ORDER AND REASONS

STANWOOD R. DUVAL, JR., U.S. District Judge.

Before the court is a Motion to Remand filed by plaintiffs, Paul G. Powers, Jr. and Debbie M. Powers to remand this case because of lack of subject matter jurisdiction to the First Parish Court, Jefferson Parish, Louisiana, and award costs and attorney's fees pursuant to 28 U.S.C. § 1447 (c). Plaintiffs contend that the action was improperly removed as there is no federal question or diversity of citizenship jurisdiction presented by plaintiffs' claim.

Background

Plaintiffs lived in the same house in Kenner, Louisiana, for 29 years, and for approximately the last 10 years, plaintiffs had purchased and continued to renew flood insurance policies from Banker's Insurance and/or American Bankers, through their agent, Austin-Gettys (defendants). Plaintiffs' property has never been flooded and is not located in a high risk zone or a flood plain.

Plaintiffs filed suit in the First Parish Court, Parish of Jefferson, a court with the jurisdictional limit of $10,000, seeking damages for fraud, misrepresentation, negligence and intentional acts committed by the defendants. In 1998, plaintiffs discovered that friends and neighbors were paying half as much in flood insurance premiums as they were and as a result, the plaintiffs called the defendants several times asking how to reduce the flood insurance premiums. Plaintiffs allege that defendants stated that nothing could be done about it. Plaintiffs contend that the defendants have misinformed them and failed to apprise them of their coverage options and that they have sustained damages as a result of these misrepresentations and acts of omission. Plaintiffs also contend they are not seeking a return of the premiums, but damages from defendants for their alleged tortious acts.

Defendants contend that the removal was proper as this controversy involves a federal question pursuant to the National Flood Insurance Act of 1968 (NFIA) as amended, 42 U.S.C. § 4001 et seq. and the rules and regulations thereto. Defendants further contend that they are a "Write-Your-Own" ("WYO") program carriers and that they are fiscal agents of the United States. Moreover, the defendants contend that the funds at issue are the funds held in the U.S. Treasury and that only the federal court has subject matter jurisdiction and that there is no concurrent state court jurisdiction.

Standard for Remand The Well-Pleaded Complaint Doctrine and Its Exceptions

The sole issue the Court must address is whether it has subject matter jurisdiction over this case. While the petition in question is cast in terms of state law, defendants contend that there is at issue herein matters that are for all intents and purposes pre-empted by federal law,

A determination as to whether a cause of action presents a federal question, and therefore subject to removal in this context, depends upon the allegations made on the face of the plaintiffs well-pleaded complaint. Carpenter v. Wichita Falls Indep. School Dist., 44 F.3d 362, 366 (5th Cir. 1995). A federal defense to a state law claim does not create removal jurisdiction. Aaron v. National Union Fire Ins. Co., 876 F.2d 1157, 1161 (5th Cir. 1989), cert. denied, 493 U.S. 1074 (1990). A defendant may not remove a case on the basis of an anticipated or even inevitable federal defense, but instead must show that a federal right is an essential element of the plaintiffs cause of action. Gully v. First Nat'l Bank, 299 U.S. 109, 111, 57 S.Ct. 96, 97, 81 L.Ed. 70 (1936); Carpenter, 44 F.3d at 366; see Sears v. Chrysler Corp., 884 F. Supp. 1125 (E.D.Mich. 1995).

There is an exception to the well-pleaded complaint rule — where federal law so completely preempts a field of state law, a plaintiffs complaint must be recharacterized as stating a federal cause of action. Aaron, 876 F.2d at 1161, citing Avco Corp. v. Aero Lodge No. 735, 390 U.S. 557, 88 S.Ct. 1235 (1968). The doctrine does not convert legitimate state claims into federal ones, but rather reveals the suit's necessary federal character. Carpenter, 44 F.3d at 367 (5th Cir. 1995). With this in mind, the Court will now examine whether plaintiffs' tort claims are pre-empted by federal law.

Analysis

The flood insurance policy issued to the plaintiffs is pursuant to the National Flood Insurance Program (NFIP). The NFIP is a federally supervised and guaranteed insurance program administered by the Federal Emergency Management agency (FEMA). Part "A" of NFIA created a pool of private insurance companies which issued flood insurance policies and administered the NFIP pursuant to a contract with the Department of Housing Urban Development (HUD). Pursuant to Part "A" if a pool company refused to pay a claim under a flood insurance policy, the insured was permitted to sue the pool insurance company "on the claim" in Federal District Court regardless of the amount in controversy. See 42 U.S.C. § 4053. On January 1, 1978, the contractual relationship with the pool of insurers was ended pursuant to 42 U.S. 4071, and HUD assumed greater responsibility for operating the NFIP.

The new arrangement is referred to as Part "B" of the NFIP and it is administered by FEMA through the Flood Insurance Administration. In 1983 FEMA created the WYO Program. See 44 C.F.R. § 62.23-24. In this program the insurance companies write their own insurance policies. The premiums are remitted to the Flood Insurance Administration. See 44 C.F.R. P.T. 62, App. A, Article VII (b). WYO companies also draw money from FEMA through letters of credit to disburse claims. Thus, regardless of whether FEMA or a WYO company issues a flood insurance policy, the United States Treasury Funds are used to pay the insured's claims. See Gowland v. Aetna, 143 F.3d 951, 955 (5th Cir. 1988); In re: Estate of Lee, 812 F.2d at 256.

Moreover, FEMA reimburses the WYO companies for the defense cost and the WYO companies are fiscal agents of the United States but not general agents of the federal government. See 44 C.F.R. § 62.63 (g).

It is clear that 42 U.S.C. § 4072 grants the Federal District Court exclusive subject matter jurisdiction in cases arising out of claims under policies issued pursuant to Part "B." The statute provides that an insured may sue FEMA if it adjusts a claim and improperly refuses to pay benefits. See Van Holt v. Liberty Mutual Fire Insurance Company. 163 F.3d 161 (5th Cir. 1998).

Defendants contend it was Congress' intent to fully occupy the field of flood insurance when it enacted the NFIA and that state law is preempted where it regulates conduct in a field that Congress intended the federal government to occupy exclusively citing English v. General Electric Co., 496 U.S. 72, 79 (1990). Defendants further contend that although plaintiffs characterize their claims as purely state law claims that do not arise under federal law, because plaintiffs are alleging overcharging of flood insurance premiums which are federal funds, that a state court would be barred from issuing an order which would result in payment of U.S. Treasury Funds.

Although WYO insurers may draw on FEMA letters of credit to pay SFIP claims the WYO-FEMA agreement and the appropriate regulations do not permit reimbursement for a judgment based on a state law tort claim. 44 C.F.R. § 62.23 (a) permits reimbursement of WYO companies for "payments as a result of awards or judgments for damages arising under the scope of this Arrangement, policies of flood insurance issued pursuant to this Arrangement, and the claims processing standards and guides set forth at Article II, Section A, 2.0 of this Arrangement." 44 C.F.R. Pt. 62, App. A, Article III, Section D(2). The regulation also calls for reimbursement of losses adjustment expenses and premium refunds. 44 C.F.R. Pt 62, App. A, Article III, Sections (C), (E). However, the provisions clearly do not allow reimbursement for judgments on tort claims. 42 U.S.C. § 4081 (c) provides that FEMA may not hold harmless or indemnify an agent or broker for his or her errors or omissions.

It is significant that the claim asserted here is not for flood damage and is not for the return of premiums. It is for damages incurred as the result of being allegedly overcharged and misinformed. It was brought in state court for an amount under $10,000, and pled strictly as a tort claim. Although not in the context of a remand, Spence v. Omaha Indemnity Insurance, 996 F.2d 793 (5th Cir. 1993), held that a WYO insurer was not immune from liability for misrepresentation made by its agents. The Court also held that the statutes and regulations relating to the NFIP did not immunize the WYO from state law tort liability. See Spence at 797. In the course of its opinion in Spence, the court stated:

FEMA regulations disclaiming any agency relationship with WYO companies, as well as the terms of the FEMA-WYO agreement, more indicate intent to leave those insurers responsible for their own tortious conduct. The regulation relied on by Omaha, read as a whole, plainly evinces an intent to prevent expansion by SFIP coverage through misrepresentations by private parties involved with the program, thereby protecting the government from expanded liability. We decline to accept a reading of that provision immunizing WYO companies from liability for the tortious conduct of their agents.

In Lakewood Apartments Associates, L.P. v. Proctor Homer Warren, Inc. Redland Insurance Co., 1996 WL 2278837 (E.D.La.), the court stated:

". . . Spence . . . compels the conclusion that federal common law applies only to contract claims for coverage under the policy, not to tort claims such as those Lakewood asserts against Proctor. Lakewood posits that the defenses of failure to file proof of loss and scope of coverage under the policy may be defenses assertable by the "Write Your Own" (WYO) insurer Redland, but that such are not defenses to its negligence claims against the agent Proctor. With these contentions the Court agrees."

Lakewood at *2 (citations omitted).

In Davis v. Travelers Property and Casualty Co., 96 F. Supp.2d 995 (N.D, Ca. 2000), the district court comprehensively reviewed the NFIA and the potential preemption of certain state law claims. The court discussed express preemption and field preemption in reference to the state law claims. The court held that Congress did not intend to preempt extra-contractual state law claims and held that Congress, in fact, acknowledged state law claims when it enacted 442 U.S.C. § 4081 (c) which provides that FEMA "may not hold harmless or indemnify an agent or broker for his or her errors or omissions." Id. at 1002. The court reasoned that the NFIA has no provision for holding insurers liable for error or omissions, a logical conclusion to be drawn from this provision is that Congress contemplated that state tort law can apply to the conduct of WYO insurers. See Cohen v. State Farm Fire Cas., t 68 F. Supp.2d 1151, 1157.

It is noted that the cases discussing preemption have not been in the context of a motion to remand. The cases have generally discussed whether certain state law claims have been preempted after NFIA and the regulations promulgated in relation to the Act. However, the reasoning of the cases clearly applies here. The state court clearly has jurisdiction over the state law claims brought here, and there is no basis for federal jurisdiction since there is not a claim for coverage under the policy. Further, it has not been demonstrated to the court that federal funds would be implicated in any way.

Plaintiffs also sought costs and attorney's fees in conjunction with this motion; however, because of the issues involved, the Court finds that such an award is not indicated. Accordingly,

IT IS ORDERED pursuant to 28 U.S.C. § 1447 (c), the motion is GRANTED as to the remand, and this matter is REMANDED to the First Parish Court, Jefferson Parish, Louisiana.

IT IS FURTHER ORDERED that the motion with regard to costs and attorney's fees is DENIED