Federal courts throughout the United States have struggled to determine whether to exercise jurisdiction in cases involving Lloyd's of London insurance policies. A federal district court in Pennsylvania has just issued a decision exploring the issues – and has ruled that the defendants, who removed an insurance coverage case from a Pennsylvania court, failed to demonstrate the existence of complete diversity.
The Case
CNX Gas Company was insured under a control-of-well insurance policy obtained through Lloyd's, a forum for thousands of underwriters (or "Names") to buy shares of risk by forming groups called "syndicates."
The policy CNX obtained was underwritten by four Lloyd's syndicates.
CNX filed suit in a Pennsylvania court seeking coverage after its initial claim under the policy was denied. CNX purported to sue all of the Names that underwrote its insurance policy, although it only identified five Names as defendants. It did not explicitly identify the remainder of the Names underwriting its policy because Lloyd's kept them confidential.
The defendants, various entities affiliated with Lloyd's, removed the case to the U.S. District Court for the Western District of Pennsylvania.
CNX moved to remand.
The District Court's Decision
The district court granted the motion.
In its decision, the district court first ruled that CNX intended to sue all of the Names that underwrote its policy, and not only those it specifically named in its complaint's caption (which purported to name "Lloyds of London" along with certain suspected underwriters that it was able to identify).
The district court then ruled that the defendants failed to demonstrate that there was complete diversity in order to justify their removal of CNX's action to federal court.
The district court pointed out that the nature of the Lloyd's business model raised questions of whose citizenship was relevant for diversity of citizenship analysis – and that there was a circuit split on this issue.
As the district court explained, the split came down to whether, for diversity purposes, a Lloyd's syndicate was more like a trust or more like a limited partnership; that is, whether only the representative Name's citizenship was relevant (the trust model) or whether the citizenship of all of the Names had to be considered (the limited partnership model).
The district court adopted the majority view requiring complete diversity to exist between CNX and all of the Lloyd's Names underwriting the policy. It then concluded that the defendants had not established complete diversity – in particular, that they had not identified and established the citizenship of some 1,800 unidentified Names comprising the minority share of one of the syndicates, making it impossible to establish complete diversity or, at the least, creating substantial doubt as to whether complete diversity existed.
Accordingly, the district court ordered the case remanded to state court.
The case is CNX Gas Co., L.L.C. v. Lloyd's of London, No. 2:19-cv-699-WSS (W.D. Pa. Oct. 17, 2019). Attorneys involved include: For CNX GAS COMPANY LLC, Plaintiff, Counter Defendant: Rodger L. Puz, LEAD ATTORNEY, Dickie, McCamey & Chilcote, Pittsburgh, PA; Brandon C. Briscoe, Harold J. Flanagan, Sean P. Brady, PRO HAC VICE, Flanagan Partners LLP, New Orleans, LA; Paul Matthew Jones, PRO HAC VICE, Liskow & Lewis APLC, Baton Rouge, LA. For NAMECO (NO. 808) LIMITED, HISCOX DEDICATED CORPORATE MEMBER LTD., Defendants, Counter Claimants: Bruce E. Rende, LEAD ATTORNEY, Robb Leonard Mulvihill LLP, Pittsburgh, PA; George H. Lugrin, IV, Jeffrey T. Bentch, Karen K. Milhollin, William P. Maines, PRO HAC VICE, Hall Maines Lugrin, P.C., Houston, TX.
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The U.S. Court of Appeals for the Sixth Circuit has taken the minority position that only a Name serving as lead underwriter counted for diversity purposes. See Certain Interested Underwriters v. Layne, 26 F.3d 39 (6th Cir. 1994). Only lead underwriters, the Sixth Circuit held, could qualify as "real parties in interest" for diversity purposes.
On the other hand, the U.S. Courts of Appeals for the Second, Seventh, and Eleventh Circuits form the majority view and have ruled that, when a syndicate was sued, the citizenship of every Name comprising the syndicate counted, not merely that of the Name serving as lead underwriter. See E.R. Squibb & Sons, Inc. v. Accident & Casualty Ins. Co., 160 F.3d 925, 938 (2d Cir. 1998); E. R. Squibb & Sons, Inc. v. Lloyd's & Co.'s, 241 F.3d 154, 159 (2d Cir. 2001); Ind. Gas Co., Inc. v. Home Ins. Co., 141 F.3d 314, 319 (7th Cir. 1998); Underwriters at Lloyd's, London v. Osting-Schwinn, 613 F.3d 1079 (11th Cir. 2010).
It is worth noting that other unincorporated associations where every member must be diverse include limited liability companies, labor unions, joint stock companies, and joint ventures. See, e.g., Lincoln Benefit Life Co. v. AEI Life, LLC, 800 F.3d 99 (3d Cir. 2015) (LLCs); Johnson v. SmithKline Beecham Corp., 724 F.3d 337, 352-53 (3d Cir. 2013) (LLCs); Ind. Gas Co., Inc. v. Home Ins. Co., 141 F.3d 314, 316 (6th Cir. 1998) ("Membership associations such as labor unions, joint stock companies, and joint ventures take the citizenship of each member" (citing United Steelworkers v. R.H. Bouligny, Inc., 382 U.S. 145, 86 S. Ct. 272, 15 L. Ed. 2d 217 (1965); and then citing Great S. Fire Proof Hotel Co. v. Jones, 177 U.S. 449, 20 S. Ct. 690, 44 L. Ed. 842 (1900))); Underwood v. Maloney, 256 F.2d 334, 339 (3d Cir. 1958) (unions).
Steven A. Meyerowitz
Steven A. Meyerowitz, a Harvard Law School graduate, is the founder and president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. He may be contacted at [email protected].