State Claims Related to Renewal of FEMA "Write Your Own" Floor Insurance Programs are Federally Preempted


[authors: Emily Stern, Dean N. Razavi]

The U.S. Court of Appeals for the Fifth Circuit last week held that any state claim related to the Federal Emergency Management Agency’s (FEMA) “Write Your Own” (WYO) flood insurance program is preempted by federal law if it is based on events which took place while the insured was already covered. The plaintiff, James Grissom, purchased WYO flood insurance from Liberty Mutual, and alleged that, when he applied for renewal, Liberty Mutual failed to disclose that the plaintiff was eligible for a preferred rate policy. Liberty Mutual defended that the plaintiff’s negligent misrepresentation claim was preempted by the National Flood Insurance Act, which establishes WYO insurance. WYO allows private insurers to issue flood insurance policies in their own names, underwritten by the Federal government. FEMA regulations govern the methods by which these carriers adjust and pay claims.

In prior cases, the Fifth Circuit established the rule that state law claims arising from “claims handling” by a WYO insurer are preempted, whereas “procurement-based” state law claims are not. The plaintiff argued that his claim was based on his renewal application, which should be considered “procurement-based.” The court held that the plaintiff’s negligent misrepresentation claim was a “claims handling” claim because the plaintiff was insured at the time of the interaction between the plaintiff and Liberty Mutual. “ If the individual is already covered and in the midst of a non-lapsed insurance policy, the interactions between the insurer and insured, including renewals of insurance, are ‘claims handling’ subject to preemption.” This bright line rule officially fixes in place the difference between preempted and non-preempted claims by requiring the court to consider the insured’s status at the time the claim arose.

Grissom v. Liberty Mutual Fire Insurance Co., No. 11-60260 (5th Cir. April 30, 2012).


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