In the wake of Hurricane Matthew and its associated flooding
(particularly in North Carolina and South Carolina), a recent case of first impression in the Sixth
Circuit may be cited by both damaged businesses and
insurers and insurance brokers in the Carolinas. Harris v.
Nationwide Mutual Fire Insurance Company, __ F.3d __, 2016 WL
4174381 (6th Cir. Aug. 8, 2016).
Writing for a unanimous panel, Judge Ralph B. Guy, Jr. held that the National Flood Insurance Act (established in the wake of flooding in Florida and Louisiana after Hurricane Betsy in 1965) did not preempt claims based on state law for negligence in the procurement of an insurance policy for a home situated in a flood-prone area. Although this case was decided on principles of federal abstention, it has major ramifications for those practicing insurance law. While it is not binding on any courts in the area affected by Hurricane Matthew, policyholder counsel will likely cite to it as persuasive authority in support of negligence claims against insurance brokers and other professionals involved in the purchase of homes or insurance.
The case arose when a married couple suffered a flood loss during a 2010 flood of the Cumberland River. They brought a claim against their mortgage bank (Regions), a flood-zone certifier, their insurance company (Nationwide) and their insurance broker (David Vandenbergh). On appeal, the issue was whether the homeowers' state law claims for negligence during the procurement of their Standard Flood Insurance Policy were preempted by Congress when it passed the National Flood Insurance Act (NFIA) The panel unanimouslyheld that while the NFIA preempted coverage claims against the insurer, it did not preempt negligence claims regarding procurement of the policy.
The case was remanded to the district court for further proceedings and, presumably, for trial.
The Court explained that:
In adopting the same distinction as the Fifth Circuit, the Court noted that:
Addressing questions of federal abstention:
As Hurricane Matthew's floodwaters recede from the Carolinas, Harris and Spong are likely to be cited as the parties duel over whether claims for negligent procurement in the purchase of insurance can proceed to trial.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.