Filed May 11, 1998


No. 97-5098




Appeal from the United States District Court
For the District of New Jersey
D.C. No.: 95-cv-06432

Submitted Under Third Circuit LAR 34.1(a)
January 23, 1998

Before: SLOVITER, LEWIS, and ROSENN, Circuit Judges.

(Opinion Filed May 11, 1998)

James F. Villere, Jr.
Blumenstyk & Villere
18 Bank Street
P.O. Box 2285
Morristown, NJ 07962
Counsel for Appellant

Eli L. Eytan
Law Offices of Mauro C. Casci
739 Leonardville Road
P.O. Box 90
Leonardo, NJ 07737
Counsel for Appellee


ROSENN, Circuit Judge.

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.*


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

* Although Judge Lewis heard argument in this case, he has been
unable, however, to clear this written opinion because of illness.


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.
SS 4001-129 (codification of the NFIA). The Van Holts made
claims on both policies for the damages resulting from the
December 11 flood.1 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

1. Because the claims made under the homeowner’s policy do not affect
the result in this case, we do not discuss them.


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. S 4053, a provision of the NFIA.2
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. SS 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

2. 42 U.S.C. S 4053 provides:

The insurance companies and other insurers which form, associate,
or otherwise join together in the pool under this part may adjust
and pay all claims for proved and approved losses covered by flood
insurance in accordance with provisions of this chapter and, upon
disallowance by any such company or other insurer of any such
claim, or upon the refusal of the claimant to accept the amount
allowed upon any such claim, the claimant, within one year after
the date of mailing of notice of disallowance or partial disallowance
of the claim, may institute an action on such claim against such
company or other insurer in the United States district court for the
district in which the insured property or major part thereof shall
have been situated, and original exclusive jurisdiction is hereby
conferred upon such court to hear and determine such action
without regard to the amount in controversy.


other contractual contexts). Following discovery, the district
court entered summary judgment for Liberty Mutual. The
Van Holts filed a timely notice of appeal. We vacate the
district court’s December 2, 1996 judgment and remand
this case with instructions to dismiss for lack of subject-
matter jurisdiction.


It is undisputed that Liberty Mutual issued theflood
insurance policy to the Van Holts pursuant to the NFIP.
The NFIP is a federally supervised and guaranteed
insurance program presently administered by the Federal
Emergency Management Agency (“FEMA”) pursuant to the
NFIA and its corresponding regulations. See 44 C.F.R.
SS 59.1-77.2. Congress created the program to, among
other things, limit the damage caused by flood disasters
through prevention and protective measures, spread the
risk of flood damage among many private insurers and the
federal government, and make flood insurance “available on
reasonable terms and conditions” to those in need of it. See
42 U.S.C. S 4001(a)(1)-(4).

Initially, under what is referred to as Part A of the NFIA,
a pool of private insurance companies issued flood
insurance policies and administered the NFIP pursuant to
a contract with the United States Department of Housing
and Urban Development. See 42 U.S.C. SS 4051-53; see
generally Spence v. Omaha Indem. Ins. Co., 996 F.2d 793,
794 n.1 (5th Cir. 1993) (discussing the initial workings and
organization of the program under the Act); Berger v. Pierce,
933 F.2d 393, 394-96 (6th Cir. 1991) (same). Under Part A,
if a pool company refused to pay a claim under aflood
insurance policy, the insured was permitted to sue the pool
insurance company “on … [the] claim” in federal district
court regardless of the amount in controversy. See 42
U.S.C. S 4053.

On January 1, 1978, pursuant to 42 U.S.C. S 4071, HUD
ended its contractual relationship with the association and
assumed greater responsibility for operating the NFIP,
although still maintaining the assistance of the private
insurance industry. See generally In re Estate of Lee, 812


F.2d 253, 256 (5th Cir. 1987) (discussing HUD takeover of
NFIP); National Flood Insurers Ass’n v. Harris, 444 F. Supp.
969 (D.C. 1977) (same). This arrangement, which is
presently in force, is called Part B. FEMA began
administering the NFIP through the Flood Insurance

In 1983, pursuant to regulatory authority granted by
Congress in 42 U.S.C. S 4081(a), FEMA created the “Write
Your Own” program. See 44 C.F.R. 62.23-24. Under this
program, private insurance companies like Liberty Mutual
write their own insurance policies, issue them to those in
need of flood insurance, hold premiums from those policies
in accounts separate from their other business, and pay
necessary claims and refunds out of the segregated
accounts. See 44 C.F.R. S 62.23(a); 44 C.F.R. Pt. 62, App.
A, Arts. II(E), (D); see also Spence, 996 F.2d at 794 n.1.
FEMA guarantees payment of claims through letters of
credit issued on behalf of the private insurance companies
which may be tapped in the event that the claims against
policies exceed a company’s net premium income. See 44
C.F.R. Pt. 62, App. A, Art. IV. FEMA also provides
reinsurance. The private insurance companies must use
the Standard Flood Insurance Policy (“SFIP”), which is
contained in the regulations. See 44 C.F.R. Pt. 61, App.
A(1). Under Part B, an insured may sue FEMA if it adjusts
a claim and improperly refuses to pay benefits. See 42
U.S.C. S 4072.3

3. Section 4072 provides:

In the event the program is carried out as provided in section 4071
of this title, the Director shall be authorized to adjust and make
payment of any claims for proved and approved losses covered by
flood insurance, and upon the disallowance by the Director of any
such claim, or upon the refusal of the claimant to accept the
amount allowed upon any such claim, the claimant, within one year
after the date of mailing of notice of disallowance or partial
disallowance by the Director, may institute an action against the
Director on such claim in the United States district court for the
district in which the insured property or the major part thereof shall
have been situated, and original exclusive jurisdiction is hereby
conferred upon such court to hear and determine such action
without regard to the amount in controversy.


The parties have not raised any question whether the
district court had subject-matter jurisdiction of the Van
Holts’ complaint and the district court did not consider the
matter. It is central to our federal system that, unlike the
state courts, the federal courts are courts of limited
jurisdiction. “[T]hey have only the power that is authorized
by Article III of the Constitution and the statutes enacted
by Congress pursuant thereto.” Bender v. Williamsport Area
Sch. Dist., 475 U.S. 534, 541 (1986) (citation omitted).
Accordingly, a federal court of appeals has a special
obligation to satisfy itself of the district court’s basis for
subject-matter jurisdiction even if the parties are prepared
to concede it. Id.; Pennsylvania Nurses Ass’n v.
Pennsylvania State Educ. Ass’n, 90 F.3d 797, 800 (3d Cir.
1996), cert. denied, 117 S. Ct. 947 (1997); Lyon v. Whisam,
45 F.3d 758, 759 (3d Cir. 1995). Generally, the federal
courts have subject-matter jurisdiction of a complaint when
it asserts a cause of action arising under some provision of
federal law, see 28 U.S.C. S 1331, such as when Congress
creates a cause of action within the bounds of Article III of
the United States Constitution, or when the parties are of
diverse citizenship and the amount in controversy exceeds
the jurisdictional minimum, which at the time this case
was filed was $50,000. See 28 U.S.C. S 1332 (1995).

In accordance with our duty to raise subject-matter
jurisdiction, on March 28, 1998, we requested counsel for
the parties to submit supplement briefs on the issue of
jurisdiction. In their supplemental brief, the Van Holts
argued that subject-matter jurisdiction was proper in the
federal court because they sought damages “under” the
flood insurance policy and that, in 42 U.S.C. S 4053,
Congress granted to the federal courts “exclusive
jurisdiction … over disputes involving flood insurance
policies.” Liberty Mutual also believes that the district court
had subject-matter jurisdiction because the gravamen of
the claims related to “the processing and denial of the flood
claim.” It conceded, however, that “the complaint is
problematic as the only counts of the complaint read as
consumer fraud and bad faith claims” and acknowledged
that the Van Holts’ complaint does not contain a claim for
“benefits under the flood policy.”


In their complaint, the plaintiffs assert that federal
subject-matter jurisdiction is proper pursuant to 42 U.S.C.
S 4053 and a provision in the Standard Flood Insurance
Policy governing the relationship between Liberty Mutual
and the Van Holts, which provides:

You may not sue us to recover money under this policy
unless you have complied with all of the requirements
of the policy. If you do sue, you must start the suit
within 12 months from the date we mailed you notice
that we have denied your claim, or part of your claim,
and you must file the suit in the United States District
Court of the district in which the insured property was
located at the time of the loss.

44 C.F.R. Pt. 61, App. A(1), Art. 9(R) (italics in original).

We first consider the statutory basis for jurisdiction. It is
axiomatic that when a court interprets a statute, its sole
task is to ascertain the statute’s meaning and enforce it
according to its terms. United States v. Ron Pair Enter., Inc.,
489 U.S. 235, 241 (1989) (quoting Caminetti v. United
States, 242 U.S. 470, 485 (1917)). When considering such
a question, the inquiry must begin with the plain language
of the statute itself. Id. at 241; United States v. Schneider,
14 F.3d 876, 879 (3d Cir. 1994). That is because the best
evidence of congressional intent is the text of the statute.
See West Virginia Univ. Hosps., Inc. v. Casey, 499 U.S. 83,
98 (1990); Schneider, 14 F.3d at 879. The court, however,
must look not only to the particular statutory language, but
to the design of the statute as a whole and its objectives
and policies. See Crandon v. United States, 494 U.S. 152,
158 (1990); Schneider, 14 F.3d at 879.

It is apparent from the plain language of S 4053, that it
provides subject-matter jurisdiction only for a coverage, or
breach of contract, cause of action based on a denial of an
insurance claim and not for state-law torts which arise out
of the claims investigation and adjustment procedure
executed by the insurance company. Section 4053 provides
that an insured may institute a lawsuit on a “claim” on the
policy when the claim has been “disallow[ed].” We interpret
this language to refer only to suits challenging the failure to
pay the insurance “claim.” The language makes no explicit


or implicit reference to other causes of action that may
arise during a claims investigation. Indeed, if claims like
the Van Holts’ were allowed in federal court it would not be
necessary for the insurance company to first deny coverage.
Conceivably, the insurance company could commit state-
law torts even when it pays the claim, by delaying payment
or engaging in other misconduct in the adjustment process.
Congress could have chosen to use broader language, such
as “relating to the insurance policy” or “relating to the
claim’s investigation or adjustment.” It chose not to do so.
Thus, we must respect Congress’ choice and cannot add
language to the statute where none exists.

In their complaint, the Van Holts do not assert a cause
of action “on … [their] claim” under the Liberty Mutual
flood insurance policy. As the defendant acknowledges, the
Van Holts do not assert that Liberty Mutual’s failure to pay
the claim was a breach of the flood insurance policy or
request that the district court order that Liberty Mutual
cover their losses. Instead, the plaintiffs, citing New Jersey
state law, claim that Liberty Mutual committed two torts in
the course of the investigation and adjustment of their
insurance claims and request damages to compensate them
for their losses suffered as a result of these torts and to
punish Liberty Mutual for committing the torts.4

Neither the plain language nor the object and policies of
the NFIA and its regulations tend to show that Congress
intended to provide for subject-matter jurisdiction for state-
law torts arising out of flood insurance polices. See Spence,
996 F.2d at 796. Indeed, the legislative history of S 4053
specifically states that, even though claimants may sue for
coverage in federal court, they maintain the right to pursue

4. Liberty Mutual contends that there is federal subject-matter
jurisdiction for a claim under state bad-faith law because such a claim
is a contract claim. See Pickett, 621 A.2d at 452 (refusing to characterize
bad faith claim as having basis in tort or contract law). This argument
is unpersuasive because federal law, namely the language of S 4053,
determines what claims are permitted in federal court and there is no
evidence that Congress intended to incorporate state bad-faith law into
S 4053. Cf. Spence, 996 F.2d at 796 (in statute of limitations issues,
federal interests in regulation of flood insurance do not require that state
law be disregarded when insured asserts state-law torts against insurer).


other “legal remedies in State courts.” H.R. Rep. No. 1585,
reprinted in 1968 U.S.C.C.A.N. 2873, 3022; see also
Possessky v. National Flood Insurers Ass’n, 507 F. Supp.
913, 915 (D. N.J. 1981) (quoting House of Representatives
report). Also, the present regulations provide for substantial
independence of the private Write-Your-Own companies in
the adjustment and investigation of claims, see 44 C.F.R.
S 62.23(e), do not permit the companies to draw down on
the letters of credit for claims of fraud, and that the
insurance companies are not agents of the federal
government. Spence, 996 F.2d at 796 & ns.15-17.5

Allowing jurisdiction over claims such as the Van Holts’
would have far reaching implications for the federal courts
and insurance law, implications not intended by Congress.
If we found subject-matter jurisdiction, we would have to
conclude either that Congress intended federal courts to
enforce state-law imposed duties in all flood insurance
cases or that Congress intended to create a federal common
law regulating insurance company practices when there is
no indication that state courts and state legislatures are
incapable of carrying out this function. There is no evidence
either in the NFIA or the legislative history that Congress
intended such a result.

Although it addressed a slightly different issue, we find
the reasoning in Spence instructive. In Spence, the
plaintiffs brought suit in federal district court alleging that
the defendant, an insurance company, breached the flood
insurance policy issued to them when it refused to cover
their losses and committed torts under Texas state law
during the claims adjustment and investigation procedure.
The defendant argued that all the claims, including the
state-law claims, were barred by the one-year suit
limitations period contained in the SFIP. See 44 C.F.R. Pt.
61, App. A(1), Art. VIII(Q). The United States Court of
Appeals for the Fifth Circuit rejected the defendant’s
argument, holding that Texas state law, and not the NFIA,
provided the limitations period for the state law torts. The
Spence court held that the independence granted insurance

5. Section 4072 does not permit jurisdiction because it allows suit only
against FEMA which is not a party to this action.


companies in claims adjustment, the fact that the
companies are not government agents, and that companies
may not draw down on letters of credit for fraud claims
evidenced that Congress did not intend to federalize state-
law claims in the flood-insurance context. That same
reasoning applies here. There is simply no indication that
Congress intended to create jurisdiction for any claims
other than coverage claims.

As with S 4053, the provision in the insurance policy
issued to the Van Holts–the identical one construed by the
Spence court–provides only for a coverage claim. The
clause narrowly provides that suit must be in federal court
if the suit seeks to recover money “under this policy” and
makes no mention of other causes of action or implies that
they would be covered. (Emphasis added). Regardless, even
if the provision allowed for a right to sue in federal court for
causes of actions other than coverage claims, it is
insufficient, on its own, to confer federal subject-matter
jurisdiction over a complaint. It is well settled that parties
cannot confer subject-matter jurisdiction either by
agreement or by waiver. See, e.g., Brown v. Francis, 75 F.3d
860, 866 (3d Cir. 1996); United Indus. Workers v.
Government of Virgin Islands, 987 F.2d 162, 168 (3d Cir.
1993) (collecting cases).

Finally, diversity of citizenship does not provide a basis of
subject-matter jurisdiction here. The plaintiffs do not allege
that the parties are diverse and we have searched the
complaint in vain for any allegation of the parties’
citizenship or a reference to the diversity statute. The Van
Holts contend only that subject-matter jurisdiction is
premised on S 4053. It is the plaintiffs’ burden to allege a
basis for subject-matter jurisdiction. See Fed. R. Civ. P.
8(a)(1). They have failed to do so. Hence, the complaint
must be dismissed.


For the foregoing reasons, the district court’s December
2, 1996 judgment is vacated. This case will be remanded to
the district court with instructions to dismiss for lack of
subject-matter jurisdiction. Costs taxed against appellants.


A True Copy:

Clerk of the United States Court of Appeals
for the Third Circuit


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