United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT December 21, 2005
Charles R. Fulbruge III
Clerk
No. 04-31213
C.W. GALLUP, also known as Bo Gallup, SUSAN MOCK GALLUP,
Plaintiffs-Appellees,
versus
OMAHA PROPERTY AND CASUALTY INSURANCE COMPANY,
Defendant-Appellant.
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Appeal from the United States District Court
for the Eastern District of Louisiana
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Before DAVIS, SMITH and DENNIS, Circuit Judges.
W. EUGENE DAVIS, Circuit Judge:
Omaha Property and Casualty Company, a Write Your Own
insurer under the National Flood Insurance Program, appeals the
district court’s interlocutory order that the plaintiffs’ state
law tort claims against the insurer are not preempted by federal
law pursuant to regulations promulgated by FEMA under authority
of the National Flood Insurance Act of 1968. Based on this
court’s holding in Wright v. Allstate Ins. Co., 415 F.3d 384 (5th
Cir. 2005), we reverse.
I.
A.
The National Flood Insurance Program (the “NFIP”) was
established by the National Flood Insurance Act of 1968 (the
“Act”), 42 U.S.C. § 4001, et seq. The Federal Emergency
Management Agency (“FEMA”), an agency of the Department of
Homeland Security, administers the NFIP. The NFIP has two
components: (1) a flood insurance program, and (2) a unified
national plan for flood management. 42 U.S.C. §§ 4001(b) and
(c). Initially, the program operated primarily through a pool of
private insurers under the supervision and with the financial
support of the Department of Housing and Urban Development. In
1977, the Secretary of HUD made FEMA primarily responsible for
its operation. 42 U.S.C. § 4071. FEMA by regulation promulgated
the Standard Flood Insurance Policy (“SFIP”) and provided for
marketing and claims adjustment by private insurers operating as
“Write Your Own” (“WYO”) companies. These companies issue SFIPs
in their own names, and arrange for the adjustment, settlement,
payment and defense of all claims arising from the policies.
FEMA regulations establish the terms of the SFIP, rate structures
and premium costs. Claims are ultimately paid out of the U.S.
Treasury. This new arrangement is referred to as Part “B” of the
NFIP.
Section 4072 of the Act, allows suits against FEMA for
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claims on flood policies:
§ 4072. Adjustment and payment of claims; judicial
review; limitations; jurisdiction
In the event the program is carried out as provided in
section 1340 [42 USCS § 4071], the Director shall be
authorized to adjust and make payment of any claims for
proved and approved losses covered by flood insurance,
and upon the disallowance by the Director of any such
claim, or upon the refusal of the claimant to accept
the amount allowed upon any such claim, the claimant,
within one year after the date of mailing of notice of
disallowance or partial disallowance by the Director,
may institute an action against the Director on such
claim in the United States district court for the
district in which the insured property or the major
part thereof shall have been situated, and original
exclusive jurisdiction is hereby conferred upon such
court to hear and determine such action without regard
to the amount in controversy.
42 U.S.C. § 4072. Effective December 31, 2000, FEMA proposed an
amendment to the SFIP, which added the following language to
Article IX of the standard flood insurance policy:
IX. What Law Governs
This policy and all disputes arising from the handling
of any claim under the policy are governed exclusively
by 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.
44 C.F.R. pt. 61, App. A(1), Art. IX (2001).
B.
The Gallups purchased a SFIP from defendant Omaha Property &
Casualty Insurance Company (“Omaha”) for their home and its
contents in Covington, Louisiana in 2002 and 2003. Omaha
provides flood insurance through the NFIP under FEMA, acting as a
“Write Your Own” insurer.
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On December 24, 2002, a flood occurred on the plaintiffs’
property (“Flood I”). An architect and engineer consulted by the
plaintiffs determined that the flood caused damage to the
structure of the home. The plaintiffs filed a Proof of Loss with
Omaha, claiming damages of $210,000.00 - the replacement value of
their home (“Claim I”). Omaha’s engineer inspected the home and
recommended repairs to restore the structural integrity of the
home but also stated that the home had not suffered any damage
from the flood, other than soil loss from underneath the pilings.
Omaha modified the claim, paying only the amount it would cost to
replace the soil beneath the home, approximately $9,000.
In June 2003, another flood occurred related to Tropical
Storm Bill (“Flood II”). Flood II severely damaged the Gallup
home, causing part of the home to sag and completely undermining
several footings supporting the piers that elevate the home. The
plaintiffs filed another Proof of Loss with Omaha seeking
approximately $209,000, the total replacement value of the home
less the deductible (“Claim II”). Omaha denied the claim after
its attempts to settle for a nominal sum were unsuccessful.
In December 2003, the plaintiffs filed suit against Omaha
alleging (1) breach of contract on Claims I and II under federal
common law, (2) breach of the duty of good faith and fair dealing
under federal common law on Claims I and II, (3) bad faith breach
of contract on Claims I and II under La. Civil Code Art. 1997,
and (4) bad faith adjustment of Claim II under La. Rev. Stat.
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22:1220.
In a Motion to Dismiss, Omaha argued that the plaintiffs’
state law claims are preempted based on the December 2000
regulation which added an express preemption provision to the
SFIP. The district court analyzed the motion as presenting the
issue whether FEMA was authorized to issue the regulation in its
grant of authority from Congress. The district court concluded
that FEMA was not authorized by Congress to preempt the
application of state laws to extra-contractual claims. It also
found that preemption is inconsistent with the purposes of the
Act. Accordingly, it denied the defendant’s Motion to Dismiss
the plaintiffs’ state law claim under La. Civ. Code Art. 1997.
It granted the Motion to Dismiss the plaintiffs’ state law claims
under La. R.S. 22: 1220 because those claims relate to the
coverage of the policy, which is governed by federal law under 42
U.S.C. § 4072. It also granted the Motion to Dismiss the
plaintiffs’ federal common law claims for breach of good faith
and fair dealing as inapplicable because these claims could be
asserted under Civil Code article 1997. The district court
certified its ruling for immediate appeal and Omaha appealed.1
II.
The parties have presented the issue in this case as whether
1
We previously granted Omaha’s Petition for Leave to Appeal
from an Interlocutory Order in December 2004.
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the National Flood Insurance Program authorizes FEMA to
promulgate a regulation to preempt state law claims made against
Write Your Own Insurance providers under the National Flood
Insurance Program. This is understandable because, until this
court’s recent decision in Wright v. Allstate Ins. Co., 415 F.3d
384 (5th Cir. 2005), courts (including this one) have interpreted
our precedent as holding that the NFIP does not preempt state law
tort claims. See Spence v. Omaha Indemnity Ins. Co., 996 F.2d
793 (5th Cir. 1993); Richmond Printing LLC v. Director, FEMA, 72
Fed. Appx. 92 (5th Cir. 2003)(unpublished)(interpreting Spence as
holding that a misrepresentation extracontractual claim was not
preempted by the Act).
In Wright v. Allstate Ins. Co., we concluded that Spence did
not support that conclusion.
A careful reading of Spence, however, reveals that
Spence does not hold that state law tort claims are not
preempted by the NFIA. The issue in Spence was a narrow
one: whether federal or state law determined the
statute of limitations for bringing state law claims
against a WYO. While we held that state law would
govern the statute of limitations for state law tort
claims, we did not foreclose the possibility of field
or conflict preemption. Rather, our holding was
premised on the fact that "the NFIA contains no express
preemption provision" and "neither [the insurer] nor
the federal government as amicus suggests preemption of
the state law fraud claim." 996 F.2d at 797 n.20. Thus,
the issue of whether the NFIA preempted state law tort
claims was not before the court in Spence, and the
court did not address it.
415 F.3d at 389-390. We held in Wright that “state law tort
claims arising from claims handling by a WYO are preempted by
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federal law.” Id. at 390. The case does not rely on the 2000
regulation at issue in this case, but notes that “[w]hile no
circuit has yet addressed whether this amendment is effective as
an express preemption of state law claims, it can obviously be so
argued.” Id. Wright also observed that two other circuits have
held that federal law preempts state law tort claims based on a
WYO’s handling of an insurance claim, citing C.E.R. 1988, Inc.
v. The Aetna Casualty & Surety Co., 386 F.3d 263 (3d Cir. 2004);
Gibson v. American Bankers Ins. Co., 289 F.3d 943 (6th Cir.
2002). Id.
Given this court’s holding in Wright, that state law tort
claims arising from claims handling by a WYO are preempted by the
National Flood Insurance Act, it necessarily follows that the Act
gives FEMA authority to promulgate regulations to that effect.
III.
Based on our decision in Wright, the district court erred in
concluding that state law claims against a WYO carrier are not
preempted by the National Flood Insurance Act and related
regulations. Accordingly, the district court’s judgment to that
effect, denying Omaha’s Motion to Dismiss the Gallups’ claims
under La. Civ. Code art. 1997, is reversed and this case is
remanded to the district court for further proceedings.2
2
Although briefed by the parties, we have no jurisdiction
in this interlocutory appeal to reach the district court’s order
granting Omaha’s Motion to Dismiss the Gallup’s federal common
law claims. Omaha cannot appeal a ruling in its favor and the
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REVERSED and REMANDED.
Gallups did not seek certification to appeal that ruling.
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