Landoil Resources Corp. v. Alexander & Alexander

• Decision Date: 11 October 1989
• Docket Number: No. 87 Civ. 8133 (WK),87 Civ. 8133 (WK)
• Citation: 720 F. Supp. 26
• Parties: LANDOIL RESOURCES CORPORATION, Plaintiff, v. ALEXANDER & ALEXANDER SERVICES INC., Alexander & Alexander Inc., and Alexander & Alexander of New York Inc., Defendants. ALEXANDER & ALEXANDER SERVICES INC., Alexander & Alexander Inc., and Alexander & Alexander of New York Inc., Third-Party Plaintiffs, v. CERTAIN UNDERWRITERS AT LLOYD'S OF LONDON SUBSCRIBING TO INSURANCE AGREEMENT MA8255049 and an Unnumbered Insurance Agreement With an Effective Date of July 1, 1982, Sedgwick International Limited and/or Sedgwick Marine Limited and/or Other Entities in the Sedgwick Group P.L.C., Third-Party Defendants.
• Court: U.S. District Court — Southern District of New York

720 F. Supp. 26

LANDOIL RESOURCES CORPORATION, Plaintiff, v. ALEXANDER & ALEXANDER SERVICES INC., Alexander & Alexander Inc., and Alexander & Alexander of New York Inc., Defendants.

ALEXANDER & ALEXANDER SERVICES INC., Alexander & Alexander Inc., and Alexander & Alexander of New York Inc., Third-Party Plaintiffs, v. CERTAIN UNDERWRITERS AT LLOYD'S OF LONDON SUBSCRIBING TO INSURANCE AGREEMENT MA8255049 and an Unnumbered Insurance Agreement With an Effective Date of July 1, 1982, Sedgwick International Limited and/or Sedgwick Marine Limited and/or Other Entities in the Sedgwick Group P.L.C., Third-Party Defendants.

No. 87 Civ. 8133 (WK)

United States District Court, S.D. New York.

October 11, 1989.

Rayner M. Hamilton, White & Case, New York City, for plaintiff.

Thomas W. Hyland, Wilson, Elser, Moskowitz Edelman & Dicker, New York City, for defendants/third-party plaintiffs.

John M. Woods, Thatcher Proffitt & Wood, New York City, for third-party defendant Syndicate 317.

George Weisz, Cleary, Gottlieb, Steen & Hamilton, New York City, for third-party defendants Sedgwick International Limited and Sedgwick Marine Ltd.

AMENDED MEMORANDUM & ORDER

WHITMAN KNAPP, District Judge.

Defendants Alexander & Alexander Services, Inc., et al. ("A & A"), have asserted third-party claims for indemnification and contribution against the Lloyd's underwriters alleged to have subscribed to the insurance policies at issue in the direct action (collectively "Underwriters"),¹ as well as against Sedgwick International Limited, Sedgwick Marine Limited and "Other Entities in the Sedgwick Group p.l.c.," (collectively "Sedgwick"),² a Lloyd's brokerage concern claimed to have been involved in a critical phase of the relevant events. All third-party defendants have now moved to dismiss the third-party complaint for lack of personal jurisdiction.³ This memorandum deals only with the motion of the Underwriters, which, for reasons that follow, is denied.

DISCUSSION

As an initial matter, since we see no basis for asserting jurisdiction under the transactional provisions of CPLR § 302, there is no need to review the course of dealings between the various parties that led to this lawsuit. The only issue warranting discussion is whether the Underwriters are "doing business" in New York within the meaning of CPLR § 301 in a manner sufficient to make assertion of jurisdiction consistent with due process.

The difficulty in determining the availability of personal jurisdiction over the Underwriters arises, perhaps by design, from the unique manner in which the Lloyd's insurance market operates. Lloyd's underwriters subscribe to risks in their individual capacities, but operate through numbered syndicates, which in turn conduct their affairs through managing agents who accept or decline risks, collect premiums, pay out profits and losses, and maintain the syndicate's records. The various syndicates conduct all of their underwriting business at the central Lloyd's building in London. Indeed, in the traditional sense of the phrase, they do not themselves "do business" anywhere except in London. Insurance business may be brought to these underwriting syndicates only by registered Lloyd's brokers, who have been appointed either by the prospective insured or by the insured's non-Lloyd's broker. The Lloyd's broker prepares a "slip" for submission to any number of managing agents, setting forth the risk to be insured. Any managing agent wishing to underwrite all or a portion of the risk so indicates by initialing the slip and stating the percentage. Once the entire risk has been subscribed, the broker issues to its principal a "cover note," indicating that the insurance has been placed. Some time after the placement of the insurance, pursuant to express authorization from the individual underwriters, the Corporation of Lloyd's issues a policy through its Lloyd's Policy Signing Office in London, listing the numbers of the subscribing syndicates and the percentage of the risk that each has underwritten.⁴

The Corporation of Lloyd's is a non-profit corporation, created by Special Act of Parliament in 1871, which itself does no underwriting, but instead provides services to the member underwriters at Lloyd's. One of its administrative departments is the Finance & Market Services Group ("FMSG"), which administers the American Trust Fund, a fund held in trust by it and the Corporation of Lloyd's as security for Lloyd's policies issued to American insureds. As of December 31, 1988, the American Trust Fund had $9.4 billion dollars on deposit at Citibank in New York. Although the Underwriters neither deposit directly into the American Trust Fund nor are able to draw directly from it, a portion of their premium income derived from underwriting of American risks is deposited in the Fund through various complex accounting arrangements.⁵

One of the essential business purposes that the American Trust Fund serves is to enable New York insurance brokers and insurance companies to do business with Lloyd's underwriting syndicates, which are not "authorized" to write insurance in New York. A New York insurance broker is prohibited from placing insurance with an unauthorized insurer unless it has ascertained, inter alia, that such insurer maintains a trust fund at a New York bank, in an amount specified by regulation, as security for the insured. 11 N.Y.C.R.R. § 27.5(a)(1)(ii). Similarly, a New York insurance company may neither count as an asset nor credit against its loss reserves any obligation reinsured with an unauthorized alien insurer, unless such alien insurer maintains a trust fund at a New York bank in a similarly specified amount. 11 N.Y.C.R.R. § 125.4(c). Thus, although these regulations impose obligations only on entities licensed by the New York State Insurance Department, their effect is to make it practically impossible for unauthorized insurers, such as Lloyd's underwriters, to avail themselves of the New York insurance-purchasing market without establishing the required trust funds in New York banks. The Underwriters could...