Underwriters at Lloyd’s, London v. Carol Osting-Schwinn
(11th Cir. (Fla.) August 5, 2010)
Carol Osting-Schwinn’s son was riding a dirt bike when it collided with an all-terrain vehicle driven by Michael Rockhill, who was insured by a policy underwritten at Lloyd’s. Osting-Schwinn and the underwriting syndicates at Lloyd’s agreed to settle the case and the syndicates sent settlement checks, affidavits and a copy of the policy. Osting-Schwinn rejected the settlement, claiming the syndicates failed to properly disclose information about other known insurers and to send an adequate copy of the insurance policy. Osting-Schwinn then filed a negligence action on her son’s behalf against Rockhill. In turn, the underwriting syndicates commenced a diversity action in the United States District Court for the Middle District of Florida seeking a declaratory judgment that the parties had reached a valid settlement.
Osting-Schwinn moved to dismiss the declaratory judgment action on the basis that the underwriting syndicates filed to establish diversity jurisdiction because the syndicates only disclosed the lead underwriter’s citizenship. The District Court denied the motion to dismiss for lack of subject matter jurisdiction and granted summary judgment for Lloyd’s on the settlement issue. Osting-Schwinn appealed.
The Eleventh Circuit Court of Appeals reversed. The court explained that the Society of Lloyd’s, London is not an insurance company, but rather a British organization that provides infrastructure for the international insurance market. Lloyd’s itself does not insure any risk. Individual underwriters, known as “Names” or “members” assume the risk of the insurance loss. Names can be people or corporations and underwrite insurance through administrative entities called syndicates. The syndicates are not incorporated, but are generally organized by Managing Agents, which may or may not be corporations. The syndicates are mere administrative structures that bear no risk on the policies they underwrite. The Names are not liable for the risks that other Names assume. Lead underwriters serve as the public face for particular syndicates and are usually the only Name disclosed on the policy. Each Name’s liability is several, not joint. The individual Names, not the syndicate, are the ones directly liable in the event of a loss.
The court held that a wealth of Supreme Court precedent requires the conclusion that the Lloyd’s syndicates, as unincorporated associations, must plead the citizenship of each of their members. The court held that federal law has drawn a sharp distinction between corporations and virtually every other form of association for purposes of determining diversity of citizenship. Corporations are considered legal persons whose citizenship does not depend on that of their shareholders. Unincorporated associations do not have citizenship, but must prove the citizenship of each of their members, regardless of the corporation-like features or other business realities of the association. Lloyd’s could not avoid this rule simply by characterizing one member of the association as the only real party to the controversy.
The court held that the Lloyd’s syndicates are classic examples of unincorporated associations because they are “bodies of persons acting together, without a charter, but upon the methods and forms used by corporations, for the prosecution of some common enterprise.” Supreme Court precedent requires them to plead the citizenship of each of their member Names to establish diversity of citizenship. Because the syndicates did not do so, they failed to establish subject matter jurisdiction.
Accordingly, the Court of Appeals reversed the District Court’s judgment and remanded the case for further proceedings.
A copy of the decision can be found here
Toni Frain and Jonathan Kuller