C.e.r. 1988, Inc v. the Aetna Casualty and Surety Company

PRECEDENTIAL
UNITED STATES
COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 03-2833
C.E.R. 1988, INC.
v.
THE AETNA CASUALTY AND
SURETY COMPANY,
Appellant
On Appeal from the
District Court of the Virgin Islands
Division of St. Croix
D.C. Civil Action No. 97-cv-00065
(Honorable Raymond L. Finch)
Argued May 6, 2004
Before: BARRY, AMBRO, and SMITH,
Circuit Judges
(Opinion filed: October 12, 2004)
Gerald J. Nielsen, Esquire (Argued)
Suite 2850
3838 North Causeway Boulevard
Metairie, LA 70002
Attorney for Appellant
Francis J. D’Eramo, Esquire
Nancy V. Young, Esquire (Argued)
Nichols, Newman, Logan & D’Eramo
1131 King Street, Suite 204
Christiansted, St. Croix
USVI, 00820-4971
Attorneys for Appellee
OPINION OF THE COURT
AM BRO, Circuit Judge
We address in this appeal whether
the National Flood Insurance Program (the
“Program”) is sufficiently comprehensive
to preempt a state tort suit arising from
conduct related to the Program’s
administration. We conclude that the
overarching purpose of the Program— to
provide affordable flood insurance in high-
risk areas in order to reduce pressures on
the federal fisc—would be compromised
by state court interference. Thus the
plaintiff’s state law tort claims are
preempted.
Factual and Procedural History
The Program is administered by the
Federal Emergency Management Agency
(“FEMA”) pursuant to the National Flood
Insurance Act of 1968 (“NFIA”), 42
U.S.C. § 4001, et seq. C.E.R. 1988, Inc.
(“C.E.R.”) seeks state law remedies for
improper handling of the Program’s
Standard Flood Insurance Policy (the
“Policy”) issued in favor of C.E.R. by
defendant Aetna Casualty and Surety
Company (“Aetna”). Aetna is a “Write-
Your-Own” (“WYO”) insurance company,
meaning that it is a private insurer
authorized by FEMA to provide Policies in
its own name. It collects premiums in
segregated accounts, from which it pays
claims and issues refunds. When the funds
are inadequate (as frequently occurs),

-- 1 of 11 --

2
Aetna pays claims by drawing on letters of
credit issued by the United States
Treasury.
C.E.R. purchased a Policy from
Aetna to cover Hamilton House, a property
in St. Croix. In September 1995 the
property was damaged by flooding during
Hurricane Marilyn. C.E.R. received an
insurance payment of $200,000 as a result
of damage to Hamilton House. One year
later, in September 1996, the facility again
was damaged by flood waters, this time
during Hurricane Hortense. C.E.R. filed a
claim for $716,916, but the receipts it
submitted in conjunction with the claim,
documenting repairs made since Hurricane
Marilyn, totaled under $20,000.
Given the disparity between the
claim amount and the receipt totals, Aetna
required C.E.R. to submit a “Comparison
Estimate” detailing when the relevant
damage occurred. The Comparison
Estimate, prepared by an architect,
reported new losses of $325,300.55
resulting from Hurricane Hortense.
Nonetheless, Aetna’s adjustment company
refused to consider the estimate and
recommended payment in the amount of
$25,177.61, minus a $750 deductible.
C.E.R. refused the settlement, and Aetna
closed its file on the claim, without
payment, in March 1997.
In 1997 C.E.R. filed a seven-count
complaint against Aetna, alleging contract
and tort causes of action, in the United
States District Court of the Virgin Islands.
Aetna subsequently hired a second
adjustment company, which estimated
C.E.R.’s losses at $263,757.58. In
February 1998 the parties settled C.E.R.’s
contract claims for $278,392. T h u s
only C.E.R.’s tort claims remain. They
allege negligent adjustment of C.E.R.’s
insurance claim resulting in lost income
and business opportunities, tortious bad
faith conduct, and outrageous and reckless
conduct entitling C.E.R. to punitive
damages. C.E.R. also seeks attorney’s fees
and costs.
In January 2000, Aetna moved for
summary judgment on these claims
alleging, among other defenses, that
C.E.R.’s territorial law tort claims are
preempted by federal law. In April 2001,
the District Court denied Aetna’s motion,
holding that the tort claims were not
preempted and that a genuine issue of
material fact existed as to whether Aetna
had acted in bad faith. Aetna filed a
motion for reconsideration of the
preemption issue. As an alternative
request for relief, it asked the District
Court to certify the question for
interlocutory appeal in accordance with 28
U.S.C. § 1292(b). The District Court
pursued that course. We granted Aetna’s
petition for permission to appeal in May
2003.1
Discussion
Our preemption analysis turns on
congressional intent. We must determine
1Our standard of review is plenary. Van
Holt v. Liberty Mut. Fire Ins. Co., 163
F.3d 161, 167 (3d Cir. 1998) (on
rehearing).

-- 2 of 11 --

3
whether the purposes of the Program will
be jeopardized if disputes involving
federal flood insurance policies are
governed by state law.2 Because we have
examined this issue in a previous case,
Van Holt v. Liberty Mutual Fire Insurance
Co., 163 F.3d 161 (3d Cir. 1998) (on
rehearing), our role today is limited.
Although we left open in Van Holt the
question of whether the NFIA preempts
state law, id. at 169 n.6, our reasoning in
that case leads us to answer in the
affirmative.
I. Overview of the National Flood
Insurance Program
Congress created the Program to
provide standardized insurance coverage
for flood damage at or below actuarial
rates. Gowland v. Aetna, 143 F.3d 951,
953 (5th Cir. 1998). Prior to its enactment,
few insurance companies offered flood
insurance because private insurers were
unable profitably to underwrite flood
policies. The Program was intended to
minimize costs to taxpayers by “limit[ing]
the damage caused by flood disasters
through prevention and protective
measures.” Van Holt, 163 F.3d at 165. It
is operated by FEMA and supported by the
federal Treasury. Id. at 165 n.2. The
Program encompasses 4.5 million policies
aggregating $500 billion dollars of
coverage.
In its early years, the Program was
administered under what is known as “Part
A” of the NFIA. A pool of private
insurance companies issued policies and
shared the underwriting risk, with financial
assistance from the federal Government.
As of January 1, 1978, however, the
Government bears full responsibility for
the Program pursuant to 42 U.S.C. § 4071.
Under “Part B” of the NFIA, FEMA
“carr[ies] out the program of flood
insurance authorized under [the NFIA]
through the facilities of the Federal
Government.” Id. The Program is funded
through the National Flood Insurance Fund
established by FEMA in the United States
Treasury.
Congress authorized FEMA to
“prescribe regulations establishing the
general method or methods by which
proved and approved claims for losses may
be adjusted and paid for any damage to or
loss of property which is covered by flood
insurance.” 42 U.S.C. § 4019. The
resulting regulatory scheme is set out at 44
C.F.R. §§ 61.1-78.14. States have no
regulatory control over the Program’s
operations.3 Linder & Assocs. Inc. v.
2Because this decision is not specific to
the Virgin Islands, we discuss the tensions
between federal and state law rather than
territorial law. Our analysis, of course,
also extends to the latter.
3The insurance industry in the United
States operates in interstate commerce.
States may regulate the insurance industry
only to the extent Congress permits. U.S.
Const. art. I, § 8, cl. 3. The McCarren-
Ferguson Act, 15 U.S.C. § 1011, et seq.,
grants states this power except where
C o n g r ess enac ts legislatio n th a t

-- 3 of 11 --

4
Aetna Cas. & Sur. Co., 166 F.3d 547, 550
(3d Cir. 1999) (“It is well settled that
federal common law governs the
interpretation of [Policies]. Accordingly,
neither the statutory nor decisional law of
any particular state is applicable to the
case at bar . . . . [W]e interpret the
[Policy] in accordance with its plain,
unambiguous meaning, rem ainin g
cognizant that its interpretation should be
uniform throughout the country and that
coverage should not vary from state to
state.”) (quotations omitted).
Pursuant to 42 U.S.C. § 4081(a),
FEMA created the WYO program whereby
Policies may be issued by private insurers
like Aetna. Though FEMA may issue
Policies directly, more than 90% are
written by WYO companies. These
private insurers may act as “fiscal agents
of the United States,” 42 U .S.C.
§ 4071(a)(1), but they are not general
agents. Thus they must strictly enforce the
provisions set out by FEMA and may vary
the terms of a Policy only with the express
written consent of the Federal Insurance
Administrator. 44 C.F.R. §§ 61.4(b),
61.13(d) & (e), 62.23 (c) & (d). In
essence, the insurance companies serve as
administrators for the federal program. It
is the Government, not the companies, that
pays the claims. And when a claimant
sues for payment of a claim, “the
responsibility for defending claims will be
upon the Write Your Own Company and
defense costs will be part of the . . . claim
expense allow ance.”4 44 C .F.R.
§ 62.23(i)(6).
Our Court recently evaluated the
NFIA in Van Holt. In light of the strong
federal interests intertwined with the
administration of the Program, we
concluded that federal courts are the
appropriate and exclusive arbiters of
Policy-related disputes.
As noted, Van Holt is markedly
similar to today’s case. The plaintiff in
Van Holt filed successive claims with its
WYO insurance provider, Liberty Mutual,
for flood damage. Liberty Mutual
concluded that the claims were fraudulent
and refused to approve the damages
claimed from the second flood. The Van
Holts sued Liberty Mutual in the United
States District Court for the District of
New Jersey, alleging that it had committed
state law torts. Our Court initially held
that the District Court lacked subject
matter jurisdiction over the state law
“specifically relates to the business of
insurance.” 15 U.S.C. § 1012(b). In
Barnett Bank of Marion County v. Nelson,
517 U.S. 25 (1996), the Supreme Court
held that the exception for acts relating to
the business of insurance should be
construed broadly, noting that “[t]he word
‘relates’ is highly general.” Id. at 38.
W i t h o u t d o u b t t h e N F I A i s
congressionally-enacted legislatio n
relating to the business of insurance.
442 U.S.C. § 4072 authorizes suit
against the FEMA Director upon the
disallowance of a claim. By regulation,
the WYO company is sued in place of the
FEMA Director.

-- 4 of 11 --

5
claims. On rehearing, however, we
reversed path, concluding that the District
Court had jurisdiction. 163 F.3d at 167.
Our decision turned on the collapse
of two distinctions. First, we declined to
distinguish between suits against FEMA,
over which jurisdiction plainly existed, and
suits against WYO companies. Though
the language of the statute speaks
explicitly only of suits against FEMA, we
held that “a suit against a WYO company
is the functional equivalent of a suit
against FEMA,” id. at 166, because a
WYO company is a fiscal agent of the
United States. 42 U.S.C. § 4071(a)(1).
Moreover, “FEM A regulations require a
WYO company to defend claims but
assure that FEMA will reimburse the
WYO company for defense costs.” Van
Holt, 163 F.3d at 166 (citing 44 C.F.R.
§ 62.23(i)(6)). Second, we held that
district courts have original exclusive
jurisdiction over cases arising from
improper handling of Policy claims even if
they “do[] not explicitly allege that [the
WYO carrier] violated the insurance
policy contract.” Id. at 167. We
emphasized that the causes of action in
that case, though they “sound[ed] in tort,”
alleged “impropriety in the investigation
and adjustment of [the] insurance claim”
and therefore were “intimately related to
the disallowance of the[] insurance claim.”
Id. Put differently, we reasoned that a
claim may sound in tort but nonetheless be
one in contract.
After concluding that federal
jurisdiction was proper, we affirmed in
Van Holt the District Court’s award of
summary judgment to Liberty Mutual on
the merits. Id. at 168–69. Although the
issue was briefed, we declined to decide
whether the NFIA preempts state law
claims related to an insurance contract. Id.
at 169 n.6.
That issue is back and squarely
before us today. We must determine
whether the federal goals of uniform
affordable flood insurance and reduced
aggregate pressure on the federal Treasury,
which informed our decision in Van Holt,
counsel extension of our holding in that
case to preclude interference with Policies
not only by state courts, but also by state
law.5
II. Preemption
The reasoning of our decision in
Van Holt compels the conclusion that
state-law claims are preempted by the
NFIA. The uniformity touted in that
5We note that the immediate effect of
our decision is limited, as a relevant Policy
provision has since been changed. FEMA
National Flood Insurance Program, 65
Fed. Reg. 60,758, 60,767 (Oct. 12, 2000)
(codified at 44 C.F.R. pt. 61, app. A (1),
art. IX). A new regulation, which took
effect on December 31, 2000, amends an
insured’s Policy to include language
providing that “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.” Id.

-- 5 of 11 --

6
decision would be seriously jeopardized if
state tort claims were permitted to proceed,
even if those claims were resolved in
federal court. We reasoned there that
“Congress would want federal courts to
adjudicate disputes over federal flood
insurance policies for which the federal
government would be responsible.” Van
Holt, 163 F.3d at 167. By the same token,
Congress would want federal law to
govern those disputes. And what Congress
intends is the crux of our preemption
analysis.
“‘Cons i d e ra t i o n under t he
Supremacy Clause starts with the basic
assumption that Congress did not intend to
displace state law.’” Bldg. & Const.
Trades Council of Metro. Dist. v. Assoc.
Builders & Contractors of Mass./R.I., Inc.,
507 U.S. 218, 224 (1993) (quoting
Maryland v. Louisiana, 415 U.S. 725, 746
(1981)). The Court may nonetheless
conclude that the Program preempts state
law under one or more of three theories:
express preemption, field preemption
(sometimes referred to as “implied
preemption”), and conflict preemption.
Green v. Fund Asset Mgmt., L.P., 245 F.3d
214, 222 (3d Cir. 2001). This case falls
squarely within the third category.
It is easy to glean that federal law
expressly preempts state law when a
statute or regulation contains explicit
language to that effect. Morales v. Trans
World Airlines, Inc., 504 U.S. 374, 383
(1992). But when C.E.R. purchased its
Policy, no express provision existed.6
Thus C.E.R.’s claims under review are not
expressly preempted. See, e.g., Scherz v.
S.C. Ins. Co., 112 F. Supp. 2d 1000,
1004–05 (C.D. Cal. 2000); Spence v.
Omaha Indem. Ins. Co., 996 F.2d 793, 796
n.20 (5th Cir. 1993).
While a stronger case, we decline
also to rely on field preemption. This form
of preemption exists if “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. Ligget
Group, Inc., 505 U.S. 504, 516 (1992)
(internal quotations and citation omitted).
The Fifth Circuit Court of Appeals opined
in the seminal case of West v. Harris, 573
6Arguably the Policy now contains such
a provision. The amended provision reads:
“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, as
amended (42 U.S.C. § 4001, et seq.), and
Federal common law.” 44 C.F.R. pt. 61,
app. A(1), art. IX (2002). The principal
differences between the current provision
and its predecessor are the addition of the
term “exclusively” and the express
inclusion of disputes arising from claims
handling. Cf. 44 C.F.R. pt. 61, app. A(1),
art. X (1985) (“This policy is governed 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.”).

-- 6 of 11 --

7
F.2d 873 (5th Cir. 1978), that “Congress
h a s u n d e r t a k e n to e s t a b li s h a
comprehensive flood insurance program
under the control of [FEMA] to achieve
policies national in scope.” Id. at 881–82.
While the case predates Part B of the
statute, its reasoning is only more
persuasive given the expansion of federal
involvement in the Program.7 But because
conflict preemption is the narrower and,
we believe, clearer path, we do not decide
whether Congress has sought to occupy the
field of federal flood insurance.
Conflict preemption, the final form,
occurs “when [1] it is impossible to
comply with both the state and the federal
law, or [2] when the state law stands as an
obstacle to the accomplishment and
execution of the full purposes and
objectives of Congress.” Green, 245 F.3d
at 222 (citation omitted). Despite the
generality of this language, the Supreme
Court has urged caution in its application:
“[B]ecause the States are independent
sovereigns in our federal system, we have
long presumed that Congress does not
cavalierly pre-empt state-law causes of
action.” Medtronic, Inc. v. Lohr, 518 U.S.
470, 485 (1996). A court will deem state
law preempted only if that is the “clear and
manifest purpose of Congress.” Id.
(internal quotations and citation omitted).
Thus the first step in determining
whether C.E.R.’s claims are preempted is
to evaluate the statute and regulations for
evidence of congressional intent. We
begin by examining the first, narrower
prong of conflict preemption: state law is
preempted when it would be impossible
simultaneously to comply with state and
federal law. In this context, we note that
the standards used to analyze ordinary
insurance claims differ from those applied
to Policy claims. In the realm of private
insurance, common law doctrines (such as
“ r e a s o n a b l e e x p e c t a t i o n s , ”
“notice/preju dice,” and “substantial
compliance”) govern the evaluation of
claims. By contrast, a WYO insurer must
strictly follow the claims processing
standards set out by the federal
Government.
The important consequence is that
a WYO insurer may be unable to comply
both with state law and with the federal
guidelines that it is bound to follow. In
these cases, state law is preempted. C.E.R.
has not, however, alleged that Aetna
followed federal law in violation of a
conflicting state law doctrine. On the
contrary, it has argued that Aetna failed to
7In West, the Court deemed the
plaintiff’s case preempted on this basis.
However, West “did not expressly address
whether the NFIA preempts independent
state law tort claims; it only ruled on the
availability of a state-based remedy for
what is directly justiciable under the
NFIA, i.e., a breach of contract claim.”
Scherz, 112 F. Supp. 2d at 1006. The
holding in West encompassed only “the
statutory penalty and attorney’s fees
allowed by state insurance law for
arbitrary denial of coverage.” West, 573
F.2d at 881. More importantly, our Court
never adopted West’s rule before or after
the statute was amended.

-- 7 of 11 --

8
c o m p l y w i t h a f e d e r a l
requirement—specifically, the requirement
t h a t “ t h e [ c ]o m p a n y ’ s [ c ] l aim s
[d]epartment verifies the correctness of the
c o v e r a g e i n t e r p r e t a t i o n s a n d
r e a s o n a b l e n e s s of the p a y m e n ts
recommended by the adjusters.” 44 C.F.R.
§ 62.23(i)(2).
Accordingly, we rely instead on the
second variation of conflict preemption:
we conclude that the application of state
tort law would impede Congress’s
objectives. Indisputably a central purpose
of the Program is to reduce fiscal pressure
on federal flood relief efforts. See, e.g.,
Till v. Unifirst Fed. Sav. & Loan Ass’n.,
653 F.2d 152, 159 (5th Cir. 1981)
(“Clearly, the principal purpose in enacting
the Program w as to reduc e, by
implementation of adequate land use
controls and flood insurance, the massive
burden on the federal fisc of the ever-
increasing federal flood disaste r
assistance.”). State tort suits against WYO
companies, which are usually expensive,
undermine this goal.8 Allowing suits to
proceed, Aetna contends, results in one of
two consequences—both bad. If FEMA
refused to reimburse WYO carriers for
their defense costs, insurers would leave
the Program, driving the price of insurance
higher. The alternative, remuneration for
losses incurred in such suits, would
directly burden the federal Treasury.9
And, indeed, our decision in Van Holt
relied on the belief that “FEMA
reimburses the WYO companies for their
defense costs.” Van Holt, 163 F.3d at 165.
Our understanding that expensive
litigation will draw on federal funds is
confirmed by FEMA’s regulations and
policies interpreting and implementing the
NFIA. Congress statutorily authorized
FEMA to enter into “arrangements” with
private insurance companies. 42 U.S.C.
§§ 4071(a)(1), 4081(a). FEMA, in turn,
specified the terms of these Arrangements
in the regulations governing the Program.
Among other things, the Arrangement in
effect when C.E.R. purchased its Policy
provided that FEMA could reimburse a
WYO company for “payments as a result
of awards or judgments for punitive
damages arising under the scope of this
Arrangement and policies of flood
insurance issued pursuant to this
8To be sure, the federal Government
also has an interest in preventing fraud by
its insurers. But because a WYO insurer
profits by paying a claim, the ordinary
rationale for state tort law is largely
inapplicable to the Program’s context.
WYO insurers act as “fiduciary” or
“fiscal” agents of the United States. 42
U.S.C. § 4071(a)(1). They receive a flat
3.3% commission on all claims paid.
9Congress has authorized reimbursement
for “cost[s] incurred in the adjustment and
payment of any claims for losses.” 42
U.S.C. § 4017(d)(1). Moreover, pursuant
to 44 C .F.R. § 62.23(i)(6), “the
responsibility for defending claims will be
upon the Write Your Own Company and
defense costs will be part of the
unallocated or allocated claim expense
allowance . . . .”

-- 8 of 11 --

9
Arrangement provided that prompt notice
of any claim for punitive damages [was
submitted].” 44 C.F.R. pt. 62, app. A, art.
III(D) (1985). The Write-Your-Own
Claims Manual issued by FEMA to WYO
companies also provided explicitly that the
Government would reimburse a WYO
company for punitive damages under
appropriate circumstances. FEMA, Write-
Your-Own Claims M anual 19 (1986 ed.).
Thus it appears that FEMA ordinarily will
be responsible financially for the costs of
defending a lawsuit against a WYO
company.10 The efficiency goals of the
Program, on balance, would better be
served by requiring claimants to resolve
their disputes by means of the remedies
FEMA provides.11
10Relying on these and similar
provisions, C.E.R. argues that FEMA
anticipated that WYO insurers would be
sued under state law for actions arising
from their administration of Policies. We
reject C.E.R.’s approach because we see
no reason why litigation based on
improper claims-handling must mean state
law litigation. In fact, the updated Policy
set out at 44 C.F.R. pt. 61, app. A(1),
indicates the contrary interpretation. In its
current form, the Policy appears explicitly
to preempt state law tort suits, 44 C.F.R.
pt. 61, app. A(1), art. IX (2002), but
nonetheless contemplates that lawsuits
against FEMA and WYO insurers may
proceed. Article VII.R provides: “If you
[sue us], you must start the suit within one
year of the date of the written denial of all
or part of the claim, and you must file the
suit in the United States District Court of
the district in which the insured property
was located at the time of loss.” 44 C.F.R.
pt. 61, app. A(2), art. VII(R). Moreover,
44 C.F.R. pt. 62, app. A, art. III(D)(2)
specifies that FEMA will reimburse a
WYO company for “payments as a result
of litigation [that arise] under the scope of
this Arrangement.” In other words, we see
no inconsistency in holding that FEMA
envisioned that claimants could sue WYO
insurers, but intended federal law to
govern those disputes.
11This reasoning is bolstered by
FEMA’s express statements to this Court
in its amicus brief in Van Holt. While the
Van Holt amicus brief was produced in
conjunction with litigation rather than a
rulemaking, the Supreme Court has
deemed appellate briefs worthy of
deference. Geier v. Am. Honda Motor
Co., 529 U.S. 861, 883-84 (2000) (“[T]he
agency’s own views should make a
difference. We have no reason to suspect
that the Solicitor General’s representation
of [the agency’s] views reflects anything
other than ‘the agency’s fair and
considered judgment on the matter.’ The
failure of the Federal Register to address
pre-emption is thus not determinative.”)
(citation omitted). Cf. Horn v. Thoratec
Corp., 376 F.3d 163, 177 (3d Cir. 2004)
(“Our preemption conclusion is reenforced
by the informed analysis found in the
FDA’s amicus curiae brief.”). FEMA’s
amicus brief in Van Holt principally
addressed the disruption to the Program
that would result from concurrent

-- 9 of 11 --

10
This analysis is consistent with the
decisions of other courts.12 But we can
reach the same result by a straighter
path—we can simply extrapolate from our
decision in Van Holt. The reasoning
proceeds as follows. First, no one disputes
that federal law preempts state contract
law with respect to the interpretation of
Policy language. Linder & Assocs. Inc. v.
Aetna Cas. & Sur. Co., 166 F.3d 547, 550
(3d Cir. 1999) (“It is well settled that
federal common law governs the
interpretation of [Policies].”). We need
make only one logical step to extend this
rule to the case at hand—namely, we must
hold that a tort claim of the kind alleged by
C.E.R. is equivalent to a contractual claim
that turns on the interpretation of a Policy.
That step we have already taken. Van Holt
held that a state claim “sounding in tort”
but “intimately related to the disallowance
of [an] insurance claim” is essentially a
contractual claim and therefore within the
exclusive jurisdiction of the federal
courts.13 163 F.3d at 167.
jurisdiction, but it also noted the
importance of uniformity in the law. Brief
for FEMA at 8–9, Van Holt (No.
97-5098), available at 1998 WL
34104122 (“Under the Panel’s reasoning,
the 50 States would become co-
administrators of the program along with
FEMA, a result Congress plainly did not
intend when it enacted § 4019 vesting
such administrative power in FEMA, and
when it specifically amended § 4072 to
make federal jurisdiction exclusive . . . .”).
12The vast majority of courts have found
that the NFIA preempts state law. Gibson
v. Am. Bankers Ins. Co., 289 F.3d 943, 949
(6th Cir. 2002) (“[M]ost courts have
consistently found that NFIA preempts
state law claims that are based on the
handling and disposition of [Policy]
claims.”). The most notable exception is
Spence v. Omaha Indem. Ins., 996 F.2d
793 (5th Cir. 1993). That case, however,
arose from misrepresentation in the
procurement of a Policy. Our case, by
contrast, involves misrepresentation in the
adjustment of a claim made under a Policy.
Several courts have distinguished Spence
on this basis. See, e.g., Messa v. Omaha
Prop. & Cas. Ins. Co., 122 F. Supp. 2d
513, 521 (D.N .J. 2000 ) (“Po licy
procurement is an entirely different
creature than claims handling”). We need
not decide today whether a case alleging
misrepresentation in claims procurement
would also be preempted.
13We do not consider Aetna’s argument
that enforcement of a tort judgment against
a WYO company would violate the
Appropriations Clause of the United States
Constitution, art. I, § 9, cl. 7, because it
would burden a program enacted and
funded by Congress. Courts ordinarily
should not pass on constitutional questions
when a decision may be reached on non-
constitutional grounds. Escambia County
v. McMillan, 466 U.S. 48, 51 (1984).
While preemption derives from the
Supremacy Clause and thus is formally a
“constitutional question,” Chi. & N.W.
Transp. Co. v. Kalo Brick & Tile Co., 450

-- 10 of 11 --

11
Conclusion
We conclude that C.E.R.’s claims,
based on territorial tort law, are
incompatible with the objectives of the
NFIA and therefore are preempted. We
thus reverse the District Court’s denial of
summary judgment to Aetna and remand
to the Court to dismiss with prejudice
C.E.R.’s tort claims.
U.S. 311, 317 (1981), “the basic question
involved in [preemption claims] is never
one of interpretation of the Federal
Constitution but inevitably one of
comparing two statutes.” Swift & Co. v.
Wickham, 382 U.S. 111, 120 (1965). Thus
we treat preemption as “‘statutory’ for
purposes of our practice of deciding
statutory claims first to avoid unnecessary
constitutional adjudications.” N.J.
Payphone Ass’n v. Town of West New
York, 299 F.3d 235, 239 n.2 (3d Cir. 2002)
(quoting Douglas v. Seacoast Prods., Inc.,
431 U.S. 265, 272 (1977)).
No similar exception applies to the
Appropriations Clause, which— though it
may entail analysis of a statute—is an
unsettled area of constitutional law. See,
e.g., Maryland Dep’t of Human Res. v.
United States Dep’t of Agric., 976 F.2d
1462, 1485–86 (4th Cir. 1992) (Hall, J.,
dissenting)(“[C]onstitutional questions
will not be decided unless absolutely
necessary to a decision of the case . . . .
The majority offers no reason why this
prudential constraint should be ignored in
the case before us. Indeed, although I
express no opinion on the merits of the
majority’s analysis of the Appropriations
Clause, it appears to me that this area of
the law is far from settled. The uncertainty
surrounding the issue counsels even
greater restraint.”) (quotations omitted). In
deciding preemption, we look principally
to the text of the statute and to
congressional intent. By contrast, the
boundaries of Appropriations Clause
analysis are as yet undeveloped. A
decision for Aetna based on the
Appropriations Clause would create new
law; our preemption decision applies
existing law to a regulatory framework.

-- 11 of 11 --