Can an insurer remove the insured's state court suit based on supplemental jurisdiction arising under a homeowner's policy when the insured has also sued a separate insurer in federal court under a flood policy?  The Fifth Circuit held where the federal court lacked original jurisdiction, removal was improper.  See Halmekangas v. State Farm Fire and Cas. Co., 603 F.3d 290 (5th Cir. 2010).

   The first floor of insured's home was flooded by Hurricane Katrina.  Five days later, a fire burned the house to the ground.  When he tried to recover under his homeowner's policy, he learned he was underinsured.  The insurer, ANPAC Louisiana Insurance Company, had only covered two of the three floors of the home.  ANPAC paid policy limits for the top two floors. 

   The insured sued ANPAC in state court, alleging the insurer was negligent for failing to insure the entire structure.  There was no federal question or diversity jurisdiction in the suit against ANPAC. 

   After filing the state action against ANPAC, the insured sued State Farm, his flood insurer, in federal district court, asserting federal question jurisdiction under the National Flood Insurance Program.  The suit alleged State Farm had underpaid for the flood damage.  When ANPAC learned of the federal suit, it removed the insured's state court action to federal court, asserting federal jurisdiction supplemental to the State Farm case under 28 U.S.C. 1367.  Over the insured's objection, the federal district court ruled it had jurisdiction because the object of the two suits was the same: damage to the insured's home.  The federal court then granted ANPAC's summary judgment motion.  The insured settled with State Farm.  The insured then appealed the adverse summary judgment decision and moved for dismissal of ANPAC's federal suit, arguing the district court never had subject-matter jurisdiction.

   The Fifth Circuit agreed.  Section 1367 allowed federal courts to hear state claims that combined with federal claims in the same lawsuit.  Section 1441 permitted parties to pull federal cases out of state court where the district court had original jurisdiction.  Under the right circumstances, 1367 and 1441 could combine to allow federal court jurisdiction of a state claim originally filed in state court.  But where, as here, the insured filed an action in state court with no federal question or complete diversity, the original jurisdiction necessary for removal under section 1441 was missing.  Supplemental jurisdiction on its own did not give federal courts the power to remove a state case in which it did not have original jurisdiction.  Accordingly, the district court's decision was vacated and remanded. 

   Thanks to my colleague, Mark Murakami (hawaiioceanlaw.com) for alerting me to this case.