In the lawsuit that D&S later filed against, among other defendants, Wright National Flood Insurance Company f/k/a Fidelity National Insurance Services, LLC (“Fidelity”), which provided flood insurance to the Foundry through the NFIP, D&S alleged that it had not been paid for the remediation and repair work that it had performed on the Foundry. It alleged that the costs of its services and materials for work done on the Foundry totaled $505,800.08.

D&S asserted in its lawsuit that Colonial Claims Corporation acted as Fidelity's adjuster for any claims related to the Foundry policy. D&S also contended that it “reasonably believed that Colonial was acting as the agent for Fidelity because Colonial represented itself as the adjuster acting on behalf of Fidelity.”

According to D&S, Colonial had orally agreed that Fidelity would cover the costs of materials and services rendered by D&S on behalf of the Foundry, provided that those costs were not covered by other insurance carriers or by available disaster relief funds. D&S said that this agreement was then repeatedly confirmed by Colonial in writing.

D&S did not allege that it ever had any direct interactions with Fidelity.

Fidelity, which had issued the Foundry a standard flood insurance policy (“SFIP”) promulgated by the Federal Emergency Management Agency (“FEMA”) under the NFIP, moved to dismiss the claims against it. It argued that any state law claims against it were preempted by the federal law governing claims arising from NFIP policies and that, even if D&S's claims against Fidelity were not preempted, they were uncognizable under the express provisions of the SFIP.

In response, D&S contended that its claims against Fidelity did not arise under the NFIP policy issued by Fidelity to the Foundry and, therefore, were neither preempted by federal law governing the policy nor restricted by the policy's terms. D&S argued that it was not attempting to step into the shoes of the Foundry to enforce the policy but, rather, that its claims against Fidelity were based on a wholly separate transaction between Colonial and D&S that bound Fidelity to pay for D&S's work on the Foundry's behalf.

The District Court's Decision

The district court granted Fidelity's motion.

In its decision, it explained that the National Flood Insurance Act (“NFIA”) “indisputably preempts state law causes of action based on the handling and disposition of SFIP claims.” Moreover, the district court continued, with respect to federal causes of action, under the terms of the SFIP, rights to the policy – and, therefore, standing to bring a federal claim as an insured – only can be assigned through the transfer of the insured property.

The district court then observed that the terms of the SFIP expressly provided that, although an insurer writing such a policy under FEMA's “Write Your Own” (“WYO”) program may authorize a private third-party adjuster to assist with the investigation and handling of claims, the adjuster was not authorized to approve or disapprove claims or to tell the insured whether claims would be approved. It was “unreasonable – as a matter of law – to rely on an adjuster's statements about the NFIP claims process that contradict the terms of the SFIP and, therefore, a claim based on such representations cannot be sustained,” the district court stated.

The district court was not persuaded by D&S's argument that its action against Fidelity was not about trying to enforce the Foundry's NFIP policy and recover under the policy terms, declaring that there was “really no other way to understand D&S's claims.” It noted that the alleged representations made by Colonial that Fidelity would pay for D&S's work on the Foundry “were clearly made in the context of adjusting the Foundry's NFIP policy claims and were in reference to Fidelity's role as a WYO insurer of the Foundry.”

The “preemptive effect of the plain language of the SFIP” was not limited to actions brought by policyholders only, the district court ruled.

It then concluded that D&S also could not bring a state law contract or equity claim against Fidelity based on Colonial's alleged representations because the express terms of the SFIP prohibited any reasonable reliance on those representations.

The case is D&S Remodelers, Inc. v. Wright National Flood Ins. Services, No. 3:15-cv-59 (M.D. Tenn. Sept. 20, 2016).