Graham v. Lloyd's of London, 1197

• Decision Date: 18 May 1988
• Docket Number: No. 1197,1197
• Citation: 296 S.C. 249,371 S.E.2d 801
• Court: South Carolina Court of Appeals
• Parties: Rodney GRAHAM, d/b/a Cheap Charlie's Fireworks, Respondent, v. LLOYD'S OF LONDON, Underwriters of Lloyd's, Lee Pittillo, and Crawford and Company, Defendants, of whom All Those Certain Underwriters Who Do Not Subscribe To Policy # 834/58883/84 are Appellants-Respondents, and of whom All Those Certain Underwriters and International Insurers Subscribing To Policy # 834/58883/84 are Respondents-Appellants. . Heard

Page 801

371 S.E.2d 801

296 S.C. 249

Rodney GRAHAM, d/b/a Cheap Charlie's Fireworks, Respondent, v. LLOYD'S OF LONDON, Underwriters of Lloyd's, Lee Pittillo, and Crawford and Company, Defendants,

of whom All Those Certain Underwriters Who Do Not Subscribe

To Policy # 834/58883/84 are Appellants-Respondents,

and of whom All Those Certain Underwriters and International

Insurers Subscribing To Policy # 834/58883/84 are

Respondents-Appellants.

No. 1197.

Court of Appeals of South Carolina.

Heard May 18, 1988.

Decided Aug. 1, 1988.

William E. Lawson of McCutcheon, McCutcheon & Baxter, Conway, for appellants-respondents.

Stanley D. Copeland of Batten & Batten, P.A., Surfside Beach, for respondent.

Willard D. Hanna, Jr. and Dennis H. Smith of Joseph, Harris, Hanna & Corbett, Surfside Beach, and David M. Leonard, of Lord, Bissell & Brook, Atlanta, Ga., for respondents-appellants.

BELL, Judge:

This appeal presents the question: "What's in a name?"

Some factual background is necessary to understand the case. ¹ In late 1984, Rodney Graham approached an American insurance brokerage named Drayton Insurance Brokers, Inc., seeking coverage for the building and contents of a business known as Cheap Charlie's Fireworks. The building was located in Surfside Beach, South Carolina. Drayton procured coverage through Alexander Howden Limited, Lloyd's Brokers, at Lloyd's, London. Cover Notes ² from Howden to Drayton indicated that the insurance was effected under Policy No. 834/58883/84. The sum insured was US$ 300,000. The period of insurance was twelve months from 6th November, 1984. The Cover Notes disclosed that 52.0835% of the risk was underwritten by "LLOYDS UNDERWRITERS" and 47.9165% by six named insurance companies. Graham paid a premium of US$ 12,500, for the insurance.

On October 27, 1985, while the insurance was in effect, Cheap Charlie's Fireworks suffered a fire. Graham filed for the full sum insured, claiming a total loss of the building and contents. The Underwriters advised him that they adjusted the loss at US$ 185,000, i.e., US$ 100,000 to replace the building and US$ 85,000 for the contents. The insurers paid and Graham accepted US$ 185,000, subject to a reservation of rights by all parties. No agreement was reached on the remainder of the claim.

The dispute between Graham and the insurers turns on whether the building was a total loss within the meaning of the policy. The insurers refuse to pay the full sum insured because the concrete slab upon which the building was erected survived the fire. They maintain the building can be reconstructed on the same slab at a replacement cost substantially less than the full sum insured. As a result of the dispute over the character of the loss, Graham commenced this suit.

In his complaint, Graham names "Lloyd's of London" and "Underwriters at Lloyd's" as parties defendant. One Henry Ralph Rokeby-Johnson, an underwriter at Lloyd's, answered the complaint for himself, for those other Underwriters at Lloyd's, London, Subscribing to Insurance Policy No. 834/58883/84, and also for certain insurance companies subscribing to Insurance Policy No. 834/58883/84. He admitted the jurisdiction of the court over himself and the Subscribing Underwriters and Companies. He denied, however, that the court had jurisdiction over any such entities as Lloyd's of London or Underwriters at Lloyd's. He also denied that Graham effected valid service of process upon Lloyd's of London or Underwriters at Lloyd's. The Subscribing Underwriters and Companies filed a motion to correct the parties in the suit.

Another group of Lloyd's Underwriters, styling themselves as "All Those Certain Underwriters Who Do Not Subscribe To Policy # 834/58883/84," filed a motion to dismiss pursuant to Rules 12(b)(2) and 12(b)(5), S.C.R.Civ.P. These Nonsubscribing Underwriters maintain that "Lloyd's of London" and "Underwriters at Lloyd's" are not subject to suit collectively in this case. They also assert that the circuit court has no personal jurisdiction over them and that service of process was ineffectual as to them.

The circuit court denied the motions to dismiss the action and to correct parties. The Nonsubscribing Underwriters and the Subscribing Underwriters and Companies appeal. We affirm.

I.

Much argument of counsel is consumed with what, exactly, the name "Lloyd's" denotes. The Nonsubscribing Underwriters rely primarily on an affidavit of Lloyd's American general counsel to support their position that Lloyd's is not a legal entity. ³

According to the affidavit, the underwriters at Lloyd's are a group of natural persons who provide an insurance market for the placement of risks. The individual underwriters belong to more than 400 syndicates. The day to day affairs of each syndicate are conducted by an underwriter who has authority to act for and bind each individual underwriter in the syndicate.

A policy of insurance is procured through a specially designated London insurance broker, known as a "Lloyd's broker," who first obtains the agreement of one syndicate to insure a portion of the risk. On the strength of the agreement with this "lead syndicate," the Lloyd's broker then obtains the agreement of other syndicates to insure the remaining portion of the risk. By the terms of the "Lloyd's Policy" issued to the insured, the members of the subscribing syndicates bind themselves "each for his own part and not one for another" for that portion of the risk to which they individually subscribe.

At times a broker is unable to place 100% of the risk with the underwriters at Lloyd's. When this happens, the broker places the remaining portion of the risk with insurance companies doing business in London.

The Nonsubscribing Underwriters tell us that "Lloyd's" is not an insurance company, as many believe; that it is not a corporation, an association, or a society. They insist that "Lloyd's" is a market, a place where individual underwriters do business. The name "Lloyd's," they contend, is simply a servicemark used by the underwriters at Lloyd's, London; it does not designate a juridical entity.

Graham, on the other hand, tells us that "Lloyd's" most certainly is an association or enterprise engaged in the insurance business. He tells us that "Lloyd's" has members, officers, and a governing committee; that an insurance policy headed "Lloyd's Policy" and sealed with a "Lloyd's" seal was issued to Graham through "Lloyd's Policy Signing Office" by its General Manager; that "Lloyd's" has an American general counsel in New York; that "Lloyd's" maintains bank accounts in its name in this country.

A.

The name "Lloyd's" has been aptly likened to a period costume--handed down from the world of Sir Christopher Wren, Samuel Pepys, and Edward Lloyd's coffee house--which is donned to conceal the inner workings of an ever changing institution whose members engage in the unsentimental pursuit of profits. ⁴ The costume cloaks a multitude of activities, including shipping intelligence, insurance brokering, and underwriting. Historically, it has served as a convenient baffle against outside attempts to regulate the business of its members. For purposes of this appeal, it is unnecessary to discover every use to which the costume is put. We are concerned with the narrow issue of whether "Lloyd's" is a name under which an insured may sue to enforce a Lloyd's Policy of insurance.

B.

The Nonsubscribing Underwriters contend they cannot be sued as an unincorporated association, because the Lloyd's Policy expressly provides for individual liability only. Although their liability to indemnify Graham may be controlled by the policy--a question to be decided on the merits and not at the jurisdictional stage of the suit--their capacity to be sued is a question of the law of South Carolina. Rule 17(b), S.C.R.Civ.P.

An unincorporated association is a body of individual persons organized without a charter for the prosecution of some common enterprise. Meinhart v. Contresta, 194 N.Y.S. 593 (1922). It is not a legal entity separate from the persons who compose it. Id.; see Medlin v. Ebenezer Methodist Church, 132 S.C. 498, 129 S.E. 830 (1925). In the eye of the common law, the association itself is an "airy nothing," a "nonexistent legal ghost having no capacity to enjoy legal rights or to suffer legal wrongs." Venus Lodge No. 62 v. Acme Benevolent Ass'n, Inc., 231 N.C. 522, 527, 58 S.E.2d 109, 113 (1950); see also Medlin v. Ebenezer Methodist Church, supra. For that reason, an unincorporated association cannot be sued in its own name at common law. See Medlin v. Ebenezer Methodist Church, supra.

The common law has been modified by statute in South Carolina. Section 15-5-160, Code of Laws of South Carolina, 1976, provides:

All unincorporated associations may be sued and proceeded against under the name and style by which they are usually known without naming the individual members of the association.

The statute does not alter the substantive rule that an unincorporated association has no legal capacity as such. See Medlin v. Ebenezer Methodist Church, supra. It does, however, provide a convenient procedure by which a plaintiff can bring the members of an association before the court without naming and serving process upon them individually. Id. ⁵ Once they are before the court, the liability of the members of the association, if any, is determined by the applicable substantive law. The statute neither creates nor destroys any substantive liabilities. Id.

Simply because the Lloyd's Policy may bind only individual Lloyd's underwriters does not mean that Lloyd's is not an association within the meaning of the statute. In our view, the law was correctly stated in the leading case of Hoadly v. Purifoy, 107 Ala. 276, 289, 18 So. 220, 223 (1895):

Each underwriter is individually liable for a fixed amount, but not for the whole, or for any part of another underwriters [sic] liability, yet all act together to effect the contract...