Allen v. Lloyd's of London
| Decision Date | 03 September 1996 |
| Docket Number | No. 96-2158,96-2158 |
| Citation | 94 F.3d 923 |
| Parties | Fed. Sec. L. Rep. P 99,306 Louis F. ALLEN; Carl K. Baker; Joyce P. Baker; Peter D. Berrington; Oliver Birckhead; Florence Blaustein, Mary L. Bray; T.K. Brooker; Donald J. Brooks; Joseph Callaghan; James Cassel; Terry G. Chapman; J.A. Clawson; John K. Colvin; Fred B. Cox; John Rawlyn; Charles Crabtree; Christopher P. Clup; Gordon C. Davidson; Rutherford Day; Donald D. Doty; M.D.A. Emblin; Audrey Fisher; Donald B. Gimbel; Kenneth J. Gimbel; Katherine Gooch; B.G. Harrison; Yumiko Honda; Herbert W. Hoover, III; Margaret W. Jones; Donald K. Kent; E.R. Kinnebrew, III; Walter J. Levy; Roland Ley; Suzanne Rhulen Loughlin; George C. Lyman, Jr.; Charles P. Lyon; Michael L. McDermott; Robert T. McInerny; Arthur G. Michels; Walter P. Muskat; Walter W. Muskat; A.D. Pistilli; Robert A. Posner; Judson P. Reis; Harry W. Rhulen; Walter A. Rhulen; J.O. Ricke; E. Joy Rose; Mark S. Rose; A.F. Smith; Own B. Tabor; Allen M. Taylor; Trude C. Taylor; Karl Aronson; Joan R. Farrow and Jonathan M. Farrow for the Estate of Jesse M. Farrow; Jack Fleck; Marilyn Franckx; Isabel L. Gallagher; Jennifer A. Gallagher; Mary Claire Gallagher; Robert E. Gallagher; Robert E. Gallagher, Jr.; Thomas J. Gallagher; Thomas H. Green; Henry G. Hager; Thornton Hutchins; Vince A. Konen; C.C. Lucas; Herbert A. Middendorff; Robert S. Denebeim; Dana Fisher, Sr.; William Alexander Florence; Anne M. Gallagher; J. Patrick Gallagher; Mark E. Gallagher; Mary Claire Gallagher as Executrix for John P. Gallagher; Katherine Gallagher Goese; Allen S. Green; Robert W. Hatch; Mary Clair G. Johnson; Thomas V. Leeds; Guy A. Main; Eugene F. Middlekamp; Michael Montana; Barbara H. Pisani; Richard B. Sanders; Jack R. Taylor; Ken Noack; Robert L. Pisani; Larry D. Stroup; Neville G. Williams, Plaintiffs--Appellees, v. LLOYD'S OF LONDON, an unincorporated association; Corporation of Lloyd's, a/k/a Society and Council of Lloyd's; Council of Lloyd's, Defendants--Appellants, and Equitas Holdings Limited; Equitas Reinsurance Limited; Equit |
| Court | U.S. Court of Appeals — Fourth Circuit |
ARGUED: Harvey L. Pitt, Fried, Frank, Harris, Shriver & Jacobson, New York City, for Appellants. Alexander Stephens Clay, IV, Kilpatrick & Cody, Atlanta, Georgia, for Appellees. ON PLEADINGS: Michael H. Rauch, Bonnie Steingart, Fried, Frank, Harris, Shriver & Jacobson, New York City; Cynthia T. Andreason, LeBoeuf, Lamb, Greene & MacRae, L.L.P., Washington, DC; Henry H. McVey, Warren E. Zirkle, Darryl S. Lew, McGuire, Woods, Battle & Boothe, L.L.P., Richmond, Virginia, for Appellants. Richard R. Cheatham, Susan A. Cahoon, Stephen E. Hudson, Christopher B. Lyman, Kilpatrick & Cody, Atlanta, Georgia; Conrad M. Shumadine, Walter D. Kelley, Jr., Willcox & Savage, Norfolk, Virginia, for Appellees. Timothy M. Kaine, Rhonda M. Harmon, Mezzullo & McCandlish, Richmond, Virginia, for Amicus Curiae Association of Lloyd's Members. Mark R. Joelson, Joseph P. Griffin, Thomas J. O'Brien, Morgan, Lewis & Bockius, L.L.P., Washington, DC, for Amicus Curiae United Kingdom. Ronald A. Jacks, David M. Spector, Mayer, Brown & Platt, Chicago, Illinois, for Amicus Curiae NAIB; Martin Shulman, Paul H. Falon, Manatt, Phelps & Phillips, L.L.P., Washington, DC; Richard A. Brown, Leonard D. Venger, Donald R. Brown, Manatt, Phelps & Phillips, L.L.P., Los Angeles, California; William W. Palmer, General Counsel, California Department of Insurance, San Francisco, California, for Amicus Curiae Insurance Commissioners.
Before NIEMEYER, MICHAEL, and MOTZ, Circuit Judges.
Reversed and remanded by published opinion. Judge NIEMEYER wrote the opinion, in which Judge MICHAEL and Judge MOTZ joined.
In 1995, Lloyd's of London announced a $22 billion "Plan for Reconstruction and Renewal" to restructure the Lloyd's market's reinsurance needs and to revitalize the market. The Plan included an offer by Lloyd's managers to settle, for $4.8 billion, all intra-market disputes, including existing and potential lawsuits by "Names," members of the Lloyd's market who underwrite insurance there. Ninety-three American Names filed this action in the Eastern District of Virginia under United States securities laws to compel Lloyd's to disclose more financial information about its proposed plan. The Names also sought a preliminary injunction prohibiting Lloyd's from forcing American Names to make "an irrevocable election respecting their investment" by an August 28, 1996 deadline established by Lloyd's.
Applying United States securities laws, the district court granted the Names' motion for a preliminary injunction on August 23, 1996. The court directed Lloyd's to make disclosures as required by § 14(a) of the Securities Exchange Act of 1934 by September 23, 1996, and prohibited Lloyd's from taking steps to collect any amounts from American Names pending completion of the disclosure and review process. The court also scheduled a trial on the merits for November 4, 1996.
Lloyd's appealed the district court's preliminary injunction and sought expedited review because Names wishing to accept the settlement proposal that Lloyd's offered as part of its Plan were required to advise Lloyd's of their decision by noon on August 28, 1996. We scheduled oral argument for August 27, 1996, and, following argument, entered the following order from the bench, reversing the district court:
On the motion of appellants to stay the district court's injunction entered August 23, 1996, and upon consideration of the briefs, papers, and extensive arguments of counsel, the court grants the motion. Because the court's decision rests on its determination, to be articulated in a later opinion, that the contractual provisions among the parties selecting the law of and a forum in the United Kingdom should be enforced, we reverse and remand this case with instructions that the district court dismiss it.
This opinion provides the reasoning for our order.
Lloyd's of London manages an insurance market that was created over 300 years ago in a London coffee shop to insure shipping risks. The market today is a large, complex arrangement under which "Names," who as members of the Society of Lloyd's become members in the market, join individual underwriting syndicates formed to insure a broad range of risks. Managing agents assemble the syndicates, collect premiums from the insureds, assess the Names, manage the risks, and provide annual accountings to the Names. The underwriting capital for each syndicate is supplied by cash advanced by the Names, and excess losses--those that exceed the premiums paid--are insured by the Names' commitment to pay losses from their personal assets "down to their last cufflinks." The integrity of the market is also assured by a Central Fund, created from assessments of Names, which the market's managing body, the Council of Lloyd's, controls and maintains to disburse to insureds when Names default.
The Lloyd's market is governed by a series of acts of Parliament, enacted over the last 100 years, authorizing the Council of Lloyd's to adopt rules and bylaws to regulate the market. As a condition of their membership in the Society, Names are required to execute a "General Undertaking," by which they agree to comply with the controlling acts of Parliament as well as the rules and bylaws of Lloyd's.
Over 34,000 Names from 80 different countries participate in the Lloyd's market; 3,000 Names are Americans. While individuals are solicited in countries other than the United Kingdom, each prospective Name is required to travel to London to participate in a personal interview during which the Name's financial commitment is explained. Names are advised that they undertake unlimited personal liability for their respective shares of the risks insured by the policies they underwrite and that they cannot resign from the market until all such obligations have been discharged. They are also advised that any disputes over their participation in the market must be resolved in British courts according to British law.
The Lloyd's market operates under a three year accounting cycle. At the end of the third year after a syndicate is formed, underwriting profits and losses for each syndicate year are calculated, and the estimated liabilities are routinely reinsured by another syndicate. Through this process, Lloyd's reinsures undischarged risks to close the account. When the magnitude of potential liabilities for a syndicate cannot reasonably be estimated at the end of three years, the syndicate cannot reinsure them, and the participating Names remain liable on their undertaking.
During the late 1980's and early 1990's, unanticipated losses from asbestosis and pollution claims, together with a string of catastrophic events such as Hurricane Hugo and the bombing of Pan Am Flight 103, caused losses far greater than the amounts of premiums that had been collected. By Lloyd's estimation, the excess losses for the years before 1993 will total approximately $22 billion.
As losses mounted, intra-market disputes arose. Names accused managing agents and underwriters of mismanagement in assessing risks and even fraud in assessing and disclosing the risks to Names choosing syndicates. A considerable number of Names also became unable or unwilling to satisfy their obligations and began to incur debts to the Central Fund, and the ensuing litigation made it difficult for the Central Fund to collect from non-paying Names. The integrity and viability of the entire Lloyd's market was thus called into doubt.
To restore the integrity of its market, Lloyd's embarked on a massive and complex effort to develop a restructuring plan....
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