The Martins contended that CSAA's denial was without reasonable basis in fact or law, and was made in bad faith, and they sued the insurer in a federal district court in California. The Martins asserted claims against CSAA under California law for breach of contract, breach of the covenant of good faith and fair dealing, tortious interference with contract, and unfair business practices.

CSAA moved to dismiss, arguing that the Martins had asserted claims under California law and that all of their claims were preempted by federal law.

For their part, the Martins contended that the district court had subject matter jurisdiction to decide their claims because the administration of their SFIP was underwritten by the Federal Emergency Management Agency ("FEMA") and, therefore, presented a federal question.

The Standard Flood Insurance Policy

The SFIP's

What Law Governs 

provision states:

The SFIP 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, as amended (42 U.S.C. 4001 et seq.), and Federal common law. 

The court granted CSAA's motion.

In its decision, the court explained that in 2000, FEMA proposed certain rule changes to the SFIP form, including the addition of a "What Law Governs" provision, which FEMA explained was intended to "emphasize that matters pertaining to the [SFIP], including issues relating to and arising out of claims handling, must be heard in Federal court and are governed exclusively by Federal law." The proposed rule changes, the district court added, were adopted, codified as federal regulations at 44 C.F.R. Pt. 61, App. A(1), and became effective on December 31, 2000.

Since that time, the district court observed, standard SFIP form for dwellings included the "What Law Governs" provision.

The district court then ruled that state law claims relating to SFIPs issued by private insurance companies under the National Flood Insurance Program ("NFIP") were preempted by federal law.

According to the court, cases that held that state law breach of contract claims were not preempted were decided before the adoption of the "What Law Governs" provision and before FEMA published its statement of intent indicating that the provision "expressly preempt[ed] state law claims."

Accordingly, it concluded, the Martins' state law causes of action relating to the adjustment and payment – that is, the "handling" – of their claim under their SFIP were "expressly preempted."

The case is Martin v. CSAA Ins. Exchange, No. 17-cv-04066-MEJ (N.D. Cal. Jan. 10, 2018). Attorneys involved include: For Alicia Martin, Efren Martin, Plaintiffs: Tiega Noel Varlack, Varlack Legal Services, Hayward, CA. For CSAA Insurance Exchange, Defendant: Alyssa T Dang, LEAD ATTORNEY, Coddington Hicks & Danforth, Redwood Shores, CA. 

FC&S Legal Comment

Since the adoption of the "What Law Governs" provision in SFIPs, numerous courts have decided that state law claims against insurers that have issued SFIPs are preempted. See, e.g., Surfsand Resort, LLC v. Nationwide Mut. Fire Ins. Co., No. 3:17-cv-00866-BR (D. Or. Oct. 16, 2017) (quoting Woodson v. Allstate Ins. Co., 855 F.3d 628, 637 (4th Cir. 2017) and collecting cases, including Shuford v. Fid. Nat'l Prop. & Cas. Ins. Co., 508 F.3d 1337, 1344 (11th Cir. 2007) ("The plain language of the [SFIP], which is embodied in a federal regulation, reflects a clear intent to preempt claims under state law . . . In light of the plain language of the 2000 amendment and the statement of intent, Shuford's tort claim is expressly preempted by federal law because it arises from the handling of a claim under [an SFIP]")); cf. Flick v. Liberty Mutual Fire Ins. Co., 205 F.3d 386 (9th Cir. 2000) ("'Since the flood insurance program is a child of Congress, conceived to achieve policies which are national in scope, and since the federal government participates extensively in the program both in a supervisory capacity and financially, it is clear that the interest in uniformity of decision present in this case mandates the application of federal law.'" (quoting Brazil v. Giuffrida, 763 F.2d 1072, 1075 (9th Cir. 1985)); see, also, McHugh v. United Serv. Auto. Ass'n, 164 F.3d 451, 454 (9th Cir. 1999) ("The law is clear that, as contracts, SFIPs issued under the [NFIP] are governed by federal law applying standard insurance law principles . . . Federal common law therefore controls the interpretation of these insurance policies.").