Hurricane Katrina destroyed Merlin’s house in August of 2005. About two weeks before Katrina hit, he had missed a deadline to pay a premium to keep his flood insurance policy in effect for 2005 to 2006. After Katrina, the Federal Emergency Management Agency extended a grace period of 90 days for paying premiums to keep policies in force.

When Merlin submitted a claim under the policy shortly after Katrina, his insurer told him that he would be covered and even sent a small advance check for the claim. Merlin had many telephone calls with the insurer’s representatives during this period, but none of them told him a critical fact: Any payments under the policy were conditioned on Merlin later paying the delinquent premium by the extended due date. When that date came and went without the payment having been made, the insurer demanded the return of its advance payment and told Merlin that he had no coverage.

Merlin sued the insurer for the state law claim of negligent misrepresentation. The insurer responded that such a claim was foreclosed, or “preempted,” by federal law. The insurer was relying on legal authorities stating that certain tort claims against an insurer participating in the National Flood Insurance Program are preempted. However, only tort claims arising from the “handling” of insurance claims are preempted. The federal appellate court considering Merlin’s lawsuit ruled that it could proceed.

When the alleged misrepresentation happened, Merlin only held the status of a former, and a potential future, policyholder. If the case was about a “claim” at all, it was a legally fictitious claim, because the policy had expired. Since his dispute with the insurer was really about whether he could even have a policy at all, Merlin’s negligent misrepresentation claim stemmed from the procuring of insurance, not from the “handling” of a claim.