Remund v. State Farm Fire & Casualty Co.

FILED
United States Court of Appeals
Tenth Circuit
May 17, 2012
UNITED STATES COURT OF APPEALS
Elisabeth A. Shumaker
Clerk of Court
TENTH CIRCUIT
EDVIN C. REMUND,
Plaintiff-Appellant,
No. 10-4107
v. (D.C. No. 2:07-CV-00448-CW)
STATE FARM FIRE AND (D. Utah)
CASUALTY COMPANY,
Defendant-Appellee.
ORDER AND JUDGMENT *
Before BRISCOE, Chief Judge, BALDOCK, and HOLMES, Circuit Judges.
Plaintiff-Appellant Edvin C. Remund appeals the district court’s order
granting summary judgment to Defendant-Appellee State Farm on Mr. Remund’s
state-law claims for breach of warranty and estoppel. Mr. Remund alleges that
the State Farm insurance agent who sold him a Standard Flood Insurance Policy
(“SFIP”) under the National Flood Insurance Program (“NFIP”) misled him about
the scope of coverage under the policy. After Mr. Remund suffered damage that
he thought was covered under the policy, he filed a claim. State Farm denied it,
*
This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. It may be cited,
however, for its persuasive value consistent with Federal Rule of Appellate
Procedure 32.1 and Tenth Circuit Rule 32.1.
and Mr. Remund sued. The district court entered summary judgment in favor of
State Farm, and Mr. Remund filed this timely appeal. Exercising jurisdiction
under 28 U.S.C. § 1291, we affirm the judgment of the district court.
I. BACKGROUND
Mr. Remund owns property in Salt Lake City, Utah, on which is built his
primary residence and a cabin at the back of the property. Red Butte Creek runs
directly beneath the cabin, which rests on concrete piers that support the cabin as
it spans the creek. Channel walls made out of rock direct the flow of the creek
under and away from the cabin and piers.
In April 2005, Mr. Remund bought flood insurance from State Farm under
the NFIP. Before buying the SFIP, Mr. Remund alleges that he explained to
Vickie Tuua, a State Farm insurance agent, that he wanted to get insurance
against any damage to the channel walls, the piers supporting the cabin, and to the
cabin itself caused by high spring runoff down Red Butte Creek. Ms. Tuua
allegedly told Mr. Remund that the SFIP would cover any damage or loss to his
property caused by high spring runoff down Red Butte Creek.
Mr. Remund received a copy of the SFIP from State Farm. He read the
SFIP and understood that the federal government was the underwriter of the
policy. The SFIP says that State Farm “provides flood insurance under the terms
of the National Flood Insurance Act of 1968 and its amendments, and Title 44 of
the Code of Federal Regulations (CFR).” Aplt. App. at 120 (SFIP, attached as
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Ex. 2 to Mem. Supp. Mot. for Summ. J., filed May 12, 2009).
Established under the National Flood Insurance Act of 1968, the NFIP is
designed to make flood insurance available “on a nationwide basis through the
cooperative efforts of the Federal Government and the private insurance industry”
by “pooling risks, minimizing costs, and distributing burdens equitably among
those who will be protected by flood insurance and the general public.” 42
U.S.C. § 4001(d). FEMA administers the program, Exec. Order No. 12127, 44
Fed. Reg. 19,367 (Mar. 31, 1979), reprinted in 15 U.S.C. § 2201 (making
effective Reorganization Plan No. 3 of 1978, 43 Fed. Reg. 41,943 (Sept. 19,
1978), reprinted in 15 U.S.C. § 2201), writes the SFIP, 44 C.F.R. § 61.4(b), and
makes the rules as to claims made under the SFIP, id. NFIP insurance is
marketed either directly by FEMA or through “Write-Your-Own” (“WYO”)
carriers, like State Farm, who act as “fiscal agents” of the United States and
service the policies. See 42 U.S.C. § 4071(a)(1); 44 C.F.R. §§ 61.4(b),
61.13(d)–(f), 62.23(c)–(d).
As part of the foregoing scheme, and pertinently for this case, 44 C.F.R. §
61.5(e) reads:
The standard flood insurance policy is authorized only under
terms and conditions established by Federal statute, the
program’s regulations, the Administrator’s interpretations and the
express terms of the policy itself. Accordingly, representations
regarding the extent and scope of coverage which are not
consistent with the National Flood Insurance Act of 1968, as
amended, or the Program’s regulations, are void, and the duly
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licensed property or casualty agent acts for the insured and does
not act as agent for the Federal Government, the Federal
Emergency Management Agency, or the [WYO carrier].
Under “Property Not Covered,” the SFIP lists: “[f]ences, retaining walls,
seawalls, bulkheads, wharves, piers, bridges, and docks.” Aplt. App. at 128; see
also 44 C.F.R. Pt. 61, App. A(1) § IV.12.
In May 2005, rising water levels damaged the channel walls in Red Butte
Creek and began to undermine the foundation of Mr. Remund’s cabin. In 2006,
additional runoff water further undermined the walls and structural support for his
cabin. State Farm denied coverage for Mr. Remund’s claims to recover for the
damage under the SFIP. It is undisputed that, by its terms, the SFIP does not
cover Mr. Remund’s damage. See Aplee. Supp. App. at 438 (Stipulation, filed
Apr. 9, 2009) (embodying Mr. Remund’s stipulation that the SFIP “purchased by
[Mr. Remund] through State Farm Fire and Casualty Company does not provide
coverage for the damages to his property as alleged in his Complaint”); Aplt.
App. at 257 n.1 (Dist. Ct. Order and Mem. Decision, filed May 18, 2010) (“Mr.
Remund does not dispute that the coverage he now seeks i[s] inconsistent with the
scope of coverage provided.”); see also Aplt. Reply Br. at 14 (“Remund does not
dispute the scope of coverage. He seeks to recover for misrepresentations made
prior to the time he purchased an SFIP.”).
Mr. Remund filed suit against State Farm in Utah state court alleging
breach of contract, breach of warranty, estoppel, and bad faith. Mr. Remund did
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not name Ms. Tuua, the United States, or FEMA as a defendant.
State Farm removed the case to federal court, and following removal Mr.
Remund voluntarily dismissed all of his claims except the breach of warranty and
estoppel claims. On those two claims, the district court granted summary
judgment for State Farm. Specifically, the district court determined that those
two claims are preempted by federal law under both express and conflict
preemption.
II. ANALYSIS
A. Standard of Review
We review the district court’s order granting summary judgment de novo,
and we draw all reasonable inferences in favor of the nonmoving party—in this
case, Mr. Remund. See Trentadue v. Integrity Comm., 501 F.3d 1215, 1226 (10th
Cir. 2007). “[S]ummary judgment is appropriate ‘if the movant shows that there
is no genuine dispute as to any material fact and the movant is entitled to
judgment as a matter of law.’” Morris v. City of Colo. Springs, 666 F.3d 654, 660
(10th Cir. 2012) (quoting Fed. R. Civ. P. 56(a)).
B. Estoppel and Breach of Warranty under Utah Law
Although the parties discuss both of Mr. Remund’s claims—estoppel and
breach of warranty—together as “policy-procurement claims,” we take a different
approach. To determine whether Mr. Remund’s claims are preempted we review
each claim individually, comparing the elements of the state-law claim to the
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mandates of federal law. See PLIVA, Inc. v. Mensing, 131 S. Ct. 2567, 2573
(2011) (“Pre-emption analysis requires us to compare federal and state law.”)
Accordingly, our discussion of whether Mr. Remund’s claims are federally
preempted begins with a basic understanding of estoppel and breach of warranty
under Utah law.
1. Estoppel
Utah law “holds insurance agents to accurately representing policy
provisions and honestly answering consumer questions.” Youngblood v. Auto-
Owners Ins. Co., 158 P.3d 1088, 1096 (Utah 2007). “Agents who are not trained
to act with complete honesty and integrity in their interactions with consumers, or
who simply refuse to do so, place themselves and their principals at risk. The
law will hold both principal and agent liable for misrepresentations upon which
consumers reasonably rely.” Id. (emphasis added).
Estoppel may be applied to modify terms of an insurance policy
when (1) an agent makes material misrepresentations to the
prospective insured as to the scope of coverage or other
important policy benefits, (2) the insured acts with prudence and
in reasonable reliance on those misrepresentations, and (3) that
reliance results in injury to the insured.
Id. at 1094 (emphasis added).
2. Breach of Warranty
Under Utah law, “[a] warranty is an assurance by one party to a contract of
the existence of a fact upon which the other party may rely.” Groen v. Tri-O-
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Inc., 667 P.2d 598, 604 (Utah 1983) (emphasis added).
A person may warrant the occurrence of future events or of
events which could not possibly happen. The substance of such
a warranty is in effect a promise to respond in damages
proximately caused by the nonexistence of a represented fact, or
the failure of a promised event to occur. . . . It is sufficient if
there is a misrepresentation of an existing fact or a promise that
a specified event will occur in the future, if such representation
or promise has a natural tendency to induce another in reliance
thereon to purchase, sell or exchange his property.
Welchman v. Wood, 353 P.2d 165, 167 (Utah 1960) (footnote omitted).
C. Conflict Preemption
We conclude that Mr. Remund’s state-law claims are preempted under the
conflict-preemption doctrine. “Even where Congress has not completely
displaced state regulation in a specific area, state law is nullified to the extent that
it actually conflicts with federal law.” Hillsborough Cnty., Fla. v. Automated
Med. Labs., Inc., 471 U.S. 707, 713 (1985); see also PLIVA, Inc., 131 S. Ct. at
2579 (“[T]he text of the [Supremacy] Clause—that federal law shall be supreme,
‘any Thing in the Constitution or Laws of any State to the Contrary
notwithstanding’—plainly contemplates conflict pre-emption by describing
federal law as effectively repealing contrary state law.”).
“[A]ny state law, however clearly within a State’s acknowledged power,
which interferes with or is contrary to federal law, must yield.” Felder v. Casey,
487 U.S. 131, 138 (1988) (quoting Free v. Bland, 369 U.S. 663, 666 (1962))
(internal quotation marks omitted); see Perez v. Campbell, 402 U.S. 637, 652
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(1971) (“[A]ny state legislation which frustrates the full effectiveness of federal
law is rendered invalid by the Supremacy Clause.”); see also Boggs v. Boggs, 520
U.S. 833, 844 (1997) (“Conventional conflict pre-emption principles require pre-
emption ‘where compliance with both federal and state regulations is a physical
impossibility, . . . or where state law stands as an obstacle to the accomplishment
and execution of the full purposes and objectives of Congress.’” (quoting Gade v.
Nat’l Solid Wastes Mgmt. Ass’n, 505 U.S. 88, 98 (1992))).
We do not “assume[] lightly that Congress has derogated state regulation,
but instead . . . address[] claims of pre-emption with the starting presumption that
Congress does not intend to supplant state law.” N.Y. State Conference Of Blue
Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 654 (1995).
“Since pre-emption claims turn on Congress’s intent, we begin as we do in any
exercise of statutory construction with the text of the provision in question, and
move on, as need be, to the structure and purpose of the Act in which it occurs.”
Id. at 655 (citation omitted).
In performing this preemption inquiry here, we need look no further than
one of the NFIP’s implementing regulations, 1 which states:
[R]epresentations regarding the extent and scope of coverage
[under the SFIP] which are not consistent with the National
1
“[The Supreme Court has] held repeatedly that state laws can be pre-
empted by federal regulations as well as by federal statutes.” Automated Med.
Labs., 471 U.S. at 713.
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Flood Insurance Act of 1968, as amended, or the Program’s
regulations, are void, and the [insurance] agent acts for the
insured and does not act as agent for the Federal Government, the
Federal Emergency Management Agency, or the [WYO carrier].
44 C.F.R. § 61.5(e) (emphasis added).
By creating the legal fiction that an insurance agent “acts for the insured,”
instead of for her employer (the private insurance company), § 61.5(e) shields the
private insurance company from liability for certain of the agent’s tortious acts. 2
Whether this is good public policy because it makes participation in the NFIP
more attractive to private insurance companies, or bad public policy because it
may result in injustice for some insureds, is not for us to decide. The objective of
2
The NFIP does not, however, similarly shield agents from liability
for their own delict. See 42 U.S.C. § 4081(c) (“The Administrator of the Federal
Emergency Management Agency may not hold harmless or indemnify an agent or
broker for his or her error or omission.”). As previously mentioned, Mr. Remund
did not elect to sue Ms. Tuua for any alleged wrongdoing. Furthermore, we pause
to note that Mr. Remund’s reliance on the Fifth Circuit’s reading of identical
language from an earlier version of FEMA’s regulation to support his argument
against preemption is unavailing. See Spence v. Omaha Indem. Ins. Co., 996 F.2d
793, 796 (5th Cir. 1993) (construing 44 C.F.R. § 61.5(i) and appearing to “decline
to accept a reading of that provision immunizing WYO companies from liability
for the tortious conduct of their agents”); see also National Flood Insurance
Program, 58 Fed. Reg. 62,420, 62,422 (Nov. 26, 1993) (noting that “paragraph (i)
is . . . redesignated as paragraph (e)”). In a subsequent decision, the Fifth Circuit
made clear that Spence is inapposite because its focus was the operation of the
state-law statute of limitations, not federal preemption. See Wright v. Allstate
Ins. Co., 415 F.3d 384, 389 (5th Cir. 2005) (“A careful reading of Spence,
however, reveals that Spence does not hold that state law tort claims are not
preempted by the [National Flood Insurance Act].” (emphasis added)).
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federal law, as evinced by 44 C.F.R. § 61.5(e), is clear, and we cannot ignore it. 3
3
We recognize that, in deciding that so-called procurement-related
claims were not preempted, the Fifth Circuit reached a different conclusion
regarding the impact of such claims on Congress’s purposes and objectives. See
Campo v. Allstate Ins. Co., 562 F.3d 751, 758 (5th Cir. 2009). Having considered
Campo, however, we are not persuaded by its reasoning. Campo’s holding rests
in part on a narrow reading of the preemptive scope of FEMA’s regulations
promulgated to effectuate the NFIP, construing those regulations to exclude from
preemption procurement-related claims. Id. (“[U]nlike in handling-based cases,
permitting prosecution of procurement-related state-law tort suits does not impede
the full purposes and objectives of Congress. . . . FEMA extensively regulates the
management of existing coverage while demonstrating no such interest in
procurement.”). In particular, Campo relied on the view that “FEMA does not
reimburse carriers for procurement-related judgments. . . . [Thus,] state-law tort
claims related to procurement do not interfere with Congress’s objectives.” Id.However, prior to Campo, FEMA expressly rejected that view in litigation before
the district court in Moffett v. Computer Scis. Corp., 457 F. Supp. 2d 571, 587 (D.
Md. 2006). And, relying in part on that rejection, the district court in Moffett was
persuaded that “federal funds may very well be at stake in connection with
procurement fraud claims.” Id. We find the reasoning of Moffett on this specific
point to be persuasive. See id. at 587–88. Moreover, in a subsequent regulatory
bulletin, FEMA expressly rejected Campo’s reading of the preemptive scope of its
regulations implementing the NFIP and of the impact of contrary state laws on
Congress’s purposes and objectives. See Edward L. Connor, Acting Fed. Ins.
Adm’r, Nat’l Flood Ins. Program, WYO Program Bulletin No. W–09038, Notice
of FEMA’s Intent to Adopt, by Regulation, a Clarification of the Current Express
Preemption Clause of the Standard Flood Insurance Policy (July 16, 2009),
attached as Ex. A to Dist. Ct. Doc. No. 56, available at
http://www.nfipiservice.com/stakeholder/pdf/bulletin/w-09038.pdf (“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 agent error . . . . 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.”). We need not decide whether such an interpretative pronouncement of
FEMA, as found in the bulletin, is entitled to any deference—an issue that is
complicated by the fact that the pronouncement at issue directly pertains to the
(continued...)
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Thus, we must accept that Ms. Tuua acted as Mr. Remund’s agent under
federal law, and not as State Farm’s agent, and that any false representations she
made regarding the extent and scope of the SFIP’s coverage are void. Against
that legal backdrop, we specifically must examine whether there is a direct
conflict—that stands as an obstacle to the accomplishment and execution of the
full purposes and objectives of Congress—between, on the one hand, the
mandates of § 61.5(e), and, on the other, Mr. Remund’s claims under Utah law for
estoppel and breach of warranty. We conclude that there is such a conflict.
Accordingly, the claims are preempted.
3
(...continued)
subject of preemption. See Colo. Pub. Util. Comm’n v. Harmon, 951 F.2d 1571,
1579 (10th Cir. 1991) (“We defer to an administrator’s construction of his own
regulations unless it is ‘plainly erroneous or inconsistent with the regulation.’ . . .
However, a preemption determination involves matters of law—an area more
within the expertise of the courts than within the expertise of the [administrator].”
(citations omitted) (quoting Robertson v. Methow Valley Citizens Counsel, 490
U.S. 332, 359 (1989))); see also Charles Alan Wright & Charles H. Koch, Jr.,
Federal Practice and Procedure § 8353, at 233, 243 (2006) (collecting cases
offering different perspectives on “[o]ne of the most venerable doctrines in
administrative law” that provides for deference to an administrative agency’s
interpretation of its own regulations, and noting that “[b]ecause of the federalism
concerns, a court might give less deference to an interpretation that results in
preemption of state law”). (Curiously, the Fifth Circuit has recently looked to
this exact FEMA bulletin in discerning the agency’s regulatory intent on another
matter, without acknowledging the bulletin’s dim view of Campo’s reading of the
preemptive scope of FEMA’s regulations relative to procurement-related claims.
See Grissom v. Liberty Mut. Fire Ins. Co., --- F.3d ----, 2012 WL 1383069, at *3
n.2 (5th Cir. Apr. 23, 2012).) Suffice it to say that FEMA’s pronouncement in the
bulletin concerning the preemptive scope of its regulations—specifically, reading
them to preempt so-called procurement-related claims—provides additional
support for our independent assessment of the import of these regulations.
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1. Estoppel
Mr. Remund’s estoppel claim is really a claim that “State Farm . . . is
estopped from [asserting] that [Mr. Remund’s] claims [under the SFIP] are
barred.” Aplt. Reply Br. at 5. In other words, it is a claim that State Farm is
estopped from denying Mr. Remund coverage under the SFIP. Success on Mr.
Remund’s estoppel claim would have the effect of expanding coverage under the
policy. See Youngblood, 158 P.3d at 1094; see also id. at 1090 (“[A]n insured
may [under some factual circumstances] rely upon principles of equitable estoppel
to enlarge the scope of an insurance policy’s coverage where the company’s
agent materially misstates the scope of coverage prior to the purchase of the
policy.” (emphasis added)).
But under federal law, Ms. Tuua acted as Mr. Remund’s agent and not as
the insurance company’s agent. See 44 C.F.R. § 61.5(e). In other words, Mr.
Remund and Ms. Tuua were, together, one party to the insurance contract while
State Farm, as fiscal agent of the United States, was the other party. Under Utah
law, estoppel is only available to a party who has relied to his detriment on
misrepresentations made by another party. See Youngblood, 158 P.3d at 1092.
Consequently, State Farm cannot be held liable under a Utah state-law estoppel
claim for misrepresentations made by Mr. Remund’s own agent. As far as State
Farm is concerned, it is as though Mr. Remund made these alleged
misrepresentations to himself.
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Utah law, on the other hand, views insurance agents as agents of the
insurance company, not as agents of the insured. 4 See id. at 1096. Therefore
there is an irreconcilable conflict between federal and state law. The only way
that Mr. Remund could succeed on his estoppel claim is if federal law were
ignored, and state law accepted instead. Accordingly, Mr. Remund’s estoppel
claim is preempted.
Furthermore, there is a separate and independent ground evincing conflict
preemption here. The remedy for an estoppel claim under Utah state law—the
expansion of coverage under the insurance policy—is unavailable to Mr. Remund.
Under federal law, the scope of the SFIP’s coverage cannot be expanded by
misrepresentations about the policy’s coverage. Again, to the extent that Utah
law would mandate a different result—in other words, one that contemplates
expansion of coverage under the SFIP—the state law is preempted.
Mr. Remund’s claim under Utah law for estoppel cannot coexist with the
plain mandates of § 61.5(e); instead, it stands as an obstacle to the
4
In fact, counsel for Mr. Remund acknowledged this conflict between
state and federal law at oral argument but asked us to effectively read into the
statute additional language that would exclude from consideration any pre-
procurement activity. See Oral Arg. 7:08–8:18 (“[That under federal law the
insurance agent acts as the insured’s agent] is completely in conflict with
common law agency. . . . My position is that the federal scheme does not extend
back before the time the policy is purchased and signed.”). However, we decline
that invitation. See Moffett, 457 F. Supp. 2d at 588–89 (“The distinction between
claims handling and procurement fraud . . . appears to this Court to be a
distinction without a difference.”) .
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accomplishment and execution of Congress’s intent to shield WYO carriers like
State Farm from liability under certain circumstances. Accordingly, Mr.
Remund’s estoppel claim is preempted.
2. Breach of Warranty
To prevail on a breach of warranty claim against State Farm under Utah
law, Mr. Remund must show that Ms. Tuua acted as State Farm’s agent, because
“[a] warranty is an assurance by one party to a contract of the existence of a fact
upon which the other party may rely.” Groen, 667 P.2d at 604 (emphasis added).
Under Utah law, an insurance agent does act as the agent of the insurance
company. See Youngblood, 158 P.3d at 1096. But under federal law, State
Farm’s insurance agent acted as Mr. Remund’s agent and not as State Farm’s
agent. See 44 C.F.R. § 61.5(e). Again, Mr. Remund’s state-law claim stands as
an obstacle to the accomplishment and execution of Congress’s intent to shield
WYO carriers like State Farm from liability under certain circumstances.
Therefore, there is a direct conflict between state and federal law, and Mr.
Remund’s state-law breach of warranty claim is preempted.
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III. CONCLUSION
Because both of Mr. Remund’s state-law claims are preempted, we
AFFIRM the judgment of the district court. 5
ENTERED FOR THE COURT
Jerome A. Holmes
Circuit Judge
5
Because we conclude that both of Mr. Remund’s claims are
preempted under the doctrine of conflict preemption, we do not reach the question
of whether they are also preempted under express preemption, or whether they
otherwise fail as a matter of law. See, e.g., US Airways, Inc. v. O’Donnell, 627
F.3d 1318, 1324 (10th Cir. 2010) (concluding that aviation safety is subject to
field preemption, and, accordingly, that the court need not reach the question of
whether aviation safety is also subject to express preemption).
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