Liberty Mutual will no longer have to defend itself in a class action after a federal judge in Chicago granted its motion to dismiss the complaint, which accused the insurer of overcharging many customers for flood insurance.
In an opinion and order issued Dec. 12, Judge Sara L. Ellis said
federal law pre-empts the state law claims brought in the complaint by plaintiff
Leo Podgorski, of Antioch, who argued he was entitled to refunds after a
classification error caused him to pay higher premiums.
Podgorski purchased a standard flood insurance policy in
2009, renewing it annually at the end of July. In 2009, his home was in a flood
zone designated AE, a higher-risk classification based on the Flood Insurance
Rate Map, which the Federal Emergency Management Agency prepares and maintains.
Homes in AE zones are required to have flood insurance as a condition of
holding a mortgage.
In September 2013, following Congressional establishment of
the National Flood Insurance Program, which FEMA administers, the home was reclassified
to the lower-risk Zone X. This meant Podgorski was no longer required to carry
flood insurance, and if he did have flood insurance, it would incur a lower
premium than those for Zone AE properties.
However, Liberty Mutual never notified Podgorski of the
classification change and continued charging him the AE premium. Podgorski discovered
the error and requested a refund. Though, according to Ellis’ order, “Liberty
Mutual acknowledged that the designation was incorrect and that the error
resulted in Podgorski paying a higher premium,” it did not issue a refund.
In response to Podgorski’s class action complaint regarding
the matter, Liberty Mutual argued the NFIP and SFIP preempt all state-law
claims. Podgorski countered by saying only disputes related to insurance claims
are pre-empted, and he was contesting only the premium. But, as Ellis noted,
“The language of each SFIP, including the SFIP that governs the relationship
between Podgorski and Liberty Mutual, is taken from a duly issued federal
regulation (that) unambiguously states that federal law ‘exclusively’ governs
the SFIP. …
“Furthermore, at the time FEMA initially proposed the SFIP,
FEMA stated that it clarified Article IX in the SFIP ‘to emphasize that matters
pertaining to the Standard Flood Insurance Policy, including issues relating to
and arising out of claims handling, must be heard in federal court and are
governed exclusively by federal law.’”
Ellis said Podgorski’s argument failed since he cited “no
authority for the proposition that because courts have encountered a regulation
most frequently in one context that is the only context in which it can be
applied. The existence of claims-handling cases analyzing preemption in no way
limits the applicability of the SFIP’s preemptive effect to only those types of
Podgorski cited a 2009 Fifth Circuit Court opinion in Campo v. Allstate Insurance to argue
SFIP preemption is limited to claims. However, Ellis pointed out that dispute
was about a flood that occurred after the policy lapsed, meaning the dispute
was not about the claim, but procurement of coverage. Ellis introduced the 2012
Fifth Circuit opinion in Grissom v.
Liberty Mutual, which “clarified the scope of Campo,” and noted the Grissom
claim failed because of SFID preemptions as, like Podgorski, “the plaintiff was
still a customer of the insurer.”
Podgorski was represented in the action by attorneys with
the firm of Napoli Shkolnik PLLC, of New York.
Liberty Mutual was defended by the firms of Duane Morris LLP,
of Chicago and New York, and the Vocke Law Group LLP, of Chicago.