Globalisation in virtually all business sectors is nothing new. Indeed, this phenomenon continues to expand and evolve, including broadening the scope of the global insurance market and its impact on litigation in the United States. The risks to which policyholders are exposed have become increasingly diverse and, due to expanding markets, US policyholders have greater access to policies issued by foreign insurers.
When insurance coverage disputes arise between policyholders and their foreign insurers, in particular those out of the London Market/Lloyd’s of London, lawsuits are often brought in US courts. In turn, and with increased frequency, federal courts are being asked to evaluate whether there is diversity of citizenship with London Market insurers, meaning that the question becomes whether the courts have jurisdiction over the foreign insurers. Because the approaches taken on this issue, as well as the potential answers, are complicated, courts have reached different conclusions on how to address this issue.
The centuries-old London Market insurance model is unique in that – unlike the single-insurer-single-risk US domestic model – it garners participation and the pooling of resources to underwrite risks. Lloyd’s of London is an unincorporated insurance marketplace comprised of “Names” or “members” that provide varying percentages of capital to underwrite the policies to which those Names subscribe. Each Name is liable only for its share of the loss based on the percent of risk it has taken on through its capital contribution. See, e.g., E.R. Squibb & Sons, Inc. v. Accident & Cas. Ins. Co., 160 F.3d 925, 928 (2d Cir. 1998); Certain Underwriters at Lloyd’s, London v. VMA Constr., LLC, 2018 WL 314815, at *2 (D.N.J. Jan. 5, 2018) (Lloyd’s of London “is not an insurance company, but rather is an exchange or market where various individuals or groups bid on the right to insure a given risk. Lloyd’s takes no part in the business of underwriting; policies are underwritten at Lloyd’s and not by Lloyd’s.”). The Names or members usually are backed by major insurance groups, registered corporations, or partnerships.
Lloyd’s Names are known to form “syndicates,” which organize together, with the help of coverholders and their respective managing agencies, to underwrite policies. Chem. Leaman Tank Lines, Inc. v. Aetna Cas. & Sur. Co., 177 F.3d 210, 221 (3d Cir. 1999) (“[T]o increase the efficiency of underwriting risks and to combine the resources of numerous individuals, names form groups called syndicates.”). Syndicates may, however, appoint an “Active Underwriter” who has the authority to bind all the individual Names in the syndicate. Like Lloyd’s of London itself, syndicates are also not legal entities.
Is it the citizenship of each of the Name(s) that comprise all of the syndicates under the policy, or is it the citizenship of the Name(s) of the Active Underwriter (if applicable)?
Presently, there is a split among the federal circuits on this issue. On the one hand, the Sixth Circuit has taken the position, based primarily on agency law, that because only lead underwriters can qualify as “real parties in interest,” the citizenship of the Name(s) that comprise the lead (or Active Underwriter) is the citizenship relevant for diversity purposes. See Certain Interested Underwriters at Lloyd's, London, Eng. v. Layne, 26 F.3d 39 (6th Cir. 1994). On the other hand, the majority view, adopted by the Second, Seventh, and Eleventh Circuits, and further supported by numerous district courts throughout the country, is that “the citizenship of every Name comprising the syndicate counts, not merely that of the name serving as lead underwriter.” See CNX Gas Co., L.L.C. v. Lloyd's of London, 410 F. Supp. 3d 746, 754-55 (W.D. Pa. 2019); see also Arch Ins. Co. (Europe) Ltd. v. Reilly, CV 20-2080, 2021 WL 4739567 (D.N.J. Oct. 8, 2021).
One key aspect underlying the majority’s rationale is the fact that a policy purchased by an insured from Lloyd’s of London creates a contractual relationship between the policyholder and the Names who subscribed to the policy either individually or through their contribution of financial capacity to participating syndicates. See Lowsley-Williams v. N. River Ins. Co., 884 F. Supp. 166, 167 (D.N.J. 1995) (“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.”); CNX, 410 F. Supp. 3d at 749 (“the contractual relationship is formed between the insured and the individual Names comprising the syndicate . . . The Names comprising the syndicate are the insurers.”). Hence, policyholders that purchase insurance coverage through the London Market are actually entering into contracts with the Names that ultimately provide financial capacity under a particular policy – regardless of whether the policy itself specifies as much – and, therefore, the citizenship of those Names, who should be the litigants, is what must be considered for the purposes of determining diversity jurisdiction in US federal courts.
Whenever pleadings fail to identify the citizenship of the Name(s) that comprise a syndicate or that of the individual Name(s) subscribing to a policy, federal courts may not be able determine the citizenship of the insurers. In those circumstances, insurers operating through Lloyd’s of London should be mindful of their right to raise threshold, procedural defences, such as lack of subject matter jurisdiction, that could result in the dismissal of a case or the transfer of the case to a different (perhaps more favorable) jurisdiction. While federal courts retain the right to dismiss cases for lack of subject matter jurisdiction, that does not always happen sua sponte, despite the higher focus on this issue engendered by the expanding globalization of the insurance market and the increased participation in the US federal court system by Lloyd’s of London.
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