The opinion of the court was delivered by: McLAUGHLIN, District Judge.
In a dispute regarding the application of state law to
Standard Flood Insurance Policies (SFIPs) issued under the
National Flood Insurance Act (NFIA), 42 U.S.C. § 4001-4129, I hold
that all extra-contractual state-law causes of action related to
the handling of claims under NFIA are preempted by federal law.
The plaintiffs' residence and belongings suffered severe damage
as a result of flooding due to Hurricane Floyd. The plaintiffs
were holders of a SFIP issued by State Farm Fire and Casualty
Company pursuant to NFIA. Plaintiffs have sued State Farm for
(1) violation of the Pennsylvania Unfair Trade Practices and
Consumer Protection Law (UTPCPL), 73 Pa.C.S. § 201-1 et seq.,
(2) bad faith under 42 Pa.C.S. § 8371, and (3) breach of
contract. Currently before the Court is the defendant's motion
for judgment on the pleadings under Federal Rule of Civil
Procedure 12(c) as to Counts 1 and 2 on the ground that those
claims are preempted by federal law. I will grant the
The residence and belongings of plaintiffs Neill and Hutton,
holders of a SFIP issued by State Farm, suffered severe damage
from flooding on September 16, 1999. On September 17, 1999, the
plaintiffs notified State Farm of their claims arising out of
the flood. A representative of State Farm inspected the damage
to the residence on September 22, 1999. State Farm issued a
$5000 check to plaintiffs on October 24, 1999. State Farm issued
varying appraisals on October 10, 1999, November 11, 1999, and
November 26, 1999. On October 26, 1999, plaintiffs hired ABC
Public Adjusters to prosecute the claim. On December 9, 1999,
plaintiffs requested that State Farm pay the undisputed portion
of the flood claim and also submitted a Partial Proof of Loss
form. According to the plaintiffs' complaint, State Farm first
tendered a payment beyond the $5000 advance on February 24,
2000. Plaintiffs allege that State Farm's appraisals and its
eventual payment were unreasonably low and came after
On March 27, 2000, plaintiffs filed a law suit against State
Farm in the Delaware County Court of Common Pleas alleging that
State Farm's claims handling procedures violated state law and
constituted a breach of contract. State Farm removed to federal
court on April 24, 2000 and filed a Fed.R.Civ.Pro. 12(b)(6)
motion to dismiss, arguing that plaintiffs' extra-contractual
state-law claims are preempted by NFIA under a theory of field
preemption and/or conflict preemption. Because State Farm had
already answered plaintiffs' complaint, it orally amended the
motion to rely on Fed.R.Civ.Pro. 12(c).
II. Standards for a Motion for Judgment on the Pleadings
A motion for judgment on the pleadings pursuant to Federal
Rule of Civil Procedure 12(c) is governed by the same standard
of review as a Rule 12(b)(6) motion to dismiss for failure to
state a claim. See Jubilee v. Horn, 975 F. Supp. 761, 763
(E.D.Pa. 1997), aff'd, 151 F.3d 1025 (3d Cir. 1998). The court
must accept as true the factual allegations in the complaint and
all reasonable inferences that can be drawn from them. The
claims in question should only be dismissed if no relief could
be granted under any set of facts which could be proved. Conley
v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80
(1957); Markowitz v. Northeast Land Co., 906 F.2d 100, 103 (3d
Cir. 1990) (citing Ransom v. Marrazzo, 848 F.2d 398, 401 (3d
III. The National Flood Insurance Program: Structure and
The National Flood Insurance Program (NFIP) is a federally
subsidized flood insurance program, created in 1968 and
currently administered by the Federal Emergency Management
Agency (FEMA). 42 U.S.C. § 4001-4129. The flood insurance
policies issued under NFIA are called Standard Flood Insurance
Policies (SFIPs). In 1983, FEMA promulgated regulations that
enabled the agency to use private insurers, called
Write-Your-Own insurance companies (WYOs), as intermediaries in
providing flood insurance. 44 C.F.R. § 61.13(f). As of 1998, over
90% of SFIPs were issued by WYOs, with the remainder issued by
FEMA. See Brief for the United States as Amicus Curiae, at 8,
Van Holt v. Liberty Mutual, 163 F.3d 161 (3d Cir. 1998). WYOs
may not alter, vary, or waive the terms of the Standard Flood
Insurance Policies (SFIPs), as promulgated by FEMA.
44 C.F.R. § 61.4(b); 44 C.F.R. § 61.13(d); Gowland v. Aetna, 143 F.3d 951,
953 (5th Cir. 1998).
The U.S. government bears the ultimate responsibility for
financing all SFIPs. According to the NFIP regulations, WYOs
hold SFIP premiums in separate accounts and also make their
payments out of these accounts. 44 C.F.R.Pt. 62, App. A, art.
II. A WYO with insufficient funds to make SFIP payments must
draw on FEMA letters of credit to cover the necessary payments.
44 C.F.R.Pt. 62, App. A, art. IV. WYOs receive commissions on
every payment they make under the SFIP. This relationship
between the government and the WYOs was summarized by the Third
Circuit as follows: "Thus, regardless whether FEMA or a WYO
company issues a flood insurance policy, the United States
treasury funds pay off the insureds' claims." Van Holt v.
Liberty Mutual Fire Insurance, 163 F.3d 161, 165 (3d Cir.
The National Flood Insurance Program was developed in order to
enable the federal government to reduce the public and private
costs of flood relief efforts by establishing a national program
of flood insurance combined with land-use measures:
Congress finds that . . . from time to time flood
disasters have created personal hardships and
economic distress which have required unforeseen
disaster relief measures and have placed an
increasing burden on the Nation's resources; . . . as
a matter of national policy, a reasonable method of
sharing the risk of flood losses is through a program
of flood insurance which can complement and encourage
preventive and protective measures.
Congress also explicitly recognized that it would be
economically infeasible for private insurance companies to
provide flood insurance on their own, but that large-scale
federal government participation would support the operation of
such a flood insurance program and ensure the availability of
reasonably affordable insurance coverage. 42 U.S.C. § 4001. In
order to encourage private insurers to provide flood insurance
under NFIP, the U.S. government provides a number of
incentives: first, the government bears the ultimate
responsibility for financing. 44 C.F.R. § 62.23(f); 44 C.F.R.Pt.
62, App. A, arts II(E), IV(A), VII(A). Second, the government
provides commissions on all benefit payments made by WYOs.
44 C.F.R.Pt. 62, App. A, art. III(C)(1). In order to be able to use
private insurers to implement NFIA while at the same time
maintaining control over the provision of flood insurance and
the resulting burden on the Treasury, the U.S. government
requires all WYOs nation-wide to use SFIPS — uniform policies
that cannot be altered by WYOs. 44 C.F.R. § 61.4(b);
44 C.F.R. § 61.13(d). See also Gowland, 143 F.3d at 953-955.
FEMA has expressed its views on the purpose and structure of
NFIA to several courts. In the U.S. government's amicus brief to
the Third Circuit in Van Holt, the government stated:
The United States has a significant interest in how
operation of the program is dealt with in the courts,
because the terms of the Standard Flood Insurance
Policy ("SFIP") are fixed by FEMA regulation on a
nationwide basis; because Congress has vested FEMA
with the authority to establish the way claims are to
be proved, adjusted, and paid; and because the claims
investigation and adjustment process is and must be
governed by uniform federal law. The United States
thus has a compelling interest in assuring that State
regulators and State courts do not — directly or
indirectly, by construction of policies or
scrutinizing the investigation and adjustment of
claims, or by threatening to do so-undermine
operation of this federal program.
A federal insurance program is not subject to State
law . . . There is no role in such cases for State
regulators or State courts. The essence of the
complaint here is based on execution of the federal
insurance contract, and artful pleading cannot
transmogrify this federal contract case into a State
tort case. State law is preempted as a matter law and
Brief for the United States as Amicus Curiae, at 8, Van Holt v.
Liberty Mutual, 163 F.3d 161 (3d Cir. 1998). See also Davis v.
Travelers Property and Casualty Co., 96 F. Supp.2d 995 (N.D.Cal.
2000) (describing government's ...