160 F.3d 925 (2nd Cir. 1998), 97-9474, E.R. Squibb & Sons, Inc. v. Accident & Cas. Ins. Co.
|Docket Nº:||97-9474(CON); 97-9476(CON); 97-9484(XAP).|
|Citation:||160 F.3d 925|
|Party Name:||E.R. SQUIBB & SONS, INC., Plaintiff-Appellee, v. ACCIDENT & CASUALTY INSURANCE CO.; American Home Assurance Co.; Allan Peter Dennis Haycock; Accident & Casualty Insurance Co. of Winterthur; Alba General Insurance Co., Ltd.; Anglo-French Insurance Co., Ltd.; Anglo Saxon Insurance Co., Ltd.; Argonaut-Northwest Insurance Co.; Aviation & General Insura|
|Case Date:||November 25, 1998|
|Court:||United States Courts of Appeals, Court of Appeals for the Second Circuit|
Argued Aug. 10, 1998.
[Copyrighted Material Omitted]
George Marshall Moriarty (John T. Montgomery, James W. Matthews, Rachel E. Hershfang, of counsel), Ropes & Gray, Boston, MA, for Defendants-Appellants.
Louis Solomon, Solomon, Zauderer, Ellenhorn, Frischer & Sharp, New York City (Hal S. Shaftel, Caroline S. Press, and Laleh Ispahani, Solomon, Zauderer, Ellenhorn, Frischer & Sharp; Robert S. Rifkind and David J. Stone, Cravath, Swain & Moore, New York City, of counsel), for Plaintiff-Appellee.
Charles A. Booth, Ford Marrin Esposito Witmeyer & Gleser, New York City, for Defendant-Appellant Continental Casualty Co.
Before: JACOBS, CALABRESI, and STRAUB, Circuit Judges.
Judge JACOBS concurs in the opinion of the Court, and also files a separate opinion.
CALABRESI, Circuit Judge:
Appellants, a group of more than fifty insurers, appeal from a declaratory judgment of the United States District Court for the Southern District of New York (John S. Martin,
Jr., Judge ) following a jury trial on the insurance policies provided by Appellants to Appellee E.R. Squibb & Sons, Inc. ("Squibb"). Although this case has been litigated in federal court for sixteen years, the existence of diversity jurisdiction pursuant to 28 U.S.C. § 1332 (1994) has not been established. This is due to the presence in the suit of "Certain Underwriters at Lloyd's of London" ("Lloyd's"). 1 Accordingly, we vacate the judgment and remand to the district court for further proceedings on the jurisdictional issue.
In 1982, Squibb brought a declaratory action against its domestic primary and excess insurers seeking indemnification for product liability claims arising out of the use of the drug diethylstilbestrol ("DES"). In 1984, Squibb filed a new consolidated complaint against its insurers that included a host of new domestic and foreign defendants. 2 Among those named in the consolidated complaint was defendant Allen Peter Dennis Haycock ("Haycock"), a British subject, who was named "as a representative underwriter representing certain underwriters at Lloyd's [ of] London, being all underwriters who subscribed the policies of insurance issued to the plaintiff and upon which the plaintiff brings the present action." The parties subsequently stipulated that Haycock was "appearing in this action in his individual capacity, and for administrative convenience, as a representative of all Lloyd's Underwriters." Squibb, which is a citizen of Delaware and New Jersey, invoked diversity jurisdiction and New York law to support its claims. For the next thirteen years, the case proceeded with discovery and then culminated in a jury trial in which Squibb prevailed. 3
While the appeal of Squibb's judgment was pending, this court decided Advani Enterprises, Inc. v. Underwriters at Lloyds, 140 F.3d 157 (2d Cir.1998). Advani raised, but did not decide, the difficult questions involved in determining how the Lloyd's underwriters should be analyzed for purposes of the requirements of diversity jurisdiction. 4 See id. at 160-61. In light of the discussion in Advani, this court raised sua sponte the issue of whether, due to Haycock's status as a defendant representing "Certain Underwriters at Lloyd's of London," diversity jurisdiction existed in the district court. We requested additional briefing on that question. 5
In the course of that briefing, counsel discovered that Haycock had recently died. Squibb and Lloyd's now move to add Stephen Merrett, another Lloyd's underwriter and British subject, perhaps in replacement of Haycock, 6 and to find that diversity jurisdiction exists in this action.
Before addressing the complex jurisdictional issues raised by this case, we think it helpful to summarize our understanding of the unique structure that is Lloyd's of London.
Lloyd's began as a coffee house but has developed into one of the world's leading markets for insurance. See Godfrey Hodgson, Lloyd's of London 49-75 (1984). This market, however, operates in accordance with age-old customs that are, to say the least, unusual in American business law.
The anonymous underwriters of Lloyd's insurance, who are commonly referred to as "Names," invest in a percentage of the policy risk. While the rewards of a Lloyd's investment can be great, each Lloyd's Name is exposed to unlimited liability, but only for his or her share of the loss on a policy that the Name has underwritten. In other words, the liability of each Name on any given policy, while unlimited, is several and not joint. Insurance from Lloyd's is typically subscribed to by hundreds of Names belonging to different subgroups known as "syndicates." Although syndicates within the Lloyd's market negotiate with each other to spread insurance risk, the syndicates themselves have been said to have no independent legal identity. See The Society of Lloyd's v. Clementson,  5 Re. L.R. 215.
The syndicate Names do not manage their own investments. Instead, each syndicate appoints one of its Names (who is usually an insurance broker) to represent the collective interests of the Names in that syndicate. This person is known as the "lead underwriter." The typical Lloyd's policy contains a clause providing that "any [Name] can appear as representative of all [Names]." In practice, however, since many Names from various syndicates are usually involved in any particular policy, the lead underwriter from one of the underwriting syndicates is designated as the representative of all the Names in any of the relevant syndicates, and he is the only Name disclosed on a policy.
When litigation over a Lloyd's policy occurs, only one Name (the lead underwriter disclosed on the policy) is ordinarily sued. Nevertheless, all the Names subscribing to that policy are liable for their several shares of any adverse judgment against the Lloyd's underwriters. This is because the standard Lloyd's policy running between the insured and each Name states "that in any suit instituted against any one of [the Names] upon this contract, [all the Names] will abide by the final decision of such Court or of any Appellate Court in the event of an appeal." Each Name is, therefore, bound by contract with the insured to adhere to the decision reached in the suit. 7
Since "subject matter jurisdiction is an unwaivable sine qua non for the exercise of federal judicial power," Curley v. Brignoli, Curley & Roberts Assocs., 915 F.2d 81, 83 (2d Cir.1990), we must consider whether there is diversity jurisdiction in this action, even though the parties have assumed for the past sixteen...
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