Transamerica Corp. v. RELIANCE INS. CO. OF ILL., Civ. A. No. 94-645-SLR.

Decision Date15 May 1995
Docket NumberCiv. A. No. 94-645-SLR.
Citation884 F. Supp. 133
PartiesTRANSAMERICA CORPORATION, a corporation of the State of Delaware and TIG Insurance Company, a corporation of the State of California, Plaintiffs, v. RELIANCE INSURANCE COMPANY OF ILLINOIS and Certain Underwriters at Lloyds, London and Certain Insurance Companies in the London Market, Defendants.
CourtU.S. District Court — District of Delaware

Richard E. Poole, Peter J. Walsh, Jr., and Patricia A. Sabol, Potter Anderson & Corroon, Wilmington, DE, for plaintiffs.

Robert K. Beste, Jr., and David L. Finger, Biggs & Battaglia, Wilmington, DE (Wilson M. Brown, III, Robert A. Kosik, Susan M. Kennedy, Drinker Biddle & Reath, Philadelphia, PA, of counsel), for defendant Reliance Ins. Co. of Ill.

Allen M. Terrell, Jr., and Frederick L. Cotrell, III, Richards, Layton & Finger, Wilmington, DE (Edward T. Stork, Sedgwick Detert Moran & Arnold, Los Angeles, CA, of counsel), CA for defendants Certain Underwriters at Lloyds, London and Certain Ins. Co. in the London Market.

OPINION

SUE L. ROBINSON, District Judge.

I. INTRODUCTION

Plaintiff, Transamerica Corporation ("Transamerica"), incorporated in Delaware, provides financial services throughout the United States and is based in San Francisco, California. (D.I. 16 at 5) Until April of 1993, Transamerica had an ownership interest in TIG Insurance Company ("TIG")1, a California corporation with its main administrative offices in Texas. (Id. at 5; 9 at 4-5; 17 at ¶ 4; 57 at 2) Defendant Reliance Insurance Company of Illinois ("Reliance") is an Illinois company with its corporate headquarters in New York, New York. (D.I. 9 at 5; D.I. 62) The remaining defendants (the "London defendants") are alleged to be underwriters and insurance companies existing under foreign laws with their principle places of business in England. (D.I. 1 at ¶ 4; 53 at ¶ 4) Presently before the court is defendants' motion to dismiss plaintiff's complaint or, in the alternative, to stay said litigation (D.I. 8); plaintiffs' motion to remand this case to Delaware Superior Court (D.I. 23); and defendants' motion to strike plaintiffs' second amended complaint (D.I. 56).

II. BACKGROUND

The litigation pending before this court has a lengthy procedural history concerning at least three separate lawsuits. The underlying issues in said lawsuits flow from an insurance relationship between TIG and Reliance.

A. Insurance Policy Between TIG and Reliance

In 1988, Transamerica embarked on an effort to purchase comprehensive professional liability insurance coverage for itself and its subsidiaries, of which TIG is one. In connection with this effort, representatives from Transamerica and Reliance met and negotiated a policy for the period 1988-1989. (D.I. 16 at 8) Transamerica claims, and defendants do not dispute, that a priority for Transamerica in this negotiating process was to obtain "insurance coverage for punitive damage awards to the broadest extent possible...." (Id. at 8-9) Because several states do not allow insurance coverage for punitive damages, but the Delaware Supreme Court in Whalen v. On-Deck, Inc., 514 A.2d 1072 (Del.1986) held that such coverage does not violate Delaware's public policy, the following language was included in the 1988-89 and 1989-1990 policy agreements between the parties: "For the purposes of this policy, any insurance coverage dispute concerning punitive damages will be litigated in the State Court of Delaware." (D.I. 18 at ¶ 10)

In the 1990-91 policy the aforementioned language was eliminated, in order to ensure the applicability of Whalen and, under the heading "Ultimate Net Loss," the parties included the following: "As regards punitive damages this policy shall be construed pursuant to the laws of the State of Delaware." (Id.) Therefore, the Delaware choice of forum clause was replaced with the Delaware choice of law clause. TIG is insured under the policies sold by Reliance to Transamerica for the periods of August 1, 1990August 4, 1991 and August 4, 1991September 4, 1992. (D.I. 17; 18 at ¶ 12)

Plaintiffs purchased excess coverage from the London defendants from 1990-1992. (D.I. 16 at 11) These policies (Policy Nos. 551/UDEK257 and 551/U1EO285) had limits of $10,000,000 and $15,000,000 respectively and indicate that they "follow form" to the Reliance policies. (D.I. 60 at 4; 18 at ¶ 14) Approximately three hundred members of the syndicates which own a percentage of the British insurance policies at issue are citizens of either California, Delaware, or Texas. (D.I. 57 at Ex. C)

B. Underlying California Litigation

On March 14, 1991 Cates Construction, Inc., a contractor for a California condominium project, filed suit against the developer of said project, Talbot Partners ("Talbot"). Cates Construction, Inc. v. Talbot Partners, No. BC 023655 (Cal.Super.Ct., Los Angeles County 1994). TIG, as surety, had issued a performance bond and a labor and material payment bond to Talbot naming Cates as principal. (D.I. 16 at 12) Talbot filed a cross complaint against TIG alleging, inter alia, that it had failed to properly honor performance and labor and material payment bonds. (Id. at 13;) In January of 1993 the court in this action found that TIG had breached the bonds it issued and the court awarded Talbot approximately $4 million. (D.I. 9, Item 2 at Ex. E) A jury then awarded punitive damages of $28 million. (Id.) TIG is appealing this award and has not sought any insurance claim against Reliance. (Id., Item 2)

C. California Declaratory Judgment Action

On July 15, 1994, Reliance filed suit in the same California court to determine if it was legally obligated to indemnify TIG or Talbot. Reliance Ins. Co. v. TIG Ins. Co., et al., No. BC 108855 (Cal.Super.Ct. Los Angeles Cty. 1994). Reliance has since dismissed Talbot as a party in this California litigation without prejudice. (D.I. 61 at ¶ 2) Discovery appears to be advancing in this litigation, and the case is scheduled "on track" to be resolved within a year of filing. (D.I. 50 at 19). On April 28, 1995 Reliance filed a motion for summary judgment and said motion is scheduled for argument on May 26, 1995. (D.I. 61 at ¶ 1)

D. Delaware State Court Action

On October 25, 19942 plaintiffs filed this suit in Superior Court of the State of Delaware. In this original complaint, the London defendants were labelled "Certain Underwriters at Lloyd's3, London and Certain Insurance Companies in the London Market." (D.I. 1) These defendants were further described as "unincorporated underwriters and limited liability companies organized and existing under foreign laws, with their principal place of business in London, England." (D.I. 1 at ¶ 4) Reliance, joined by the London defendants, removed said action pursuant to 28 U.S.C. § 1441(a) to the Federal District Court for the District of Delaware on November 28, 1994, asserting as the grounds for federal jurisdiction diversity of citizenship, pursuant to 28 U.S.C. § 1332. (D.I. 1; 2) Count I of said plaintiffs' complaint seeks declaratory relief that defendants must indemnify TIG for punitive damages in both the underlying California verdict and other final punitive damages. Count II alleges breach of contract and Count III alleges Reliance used bad faith conduct in refusing to honor the parties' contract. (D.I. 1 at ¶¶ 25, 30-34, 40)

On February 24, 1995, plaintiffs filed their first amended complaint. (D.I. 53) Plaintiffs amended Paragraph Four of said complaint so as to define the aforementioned defendants as the following:

Defendants Certain Underwriters at Lloyd's, London and Certain Insurance Companies in the London Market, more particularly set forth in Exhibit A attached hereto and made part hereof ("London"), are all the subscribers to Policy Nos. 551/UDEK257 and 551/U1E0285, consisting of unincorporated underwriters, syndicates and members, at least some of whom are citizens subject to foreign laws, and limited liability companies organized and existing under foreign laws, with their principal places of business in England.

(D.I. 53 at ¶ 4) Plaintiffs also attached to said complaint an exhibit listing the names of specific syndicates alleged to have subscribed to the relevant insurance policies, their respective numbers, and the names of similarly situated insurance companies. (Id. at Ex. A) Plaintiffs argue that this amendment was the result of defendants finally responding to discovery requests and revealing the identities of the syndicates which own an interest in the relevant policies.4

III. DISCUSSION
A. Plaintiffs' Motion to Remand

Subsequent to defendants filing their motion to dismiss, plaintiffs filed a motion to remand this action to the Delaware Superior Court, raising the issue of whether complete diversity exists between the parties. (D.I. 24 at 2) Specifically, plaintiffs argue that 1) defendants did not meet their burden to demonstrate diversity of citizenship on their notice of removal and 2) complete diversity does not exist between plaintiffs and all defendants because of the presence of three hundred underwriters who are citizens of either Delaware, Texas or California. (D.I. 60 at 11)

Upon removal from the Delaware Superior Court, defendants asserted that this court had jurisdiction over said action "pursuant to 28 U.S.C. § 1332, since there is complete diversity between the plaintiffs and the defendants and the amount in controversy exceeds the sum of $50,000, exclusive of interest and costs." (D.I. 1 at 1) Section 1332 confers original subject matter jurisdiction to federal courts when the matter in controversy exceeds $50,000 and when the civil suit is between, inter alia:

(1) citizens of different States;
(2) citizens of a State and citizens or subjects of a foreign state;
(3) citizens of different States and in which the citizens or subjects of a foreign state are additional parties....

28 U.S.C. § 1332(a). It is axiomatic that there must be complete diversity of citizenship between plai...

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