September 16, 2010

Insurance Coverage Alert:

Written By Attorneys: John Clark, Joseph F. Bermudez, Kymberly Kochis,
Michael Kurtis, Robert Runyon and Suzanne M. Meintzer

This article is an interpretation of current law and is offered for informational purposes only. This material is not legal advice and should not be construed or used as a substitute for the advice of an attorney.

Lloyd's of London ("Lloyd's") syndicates frequently appear in United States courts as "Certain Underwriters at Lloyd's" and sometimes plead only the lead underwriter's citizenship to establish diversity jurisdiction in federal courts. The Eleventh Circuit Court of Appeals, however, recently held that Lloyd's syndicates must plead the citizenship of each member in order to establish diversity jurisdiction in that circuit. Underwriters at Lloyd's, London v. Osting-Schwinn, No. 08-15809, 2010 WL 3056606 at *10 (11th Cir. Aug. 5, 2010). At the same time, the Osting-Schwinn court also noted that "an individual [underwriter] that meets the amount in controversy may proceed in his individual capacity." Osting-Schwinn, 2010 WL 3056606 at *10.

The federal courts are courts of limited jurisdiction, and therefore can preside over only certain types of cases. With respect to diversity jurisdiction, the citizenship of all plaintiffs-whether from a different state or foreign nation-must be different from that of all defendants. See 28 U.S.C. § 1332. Furthermore, the amount in controversy must exceed $75,000. Id. If these jurisdictional prerequisites are not satisfied, the federal courts cannot preside over the action.

With its holding in Osting-Schwinn, the Eleventh Circuit joined the Second and Seventh Circuits, which have already established a similar rule. See, e.g., E.R. Squibb & Sons, Inc. v. Accident & Cas. Ins. Co., 160 F.3d 925, 931-34 (2d Cir. 1998) (holding that a lead underwriter failed to fall within an exception to the general rule that "federal courts must look to the individuals being represented rather than their collective representation to determine whether diversity of citizenship exists."); Indiana Gas Co. v. Home Ins. Co., 141 F.3d 314, 317 (7th Cir. 1998) ("It follows that the underwriting syndicates have the citizenships of every name."). Only the Sixth Circuit Court of Appeals has reached an opposite conclusion. See, e.g., Certain Interested Underwriters at Lloyd's, London, England v. Layne, 26 F.3d 39, 42 (6th Cir. 1994) (holding that the lead underwriter is the real party interest, and therefore, can establish diversity jurisdiction on the basis of its citizenship alone).

In the recent Osting-Schwinn case, the syndicates filed a declaratory relief action, seeking a determination that a valid settlement had been reached in an underlying matter. Osting-Schwinn, 2010 WL 3056606 at *1. The syndicates' complaint pleaded the citizenship of the lead underwriter only. Id. at *2-3. The defendant moved to dismiss the syndicates' complaint, arguing that the syndicates must plead the citizenship of each member in order to establish diversity jurisdiction. Id. at *3. The district court, relying on the Sixth Circuit precedent, denied the motion to dismiss and subsequently entered summary judgment in favor of the syndicates. Id. at *3-4.

On appeal, the Eleventh Circuit reversed, reasoning that Lloyd's syndicates "fall squarely within the class of unincorporated associations for which the pleading of every member's citizenship is essential to establishing diversity jurisdiction." Id. at *7. The Osting-Schwinn court did, however, note that because the liability of Lloyd's syndicates is several, jurisdiction could be salvaged if an individual underwriter-in this case, the lead underwriter-could meet the amount in controversy requirement on its own. Id. at *10-11. But because the lead underwriter did not expressly plead facts addressing this issue, the court remanded the case, providing the syndicates with an opportunity to amend their complaint to establish complete diversity of citizenship. Id. at *11.

After the decision in the recent Osting-Schwinn case, Lloyd's syndicates in diversity jurisdiction cases must be mindful of pleading the citizenship of each underwriting member in the Second, Seventh and Eleventh Circuit Courts of Appeals, or risk having their cases dismissed for failure to meet the jurisdictional prerequisites. Further, in the event the lead underwriter elects to proceed in its individual capacity under the exception annunciated in the Osting-Schwinn case, additional questions are raised with respect to whether the following underwriters would be bound by a resulting judgment.

For further analysis of insurance coverage issues impacting the London market, please contact John Clark of Nelson Levine de Luca & Hamilton. NLdH is a nationally recognized leader in representing the insurance industry in all coverage areas.