Continuing its recent trend in post-Katrina cases to find for the policy-holder (see Dickerson v. Lexington Ins. Co., 2008 WL 5295389 (5th Cir. Dec. 22, 2008)[ reviewed hereGrilletta v. Lexington Ins. Co. 2009 U.S. App. LEXIS 276 (5th Cir. Jan. 8, 2009)[reviewed here]), the Fifth Circuit reversed an award of summary judgment in favor of the insured in Campo v. Allstate Ins. Co., No. 07-31165, 2009 U.S. App. LEXIS 5460 (5th Cir. March 17, 2009).
Prior to August 2005, and for over twenty years, the insured held a Standard Flood Insurance Policy ("SFIP") through Allstate, which issued the policy as a Write-Your-Own ("WYO") carrier. The insured's policy expired on August 12, 2005, when a premium of $1,237 was due to reinstate coverage for 2005-2006. Hurricane Katrina struck on August 29, 2005, destroying the insured's home. The policy included a 30-day grace period, so that if the insured paid the premium by September 13, he would have avoided a gap in coverage. After Hurricane Katrina, FEMA extended the 30-day grace period for an additional ninety days.
Shortly after the hurricane, the insured filed a claim under the expired policy. Allstate processed the claim and sent an advance check of $2,500 to the insured. Allstate never informed the insured that these payments were conditional on receipt of the $1,237 premium.
On December 12, 2005, the extended grace period expired without the insured having submitted his premium. In late December, Allstate informed the insured that it must repay the $2,500 it had advanced.
The insured sued, alleging Allstate made negligent misrepresentations that prevented the insured from renewing his policy. The District Court noted FEMA regulations governed the methods by which WYO carriers adjust and pay claims. The Court granted Allstate's motion for summary judgment, holding that the insured's claims were handling-related and thus preempted by federal law.
The Fifth Circuit reversed. Although federal law preempted state law tort claims arising from claims handling by a WYO, claims related to procurement of insurance were not preempted. Here, the insured's policy had expired subject to restoration if he paid the premium within the extended grace period. Allstate was thus incapable of handling any new claims based on post-expiration occurrences. As a former policy-holder, the insured would have had to procure flood insurance.
Next, the Fifth Circuit determined federal law did not preempt state-law procurement-based claims. First, Congress, through its delegation of regulatory power to FEMA over flood claims, had expressly preempted state law only as to handling-related claims. Second, unlike handling-based cases, prosecution of procurement-related state-law tort suits did not impede the full purposes and objectives of Congress. Therefore, state-law tort claims related to procurement did not interfere with Congress's objectives.