Courts across the country (and particularly since Super Storm Sandy in 2012) have consistently held that, in litigation involving a dispute concerning the investigation, adjustment, or payment of a flood claim under the Standard Flood Insurance Policy, policy holders are limited to breach of contract causes of action against their Write-Your-Own insurance carriers. Those courts have reasoned that, because payments made under the SFIP are made out of the federal treasury, and because the statutory framework enacting the National Flood Insurance Program has a preemptive effect on state law claims, policy holders may not allege tort-based causes of action or seek extra-contractual categories of damage. Despite that prohibition, policy holders frequently attempt to argue around those restrictions and recover more than just their breach of contract damages.
Such was the recent case of Psychiatric Solutions, Inc. v. Fidelity National Prop. & Cas. Co., 2016 U.S. App. LEXIS 10894 (3d Cir. June 16, 2016). In that case, involving disputed payments arising from damage caused by Hurricane Irene and Tropical Storm Lee, the insured alleged: (1) breach of contract; and (2) what the court described as a count “sounding…somewhat vaguely in fraud and misrepresentation.” Following the district court’s granting of the insurer’s motion for summary judgment on both counts, the policy holder appealed. As to the fraud and misrepresentation count, the insured argued that, although the National Flood Insurance Program preempted state law claims for fraud and misrepresentation, the claims that it asserted in this case were brought under the federal common law only, and should therefore be permitted to proceed. The Third Circuit disagreed. The Court noted that none of its precedents “authorizes a party to refashion state claims as claims under federal common law.” In fact, to permit such a dressing-up of impermissible state law claims “would frustrate the intent of Congress” by allowing “preempted state law claims to proceed under the guise of federal common law.” As such, the Third Circuit affirmed the district court’s grant of summary judgment on the fraud and misrepresentation cause of action.
Although the Court simply reinforced its prior precedent, and the precedent of other circuits, Psychiatric Solutions is a useful reminder as to the appropriate scope of litigation arising from a dispute about the payment of a claim made under the National Flood Insurance Program.