Wе address in this appeal whether the National Flood Insurance Program (the “Program”) is sufficiently comprehensive to preempt a state tort suit arising from conduct related to the Program’s administration. We conclude that the overarching purpose of the Program-to provide affordable flood insurance in high-risk areas in order to reduce pressures on the federal fisc-would be compromised by state court interference. Thus the plaintiffs state law tort claims are preemptеd.
Factual and Procedural History
The Program is administered by the Federal Emergency Management Agency (“FEMA”) pursuant to the National Flood Insurance Act of 1968 (“NFIA”), 42 U.S.C. § 4001, et seq. C.E.R. 1988, Inc. (“C.E.R.”) seeks state law remedies for improper handling of the Program’s Standard Flood Insurance Policy (the “Policy”) issued in favor of C.E.R. by defendant Aetna Casualty and Surety Company (“Aetna”). Aetna is a ‘Write-Your-Own” (“WYO”) insurance company, meaning that it is a private insurer authorized by FEMA to provide Policies in its own name. It collects premiums in segregated accounts, from which it pays claims and issues refunds. When the funds are inadequate (as frequently occurs), Aetna pays claims by drawing on letters of credit issued by the United States Treasury.
C.E.R. purchased a Policy from Aetna to cover Hamilton House, a property in St. Croix. In September 1995 the property was damaged by flooding during Hurricane Marilyn. C.E.R. received an insurance payment of $200,000 as a result of damage to Hamilton House. One year later, in September 1996, the facility again was damaged by flood waters, this time during Hurricane Hortense. C.E.R. filed a claim for $716,916, but the receipts it submitted in conjunction with the claim, documenting repairs made since Hurricane Marilyn, totaled under $20,000.
Given the disparity between the claim amount and the receipt totals, Aetna required C.E.R. to submit a “Comparison Estimate” detailing when the relevant damage occurred. The Comparison Estimate, prepared by an architect, reported new losses of $325,300.55 resulting from Hurricane Hortense. Nonetheless, Aet-na’s adjustment company refused to consider the estimate and recommendеd payment in the amount of $25,177.61, minus a $750 deductible. C.E.R. refused the settlement, and Aetna closed its file on the claim, without payment, in March 1997.
In 1997 C.E.R. filed a seven-count complaint against Aetna, alleging contract and tort causes of action, in the United States District Court of the Virgin Islands. Aet-na subsequently hired a second adjustment *266 company, which estimated C.E.R.’s losses at $263,757.58. In February 1998 the parties settled C.E.R.’s contract claims for $278,392. Thus only C.E.R.’s tort claims remain. They allege negligent adjustment of C.E.R.’s insurance claim resulting in lost income and business оpportunities, tortious bad faith conduct, and outrageous and reckless conduct entitling C.E.R. to punitive damages. C.E.R. also seeks attorney’s fees and costs.
In January 2000, Aetna moved for summary judgment on these claims alleging, among other defenses, that C.E.R.’s territorial law tort claims are preempted by federal law. In April 2001, the District Court denied Aetna’s motion, holding that the tort claims were not preempted and that a genuine issue of material fact existed as to whether Aetna had acted in bad faith. Aetna filed a motion for reconsideration of the preemption issue. As an alternative request for relief, it asked the District Court to certify the question for interlocutory appeal in accordance with 28 U.S.C. § 1292(b). The District Court pursued that course. We granted Aetna’s petition for permission to appeal in May 2003. 1
Discussion
Our preemption analysis turns on congressional intent. We must determine whether the purposes of the Program will be jeopardized if disputes involving federal flood insurance policies are gоverned by state law.
2
Because we have examined this issue in a previous case,
Van Holt v. Liberty Mutual Fire Insurance Co.,
I. Overview of the National Flood Insurance Program
Congress created the Program to provide standardized insurance coverage for flood damage at or below actuarial rates.
Gowland v. Aetna,
In its early years, the Program was administered under what is known as “Part A” of the NFIA. A pool of private insurance companies issued policies and shared the underwriting risk, with financial assistance from the federal Government. As of January 1, 1978, however, thе Government bears full responsibility for the Program pursuant to 42 U.S.C. § 4071. Under “Part B” of the NFIA, FEMA “carries] out the program of flood insurance authorized under [the NFIA] through the facilities of the Federal Government.” Id. The Program is funded through the National Flood Insurance Fund established by FEMA in the United States Treasury.
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Congress authorized FEMA to “prescribe regulations establishing the general method or methods by which proved and approved claims for losses may be adjusted and paid for any damage to or loss of property which is covеred by flood insurance.” 42 U.S.C. § 4019. The resulting regulatory scheme is set out at 44 C.F.R. §§ 61.1-78.14. States have no regulatory control over the Program’s operations.
3
Linder & Assocs. Inc. v. Aetna Cas. & Sur. Co.,
Pursuant to 42 U.S.C. § 4081(a), FEMA created the WYO program whereby Policies may be issued by private insurers like Aetna. Though FEMA may issue Policies directly, more than 90% are written by WYO companies. These private insurers may act as “fiscal agents of the United States,” 42 U.S.C. § 4071(a)(1), but they are not general agents. Thus they must strictly enforce the provisions set out by FEMA and may vary the terms of a Policy only with the express written consent of the Federal Insurance Administrator. 44 C.F.R. §§ 61.4(b), 61.13(d) & (e), 62.23(c) & (d). In essencе, the insurance companies serve as administrators for the federal program. It is the Government, not the companies, that pays the claims. And when a claimant sues for payment of a claim, “the responsibility for defending claims will be upon the Write Your Own Company and defense costs will be part of the ... claim expense allowance.” 4 44 C.F.R. § 62.23(i)(6).
Our Court recently evaluated the NFIA in Van Holt. In light of the strong federal interests intertwined with the administration of the Program, we concluded that federal courts are the appropriate and exclusive arbiters of Policy-related disputes.
As noted,
Van Holt
is markedly similar to today’s case. The plaintiff in
Van Holt
filed successive claims with its WYO insurance provider, Liberty Mutual, for flood damage. Liberty Mutual concluded that the claims were fraudulent and refused to approve the damages claimed from the second flood. The Van Holts sued Liberty Mutual in the United States District Court for the District of New Jersey, alleging that it had committed state law torts. Our Court initially held that the District Court lacked subject matter jurisdiction over the state law claims. On rehearing, however, we reversed path, concluding that the District Court had jurisdiction.
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Our decision turned on the collapse of two distinctions. First, we declined to distinguish between suits against FEMA, over which jurisdiction plainly existed, and suits against WYO companies. Though the language of the statute speaks explicitly only of suits against FEMA, we held that “a suit against a WYO company is the functional equivalent of a suit against FEMA,”
id.
at 166, because a WYO company is a fiscal agent of the United States. 42 U.S.C. § 4071(a)(1). Moreover, “FEMA regulations require a WYO company to defend claims but assure that FEMA will reimburse the WYO company for defense costs.”
Van Holt,
After concluding that federal jurisdiction was proper, we affirmed in Van Holt the District Court’s award of summary judgment to Liberty Mutual on the merits. Id. at 168-69. Although the issue was briefed, we declined to decide whether the NFIA preempts state law claims related to an insurance contract. Id. at 169 n. 6.
That issue is back and squarely before us today. We must determine whether the federal goals of uniform affordable floоd insurance and reduced aggregate pressure on the federal Treasury, which informed our decision in Van Holt, counsel extension of our holding in that case to preclude interference with Policies not only by state courts, but also by state law. 5
II. Preemption
The reasoning of our decision in
Van Holt
compels the conclusion that state-law claims are preempted by the NFIA. The uniformity touted in that decision would be seriously jeopardized if state tort claims were permitted to proceed, even if those claims were resolved in federal court. We reasoned there that “Congress would want federal courts to adjudicate disputes over federal flood insurance policies for which the federal government would be responsible.”
Van Holt,
“ ‘Consideration under the Supremacy Clause starts with the basic assumption that Congress did not intend to displace state law.’ ”
Bldg. & Const. Trades Council of Metro. Dist. v. Assoc. Builders & Contractors of Mass./R.I., Inc.,
It is easy to glean that federal law expressly preempts state law when a statute or regulation contains explicit language to that effect.
Morales v. Trans World Airlines, Inc.,
While a stronger case, we decline also to rely on field preemption. This form of preemption exists if “federal law so thoroughly occupies a legislative field as to make reasonable the inference that Congress left no room for the States to supplement it.”
Cipollone v. Liggett Group, Inc.,
Conflict preemption, the final form, occurs “when [1] it is impossible to comply with bоth the state and the federal law, or [2] when the state law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.”
Green,
Thus the first step in determining whether C.E.R.’s claims are preempted is to evaluate the statute and regulations for evidence of congressional intent. We begin by examining the first, narrower prong of conflict preemption: state law is preempted when it would be impossible simultaneously to comply with state and federal law. In this context, we note that the standards used to analyze ordinary insurance claims differ from thosе applied to Policy claims. In the realm of private insurance, common law doctrines (such as “reasonable expectations,” “notice/prejudice,” and “substantial compliance”) govern the evaluation of claims. By contrast, a WYO insurer must strictly follow the claims processing standards set out by the federal Government.
The important consequence is that a WYO insurer may be unable to comply both with state law and with the federal guidelines that it is bound to follow. In these cases, state law is preempted. C.E.R. has not, however, alleged that Aet-na followed federal law in violation of a conflicting state law doctrine. On the contrary, it has argued that Aetna failed to comply with a federal requirement-specifically, the requirement that “the [cjompa-ny’s [c]laims [department verifies the correctness of the coverage interpretations and reasonableness of the payments recommended by the adjusters.” 44 C.F.R. § 62.23(i)(2).
Accordingly, we rely instead on the second variation of confliсt preemption: we conclude that the application of state tort law would impede Congress’s objectives. Indisputably a central purpose of the Program is to reduce fiscal pressure on federal flood relief efforts.
See, e.g., Till v. Unifirst Fed. Sav. & Loan Ass’n.,
Our understanding that expensive litigation will draw оn federal funds is confirmed by FEMA’s regulations and policies interpreting and implementing the NFIA. Congress statutorily authorized FEMA to enter into “arrangements” with private in *271 surance companies. 42 U.S.C. §§ 4071(a)(1), 4081(a). FEMA, in turn, specified the terms of these Arrangements in the regulations governing the Program. Among other things, the Arrangement in effect when C.E.R. purchased its Policy-provided that FEMA could reimburse a WYO company for “payments as a result of awards or judgments for punitive damages arising under the scope of this Arrangement and policies of flood insurance issued pursuant to this Arrangement provided that prompt notice of any claim for punitive damages [was submitted].” 44 C.F.R. pt. 62, app. A, art. III(D) (1985). The Write-Your-Own Claims Manual issued by FEMA to WYO companies also provided explicitly that the Government would reimburse a WYO company for punitive damages under appropriate circumstances. FEMA, Write-Your-Own Claims Manual 19 (1986 ed.). Thus it appears that FEMA ordinarily will be responsible financially for the costs of defending a lawsuit against a WYO company. 10 The efficiency goals of the Program, on balance, would better be served by requiring claimants to resolve their disputes by means of the remedies FEMA provides. 11
This analysis is consistent with the decisions of other courts.
12
But we can
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reach the same result by a straighter path-we can simply extrapolate from our decision in
Van Holt.
The reasoning proceeds as follows. First, no one disputes that federal law preempts .state contract law with respect to the interpretation of Policy language.
Linder & Assocs. Inc. v. Aetna Cas. & Sur. Co.,
Conclusion
We conclude that C.E.R.’s claims, based on territorial tort law, are incompatible with the objectives of the NFIA and therefore are preempted. We thus reverse the District Court’s denial of summary judgment to Aetna and remand to the Court to dismiss with prejudice C.E.R.’s tort claims.
Notes
. Our standard of review is plenary.
Van Holt v. Liberty Mut. Fire Ins. Co.,
. Because this decision is not specific to the Virgin Islands, we discuss the tensions between federal and state law rather than territorial law. Our analysis, of course, also extends to the latter.
. The insurance industry in the United States operates in interstate commerce. States may regulate the insurance industry only to the extent Congress permits. U.S. Const, art. I, § 8, cl. 3. The McCarren-Ferguson Act, 15 U.S.C. § 1011,
et seq.,
grants states this power except where Congress enacts legislation that "specifically relates to the business of insurance.” 15 U.S.C. § 1012(b).
In Barnett Bank of Marion County v. Nelson,
. 42 U.S.C. § 4072 authorizes suit against the FEMA Director upon the disallowance of a claim. By regulation, the WYO company is sued in place of the FEMA Director.
. We note that the immediate effect of our decision is limited, as a relevant Policy provision has since been changed. FEMA National Flood Insurance Program, 65 Fed.Reg. 60,-758, 60,767 (Oct. 12, 2000) (codified at 44 C.F.R. pt. 61, app. A(l), art. IX). A new regulation, which took effect on December 31, 2000, amends an insured's Policy to include language providing that "all disputes arising from thе 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.” Id.
. Arguably the Policy now contains such a provision. The amended provision reads: "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(l), art. IX (2002). The principal differences bеtween the current provision and its predecessor are the addition of the term "exclusively” and the express inclusion of disputes arising from claims handling. Cf. 44 C.F.R. pt. 61, app. A(1), art. X (1985) ("This policy is governed 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.”).
. In
West,
the Court deemed the plaintiffs case preempted on this basis. However,
West
"did not expressly address whether the NFIA preempts independent state law tort claims; it only ruled on the availability of a state-based remedy for what is directly justiciable under the NFIA, i.e., a breach of contract claim.”
Scherz,
. To be sure, the federal Government also has an interest in preventing fraud by its insurers. But because a WYO insurer profits by paying ' a claim, the ordinary rationale for state tort law is largely inappliсable to the Program's context. WYO insurers act as ''fiduciaiy” or "fiscal" agents of the United States. 42 U.S.C. § 4071(a)(1). They receive a flat 3.3% commission on all claims paid.
. Congress has authorized reimbursement for "cost[s] incurred in the adjustment and payment of any claims for losses.” 42 U.S.C. § 4017(d)(1). Moreover, pursuant to 44 C.F.R. § 62.23(i)(6), "the responsibility for defending claims will be upon the Write Your Own Company and defense costs will be part of the unallocated or allocated claim expense allowance....”
. Relying on these and similar provisions, C.E.R. argues that FEMA anticipated that WYO insurers would be sued under state law for actions arising from their administration of Policies. We reject C.E.R.'s approach because we see no reason why litigation based on improper claims-handling must mean state law litigation. In fact, the updated Policy set out at 44 C.F.R. pt. 61, app. A(l), indicates the contrary interpretation. In its current form, the Policy appears explicitly to preempt state law tort suits, 44 C.F.R. pt. 61, app. A(l), art. IX (2002), but nonetheless contemplates that lawsuits аgainst FEMA and WYO insurers may proceed. Article VIL R provides: “If you [sue us], you must start the suit within one year of the date of the written denial of all or part of the claim, and you must file the suit in the United States District Court of the district in which the insured property was located at the time of loss.” 44 C.F.R. pt. 61, app. A(2), art. VII(R). Moreover, 44 C.F.R. pt. 62, app. A, art. 111(D)(2) specifies that FEMA will reimburse a WYO company for “payments as a result of litigation [that arise] under the scope of this Arrangement.” In other words, we see no inconsistency in holding that FEMA envisioned that claimants could sue WYO insurers, but intended federal law to govern those disputes.
. This reasoning is bolstered by FEMA’s express statements to this Court in its
amicus
brief in
Van Holt.
While the
Van Holt amicus
brief was produced in conjunction with litigation rather than a rulemaking, the Supreme Court has deemed appellate briefs worthy of deference.
Geier v. Am. Honda Motor Co.,
.The vast majority of courts have found that the NFIA preempts state law.
Gibson v. Am. Bankers Ins. Co.,
. We' do not consider Aetna's argument that enforcement of a tort judgment against a WYO company would violate the Appropriations Clause of the United States Constitution, art. I, § 9, cl. 7, because it would burden a program enacted and funded by Congress. Courts ordinarily should not pass on constitutional questions when a decision may be reached on non-constitutional grounds.
Escambia County v. McMillan,
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.,