Before: Sloviter, Lewis, and Rosenn, Circuit Judges.
The opinion of the court was delivered by: Rosenn, Circuit Judge.
Appeal from the United States District Court For the District of New Jersey
Submitted Under Third Circuit LAR 34.1(a)
Opinion Filed May 11, 1998
This appeal presents this Court with an important question of first impression pertaining to federal subject- matter jurisdiction over a complaint by an insured predicated on the National Flood Insurance Act of 1968 ("NFIA") but actually sounding in tort. The plaintiffs' complaint alleges that Liberty Mutual Fire Insurance Company ("Liberty Mutual"), a private insurer, violated New Jersey state law during its investigation and adjustment of a claim under a policy issued by it pursuant to the NFIA. The plaintiffs do not allege diversity of citizenship but assert exclusive federal jurisdiction under the NFIA. Although the parties and the United States District Court for the District of New Jersey did not address this issue, we have an independent duty to determine whether the district court had subject-matter jurisdiction. We vacate the district court's judgment in favor of Liberty Mutual and remand the case with instructions to dismiss the complaint.*fn*
The plaintiffs, Re and Jo Van Holt, own a home in Sea Bright, New Jersey. The town of Sea Bright is located on a narrow strip of land bounded by the Shrewsbury River on one side and the Atlantic Ocean on the other. The Van Holts' home is located in an area that floods frequently. In October 1991, Sea Bright was flooded, resulting in damage to the Van Holts' home and personal property. In connection with this flood, the Van Holts filed two claims with their insurer, the defendant, Liberty Mutual. Liberty Mutual paid the claims by check in the Summer of 1992. The Van Holts received and cashed Liberty Mutual's checks without objection. On December 11, 1992, the Van Holts' home and personal property were again damaged by flooding which resulted from high winds and rain. The present dispute between the Van Holts and Liberty Mutual primarily centers on the damage caused by the December 11 flood.
The Van Holts held two insurance policies issued by Liberty Mutual, the first was a homeowner's policy, the other was a flood insurance policy issued pursuant to the National Flood Insurance Program ("NFIP"). See 42 U.S.C. §§ 4001-129 (codification of the NFIA). The Van Holts made claims on both policies for the damages resulting from the December 11 flood.*fn1 They hired their own claims adjuster, Robert C. Ascher. Following an inspection of the Van Holts' home and property, Ascher submitted a list of damaged property to Kevin Grelle, Liberty Mutual's claims adjuster. On behalf of Liberty Mutual, Grelle refused to pay the claimed damages because the list was incomplete. According to a letter from Grelle to Ascher dated June 7, 1993, Grelle rejected Ascher's list because it did not set forth the values of the items claimed and the Van Holts had not signed each page as required by the insurance policies.
When six months passed without payment of their claims, in June of 1993, the Van Holts, through Ascher, filed a complaint against Liberty Mutual with the New Jersey Department of Insurance. The department forwarded the complaint to Liberty Mutual and requested that the company provide the reasons why the claim was taking so long to evaluate. In response, Grelle stated that he believed that the Van Holts had attempted to defraud Liberty Mutual by inflating the extent of their damages and claiming damage to property that had been destroyed or damaged, not in the December 11 flood, but in the earlier October 1991 flood. In his investigation report, Grelle stated that, among other things, the Van Holts made claims for damage to property stored in the basement of their home which was caused by the October 1991 flood. Liberty Mutual had denied coverage for this damage when it partially paid the October 1991 claim because theflood insurance policy excluded coverage for damage to property stored in the insured's basement. After additional investigation, including an under-oath examination of the Van Holts by Liberty Mutual's attorneys, on June 16, 1995, Liberty Mutual formally denied the Van Holts' claims on the ground that they were fraudulent.
On December 15, 1995, the Van Holts sued Liberty Mutual in the United States District Court for the District of New Jersey. In their complaint, the Van Holts alleged that Liberty Mutual committed two state-law torts and asserted that subject-matter jurisdiction was proper pursuant to 42 U.S.C. § 4053, a provision of the NFIA.*fn2 They cited no other statutory provision. Specifically, the plaintiffs averred that Liberty Mutual's failure to pay their claims and the company's allegation that the claims were fraudulent violated the New Jersey Consumer Fraud Act, N.J.S.A. §§ 56:8-1 to 56:8-48, and New Jersey common law requiring parties to an insurance contract to act in good faith. See Pickett v. Lloyd's, 621 A.2d 445, 451-52 (N.J. 1993); see also Sons of Thunder, Inc. v. Borden, Inc., 690 A.2d 575, 587 (N.J. 1997) (discussing duty of good faith in other contractual contexts). Following discovery, the district court ...