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Podgorski v. Liberty Mutual Group Inc.

United States District Court, N.D. Illinois, Eastern Division

December 12, 2016

LEO PODGORSKI, on behalf of himself and all others similarly situated, Plaintiff,


          SARA L. ELLIS United States District Judge

         Plaintiff Leo Podgorski brings this case against Defendants Liberty Mutual Group Inc. and Liberty Mutual Fire Insurance Company (collectively, "Liberty Mutual") on behalf of himself and a putative class of other similarly situated individuals who renewed Standard Flood Insurance Policies ("SFIPs"), issued in accordance with the National Flood Insurance Program ("NFIP"), with Liberty Mutual after September 2013 and were improperly charged higher premiums because Liberty Mutual failed to notify them that the Federal Emergency Management Agency ("FEMA") had redesignated the location of their homes as lower risk. Podgorski brings six state-law claims, specifically, negligence, negligent misrepresentation, violation of the Illinois Consumer Fraud and Deceptive Business Practice Act, unjust enrichment, breach of implied contract, and fraud, seeking a refund of the excess premium payments and punitive damages. Liberty Mutual moves to dismiss the complaint [21] arguing that the NFIP's regulations preempt Podgorski's state-law claims and, in the alternative, that Podgorski has not adequately stated a claim under state law. Because federal law expressly preempts the state-law claims the Court grants Liberty Mutual's motion to dismiss.


         A. National Flood Insurance Program

         Congress established the NFIP to make flood insurance available at a reasonable price and to address the economic stress that floods place on the nation's resources. 42 U.S.C. § 4001(a). The NFIP is administered by FEMA, which is responsible for establishing the terms of the SFIPs, including the SFIP Podgorski obtained for his home in Antioch, Illinois. FEMA oversees the implementation of the NFIP through the Write-Your-Own program, through which private insurance companies, commonly referred to as "WYOs, " such as Liberty Mutual, issue and administer SFIPs in their own names as "fiscal agents of the United States." 42 U.S.C. § 4071(a)(1). The terms of each SFIP, including Podgorski's, are identical and promulgated as a federal regulation, and WYOs may not alter the terms of the SFIP, without the written authorization of the Flood msurance Administrator. 44 C.F.R. §§ 61.4(b), 61.13(d)-(e). Each SFIP is designed to ensure that all insured parties receive the same benefits regardless of where they are located or from whom they purchased their policy. National Flood Insurance Program (NFIP); Insurance Coverage and Rates, 65 Fed. Reg. 34, 824, 34, 826-27 (May 31, 2000).

         B. Podgorski's Policy

         Podgorski originally purchased an SFIP for his home in Antioch, Illinois from Liberty Mutual in 2009. At the time he purchased this policy, his home was located in a flood zone with the designation Zone AE, which is a higher-risk zone. The zone designation is based on the Flood msurance Rate Map ("FIRM"), which FEMA prepares and maintains. The FIRM delineates special hazard areas and areas subject to special risk premiums. The Zone AE higher- risk classification required Podgorski to purchase and maintain flood insurance as condition of his mortgage.

         Podgorski renewed his policy annually for six one-year periods, each beginning and ending on July 31. In December 2015, Podgorski received a notice from his mortgage company informing him that his insurance policy inaccurately stated that his home was in a Zone AE area. FEMA had in fact redesignated the area Zone X, a lower-risk zone, in September 2013. Because of this lower-risk designation, Podgorski was no longer required to carry flood insurance, and any flood insurance he did carry would incur a lower premium than insurance for a home located in Zone AE.

         Despite the fact that Podgorski's home was located in a lower-risk zone, Liberty Mutual never notified Podgorski of the change and continued to charge him a higher premium consistent with his home being located in Zone AE, not Zone X. Each time Podgorski renewed his policy after the designation change, Liberty Mutual did not notify him of the changed zone and continued charging him the higher Zone AE premium. When Podgorski discovered the error in his zone designation, he contacted Liberty Mutual complaining about the error and requesting a premium refund. Liberty Mutual acknowledged that the designation was incorrect and that the error resulted in Podgorski paying a higher premium but did not refund Podgorski's premiums.


         A motion to dismiss under Rule 12(b)(6) challenges the sufficiency of the complaint, not its merits. Fed.R.Civ.P. 12(b)(6); Gibson v. City of Chicago, 910 F.2d 1510, 1520 (7th Cir. 1990). In considering a Rule 12(b)(6) motion to dismiss, the Court accepts as true all well-pleaded facts in the complaint and draws all reasonable inferences from those facts in the plaintiffs favor. AnchorBank, FSB v. Hofer, 649 F.3d 610, 614 (7th Cir. 2011). To survive a Rule 12(b)(6) motion, the complaint must not only provide the defendant with fair notice of a claim's basis but must also be facially plausible. Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009); see also Bell Ail. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 678. "While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiffs obligation to provide the 'grounds' of his 'entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555 (internal citations omitted). "The plausibility standard is not akin to a 'probability requirement, ' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Iqbal, 556 U.S. at 678.


         Liberty Mutual moves to dismiss Podgorski's complaint on the basis that the NFIP, its implementing regulations, and the SFIP preempt all state4aw claims. Federal law preempts state law when Congress expressly states that it intends to prohibit state regulation in that area (express preemption); when, by implication, the depth and breadth of a congressional scheme occupies the legislative field (field preemption); and when there is a conflict between state law and federal law (conflict preemption). Lorillard Tobacco Co. v. Reilly, 533 U.S. 525, 541, 121 S.Ct. 2404, 150 L.Ed.2d 532 (2001); Aux Sable Liquid Prod. v. Murphy, 526 F.3d 1028, 1033 (7th Cir. 2008). The "purpose of Congress is the ultimate touchstone in every pre-emption case." Medtronic, Inc. v. Lohr, 518 U.S. 470, 485, 116 S.Ct. 2240, 135 L.Ed.2d 700 (1996) (citations omitted) (quotations marks omitted). Properly issued federal regulations have the same preemptive effect as statutes. Fid. Fed. Sav. & Loan Ass 'n v. de la Cuesta, 458 U.S. 141, 153, 102 S.Ct. 3014, 3022, 73 L.Ed.2d 664 (1982) ("Federal regulations have no less pre-emptive effect than federal statutes."). And the preemptive effect of federal regulations is not dependent upon express congressional authorization to displace state law. Id. at 154. Whether a law is preempted is a question of law which a court may decide at the motion to dismiss stage. See Moran v. Rush Prudential HMO, Inc., 230 F.3d 959, 966 (7th Cir. 2000) ("A district court's preemption ruling is a question of law."); Brown v. Kerr-McGee Chem. Corp., 767 F.2d 1234, 1237 (7th Cir. 1985) (upholding district court's decision that federal law preempted injunction based on state law even though there had been no briefing or hearing on injunction).

         Liberty Mutual argues that Podgorski's state-law claims are preempted under express preemption and conflict preemption theories. Liberty Mutual argues that the terms of the SFIP, a duly promulgated regulation, expressly preempt state-law claims arising out of the administration of SFIPs. Podgorski counters that his, and every other, SFIP only preempts disputes arising out of the handling of insurance claims so, because his lawsuit does not involve insurance claims at all, it is not preempted. The language of each SFIP, including the SFIP that governs the relationship ...

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