According to the U.S. Fifth Circuit Court of Appeals, homeowners’ state law claims against a flood insurer for acts or omissions in the procurement of a flood policy that was void from inception are not pre-empted by federal law, but state law claims concerning claims handling on the flood policy are. Robert Spong, et al. v. Fidelity Nat’l Prop. & Cas. Ins. Co., 787 F.3d 296 (5th Cir. 2015).
Homeowners’ property was originally thought not to be within a designated Coastal Barrier Resources System (CBRS), but was later determined to be. A federal flood insurance policy with the National Flood Insurance Program (NFIP) covered the property. Under federal law, however, if a property is located in a CBRS, the NFIP is prohibited from issuing flood insurance. The insurer denied a claim for damage to the property citing that the policy was void from inception. The homeowners then sued the insurer for selling the policy and for its claims handling resulting in the denial.
The insurer moved for summary judgment that all claims are pre-empted by federal law. The trial court denied the motion, but allowed an interlocutory appeal. The Fifth Circuit agreed that while the federal government extensively regulates the administration of these policies, it has no significant interest in their procurement. Thus, it held that while federal law would pre-empt the causes of action over claims handling, it would not for causes of action regarding the issuance of the policy. Further, the Fifth Circuit held that it was incumbent upon the homeowners to ensure that the property could be covered by NFIP and, therefore, could not rely on the issuance of a policy as a misrepresentation that the property was insurable.