The National Flood Insurance Program: a 'flood' of controversy.

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The National Flood Insurance Program: a 'flood' of controversy.

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In recent years, the doctrine of preemption has taken on a life of its own, becoming one of the most widely used and controversial defenses in litigation. (1) Derived from the Supremacy Clause of the U. S. Constitution, preemption is the constitutional notion that federal law can supersede or "preempt" any inconsistent state law. (2) In practice, preemption serves to disallow state court causes of action when the federal government regulates the product or service provided. For this reason, preemption is a favorite defense for industry defendants. By the same token, plaintiffs seek to avoid a finding of preemption for the purpose of availing themselves of state court remedies--such as fraud, misrepresentation, and unfair and deceptive trade practices--that often provide for more robust recovery. (3)

While preemption decisions involving ERISA, (4) federal banks, (5) and medical device litigation (6) have captured the news headlines in recent years, the devastation left behind by the hurricanes along the Gulf Coast in 2004 and 2005 has spawned a renewed interest in the preemption controversy as it relates to flood policies. This debate stems from the federal regulation that provides for exclusive federal court jurisdiction on "all disputes arising from the handling of any claim" under the Standard Flood Insurance Program (SFIP). (7)

But what does "handling of any claim" mean in this context? Does it prohibit state courts from hearing cases relating to claims of negligence or misrepresentation arising from the procurement of a flood policy? For example, assume an insurance agent selling a flood insurance policy tells a customer that she cannot obtain flood insurance for her home because she rents rather than owns the property. If the agent is mistaken, and flood insurance can be sold to renters, ...

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