Opinion
Civil Action No. 03-3476 Section "K" (4).
October 25, 2004
Before the Court is a Motion to Dismiss filed by Omaha Property and Casualty Insurance Company ("Omaha") (Doc.22). Pursuant to Fed.R.Civ.P. 12(b)(6) and (c), defendant seeks dismissal for failure to state a claim upon which relief can be granted of all of plaintiffs' claims except for plaintiffs' breach of contract action for covered benefits under plaintiffs' National Flood Insurance Program Standard Flood Insurance Policy. Plaintiffs are C.W. "Bo" Gallup and Susan Mock Gallup("Gallups"). Oral argument was heard on September 1, 2004. The Court has reviewed the pleadings, memoranda and the relevant law and finds as follows.
I. FACTUAL ALLEGATIONS
The Gallups purchased a Standard Flood Insurance Policy ("SFIP") from defendant Omaha for their home and its contents in Covington, Louisiana throughout 2002 and 2003. (Complaint ¶ 5). Omaha provides flood insurance through the National Flood Insurance Program ("NFIP") under the Federal Emergency Management Agency ("FEMA") which authorizes defendant to function as a "Write-Your Own" insurer. 42 U.S.C. § 4001- 4129.
Plaintiffs contend that on December 24, 2002, a flood occurred reaching their home on the bank of the Bogue Falaya River in Covington, Louisiana. (Complaint ¶ 8). Following the flood, plaintiffs consulted an architect and engineer who determined that the flood had caused damage to the structure of their home and placed them at risk for personal injury. (Complaint ¶ 9). On February 21, 2003 plaintiffs filed a Proof of Loss with the defendant for $210,000, the insured's replacement value of the home. (Complaint ¶ 9). Omaha sent out a professional engineer to inspect plaintiffs' home who recommended repairs consisting of "at least" two deep screw anchor pilings under the home to restore the structural integrity. (Complaint ¶ 10). He also stated that the foundation system of the plaintiffs' home had not suffered any "deleterious effects from the flood," and the damage is "limited to soil loss from underneath the home." (Complaint ¶ 11).
On April 1, 2003, Omaha notified the Gallups that it had "modified" their claim by $201,358.75, paying only the amount it would cost to replace the soil beneath the home. (Complaint ¶ 12). Before the plaintiffs could file suit on Claim I, Tropical Storm Bill caused another flood ("Flood II") on June 30, 2003. (Complaint ¶ 15). Plaintiffs allege that Flood II severely damaged their home, causing part of their home to sag, as well as completely undermining several of the footings supporting the piers that elevate their home. (Complaint ¶ 19). The plaintiffs filed another Proof of Loss under the same policy with the defendant on August 26, 2003 seeking $209, 585, the total replacement value of the home minus the deductible. (Complaint ¶ 20). The defendant denied the plaintiffs' claim and offered the plaintiffs $3,360.37 under Claim II. (Complaint ¶ 35). Plaintiffs allege that defendant reduced coverage for Claim II because plaintiffs failed to replace the soil underneath their home after Flood I, even though one of defendant's inspectors admitted that replacement of the soil was a futile remedy for the damage caused by Flood I. (Complaint ¶ 31).
Subsequently, on December 1, 2003, the plaintiffs filed suit against the defendant alleging (1) breach of contract on Claims I and II under federal common law; (2) breach of the duty of good faith and fair dealing under federal common law on Claims I and II; (3) bad faith breach of contract on Claims I and II under La. Civ. Code art. 1997; and (4) bad faith adjustment of Claim II under La.Rev.Stat. 22:1220. The Court will focus on the dismissal of plaintiffs' extra-contractual state law claim under La. Civ. Code art. 1997. Then, the Court will consider plaintiffs' claim for bad faith adjustment under La.Rev.Stat. 22:1220 and plaintiffs' claims for breach of the duty of good faith and fair dealing under federal common law.
II. LEGAL STANDARD
When a defendant attacks the complaint because it fails to state a legally cognizable claim, Rule 12(b)(6) provides the appropriate challenge. The test for determining the sufficiency of a complaint under Rule 12(b)(6) is that "'a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.'" Hitt v. City of Pasadena, 561 F.2d 606, 608 (5th Cir. 1977) (per curiam) (citing Conley v. Gibson, 355 U.S. 41, 45-46 (1957)). The Fifth Circuit explained:
Subsumed within the rigorous standard of the Conley test is the requirement that the plaintiff's complaint be stated with enough clarity to enable a court or an opposing party to determine whether a claim is sufficiently alleged. Elliott v. Foufas, 867 F.2d 877, 880 (5th Cir. 1989). Further, "the plaintiff's complaint is to be construed in a light most favorable to plaintiff, and the allegations contained therein are to be taken as true." Oppenheimer v. Prudential Securities, Inc. 94 F.3d 189, 194 (5th Cir. 1996). This is consistent with the well-established policy that the plaintiff be given every opportunity to state a claim. Hitt v. City of Pasadena, 561 F.2d 606, 608 (5th Cir. 1977) (per curiam). In other words, a motion to dismiss an action for failure to state a claim" admits the facts alleged in the complaint, but challenges plaintiff's rights to relief based upon those facts." Tel-Phonic Servs., Inc. v. TBS Int'l, Inc., 975 F.2d 1134, 1137 (5th Cir. 1992). Finally, when considering a Rule 12(b)(6) motion to dismiss for failure to state a claim, the district court must examine the complaint to determine whether the allegations provide relief on any possible theory. Cinel v. Connick, 15 F.3d 1338, 1341 (5th Cir. 1994).
Defendant also seeks dismissal of plaintiffs' claims pursuant to Rule 12(c), i.e., a motion for judgment on the pleadings. The standard of review is similar to that under Rule 12(b), and a court must "look only at the pleadings and accept them as true." St. Paul Ins. of Bellaire v. AFIA Worldwide Ins., 937 F.2d 274, 279 (5th Cir. 1991). The district court in Park Center, Inc. v. Champion International Corp., 804 F.Supp 294, 301 (S.D.Ala. 1992), provided a succinct summary of the standard of review on a motion for judgment on the pleadings:
On a motion for judgment on the pleadings, Federal Rule of Civil Procedure 12(c) requires the Court to view the pleadings in the light most favorable to, and to draw all reasonable inferences in favor of, the nonmovant. The Court may grant judgment on the pleadings if it appears beyond doubt that the non-movant [sic] can plead or prove no set of facts in support of his claim which would entitle him to relief. Judgment on the pleadings is also appropriate where material facts are undisputed and where judgment on the merits is possible merely by considering the contents of the pleadings. The Court may grant judgment on the pleadings only if, on the admitted facts, the moving party is clearly entitled to judgment.
(citations omitted.) See also Greenbert v. General Mills Fun Group, Inc., 478 F.2d 254, 256 (5th Cir. 1973) (comparing motion for judgment on the pleadings to motion for summary judgment); Wright Miller, Federal Practice Procedure: Civil 2d § 1368.
III. BACKGROUND
The National Flood Insurance Program
The National Flood Insurance Act of 1968 ("the Act") established the National Flood Insurance Program. 42 U.S.C. §§ 4001- 4129. Two of the main purposes of the National Flood Insurance Act are to "substantially increase the limits of coverage authorized under the national flood insurance program" and to "require States or local communities, as a condition of future Federal financial assistance, to participate in the flood insurance program and to adopt adequate flood plain ordinances . . . consistent with Federal standards to reduce or avoid future flood losses." 42 U.S.C. § 4002(b)(1) and (3). Furthermore, the Act is meant to "encourage State and local governments to make appropriate land use adjustments to constrict the development of land which is exposed to flood damage and minimize damage caused by flood losses." 42 U.S.C. § 4001(e). Initially, the National Flood Insurance Program was operated primarily through the National Flood Insurance Association, an incorporated pool of private insurance companies. Spence v. Omaha Indemnity Ins. Co., 996 F.2d 793, 794 n. 1 (5th Cir. 1993). Pursuant to this arrangement, if a pool company refused to pay a claim under the flood insurance policy, the insured was permitted to sue the pool insurance company for the "disallowance or partial disallowance of the claim" in Federal District Court. 42 U.S.C. § 4053. On January 1, 1978 HUD terminated the National Flood Insurance Association program and assumed all operational responsibilities, making FEMA principally responsible for its operation, pursuant to 42 U.S.C. § 4071. Spence, 996 F.2d at 794, n. 1. The new arrangement, referred to as Part "B" of the NFIP, is administered by FEMA through the Flood Insurance Administration.
In 1983, FEMA promulgated regulations that provided for claims adjustment by private insurers operating as "Write-Your-Own" insurance companies ("WYO's"). 44 C.F.R. §§ 61.13(f), 62.23(a). The flood insurance policies issued under the NFIP are called Standard Flood Insurance Policies ("SFIP"). An SFIP may be purchased directly from FEMA, see 44 C.F.R. § 62.3(c) or through a WYO carrier. 44 C.F.R. § 61.13(f). The relationship between FEMA and WYO carriers is defined in 44 C.F.R. Pt. 62., App. A.
Premiums paid are remitted to the Flood Insurance Administration. 44 C.F.R. Pt. 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 WYO company issue 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 253, 256 (5th Cir. 1987). WYO companies shall act as "fiscal agents" of the United States, but not as "general agents." 42 U.S.C. § 4071(a)(1); 44 C.F.R. § 62.23(g). WYO companies issue SFIP's in their own names. 44 C.F.R. § 61.13(f), 62.23(a). However, in order to maintain control over the provisions of the flood insurance policy, the government does not allow the WYO companies to alter the SFIP's. 44 C.F.R. §§ 61.4(b), 61.13(d). FEMA regulations establish the terms of the SFIP, the rate structures, and premium costs. 42 U.S.C. § 4013. Yet, WYO companies have substantial autonomy in the marketing and handling of their claims. "In carrying out its function under this subpart, a WYO Company shall use its own customary standards, staff and independent contractor resources, as it would in the ordinary and necessary conduct of its own business affairs, subject to the Act and regulations prescribed by the Administrator under the Act." 44 C.F.R. § 62.23(e).
Critical to defendant's motion is the Amendment to the SFIP as proposed by FEMA which became effective on December 31, 2000 ("Amendment"). The Amendment changed the SFIP to include the following language:
IX. What Law Governs
This policy and all disputes arising from the handling of any claim under the policy are governed exclusively by the flood insurance regulations issued by FEMA, the National Flood Insurance Act of 1968, as amended ( 42 U.S.C. 4001 et. seq.), and Federal common law.44 C.F.R. pt. 61, App. A(1), Art. IX (2001) (emphasis added).
Prior to the Amendment, the SFIP included the following language: "Article 9-What Law Governs: This policy is governed by the flood insurance regulations issued by FEMA, the National Flood Insurance Act of 1968, as amended ( 42 U.S.C. 4001, et seq.) and Federal Common Law." 44 CFR pt. 61, App.A(2). Art. 9.
In promulgating this Amendment, FEMA provided the following explanation:
[W]e have clarified the policy language pertaining to jurisdiction, venue, and applicable law to emphasize that matters pertaining to the Standard Flood Insurance Policy, including issues relating to and arising out of claims handling, must be heard in Federal Court and are governed exclusively by Federal law.65 F.R. 34824 at 34827(2000).
Recently courts have begun to note the Amendment to the SFIP; however, these courts have not applied the Amendment to its analysis of extra-contractual claims. Richmond Printing LLC v. Director of Federal Emergency Management Agency, 72 Fed. App. 92, 2003 WL 21697457 at *2(noting the inclusion of Article IX and limiting discussion of preemption to claims which arose prior to that date); Battle v. Seibels Bruce Ins. Co., 288 F.3d 596, 607 (4th Cir. 2002) (noting the provision and FEMA's explanation). Other courts recognizing the Amendment concluded that it expressly preempts state law claims. Peal v. North Carolina Farm Bureau Mutual Ins. Co., Inc., 212 F.Supp. 508, 514(noting Article IX was effective Dec. 31, 2000 and stating that "[b]ecause the plaintiff's policy was issued prior to December 31, 2000, the expanded breadth of the express preemption clause is not applicable to this dispute"); Scherz v. South Carolina Ins. Co., 112 F.Supp 2d. 1000, 1005("This proposed change, if eventually adopted as an agency regulation and incorporated into future SFIP's, will expressly preempt state-law claims such as Scherz's implied covenant claim."); Gibson v. American Bankers Ins. Co., 289 F.3d 943, 955 n. 5 ("FEMA promulgated this new regulation with the clear intent of preempting state-law tort claims."); Eaker v. State Farm Fire Casualty Ins. Co., 216 F.Supp. 2d 606, 621(S.D.Miss. 2001) (describing Article IX as "clearly and unambiguously" stating FEMA's policy to preempt); Pecarovich v. Allstate Ins. Co., 272 F.Supp.2d 981, 986(C.D.Ca. 2003) ("The fact that an express preemption provision has since been added does not impact claims submitted prior to the amendment."); Brown v. Omaha Property and Casualty Ins. Co., Civ. Action SA-03-CA-721-FB, (W.D.TX. Dec.5, 2003) ("Courts considering the inclusion of Article IX in the SFIP have concluded that the provision expressly preempts state-law claims for federal flood insurance disputes."); Hayes et al. v. Allstate Ins. Co., CV 03-JEO-3343-S (N.D. ALA., June 14, 2004) ("It is now clear that Congress has expressly preempted state law claims for relief under federal flood insurance policy disputes relating to and arising out of claims handling.").
In support of its motion, defendant argues that the plaintiffs' state law claims are preempted based upon the Amendment to the SFIP which expressly preempted state-law-based claims. Plaintiffs argue that the Director of FEMA exceeded his statutory authority or acted arbitrarily in enacting the provision. It is clear from the plain language of the Amendment that extra-contractual state law claims are expressly preempted. However, FEMA has added the Amendment, not Congress, and, thus, this Court is unwilling to conclude, without proper analysis, that FEMA had the authority to do so.
IV. ANALYSIS DID FEMA EXCEED ITS AUTHORITY?
A. Preemption Doctrine
Congress has authority to preempt state law under the Supremacy Clause of Art. VI of the Constitution. U.S. Const., Art. VI, cl. 2. Preemption occurs when Congress enacts a federal statute that expresses a clear intent to preempt state law. Jones v. Rath Packing Co., 430 U.S. 519, 525, 97 S.Ct. 1305, 1309, 51 L.Ed.2d 604 (1977); English v. General Electric Co., 496 U.S. 72, 78-79, 110 S.Ct 2270, 2275, 110 L.Ed.2d 65 (1990). Without explicit preemptive language in the statute, state law is preempted when it regulates conduct in a field that Congress intended to occupy because "the Act of Congress may touch a field in which the federal interest is so dominant that the federal system will be assumed to preclude enforcement of state laws on the same subject." Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230, 67 S.Ct. 1146, 1152, 91 L.Ed. 1447 (1947); English, 496 U.S. at 79, 110 S.Ct. at 2275. Finally, state law is preempted to the extent it directly conflicts with federal law. Preemption under these circumstances may be found when "compliance with both federal and state regulations is a physical impossibility" or state law "frustrates the objectives of Congress." Florida Lime Avocado Growers, Inc., 373 U.S. 132, 142-43, 83 S.Ct. 1210, 1217, L.Ed.2d 248 (1963); English, 496 U.S. at 79, 110 S.Ct. at 2275. All three types of preemption are based upon congressional intent to displace state power. Louisiana Pub. Serv. Comm'n v. FCC, 476 U.S. 355, 369, 106 S.Ct. 1890, 1899, 90 L.Ed. 2d 369 (1986).
There is a presumption against preemption, especially in those circumstances where state police powers are involved.
[B]ecause the States are independent sovereigns in our federal system, we have long presumed that Congress does not cavalierly preempt state-law cause of action. In all preemption cases, and particularly in those in which Congress has 'legislated in a field which the States have traditionally occupied," we "start with the assumption that the historic police powers of the States were not to be superseded by the Federal Act unless that was the clear and manifest purpose of Congress."Rice, 331 U.S. at 230, 67 S.Ct. at 1152.
"It has been noted that federal courts are generally 'reluctan[t] to infer preemption in ambiguous cases.'" First Gibraltar Bank, FSB v. Morales, 19 F.3d 1032, 1040 (5th Cir. 1994), rev'd on other grounds, First Gibralter Bank, FSB v. Morales, 42 F.3d 895 (5th Cir. 1995).
Prior to the inclusion of the Amendment in the SFIP, several courts addressed the issue of preemption based upon a statutory analysis. The issue of whether federal law preempted extra-contractual state law claims pertaining to disputes outside of the contract, not disputes involving coverage under the policy, was unsettled.
Some of these courts recognized the unsettled law on the preemption issue and determined that extra-contractual state law claims were preempted by federal law by referring to the analysis under English, 496 U.S. at 78-79 (1990). Most of these courts found that preemption existed under "conflict" preemption only. See Gibson v. American Bankers Ins. Co., 289 F.3d 943 (6th Cir. 2002); Studio Frames LTD v. Village Ins. Agency, Inc., 2003 WL 1785802 (M.D.N.C) (finding federal preemption based upon "conflict preemption"); Scherz v. South Carolina Ins. Co., 112 F.Supp.2d 1000 (C.D.Ca. 2000) (finding federal preemption based upon "conflict preemption"); Pecarovich v. Allstate Ins. Co., 272 F.Supp.2d 981 (C.D.Ca. 2003) (finding federal preemption based upon "conflict preemption"); Peal v. North Carolina Farm Bureau Mutual Ins. Co., 212 F.Supp.2d 508 (E.D.N.C. 2002) (finding federal preemption based upon "conflict preemption").
Several courts recognized extra-contractual state law claims and held there was no federal preemption. Powers v. Autin-Gettys-Cohen Ins. Agency, Inc., 2000 WL 1593401 (E.D.La.); Moore et al. v. USAA General Indemnity Co., 2002 WL 31886719 (E.D.La.); Bleeker v. Standard Fire Ins. Co., 130 F.Supp. 2d 726 (E.D.N.C. 2000); Houck v. State Farm Fire and Casualty Co., 194 F.Supp.2d 452 (D.S.C. 2002); Stanton v. State Farm Fire and Cas. Co., Inc. 78 F.Supp.2d 1029 (D.S.D. 1999); Moore v. Allstate Ins. Co., 995 P.2d 231, 237 (Alaska 2000).
Particularly, the Fifth Circuit, although it has not applied an analysis under English, has held that extra-contractual state law claims are not preempted. See Spence v. Omaha Indemnity Ins. Co., 996 F.2d 793 (5th Cir. 1993). "While the national policies underlying the NFIP . . . impel our conclusion that federal common law governs claims under flood insurance policies, the same does not apply in actions for tortious misrepresentation against WYO insurers." Id. at 796. The Fifth Circuit in its most recent opinion explained that based on its precedent case law, extra-contractual claims include not only those relating to policy procurement but also bad faith claims adjusting on the contract. See Richmond Printing LLL v. Director Federal Emergency Management Agency, 72 Fed.Appx.92, 2003 WL 21697457 (5th Cir). "We find little reason to draw the distinction desired by the defendants between extracontractual claims arising out of policy procurement and extracontractual claims arising out of claims adjustment." Id. at 4. The Fifth Circuit has established that extracontractual state law claims are not preempted. Thus, the matter before this Court is not a statutory preemption analysis, but an agency preemption analysis.
This Court recognizes that Richmond Printing is an unpublished opinion and thus is not precedent; however, it is persuasive. See Local Rule 47.5.4, Federal Rules of Appellate Procedure With Fifth Circuit Rules and IOP's (2003).
B. Agency Preemption Analysis
Preemption may also occur when a federal agency preempts state law. Louisiana Public Service Comm'n v. F.C.C., 476 U.S. 355, 369, 106 S.Ct. 1890, 1899, L.Ed.2d 369 (1986); Fidelity Federal Savings and Loan Assn. v. de la Cuesta, 458 U.S. 141, 153, 102 S.Ct 3014, 3022, 73 L.Ed.2d 664 (1982); In the matter of Cajun Electric Power Cooperative, 109 F.3d 248, 254 (5th Cir. 1997). "Preemption may result not only from action taken by Congress itself; a federal agency acting within the scope of its congressionally delegated authority may preempt state regulation." Louisiana Pub. Serv. Comm'n, 476 U.S. at 369, 106 S.Ct. at 1899. One of our sister courts describes the distinction between agency and statutory preemption: "'Agency' or 'regulatory' preemption is the half sister of statutory preemption, born of congressional authority, but agency action . . . 'agency' preemption is not born directly of congressional authority drawn from the Supremacy Clause; rather, it is born of congressional authority delegated to an agency." Garrelts v. Smithkline Beecham Corp., 943 F.Supp. 1023, 1036, n. 12 (N.D.Iowa 1996). This court must determine whether "the federal agency has properly exercised its own delegated authority rather than simply whether Congress has exercised the legislative power." City of New York v. Federal Communications Commission et al., 486 U.S. 57, 64, 108 S.Ct. 1637, 1642, 100 L.Ed.2d 48 (1998). In order to make this determination, there are several approaches set out by the Supreme Court which will be outlined below. A seminal approach to agency preemption states the following:
"If [h]is choice represents a reasonable accommodation of conflicting policies that were committed to the agency's care by the statute, we should not disturb it unless it appears from the statute or its legislative history that the accommodation is not one that Congress would have sanctioned."United States v. Shimer, 367 U.S. 374, 383, 81 S.Ct 1554, 1560-61, 6 L.Ed.2d 908(1961); de la Cuesta, 458 U.S. at 154, 102 S.Ct. at 3022-23.
It is well settled that the inquiry of whether an agency has properly preempted state laws or regulations depends upon two questions: 1) whether the agency intended to preempt the state laws or regulations in question, and 2) if so, whether the action was in the scope of the agency's delegated authority. de la Cuesta, 458 U.S. at 154, 102 S.Ct. at 3023; City of New York, 486 U.S. at 65, 108 S.Ct. at 1642-43; First Gibraltar Bank, 19 F.3d at 1040; First Gibraltar Bank, 42 F.3d at 898; Cajun Electric, 109 F.3d at 254. "The critical question in any preemption analysis is whether Congress intended that federal regulation supersede state law." Louisiana Pub. Serv. Comm'n., 476 U.S. at 369, 106 S.Ct. at 1899; Cajun Electric, 109 F.3d at 254.
This Court believes that the deference afforded an agency as articulated in Chevron, U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed. 2d 694 (1984), is not applicable in an agency preemption analysis. The following courts examine agency preemption without mentioning Chevron: City of New York, supra; Louisiana Pub. Serv. Comm'n., supra; Cajun Electric, supra; NCNB Texas Nat'l Bank v. Cowden et al., 895 F.2d 1488 (5th Cir. 1990); New York v. Federal Energy Regulatory Comm., 535 U.S. 1, 122 S.Ct. 1012, 152 L.Ed.2d 47 (2002). A recent Supreme Court decision describing agency preemption analysis stated the following: "Such a case . . . requires us to be certain that Congress has conferred authority on the agency . . . we must interpret the statute to determine whether Congress has given [the agency] the power to act as it has, and we do so without any presumption one way or the other." New York, 535 U.S. at 18, 122 S.Ct. at 1023 (emphasis added). This Court will now apply the various approaches utilized by courts in order to determine whether FEMA had the proper authority to preempt Louisiana extra-contracutal state law claims.
See Garrelts v. Smithkline Beecham Corp., 943 F.Supp. 1023 (N.D.Iowa 1996); Howard P. Walthall, Jr., Chevron v. Federalism: A Reassement of Deference to Administrative Premption, 28 Cumb. L.Rev. 715, 1997-1998; Damien J. Marshall, The Application of Chevron Deference in Regulatory Preemption Cases, 87 Geo. L.J. 263 (1998) for a thorough analysis of Chevron deference in agency preemption analysis.
a. "Conflicting Policies" Analysis
The courts utilizing the Shimer analysis, cited above, "had first determined that the agency had acted to accommodate conflicting policies committed to the agency's care by statute." Garrelts, 953 F.Supp. 1023, 1050 (citing City of New York, 486 U.S. at 69, 108 S.Ct. at 1645; Crisp, 467 U.S. at 707-09, 104 S.Ct. at 2704-06; De la Cuesta, 458 U.S. at 170, 102 S. Ct. at 3031). Essentially, there are two threshold questions: what are the conflicting policies and were they committed to the agency's care by Congress? In City of New York, the "conflicting policies" at issue were state technical standards governing the quality of cable television signals versus the Federal Communications Commission's charge to set "technical standards" relating to facilities and equipment. 486 U.S. at 68-69, 108 S.Ct. at 1644-45. The Court noted that in § 624(e) of the Cable Act, Congress granted the Commission the power to "establish technical standards relating to the facilities and equipment of cable systems which a franchising authority may require in the franchise." Id. The Court noted that any additional technical standards set by state and local authorities would conflict with "the basic objectives of federal policy with respect to cable television." Id. The court "identified those 'proper circumstances' as circumstances that involve a broad grant of authority to reconcile conflicting policies." Garrelts, 943 F.Supp. at 1043 (citing City of New York, 486 U.S. at 64, 10 S.Ct. at 1642).
The issue before the court here is whether to allow state law claims relating to bad faith adjusting of flood insurance policies issued pursuant to the NFIP. This Court does not believe that the agency's decision to preempt state laws was based upon "conflicting policy matters" committed to FEMA by Congress. Undoubtedly, "conflicting policies" could arise that would fall under the Shimer approach. If a state, benefitting from federal funding under the Act, enacts certain zoning laws or develops land in areas which are inconsistent with Federal standards designed to minimize future flood loss, then perhaps a "conflicting policy" under the care of the agency would be before this Court. In such a situation, this Court would not disturb the agency's decision if it is one Congress would have sanctioned. However, before us is a different situation. Thus, the Shimer analysis is not applicable in this case, as the state law relative to bad faith adjusting of claims in not a "conflicting policy."
Furthermore, two cases excluded the Shimer analysis when examining agency preemption, focusing only on whether Congress intended the regulation of an administrative agency to displace state law. Louisiana Public Serv. Comm'n., 476 U.S. at 369-371, 106 S.Ct. at 1898-00; New York, 535 U.S. at 17-19, 122 S.Ct. at 1023-24 (2002).
b. Two Part Inquiry
1. Whether FEMA intended to preempt extra-contractual state law claims?
The first question in the two-part inquiry is whether the Director of FEMA intended to preempt plaintiffs' state law claims under La. Civ. Code art. 1997? In this case, the Amendment clearly intends to preempt plaintiffs' state law claims as it states "[t]his policy and all disputes arising from the handling of any claim under the policy are governed exclusively by . . . Federal common law." 44 C.F.R. pt. 61, app. A(1), art. IX (2001). Furthermore, FEMA's explanation in enacting this Amendment further clarified its intentions: "[W]e have clarified the policy language pertaining to jurisdiction, venue, and applicable law to emphasize that matters pertaining to the Standard Flood Insurance Policy, including issues relating to and arising out of claims handling, must be heard in Federal Court and are governed exclusively by Federal law." 65 F.R. 34824 at 34837 (2000). As discussed above, courts recognizing the Amendment clearly state that FEMA expressly intended to preempt extra-contractual state law claims.
2. Whether Congress has given FEMA the authority to preempt extra-contractual state law claims?
Under the second prong of this analysis, congressional intent is critical. City of New York, 486 U.S. at 66, 108 S.Ct. at 1643; Louisiana Pub. Serv. Comm'n, 476 U.S. at 374, 106 S.Ct. at 1901; New York, 535 U.S. at 18, 122 S.Ct. at 1023; Garrelts, 943 F. Supp. at 1061. "[A] federal agency may preempt state law only when and if it is acting within the scope of its congressionally delegated authority. This is true for at least two reasons. First, an agency literally has no power to act, let alone preempt the validly enacted legislation of a sovereign state, unless and until Congress confers power upon it. Second, the best way of determining whether Congress intended the regulations of an administrative agency to displace state law is to examine the nature and scope of the authority granted by Congress to the agency." Louisiana Pub. Serv. Comm'n, 476 U.S. at 374, 106 S.Ct. at 1901. Courts explain that a preemptive regulation's force does not depend upon "express congressional authorization to displace state law," instead, "the correct focus is on the federal agency that seeks to displace state law and the proper bounds of its lawful authority to undertake such action." City of New York, 486 U.S. at 64, 108 S.Ct. at 1642; de la Cuesta, 458 U.S. 141, 154, 102 S.Ct. 3014, 3023, 73 L.Ed.2d 664.
Congress has delegated a broad grant of authority to the Director of FEMA in several statutes of the NFIA. However, none of these statutes, in their scope or nature, pertain to the authority to preempt extra-contractual state law claims. Congress explicitly granted authority to FEMA to regulate the following areas: under 42 U.S.C. § 4011, to establish the flood insurance program in order to enable persons to purchase insurance resulting from flood loss; under 42 U.S.C. § 4013, to provide the terms and conditions of insurance coverage, including the classes, types, and locations of properties that are eligible for flood insurance, limits of loss, premiums, loss deductibles; under 42 U.S.C. § 4019, to establish the method used for payment and adjustment for paid and unpaid claims; under 42 U.S.C. § 4020, to disseminate information and data to the public pertaining to the coverage and objectives of the flood insurance program; under 42 U.S.C. § 4081, to enter into contracts and agreements with flood insurance companies, agents, or brokers; under 42 U.S.C. § 4083 to make final settlement of claims arising out of financial transactions through the use of arbitration. These statutes neither expressly grant authority to FEMA to preempt state laws nor do these statutes show an intention by Congress to do so. They address specific subject matters, none of which pertain to judicial review, federal jurisdiction, applicability of state law or federal common law. Although the statues give a considerable amount of authority to the Director, it would be unreasonable to read into any one of them, considering the plain language of the statutes and their minimal legislative histories, that Congress intended for these specific authority granting statues to encompass the power to preempt state law claims.
42 U.S.C. § 4011 provides: "To carry out the purposes of this chapter, the Director of the Federal Emergency Management Agency is authorized to establish and carry out a national flood insurance program which will enable interested persons to purchase insurance against loss resulting from physical damage to or loss of real property or personal property related thereto arising from any flood occurring in the United States."
42 U.S.C. § 4013(a)(6) provides in pertinent part: "The Director shall . . . provide by regulation for general terms and conditions of insurability which shall be applicable to properties eligible for flood insurance coverage . . . including any other terms or conditions relating to insurance coverage or exclusion which may be necessary to carry out the purposes of this chapter." The Fifth Circuit examined this statute and the regulation promulgated thereunder. Spence v. Omaha Indemnity Ins. Co., 996 F.2d 793 (5th Cir. 1993). Referring to the statutory authority under § 4013, the Court noted, "FEMA, acting well within its statutory rulemaking authority, has established a one-year limitations period governing actions to recover against WYO companies under SFIPs." Id. at 795. Article VIII(Q) of the SFIP which FEMA established provides that any action against a WYO insurer to recover money under the policy must be bought within one year from the date of notice of disallowance or partial disallowance. Id. The court, however, held that this statute of limitations did not apply to the plaintiffs' tortious claims against the WYO insurers. Id. at 796. Therefore, under this court's reading, § 4013 does not provide authorization to preempt plaintiffs' state law claims in the issue before this court.
42 U.S.C. § 4019 provides: "The Director is authorized to prescribe regulations establishing the general method or methods by which proved and approved claims for losses may be adjusted and paid for any damage to or loss of property which is covered by flood insurance made available under the provisions of this chapter." Pursuant to this statutory authorization, FEMA has stated that a "WYO Company issuing flood insurance coverage shall arrange for the adjustment, settlement, payment and defense of all claims arising from policies of flood insurance it issues under the Program, based upon the terms and conditions of the Standard Flood Insurance Policy." 44 C.F.R. 62.23(d). FEMA will reimburse the WYO insurer for costs associated with defending suits regarding the handling of a claim. 44 C.F.R. Pt. 62, App. A, Art. III(C); however, FEMA will not reimburse the WYO if FEMA determines the WYO acted outside the scope of the agreement between FEMA and the WYO. 44 C.F.R. Pt. 62, App. A, Art. III(D)(4).
The Fifth Circuit has examined the meaning of 42 U.S.C. § 4019: "Congress has undertaken to regulate the claims adjustment process and judicial review thereof, and nowhere in these statutory sections or in the regulations implementing them . . . is there any mention of use of the statutory law of the forum state on any issue." West v. Harris, 573 F.2d 873, 880 (5th Cir. 1978). In this case, the plaintiff sued for penalty and attorney's fees for the arbitrary refusal of an insurer to pay a claims under La.Rev.Stat. Ann. 22:658 and the availability of prejudgment interest to a prevailing plaintiff in an action brought on a flood insurance policy. Id. at 879. It is important to note that the plaintiff's claims specifically pertained to the coverage of the policy. The Court denied the attorney's fees and prejudgement interest because, "[t]he federal scheme, which this policy provision recognizes to be controlling, simply differs from the Louisiana scheme with respect to available remedies against an insurer who disallows claims. In sum, federal law controls disputes over the coverage of insurance policies." Id. at 881 (emphasis added). The West Court is specifically referring to coverage: "[C]ongress granted jurisdiction in cases involving denials of claims under flood insurance policies to United States district courts." Id. at 880. Therefore, under § 4019, Congress granted the Director authority to prescribe regulations pertaining to methods used specifically for coverage, that is, whether an insurer allows or disallows claims.
The Gallups allege that Omaha acted in bad faith in handling their claims under La. Civ. Code art. 1997 which provides: "An obligor in bad faith is liable for all the damages, foreseeable or not, that are a direct consequence of his failure to perform." The Revision Comments include the following: "Bad Faith . . . conveys the intended meaning here, that is, an intentional and malicious failure to perform." For the purposes of a 12(b)(6) Motion, the plaintiffs have adequately alleged bad faith claims which are separate and distinct from claims for the allowance or disallowance of claims on the policy. Thus, plaintiffs' state law claim, under La. Civ. Code art. 1997, does not fall under the West Court's holding which refers specifically to a claim regarding coverage under the policy.
42 U.S.C. § 4020(1)(2) provides in pertinent part: "The Director shall . . . take such action . . . to make information and data available to the public . . . with regard to the flood insurance program, its coverage and objectives, and estimated and chargeable flood insurance premium rates."
42 U.S.C. § 4081 provides in pertinent part: "The Director is authorized to enter into any contracts, agreements . . . which may be necessary for the purpose of utilizing . . . insurance companies or other insurers."
42 U.S.C. § 4083 provides in pertinent part: "The Director is authorized to make final settlement of any claims or demands which may arise as a result of any financial transactions which he is authorized to carry out under this subchapter, and may . . . refer any disputes relating to such claims or demands to arbitration."
Section 4128 of Title 42 of the United States Code provides a general broad grant of authority to the Director of FEMA, without specifying any subject matter. It provides: "The Director is authorized to issue such regulations as may be necessary to carry out the purpose of this Act." The question remains whether Congress intended for the Director of FEMA to preempt extra-contractual state law claims under this particular statute. When faced with a statute similar to the one here, courts have looked to the purpose of the Act and the entire statutory scheme to determine the intention of Congress. de la Cuesta, 459 U.S. 141, 102 S.Ct. 3014; Shimer, 367 U.S. 374, 81 S.Ct. 1554. Louisiana Pub. Serv. Comm., 476 U.S. at 359, 106 S.Ct at 1894. "In our view, the language, structure, and legislative history of the Act best support the petitioners' position that the Act denies the [agency] the power to dictate to the States as it has in these cases." Louisiana Publ. Serv. Comm., 476 U.S. at 359, 106 S.Ct. at 1894. Courts cannot assume that a general and broad granting statute such as § 4128 confers limitless authority upon an agency to do as it wishes; any action taken must be within the purposes of the Act and the statutory structure.
42 U.S.C. § 4128(b) provides: "The head of each Federal agency that administers a program of financial assistance relating to the acquisition, construction, reconstructions, repair, or improvement of publicly or privately owned land or facilities, and each Federal instrumentality responsible for the supervision, approval, regulation, or insuring of banks, savings and loan associations, or similar institutions, shall, in cooperation with the Director, issue appropriate rules and regulations to govern the carrying out of the agency's responsibilities under this Act."
Does the Purpose of the Act reflect Congress' intention to preempt extra-contractual state law claims?
The de la Cuesta Court, determining that the purpose of the Act evidenced Congress' intent to preempt state laws, is instructive. In de la Cuesta, the Court considered the Home Owners' Loan Act of 1933 (HOLA). The purpose of the Act was to create a system of federal savings and loan associations in order to provide relief for home mortgage indebtedness because a large number of loans were in default. de la Cuesta, 467 U.S. at 159, 102 S.Ct. at 3025. Pursuant to a broad grant of authority, the agency included due-on-sales clauses in the savings and loan associations' mortgage contracts which preempted conflicting state limitations on due-on-sale practices. Id. at 169-170, 102 S.Ct. at 3030-31. The de la Cuesta Court held that "[t]he language and history of the HOLA convince us that Congress delegated to the Board ample authority to regulate the lending practices of federal savings and loans so as to further the Act's purposes, and that [the regulation] is consistent with those purposes."
"The broad language of § 5(a) expresses no limits on the Board's authority to regulate the lending practices of federal savings and loans. . . . '[i]t would have been difficult for Congress to give the Bank Board a broader mandate.'" Id. at 161, 3026.
The regulation provided that the due-on-sales practices of federal savings and loan associations "'shall be governed exclusively by Federal law' and that the association 'shall not be bound by or subject to any conflicting State law which imposes different . . . due on sales requirements.'" 458 U.S. at 141, S.Ct. at 3017.
The purpose of the NFIA is to provide flood insurance under the federal government. Moreover, a corollary purpose, is to encourage state and local governments to adopt regulations relating to residential and commercial development in flood prone areas. 42 U.S.C. §§ 4001- 4002. It was not the intention of Congress to regulate the insurance industry or the state laws relating to the bad faith adjustment of claims.
In addition, the difference in the preemptive effect in de la Cuesta and the matter before us is worth noting. In de la Cuesta, California's limitation on the use of "due-on-sale" clauses was preempted by the agency's required use of these clauses in their mortgage contracts. The preemptive effect in the matter before us concerns denying any available state law remedies a claimant may have against an insurance company who may be acting negligently, maliciously, or in bad faith. In de la Cuesta, due-on-sale clauses were a necessary requirement to effect the Act's purposes to regulate federal savings and loan associations, just as the SFIP and its requirements are an integral part to the success of the goals of the NFIA. However, as we have here, a claimant's remedies against an insurance company for bad faith adjusting are far more attenuated from the congressional purposes of the NFIA. Therefore, the purposes of the Act do not in this Court's mind reflect an intention by Congress to preempt plaintiffs' extra-contractual bad faith claims.
Does the statutory scheme reflect Congress' intent to preempt extra-contractual state law claims?
Courts also focus on the entire statutory scheme to determine Congressional intent to delegate preemptive authority. Louisiana Pub. Serv.Comm, 476 U.S. at 369-379, 106 S.Ct. At 1899-1903; Cajun Electric, 109 F.3d at 255-58; First Gibraltar, 42 F.3d at 899-902. "An agency may not confer power upon itself. To permit an agency to expand its power in the face of a congressional limitation on its jurisdiction would be to grant to the agency power to override Congress. This we are both unwilling and unable to do." Louisiana Pub. Serv. Comm, 476 U.S. at 377, 106 S.Ct. at 1903. FEMA expanded its power by preempting extra-contractual state law claims, considering the language and meaning of §§ 4081(c) and 4072 under the NFIA.
42 U.S.C. § 4081 specifically covers the arrangements for the insurance industries participating in the National Flood Insurance Program. Section 4081(c) specifically provides in pertinent part: "The Director of the Federal Emergency Management Agency may not hold harmless or indemnify an agent or broker for his or her error or omission." The plain language of this statute clearly anticipates claims against entities for which FEMA will not be held liable. Courts have relied upon § 4081(c) in precluding any intention on the part of Congress to preempt extra-contracutal state law tort claims because the statute plainly contemplates claims against brokers and agents for their own errors or omissions. Cohen v. State Farm Fire Cas., 68 F.Supp.2d 1151, 1158, n. 9 (C.D.Cal. 1999); Scherz, 112 F.Supp.2d 1000, 1005 (C.D.Cal. 2000); Stanton v. State Farm Fire Cas. Co., 78 F.Supp.2d 1029 (D.S.D. 1999); Davis v. Travelers Property and Cas. Co., 96 F.Supp.2d 995 (N.D.Cal. 2000) ("Given that the NFIA has no provision for holding insurers liable for error or omissions, a logical conclusion . . . is that Congress contemplated that state tort law could apply to the conduct of WYO insurers"); Bleeker v. Standard Fire Ins. Co., 130 F.Supp.2d 726, 734(E.D.N.C. 2000) ("As NFIA does not provide a cause of action for an insurance agent's 'error or omission,' it is logical to conclude that Congress intended for plaintiffs to avail state law remedies to address an insurer's tortious misconduct."); Gibson, 289 F.3d at 953 (Moore, J., dissenting) ("Because the NFIA makes no explicit provision for insureds to sue WYO insurers for such errors and omissions, the logical conclusion is that Congress intended insureds to employ state tort law to sue WYO insurers in such circumstances."); Powers, 2000 WL 1593401 at 3; Richmond Printing LLC, 72 Fed.Appx.92, 2003 WL 21697457 at 4; Spence, 996 F.2d at 797, n. 17
The complete text of § 4081(c) provides: "The Director of the Federal Emergency Management Agency shall hold any agent or broker selling of undertaking to sell flood insurance under this chapter harmless from any judgment for damages against such agent or broker as a result of any court action by a policyholder or applicant arising out of an error or omission on the part of the Federal Emergency Management Agency, and shall provide any such agent or broker with indemnification, including court costs and reasonable attorney fees, arising out of and caused by an error or omission on the part of the Federal Emergency Management Agency and its contractors. The Director of the Federal Emergency Management Agency may not hold harmless or indemnify an agent or broker for his or her error or omission."
The defendant argues that this statute does not apply to insurance companies because it was written prior to the time insurance companies were involved in issuing SFIP's. Although it is true that § 4081(c) was written before insurance companies were participating in the program, this fact does not convince us that Congress intended to preempt state law claims for error or omissions by whomever was assisting FEMA in handling the policy at the time, whether it be agents, brokers, and now insurance companies. Furthermore, courts have squarely addressed this issue and determined that § 4081(c) includes insurance companies as well as agents or brokers: "[E]lsewhere FEMA appears to place insurance companies and agents in the same status. 44 C.F.R.Pt. 62 App.A Art. III(D)(4). Moreover, if state tort law applies to claims against agents and brokers, then Congress did not intend that only federal law would occupy the general field of flood insurance." Scherz, 112 F.Supp. at 1005; Cohen, 68 F.Supp. at 1157.
Courts have also interpreted § 4072 to stand for the principle that state law claims are not preempted by NFIA. § 4072 defines where certain kinds of claims under the SFIP are to be brought:
[T]he Director shall be authorized to adjust and make payment of any claims for proved and approved losses covered by flood insurance, and upon the disallowance by the Director of any such claim, or upon the refusal of the claimant to accept the amount allowed upon such claim, the claimant, within one year after the date of mailing of notice of disallowance or partial disallowance by the Director, may institute an action against the Director on such claim in the United States district court.
This statute grants the district court jurisdiction for the allowance or disallowance of claims under the policy. It is well settled that this statute also provides federal jurisdiction for suits against WYO insurance companies for the disallowance or allowance of claims under the policy. However, many courts have interpreted this statute to specifically exclude extracontractual state law claims against WYO insurance companies and have either remanded them back to state courts, Powers, 2000 WL 1593401(E.D.La. 2000); Moore, 2002 WL 31886719 (E.D.La. 2002), or have heard them in federal courts. Van Holt v. Liberty Mutual Insurance Co., 163 F.3d 161, 166-168 (3rd Cir. 1998); Spence, 996 F.2d at 796-97 ("Likewise, 42 U.S.C. § 4072 addresses itself solely to actions arising from partial or complete disallowance of flood insurance policy claims."); Bleeker, 130 F. Supp. at 734-35 (noting that the legislative history behind § 4053 under Part A(the counterpart of § 4072) stated that claimants will file lawsuits in federal courts for the allowance or disallowance of a claim, but that "Claimants could, of course, also avail themselves of legal remedies in State courts.") (citing H.Rep. No. 90-1585, reprinted in 1968 U.S.C.C.A.N. 2873, 3022).
The point relevant to the issue in this case is not necessarily where these claims are brought, but only that these claims are indeed recognized not only under § 4081(c), but under § 4072 as well. Other courts have interpreted these statutes as preempting state law; however, the Fifth Circuit has not done so. Furthermore, the Supreme Court has shown great caution in finding preemption of state law in ambiguous statutes.
The Fifth Circuit's decision in West, supra, also interprets § 4072. Although it does not address the existence of extra-contractual state law claims, West stands for the interpretation that § 4072 only applies to lawsuits pertaining to the coverage of the policy. See also Scherz, 112 F.Supp at 1006. "[I]n West, the Court of Appeals did not expressly address whether NFIA preempts independent state law tort claims; it only ruled on the availability of a state-based remedy for what is directly justiciable under the NFIA, i.e., a breach of contract claim." Id.
Medtronic's sweeping interpretation of the statute would require far greater interference with state legal remedies, producing a serious intrusion into state sovereignty while simultaneously wiping out the possibility of remedy for the [plaintiff's] alleged injuries. Given the ambiguities and the scope of the preclusion that would otherwise occur, we cannot accept . . . Congress clearly signaled an intent to deprive States of any role in protecting the consumers.Medtronic, Inc. v. Lohr, 518 U.S. 470, 488-89, 116 S.Ct. 2240, 2252, 135 L.Ed.2d 700 (1996). Preemption will not be found unless it is the "clear and manifest purpose of Congress." Rice, 331 U.S. at 239, 67 S.Ct. at 1146.
"As we so often admonish, only Congress can rewrite th[ese] statute[s]." Louisiana Pub. Serv. Comm, 476 U.S. at 377, 106 S.Ct. at 1903. "Like many statutes, the Act contains some internal inconsistencies, vague language, and areas of uncertainty. It is not a perfect puzzle into which all the pieces fit. Thus, it is with the recognition that there are not crisp answers to all of the contentions of either party that we conclude [§ 4081(c) and § 4072] represent a bar to federal preemption." Id. at 379 and 1903. Thus, the entire statutory scheme leads this Court to believe that Congress did not intend to preempt extra-contractual state law claims nor did it delegate FEMA this authority under § 4128. Assuming arguendo that § 4128 allowed FEMA to preempt state law claims in light of the existence of § 4081(c) and § 4072, then these Congressional statues would become meaningless. New agency preemption principles would emerge standing for the proposition that an agency regulation promulgated under a broad grant of statutory authority may subsume any statutory law to the contrary. Thus, preempting extra-contractual state law claims is not within the scope of FEMA's congressionally delegated authority.
Furthermore, other regulations promulgated by FEMA reinforce this Court's analysis. In describing the relationship between FEMA and WYO insurers, the following regulation anticipates lawsuits against an insurer for which FEMA will not be held liable:
Limitation on Litigation Costs.
a. Following receipt of notice of litigation, the FEMA Office of General Counsel ("OGC"), shall review the information submitted. If the FEMA OGC finds that the litigation is grounded in actins by the Company that are significantly outside the scope of this Arragnement, and/or involves issues of agent negligence, then the FEMA OGC shall make a recommendation to the Administrator regarding whether all or part of the litigation is significantly outside the scope of the Arrangement.
b. In the event the Administrator agrees with the determination of the FEMA OGC . . . then the Company will be notifed in writing within thirty (30) days of the Administrator's decision that any award or judgment for damages and any costs to defend such litigation will not be recognized . . . as a reimbursable loss cost, expense, or expense reimbursement. c, 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.
The term "Company" refers to insurer. 44 C.F.R.Pt. 62, App.A, Art. I. (Effective October 1, 2004.)
44 C.F.R.pt. 62, app A, art. III.D.3. (effective October 1, 2004).
Furthermore, 44 C.F.R. pt. 62, App.A, art. XVI (effective October 1, 2004) states:
Inasmuch a the Federal Government is a guarantor hereunder, the primary relationship between the Company and the Federal Government is one of a fiduciary nature, i.e., to assure that any taxpayer funds are accounted for and appropriately expended. The Company is a fiscal agent of the Federal Government, but is not a general agent of the Federal Government. The Company is solely reasonable for its obligations to its insured under any policy issued pursuant hereto such that the Federal Government is not a proper party to any lawsuit arising out of such policies.
Prior to the amendment effective October 1, 2004, Article XVI read in pertinent part: "The Company is not the agent of the Federal Government. The Company is solely responsible for its obligations to its insured under any flood policy issued pursuant hereto." The amendment added the following language, "such that the Federal Government is not a proper party to any lawsuit arising out of such policies." This amendment promulgated by FEMA anticipates lawsuits arising out of obligations owed by the Company.
Although these regulations do not explicitly provide for state law claims, they do contemplate insurer liability outside the arrangement between the Federal Government and the insurer. Gibson, 289 F.3d at 953 (Moore, J., dissenting). That these claims should be preempted by federal common law is not clear in the statutes or in these particular regulations. Furthermore, under the regulations promulgated by FEMA, WYO companies are required to comply with state laws. "WYO companies may sell flood insurance coverage in any State in which the WYO company is authorized to engage in the business of property insurance." 44 C.F.R. § 62.23(a). Also, "WYO Companies are subject to audit, examination, and regulatory controls of the various states." 44 C.F.R.Pt. 62, App. B(b). If insurer must comply with state laws, then it appears inconsistent that claimants would not have the protection of state law remedies in their relationships with these WYO companies.
V. CONCLUSION
FEMA exceeded its authority in adding the Amendment to the SFIP for the following reasons:
• no statutory provision explicitly or implicitly provides this preemptive authority to FEMA;
• preemption of state law claims is inconsistent with the purpose of the National Flood Insurance Act;
• § 4081(c) and § 4072 suggest that Congress anticipated the existence of extra-contractual state law claims; and
• other regulations promulgated by FEMA present inconsistencies with preemption of state law claims.
The Bleeker Court succinctly explains this court's final reasoning:
NFIA only creates a cause of action when a claimant sues on the flood policy contract. As Congress does not provide a federal remedy for tortious conduct of private insurers, the preemption of state law tort claims would leave an entire area of the insurance field unregulated and immunize private insurers no matter how egregious their conduct. The party that would be forced to shoulder the burden of flood damage losses would be the insured, the party NFIA seeks to protect. If Congress had intended to immunize WYO companies from liability for their own tortious conduct, it would have done so in a more explicit fashion.130 F.Supp.2d at 737.
Based on the collective reasons stated above, this Court finds that FEMA cannot preempt extra-contractual state law claims unless it becomes clear that it is Congress' intent to do so. Thus, Article IX in the SFIP does not apply to this suit. Thus, in accordance with precedent and persuasive Fifth Circuit law, the plaintiffs' extra-contractual state law claim, under La. Civ. Code art. 1997, survives dismissal under Fed. Rule Civ. Procedure 12(b)(6) and 12(c). Plaintiffs' claim under La. Rev. Stat 22:1220 fails because the claim relates to coverage of the policy, which is governed by federal law under 42 U.S.C. § 4072. Stock v. State Farm Ins. Co., 1996 WL 571774 (E.D.La.). Finally, plaintiffs' federal common law claims for breach of good faith and fair dealing are dismissed, as federal common law claims are not applicable since the Court has held that plaintiffs' claim under La. Civ. Code art. 1997 is not preempted.
Accordingly, It is ORDERED that
(1) Defendant's Motion to Dismiss Plaintiffs' State Law Claim under La. Civ. Code art. 1997 is DENIED;
(2) Defendant's Motion to Dismiss Plaintiffs' State Law Claims under La.Rev.Stat. 22:1220 is GRANTED;
(3) Defendant's Motion to Dismiss Plaintiffs' federal common law claims for breach of good faith and fair dealing is GRANTED.