Spong v. Fidelity National Property & Casualty Insurance , 787 F.3d 296 ( 2015 )

Case: 13-41317 Document: 00513052695 Page: 1 Date Filed: 05/22/2015
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
No. 13-41317
Fifth Circuit
FILED
May 22, 2015
ROBERT SPONG; KERRY SPONG, Lyle W. Cayce
Clerk
Plaintiffs–Appellees,
v.
FIDELITY NATIONAL PROPERTY AND CASUALTY INSURANCE
COMPANY; FIDELITY NATIONAL INSURANCE SERVICES, L.L.C.,
Defendants–Appellants.
Appeal from the United States District Court
for the Southern District of Texas
Before STEWART, Chief Judge, and BENAVIDES and OWEN, Circuit Judges.
PRISCILLA R. OWEN, Circuit Judge:
This interlocutory appeal pursuant to 28 U.S.C. § 1292(b) arises from the
issuance and subsequent renewals of a flood insurance policy under the
National Flood Insurance Program (NFIP) covering property owned by Robert
and Kerry Spong. Hurricane Ike swept away all improvements on the Spongs’
property and all personal belongings. The insurer, Fidelity National Property
and Casualty Insurance Company, subsequently advised the Spongs that the
policy was void from its inception because the property was ineligible for flood
insurance under the NFIP. The Spongs sued Fidelity National Property and
Casualty Insurance Co., its affiliate Fidelity National Insurance Services,
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L.L.C., and the United States, asserting a number of federal and state-law
claims. The Fidelity entities (collectively “Fidelity” for purposes of this
opinion) sought summary judgment, asserting, among other grounds, that the
Spongs’ claims were preempted by federal law. Fidelity seeks review of the
denial of that motion. Based on precedent that binds this panel, we conclude
that the Spongs’ state-law causes of action are not preempted by federal law to
the extent that they are insurance procurement claims, but claims that pertain
to or arise out of “claims handling” after the policy issued are preempted.
Additionally, even though not preempted, certain claims cannot succeed as a
matter of law. We remand for further proceedings.
I
Fidelity National Property and Casualty Insurance Co. is a “Write-Your-
Own” (WYO) Program insurance carrier that participates in the issuance of
flood insurance under the National Flood Insurance Act (NFIA). Fidelity
National Insurance Services, L.L.C. is a third-party vendor that services the
federal flood insurance policies issued by Fidelity National Property and
Casualty Insurance Co. The Federal Emergency Management Agency (FEMA)
administers the federal flood insurance program.
In at least two prior decisions, our court has explained the NIFP’s
workings in more detail, 1 and we will not repeat those details today, other than
to note that the exact terms and conditions of NFIP policies and eligibility for
federal flood insurance are dictated by federal law. It is now beyond debate
that the property at issue in the present case is and has been ineligible for
federal flood insurance even before the Spongs purchased it. But two federal
1 See Grissom v. Liberty Mut. Fire Ins. Co., 678 F.3d 397, 399 (5th Cir. 2012); Campo
v. Allstate Ins. Co., 562 F.3d 751, 754 (5th Cir. 2009).
2
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agencies, FEMA and the Fish and Wildlife Service, had erroneously concluded
otherwise at the time the Spongs obtained a policy from Fidelity.
In recounting the pertinent facts, we consider the record in the light most
favorable to the Spongs who were not the movants for summary judgment. 2
The Spongs contracted to purchase an elevated home in the Caplen Shores
subdivision located on the Bolivar Peninsula in Galveston County, Texas. The
Spongs knew that this property was located within a flood zone and that to
secure a mortgage loan, they were required to obtain flood insurance. Under
federal law, however, if property is located in the John H. Chafee Coastal
Barrier Resources System (CBRS), the NFIP is prohibited from issuing a flood
insurance policy. 3 The CBRS, created by Congress in the Coastal Barrier
Resources Act, 4 was designated to “minimize the loss of human life, wasteful
expenditure of Federal revenues, and the damage to fish, wildlife, and other
natural resources.” 5 It was not determined with finality that the Spongs’
property was within the CBRS until three years after they had purchased their
property and after Hurricane Ike had destroyed all improvements on it.
Because government entities vacillated over a period of years as to the
property’s eligibility for flood insurance, we recount the evidence in this regard
in some detail.
2 Lawyers Title Ins. Corp. v. Doubletree Partners, L.P., 739 F.3d 848, 856 (5th Cir.
2014).
3See 16 U.S.C. § 3504(a) (“Except as provided in section 3505 of this title, no new
expenditures or new financial assistance may be made available under authority of any
Federal law for any purpose within the [Coastal Barrier Resources] System . . . .”); id.§ 3502(3) (defining “financial assistance” to include the issuance of NFIP flood insurance
policies); id. § 3505(a) (declining to include NFIP flood insurance as an exception to the
prohibition established in § 3504); R. at 1233.
4 Coastal Barrier Resources Act, Pub. L. No. 97-348, 96 Stat. 1653 (1982).
5 16 U.S.C. § 3501(b) (discussing the purpose of the CBRA).
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The Spongs purchased the property from the Hogans. The Hogans
owned two adjacent lots, 549 Caplen Shores Circle and 553 Caplen Shores
Circle. The Spongs purchased the 553 Caplen Shores property. It was not
until several years afterwards that Fidelity ascertained that many of the
documents that relate to the present dispute, including the application for
insurance and the flood insurance policy itself, referred to 549 Caplen Shores,
rather than 553 Caplen Shores. However, none of the parties contends that
this error or the resulting confusion is material to the issues presently before
this court, and we will not differentiate between the two addresses in our
references to “the property” unless otherwise indicated.
FEMA requires applicants for federal flood insurance to obtain elevation
certificates, which provide a risk profile of the property to be insured, to assist
in the administration of the NFIP. Eight years before the Spongs purchased
their property, the Hogans had obtained an elevation certificate, dated October
22, 1998, from a private company, and that certificate said that 549 Caplen
Shores was “within the Coastal Barriers Act.” The U.S. Fish and Wildlife
Service, however, subsequently concluded otherwise. The Fish and Wildlife
Service is the agency tasked with overseeing NFIP and CBRS mapping. In
2004, two years before the Spongs purchased the property, the Fish and
Wildlife Service wrote a letter, dated April 15, 2004, to the NFIP that said the
“property located at 549 Caplen Shores . . . is not located within the Coastal
Barrier Resources System nor an Otherwise Protected Area.” The Spongs’
predecessors, the Hogans, were accordingly issued a SFIP flood insurance
policy on October 5, 2005, from Fidelity covering 549 Caplen Shores Circle, four
months before the Spongs agreed to buy the adjoining property, in February
2006.
As part of the Spongs’ purchase process, another private entity was
engaged to prepare a Standard Flood Hazard Determination. That form, dated
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February 22, 2006, reflected that the home on the property “is in a Coastal
Barrier Resources Area (CBRA) or Otherwise Protected Area (OPA)” and
stated “[f]ederal flood insurance may not be available.” It also stated
“CBRA/OPA designation date: 10/1/1983.” However, that same form contained
a box entitled “Compliance Quick Check” and “YES” was typed onto a line next
to the question, “Is NFIP Insurance Available?” The form further stated: “This
determination is based on examining the NFIP map, any Federal Emergency
Management Agency revisions to it, and any other information needed to locate
the building/mobile home on the NFIP map.” This certificate was prepared for
Fidelity’s use in the flood insurance application process, but it is not clear
whether the Spongs saw or were provided this form prior to closing.
However, a realtor involved in the Spongs’ purchase transaction
provided to Kerry Spong a copy of the 1998 elevation certificate, which stated
that the 549 Caplen Shores Circle property was “within the Coastal Barriers
Act.” The Spongs had sought the services of an insurance agency, Crystal
Beach Insurance, in obtaining coverage for the property they were purchasing
from the Hogans, and Kerry Spong sent the 1998 certificate in PDF format to
Crystal Beach Insurance. That agency submitted an application for a federal
Standard Flood Insurance Policy (SFIP) on 549 Caplen Shores Circle to
Fidelity on March 15, 2006, which included the April 15, 2004, letter from the
Fish and Wildlife Service stating that the property was not in the CBRA.
Fidelity subsequently issued a SFIP, effective March 15, 2006, covering 549
Caplen Shores Circle. The following day, March 16, 2006, the Spongs
consummated the purchase of 553 Caplen Shores Circle.
About five months after the Spongs closed the purchase of the property,
FEMA sent a “critical error” notice to Fidelity, dated August 8, 2006, stating
that as of June 30, 2006, the flood insurance policy was invalid because the
property was located in the CBRA. The notice further stated the Spongs’ policy
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“ha[s] no tolerance and must be cancelled[,] corrected[,] or appealed.” Within
the next few weeks (on August 17 and August 23, 2006), Fidelity appealed this
notice and, based on the April 15, 2004, Fish and Wildlife Service letter, twice
requested FEMA to remove the invalid policy code on the Spongs’ policy. A
month after these requests, in a letter dated September 13, 2006, the Fish and
Wildlife Service once again advised the NFIP that 549 Caplen Shores Circle “is
not located within the Coastal Barrier Resources System nor an Otherwise
Protected Area.” Based on this Fish and Wildlife Service letter, FEMA agreed
that the policy was valid.
But shortly thereafter, in October 2006, FEMA sent Fidelity another
critical error notice stating that the policy was invalid. A private entity
prepared another Standard Flood Hazard Determination, dated November 13,
2006, which reflected that the property was located in the CBRA or Otherwise
Protected Area. Fidelity appealed the October 2006 notice from FEMA, on
November 27, 2006, requesting that FEMA remove the invalid policy code.
FEMA again concluded that the policy was valid. The Spongs’ policy was
renewed in 2007 and 2008 without further incident. Fidelity did not notify the
Spongs that questions had arisen regarding the policy’s validity.
Hurricane Ike destroyed all improvements on the Spongs’ Bolivar
Peninsula property on September 12, 2008. The Spongs submitted a Proof of
Loss claim under the SFIP for $208,300. Fidelity investigated the claim and
discovered, for the first time, that the address of the property listed on the
policy was incorrect and that the Spongs owned 553 Caplen Shores Circle,
rather than 549 Caplen Shores Circle. A Standard Flood Hazard
Determination was completed (dated January 2, 2009) on 553 Caplen Shores,
and it reflected that the property was within the CBRS or Otherwise Protected
Area. Fidelity made an inquiry to FEMA to determine whether the Spongs’
property was within the CBRS, indicating to FEMA that although the flood
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insurance policy was written to cover 549 Caplen Shores Circle, the property
intended to be insured was the adjacent lot at 553 Caplen Shores Circle.
FEMA contacted the Fish and Wildlife Service once again to obtain its
determination, but this time, the Service advised that the property was located
in the CBRS.
The Fish and Wildlife Services’ September 25, 2009, letter to Fidelity
states that its earlier April 15, 2004, letter, which had said that the property
was not in the CBRS, was incorrect, explaining that the earlier determination
“was based on a depiction of the subject property location provided by the
homeowner’s insurance agency” in the form of handwritten notes on a copy of
the Flood Insurance Rate Map (FIRM) for the area. Those notes incorrectly
identified the location of the property on the map as being outside of the CBRS
by thousands of feet. The 2009 Fish and Wildlife Service letter did not
reference or explain its 2006 determination that the property was not in the
CBRA or Otherwise Protected Area. In any event, in the final analysis, the
federal agencies determined that the Spongs’ property was not insurable under
the NFIP because it was located within the CBRS. As noted, the Coastal
Barrier Resources Act prohibits the issuance of NFIP policies in CBRS zones, 6
as do the express terms of the SFIP issued to the Spongs. 7 Pursuant to federal
6 16 U.S.C. §§ 3502(3), 3504.
7 44 C.F.R. pt. 61, app. A(1), art. IV(15) (“We do not cover any of the following: . . .
[p]roperty not eligible for flood insurance pursuant to the provisions of the Coastal Barrier
Resources Act and the Coastal Barrier Improvement Act and amendments to these Acts
. . . .”).
7
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regulations, 8 and the terms of the SFIP, 9 the Spongs’ flood insurance policy
was void from its inception. In accordance with federal regulations, 10 Fidelity
denied the Spongs’ claim for the full policy limits of $208,300 and returned all
of the premiums they had paid.
The Spongs filed suit in state court, asserting a number of tort claims
and statutory violations. Fidelity removed the case to federal court. The
Spongs sought a remand claiming lack of federal jurisdiction, but the court
denied their request, concluding federal funds were at risk as FEMA would
likely pay any judgment the Spongs obtained against Fidelity. Fidelity then
moved for summary judgment asserting that federal law preempted the
Spongs’ state-law claims and that even if not preempted, the state-law claims
failed because justifiable reliance on any representations by Fidelity could not
be established as a matter of law. The magistrate judge denied that motion on
both grounds but certified the order denying summary judgment for
interlocutory appeal, specifically certifying the preemption question.
The Spongs have sued the United States as well as the Fidelity entities.
The Spongs also initially included their insurance agent, Crystal Beach
Insurance Agency in the suit, but Crystal Beach filed bankruptcy and was
severed from the case. Only issues pertaining to Fidelity’s motion for summary
judgment are before us in this interlocutory appeal.
8 44 C.F.R. § 71.5(a) (”Any flood insurance policy which has been issued where the
terms of this section have not been complied with or is otherwise inconsistent with the
provisions of this section, is void ab initio and without effect.”); id. § 71.3(a) (“No new flood
insurance coverage may be provided on or after October 1, 1983, for any new construction or
substantial improvement of a structure located in an area identified as being in the CBRS
both as of October 18, 1982, and as of November 16, 1990.”).
9See 44 C.F.R. pt. 61, app. A(1), art. VII(B)(4)(b) (“This policy is void from its inception
and has no legal force under the following conditions: . . . [if] the property listed on the
application is otherwise not eligible for coverage under the NFIP.”).
10 See 44 C.F.R. § 71.5(a); id. § 71.3(a).
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II
The parties consented to proceed before a magistrate judge pursuant to
28 U.S.C. § 636(c). With respect to the issue of preemption, the magistrate
judge commented that “this Court does not believe that [Campo v. Allstate
Insurance Co. 11] will survive reexamination by the Fifth Circuit,” but
concluded that it was bound by our court’s decision in Campo, which held that
federal law does not preempt policy-procurement-related claims. 12 Shortly
after our decision in Campo, FEMA issued a bulletin that cited and disagreed
with Campo, stating that “FEMA previously understood and intended its
regulations to preempt state law claims related to policy formation, renewal,
and administration arising from allegations of WYO Company error as distinct
from agency error.” 13 The bulletin also expressed FEMA’s view that
“preemption should apply to the nationally uniform and FEMA-mandated
processes governing policy issuance.” 14 The magistrate judge concluded, for
various reasons, that the bulletin was not an intervening change in the law
that would permit the district court to conclude that Campo was no longer
controlling precedent. The magistrate judge therefore concluded that the
Spongs’ state-law claims were not preempted. However, the magistrate judge
determined that an interlocutory appeal under 28 U.S.C. § 1292(b) was
warranted. The question certified is whether our decision in Campo v. Allstate
Insurance Co. 15 “should be reversed or has been superseded by FEMA’s
11 562 F.3d 751 (5th Cir. 2009).
12 Id. at 757.
13 Memorandum from Edward L. Connor, Acting Fed. Ins. Adm’r, Nat’l Flood Ins.
Program, to Write Your Own (WYO) Co. Principal Coordinators, Nat’l Flood Ins. Program
Servicing Agent, and Select Adjusting Firms (July 16, 2009), available at
http://www.nfipiservice.com/stakeholder/pdf/bulletin/w-09038.pdf.
14 Id.15 562 F.3d 751 (5th Cir. 2009).
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pronouncement and whether all NFIP policy procurement disputes are
preempted by federal law.”
III
We review de novo the denial of a motion for summary judgment, viewing
the facts in the light most favorable to the non-movant. 16 Summary judgment
is appropriate when “there is no genuine dispute as to any material fact and
the movant is entitled to judgment as a matter of law.” 17
We also review de novo orders certified for interlocutory appeal under 28
U.S.C. § 1292(b). 18 We address only “controlling questions of law” and our
inquiry “is limited to the summary judgment record before the trial court.” 19
IV
The Spongs contend this court lacks jurisdiction to hear the interlocutory
appeal. We disagree.
First, the Spongs argue that there is no federal-question jurisdiction.
But in paragraph 41 of their Second Amended Complaint, the Spongs have
asserted that Fidelity should be equitably estopped from denying coverage
under the policy that it issued. This is a claim for benefits under a federal flood
insurance policy over which the district court had federal-question
jurisdiction. 20 Fidelity contends that this equitable estoppel issue is not part
16 Lawyers Title Ins. Corp. v. Doubletree Partners, L.P., 739 F.3d 848, 856 (5th Cir.
2014).
17 FED. R. CIV. P. 56(a).
18 Castellanos-Contreras v. Decatur Hotels, LLC, 622 F.3d 393, 397 (5th Cir. 2010) (en
banc).
19 Id. (citations omitted) (internal quotation marks omitted).
20 See Borden v. Allstate Ins. Co., 589 F.3d 168, 172 (5th Cir. 2009), which held:
In West v. Harris, 573 F.2d 873 (5th Cir.1978), this court held that
federal law applies to a dispute under a policy issued pursuant to the NFIP,
which is a federal program effectuating federal policies and paid for by the
federal fisc. Id. at 881. Thus, as our sister circuits have held, an action for
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of the interlocutory appeal, but even if that were correct, an issue on which we
express no opinion, that fact would not deprive this court of jurisdiction over
the questions certified by the district court since the district court had
jurisdiction of the entire case against Fidelity, and our jurisdiction is derivative
of that jurisdiction.
Second, the Spongs contend that the questions certified do not involve a
controlling question of law. Whether federal law preempts the Spongs’ claims
certainly falls within the ambit of 28 U.S.C. § 1292(b). That statute provides
for appellate jurisdiction over interlocutory appeals from orders which involve
“a controlling question of law as to which there is substantial ground for
difference of opinion and that an immediate appeal from [which] may
materially advance the ultimate termination of the litigation.” 21
We note additionally that while we may not reach beyond the summary
judgment order to address other orders in the case, 22 we are free to address
“questions that are material to the lower court’s certified order.” 23 Accordingly,
breach of an SFIP, a policy issued pursuant to the NFIP, satisfies § 1331 by
raising a substantial question of federal law. See Studio Frames Ltd. v.
Standard Fire Ins. Co., 369 F.3d 376, 379-80 (4th Cir. 2004); Downey v. State
Farm Fire & Cas. Co., 266 F.3d 675, 681-82 (7th Cir. 2001) (predicating
jurisdiction on the doctrine of Clearfield Trust Co. v. United States, 318 U.S.
363, 63 S.Ct. 573, 87 L.Ed. 838 (1943), which “establishe[d] that, when the
duties or rights of the United States are at stake under a federal program, that
federal interest requires the application . . . of federal law”); Newton v. Capital
Assur. Co., 209 F.3d 1302, 1304-05 (11th Cir. 2000); Van Holt v. Liberty Mut.
Fire Ins. Co., 163 F.3d 161, 167 (3d Cir. 1998). That state law may control
some aspects of the relation between the policyholder and insurance company,
see, e.g., Campo v. Allstate Ins. Co., 562 F.3d 751 (5th Cir. 2009), does not
eliminate federal jurisdiction, which promotes uniformity in the interpretation
of policies backed by the federal fisc. See Clearfield Trust, supra, 63 S.Ct. at
575.
21 28 U.S.C. § 1292(b).
22 United States v. Stanley, 483 U.S. 669, 677 (1987).
23 Castellanos-Contreras, 622 F.3d at 398 (citation omitted) (internal quotation marks
omitted).
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we review both Fidelity’s federal preemption and reasonable reliance
arguments.
V
Congress enacted the National Flood Insurance Act of 1968 (NFIA) to
make flood insurance available at reasonable prices and on reasonable terms. 24
To help ease the administrative burden on the government, Congress
established the Write-Your-Own (WYO) insurance program, wherein it
partnered with private insurers to issue SFIPs in the insurers’ names. 25 The
federal government underwrites these policies, but WYO carriers (like Fidelity
National Property & Casualty Insurance Co.) perform key administrative
functions, such as “arrang[ing] for the adjustment, settlement, payment and
defense of all claims arising from the policies.” 26 FEMA regulations govern the
adjustment and payment of claims by WYO carriers and set the terms of the
SFIP through an agreement called the “Arrangement.” 27 When policyholders
sue their WYO carriers for payment of a claim, FEMA reimburses these costs
unless “the litigation is grounded in actions by the [WYO] Company that are
significantly outside the scope of this Arrangement, and/or involves issues of
agent negligence.” 28
The question is whether this congressional scheme preempts state tort
claims pertaining to the marketing and selling of policies (which we have
dubbed “procurement”). In Campo v. Allstate Insurance Co., we held the NFIA
24 42 U.S.C. § 4001.
25 44 C.F.R. § 62.23.
26 Gallup v. Omaha Prop. & Cas. Co., 434 F.3d 341, 342 (5th Cir. 2005).
27 44 C.F.R. pt. 62, app. A; see id. §§ 61.4(b), 62.23(c)-(d); see also Gallup, 434 F.3d at
342.
28 44 C.F.R. pt. 62, app. A, art. III(D)(3)(a).
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did not preempt state-law procurement-based claims. 29 We reasoned that
while FEMA extensively regulates WYO administration of flood insurance
policies, it “demonstrate[es] no such interest in procurement: A WYO carrier
has significant independence and ‘utilize[s] its own customary standards, staff,
and independent contractor resources, as it would in ordinary and necessary
conduct of its own business affairs, subject to [the Act and regulations].’” 30
Fidelity argues we should overrule or limit our holding in Campo because
an intervening change in law invalidated the decision and because Campo and
its progeny were mistakenly decided.
A
Fidelity contends FEMA’s repudiation of Campo constitutes an
intervening change in law. We cannot overturn a prior panel decision and are
bound by prior precedent unless there is such an intervening change:
It is a well-settled Fifth Circuit rule of orderliness that one panel
of our court may not overturn another panel’s decision, absent an
intervening change in the law, such as by a statutory amendment,
or the Supreme Court, or our en banc court. Indeed, even if a
panel’s interpretation of the law appears flawed, the rule of
orderliness prevents a subsequent panel from declaring it void. 31
After we decided Campo, Edward L. Connor, the Acting Federal
Insurance Administrator of the NFIP, issued a regulatory bulletin disagreeing
with our decision. In that bulletin, Connor argued that:
FEMA previously understood and intended its regulations to
preempt state-law claims related to policy formation, renewal, and
29 562 F.3d 751, 754, 757 (5th Cir. 2009) (“Federal law preempts state tort claims
arising from claims handling by a WYO. . . . [But] federal law does not preempt state-law
procurement-based claims.” (citations omitted) (internal quotation marks omitted)).
30Id. at 758 (second and third alterations in original) (quoting Spence v. Omaha
Indem. Ins. Co., 996 F.2d 793, 796 & n.15 (5th Cir. 1993)).
31 Jacobs v. Nat’l Drug Intelligence Ctr., 548 F.3d 375, 378 (5th Cir. 2008) (citation
omitted).
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administration arising from allegations of WYO Company error
. . . . FEMA understood and intended preemption to apply,
particularly where there is a conflict with a Federal regulation on
the manner in which policies were administered, and also had
expressly preempted state law related to claims handling. To the
extent there are conflicts between Federal and state law, FEMA
recognizes that application of state laws would interfere with the
implementation of the National Flood Insurance Program and
would frustrate the national purpose and scope of the program.
Rather than its application in Campo, federal preemption
should apply not just to claims handling activities, but also to
policy administration. Specifically, preemption should apply to the
nationally uniform and FEMA-mandated processes governing
policy issuance and the administration of existing flood policies,
including but not limited to rating, renewal, transfer, non-renewal,
cancellation, or reformation. . . .
In light of Campo, FEMA will review its regulations to
determine whether clarification is required to fully implement its
intended scope of preemption. FEMA understands Campo,
however, not to preclude application of preemption related to
issuance, renewal, or administration of policies where there is an
express conflict with a Federal statute or regulation.
But following the issuance of this bulletin, FEMA took no further action to
clarify the scope of the NFIP’s intended preemptive effect. It did not amend its
regulations. Fidelity does attach to its summary judgment motion an August
2013 declaration from James A. Sadler, the Director of Claims for the NFIP.
But this declaration merely reiterates the position FEMA took in the Connor
bulletin; it points to no independent authority indicating Congress intended
the NFIP to preempt state tort-law procurement-based claims. The Connor
bulletin and the Sadler declaration are the only post-Campo authorities
Fidelity cites in support of its argument that this decision is no longer
controlling.
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An intervening change in law must be binding on this court. 32 Fidelity
contends we must treat the two FEMA pronouncements as binding under
various theories of administrative deference. This argument is unpersuasive
because the Supreme Court has directed us not to “defer[] to an agency’s
conclusion that state law is preempted . . . [because] agencies have no special
authority to pronounce on preemption absent delegation by Congress.” 33
Rather, “[t]he weight we accord the agency’s explanation of state law’s impact
on the federal scheme depends on its thoroughness, consistency, and
persuasiveness.” 34 Our court has previously noted that the FEMA bulletin “is
not controlling.” 35 Therefore, as FEMA’s proclamations regarding the scope of
its own preemptive authority are merely persuasive, not binding, we are not
free to revisit Campo.
B
Applying Campo, as we must, we hold federal law does not preempt the
Spongs’ policy-procurement claims. While the NFIA preempts claims-handling
causes of action and claims, it does not preempt procurement claims. 36 “The
key factor to determine if an interaction with an insurer is ‘claims handling’ is
the status of the insured at the time of the interaction between the parties. If
the individual is already covered . . . the interactions between the insurer and
insured . . . are ‘claims handling’ subject to preemption.” 37 Here, the Spongs
32 See id.33 Wyeth v. Levine, 555 U.S. 555, 576-77 (2009); see also Franks Inv. Co. v. Union Pac.
R.R. Co., 593 F.3d 404, 413 (5th Cir. 2010) (en banc).
34Wyeth, 555 U.S. at 577 (citing United States v. Mead Corp., 533 U.S. 218, 234-35
(2001); Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944)).
35 Grissom v. Liberty Mut. Fire Ins. Co., 678 F.3d 397, 401 n.2 (5th Cir. 2012).
36 Campo v. Allstate Ins. Co., 562 F.3d 751, 754, 757 (5th Cir. 2009).
37 Grissom, 678 F.3d at 401 (citations omitted).
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were not already covered by flood insurance at the time the policy issued on
March 16, 2006; they were in the position of “potential future policyholder[s].” 38
Accordingly, federal law does not preempt their state tort-law claims to the
extent that they implicate Fidelity’s acts or omissions regarding issuance of
the policy because those claims are procurement-based, not claims-handling-
based.
However, to the extent that the Spongs contend that Fidelity is liable for
the manner in which it denied or processed their claim for flood damage, or the
reasons that it gave for denying coverage and voiding the policy, the claims are
preempted. For example, the Spongs contend that Fidelity breached a duty to
them or should otherwise be found liable under state law because, after
Hurricane Ike, Fidelity asked FEMA whether the property was within the
CBRS. The actions Fidelity took in processing the Spongs’ claim, or any
omissions in processing that claim, are claims-handling based and are
preempted.
VI
Fidelity contends that even if state-law claims are not preempted, the
Spongs’ state-law claims cannot succeed in light of two decisions of the
Supreme Court, Federal Crop Insurance Corp. v. Merrill 39 and Heckler v.
Community Health Services of Crawford County. 40 The Spongs have alleged
claims under Texas law for negligence, negligent misrepresentations, Texas
Insurance Code violations, Deceptive Trade Practices-Consumer Protection
Act violations, gross negligence, fraud, fraud by non-disclosure, fraudulent
inducement, and promissory estoppel. In its motion for summary judgment,
38 Id. (quoting Campo, 562 F.3d at 756).
39 332 U.S. 380 (1947).
40 467 U.S. 51 (1984).
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Fidelity did not analyze the specific elements of all of these claims. But
Fidelity did contend that no theory of detrimental reliance, including reliance
on misrepresentations or negligent misrepresentations by Fidelity, could
succeed as a matter of law. Because the parties have not briefed the
application of the reasoning in Merrill and Heckler to each of the Spongs’ state-
law claims, we do not address today these issues. However, we agree that
certain aspects of the Spongs’ claims cannot succeed.
As an initial matter, we note that since December 31, 2000, all SFIP’s,
including the Spongs’ policy, contain a provision that says:
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. 41
Since neither the Spongs nor Fidelity contends that federal common law,
rather than state law, governs the Spongs’ claims in this case, we will assume,
without deciding, that state law is applicable to the Spongs’ claims.
Both Merrill and Heckler dealt with suits against the Government or a
governmental entity, but there is reasoning in these opinions that applies, by
analogy, to the Spongs’ claims against Fidelity. In Merrill, farmers applied for
insurance under the Federal Crop Insurance Act, which was administered by
the Federal Crop Insurance Corporation. 42 That corporation was a wholly
Government-owned enterprise created under the Act, 43 and the corporation
created the Bonneville County Agricultural Conservation Committee to act as
41 44 C.F.R. pt. 61, app.A(1), art. IX.
42 Merrill, 332 U.S. at 382.
43 Id. at 381.
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its agent. 44 The farmers who applied for crop insurance told the Bonneville
County Committee that they were planting 460 acres of spring wheat but that
on 400 of those acres, they were reseeding winter wheat. 45 The Bonneville
County Committee advised the crop owners that the entire crop was insurable
when in fact, federal wheat crop insurance regulations prohibited the insuring
of reseeded winter wheat. 46 A drought destroyed most of the farmers’ wheat
crop, and, when the Crop Insurance Corporation denied the farmers’ claim
under the policy, the farmers sued the Corporation. 47 The Supreme Court held
that the farmers could not recover because “[j]ust as everyone is charged with
knowledge of the United States Statutes at Large, Congress has provided that
the appearance of rules and regulations in the Federal Register gives legal
notice of their contents.” 48 The Supreme Court concluded:
Accordingly, the Wheat Crop Insurance Regulations were
binding on all who sought to come within the Federal Crop
Insurance Act, regardless of actual knowledge of what is in the
Regulations or of the hardship resulting from innocent
ignorance. 49
In Heckler, Travelers Insurance, acting as a fiscal intermediary for the
Government, 50 mistakenly interpreted federal regulations, telling a home
health care provider of services to individuals eligible for benefits under
Medicare that certain salaries were reimbursable under the Medicare
44 See id. at 382.
45 Id.46 Id. at 382, 386.
47 Id. at 382.
48 Id. at 384-85.
49Id. at 385; see also Heckler v. Cmty. Health Servs. of Crawford Cnty., Inc., 467 U.S.
51, 64 (1984) (explaining that participants in federal insurance programs have a duty to
familiarize themselves with the legal requirements for obtaining benefits).
50 Heckler, 467 U.S. at 64.
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program. 51 The non-profit health care provider received Medicare
reimbursements for salaries it paid for over three years. 52 Regulatory officials
eventually determined that the reimbursements should not have been made
and demanded refunds. 53 The health care provider argued that the
Government should be estopped by the action of the Government’s
intermediary, Travelers, because the health care provider reasonably relied on
Travelers’ representations. The Supreme Court disagreed, explaining “that it
is well settled that the Government may not be estopped on the same terms as
any other litigant.” 54 Although Heckler dealt with claims against the
Government rather than a private entity, aspects of the Supreme Court’s
reasoning has implications for the present case. The Court explained that
[a]s a participant in the Medicare program, respondent had a duty
to familiarize itself with the legal requirements for cost
reimbursement. Since it also had elected to receive
reimbursement through Travelers, it also was acquainted with the
nature of and limitations on the role of a fiscal intermediary. 55
The Court concluded in Heckler that the health care provider’s reliance
on Traveler’s interpretation of the federal regulations was unreasonable,
explaining:
Nor was the advice given [by Travelers] given under circumstances
that should have induced respondent’s reliance. As a recipient of
public funds well acquainted with the role of a fiscal intermediary,
respondent knew Travelers only acted as a conduit; it could not
resolve policy questions. The relevant statute, regulations, and
51 Id. at 55-56.
52 See id. at 57.
53 Id.54 Id. at 60.
55 Id. at 64.
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Reimbursement Manual, with which respondent should have been
and was acquainted, made that perfectly clear. 56
In the present case, Fidelity is an intermediary for the Government. The
Spongs’ applied for a flood insurance policy that was part of a federal program,
with the understanding that covered claims would be paid with federal funds.
The Coastal Barrier Resources Act provides that federal flood insurance cannot
be issued for property in the CBRS. 57 Federal regulations are also clear on this
point. 58 Under the rationale of Merrill and Heckler, the Spongs cannot claim
ignorance of the statutes and regulations as an excuse for relying on Fidelity’s
issuance of a policy as a determination or representation that their property
was not located in the CBRS.
The Spongs’ policy also states that it does not cover property that is
located in the CBRS. Article IV of the policy lists what is not covered:
IV. PROPERTY NOT COVERED
We do not cover any of the following property:
15. Property not eligible for flood insurance pursuant to the
provisions of the Coastal Barrier Resources Act and the Coastal
Barrier Improvement Act and amendments to these Acts[.]
The Spongs’ policy also states: “This policy is void from its inception and has
no legal force under the following conditions: . . . [if] the property listed on the
application is otherwise not eligible for coverage under the NFIP.” 59 The terms
of the Spongs’ policy were standard and were contained, word for word, in the
56 Id. at 64-65.
57 16 U.S.C. §§ 3502(3), 3504.
5844 C.F.R. pt. 61, app. A(1), art. IV(15); id. § 71.3(a) (“No new flood insurance
coverage may be provided on or after October 1, 1983, for any new construction or substantial
improvement of a structure located in an area identified as being in the CBRS both as of
October 18, 1982, and as of November 16, 1990.”).
59 See 44 C.F.R. pt. 61, app. A(1), art. VII(B)(4)(b).
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Code of Federal Regulations. 60 The Spongs had constructive, if not actual,
knowledge that the policy Fidelity issued did not cover property within the
CBRS.
As the Supreme Court admonished in Heckler,
“Men must turn square corners when they deal with the
Government.” . . . Protection of the public fisc requires that those
who seek public funds act with scrupulous regard for the
requirements of law; respondent could expect no less than to be
held to the most demanding standards in its quest for public
funds. 61
The Spongs were seeking coverage that was to be provided from public funds.
It was incumbent upon the Spongs to determine whether their property was
eligible for a SFIP. In determining whether the property was within the CBRS
and therefore eligible for a federal flood insurance policy, Fidelity was acting
as the representative of the Government, not the Spongs. The Spongs could
not reasonably rely on Fidelity to make that determination for them.
Moreover, at the time that the Spongs applied for a flood insurance policy
and Fidelity issued the policy, the Spongs were in possession of essentially the
same facts as Fidelity. Before the Spongs applied for the policy, a realtor gave
them a copy of the 1998 elevation certificate, which stated that the property
was “within the Coastal Barriers Act.” Kerry Spong sent a PDF image of this
elevation certificate to the Spongs’ insurance agent, Crystal Beach Insurance.
However, at the time that the Spongs’ obtained the policy from Fidelity, there
was other evidence that the property was not in the CBRS. Crystal Beach
Insurance had in its possession the 2004 letter from the Fish and Wildlife
60 See 44 C.F.R. pt. 61, app. A(1).
61Heckler, 467 U.S. at 63 (quoting Rock Island, Ark. & La. R.R. Co. v. United States,
254 U.S. 141, 143 (1920) (HOLMES, J.)).
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Service to the NFIP stating that the property was not within the CBRS or
Otherwise Protected Area. The Spongs’ agent furnished that 2004 Fish and
Wildlife Services letter to Fidelity as part of the flood insurance application.
Accordingly, at the time the Spongs applied for an SFIP, they had documents
in their possession that conflicted as to whether the property was within the
CBRS. They, or their agent, gave Fidelity the same information. The Spongs
could not reasonably rely on the issuance of an SFIP by Fidelity as a
representation that their property was not in the CBRS.
Additionally, in the federal flood insurance scheme, Fidelity was a
conduit. Under the regulatory scheme, questions as to whether a property was
in the CBRS were examined in consultation with the Fish and Wildlife Service.
For example, a notice of a Final Rule published by the Department of Interior
in 1983 explains that a statutory ban went into effect on October 1, 1983,
prohibiting the sale of new federal flood insurance for new structures or
substantial improvements on property located within the CBRS. 62 That same
notice reflects that “Secretarial Order 3093 delegated responsibility for Section
6 to the Fish and Wildlife Service (Service) on April 28, 1983.” 63 Section 6 of
the CBRA pertains to “responding to requests for consultation from other
Federal agencies regarding exceptions to Federal expenditures in the CBRS.” 64
The 1995 Fish and Wildlife Service Manual explains that the Service is to keep
the Department of Interior maps of the CBRS in various of its offices and
available to the public; the Service makes interpretations of the CBRS maps
as well as interpretations of the boundaries of the units; the maps and aerial
62 Coastal Barrier Resources Act, Advisory Guidelines, 48 Fed. Reg. 45,664, 45,664
(1983); accord 44 C.F.R. § 71.3(a).
63 Advisory Guidelines, 48 Fed. Reg. at 45, 664.
64 UNITED STATES FISH AND WILDLIFE SERVICE MANUAL, 651 FW 1, FWM # 229
(October 8, 1995), available at http://www.fws.gov/policy/651fw1.html.
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photos that the Fish and Wildlife Service has regarding the CBRS are to “aid
in determining exact location of units and OPA boundaries during consultation
activities as well as when answering inquiries from Congress; other Federal,
State, and local governments; private organizations; and the general public”;
and the Fish and Wildlife Service is responsible for ensuring that FEMA is
accurately transferring the boundaries of CBRS units onto FEMA’s Flood
Insurance Rate Maps (FIRM). 65 The 1995 Fish and Wildlife Manual explains
that “[t]hese maps are the tool used by FEMA to determine flood insurance
eligibility.” 66 The Manual also states that a response by the Fish and Wildlife
Service to a consultation request from another agency “is in the form of an
opinion only. The Service has not been granted veto power.” 67 The Spongs
could have contacted FEMA or the Fish and Wildlife Service to obtain a
determination of whether their property was in the CBRS. They could have
consulted the maps publicly available. They did not do so even though they
were in possession of an elevation certificate from a private company that
stated the property was “within the Coastal Barriers Act.”
After Fidelity issued a policy to the Spongs, and questions were raised
by FEMA as to whether the Spongs’ property was located within the CBRS,
FEMA accepted the determinations of the Fish and Wildlife Service that the
property was not in the CBRS. It was not until 2009, after Hurricane Ike had
occurred, that the Fish and Wildlife Service changed its determination and
advised FEMA that the Spongs’ property was in the CBRS, and that FEMA
made a final determination that the property was uninsurable under the
federal flood insurance program. These agency determinations were not
65 Id.
66 Id.
67 Id.
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within Fidelity’s control. The Spongs complain that Fidelity contacted FEMA
after Hurricane Ike to confirm whether the property was within the CBRS,
implying that Fidelity had an obligation to the Spongs simply to remain silent
and process the Spongs’ claim. But Fidelity had obligations to the
Government. Government funds, not Fidelity’s funds, would have been used
to pay the Spongs’ claims had the policy been valid. Fidelity did not have a
duty to remain silent, as the Spongs suggest.
Even were we to assume that after it issued the policy, Fidelity had a
duty to notify the Spongs that questions had been raised about the policy’s
validity, and we assumed that claims regarding Fidelity’s conduct after initial
issuance of the policy are not preempted, detrimental reliance is problematic.
The Spongs would have to establish that had they known the facts known to
Fidelity at the time that FEMA raised questions, they could have and would
have obtained private flood insurance or could have and would have taken
other action to eliminate or reduce their exposure to loss from events such as
Hurricane Ike. There is no such evidence in response to the motion for
summary judgment.
The record also reflects that the initial source of the misinformation
regarding the location of the property that the Spongs purchased from the
Hogans was not Fidelity. In 2009, after Hurricane Ike, the Fish and Wildlife
Service advised that its April 2004 determination that the property was not
within the CBRS was based on mistaken information given to it by the
insurance agency for the Spongs’ predecessors-in-interest. No one has
challenged the accuracy of the Fish and Wildlife Service’s determination as to
the cause of its error regarding the actual location of the property. Fidelity
played no role in providing inaccurate information to the Fish and Wildlife
Service as to the property’s physical location, but the Spongs’ predecessors did.
Had the Spongs’ predecessors provided accurate information, it is difficult to
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see how FEMA and the Fish and Wildlife Service would have concluded for so
many years that the property at issue was not in the CBRS when in fact, it
was.
We recognize the difficult position in which the Spongs find themselves.
However, they sought to obtain a federal insurance policy on property that,
under federal law, is uninsurable. Based on the evidence presented for
summary judgment, the issuance of a policy by Fidelity was not a
representation on which the Spongs could rely.
* * *
We conclude that the denial of Fidelity’s motion for summary judgment
was erroneous at least in part and that the motion for summary judgment
should be reconsidered in light of our response to the question certified. We
remand for further proceedings consistent with this opinion.
25