would be less willing to participate in the NFIP program were
they to be held subject to state law claims for bad faith or
unfair trade practices. See Messa, 122 F. Supp.2d 513, 522-23
(N.J. 2000). A decision to allow plaintiffs to proceed against
WYO insurers on state law grounds would undermine the
partnership between the government and private insurers that has
proven critical to the functioning of NFIP and has enabled the
government to provide flood insurance nationwide.
Second, allowing state law to apply to the WYO insurers would
undermine Congress' intention to create a nationally unified
program as evidenced in the language of 42 U.S.C. § 4001. If
WYOs were subject to state law claims, NFIP insurers and
insureds would effectively be subject to differing requirements
depending not only on the state in which the policy was issued
but also on whether the issuer was FEMA itself or a WYO.
In this context, I "place some weight" on FEMA's views, as
expressed in its brief to the Third Circuit in Van Holt and in
its rule that becomes effective on December 31, 2000. Geier v.
American Honda, 529 U.S. 861, 120 S.Ct. 1913, 1926, 146 L.Ed.2d
914 (2000) (In holding that a defective design action under
District of Columbia tort law is preempted by a Federal Motor
Vehicle Safety Standard promulgated by the Department of
Transportation, the Court "place[d] some weight upon DOT's
interpretation" of the safety standard).*fn3
In its amicus brief in Van Holt, the government stated:
"allowing State regulators to breathe down the necks of the WYO
companies, as happened here, would make the 50 States
co-administrators of the program along with FEMA, a result
Congress plainly did not intend. It would also deprive the
program of the national uniformity Congress did intend, and make
a hodgepodge of the program, undermining the federal mission."
U.S. Government Amicus Brief in Van Holt, at 13.
Third, allowing state claims to be brought against a WYO
insurer under a SFIP would take the ability to control costs
under NFIA out of Congress' hands. In Van Holt, the Third
Circuit emphasized that WYOs are fiscal agents of the U.S.
government. 163 F.3d at 166. Controlling costs was among the
goals explicitly named by Congress in the National Flood
Insurance Act. 42 U.S.C. § 4001. Removing the ability to control
costs from Congress by subjecting WYOs, the fiscal agents of the
federal government, to state law claims would contradict this
The plaintiffs in this case argue that applying
extra-contractual state law claims to State Farm would not
result in a charge on the treasury, because NFIA does not
require FEMA to reimburse WYOs for litigation costs or awards
arising out of
actions outside of the scope of the agreement. NFIA includes the
following section under the heading "Limitation on Litigation
If it is determined that the claim is grounded in
actions by the Company that are outside the Scope of
the Arrangement, the National Flood Insurance Act,
and 44 C.F.R. chapter 1, subchapter B, and/or involve
issues of insurer/agent negligence . . ., the Office
of the General Counsel shall make a recommendation to
the Administrator as to whether the claim is grounded
in actions by the Company that are significantly
outside the scope of this Arrangement. In the event
the Administrator determines that the claim is
grounded in actions significantly outside the scope
of this Arrangement, the Company will be notified
. . . if the decision is that any award or judgment
for damages arising out of such actions will not be
recognized . . . as a reimbursable loss cost, expense
or expense reimbursement.
44 C.F.R.Pt. 62, App. A, art. III(D)(4). Plaintiffs contend that
FEMA would not have to reimburse State Farm for any damages
arising out of this case. There is no allegation in the
complaint, however, either that FEMA has made any such
determination in this case or that State Farm's actions are
"significantly outside of the scope of the Arrangement."
Even if FEMA were not required to reimburse State Farm in this
case, however, allowing extra-contractual state law claims to be
brought against WYOs might nevertheless result in an indirect
burden on the treasury. Without the guarantee of reimbursements
from FEMA, WYOs might have the incentive to overpay claims as a
means of decreasing the likelihood of bad faith claims.
Scherz, 112 F. Supp.2d, at 1008. Such overpayment would affect
FEMA and the U.S. Treasury, as the WYO would not only use the
premiums received under NFIA but would also draw on FEMA letters
of credit. Providing such an incentive for overpayment
contradicts the goals of NFIA: the provision of flood relief and
affordable flood insurance without overburdening the U.S.
For all of these reasons, I hold that extra-contractual
state-law causes of action related to the handling of claims
under NFIA are preempted by federal law.*fn4
Although I base my decision on the obstacle prong of conflict
preemption, field preemption may also apply. Most of the cases
concerning the preemptive effect of NFIA do not discuss which
type of preemption applies. This may be because the categories
are in fact not very distinct. In English, the Supreme Court
noted that "field pre-emption may be understood as a species of
conflict pre-emption: A state law that falls within a pre-empted
field conflicts with Congress' intent (either express or plainly
implied) to exclude state regulation." 496 U.S. at 79 n. 5, 110
Two recent district court decisions reflect the difficulty of
distinguishing between the two types of preemption. In Messa,
the court held that field preemption is applicable; whereas, in
Scherz, the court determined conflict preemption to be the
appropriate paradigm. The arguments used by the two courts,
however, are often overlapping. Both courts note that WYO
insurers have no financial incentive to engage in bad faith
behavior in claims handling. Both courts further emphasize the
importance of uniformity in enabling NFIA to achieve its goals.
Messa, 122 F. Supp.2d 513, 522-23 (N.J. 2000); Scherz,
112 F. Supp.2d at 1008-9. The fact that the courts, despite similar
arguments, rely on different types of preemption reveals how
closely related field and conflict preemption are.
In analyzing a case for field preemption, the first task is to
define the field. If the field consists of flood insurance in
general, then there might not be field preemption, because most
courts have left the regulation of the procurement of flood
insurance policies in part to the states. If the field consists
of claims handling in the area of flood insurance, then the
argument for field preemption is stronger. Some courts have
rejected field preemption, however, even when the field is
defined as claims handling in the area of flood insurance. In
Scherz, for example, the court stated that the field of claims
handling is not occupied entirely by the federal government
under NFIA, because the "limitation on litigation costs" section
in Title 44 of the Code of Federal Regulations contemplates
negligence actions against a WYO insurer. 44 C.F.R.Pt. 62, App.
A, art. III(D)(4); Scherz, 112 F. Supp.2d at 1006-7. It is
difficult to say what this section contemplates; the legislative
history is not helpful. I would be reluctant to deny preemption
on the existence of this section alone. But in view of my
decision that extra-contractual claims are preempted on the
basis of the obstacle prong of conflict preemption, I need not
resolve questions regarding the significance of the "limitation
on litigation costs" section.
Defendant has also moved for summary judgment with regard to
plaintiffs' extra-contractual state law claims on the ground
that plaintiff has failed to state a claim under the UTPCPL and
under 42 Pa.C.S. § 8371. Because I am granting summary judgment
on the basis of preemption, I do not reach those arguments.
An Order follows.
AND NOW, this 30th day of November, 2000, upon consideration of
Defendant State Farm Fire and Casualty Company's Motion for a
Judgment on the Pleadings, Plaintiffs' response thereto, and
Defendant's reply, and after an oral argument on said motion, it
is hereby ORDERED and DECREED that said Motion is GRANTED.
Counts 1 and 2 of the Plaintiffs' complaint are dismissed for
the reasons expressed in an Opinion of today's date.