Williams et al v. The Standard Fire Insurance Company et al
Filing
27
MEMORANDUM and ORDER denying DFt Standard Fire Insurance Company's 17 Motion for Summary Judgment Signed by Honorable James M. Munley on 8/30/12 (sm, )
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
ELLEN WILLIAMS and
ELLEN MALONE,
Plaintiffs
:
No. 3:12cv354
:
:
(Judge Munley)
:
v.
:
:
THE STANDARD FIRE INSURANCE
:
COMPANY and CORELOGIC, INC.,
:
Defendants
:
::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
MEMORANDUM
Before the court for disposition is Defendant Standard Fire Insurance
Company’s motion for summary judgment. The motion has been fully
briefed and is ripe for disposition.
Background
On June 10, 2010, plaintiffs purchased real property located at Pole
297 Lakeside Drive, Harvey’s Lake, Luzerne County, Pennsylvania. (Doc.
1-2, Ex. A to Notice of Removal, Complaint, (hereinafter “Compl.”) ¶ 5).
Plaintiffs purchased the property for $379,000, and located on the property
was a single-family home. (Id.)
Prior to the purchase of the home, Defendant CoreLogic provided
plaintiffs with certification that the property’s flood risk rated zone was “C.”
(Id. ¶ 7). Based upon this zone designation, plaintiffs agreed to purchase
the property and were able to obtain financing for purchase of the property
through RBS Citizens, N.D. (Id. ¶¶ 8, 11).
Defendant Standard Fire Insurance Company is a wholly-owned
subsidiary of Travelers Insurance Company (hereinafter “Standard Fire” or
“defendant”).1 (Id. ¶ 3). Defendant is in the business of selling insurance.
(Id.)
The seller of the real property had a flood insurance policy issued by
the defendant. (Id. ¶ 9). Prior to the sale of the property, the seller
transferred the policy to the plaintiffs. (Id.) Defendant approved the
transfer based upon information that the property was in a flood zone rated
“C” per CoreLogic’s certification. (Id.) After the policy had been
transferred to the plaintiffs, defendant renewed it twice, once on August 30,
2010 and then on August 20, 2011. (Id. ¶ 10).
If CoreLogic had not indicated that the property was located in a
flood zone “C,” plaintiffs would not have been able to obtain financing or
insurance for the property. (Id. ¶¶ 12-13).
Subsequently, the parties learned that the property was not in a flood
risk rated zone “C”. (Id. ¶ 15). Defendant indicated that it would return all
of the insurance premiums that plaintiff had paid because the property is
actually not eligible for flood insurance due to its not belonging to a flood
risk rated zone “C”. (Id.) Plaintiffs’ property is thus not insured for flood
loss and they still owe over $200,000 on their mortgage. (Id. ¶ 16).
Because of the flood risk zone, the property is not worth the mortgaged
value. (Id.)
Plaintiffs own a property that cannot be insured or
mortgaged, which reduces its marketability. (Id.)
Based upon these factual averments, plaintiffs instituted the instant
Two defendants are involved in this lawsuit. This memorandum only
addresses the motion for summary judgment filed by Defendant Standard
Fire. Thus, for clarity and simplicity we use the term“defendant” to refer
solely to Defendant Standard Fire.
1
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action. They assert two counts against defendant. Count I asserts a
cause of action for detrimental reliance. Plaintiffs allege that they
detrimentally relied upon defendant’s agreement to insure the property.
Plaintiffs relied upon this agreement in purchasing the property, and as a
result suffered a substantial financial loss. (Id. ¶¶ 17-21). Count II asserts
a negligence cause of action. Plaintiffs allege that defendant was
negligent in, inter alia, failing to investigate the insurability of the property
and confirm the flood zone. (Id. ¶¶ 23-27).
After answering the complaint, Defendant Standard Fire filed the
instant motion for summary judgment. Defendant argues that the plaintiffs’
claims are preempted and barred by federal law. Additionally, defendant
argues that even if the claims were not preempted and barred, they would
fail as a matter of law. The parties have briefed these issues bringing the
case to its present posture.
Jurisdiction
This court has jurisdiction pursuant to the diversity jurisdiction
statute, 28 U.S.C. § 1332. The plaintiffs are citizens of Pennsylvania.
(Doc. 1, Not. of Removal ¶ 5). Defendant CoreLogic is a citizen of
California or Delaware for purposes of federal jurisdiction, and Defendant
Standard Fire is a citizen of Connecticut. (Id. ¶¶ 6-7). Because we are
sitting in diversity, the substantive law of Pennsylvania shall apply to the
instant case. Chamberlain v. Giampapa, 210 F.3d 154, 158 (3d Cir. 2000)
(citing Erie R.R. v. Tompkins, 304 U.S. 64, 78 (1938)).
Standard of review
Granting summary judgment is proper if the pleadings, depositions,
answers to interrogatories, and admissions on file, together with the
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affidavits, if any, show that there is no genuine issue as to any material fact
and that the moving party is entitled to judgment as a matter of law. See
Knabe v. Boury, 114 F.3d 407, 410 n.4 (3d Cir. 1997) (citing FED. R. CIV. P.
56(c)). “[T]his standard provides that the mere existence of some alleged
factual dispute between the parties will not defeat an otherwise properly
supported motion for summary judgment; the requirement is that there be
no genuine issue of material fact.” Anderson v. Liberty Lobby, Inc., 477
U.S. 242, 247-48 (1986) (emphasis in original).
In considering a motion for summary judgment, the court must
examine the facts in the light most favorable to the party opposing the
motion. Int’l Raw Materials, Ltd. v. Stauffer Chem. Co., 898 F.2d 946, 949
(3d Cir. 1990). The burden is on the moving party to demonstrate that the
evidence is such that a reasonable jury could not return a verdict for the
non-moving party. Anderson, 477 U.S. at 248 (1986). A fact is material
when it might affect the outcome of the suit under the governing law. Id.
Where the non-moving party will bear the burden of proof at trial, the party
moving for summary judgment may meet its burden by showing that the
evidentiary materials of record, if reduced to admissible evidence, would be
insufficient to carry the non-movant's burden of proof at trial. Celotex v.
Catrett, 477 U.S. 317, 322 (1986). Once the moving party satisfies its
burden, the burden shifts to the nonmoving party, who must go beyond its
pleadings, and designate specific facts by the use of affidavits,
depositions, admissions, or answers to interrogatories showing that there
is a genuine issue for trial. Id. at 324.
Discussion
The parties agree that the insurance policy involved in the instant
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case was issued pursuant to the National Flood Insurance Program
(hereinafter “NFIP”), a federally supervised and guaranteed insurance
program. Van Holt v. Liberty Mut. Fire Ins. Co., 163 F.3d 161, 165 (3d Cir.
1998). The NFIP is administered by the Federal Emergency Management
Agency (“FEMA”) pursuant to the National Flood Insurance Act
(hereinafter “NFIA” or “Act”). “Congress created the program to, among
other things, limit the damage caused by flood disasters through
prevention and protective measures, spread the risk of flood damage
among many private insurers and the federal government, and make flood
insurance available on reasonable terms and conditions to those in need of
it.” Id. (citing 42 U.S.C. § 4001(a))(quotation and footnote omitted). The
NFIP helps to provide flood insurance with reasonable terms and
conditions for property located in flood-prone areas. Id. at n. 2. Under this
program, insured’s claims are paid off out of the United States Treasury.
Id.
In administering the NFIP, FEMA has created a “Write Your Own”
(“WYO”) policy program. Under this program, private insurance
companies, such as Defendant Standard Fire write their own insurance
policies. Id. FEMA, however, sets the terms and conditions of the flood
insurance policies, and the policies must generally be issued without
alteration as a Standard Flood Insurance Policy (hereinafter “SFIP”). Id. at
165-66. The “cost incurred in the adjustment and payment of any claims
for losses” under an SFIP are paid from the National Flood Insurance
Fund. 42 U.S.C. § 4017(d)(1).
The policy that was retroactively revoked in the instant case was an
SFIP. It was originally issued to Geraldine Insalaco, who owned the
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property prior to plaintiffs. (Doc. 18, Statement of Facts, ¶ ¶ 19-20). Upon
buying the property, the policy was transferred to the plaintiffs. (Id. ¶ 20).
After the plaintiffs became the policy holder, it was renewed twice by
defendant. (Id. ¶ 22).
Defendant raises two general arguments. First, it argues that
plaintiffs’ claims are preempted by federal law. Second, it argues that even
if the claims are not preempted, they fail as a matter of law. We will
address these issues separately.
I. Preemption
The defendant argues that the plaintiffs’ state causes of action are
preempted by federal law. It should first be noted that “[a]ny preemption
analysis begins with the ‘basic assumption that Congress did not intend to
displace state law.’” Padalino v. The Standard Fire Ins. Co., 616 F. Supp.
2d 538, 543 (E.D. Pa. 2008) (quoting Bldg. & Constr. Trades Council of
Metro. Dist. v. Assoc. Builders & Contracts of Mass./R.I., Inc., 507 U.S.
218, 224 (1993)). Nonetheless, the following three types of federal
preemption exist: 1) express preemption; 2) conflict preemption and 3) field
preemption. After a careful review, we find that none of these types of
preemption apply. We will address them separately.
A. Express preemption
Express preemption applies where Congress includes explicit
language in a statute setting forth an intent to preempt conflicting state law.
Lorillard Tobacco Co. v. Reilly, 533 U.S. 525, 541(2001) (“State action may
be foreclosed by express language in a constitutional enactment.”). “It is
easy to glean that federal law expressly preempts state law when a statute
or regulation contains explicit language to that effect.” C.E.R. 1988, Inc. v.
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The Aetna Casualty and Surety Co., 386 F.3d 263, 269 (3d Cir. 2004). In
the instant case, neither party cites any language in the Act that expressly
forecloses plaintiffs’ state law causes of action.
The defendant argues, however, that although not in the Act, FEMA
has added language to the Standard Flood Insurance Policy, “section IX”,
that provides preemption, 44 C.F.R. pt. 61, app. A(2). Section IX is, in
fact, a federal preemption clause and provides as follows:
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 (43 U.S.C. § 4001, et seq.) and Federal
common law.
See 44 C.F.R. pt. 61, app. A(2), art. IX.
Based upon this language, the defendant argues that the plaintiffs’
state law claims are preempted by federal law as this provision provides
that the governing law is comprised of flood insurance regulations issued
by FEMA, the National Flood Insurance Act and the Federal common law.
Plaintiffs raise only state law claims against Standard Fire, therefore,
Standard Fire claims that they are preempted by federal law and seeks
judgment on these claims. We disagree.
As explained above, language must be explicit to provide express
preemption. With section IX, the language is explicit with regard to
disputes involving the handling of claims under a flood insurance policy
and such claims are preempted. The instant case, however, does not
involve the handling of a claim; it involves plaintiffs’ assertion that in
obtaining or procuring the policy, the defendant acted inappropriately. This
case therefore raises state law causes of action with regard to
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procurement of a policy, not the handling of a claim under a policy.
Courts have held that state causes of action involving the “handling
of a claim” may be preempted, but state causes of action dealing with
procuring a policy are not preempted. See Campo v. Allstate Ins. Co.,
562 F.3d 751 (5th Cir. 2009) (holding that the NFIA only preempts
claim arising from claims handling, and does not apply to preempt
state-law procurement claims); see also, C.E.R. 1988, Inc., 386 F.3d at
272 n.12 (3d Cir. 2004) (holding that state causes of action involving
handling of claims are preempted but choosing not to decide whether
claims that deal with misrepresentations during insurance procurement
would be preempted).
Therefore, section IX does not expressly preempt
plaintiffs’ cause of action. The parties have pointed to no other portion of
the Act which provides express preemption. Thus, plaintiffs’ claims are not
expressly preempted.2
In response to the Campo opinion FEMA issued a Memorandum on
July 16, 2009 to WYO company principal coordinators, the NFIP servicing
agent and adjusting firms. FEMA indicated in the memorandum that
“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.” U.S. DEPARTMENT OF HOMELAND SECURITY, MEMORANDUM
WYO PROGRAM BULLETIN 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 (2009) available, http://
www. nfipiservice. com/ stakeholder/ pdf/ bulletin/ w– 09038. pdf
(hereinafter “FEMA Memorandum”).
Since this explanation of its position, some courts have held that state
law causes of action are preempted whether they involve claims handling or
procurement of an SFIP. See, e.g., Davis v. Nationwide Mut. Fire Ins. Co.,
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B. Field preemption
The second type of preemption is field preemption, which applies
where “Federal law so thoroughly occupies a legislative field as to make
reasonable the inference that Congress left no room for the States to
supplement it.” Cipollone v. Liggett Grp., Inc., 505 U.S. 504, 516 (1992)
(internal quotation marks and citations omitted). Field preemption exists
where the federal regulatory scheme is “so pervasive as to make
reasonable the inference that Congress left no room for the States to
supplement it.” Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230 (1947).
Field preemption is present where any of the following three factors are
met: 1) “the pervasiveness of the federal regulation precludes
supplementation by the States”; 2) “the federal interest in the field is
sufficiently dominant” or 3) “the object sought to be obtained by the federal
law and the character of obligations imposed by it reveal the same
purpose.” Schneidewind v. ANR Pipeline Co., 485 U.S. 293, 300 (1988).
783 F. Supp. 2d 825 (E.D. Va. 2011); and Remund v. State Farm Fire &
Cas. Co., No. 2:07cv448, 2010 WL 2025591 at *3 (D. Utah May 18, 2010).
Other courts have continued to hold that state law causes of action dealing
with procurement of policies are still not preempted. See Grisson v. Liberty
Mut. Fire Ins. Co., 678 F.3d 397 (5th Cir. 2012) (holding that federal law
does not preempt state-law procurement based claims for negligent
misrepresentation). We find that the FEMA memorandum is not persuasive
as to precluding plaintiff’s state law causes of action. It is merely a
memorandum which indicates FEMA’s position to insurance companies, the
NFIP plan servicing agent and adjusting firms. It concludes that “FEMA will
review its regulations to determine whether clarification is required to fully
implement its intended scope of preemption.” FEMA Memorandum at 2.
Although this memorandum was issued over three years ago, the parties
have not cited to any actual change in the regulations. We give little weight
to this memorandum in making our decision.
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After a careful review, we find no field preemption with regard to plaintiffs’
state law causes of action.
This case deals with the procurement of flood insurance. The Act
does not deal with or provide a remedy for torts or wrongdoing during the
procurement of flood insurance. Therefore, field preemption does not
apply to plaintiffs’ causes of action. See Paladino, 616 F. Supp. 2d at 546
(“[I]t cannot be said that Congress has thoroughly occupied this field of
SFIP procurement when indeed the NFIA hardly occupies this field at all.”).
C. Conflict preemption
The final form of pre-emption is conflict preemption.3 Conflict
preemption exists where either (1) the state law “stands as an obstacle to
the accomplishment and execution of the full purposes and objectives of
Congress” or (2) it is “impossible for a . . . party to comply with both state
and federal law.” Geier v. Am. Honda Motor Co., Inc., 529 U.S. 861, 899
(2000). We find conflict preemption is inapplicable.
Here, it is possible for a party to comply with both state and federal
law. Nothing in the Act allows for an insurer to make misrepresentations or
act negligently in the procurement of insurance, and they can provide
insurance under the Act without making misrepresentations or acting
negligently. See Padalino, 616 F. Supp. 2d at 544 (“It is certainly possible
to comply with both state and federal law in this case: A WYO insurer can
The Supreme Court has explained that field preemption and conflict
preemption are not “rigidly distinct.” “Indeed, field preemption may be
understood as a species of conflict preemption: a state law that falls within
a preempted field conflicts with Congress' intent (either express or plainly
implied) to exclude state regulation.” English v. General Elec. Co., 496
U.S. 72, 79 n.5 (1990).
3
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market SFIP insurance policies that comply with federal law without making
negligent or fraudulent misrepresentations[.]”)
Additionally, state law tort claims do not stand as an obstacle to the
accomplishment and execution of the full purposes and objectives of
Congress. As set forth above, the purpose of the law is to reduce losses
caused by flood damage and spread the risk of flood losses. See 42
U.S.C. § 4001(a). To allow state law claims against an insurer for
negligence or misrepresentations in the procurement process does not
thwart or obstruct these objectives.
In fact, allowing the state law tort claims in the instant case, would
promote the government objective of reducing losses caused by flood
damage. Defendant is alleged improperly to have led the plaintiffs to
believe that the property was insurable, and in fact, insured. When the
property was damaged by a storm, however, the defendant informed the
plaintiffs that the property was not insurable and revoked the policy that
was ostensibly in effect. Thus, the plaintiffs suffered flood damage loss,
which they would not have suffered at all if the defendant had not made
misrepresentations or acted negligently. The Act provides no remedy
against the defendant for someone in the plaintiffs’ position. Without
allowing state law tort actions, insurance companies such as defendant,
can issue policies and collect premiums, only to back out after a flood
damage claim if they find that the property was in fact not insurable. This
procedure may cause great harm to a homeowner and benefits no one,
except perhaps insurance companies that can issue policies on uninsurable property and collect premiums.
Accordingly, we find that conflict preemption inapplicable to plaintiffs’
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claims. Because we find that express preemption is inapplicable, field
preemption is inapplicable, and conflict preemption is inapplicable,
plaintiffs’ claims are not preempted by federal law.
Even if preemption did apply, however, we would find that plaintiffs
state law claims could still proceed. The NFIA is not implicated as plaintiffs
did not have an insurance policy. Standard Fire voided the policy and
returned all the premiums that the plaintiffs had paid. As the NFIA applies
by its very terms to flood insurance policies and plaintiffs had theirs
retroactively revoked, the NFIA is inapplicable. See Padalino, 616 F.
Supp. 2d at 546 (“Although Plaintiffs thought that they had a valid SFIP
from Defendant Standard Fire, and although Plaintiffs paid premiums as
though they had a valid SFIP from Defendant Standard Fire, their policy
was in violation of federal law and void from its inception. . . . Without a
SFIP the NFIP does not apply[.]”).
II. State law tort claims
Next, defendant claims that even if the plaintiffs’ causes of action are
not preempted, they fail as a matter of law. We will discuss each
beginning with the detrimental reliance claim.
A. Detrimental reliance
Count I of plaintiffs’ complaint asserts a detrimental reliance cause of
action against Standard Fire. (Compl. ¶¶ 17-22). Plaintiffs aver that they
detrimentally relied upon defendant’s agreement to insure the property.
(Id. ¶ 18). Defendants argue that plaintiffs knew their property was
uninsurable, therefore, defendant could not have induced them into
believing otherwise. After a careful review, we agree with the plaintiffs.
Pennsylvania law defines detrimental reliance (also known as
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promissory estoppel) as follows:
[a] promise which the promisor should reasonably
expect to induce action or forbearance on the part
of the promisee or a third person and which does
induce such action or forbearance is binding if
injustice can be avoided only by enforcement of the
promise.
Thatcher’s Drug Store of W. Goshen, Inc., v. Consol. Supermarkets, Inc.,
636 A.2d 156, 160 (Pa. 1994) (quoting RESTATEMENT (SECOND) CONTRACTS
§ 90(1)). Defendant argues that they could not have induced the plaintiff to
believe that their property was insurable. Standard Fire argues that the
plaintiffs knew that their property was built over water. Plaintiffs are
charged with legal notice of the SFIP’s terms. They are thus charged with
legal notice of the term of the policy that provides an exclusion from
coverage for buildings built entirely over water. Thus, defendants argue
that plaintiffs knew that their property was not insurable and Standard Fire
could not induce them to conclude anything different regarding the
insurability of the property.
We disagree. A genuine issue of material fact exists as to whether
plaintiffs’ residence is located entirely over water. Plaintiffs insist that it is
not. Accordingly, summary judgment on this issue is inappropriate.
B. Negligence
Count II of plaintiffs’ complaint asserts a negligence cause of action.
(Compl. ¶ 23-27). Plaintiffs aver that Standard Fire acted negligently as
follows:
a. Failing to properly investigate the insurability of
the Lake property;
b. Failing to confirm the flood zone of the Lake
Property;
c. Failing to properly perform the underwriting
process for the Lake property;
d. Failing to properly interpret flood zone maps;
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(Id. ¶ 24).
e. Failing to inspect the Lake property prior to
insuring it;
f. Failing to gather sufficient information regarding
the Lake property prior to insuring the Lake
property; and
g. Failing to perform an independent investigation of
the Lake property and its insurability.
To recover on the basis of negligence, plaintiffs must establish the
following four elements:
1. A duty or obligation recognized by law.
2. A breach of that duty.
3. Causal connection between the actor’s breach
of the duty and the resulting injury.
4. Actual loss or damage suffered by complainant.
Lux v. Gerald E. Ort Trucking, Inc., 887 A.2d 1281, 1286 (Pa. Super. Ct.
2005) (emphasis omitted).
Instantly, defendant argues that it cannot be negligent because it did
not owe plaintiffs the duty they assert. Defendant argues that plaintiffs
allege that it failed to properly determine the flood zone. This information,
however, was provided on plaintiffs’ application for insurance and the
insurance company has no duty to ensure the accuracy of the information
that plaintiffs submitted on their insurance application. Plaintiffs argue that
the information on the insurance application which was inaccurate was the
flood zone determination. The flood zone determination did not come from
the plaintiffs. Rather, Standard Fire generated this information from codefendant CoreLogic. Accordingly, the parties are in disagreement on the
facts and a genuine issue of material facts exist. The defendant’s motion
for summary judgment on the negligence cause of action will be denied.
Conclusion
Defendant Standard Fire’s motion for summary judgment will be
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denied in its entirety. An appropriate order follows.
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IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
ELLEN WILLIAMS and
ELLEN MALONE,
Plaintiffs
:
No. 3:12cv354
:
:
(Judge Munley)
:
v.
:
:
THE STANDARD FIRE INSURANCE
:
COMPANY and CORELOGIC, INC.,
:
Defendants
:
::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
ORDER
AND NOW, to wit, this 30th day of August 2012, Defendant Standard
Fire Insurance Company’s motion for summary judgment (Doc. 17) is
hereby DENIED.
BY THE COURT:
s/ James M. Munley
JUDGE JAMES M. MUNLEY
United States District Court
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