Spong v. Fidelity National Property & Casualty Insurance
2015 U.S. App. LEXIS 8542
| 5th Cir. | 2015Background
- Robert and Kerry Spong purchased a Bolivar Peninsula property and obtained a Standard Flood Insurance Policy (SFIP) issued by Fidelity (a WYO carrier) under the NFIP; the property was later determined to lie within the Coastal Barrier Resources System (CBRS) and therefore ineligible for NFIP coverage.
- Prior to purchase, conflicting materials existed: a 1998 elevation certificate indicated the property was within the CBRS, while a 2004 U.S. Fish & Wildlife Service letter (provided to Fidelity) stated it was not; Fidelity issued the SFIP in March 2006 covering the adjacent lot number (a clerical/address error was later discovered).
- FEMA issued and reversed “critical error” notices multiple times between 2006–2007; policy was renewed through 2008; Hurricane Ike destroyed the property in 2008 and the Spongs submitted a $208,300 claim.
- After the loss FEMA/Fish & Wildlife ultimately concluded the property was in the CBRS (Fish & Wildlife recanted its 2004 letter in 2009), rendering the SFIP void ab initio under federal statute/regulations; Fidelity returned premiums and denied the claim.
- The Spongs sued Fidelity (and the United States) in state court asserting various state-law tort and statutory claims (negligence, misrepresentation, DTPA, fraud, estoppel); Fidelity removed, moved for summary judgment arguing federal preemption and lack of reasonable reliance; the magistrate denied summary judgment and certified the preemption question under 28 U.S.C. §1292(b).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether federal law preempts state-law claims arising from WYO activity (procurement vs claims-handling) | Spong: State tort claims (including procurement) are not preempted; Campo controls | Fidelity: Federal law (and FEMA pronouncements) preempt procurement and claims-administration claims | Court: Bound by Campo — procurement claims not preempted; claims-handling and post-issuance claim-processing claims are preempted |
| Whether FEMA’s post-Campo bulletin/administrative statements constitute an intervening change allowing overruling Campo | Spong: FEMA bulletin is not binding and cannot overturn panel precedent | Fidelity: FEMA bulletin and declarations show an intervening change supporting broader preemption | Court: FEMA bulletin/declaration are persuasive at best, not binding; no intervening change — Campo remains controlling |
| Whether the Spongs can recover under detrimental/justifiable reliance theories given federal regulatory scheme | Spong: Relied on Fidelity’s issuance of an SFIP and Fidelity’s communications | Fidelity: Spong had constructive/actual notice of governing statutes/regulations and conflicting documents; reliance was unreasonable | Court: Merrill/Heckler reasoning bars reasonable reliance as a matter of law in many respects — certain reliance-based claims unlikely to succeed; district court should reconsider summary judgment in light of opinion |
| Jurisdiction to hear interlocutory appeal certified under §1292(b) | Spong: Federal-question jurisdiction lacking; appeal not a controlling question | Fidelity: Federal interest in SFIP disputes gives federal-question jurisdiction; preemption is controlling legal question | Court: Federal jurisdiction exists (federal-law SFIP dispute, potential federal payment); §1292(b) certification proper; appellate review allowed |
Key Cases Cited
- Campo v. Allstate Ins. Co., 562 F.3d 751 (5th Cir. 2009) (holds NFIP does not preempt state-law procurement claims but does preempt claims-handling)
- Grissom v. Liberty Mut. Fire Ins. Co., 678 F.3d 397 (5th Cir. 2012) (applies Campo distinction between procurement and claims-handling)
- Federal Crop Ins. Corp. v. Merrill, 332 U.S. 380 (1947) (participants in federal insurance programs are charged with constructive knowledge of applicable federal regulations)
- Heckler v. Cmty. Health Servs. of Crawford Cnty., Inc., 467 U.S. 51 (1984) (government estoppel limited; reliance on intermediary’s interpretation of federal rules is unreasonable)