 N.W.2d 466, 472 (Wis. 1998).
Under Professor Keeton's classic formulation, the presence of ambigu-
ity is not necessary to apply the doctrine of reasonable expectations. See
Nelson v. Becton, 929 F.2d 1287, 1294 (8th Cir. 1991) (Heaney, dissent-
ing); Laurie K. Fett, The Reasonable Expectations Doctrine: An Alterna-
tive to Bending and Stretching Traditional Tools of Contract
Interpretation, 18 Wm. Mitchell L. Rev. 1113, 1118 (1992). However,
many jurisdictions do require an ambiguity to be present before the doc-
trine may be invoked. See, e.g., FMC Corp. v. Plaisted and Companies,
72 Cal. Rptr.2d 467, 499 (Cal. Ct. App. 1998), modified on other grounds,
_______ Cal.Rptr.2d _______, 1998 WL 142296 (Cal. Ct. App. March 27, 1998);
LeMars Mut. Ins., 574 N.W.2d at 311; Consolidated American Ins. Co. v.
Anderson, 964 S.W.2d 811, 814-15 (Ky. Ct. App. 1997); St. Paul Fire &
Marine Ins. Co. v. Valentine, 665 So.2d 43, 47 (La. Ct. App. 1995);
Farmers Ins. Exchange v. Young, 832 P.2d 376, 379 & n.3 (Nev. 1992);
Max True Plastering, 912 P.2d at 868-69; Robertson v. Fowler, 475
S.E.2d 116, 120 (W.Va. 1996).
10 At trial, the trier of fact must resolve whether the plaintiff had reason-
able expectations of insurance coverage. Reasonable expectations of cov-
erage are what the average policyholder would anticipate as the scope of
the coverage. All evidence, including the subjective expectations of the
insured, should be considered in determining whether the plaintiffs'
expectation of coverage was reasonable.
1 Except as noted, the terms of plaintiffs' SFIP are identical to FEMA's
regulations.
2 Plaintiffs' SFIP does not contain this additional definition.
3 That term comes from 44 C.F.R.S 59.1, which provides that mudslides
(i.e., mudflows) "are akin to a river of liquid and flowing mud on the sur-
faces of normally dry land areas, as when earth is deposited along the path
of the current." (Emphasis added.)
4 No party challenges the validity of the FEMA regulations that are
implicated here. For purposes of this case, therefore, the regulations must
be deemed to be valid and binding.