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Howell v. State Farm-Class Action Defense Cases: Maryland Federal Court Grants Defense Motion To Dismiss Class Action Claims For Breach of Fiduciary Duty And Breach of Implied Covenant Of Good Faith And Fair Dealing As Not Cognizable Under Federal Law

Federal Common Law Exclusively Governs Interpretation of Insurance Policies Issued Under National Flood Insurance Program (NFIP) and Federal Law does not Recognize Breach of Fiduciary Duty or Breach of Implied Covenant Claims Thus Supporting Defense Motion to Dismiss Those Claims for Relief in Class Action Complaint

Homeowners filed a putative class action in Maryland federal court against various insurance companies for breach of contract, breach of the implied covenant of good faith and fair dealing, and breach of fiduciary duty arising out of the issuance of flood insurance under the National Flood Insurance Program (NFIP), administered by the Federal Emergency Management Agency (FEMA). The class action complaint alleged that plaintiffs suffered damage following Hurricane Isabel in 2003, that they settled their policy claims for amounts below policy limits, and that defendants breached their contractual obligations under the insurance policies. Howell v. State Farm Ins. Cos., ___ F.Supp.2d ___, 2006 WL 2664379, *1 (D.Md. September 15, 2006). Defense attorneys moved to dismiss the second and third claims for relief under Rule 12(b)(6); the district court granted the motion holding that federal law does not recognize those claims.

Preliminarily, the federal court held that whether the class action complaint could assert claims for breach of the implied covenant or breach of fiduciary duty turned on federal law because “‘federal common law alone governs the interpretation of insurance policies issued pursuant to the NFIP,'” Howell, at *2 and n.12 (citation omitted). However, neither the National Flood Insurance Act of 1968 nor FEMA regulations create such claims for relief, and “the Court has been unable to find any case law creating such a right under federal common law.” Id. On the contrary, federal courts have consistently refused to recognize the existence of such claims. Id. Accordingly, the district court granted the motion to dismiss the second and third counts in the class action complaint. Id.

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