Counter v. Osting-schwinn

• Decision Date: 05 August 2010
• Docket Number: No. 08-15809.,08-15809.
• Parties: UNDERWRITERS AT LLOYD'S, LONDON, Plaintiff-Counter-Defendant-Appellee, v. Carol OSTING-SCHWINN, as parent and legal guardian of C.O., a minor, Defendant-Counter-Claimant-Appellant.
• Court: U.S. Court of Appeals — Eleventh Circuit

613 F.3d 1079

UNDERWRITERS AT LLOYD'S, LONDON, Plaintiff-Counter-Defendant-Appellee,

v.Carol OSTING-SCHWINN, as parent and legal guardian of C.O., a minor, Defendant-Counter-Claimant-Appellant.

No. 08-15809.

United States Court of Appeals,Eleventh Circuit.

Aug. 5, 2010.

COPYRIGHT MATERIAL OMITTED.

Shea T. Moxon, Dale Swope, Swope Rodante, P.A., Tampa, FL, for Osting-Schwinn.

Sorraya Solages, Melissa M. Sims, William Stewart Berk, Berk, Merchant & Sims, PLC, Coral Gables, FL, for Underwriter's at Lloyd's London.

Appeal from the United States District Court for the Middle District of Florida.

Before MARCUS and HILL, Circuit Judges, and VOORHEES, ^* District Judge.

MARCUS, Circuit Judge:

At issue in this appeal is whether syndicates of insurance underwriters who do business in the international insurance marketplace known as Lloyd's of London (“Lloyd's”) must plead the citizenship of each of their underwriting members to establish diversity jurisdiction pursuant to 28 U.S.C. § 1332. Faced with a state court negligence suit against one of their policy-holders, the Lloyd's syndicates filed the diversity action underlying this appeal, seeking a declaratory judgment that the lawsuit was barred by a prior settlement. Although the syndicates disclosed only the “lead underwriter's” citizenship, the district court denied the defendant's motion to dismiss for lack of subject matter jurisdiction. It then granted summary judgment for the plaintiff Underwriters on the settlement issue. The defendant challenges both rulings here, but the jurisdictional issue is dispositive. A wealth of Supreme Court precedent yields the conclusion that the Lloyd's syndicates, as unincorporated associations, must plead the citizenship of each of their members. Because the syndicates did not do so, they failed to establish diversity jurisdiction. We, therefore, reverse the judgment of the district court and remand the case for further proceedings consistent with this opinion.

I.

A.

The critical facts relevant to this appeal are drawn from the record on the Rule 12(b)(1) motion to dismiss and the Rule 56 motion for summary judgment. See Fed.R.Civ.P. 12(b)(1) and 56. On May 7, 2002, Carol Osting-Schwinn's minor son, C.O., 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. C.O. sustained serious physical injuries and his mother filed an insurance claim. The relevant underwriting syndicates at Lloyd's became aware of the claim in the fall of 2004 and offered to settle it. On May 25, 2005, Osting-Schwinn's attorneys sent a settlement offer to the syndicates, offering to release all claims in exchange for a check for the full policy limits and the information disclosures required by Fla. Stat. § 627.4137. The syndicates accepted the settlement offer on May 31, 2005, sending four checks in the amount of the policy limits, along with affidavits and a copy of the Rockhills' policy intended to satisfy the disclosure requirements of the Florida statute.

After several letters between the syndicates and Osting-Schwinn's attorneys, however, Osting-Schwinn returned the settlement checks, claiming that the syndicates had failed to properly disclose information about other known insurers and to send an adequate copy of the insurance policy, all in violation of Florida law. Osting-Schwinn then filed a negligence action on behalf of her son against Michael Rockhill, Jr., and Michael Rockhill, Sr., in Florida Circuit Court in July 2005. Complaint, Osting-Schwinn v. Rockhill, Case No. 05-6257 (Fla.Cir.Ct. July 21, 2005). In response, the underwriting syndicates commenced this diversity action in the United States District Court for the Middle District of Florida on August 5, 2005, seeking a declaratory judgment pursuant to 28 U.S.C. § 2201 that the parties had reached a valid settlement. ¹ The syndicates twice amended their complaint to address issues of citizenship for purposes of diversity jurisdiction. Those issues are at the heart of this appeal, but to understand them, we must detour briefly to examine the peculiar institutional structure of Lloyd's of London, the underwriters and syndicates that use it to broker insurance, and the structure of liability that it creates.

B.

The Society of Lloyd's, London, is not an insurance company, but rather a British organization that provides infrastructure for the international insurance market. Originating in Edward Lloyd's coffee house in the late seventeenth century, where individuals gathered to discuss insurance, the modern market structure was formalized pursuant to the Lloyd's Acts of 1871 and 1982. Lloyd's Act, 1871, 34 Vict., c. 21, pmbl.; Lloyd's Act, 1911, 1 & 2 Geo. V, c. 62; Lloyd's Act, 1951, 14 & 15 Geo. VI, c. 8; Lloyd's Act, 1982, c. 14. 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; they sign up for certain percentages of various risks across several policies. Once admitted to the Society of Lloyd's, each Name is subject to a number of bylaws and regulations ensuring that he or she is solvent and “that at all times there are available sufficient funds” to pay all claims. See, e.g., Lloyd's Act, 1982, c. 14 § 8. Critical to the diversity jurisdiction question, Names are not only British citizens, but may be of many nationalities. Lloyd's Act, 1982, c.14, pmbl. (5).

Names underwrite insurance through administrative entities called syndicates, which cumulatively assume the risk of a particular policy. In this case, syndicates 861, 1209, and 588 subscribe to the Rockhills' policy. The syndicates are not incorporated, but are generally organized by Managing Agents, which may or may not be corporations. The Managing Agents determine the underwriting policy for the syndicate and accept risks on its behalf, retaining a fiduciary duty toward the underwriting Names. As mere administrative structures, the syndicates themselves bear no risk on the policies that they underwrite; the constituent Names assume individual percentages of underwriting risk. The Names are not liable for the risks that the other Names assume. Lloyd's Act, 1982, c. 14 § 8(1). Names purchase insurance through underwriting agents. Lloyd's Act, 1982, c. 14 § 8(2).

Lead underwriters, or active underwriters, serve as the public faces for particular syndicates. In this case, the lead underwriter is Dornoch, Ltd. Second Amended Complaint at 2, ¶ 2, Underwriters at Lloyd's, London v. Osting-Schwinn, No. 8:05-CV-1460 (M.D.Fla. Nov. 18, 2005). This underwriter is usually the only Name disclosed on the policy, although the Lloyd's Policy Signing Office keeps records on the identity of each Name underwriting a policy. In the event of a suit over a Lloyd's policy, the lead underwriter is often named specifically in the suit. See, e.g., E.R. Squibb & Sons, Inc. v. Accident & Cas. Ins. Co., 160 F.3d 925 (2d Cir.1998) (naming Allan Peter Dennis Haycock, lead underwriter, in the suit); Hilton Oil Transport v. Jonas, 75 F.3d 627 (11th Cir.1996) (naming lead underwriter T.E. Jonas in a suit over marine insurance).

Crucially, each Name's liability is several and not joint. Thus, the Lloyd's Act of 1982 provides that an “underwriting member shall be a party to a contract of insurance underwritten at Lloyd's only if it is underwritten with several liability, each underwriting member for his own part and not one for another, and if the liability of each underwriting member is accepted solely for his own account.” Lloyd's Act, 1982, c.14, § 8(1). See also Lloyd's Act, 1871, c. 14 § 40 (“Nothing in this Act shall confer limited liability on the members of the Society, or in any manner restrict the liability of any member thereof in respect of his individual undertakings, or make any member of the Society as such responsible in any manner for any of the undertakings, debts, or liabilities of any other member of the Society as such, or affect or interfere with or empower the Society or the Committee to interfere with any business whatever other than the business of insurance carried on by any member of the Society.”). Through contractual agreement, the other Names that are members of the underwriting syndicates on the policy remain liable for their proportional share of any adverse judgments. As is typical, the Rockhills' contract has a provision explaining that “in any suit instituted against any one of them upon this contract, Underwriters will abide by the final decision of such Court or of any Appellate Court in the event of an appeal.” Thus, the legal relationship between the Names and the insured is a vertical one: it is the individual Names, not the syndicate, who are directly liable in the event of loss, as if each Name had a contract with the insured.

C.

The Lloyd's syndicates' first complaint in this case asserted that “[t]his is an action based upon diversity of citizenship brought by Underwriters against Carol Osting-Schwinn for specific performance of a contract....” Complaint at 1, Underwriters at Lloyd's, London v. Osting-Schwinn, No. 8:05-CV-1460 (M.D.Fla. Aug. 5, 2005). The initial complaint did not include any information about the plaintiffs' citizenship. The first amended complaint again claimed diversity jurisdiction, but this time included the following information identifying the plaintiff: “Underwriters subscribe to policy number UT01AS83, issued under Certificate number LLMH00447, the named insured of which is Rockhill. Underwriters are citizens of the United Kingdom.” Amended Complaint at 2, Underwriters at Lloyd's, London v. Osting-Schwinn, No. 8:05-CV-1460 (M.D.Fla. Oct. 18, 2005). Finally, the second amended complaint added information about the lead underwriter's citizenship: “The lead underwriter, Dornoch Ltd., is a company incorporated under the laws of the United Kingdom and having its...