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LOWSLEY-WILLIAMS v. NORTH RIVER INS. CO.

May 3, 1995

PETER GEORGE HOOLE LOWSLEY-WILLIAMS, individually and as a representative of CERTAIN UNDERWRITERS AT LLOYD'S LONDON, AND ARGONAUT INSURANCE CO. LTD.; BISHOPGATE INSURANCE COMPANY, LTD.; CITY INSURANCE CO., LTD.; CNA REINSURANCE OF LONDON, LTD.; DELTA LLOYD INSURANCE CO., LTD.; DOMINION INSURANCE COMPANY, LTD.; INSTITUTO DE REASSEGUROS DO BRASIL; LONDON & EDINBURGH INSURANCE CO., LTD.; ROYAL BELGE INCENDIE - REASSURANCE S.A.; ST. KATHERINE INSURANCE CO., LTD.; "WINTERTHUR" SWISS INSURANCE CO., LTD., Plaintiffs,
v.
NORTH RIVER INSURANCE COMPANY and TALEGEN HOLDINGS, INC., as successor in interest to CRUM & FORSTER, INC., Defendants.



The opinion of the court was delivered by: WILLIAM G. BASSLER

 BASSLER, DISTRICT JUDGE:

 The plaintiffs, Peter George Hoole Lowsley-Williams ("Lowsley-Williams"), individually and as a representative of certain Underwriters at Lloyd's London ("Lloyd's") and nineteen London market insurance companies, brought an action pursuant to the Federal Declaratory Judgment Act, 28 U.S.C. § 2201, seeking a declaration of the rights and obligations of the parties under certain facultative reinsurance contracts. Plaintiffs additionally seek monetary damages for breach of contract. Plaintiffs allege diversity jurisdiction under 28 U.S.C. § 1332(a)(2). Defendants move to dismiss, based upon plaintiffs' failure to meet the burden of pleading all facts relevant to diversity jurisdiction by failing to allege the citizenship of each individual reinsurer.

 I. BACKGROUND

 Defendant, North River, had seven reinsurance contracts underwritten by several syndicates at Lloyd's London. (Joint Stipulation of Facts, P 78) ("Stipulation"). When the original insureds sought reimbursement from North River, North River in turn sought indemnification from the reinsurers (the syndicates of Lloyd's London). The syndicates then brought suit in this Court requesting declaratory judgment regarding their liability to pay North River pursuant to the reinsurance contracts. North River contends that this Court, due to a lack of diversity jurisdiction, does not have jurisdiction to declare whether plaintiffs must indemnify defendants.

 The plaintiffs filed their complaint on December 9, 1993 and amended it on December 28, 1993 to name additional parties. Defendants have moved to dismiss the original complaint for lack of subject matter jurisdiction and have further opposed plaintiffs' Motion for Leave to File a Second Amended Complaint based on plaintiffs' alleged failure to correct the lack of subject matter jurisdiction.

 In their complaint, plaintiffs made no allegations concerning citizenship of any of the Lloyd's members. In their Second Proposed Second Amended Complaint, plaintiffs modified their allegations of the citizenship of Lloyd's London and additionally alleged the citizenship of Lowsley-Williams, all Underwriters for syndicates subscribing to the policies at issue (explained, infra), and the various plaintiff insurance companies. Plaintiffs, however, do not allege the citizenship of each of the members in the syndicates subscribing to the policies at issue, maintaining that only the citizenship of the Underwriters and not of the individual members is critical in determining the existence of diversity jurisdiction.

 The seven North River reinsurance contracts were each subscribed to by members in several syndicates at Lloyd's, as well as by several companies. (Stipulation, P 78). Of the Lloyd's members subscribing to these contracts, several were and are citizens of the State of New Jersey. (Stipulation, P 79).

 The determination of diversity jurisdiction requires an understanding of the process of reinsurance at Lloyd's, which has been clarified by the Stipulation and Supplemental Joint Stipulation of Facts, provided to this Court in response to the Court's request. The following overview of that process is abstracted mainly from those two stipulations.

 Lloyd's is an association that provides the physical premises and the administrative services and staff to enable insurance underwriters to carry on their business at the facilities. (Stipulation, P 1). "Lloyd's of London is not an insurance company in the general sense. Rather, it is an exchange or a market where various individuals or groups bid on the right to insure a given risk." Smith v. Lloyd's of London, 568 F.2d 1115, 1117 n.3 (5th Cir. 1978) (citing Antony Brown, Lloyd's of London (1974)). Lloyd's takes no part in the business of underwriting; policies are underwritten at Lloyd's and not by Lloyd's. (Stipulation, PP 3-4). Thus, policyholders have no contractual relationship with Lloyd's. (Stipulation, P 5).

 The insurance policies underwritten at Lloyd's are underwritten by members of Lloyd's, referred to as "Names." (Stipulation, PP 7-8). Persons desiring to be Names must pay an entrance fee, keep certain deposits at Lloyd's, and meet several specific requirements, including the possession of a certain degree of wealth, in order to become Names. (Stipulation, PP 10, 66). The maximum amount that each Name may underwrite is determined in relation to the Name's wealth, in addition to other factors. (Stipulation, P 11). Since Names assume unlimited liability, Names are liable to the full extent of their personal wealth for any risks undertaken. (Stipulation, P 12).

 For any given contract, each Name is liable only for the percentage of the risk which that Name has agreed to underwrite and for no other portion of the risk assumed by any other Name. (Stipulation, P 13). The holders of policies reinsured by Lloyd's Names thus enter into contractual relationships with the specific Names who have subscribed to the policies for the portion of the risk that each Name has agreed to underwrite. (Stipulation, P 9)

 In order to increase the efficiency of underwriting risks and to combine the resources of numerous underwriters, Names form groups called syndicates. (Stipulation, P 16). "These syndicates . . . are comprised of some 30,000 member-investors, sometimes called 'underwriters' or 'names,' who hope to share in any profit the syndicate might make." Certain Interested Underwriters v. Layne, 26 F.3d 39, 42 (6th Cir. 1994) (quoting Daly v. Lime Street Underwriting Agencies Ltd., 2 FTLR 277, 279 (Q.B. 1987)). Syndicates are neither incorporated nor are they legal entities in and of themselves. (Stipulation, PP 17-18). There is no contractual relationship among members of a syndicate, between syndicates, or between the policyholder and a syndicate. (Stipulation, PP 19-20). Syndicates do not assume liability or underwrite risks; Names do. (Stipulation, P 21).

 Within each syndicate, a Managing Agent is responsible for the underwriting and management of a Name's business. (Stipulation, P 30). The authority of the Managing Agent is either direct, through a contract entered into between the Name and the Managing Agent, or indirect, between the Managing Agent and the Member's Agent (who acts on behalf of the Name). (Stipulation, P 32).

 The Managing Agent -- a partnership or limited company -- designates one of its employees to serve as the Active Underwriter ("Underwriter") for the syndicate. (Stipulation, PP 34-35). The Underwriter is authorized to control the risks for each Name in the syndicate which the Underwriter represents, though no Underwriter is an express trustee over funds held on behalf of any Name. (Stipulation, P 37; Tr., at 22). In addition, the Underwriter determines the conditions to which a risk will be subject and what percentage of a risk will be assumed by the syndicate on behalf of the Names. (Stipulation, P 37). The Underwriter also determines what percentage of a risk each Name in the syndicate will assume. (Stipulation, P 37). Thus, when the Underwriter accepts a percentage of a risk, he binds every Name in the syndicate to the full extent of the Name's share. (Stipulation, P 39). When it comes time to pay a claim, the Underwriter's decision binds all the Names in the syndicate, but only the Names within that syndicate. (Stipulation, P 39). Each Name's liability is determined by the individual policy and the Name's participating share in the syndicate. (Stipulation, P 39). The agency between a Name and a Managing Agent is terminated when the Name ceases to be an underwriting member of Lloyd's. (Stipulation, P 76).

 II. DISCUSSION

 District courts have original jurisdiction where the matter in controversy exceeds $ 50,000 and is between citizens of different States, or citizens of a State and citizens of a foreign state. 28 U.S.C. § 1332(a)(1) & (2) (1994). When diversity jurisdiction is asserted as the basis of a federal claim under section 1332, diversity must be complete. See Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267, 2 L. Ed. 435 (1806). The burden of showing complete diversity falls upon the party claiming section 1332 jurisdiction. McNutt v. General Motors Acceptance Corp., 298 U.S. 178, 179, 80 L. Ed. 1135, 56 S. Ct. 780 (1936).

 Since the plaintiffs are asserting diversity jurisdiction, the burden of showing diversity falls upon them. Plaintiffs assert that in determining citizenship, the parties that should be included are North River, Talegen Holdings, and Crum & Forster for the defendants, and Lowsley-Williams for the plaintiffs. In essence, plaintiffs argue that so long as Lowsley-Williams is not ...


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