                                                       United States Court of Appeals
                                                                Fifth Circuit
                                                             F I L E D
               IN THE UNITED STATES COURT OF APPEALS           July 21, 2003

                       FOR THE FIFTH CIRCUIT             Charles R. Fulbruge III
                                                                 Clerk
                       _____________________

                            No. 02-20223
                       _____________________



     RICHMOND PRINTING LLC


                                    Plaintiff - Appellant

          v.

     DIRECTOR FEDERAL EMERGENCY MANAGEMENT AGENCY; Et Al


                                    Defendant


     RGA INC, also known as Ray Graf Inc, also known as Ray Graf
     Adjustment Inc; RAYMOND E GRAF INC, also known as RGA INC,
     also known as Ray Graf Inc, also known as Ray Graf
     Adjustment Inc; RAYMOND MEYER


                                    Defendants - Appellees

_________________________________________________________________

           Appeal from the United States District Court
                for the Southern District of Texas
                          (H-00-CV-2667)
_________________________________________________________________

Before KING, Chief Judge, and REAVLEY and STEWART, Circuit
Judges.

KING, Chief Judge:*

     *
          Pursuant to 5TH CIR. R. 47.5, the court has determined
that this opinion should not be published and is not precedent
except under the limited circumstances set forth in 5TH CIR. R.
47.5.4.
     Plaintiff-Appellant Richmond Printing, Inc. brought claims

for negligent and fraudulent misrepresentation, violations of the

Texas Insurance Code, and violations of the Texas Deceptive Trade

Practices Act against Defendants-Appellants Raymond E. Graf, RGA

Inc., and Raymond Meyer arising out of Richmond’s attempts to

file a claim pursuant to its flood insurance policy.    For the

following reasons, we affirm the district court’s judgment.

I.   FACTS AND PROCEDURAL BACKGROUND

     On September 11, 1998, Plaintiff-Appellant Richmond

Printing, Inc. (“Richmond”), a Texas company, suffered flood

damage as a result of Tropical Storm Francis.    Richmond was

covered by a standard flood insurance policy (“SFIP”) issued by

the Federal Emergency Management Agency (“FEMA”) pursuant to the

National Flood Insurance Program (“NFIP”).    After the flood,

Richmond filed a claim with FEMA based on that policy.    FEMA

assigned a private insurance adjuster, Defendant Raymond E. Graf

(“RGA”), to handle Richmond’s claim.   RGA, in turn, subcontracted

some of the adjusting work to Catastrophe Claims Adjustors, Inc.,

whose president was Defendant Raymond E. Meyer.    Richmond’s SFIP

contains the following clause concerning the responsibilities of

a private claims adjuster assigned by FEMA:

     The insurance adjuster whom the Insurer hires to
     investigate the claim may furnish the Insured with a
     proof of loss form, and she or he may help the Insured
     complete it. However, this is a matter of courtesy only,
     and the Insured must still send the Insurer a proof of
     loss within 60 days after loss even if the adjuster does
     not furnish the form or help the insured complete it. In

                                2
     completing the proof of loss, the insured must use its
     own judgment concerning the amount of loss and the
     justification for the amount.

     On November 9, 1998, Richmond submitted a $35,331.60

preliminary proof of loss to FEMA, which was paid.    Shortly

thereafter, Richmond submitted a detailed and itemized statement

of the total losses which stated additional flood damages of

$359,485.   On March 19, 1999, while the larger claim with FEMA

was still pending, Richmond’s facilities flooded again.    At the

time of the second flood, Richmond was still covered by the same

SFIP.   Richmond filed a damages claim with FEMA stemming from the

March 1999 flood in the amount of $135,950.

     In August 1999, FEMA advised Richmond that it was denying

Richmond’s claims arising out of the March 1999 flood because

Richmond had failed to submit the proper form of proof of loss.

FEMA later denied Richmond’s pending claim from the September

1998 flood for the same reason.

     On August 2, 2000, Richmond filed suit in federal district

court against the director of FEMA and RGA.    Sometime thereafter,

Richmond settled its claims against FEMA for $50,000.    Richmond

then amended its complaint to add Meyer as a defendant.    In its

amended complaint, Richmond alleged that RGA and Meyer had made

material misrepresentations concerning what information Richmond

needed to provide to FEMA, as well as when and in what form the

information had to be provided, in order to satisfy the proof of

loss requirements of the SFIP.    Richmond also alleged that it

                                  3
submitted information to RGA and Meyer that they never forwarded

to FEMA.     Richmond brought claims against RGA and Meyer for

negligent and fraudulent misrepresentation, violations of the

Texas Insurance Code1, and violations of the Texas Deceptive

Trade Practices Act.2

     RGA filed a motion for summary judgment, which the district

court granted.     The district court found that, whether or not

Richmond actually had a copy of its SFIP, Richmond was presumed

to know the contents of the policy.      The court reasoned that,

because the SFIP had been published in the Code of Federal

Regulations (“CFR”), Richmond was expected to know the terms of

his SFIP and any reliance on statements made by the adjusters was

unreasonable so far as those statements contradicted the terms of

     1
        TEX. INS. CODE. ANN. art. 21 §§ 4(10)-(11) (Vernon 1981 &
Supp. 2002) include within the statutory definition of unfair and
deceptive acts or practices in the business of insurance “unfair
settlement practices” and “misrepresentation of an insurance
policy” (providing multiple specific acts constituting each).
     2
           TEX. BUS. & COM. CODE ANN. § 17.50(a) (Vernon 2002):

     (a)     A consumer may maintain an action where any of the
             following constitute a producing cause of economic
             damages or damages for mental anguish:

     . . .

           (3)   any unconscionable action or course of action by
                 any person; or

           (4)   the use or employment by any person of an act or
                 practice in violation of Article 21.21, Insurance
                 Code.



                                    4
the policy.   The district court also found that RGA owed no duty

to Richmond because, under the terms of the SFIP, the adjuster

has no duty to assist the insured; instead, the policy states

only that the adjuster “may” assist the insured and that the

adjuster is provided only as a matter of “courtesy.”

     Meyer then filed his own motion for summary judgment,

raising the same lack of duty and unreasonable reliance grounds

that RGA had raised.   The district court also granted Meyer’s

motion for summary judgment, relying on the same grounds that it

did when considering RGA’s motion for summary judgment.    However,

the court also somewhat ambiguously discussed whether federal law

preempted Richmond’s state law claims.3

     Richmond appeals the district court’s grants of summary

judgment in favor of both RGA and Meyer, arguing that the

district court erred both in finding that the defendants owed him

no duty as the adjusters assigned to handle his insurance claim

and in finding that he unreasonably relied on statements made by

RGA and Meyer that contradicted the terms of his SFIP.    We review

a grant of summary judgment de novo, viewing all questions of

fact in the light most favorable to the nonmoving party.     Horton

     3
        The district court rejected Richmond’s reliance on Davis
v. Travelers Property & Casualty Co., 96 F.Supp.2d 995 (N.D. Cal.
2000), which had held that similar claims raised before that
court were not preempted. However, the district court never
actually stated that it believed Richmond’s claims were
preempted; instead, it based its order granting summary judgment
on the lack of duty and unreasonable reliance grounds it had
invoked when considering RGA’s motion for summary judgment.

                                 5
v. City of Houston, 179 F.3d 188, 191 (5th Cir. 1999).      Summary

judgment is appropriate only where no question of material fact

remains and the moving party is entitled to judgment as a matter

of law.     Blow v. City of San Antonio, 236 F.3d 293, 296 (5th Cir.

2002).

II.   PREEMPTION OF RICHMOND’S STATE LAW CLAIMS

      Initially, Richmond asserts that the “ultimate basis” for

the district court’s ruling rested on the somewhat ambiguous

discussion concerning whether Richmond’s state statutory and

common law claims were preempted by federal law.     While we

disagree that the district court’s orders primarily rested on a

finding that Richmond’s claims were preempted, we will

nevertheless consider Richmond’s allegation.

      Before addressing this question, we should note that FEMA

has issued a new regulation that amends an insured’s SFIP to

include the following language:

      IX.   What Law Governs

      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, as amended (42
      U.S.C. 4001 et seq.), and Federal common law.

65 Fed. Reg. 60,758, 60,767 (2000).     However, this regulation did

not go into effect until December 31, 2000 — after Richmond had

filed suit against RGA and Meyer.      Thus, both parties agree that

the regulation does not govern the outcome of this case.     We

reference the new rule, though, to emphasize that our preemption

                                   6
decision in this case applies only to those claims which arose

prior to the date the amended SFIP became effective.

     In arguing that its claims are not preempted, Richmond

relies heavily on our decision in Spence v. Omaha Indemnity

Insurance Co., 996 F.2d 793 (5th Cir. 1993).     In Spence, the

insured had obtained an SFIP from a write-your-own (“WYO”)

insurance company.4   Id. at 794 & n.1.    After the insurer denied

coverage based on policy language, the insured brought state law

claims for, among other things, tortious misrepresentation in the

procurement of the policy.    Id.    In holding that the plaintiff’s

misrepresentation claim could go forward under state law, we

reasoned that whether a claim was preempted should depend upon

whether the claim arose out of the terms of the contract (the

SFIP) or whether the claim was extracontractual.     For contractual

claims, we noted that the “national policies underlying the NFIP

and extensive federal role therein impel our conclusion that

federal common law governs claims under flood insurance

policies.”   Id. at 796.   However, we also found that FEMA accords

“substantial autonomy” to its private insurers in the areas of

“SFIP marketing and claims adjustment” and that, as a result, the

federal interests in these claims were more attenuated.      Id.

Because the misrepresentation claim was an extracontractual


     4
        Under the terms of the NFIP, an insured may obtain its
SFIP either from FEMA directly or from a private WYO insurer
which has contracted with FEMA to issue SFIPs.

                                    7
claim, not a contractual claim under the SFIP, we concluded that

the claim was not preempted.

     RGA and Meyer argue that Richmond’s reliance on Spence is

misplaced because there are material differences between claims

arising from misrepresentation in the procurement of an SFIP (as

was the case in Spence) and claims arising from misrepresentation

in the adjustment of a claim under an SFIP (as is the case here).

The defendants cite several cases from other courts which have

limited Spence to fraud in the procurement process, holding that

claims for fraud in the adjustment process are preempted.     See

Messa v. Omaha Property & Cas. Ins. Co., 122 F.Supp.2d 513, 521

(D.N.J. 2000) (“Policy procurement is an entirely different

creature than claims handling.”); see also Neill v. State Farm

Fire & Cas. Co., 159 F.Supp.2d 770, 775-78 (E.D. Pa. 2000); Jamal

v. Travelers Lloyds of Tex. Ins. Co. et al., 129 F.Supp.2d 1024,

1029-31 (S.D. Tex. 2001); but see Davis, 96 F.Supp.2d at 1003-04

(citing Spence for the proposition that the NFIP does not preempt

state-law extracontractual tort claims arising out of the

adjustment process).

     The defendants also cite a Fifth Circuit case, West v.

Harris, 573 F.2d 873 (5th Cir. 1978), decided prior to Spence as

evidence that Spence should be limited to claims arising out of

policy procurement.    In West, we held that a plaintiff’s state

law claims for attorney’s fees and penalties arising out of an

insurer’s arbitrary refusal to pay a flood insurance claim were

                                  8
preempted by federal law.   Id. at 881.    Because nothing in Spence

purported to overrule West, the defendants argue that the only

way to reconcile the two cases is to find that extracontractual

claims (such as claims for attorney’s fees, state law statutory

penalties, and misrepresentation) are preempted by federal law

except where those claims arise in the procurement process.      See

also Messa, 122 F.Supp.2d at 521 (making the same argument).

     After carefully considering these arguments, we conclude

that Richmond’s state law claims are not preempted.    We find

little reason to draw the distinction desired by the defendants

between extracontractual claims arising out of policy procurement

and extracontractual claims arising out of claims adjustment.     We

clearly stated in Spence that, under the NFIP, private insurers

had substantial autonomy in both policy procurement and claims

adjustment.   Spence, 996 F.2d at 796.    Additionally, the terms of

the SFIP prevent a private insurer from obtaining federal funds

to cover the adjuster’s liability for fraud.    42 U.S.C. § 4081(c)

(1994) (“The Director of the Federal Emergency Management Agency

may not hold harmless or indemnify an agent or broker for his or

her error or omission.”).   Thus, as we noted in Spence, the

federal interests in seeing federal law applied to such claims

are much lower than they are where the claim arises out of

coverage of the policy; claims on the policy are paid out of the

federal treasury.   Spence, 996 F.2d at 796.



                                 9
     Further, the defendants misinterpret the relationship

between West and Spence.   While the claims for attorney’s fees

and penalties asserted in West were technically extracontractual,

they were claims against the insurer ultimately based on the

insurer’s decision to deny coverage of a claim.    Thus, the crux

of the case in West arose out of a claim on the contract, not an

extracontractual claim related to the procurement of the contract

or the adjustment of the claims.     West, therefore, can simply be

read to mean that state law claims arising out of the terms of

coverage of the SFIP are preempted, whether the claims are merely

claims for coverage or ancillary claims arising out of the

insurer’s denial of coverage.   Nothing in Spence contradicts this

holding.   See Spence, 996 F.2d at 795 (finding that federal law

rather than state law applied to insured’s breach of contract

claim).

     In short, Fifth Circuit precedent clearly demonstrates that

Richmond’s tortious misrepresentation claims against RGA and

Meyer are not preempted.   We thus must examine whether the

district court properly granted summary judgment in favor of the

defendants on those claims.   As we will see, to say that

Richmond’s claims are governed by state law does not mean that

the policy does not play an important part in their resolution.

III. THE ADJUSTERS’ ROLES AND RESPONSIBILITIES UNDER THE SFIP

     The district court grounded its decisions to grant summary

judgment on two separate but related conclusions: (1) RGA and

                                10
Meyer, as private adjusters supplied by FEMA under the terms of

the SFIP, owed no duty to Richmond; and (2) Richmond’s reliance

on the alleged misstatements by RGA and Meyer was unreasonable.

Because reasonable reliance is an element of all of Richmond’s

state law claims and Richmond’s reliance on any statements made

by RGA and Meyer that contradicted the terms of the SFIP was

unreasonable as a matter of law, we affirm the district court’s

grants of summary judgment.5

     A recent Eighth Circuit decision dealt with these issues.

Kerr v. FEMA, 113 F.3d 884 (8th Cir. 1997).   In Kerr, the insured

brought a claim under Missouri law against a private adjuster

provided by FEMA alleging negligence in handling the proof of

loss forms.   Id. at 885.   The insured argued that the adjuster

owed it a duty and that it breached that duty by failing to

complete the proof of loss forms properly.    Id.   The court stated

that, even assuming that a duty existed between the adjuster and

the insured, the insured’s reliance on the representations made

by the adjuster was not reasonable.    Id. at 886-87.   The court

specifically cited to the provision of the SFIP which states that

the adjuster “may” furnish the proof of loss form but that an


     5
        Richmond strenuously argues that the duty question is
irrelevant here because none of the statutory or common law
claims it raises require Richmond to demonstrate that RGA and
Meyer owed it a duty. However correct this argument may be,
because we hold that Richmond unreasonably relied on the
adjusters’ statements, we do not need to reach the merits of
whether the adjusters owed a duty to Richmond.

                                 11
adjuster was provided only as a “matter of courtesy.”     Id. at

887.    The court concluded that the insured knew that it was his

own responsibility to complete and submit the proof of loss forms

because that was clearly stated in the provisions of his

insurance policy.    Id.   Because of this, any reliance on

statements made by the adjuster that contradicted the terms of

the SFIP was unreasonable as a matter of law; the insured had a

duty to read the policy and acted unreasonably in relying on

adjusters provided only as a “courtesy” to complete a task which

was the insured’s own responsibility.

       We find Kerr to be persuasive in this case.   The SFIP

clearly states that the adjusters are provided only as a courtesy

and that the ultimate responsibility for correctly completing and

submitting the proof of loss forms falls entirely on the insured.

If RGA and Meyer did make material misstatements that

contradicted the proof of loss provisions of the SFIP, Richmond

acted unreasonably as a matter of law in relying on those

statements.

       Richmond contends that the Kerr reasoning on this issue is

inapplicable in Texas because, under Texas law, an insured can

rebut the presumption that he knows the terms of his insurance

policy by demonstrating that he never received a copy of the

policy or never read what he did receive.    We find two flaws with

this argument.



                                  12
       First, Richmond was insured by the federal government

through the NFIP.    As the Supreme Court has stated, “those who

deal with the Government are expected to know the law and may not

rely on the conduct of government agents contrary to the law.”

Heckler v. Community Health Servs., 467 U.S. 51, 63 (1984).

Thus, the special nature of the insurance relationship in this

case charges the insured with the duty of understanding the terms

of the SFIP so that he may deal appropriately with the government

and its appointed agents.

       Second, while Richmond contends that it never received a

copy of the policy, the SFIP is published in its entirety in the

CFR.    Unlike a typical automobile or health insurance policy,

therefore, the insured has an additional outlet to which to turn

to obtain information about the terms of the policy.    In a

similar situation where the federal government oversaw a wheat

crop insurance program, the Supreme Court held that the fact that

the Wheat Crop Insurance Regulations were published in the

Federal Register made them “binding on all who come within the

Federal Crop Insurance Act, regardless of actual knowledge of

what is in the regulations or of the hardship resulting from

innocent ignorance.”    Fed. Crop Ins. Corp. v. Merrill, 332 U.S.

380, 385 (1947); see also Flick v. Liberty Mut. Fire Ins. Co.,

205 F.3d 386, 390 (9th Cir. 2000) (applying the Merrill rule in

the context of the NFIP).



                                 13
      The unique situation presented by the NFIP creates

additional responsibilities for the insured.    One of those

responsibilities is that, given that the insured is doing

business with the government and that the terms of the SFIP are

published in the CFR, the insured has a duty to read and

understand the terms of its SFIP.    Richmond here claims that,

because it never received a copy of the SFIP, it had no way of

knowing what the proof of loss submission requirements were and

that, because RGA and Meyer were acting as government agents,

Richmond reasonably relied upon their representations concerning

the SFIP.   Even if Richmond did not receive a copy of the SFIP, a

copy was widely available and Richmond had a duty to familiarize

itself with the terms of the policy.    While RGA and Meyer may

have made statements which contradicted the proof of loss terms

of the SFIP, we agree with the Kerr court in holding that any

reliance by Richmond on those statements was unreasonable as a

matter of law.

      Because Richmond’s reliance upon representations by RGA and

Meyer was unreasonable, the district court properly granted

summary judgment in favor of RGA and Meyer on all of Richmond’s

common law and statutory claims.

IV.   CONCLUSION

      We AFFIRM the judgments of the district court granting

summary judgment in favor of RGA and Meyer.    Costs shall be borne

by the appellant.

                                14
