832 F.3d 593
6th Cir.2016Background
- In 2006 the Harrises bought a home and obtained a mortgage from Regions; the deed required Regions to ensure correct flood-zone designation and insurance.
- CoreLogic (flood-zone certifier) told the Harrises their property was in an X (non-SFHA) zone, but FEMA issued a revised map placing the property in an AE (SFHA) zone.
- Regions later told the Harrises they needed flood insurance; agent Vandenbergh purchased a Nationwide SFIP described as a pre-FIRM policy, but the house was built post-FIRM (1984) and thus required post-FIRM coverage and an elevation certificate for full building coverage.
- After a 2010 flood Nationwide adjusted the claim under post-FIRM rules using an elevation certificate showing the home was below the base flood elevation; certain building and personal property losses were excluded and FEMA upheld Nationwide’s determination.
- Plaintiffs sued state and federal claims against Regions, CoreLogic, Vandenbergh (and initially Nationwide), alleging negligence and breach of fiduciary duty in determining flood zone and procurement of the SFIP; the district court dismissed most claims and granted partial summary judgment for Vandenbergh.
- On appeal the Sixth Circuit addressed whether the National Flood Insurance Act (NFIA) preempts state-law claims arising from policy procurement (as opposed to claims-handling) and whether plaintiffs’ procurement claims survive preemption.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether NFIA preempts state-law claims arising from policy procurement (negligence/breach regarding flood-zone determination and purchase) | Harris: NFIA does not bar state tort claims based on negligent misrepresentation in procurement; Hofbauer supports allowing negligence claims | Defendants: NFIA preempts state-law claims related to flood insurance because federal regulation and the Treasury fund would be implicated | Held: NFIA does not preempt policy-procurement claims; such claims are distinct from claims-handling actions and may proceed under state law |
| Whether the preemption-analysis should follow the Fifth Circuit’s distinction (already-covered vs potential future policyholder) | Harris: They were not yet covered when wrongs occurred, so procurement framework applies | Defendants: Characterize claims as implicating SFIP coverage/claims-handling | Held: Court adopts Fifth Circuit approach: plaintiffs were potential future policyholders, so procurement framework applies and NFIA does not preempt |
| Whether damages from procurement claims would implicate the federal Treasury (and thus warrant preemption) | Harris: Procurement damages do not equate to SFIP claim payments and thus do not burden the Treasury | Defendants: Any recovery could indirectly affect federal interests/fund | Held: Procurement damages are not ‘‘flood policy claim payments’’ and do not implicate Treasury funds; preemption rationale for claims-handling does not apply |
| Whether challenge to partial summary judgment for Vandenbergh was preserved on appeal | Harris: Appealed dismissal/summary judgment against Vandenbergh | Vandenbergh: District court’s partial grant was proper; plaintiffs did not press the issue on appeal | Held: Plaintiffs abandoned any challenge to Vandenbergh’s partial summary judgment; Sixth Circuit affirmed that part |
Key Cases Cited
- Gibson v. Am. Bankers Ins. Co., 289 F.3d 943 (6th Cir. 2002) (NFIA preempts state causes of action based on handling and disposition of SFIP claims)
- Wentwood Woodside I, L.P. v. GMAC Com. Mtge. Corp., 419 F.3d 310 (5th Cir. 2005) (federal treasury is the class NFIA intends to protect)
- Wright v. Allstate Ins. Co., 415 F.3d 384 (5th Cir. 2005) (NFIA preemption of state-law claims arising from SFIP claim handling)
- C.E.R. 1988, Inc. v. Aetna Cas. & Sur. Co., 386 F.3d 263 (3d Cir. 2004) (preemption justified because state damages would burden federal treasury and impede NFIA objectives)
- Spong v. Fid. Nat’l Prop. & Cas. Ins. Co., 787 F.3d 296 (5th Cir. 2015) (distinguishes procurement-based claims from claims-handling and treats potential future policyholders differently)
- Hofbauer v. Nw. Nat’l Bank, 700 F.2d 1197 (8th Cir. 1983) (noting NFIA does not itself create a federal cause of action and suggesting state negligence findings are possible)
- Green v. Fund Asset Mgmt., L.P., 245 F.3d 214 (3d Cir. 2001) (conflict-preemption principles require obstacle to congressional objectives to preempt state law)