Case study

Appellate Victory in the Fifth Circuit

October 16, 2020 Case Study

Chaudhary v. Arthur J. Gallagher & Co.

On Friday, October 16, 2020, the United States Court of Appeals for the Fifth Circuit ruled in favor of a Beck Redden client and issued an opinion that will clarify the application of federal preemption principles to disputes regarding the procurement of private excess flood insurance.

Our client’s home suffered extensive damage as a result of Hurricane Harvey. After Harvey, the client recovered insurance proceeds from a standard flood insurance policy issued by the National Flood Insurance Program, and because the value of the home and its contents substantially exceeded the coverage available under the federal flood insurance program, expected to be made whole by a private excess insurance policy. Unfortunately, the client learned that its insurance broker had allowed a private excess flood insurance policy to lapse and had failed to procure a replacement private excess flood insurance policy to fully insure the client’s home and contents.

The district court dismissed the claims against the insurance broker and an individual agent on the grounds that they were “claims handling” complaints and preempted by federal law. Federal regulations specifically regulate the handling of flood insurance claims, so courts have held that lawsuits based on “claims handling” are exclusively governed by federal law. The district court reasoned that the Fifth Circuit’s precedent in Grissom v. Liberty Mut. Fire Ins. Co., 678 F.3d 397 (5th Cir. 2012) created an “interaction timeline,” under which a claim is defined as a preempted “claims handling” complaint if the policyholder “is already covered and in the midst of a non-lapsed insurance policy.” Beck Redden appealed that ruling, arguing that the Grissom test does not apply to allegations involving private, excess flood insurance – particularly when they are based on a broker’s failure to procure private insurance and have nothing to do with the standard federal flood insurance coverage.

The Fifth Circuit reversed, clarifying that Grissom‘s “interaction timeline” analysis does not apply to private excess flood policies (and strongly implying that it does not apply to claims against an independent broker or agent, as opposed to an insurer participating in the federal flood insurance program). It remanded this case to the district court for further proceedings.

The Beck Redden team included appellate partner Russell S. Post, who presented the oral argument, and appellate associate Nicholas Bruno.

Russell S. Post 713.951.6292
Nicholas Bruno 713.951.6232