Landoil Resources Corp. v. Alexander & Alexander Services, Inc.

• Decision Date: 20 November 1990
• Citation: 565 N.E.2d 488,77 N.Y.2d 28,563 N.Y.S.2d 739
• Court: New York Court of Appeals Court of Appeals
• Parties: , 565 N.E.2d 488 LANDOIL RESOURCES CORPORATION, Plaintiff, v. ALEXANDER & ALEXANDER SERVICES, INC., et al., Defendants and Third-Party Plaintiffs. Lloyd's Syndicate 317 et al., Third-Party Defendants.

Page 739

563 N.Y.S.2d 739

77 N.Y.2d 28, 565 N.E.2d 488

LANDOIL RESOURCES CORPORATION, Plaintiff, v. ALEXANDER & ALEXANDER SERVICES, INC., et al., Defendants and Third-Party Plaintiffs Lloyd's Syndicate 317 et al., Third-Party Defendants.

Court of Appeals of New York.

Nov. 20, 1990.

[77 N.Y.2d 30] John M. Woods and Joseph G. Grasso, New York City, for Lloyd's Syndicate 317, third-party defendants.

Jonathan C. Thau, Thomas W. Hyland, Thomas A. Leghorn and Michael Schwartzberg, New York City, for defendants and third-party plaintiffs.

OPINION OF THE COURT

SIMONS, Judge.

Plaintiff Landoil Resources Corporation, a Philippine construction company, instituted this action against defendants Alexander & Alexander Services, Inc., et al. (Alexander),) a group of United States corporations engaged in the insurance brokerage business. It sought to recover damages allegedly sustained as a result of defendants' wrongful acts in acquiring two policies of political risk insurance to cover plaintiff's foreign projects. Alexander had secured the insurance from Lloyd's of London. Accordingly, it asserted third-party claims for indemnification and contribution against Lloyd's Syndicate 317, a group of insurance underwriters who conduct their underwriting business at Lloyd's.

The matter comes to us from the United States Court of Appeals for the Second Circuit, which certified the question of whether Syndicate 317 is "doing business" in New York and therefore subject to personal jurisdiction under CPLR 301 (see, 22 NYCRR 500.17). 902 F.2d 165. We accepted the certified question and now answer it in the negative.

I

Before addressing the question, it is important to understand how Lloyd's of London conducts its business.

The Corporation of Lloyd's is a nonprofit corporation created by a Special Act of Parliament in 1871. It does no underwriting, but instead provides services to members who perform underwriting in their individual capacities. The individual members transact their business in groups called syndicates, managed by agents who in turn employ an active underwriter to handle the business for the syndicate. The managing agent keeps the syndicate's books while the active underwriter accepts or rejects the risks submitted for underwriting, collects premiums, pays losses and disburses all funds. All the syndicates conduct their business at the market place known as Lloyd's of London located at One Lime Street, London, England.

Lloyd's policies can only be obtained by registered Lloyd's brokers who have been appointed either by the prospective insured or by the insured's non-Lloyd's broker. In placing policies, a registered Lloyd's broker prepares a "slip" which states the details of the insurance required and then offers the risk to the active underwriters. Any underwriter who wishes to underwrite all or a portion of the risk indicates this on the slip. Once the entire risk has been subscribed, the Lloyd's broker informs its principal that the insurance has been effected. A policy is prepared by Lloyd's Policy Signing Office, a department of the Corporation of Lloyd's, and the transaction is consummated.

Landoil's policies were obtained in this manner. In 1982 and 1983 it requested Alexander to acquire political risk insurance policies covering its operations in the Middle East and Africa. Since Alexander was not a registered Lloyd's broker, the policies had to be negotiated in London between an appointed Lloyd's broker and certain Lloyd's underwriters. Alexander secured the insurance from a group of Lloyd's underwriters, including Syndicate 317.

Subsequently, disputes arose between Landoil and the various underwriters, including Syndicate 317, over the coverage of certain losses. The claims were settled following arbitration proceedings in London to which Alexander was not a party. Landoil then instituted this action against Alexander in the United States District Court to recover the balance of its loss. Alexander filed a third-party complaint for indemnification and contribution against Syndicate 317 and other Lloyd's underwriters alleged to have subscribed to Landoil's policies and Syndicate 317 responded by filing the motion to dismiss the third-party complaint for lack of personal jurisdiction. ¹ The District Court denied the motion to dismiss, holding that Syndicate 317 was "doing business" in New York within the meaning of CPLR 301 (Landoil Resources Corp. v. Alexander & Alexander, 720 F.Supp. 26).

The court rested its decision on the existence of a fund held in trust at Citibank in New York City by the Corporation of Lloyd's. The fund, known as the American Trust Fund (Fund), was originally established in 1940 to provide security to United States policyholders during World War II, when England was under siege by Germany. It consists of United States dollar premiums collected worldwide by Lloyd's brokers and subsequently transferred through Lloyd's accounting system in London to Citibank in New York. The Fund is used to pay American claims underwritten by Lloyd's. It also serves as security for New York insureds pursuant to New York Insurance Department regulations which provide that a New York broker or insurance company cannot place New York risks with an unauthorized alien or foreign insurer unless it has ascertained that such insurer maintains a trust fund at a New York bank, in an amount specified by regulation, as security for the insured (see, 11 NYCRR 27.5[a][1][ii]; see also, 125.4[c]. Thus, the Fund enables New York brokers and insurance companies to submit risks to Lloyd's underwriting syndicates which are not authorized to write insurance in New York. The Lloyd's underwriters do not directly deposit or withdraw any moneys from the Fund, but a portion of United States dollar premiums attributable to risks underwritten by groups such as Syndicate 317, including some derived from New York insureds and risks, are part of its assets. The Fund is administered by the Finance & Market Services Group (FMSG), one of Lloyd's administrative departments and, as of December 31, 1988, it had $9.4 billion dollars on deposit at Citibank.

From these facts, the District Court concluded that FMSG "is performing a service in New York" on behalf of Syndicate 317, by administering--from London--the Lloyd's American Trust Fund. Inasmuch as the assets of the Fund were in the billions of dollars, the court inferred that the underwriting was substantial and that these activities constituted "doing business" in this State. The court did not rest its ruling on activities of Syndicate 317 in New York, observing that "in the traditional sense of the phrase, they do not themselves 'do business' anywhere except in London." (Landoil Resources Corp. v. Alexander & Alexander, 720 F.Supp. 26, 27, supra.) Syndicate 317 appealed to the Second Circuit Court of Appeals and that court certified the question to us. We conclude that Syndicate 317 is not subject to in personam jurisdiction in New York State.

II

A foreign corporation is amenable to suit in New York courts under CPLR 301 if it has engaged in such a continuous and systematic course of "doing business" here that a finding of its "presence" in this jurisdiction is warranted (Laufer v. Ostrow, 55 N.Y.2d 305, 309-310, 449 N.Y.S.2d 456, 434 N.E.2d 692; Frummer v. Hilton Hotels Intl., 19 N.Y.2d 533, 536, 281 N.Y.S.2d 41, 227 N.E.2d 851; Simonson v. International Bank, 14 N.Y.2d 281, 285, 251 N.Y.S.2d 433, 200 N.E.2d 427; accord, Delagi v. Volkswagenwerk AG, 29 N.Y.2d 426, 430-431, 328 N.Y.S.2d 653, 278 N.E.2d 895). The test for "doing business" is a "simple [and] pragmatic one," which varies in its application depending on the particular facts of each case (see, Bryant v. Finnish Natl. Airline, 15 N.Y.2d 426, 432, 260 N.Y.S.2d 625, 208 N.E.2d 439; see generally, Siegel, N.Y.Prac. §§ 82, 83). The court must be able to say from the facts that the corporation is "present" in the State "not occasionally or casually, but with a fair measure of permanence and continuity" (Tauza v. Susquehanna Coal Co., 220 N.Y. 259, 267, 115 N.E. 915; see also, Laufer v. Ostrow, 55 N.Y.2d 305, 310, 449 N.Y.S.2d 456, 434 N.E.2d 692, supra). That test is not satisfied by the evidence in the record before us.

Alexander's submission focuses on three general areas.

A

First, Alexander contends that Syndicate 317 is doing business in New York because it underwrites policies for New York insureds and risks. Such activity standing alone, however, will not support jurisdiction. In Delagi v. Volkswagenwerk AG, 29 N.Y.2d 426, 433, 328 N.Y.S.2d 653, 278 N.E.2d 895, supra, we held that "mere sales of a manufacturer's product in New York, however substantial, have never made the foreign corporation manufacturer amenable to suit in this jurisdiction." Delagi involved a German automobile manufacturing corporation which sold its vehicles to a New Jersey importing corporation, a wholly owned subsidiary, which in turn sold them to a corporate wholesale distributor in New York owned by American investors. We concluded that the manufacturer, which was not qualified to do business in this State and did not have an office or place of business here, was not subject to jurisdiction because it had not engaged in a systematic and regular course of business in New York (Delagi v. Volkswagenwerk AG, 29 N.Y.2d 426, 328 N.Y.S.2d 653, 278 N.E.2d 895, supra).

Similarly, the sale of insurance policies in New York, which are underwritten by a group of unauthorized foreign underwriters, does not, without more, support a finding that the underwriters are engaging in a systematic and regular course of business in New York (cf., Bryant v. Finnish Natl. Airline, 15 N.Y.2d 426, 430, 432, supra [office, staff and bank account in New York constituted doing business]; Tauza v....