Sink or Swim – District Court Approves Removing Flood Insurance Claims to Federal Court

by Nexsen Pruet, PLLC
Contact

Nexsen Pruet, PLLC

As hurricane season swings into full measure, the flooding of Hurricane Harvey has ravaged Texas, and Irma’s path remains uncertain, it is time to revisit the law of flood insurance.  

In May of this year, Nexsen Pruet wrote about the Woodson decision from the United States Court of Appeals for the Fourth Circuit, which ruled that the FEMA 1-year statute of limitations covered flood insurance claims. Now, the United States District Court for South Carolina considered a motion to remand a bad faith action involving another FEMA flood insurance claim. 

Briefly, in Roberts v. Discovery Home Loans, Inc., 2017 WL 3316047, Plaintiff William A. Roberts sued Discovery Home Loans, its servicing company, and Allstate Insurance Company in South Carolina state court over the failure of the servicing company to renew Roberts’ flood insurance policy on his home.  Despite having sufficient funds in escrow to pay Roberts’ flood renewal premium, the servicing company failed to pay the renewal, and Allstate canceled the policy.  Following cancellation, Roberts could only find replacement flood insurance at vastly higher premiums.  Roberts alleged he would have to pay these higher premiums over the life of the loan.  In his state court complaint, Roberts alleged causes of action for gross negligence, negligence, negligent misrepresentation, breach of contract, breach of fiduciary duty, unfair trade practices and unjust enrichment. 

Allstate removed the action to the district court, arguing federal question jurisdiction.  To begin its analysis, the district court confirmed that Allstate serves as a Write-Your-Own carrier (“WYO”), which issues flood insurance policies under the government program in its own name. WYO carriers’ flood insurance policies under the WYO program must mirror the exact terms and conditions found in FEMA flood regulations promulgated by the U.S. government.  As such, “Federal common law alone” governs the insurance policy at issue.  Nevertheless, the district court looked further, and held that federal question jurisdiction exists when the plaintiff’s “well-pleaded complaint establishes ... that the plaintiff’s right to relief necessarily depends on resolution of a substantial question of federal law....”  Following the United States Supreme Court opinion in Grable & Sons Metal Prods., Inc. v. Darue Eng’g & Mfg.(2005), the district court considered four factors to decide whether Roberts’ state law claims raised a substantial federal question:

(1) whether the state law claim necessarily raises a federal issue;
(2) whether the federal issue is disputed;
(3) whether there is a substantial federal issue; and
(4) status of federal/state balance in light of the federal issue.

The district court easily resolved the factors in favor of federal question jurisdiction.  The flood insurance policy was issued pursuant to the National Flood Insurance Program, and its terms must mirror federal flood regulations. As a result, federal law establishes the standard of care. Citing cases from the Seventh and Eleventh Circuits, the district court found a complaint alleging breach of a flood insurance policy raises “a substantial federal question on its face.” Finally, the district court found “federal rules, federal regulations or federal common law govern all disputes involving the handling of a [flood] claim”, such that those claims are restricted to federal court. As a result the exercise of federal question jurisdiction over all flood insurance policies “will not disturb the balance of federal and state power.” 

Roberts argued some of his claims arose out of the “procurement” of the flood insurance policy rather than the handling of a claim under the policy. Relying on a line of Fifth Circuit decisions, Roberts argued such claims did not implicate federal question jurisdiction.  Under Campo v. Allstate Insurance Co.(5th Cir. 2009), federal law does not preempt state law procurement-based claims. The district court found the resolution of the issue turned on “the status of the insured at the time of the interaction between the parties.” Because Roberts was covered by a federal flood insurance policy at the time he alleges Allstate owed him a duty of care, then Roberts’ claims fall under “handling,” not procurement. Therefore, federal law, not state law, controlled.

When it comes to flood insurance policy claims, there is a deluge of decisions, including the Woodson decision, confirming federal question jurisdiction and federal pre-emption of this area. The next time you and your client are faced with a flood insurance claim—and in light of current conditions, it could be soon—either file it in the district court or be prepared for it to float up there on removal. 


 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Nexsen Pruet, PLLC | Attorney Advertising

Written by:

Nexsen Pruet, PLLC
Contact
more
less

Nexsen Pruet, PLLC on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.