CER 1988 Inc v. Aetna Cslty & Surety

Opinions of the United
2004 Decisions States Court of Appeals
for the Third Circuit

10-12-2004

CER 1988 Inc v. Aetna Cslty & Surety
Precedential or Non-Precedential: Precedential

Docket No. 03-2833

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 PRECEDENTIAL 1131 King Street, Suite 204
Christiansted, St. Croix
UNITED STATES USVI, 00820-4971
COURT OF APPEALS Attorneys for Appellee
FOR THE THIRD CIRCUIT

OPINION OF THE COURT
No. 03-2833

AM BRO, Circuit Judge
C.E.R. 1988, INC.
We address in this appeal whether
the National Flood Insurance Program (the
v.
“Program”) is sufficiently comprehensive
to preempt a state tort suit arising from
THE AETNA CASUALTY AND
conduct related to the Program’s
SURETY COMPANY,
administration. We conclude that the
overarching purpose of the Program— to
Appellant
provide affordable flood insurance in high-
risk areas in order to reduce pressures on
the federal fisc—would be compromised
On Appeal from the
by state court interference. Thus the
District Court of the Virgin Islands
plaintiff’s state law tort claims are
Division of St. Croix
preempted.
D.C. Civil Action No. 97-cv-00065
(Honorable Raymond L. Finch) Factual and Procedural History
The Program is administered by the
Federal Emergency Management Agency
Argued May 6, 2004
(“FEMA”) pursuant to the National Flood
Insurance Act of 1968 (“NFIA”), 42
Before: BARRY, AMBRO, and SMITH,
U.S.C. § 4001, et seq. C.E.R. 1988, Inc.
Circuit Judges
(“C.E.R.”) seeks state law remedies for
improper handling of the Program’s
(Opinion filed: October 12, 2004)
Standard Flood Insurance Policy (the
“Policy”) issued in favor of C.E.R. by
Gerald J. Nielsen, Esquire (Argued)
defendant Aetna Casualty and Surety
Suite 2850
Company (“Aetna”). Aetna is a “Write-
3838 North Causeway Boulevard
Your-Own” (“WYO”) insurance company,
Metairie, LA 70002
meaning that it is a private insurer
Attorney for Appellant
authorized by FEMA to provide Policies in
its own name. It collects premiums in
Francis J. D’Eramo, Esquire
segregated accounts, from which it pays
Nancy V. Young, Esquire (Argued)
claims and issues refunds. When the funds
Nichols, Newman, Logan & D’Eramo
are inadequate (as frequently occurs),
Aetna pays claims by drawing on letters of C.E.R.’s losses at $263,757.58. In
credit issued by the United States February 1998 the parties settled C.E.R.’s
Treasury. contract claims for $278,392. Thus
only C.E.R.’s tort claims remain. They
C.E.R. purchased a Policy from
allege negligent adjustment of C.E.R.’s
Aetna to cover Hamilton House, a property
insurance claim resulting in lost income
in St. Croix. In September 1995 the
and business opportunities, tortious bad
property was damaged by flooding during
faith conduct, and outrageous and reckless
Hurricane Marilyn. C.E.R. received an
conduct entitling C.E.R. to punitive
insurance payment of $200,000 as a result
damages. C.E.R. also seeks attorney’s fees
of damage to Hamilton House. One year
and costs.
later, in September 1996, the facility again
was damaged by flood waters, this time In January 2000, Aetna moved for
during Hurricane Hortense. C.E.R. filed a summary judgment on these claims
claim for $716,916, but the receipts it alleging, among other defenses, that
submitted in conjunction with the claim, C.E.R.’s territorial law tort claims are
documenting repairs made since Hurricane preempted by federal law. In April 2001,
Marilyn, totaled under $20,000. the District Court denied Aetna’s motion,
holding that the tort claims were not
Given the disparity between the
preempted and that a genuine issue of
claim amount and the receipt totals, Aetna
material fact existed as to whether Aetna
required C.E.R. to submit a “Comparison
had acted in bad faith. Aetna filed a
Estimate” detailing when the relevant
motion for reconsideration of the
damage occurred. The Comparison
preemption issue. As an alternative
Estimate, prepared by an architect,
request for relief, it asked the District
reported new losses of $325,300.55
Court to certify the question for
resulting from Hurricane Hortense.
interlocutory appeal in accordance with 28
Nonetheless, Aetna’s adjustment company
U.S.C. § 1292(b). The District Court
refused to consider the estimate and
pursued that course. We granted Aetna’s
recommended payment in the amount of
petition for permission to appeal in May
$25,177.61, minus a $750 deductible.
2003.1
C.E.R. refused the settlement, and Aetna
closed its file on the claim, without Discussion
payment, in March 1997.
Our preemption analysis turns on
In 1997 C.E.R. filed a seven-count congressional intent. We must determine
complaint against Aetna, alleging contract
and tort causes of action, in the United
1
States District Court of the Virgin Islands. Our standard of review is plenary. Van
Aetna subsequently hired a second Holt v. Liberty Mut. Fire Ins. Co., 163
adjustment company, which estimated F.3d 161, 167 (3d Cir. 1998) (on
rehearing).

2
whether the purposes of the Program will coverage.
be jeopardized if disputes involving
In its early years, the Program was
federal flood insurance policies are
administered under what is known as “Part
governed by state law.2 Because we have
A” of the NFIA. A pool of private
examined this issue in a previous case,
insurance companies issued policies and
Van Holt v. Liberty Mutual Fire Insurance
shared the underwriting risk, with financial
Co., 163 F.3d 161 (3d Cir. 1998) (on
assistance from the federal Government.
rehearing), our role today is limited.
As of January 1, 1978, however, the
Although we left open in Van Holt the
Government bears full responsibility for
question of whether the NFIA preempts
the Program pursuant to 42 U.S.C. § 4071.
state law, id. at 169 n.6, our reasoning in
Under “Part B” of the NFIA, FEMA
that case leads us to answer in the
“carr[ies] out the program of flood
affirmative.
insurance authorized under [the NFIA]
I. Overview of the National Flood through the facilities of the Federal
Insurance Program Government.” Id. The Program is funded
through the National Flood Insurance Fund
Congress created the Program to
established by FEMA in the United States
provide standardized insurance coverage
Treasury.
for flood damage at or below actuarial
rates. Gowland v. Aetna, 143 F.3d 951, Congress authorized FEMA to
953 (5th Cir. 1998). Prior to its enactment, “prescribe regulations establishing the
few insurance companies offered flood general method or methods by which
insurance because private insurers were proved and approved claims for losses may
unable profitably to underwrite flood be adjusted and paid for any damage to or
policies. The Program was intended to loss of property which is covered by flood
minimize costs to taxpayers by “limit[ing] insurance.” 42 U.S.C. § 4019. The
the damage caused by flood disasters resulting regulatory scheme is set out at 44
through prevention and protective C.F.R. §§ 61.1-78.14. States have no
measures.” Van Holt, 163 F.3d at 165. It regulatory control over the Program’s
is operated by FEMA and supported by the operations.3 Linder & Assocs. Inc. v.
federal Treasury. Id. at 165 n.2. The
Program encompasses 4.5 million policies
aggregating $500 billion dollars of 3
The insurance industry in the United
States operates in interstate commerce.
States may regulate the insurance industry
2
Because this decision is not specific to only to the extent Congress permits. U.S.
the Virgin Islands, we discuss the tensions Const. art. I, § 8, cl. 3. The McCarren-
between federal and state law rather than Ferguson Act, 15 U.S.C. § 1011, et seq.,
territorial law. Our analysis, of course, grants states this power except where
also extends to the latter. C o n g r ess enac ts legislatio n th a t

3
Aetna Cas. & Sur. Co., 166 F.3d 547, 550 61.13(d) & (e), 62.23 (c) & (d). In
(3d Cir. 1999) (“It is well settled that essence, the insurance companies serve as
federal common law governs the administrators for the federal program. It
interpretation of [Policies]. Accordingly, is the Government, not the companies, that
neither the statutory nor decisional law of pays the claims. And when a claimant
any particular state is applicable to the sues for payment of a claim, “the
case at bar . . . . [W]e interpret the responsibility for defending claims will be
[Policy] in accordance with its plain, upon the Write Your Own Company and
u n a m b i g uous meaning, rem ainin g defense costs will be part of the . . . claim
cognizant that its interpretation should be expense allow anc e.” 4 44 C .F.R.
uniform throughout the country and that § 62.23(i)(6).
coverage should not vary from state to
Our Court recently evaluated the
state.”) (quotations omitted).
NFIA in Van Holt. In light of the strong
Pursuant to 42 U.S.C. § 4081(a), federal interests intertwined with the
FEMA created the WYO program whereby administration of the Program, we
Policies may be issued by private insurers concluded that federal courts are the
like Aetna. Though FEMA may issue appropriate and exclusive arbiters of
Policies directly, more than 90% are Policy-related disputes.
written by WYO companies. These
As noted, Van Holt is markedly
private insurers may act as “fiscal agents
similar to today’s case. The plaintiff in
of the United States,” 42 U .S.C.
Van Holt filed successive claims with its
§ 4071(a)(1), but they are not general
WYO insurance provider, Liberty Mutual,
agents. Thus they must strictly enforce the
for flood damage. Liberty Mutual
provisions set out by FEMA and may vary
concluded that the claims were fraudulent
the terms of a Policy only with the express
and refused to approve the damages
written consent of the Federal Insurance
claimed from the second flood. The Van
Administrator. 44 C.F.R. §§ 61.4(b),
Holts sued Liberty Mutual in the United
States District Court for the District of
New Jersey, alleging that it had committed
“specifically relates to the business of
state law torts. Our Court initially held
insurance.” 15 U.S.C. § 1012(b). In
that the District Court lacked subject
Barnett Bank of Marion County v. Nelson,
matter jurisdiction over the state law
517 U.S. 25 (1996), the Supreme Court
held that the exception for acts relating to
the business of insurance should be
4
construed broadly, noting that “[t]he word 42 U.S.C. § 4072 authorizes suit
‘relates’ is highly general.” Id. at 38. against the FEMA Director upon the
W i t h o u t d o u b t t h e N FI A is disallowance of a claim. By regulation,
c o n g r e ssionally-enacted legislatio n the WYO company is sued in place of the
relating to the business of insurance. FEMA Director.

4
claims. On rehearing, however, we summary judgment to Liberty Mutual on
reversed path, concluding that the District the merits. Id. at 168–69. Although the
Court had jurisdiction. 163 F.3d at 167. issue was briefed, we declined to decide
whether the NFIA preempts state law
Our decision turned on the collapse
claims related to an insurance contract. Id.
of two distinctions. First, we declined to
at 169 n.6.
distinguish between suits against FEMA,
over which jurisdiction plainly existed, and That issue is back and squarely
suits against WYO companies. Though before us today. We must determine
the language of the statute speaks whether the federal goals of uniform
explicitly only of suits against FEMA, we affordable flood insurance and reduced
held that “a suit against a WYO company aggregate pressure on the federal Treasury,
is the functional equivalent of a suit which informed our decision in Van Holt,
against FEMA,” id. at 166, because a counsel extension of our holding in that
WYO company is a fiscal agent of the case to preclude interference with Policies
United States. 42 U.S.C. § 4071(a)(1). not only by state courts, but also by state
Moreover, “FEM A regulations require a law.5
WYO company to defend claims but
II. Preemption
assure that FEMA will reimburse the
WYO company for defense costs.” Van The reasoning of our decision in
Holt, 163 F.3d at 166 (citing 44 C.F.R. Van Holt compels the conclusion that
§ 62.23(i)(6)). Second, we held that state-law claims are preempted by the
district courts have original exclusive NFIA. The uniformity touted in that
jurisdiction over cases arising from
improper handling of Policy claims even if
5
they “do[] not explicitly allege that [the We note that the immediate effect of
WYO carrier] violated the insurance our decision is limited, as a relevant Policy
policy contract.” Id. at 167. We provision has since been changed. FEMA
emphasized that the causes of action in National Flood Insurance Program, 65
that case, though they “sound[ed] in tort,” Fed. Reg. 60,758, 60,767 (Oct. 12, 2000)
alleged “impropriety in the investigation (codified at 44 C.F.R. pt. 61, app. A (1),
and adjustment of [the] insurance claim” art. IX). A new regulation, which took
and therefore were “intimately related to effect on December 31, 2000, amends an
the disallowance of the[] insurance claim.” insured’s Policy to include language
Id. Put differently, we reasoned that a providing that “all disputes arising from
claim may sound in tort but nonetheless be the handling of any claim under the policy
one in contract. are governed exclusively by the flood
insurance regulations issued by FEMA, the
After concluding that federal
National Flood Insurance Act of 1968, as
jurisdiction was proper, we affirmed in
amended (42 U.S.C. § 4001, et seq.) and
Van Holt the District Court’s award of
Federal common law.” Id.

5
decision would be seriously jeopardized if Policy, no express provision existed.6
state tort claims were permitted to proceed, Thus C.E.R.’s claims under review are not
even if those claims were resolved in expressly preempted. See, e.g., Scherz v.
federal court. We reasoned there that S.C. Ins. Co., 112 F. Supp. 2d 1000,
“Congress would want federal courts to 1004–05 (C.D. Cal. 2000); Spence v.
adjudicate disputes over federal flood Omaha Indem. Ins. Co., 996 F.2d 793, 796
insurance policies for which the federal n.20 (5th Cir. 1993).
government would be responsible.” Van
While a stronger case, we decline
Holt, 163 F.3d at 167. By the same token,
also to rely on field preemption. This form
Congress would want federal law to
of preemption exists if “federal law so
govern those disputes. And what Congress
thoroughly occupies a legislative field as
intends is the crux of our preemption
to make reasonable the inference that
analysis.
Congress left no room for the States to
“ ‘ Cons i d e ra t i o n under t he supplement it.” Cipollone v. Ligget
Supremacy Clause starts with the basic Group, Inc., 505 U.S. 504, 516 (1992)
assumption that Congress did not intend to (internal quotations and citation omitted).
displace state law.’” Bldg. & Const. The Fifth Circuit Court of Appeals opined
Trades Council of Metro. Dist. v. Assoc. in the seminal case of West v. Harris, 573
Builders & Contractors of Mass./R.I., Inc.,
507 U.S. 218, 224 (1993) (quoting
6
Maryland v. Louisiana, 415 U.S. 725, 746 Arguably the Policy now contains such
(1981)). The Court may nonetheless a provision. The amended provision reads:
conclude that the Program preempts state “This policy and all disputes arising from
law under one or more of three theories: the handling of any claim under the policy
express preemption, field preemption are governed exclusively by the flood
(sometimes referred to as “implied insurance regulations issued by FEMA, the
preemption”), and conflict preemption. National Flood Insurance Act of 1968, as
Green v. Fund Asset Mgmt., L.P., 245 F.3d amended (42 U.S.C. § 4001, et seq.), and
214, 222 (3d Cir. 2001). This case falls Federal common law.” 44 C.F.R. pt. 61,
squarely within the third category. app. A(1), art. IX (2002). The principal
differences between the current provision
It is easy to glean that federal law
and its predecessor are the addition of the
expressly preempts state law when a
term “exclusively” and the express
statute or regulation contains explicit
inclusion of disputes arising from claims
language to that effect. Morales v. Trans
handling. Cf. 44 C.F.R. pt. 61, app. A(1),
World Airlines, Inc., 504 U.S. 374, 383
art. X (1985) (“This policy is governed by
(1992). But when C.E.R. purchased its
the flood insurance regulations issued by
FEMA, the National Flood Insurance Act
of 1968, as amended (42 U.S.C. § 4001, et.
seq.) and Federal common law.”).

6
F.2d 873 (5th Cir. 1978), that “Congress Court has urged caution in its application:
h a s u n d e r t a k e n to e s t a b li s h a “[B]ecause the States are independent
comprehensive flood insurance program sovereigns in our federal system, we have
under the control of [FEMA] to achieve long presumed that Congress does not
policies national in scope.” Id. at 881–82. cavalierly pre-empt state-law causes of
While the case predates Part B of the action.” Medtronic, Inc. v. Lohr, 518 U.S.
statute, its reasoning is only more 470, 485 (1996). A court will deem state
persuasive given the expansion of federal law preempted only if that is the “clear and
involvement in the Program.7 But because manifest purpose of Congress.” Id.
conflict preemption is the narrower and, (internal quotations and citation omitted).
we believe, clearer path, we do not decide
Thus the first step in determining
whether Congress has sought to occupy the
whether C.E.R.’s claims are preempted is
field of federal flood insurance.
to evaluate the statute and regulations for
Conflict preemption, the final form, evidence of congressional intent. We
occurs “when [1] it is impossible to begin by examining the first, narrower
comply with both the state and the federal prong of conflict preemption: state law is
law, or [2] when the state law stands as an preempted when it would be impossible
obstacle to the accomplishment and simultaneously to comply with state and
execution of the full purposes and federal law. In this context, we note that
objectives of Congress.” Green, 245 F.3d the standards used to analyze ordinary
at 222 (citation omitted). Despite the insurance claims differ from those applied
generality of this language, the Supreme to Policy claims. In the realm of private
insurance, common law doctrines (such as
“reasonable expectations,”
7
In West, the Court deemed the “notic e/preju dice,” and “su bstantial
plaintiff’s case preempted on this basis. compliance”) govern the evaluation of
However, West “did not expressly address claims. By contrast, a WYO insurer must
whether the NFIA preempts independent strictly follow the claims processing
state law tort claims; it only ruled on the standards set out by the federal
availability of a state-based remedy for Government.
what is directly justiciable under the
The important consequence is that
NFIA, i.e., a breach of contract claim.”
a WYO insurer may be unable to comply
Scherz, 112 F. Supp. 2d at 1006. The
both with state law and with the federal
holding in West encompassed only “the
guidelines that it is bound to follow. In
statutory penalty and attorney’s fees
these cases, state law is preempted. C.E.R.
allowed by state insurance law for
has not, however, alleged that Aetna
arbitrary denial of coverage.” West, 573
followed federal law in violation of a
F.2d at 881. More importantly, our Court
conflicting state law doctrine. On the
never adopted West’s rule before or after
contrary, it has argued that Aetna failed to
the statute was amended.

7
comply with a federal refused to reimburse WYO carriers for
requirement—specifically, the requirement their defense costs, insurers would leave
t h a t “ t h e [ c ]o m p a n y ’ s [ c ] l ai m s the Program, driving the price of insurance
[d]epartment verifies the correctness of the higher. The alternative, remuneration for
coverage interpretations and losses incurred in such suits, would
r e a s o n a b l e n e s s of the p a y m e n ts directly burden the federal Treasury.9
recommended by the adjusters.” 44 C.F.R. And, indeed, our decision in Van Holt
§ 62.23(i)(2). relied on the belief that “FEMA
reimburses the WYO companies for their
Accordingly, we rely instead on the
defense costs.” Van Holt, 163 F.3d at 165.
second variation of conflict preemption:
we conclude that the application of state Our understanding that expensive
tort law would impede Congress’s litigation will draw on federal funds is
objectives. Indisputably a central purpose confirmed by FEMA’s regulations and
of the Program is to reduce fiscal pressure policies interpreting and implementing the
on federal flood relief efforts. See, e.g., NFIA. Congress statutorily authorized
Till v. Unifirst Fed. Sav. & Loan Ass’n., FEMA to enter into “arrangements” with
653 F.2d 152, 159 (5th Cir. 1981) private insurance companies. 42 U.S.C.
(“Clearly, the principal purpose in enacting §§ 4071(a)(1), 4081(a). FEMA, in turn,
the Program w as to reduc e, by specified the terms of these Arrangements
implementation of adequate land use in the regulations governing the Program.
controls and flood insurance, the massive Among other things, the Arrangement in
burden on the federal fisc of the ever- effect when C.E.R. purchased its Policy
i n c reasing federal flood disaste r provided that FEMA could reimburse a
assistance.”). State tort suits against WYO WYO company for “payments as a result
companies, which are usually expensive, of awards or judgments for punitive
undermine this goal.8 Allowing suits to damages arising under the scope of this
proceed, Aetna contends, results in one of Arrangement and policies of flood
two consequences—both bad. If FEMA insurance issued pursuant to this

8 9
To be sure, the federal Government Congress has authorized reimbursement
also has an interest in preventing fraud by for “cost[s] incurred in the adjustment and
its insurers. But because a WYO insurer payment of any claims for losses.” 42
profits by paying a claim, the ordinary U.S.C. § 4017(d)(1). Moreover, pursuant
rationale for state tort law is largely to 44 C .F.R. § 62.23(i)(6), “the
inapplicable to the Program’s context. responsibility for defending claims will be
WYO insurers act as “fiduciary” or upon the Write Your Own Company and
“fiscal” agents of the United States. 42 defense costs will be part of the
U.S.C. § 4071(a)(1). They receive a flat unallocated or allocated claim expense
3.3% commission on all claims paid. allowance . . . .”

8
Arrangement provided that prompt notice Program, on balance, would better be
of any claim for punitive damages [was served by requiring claimants to resolve
submitted].” 44 C.F.R. pt. 62, app. A, art. their disputes by means of the remedies
III(D) (1985). The Write-Your-Own FEMA provides. 11
Claims Manual issued by FEMA to WYO
companies also provided explicitly that the
Government would reimburse a WYO 44 C.F.R. pt. 62, app. A, art. III(D)(2)
company for punitive damages under specifies that FEMA will reimburse a
appropriate circumstances. FEMA, Write- WYO company for “payments as a result
Your-Own Claims M anual 19 (1986 ed.). of litigation [that arise] under the scope of
Thus it appears that FEMA ordinarily will this Arrangement.” In other words, we see
be responsible financially for the costs of no inconsistency in holding that FEMA
defending a lawsuit against a WYO envisioned that claimants could sue WYO
company. 10 The efficiency goals of the insurers, but intended federal law to
govern those disputes.
11
This reasoning is bolstered by
10
Relying on these and similar FEMA’s express statements to this Court
provisions, C.E.R. argues that FEMA in its amicus brief in Van Holt. While the
anticipated that WYO insurers would be Van Holt amicus brief was produced in
sued under state law for actions arising conjunction with litigation rather than a
from their administration of Policies. We rulemaking, the Supreme Court has
reject C.E.R.’s approach because we see deemed appellate briefs worthy of
no reason why litigation based on deference. Geier v. Am. Honda Motor
improper claims-handling must mean state Co., 529 U.S. 861, 883-84 (2000) (“[T]he
law litigation. In fact, the updated Policy agency’s own views should make a
set out at 44 C.F.R. pt. 61, app. A(1), difference. We have no reason to suspect
indicates the contrary interpretation. In its that the Solicitor General’s representation
current form, the Policy appears explicitly of [the agency’s] views reflects anything
to preempt state law tort suits, 44 C.F.R. other than ‘the agency’s fair and
pt. 61, app. A(1), art. IX (2002), but considered judgment on the matter.’ The
nonetheless contemplates that lawsuits failure of the Federal Register to address
against FEMA and WYO insurers may pre-emption is thus not determinative.”)
proceed. Article VII.R provides: “If you (citation omitted). Cf. Horn v. Thoratec
[sue us], you must start the suit within one Corp., 376 F.3d 163, 177 (3d Cir. 2004)
year of the date of the written denial of all (“Our preemption conclusion is reenforced
or part of the claim, and you must file the by the informed analysis found in the
suit in the United States District Court of FDA’s amicus curiae brief.”). FEMA’s
the district in which the insured property amicus brief in Van Holt principally
was located at the time of loss.” 44 C.F.R. addressed the disruption to the Program
pt. 61, app. A(2), art. VII(R). Moreover, that would result from concurrent

9
 This analysis is consistent with the reach the same result by a straighter
decisions of other courts.12 But we can path—we can simply extrapolate from our
decision in Van Holt. The reasoning
proceeds as follows. First, no one disputes
jurisdiction, but it also noted the that federal law preempts state contract
importance of uniformity in the law. Brief law with respect to the interpretation of
for FEMA at 8–9, Van Holt (No. Policy language. Linder & Assocs. Inc. v.
97-5098), available at 1998 WL Aetna Cas. & Sur. Co., 166 F.3d 547, 550
34104122 (“Under the Panel’s reasoning, (3d Cir. 1999) (“It is well settled that
the 50 States would become co- federal common law governs the
administrators of the program along with interpretation of [Policies].”). We need
FEMA, a result Congress plainly did not make only one logical step to extend this
intend when it enacted § 4019 vesting rule to the case at hand—namely, we must
such administrative power in FEMA, and hold that a tort claim of the kind alleged by
when it specifically amended § 4072 to C.E.R. is equivalent to a contractual claim
make federal jurisdiction exclusive . . . .”). that turns on the interpretation of a Policy.
That step we have already taken. Van Holt
12 held that a state claim “sounding in tort”
The vast majority of courts have found
but “intimately related to the disallowance
that the NFIA preempts state law. Gibson
of [an] insurance claim” is essentially a
v. Am. Bankers Ins. Co., 289 F.3d 943, 949
contractual claim and therefore within the
(6th Cir. 2002) (“[M]ost courts have
exclusive jurisdiction of the federal
consistently found that NFIA preempts
courts.13 163 F.3d at 167.
state law claims that are based on the
handling and disposition of [Policy]
claims.”). The most notable exception is
13
Spence v. Omaha Indem. Ins., 996 F.2d We do not consider Aetna’s argument
793 (5th Cir. 1993). That case, however, that enforcement of a tort judgment against
arose from misrepresentation in the a WYO company would violate the
procurement of a Policy. Our case, by Appropriations Clause of the United States
contrast, involves misrepresentation in the Constitution, art. I, § 9, cl. 7, because it
adjustment of a claim made under a Policy. would burden a program enacted and
Several courts have distinguished Spence funded by Congress. Courts ordinarily
on this basis. See, e.g., Messa v. Omaha should not pass on constitutional questions
Prop. & Cas. Ins. Co., 122 F. Supp. 2d when a decision may be reached on non-
513, 521 (D.N .J. 2000 ) (“Po licy constitutional grounds. Escambia County
procurement is an entirely different v. McMillan, 466 U.S. 48, 51 (1984).
creature than claims handling”). We need While preemption derives from the
not decide today whether a case alleging Supremacy Clause and thus is formally a
misrepresentation in claims procurement “constitutional question,” Chi. & N.W.
would also be preempted. Transp. Co. v. Kalo Brick & Tile Co., 450

10
 Conclusion
U.S. 311, 317 (1981), “the basic question
We conclude that C.E.R.’s claims,
involved in [preemption claims] is never
based on territorial tort law, are
one of interpretation of the Federal
incompatible with the objectives of the
Constitution but inevitably one of
NFIA and therefore are preempted. We
comparing two statutes.” Swift & Co. v.
thus reverse the District Court’s denial of
Wickham, 382 U.S. 111, 120 (1965). Thus
summary judgment to Aetna and remand
we treat preemption as “‘statutory’ for
to the Court to dismiss with prejudice
purposes of our practice of deciding
C.E.R.’s tort claims.
statutory claims first to avoid unnecessary
constitutional adjudications.” N.J.
Payphone Ass’n v. Town of West New
York, 299 F.3d 235, 239 n.2 (3d Cir. 2002)
(quoting Douglas v. Seacoast Prods., Inc.,
431 U.S. 265, 272 (1977)).
No similar exception applies to the
Appropriations Clause, which— though it
may entail analysis of a statute—is an
unsettled area of constitutional law. See,
e.g., Maryland Dep’t of Human Res. v.
United States Dep’t of Agric., 976 F.2d
1462, 1485–86 (4th Cir. 1992) (Hall, J.,
dissenting)(“[C]onstitutional questions
will not be decided unless absolutely
necessary to a decision of the case . . . .
The majority offers no reason why this
prudential constraint should be ignored in
the case before us. Indeed, although I
express no opinion on the merits of the
majority’s analysis of the Appropriations
Clause, it appears to me that this area of
the law is far from settled. The uncertainty
surrounding the issue counsels even
greater restraint.”) (quotations omitted). In
deciding preemption, we look principally
to the text of the statute and to decision for Aetna based on the
congressional intent. By contrast, the Appropriations Clause would create new
boundaries of Appropriations Clause law; our preemption decision applies
analysis are as yet undeveloped. A existing law to a regulatory framework.

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