|September 23, 2010|
Previously published on September 22, 2010
For many years the Lloyd’s underwriting syndicates have assumed that they are permitted to sue and be sued in federal court without disclosing the Names or their citizenship, and they have had some success at this. In a recent ruling, the Eleventh Circuit joined the Seventh and Second Circuits in holding there are no special rules for Lloyd’s syndicates. As unincorporated associations, Lloyd’s syndicates must plead the citizenship of each Name to establish diversity. Underwriters at Lloyd’s, London v. Carol Osting-Schwinn, Case No. 08-15809 (11th Cir., August 5, 2010) (”Osting-Schwinn“).
In Osting-Schwinn, certain Underwriters at Lloyd’s sued their insured in the Middle District of Florida to enforce a prior settlement as a defense to the insured’s claim. As is often the case, the Underwriters relied solely on the alleged citizenship of the lead underwriter to plead diversity jurisdiction. Finding jurisdiction, the District Court granted summary judgment for the Underwriters and the case went to the 11th Circuit, which reversed, holding the jurisdiction question dispositive.
The Osting-Schwinn decision contains an informative discussion of the unique nature of the London Market, and specifically Lloyd’s. The Court paid special heed to the Lloyd’s Acts of 1871 and 1982, which provide for several liability for every Name, thus precluding an agency or representative capacity for the lead underwriter. Rather, the Court noted that in a Lloyd’s policy the insurer-insured relationship is a vertical one between the insured and each Name.
The Osting-Schwinn Court then relied on well-established Supreme Court precedent that “it has long been ‘the tradition of the common law . . . to treat as legal persons only incorporated groups and to assimilate all others to partnerships’ which must plead the citizenship of each member.” Citing, Puerto Rico v. Russell & Co., 288 U.S. 476, 480 (1933). The rule was reaffirmed as a bright line approach in Carden v. Arkoma Associates, 494 U.S. 185 (1990), which applied the rule to hold that limited partners must be individually pled to meet diversity. Carden, supra, at 195-196 (”We adhere to our oft-repeated rule that diversity jurisdiction in a suit by or against the entity depends on the citizenship of all the members.”)
Noting both the simplicity and harshness of the bright line, corporation/non-corporation, test, the Osting-Schwinn Court observed that the Supreme Court had rejected efforts to modify the approach, characterizing the decision of how to treat unincorporated associations as primarily legislative in nature. Further, the Osting-Schwinn Court noted and distinguished the Sixth Circuit as the only deviation from the application of the Carden rule, specifically referencing the error of the Sixth Circuit’s flawed reasoning that the lead underwriter can be the real party in interest. The Osting-Schwinn Court noted that, with several liability, the exposure of the lead underwriter is determined by the scope of its subscription, like every other party. The Court noted, however, that nothing prohibited the lead, or any Name, from proceeding on its own to pursue its own share of relief, if the individual Name can show requisite diversity and amount in controversy.