NOT PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

_______________

No. 14-3764

_______________

MAHAKALI KRUPA, LLC; 

HINA PATEL,

Appellants

v.

ALLSTATE INSURANCE COMPANY

_______________

Appeal from the United States District Court

for the Middle District of Pennsylvania

(D.C. No. 3-12-cv-00569)

District Judge: Honorable Robert D. Mariani

_______________

Argued June 8, 2015

Before: AMBRO and COWEN, Circuit Judges, and RESTANI,*Judge.

(Opinion Filed: July 23, 2015)

John P. Rodgers, Esq. (Argued)

Caverly, Shea, Phillips & Rodgers

15 Public Square

Suite 210

Wilkes-Barre, PA 18701

Counsel for Appellants

Joseph J. Aguda, Jr., Esq.

 

* The Honorable Jane A. Restani, Judge for the United States Court of International 

Trade, sitting by designation.
2

Kim Tran Britt, Esq. (Argued)

Gerald J. Nielsen, Esq.

Nielsen, Carter & Treas, LLC

3838 North Causeway Boulevard

Suite 2850

Metairie, LA 70002

John R. Nealon, Esq.

Thomas A. Specht, Esq.

Marshall, Dennehey, Warner, Coleman & Goggin

P.O. Box 3118

Scranton, PA 18505

Counsel for Appellee

_______________

OPINION**

_______________

 

** This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does not 

constitute binding precedent.
3

RESTANI, Judge.

Plaintiffs/Appellants Mahakali Krupa, LLC and its representative Hina Patel 

(collectively “plaintiffs”) appeal the District Court’s grant of summary judgment to 

Defendant/Appellee Allstate Insurance Company (“Allstate”) on plaintiffs’ claims 

relating to Allstate’s failure to pay flood insurance benefits. We will affirm.

I.

Plaintiffs purchased a Subway franchise from Leonard Marconi (“Marconi”) on 

August 23, 2011. At the time of sale, Marconi held a “contents only” Standard Flood 

Insurance Policy (“SFIP”) through Allstate. Allstate is a “Write-Your-Own” (“WYO”) 

Program flood insurance carrier participating in the National Flood Insurance Program 

(“NFIP”). As a WYO company, Allstate is authorized by the Federal Emergency 

Management Agency (“FEMA”) to issue flood insurance policies in its own name and to 

administer those policies, but FEMA reimburses it for paid claims. See C.E.R. 1988, Inc. 

v. Aetna Cas. & Sur. Co., 386 F.3d 263, 265, 267 (3d Cir. 2004). Policies issued by a 

WYO company are subject to the National Flood Insurance Act of 1968, the regulations 

issued under the Act, and the terms and conditions of the Standard Flood Insurance 

Policy, which is published in the Code of Federal Regulations. 44 C.F.R. § 61.4(a)–(b). 

Marconi’s SFIP allowed up to $60,000 in recovery. At the closing of the Subway 

franchise sale, Marconi suggested that he transfer the SFIP to plaintiffs and then 
4

contacted his agent, Georgeanne Purcell (“Purcell”). Plaintiffs later contacted Purcell as 

well, and allegedly were told that the policy could be transferred to plaintiffs.

On September 8, 2011, plaintiffs’ Subway franchise property sustained flood 

damage in the amount of $77,105.72. Plaintiffs did not process the paperwork to transfer 

the policy until after the flood. On September 26, 2011, Allstate issued a Flood General 

Policy Endorsement Declaration indicating that the policy had been changed to Hina 

Patel’s name effective August 23, 2011. Plaintiffs later submitted a claim seeking the 

$60,000 limit under the SFIP. Allstate denied the claim on the basis that there was no 

policy in effect at the time of the flood. Under the terms of the SFIP, the policy could not 

be transferred because it covered only personal property. 44 C.F.R. Pt. 61, App. A(1), 

Art. VII(D)(1). Rather, plaintiffs had to purchase a new policy, which did not become 

effective until October 13, 2011, thirty days after Allstate received the plaintiffs’ 

application to transfer the policy. 42 U.S.C. § 4013(c) (2012); 44 C.F.R. § 61.11(b)–(c).

Plaintiffs filed suit against Allstate, alleging that the flood damage was a covered 

loss pursuant to the provisions of the flood policy. Plaintiffs later attempted to reframe 

their complaint to include a tort claim for negligent misrepresentation. Allstate moved 

for summary judgment. The District Court ultimately concluded that there was no 

insurance contract between plaintiffs and Allstate at the time of the loss. The District 

Court also held that Allstate was not estopped from denying coverage. Regarding the 

misrepresentation claim, the Court held that it failed as a matter of law. First, it 

determined that the regulations preclude any misrepresentations made by Purcell being 
5

imputed to Allstate. Second, the Court noted that Allstate itself did not make any 

misrepresentations until after the flood, and therefore plaintiffs could not have been 

relying on those statements at the time of loss.

Plaintiffs appeal the District Court’s grant of summary judgment on their estoppel 

argument and their state law misrepresentation claim.1

II.

We exercise plenary review of the grant of summary judgment. Mylan Inc. v. 

SmithKline Beecham Corp., 723 F.3d 413, 418 (3d Cir. 2013). Summary judgment is 

appropriate “if the movant shows that there is no genuine dispute as to any material fact 

and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). We 

view the evidence in the light most favorable to the nonmoving party and draw all 

reasonable inferences in the nonmoving party’s favor. Hugh v. Butler Cnty. Family 

YMCA, 418 F.3d 265, 267 (3d Cir. 2005).

III.

 

1 We note that it is not clear whether plaintiffs actually preserved their appeal of the 

estoppel argument. Counsel at oral argument stated that this claim was also appealed, but 

plaintiffs’ appellate brief makes only a single reference to estoppel in the argument 

section. Otherwise, plaintiffs refer to “state law tort principles,” their “tort claims,” 

Purcell’s “negligent misrepresentations,” or their “negligent representation claims.” 

Because their estoppel argument fails for the same reasons as their negligent 

misrepresentation claim, we need not decide whether plaintiffs waived the issue by 

failing to adequately raise it in their appellate brief.
6

The District Court held that Allstate could not be held liable for Purcell’s 

alleged misrepresentations as a matter of law, relying on 44 C.F.R. § 61.5(e). 

Section 61.5(e) provides:

The standard flood insurance policy is authorized only under terms and 

conditions established by Federal statute, the program’s regulations, the 

Administrator’s interpretations and the express terms of the policy itself. 

Accordingly, representations regarding the extent and scope of coverage 

which are not consistent with the National Flood Insurance Act of 1968, as 

amended, or the Program’s regulations, are void, and the duly licensed 

property or casualty agent acts for the insured and does not act as agent for 

the Federal Government, the Federal Emergency Management Agency, or 

the servicing agent.

The District Court reasoned that Purcell was acting as an agent of the plaintiffs, not as an 

agent of Allstate, when she allegedly indicated that the plaintiffs would be covered 

beginning on the date of the sale of the Subway franchise (i.e., August 23, 2011). 

Because Allstate was the only party sued, and because Purcell’s misrepresentations were 

the only ones upon which plaintiffs might have relied to their detriment, this resolved the 

issue. Based on the arguments presented to us, we find no error in this reasoning.

The regulation on its face appears to apply squarely to the situation here. Purcell 

allegedly made a representation that was contrary to the terms and conditions established 

by the statute, regulations, and express policy terms, by stating that Marconi’s policy 

could be transferred to plaintiffs and that plaintiffs would be covered from the date of the 

sale of the Subway franchise. Because Purcell misrepresented the extent to which 

plaintiffs would be covered (namely, that they would be covered beginning on August 23, 

2011, instead of following the thirty-day waiting period once they filed the proper 
7

paperwork), the regulation dictates that Purcell was acting as an agent for plaintiffs, not 

Allstate. See Remund v. State Farm Fire & Cas. Co., 483 F. App’x 403, 408 (10th Cir. 

2012) (“By creating the legal fiction that an insurance agent ‘acts for the insured,’ instead 

of for her employer (the private insurance company), § 61.5(e) shields the private 

insurance company from liability for certain of the agent’s tortious acts.”). 

In their brief on appeal, plaintiffs focus solely on the issue of whether state law 

tort claims related to procurement are preempted as a general matter, arguing that 

although state claims related to claims handling are preempted, see C.E.R. 1988, 386 

F.3d at 272 & n.12, claims related to procurement are not.2 Plaintiffs failed to even 

cite—let alone discuss—44 C.F.R. § 61.5(e). Allstate then raised the regulation as a bar 

to their claim in its brief, and plaintiffs failed to file a reply brief addressing this 

argument. At oral argument, upon questioning by the panel, plaintiffs finally addressed 

the regulation directly. They made two related arguments as to why the regulation should 

not apply: first, if there was no policy in effect at the time of the loss, then the FEMA 

regulations do not apply; second, if FEMA would not be required to pay any resulting 

judgment, then the regulation does not apply.3 Neither argument is persuasive.4 

 

2 The District Court explicitly declined to rule on this question, basing its decision solely 

on 44 C.F.R. § 61.5(e)’s effect on plaintiffs’ theory of vicarious liability.

3 Plaintiffs did not contest that Allstate was a “servicing agent” that would be shielded 

from liability under 44 C.F.R. § 61.5(e), assuming the regulation applies. Plaintiffs also 

did not contest that the misrepresentation went to the scope or extent of coverage.

4 Because we determine that this case can be resolved on the basis of 44 C.F.R. § 61.5(e), 

we need not decide whether state law claims related to procurement are preempted as a 
8

First, plaintiffs have cited no authority for their proposition that FEMA regulations 

do not apply if there was not a valid policy in effect at the time of loss. As a general 

matter, FEMA regulations often will be integral in answering the question as to whether 

there was a policy or not. To the extent that plaintiffs argue that FEMA should not be 

able to use regulations regarding claims handling or specific terms in the policy to defeat 

a claim when no policy existed, that argument fails with respect to 44 C.F.R. § 61.5(e). 

Nothing in the plain language of the regulation limits its application to representations 

made during the handling of claims. In fact, misrepresentations regarding the extent or 

scope of coverage are likely to occur during the “procurement” phase. Plaintiffs ask us to 

read a major exception to the plain language of the regulation that simply is not there. 

We decline such an invitation.

Moreover, plaintiffs have not cited any authority suggesting that FEMA is 

prohibited from promulgating a regulation that would apply to the procurement of a flood 

policy. The statute provides that “the Administrator of the Federal Emergency 

Management Agency is authorized to establish and carry out a national flood insurance 

program which will enable interested persons to purchase insurance against loss resulting 

from physical damage to or loss of real property or personal property related thereto 

arising from any flood occurring in the United States.” 42 U.S.C. § 4011(a). It further 

provides that “[t]he Administrator is authorized to issue such regulations as may be 

 

general matter. Cf. Campo v. Allstate Ins. Co., 562 F.3d 751, 752 (5th Cir. 2009) 

(holding that state law claims related to policy procurement are not preempted by federal 

law). Rather, we hold only that plaintiffs’ theory of vicarious liability for the particular 

tortious conduct in this case is precluded by the regulation.
9

necessary to carry out the purpose of this Act.” 42 U.S.C. § 4128(a). The statute’s broad 

grant of rule-making authority certainly appears to give FEMA the power to regulate how 

policies issued under the NFIP are sold. And if the Administrator determined that 

shielding WYO companies from liability for certain agent misrepresentations would 

encourage WYO participation and advance the goals of the program, see Remund, 483 F. 

App’x at 408 (describing this purpose as a possible policy behind the regulation), the 

broad grant of rule-making authority in § 4128 would appear to authorize the relevant 

regulation. The question before us is not whether all state tort claims related to 

procurement are preempted. The question is whether Allstate can be held liable for the 

negligent misrepresentations of its agent when the representation concerns the scope or 

extent of coverage of a policy. The plain language of the regulation says that Allstate 

cannot, and the distinction between misrepresentations made during “procurement” and 

those made during “claims handling” is nowhere to be found in the regulation or the 

statute.

We also reject plaintiffs’ second argument that the regulation acts as a bar to 

recovery from the WYO company only when FEMA otherwise would be obligated to pay 

the resulting judgment. Plaintiffs correctly observe that the arrangement between FEMA 

and the WYO companies (“the Arrangement”) indicates that FEMA will not reimburse a 

WYO company “if there is negligence by the agent.” 44 C.F.R. pt. 62, app. A, art. IX. 

Whether FEMA pays the resulting judgment, however, does not change the plain 

language of 44 C.F.R. § 61.5(e). The regulation does not say that it applies only if 
10

federal funds are at risk. Again, plaintiffs ask us to insert a limitation into the regulation 

that does not exist. As explained above, FEMA might have desired to limit the liability 

of WYO companies for certain claims in order to encourage them to participate in the 

NFIP. This motivation is divorced from whether FEMA would have to pay the judgment. 

The fact that FEMA reiterated that it also will not pay for such claims does not 

undermine our reading of § 61.5(e). We also note that WYO companies are required to 

strictly follow the statute, regulations, and SFIP in determining whether claims should be 

paid under the policy. See C.E.R. 1988, 386 F.3d at 267. Section 61.5(e)’s limitation of 

liability for the WYO company eliminates to some degree a WYO company’s motivation 

to agree with the erroneous advice given by an agent, as the WYO company would know 

that it will not be held responsible for the agent’s initial misrepresentation if the company 

denies the claim.

Finally, even assuming that Article IX of the Arrangement suggests an 

acknowledgement that WYO companies might be held liable for the negligent actions of 

their agents in some circumstances, it still does not support plaintiffs’ argument. Section 

61.5(e) deals with a very specific type of tortious conduct—misrepresentations by the 

agent regarding the extent or scope of coverage. Assuming arguendo that Article IX 

suggests that WYO companies can be held liable for the tortious acts of their agents, 44 

C.F.R. § 61.5(e) and Article IX can be read together to give effect to both provisions. If 

the tortious conduct is a misrepresentation concerning the extent or scope of coverage, 

the WYO company cannot be sued. See 44 C.F.R. § 61.5(e). If the tortious conduct 
11

involves some other act, the plaintiff could sue the WYO company, and FEMA would 

refuse to reimburse the WYO company for those expenses. Our reading does not create 

an irreconcilable conflict between the two provisions.

In conclusion, plaintiffs’ arguments, made only at oral argument after questioning 

by the panel, regarding the District Court’s interpretation and application of 44 C.F.R. 

§ 61.5(e) are unpersuasive. We therefore will affirm the District Court’s grant of 

summary judgment.

IV.

Even if we had doubts about the proper interpretation and application of 44 C.F.R. 

§ 61.5(e), we still would decline to remand this matter, as the record on summary 

judgment could not support plaintiffs’ claims of detrimental reliance. The doctrine of 

equitable estoppel under Pennsylvania law “arises when one by his acts, representations, 

or admissions, or by his silence when he ought to speak out, intentionally or through 

culpable negligence induces another to believe certain facts to exist and such other 

rightfully relies and acts on such belief, so that he will be prejudiced if the former is 

permitted to deny the existence of such facts.” In re Estate of Tallarico, 228 A.2d 736, 

741 (Pa. 1967). To establish the tort of negligent misrepresentation, the plaintiffs must 

show “(1) a misrepresentation of a material fact; (2) made under circumstances in which 

the misrepresenter ought to have known its falsity; (3) with an intent to induce another to 

act on it; and; (4) which results in injury to a party acting in justifiable reliance on the 

misrepresentation.” Bortz v. Noon, 729 A.2d 555, 561 (Pa. 1999). Under either theory, 
12

plaintiffs would have to show that they were prejudiced by the misrepresentation. The 

record, however, is insufficient to support such a claim.

In their opposition to summary judgment and in their brief before the court, 

plaintiffs allege that 

[h]ad they been fully informed by Allstate’s agent regarding the limitations 

on flood insurance coverage, they could have decided on different options, 

one of which is not to purchase the property in the flood zone, or use the 

contents for collateral for a loan which would have permitted immediate 

assignability of the flood insurance that already existed on the property and 

contents. Allstate’s agent failed to give the Appellants that option and, as a 

result, they have suffered a loss of $60,000.00. 

Appellant’s Br. 22–23; see also Dist. Ct. Dkt. Entry 22 at 18. We first note that plaintiffs 

never raised a claim of estoppel or negligent misrepresentation in their complaint. 

Rather, these claims were raised in plaintiffs’ opposition to Allstate’s motion for 

summary judgment, and plaintiffs never amended their complaint. Thus, whether 

plaintiffs even should be allowed to continue pursuing these claims is not entirely clear. 

Regardless, the record submitted in plaintiffs’ opposition to Allstate’s motion for 

summary judgment is insufficient to support these assertions.

To the extent that plaintiffs claim that they relied on Allstate’s or Purcell’s 

misrepresentations in deciding to purchase the Subway franchise, this assertion has no 

support in the record. Plaintiffs purchased the Subway franchise on August 23, 2011. 

They, however, did not speak with Purcell until August 26, 2011. They thus could not 

have been relying on her statement at the time they purchased the franchise. Counsel at 

oral argument claimed that Marconi, the seller, had spoken to Purcell before the sale 
13

closed, that Purcell said that the policy could be transferred, and that Marconi passed this 

information on to plaintiffs at closing. The deposition testimony cited for this assertion, 

however, does not support that claim. Gopal Patel testified that Marconi asked him at 

closing whether plaintiffs desired to take over his flood insurance policy, and that 

plaintiffs said they were interested. When asked what happened next, Mr. Patel testified: 

“I think he contacted . . . Georgeanne [Purcell].” Nowhere did Mr. Patel testify that 

Marconi spoke with Purcell before the date of closing, or that Marconi indicated that 

Purcell assured him that Marconi’s flood policy could be transferred. And plaintiffs 

failed to depose either the person who allegedly made the misrepresentation (Purcell) or 

the person who supposedly passed on the alleged misrepresentation (Marconi). Any 

conclusion that Purcell made a misrepresentation regarding the ability to transfer the 

policy before the sale of the franchise closed would be pure speculation. Thus, plaintiffs’ 

first theory of detrimental reliance fails.

Plaintiffs also contend that, had they known that the policy could not be 

transferred, they would have taken out a loan using the property as collateral, which 

would have made the new policy effective immediately upon the closing of the loan. 44 

C.F.R. § 61.11(b) provides: 

Where the initial purchase of flood insurance is in connection with the 

making, increasing, extension, or renewal of a loan, the coverage with 

respect to the property which is the subject of the loan shall be effective as 

of the time of the loan closing, provided the written request for the 

coverage is received by the NFIP and the flood insurance policy is applied 

for and the presentment of payment of premium is made at or prior to the 

loan closing.
14

To succeed on this theory, plaintiffs would have to show that Allstate or Purcell made a 

misrepresentation before the flood occurred on September 8, 2011, and that plaintiffs 

could have obtained a loan, presented the request for coverage to the NFIP, and paid the 

insurance premium on or before that date.

Hina Patel testified that plaintiffs had been pre-approved for a bank loan at the 

time they purchased the Subway franchise, and that if they had known that the policy 

would become effective immediately only if the property was used as collateral for a 

loan, they would have taken out such a loan. This is insufficient to support to plaintiffs’ 

theory of detrimental reliance. First, as explained above, plaintiffs made the decision to 

purchase the Subway franchise, and logically to use their own savings instead of a loan, 

before Purcell made the alleged misrepresentations on August 26. Second, to the extent 

that plaintiffs could have taken out a loan after purchasing the property by using the 

property as collateral, there is absolutely no evidence in the record suggesting that they 

would have been approved for that loan (after having depleted $70,000 of their savings to 

purchase the property) or that they would have been able to submit an application and 

premium payment to the NFIP and close on any such loan before the flood occurred on 

September 8, less than two weeks after the misrepresentation. Nothing in the record 

suggests whether this would have been possible, and thus any conclusion on this point in 

favor of plaintiffs would be based upon speculation. Therefore, their claim based on this 

theory also fails. 

V.
15

For the reasons set forth above, we will affirm.
Mahakali Krupa, et. al. v. Allstate Ins. Co., No. 14-3764, 

Dissenting

COWEN, Circuit Judge, dissenting.

The majority today puts the analytical cart before the 

horse. In its zeal to avoid answering the central question of 

preemption in this case, it applies a federal regulation that, if 

Appellants’ claims are not preempted by federal law, it 

should not apply. Because I conclude that Appellants’ claims 

are not preempted and that reference to the federal regulations 

in this regard is therefore inappropriate, I respectfully dissent.

A. Preemption

The question at the heart of this matter is one we 

expressly left open in C.E.R. 1988, Inc. v. Aetna Cas. & Sur. 

Co., 386 F.3d 263, 271 n.12 (3d Cir. 2004): whether a state 

law claim of negligent misrepresentation arising in the 

procurement of national flood insurance is preempted by 

federal law. If Appellants’ claims are not preempted, we 

should apply the substantive law of Pennsylvania. If 

Appellants’ claims are preempted, federal law governs and it 

is appropriate to look at the applicable federal regulations. 

Preemption is therefore the only logical place to begin our 

analysis.

In 1983, pursuant to regulatory authority granted by 

Congress, FEMA created the “Write Your Own” (“WYO”) 

program. Van Holt v. Liberty Mut. Fire Ins. Co., 163 F.3d 

161, 165 (3d Cir. 1998). Under this program, Allstate, as a 

private insurance company, enters into an arrangement (the 

“Arrangement”) with the Federal Emergency Management 
2

Agency (“FEMA”), whereby the insurance company agrees 

to issue a standard flood insurance policy (“SFIP”) under its 

logo. C.E.R. 1988, Inc., 386 F.3d at 267. The Arrangement 

and the SFIP are codified federal laws. See 44 C.F.R. Pt. 62, 

App. A (Arrangement), and 44 C.F.R. Pt. 61, App. A(1) 

(SFIP).

As we noted in C.E.R. 1988, Inc., the “overarching 

purpose” of the National Flood Insurance Program (“NFIP”) 

is “to provide affordable flood insurance in high-risk areas in 

order to reduce pressures on the federal fisc.” 386 F.3d at 

265. Thus, if Appellants’ state law claims do not implicate 

public government funds, there is little reason to believe 

Congress intended to preempt them. See id. at 268 (noting 

that “‘Congress would want federal courts to adjudicate 

disputes over federal flood insurance policies for which the 

federal government would be responsible.’ By the same 

token, Congress would want federal law to govern those 

disputes. And what Congress intends is the crux of our 

preemption analysis.”) (quoting Van Holt, 163 F.3d at 167) 

(emphasis added).

Although it is generally true that Allstate, in its role as 

fiscal agent of the government, will not have its own money 

at stake, the Arrangement contemplates circumstances in 

which the federal government will refuse to reimburse the 

WYO insurer for its costs. Specifically, Article III(D)(3)(a) 

of the Arrangement, entitled “Limitation of Litigation Costs,” 

provides that if the FEMA Office of the Chief Counsel 

(“OCC”) “finds that the litigation is grounded in actions by 

the Company [here, Allstate] that are significantly outside the 
3

scope of this Arrangement, and/or involves issues of agent 

negligence, then the FEMA OCC shall make a 

recommendation to the FIA regarding whether all or part of 

the litigation is significantly outside the scope of the 

Arrangement.” 44 C.F.R. Pt. 62, Art. III(D)(3)(a) (emphasis 

added). This strongly suggests that FEMA views issues of 

agent negligence as akin to actions “significantly outside the 

scope of this Arrangement,” that will not ordinarily be 

reimbursed. Similarly, I find the language of Article IX of 

the Arrangement, entitled “Errors and Omissions,” highly 

instructive. 44 C.F.R. Pt. 62, App. A, Art. IX. Although 

Article IX applies in circumstances where a WYO company’s 

negligence leads to a claim against it, but not litigation, it 

contains arguably stronger language than Article III(D)(3)(a). 

Article IX states that “(i) if the claim against the Company is 

grounded in actions significantly outside the scope of this 

Arrangement or (ii) if there is negligence by the agent, FEMA 

will not reimburse [the Company] any costs incurred due to 

that negligence. The Company will be notified in writing 

within thirty (30) days of a decision not to reimburse.” Id.

(emphasis added).

Thus, unlike Article III(D)(3)(a), which states that in 

litigation involving the negligent acts of agents, FEMA will 

make a recommendation as to whether the litigation is in 

whole or in part outside the scope of the Arrangement, Article 

IX states that in claims arising from the negligent acts of 

agents, FEMA will simply refuse reimbursement. But despite 

the slight variations in language, taken together, these 

provisions establish that, in the ordinary course, FEMA will 

not reimburse WYO companies for claims arising from the 
4

allegedly negligent acts of their agents. The majority and I 

are in agreement on this point. (See Majority Op. at 9 (noting 

that Appellants “correctly observe that the arrangement 

between FEMA and the WYO companies [ ] indicates that 

FEMA will not reimburse a WYO company ‘if there is 

negligence by the agent.’” (citing 44 C.F.R. pt. 62, app. A, 

art. IX).)

The Arrangement, however, draws no distinction 

between claims handling and procurement. Prior to 2000, the 

Arrangement could therefore have been fairly read to imply 

that regardless of whether the alleged negligence occurred 

during the procurement of a policy or during the handling of a 

claim, reimbursement might be equally unavailable. But in 

2000, FEMA amended the language of the SFIPs, which are 

codified at 44 C.F.R. Pt. 61, App. A(1), A(2), and A(3). This 

change, which occurred after the debate over the 

procurement/claims handling distinction was already 

underway, amended the language of the SFIPs to include the 

following: “This policy and all disputes arising from the 

handling of any claim under the policy are governed 

exclusively by the flood insurance regulations issued by 

FEMA, the National Flood Insurance Act of 1968 . . . and 

Federal common law.” 44 C.F.R. pt. 61, app. A(1), art. IX 

(emphasis added).

The effect of the change is that Congress explicitly 

preempted all state law claims – including those based on 

agent negligence – if they are related to claims handling. It 

seems very unlikely that FEMA would specify only that the 

“handling of any claim” would be governed exclusively by 
5

the flood insurance regulations if it also intended to preempt 

procurement-related claims. See C.E.R. 1988, Inc., 386 F.3d 

at 269 n.6 (noting that the “principal differences between the 

current provision and its predecessor are the addition of the 

term “exclusively” and the express inclusion of disputes 

arising from claims handling.”).

In light of the purpose of the NFIP to guard the public 

fisc, FEMA’s decision to carve out exceptions to its 

reimbursement policies based on claims arising from agent 

negligence, and FEMA’s 2000 amendment to the SFIP 

preempting only state law claims related to the “handling of 

claims,” both the statute and the regulations evince an intent 

that procurement-related claims not be preempted by federal 

law. See Campo v. Allstate Ins. Co., 562 F.3d 751, 758 (5th 

Cir. 2009) (concluding that procurement-related flood 

insurance claims were not preempted because the principal 

purpose in enacting the NFIP was to “reduce . . . the massive 

burden on the federal fisc of the ever-increasing federal flood 

disaster assistance,” and FEMA “does not reimburse carriers 

for procurement-related judgments.”) (alteration in original) 

(citation omitted). We should therefore apply Pennsylvania 

law to resolve Appellants’ claims. 

B. 44 C.F.R. § 61.5(e)

To circumvent the question of preemption and avoid 

an otherwise straightforward application of Pennsylvania 

state law, the majority relies on 44 C.F.R. § 61.5(e). That 

regulation, entitled “Special terms and conditions,” provides

that “representations regarding the extent and scope of 
6

coverage which are not consistent with the National Flood 

Insurance Act of 1968, as amended, or the Program’s 

regulations, are void, and the duly licensed property or 

casualty agent acts for the insured and does not act for the 

Federal Government, [FEMA], or the servicing agent [here, 

Allstate].” 44 C.F.R. § 61.5(e) (emphasis added). The 

majority reasons that because Allstate’s insurance agent 

[Purcell] was acting on behalf of Appellants, any claim would 

have to proceed against that agent, and not the WYO insurer. 

Because Appellants failed to bring a suit against Purcell, the 

majority continues, their claims necessarily fail.1 I disagree.

The problem with the majority’s reasoning is inherent 

in its decision to bypass the preemption analysis. Only upon 

resolution of the preemption issue, can we properly determine 

whether a particular federal regulation applies. Because, for 

the reasons I have already articulated, I conclude that 

Appellants’ procurement-related state law claim is not 

preempted, consideration of that claim should be conducted 

 

1

I note that the majority refers to the Tenth Circuit’s 

non-precedential opinion in Remund v. State Farm Fire & 

Cas. Co., 483 F. App’x 403, 408 (10th Cir. May 17, 2012). 

But in Remund, the Tenth Circuit looked primarily to section 

61.5(e) to conclude that procurement-related claims were 

preempted. Id. Although I do not find the Tenth Circuit’s 

opinion persuasive on the issue of preemption as it simply 

ignored the statutory purpose and regulatory text that 

undermines its conclusion, the Court recognized that it had to 

address the issue of preemption before it simply applied 

section 61.5(e) to the state law claims at issue. Id. at 407-09.
7

pursuant to Pennsylvania law without regard to section 

61.5(e).

The majority faults Appellants for citing no authority 

for the proposition that FEMA regulations do not apply in the 

absence of a valid policy. (Majority Op. at 7-8.) But this 

turns the analysis on its head. As we have indicated on prior 

occasions, the purpose of the NFIP was to reduce pressures 

on the federal fisc. See C.E.R. 1988, Inc., 386 F.3d at 265. In 

the absence of any claim that implicates federal funds, there is 

no reason to believe that Congress had any interest in limiting 

the liability of WYO insurers. See Gibson v. Am. Bankers 

Ins. Co., 289 F.3d 943, 953, 955 (6th Cir. 2002) (Moore, J. 

concurring in part and dissenting in part) (noting that the 

federal regulations envision that litigation costs related to 

“negligence” will arise from state-law tort claims and are not 

reimbursable under the NFIP and explaining that the 

argument that insurers like Allstate would refuse to 

participate in the system unless they are insulated from such 

state-law tort claims “fails to take account of the fact that 

insurers are ordinarily subject to [such] claims,” and there is 

no reason why “subjecting WYO insurers to the same rules to 

which they are normally subject would affect their 

behavior.”).
8

Indeed, although not a preemption case, this very 

analysis was rejected by the Fifth Circuit in Spence v. Omaha 

Indem. Ins. Co., 996 F.2d 793, 797 (5th Cir. 1993). There, 

the Court declined to read 44 C.F.R. § 61.5(i) -- now 44 

C.F.R. § 61.5(e) -- as absolving WYO insurers from tort 

liability for misrepresentations of their agents. Instead, it 

concluded that the regulation, “read as a whole, plainly 

evinces an intent to prevent expansion of SFIP coverage 

through misrepresentations by private parties involved with 

the program, thereby protecting the government from 

expanded liability. We decline to accept a reading of that 

provision immunizing WYO companies from liability for the 

tortious conduct of their agents.” Id. (emphasis added). As 

the Fifth Circuit aptly noted, when section 61.5(e) is read in 

the broader context of the NFIP, it becomes clear that it was 

the government’s concern with guarding public funds that led 

it to limit its own liability regarding the negligent 

misrepresentations of WYO insurers’ agents. It did not 

intend to interfere with procurement-related state law claims, 

the liability for which would be borne by the WYO insurers.

Moreover, the majority’s attempt to limit its holding 

today is unavailing. It asserts that section 61.5(e) prevents 

procurement-related claims arising from agent 

misrepresentations regarding only the extent or scope of 

coverage. (Majority Op. at 10.) But it is hard to imagine 

what other claims might be brought in the procurement 

context if not those for misrepresenting the extent and scope 

of coverage. Indeed, by concluding that such claims against 

the WYO insurer are barred by section 61.5(e), the majority 

eviscerates the distinction between claims arising from 
9

procurement and those arising from “claims handling” 

without even addressing the central question. The practical 

effect will be that few, if any, claims of misrepresentation 

arising from agent negligence in the procurement context will 

ever succeed, because the representations most likely to be 

made to convince individuals to obtain flood insurance will of 

course pertain to the extent and scope of coverage. This 

clearly was not the intent of FEMA when it drafted its 

regulations to carve out an exception to its reimbursement 

plan of WYO insurers for the negligent acts of these insurers’ 

agents. By sending the message that such claims would not 

implicate federal funds, and were therefore not preempted, 

the government wished to ensure that such claims against 

WYO insurers could proceed. The majority's decision today 

frustrates that intent.

C. The Merits of Appellants’ State Law Claim

Applying Pennsylvania law, I note that the record is 

sufficient for Appellants’ negligent misrepresentation claim 

to survive summary judgment and I would remand the matter 

to the District Court.

To establish the tort of negligent misrepresentation, 

the plaintiffs must show “(1) a misrepresentation of a material 

fact; (2) made under circumstances in which the individual 

making the representation ought to have known its falsity; (3) 

with an intent to induce another to act on it; and; (4) which 

results in injury to a party acting in justifiable reliance on the 

misrepresentation.” Bortz v. Noon, 729 A.2d 555, 561 (Pa. 

1999).
10

Pennsylvania law does not require that the 

misrepresentation be made directly to the individual asserting 

the claim. Rather, courts have indicated that the 

misrepresentation may be communicated indirectly to the 

recipient through a third party. In the context of negligent 

misrepresentation, the statement maker’s liability is more 

narrow than in cases of fraudulent misrepresentation, and the 

maker will be liable only if he or she intended the 

misrepresentation to be repeated to the recipient and for the 

recipient to rely on it. Woodward v. Dietrich, 548 A.2d 301, 

309 (Pa. Super. Ct. 1988).

As this comes to us on a motion for summary 

judgment we must view the facts in a light most favorable to 

Appellants. Here, Appellants have successfully met the 

requirements. First, there is no dispute that Purcell 

misrepresented whether the flood insurance would transfer. 

Second, as Allstate’s agent, she ought to have known its 

falsity. Third, it is arguable on the record before us that a 

direct misrepresentation was made to the plaintiff 

corporation. But even if there was no such misrepresentation, 

given that no direct misrepresentation is required under 

Pennsylvania law, a reasonable factfinder could conclude that 

Purcell’s misrepresentation to either the previous owner or to 

a different partner in the plaintiff corporation was intended to 

be repeated to Plaintiff Hina Patel.

Fourth, as a result of Purcell’s misrepresentations, 

Appellants argue they were foreclosed from using the 

contents of their property for collateral for a loan which 
11

would have permitted immediate assignability of the flood 

insurance that already existed on the property and contents. 

As Plaintiff Hina Patel testified, Appellants decided not to use 

the contents as collateral and to instead use their own 

personal savings because “[w]e didn’t know that the clause 

for the flood that --- we could have got the loan if we knew 

that the flood was a factor.” (App. 109a.) Indeed, Patel 

testified that they “had a pre-approval from PNC Bank, so it 

wasn’t a problem to get a loan, but since we had our own 

personal savings, we just didn’t want to go forward with the 

loan, but if we knew back then that our flood insurance policy 

would be active only if the loan is there, then we would have 

had to protect our business.” (Id.) On this record, I believe 

Appellants have presented sufficient evidence to survive 

summary judgment and I would remand the matter to the 

District Court for further proceedings.

D. Conclusion

In light of the foregoing, I would remand the matter to 

the District Court for proceedings consistent with this 

opinion.