Malone v. Equitas Reinsurance Ltd.

• Decision Date: 02 November 2000
• Docket Number: No. B136005.,B136005.
• Citation: 101 Cal.Rptr.2d 524,84 Cal.App.4th 1430
• Court: California Court of Appeals Court of Appeals
• Parties: Thomas E. MALONE, Plaintiff and Appellant, v. EQUITAS REINSURANCE LIMITED et al., Defendants and Respondents. Cyril Lucas, Plaintiff and Appellant, v. Equitas Reinsurance Limited et al., Defendants and Respondents.

101 Cal.Rptr.2d 524

84 Cal.App.4th 1430

Thomas E. MALONE, Plaintiff and Appellant, v. EQUITAS REINSURANCE LIMITED et al., Defendants and Respondents.

Cyril Lucas, Plaintiff and Appellant, v. Equitas Reinsurance Limited et al., Defendants and Respondents.

No. B136005.

Court of Appeal, Second District, Division 1.

November 2, 2000.

As Modified November 27, 2000.

Baker, Keener & Nahra, Robert C. Baker, Santa Monica, Daniel Patrick Leonard and R. Jeffrey Neer, for Plaintiffs and Appellants.

Hancock Rothert & Bunshoft, Barry L. Bunshoft, San Francisco, Deborah A. Pitts and Jennifer A. Vane, Los Angeles, for Defendants and Respondents.

MALLANO, J.

This case is just one of many in which individual underwriters at Lloyd's of London have sued English entities in the United States based on events that occurred in England. The trial court dismissed the action for lack of personal jurisdiction. We conclude that defendants did not have the requisite contacts with the State of California and affirm.

BACKGROUND

Lloyd's of London, though not an insurance company itself, provides a marketplace for insurance underwriters. Underwriters at Lloyd's, including plaintiffs, are known as "Names." They combine in "syndicates" to underwrite insurance. Each Name has a percentage share in the syndicates of which he or she is a member.

The underwriting capacity of each syndicate is supplied by the funds advanced by the Names. Excess losses—those that exceed the premiums paid—are covered by the Names' commitment to pay losses from their personal assets. As a condition of membership at Lloyd's, the Names execute a "General Undertaking" by which they acknowledge their unlimited financial commitment to cover losses.

Faced with the possibility of unlimited liability, many Names procure personal stop-loss policies, which essentially reinsure the underwriting losses for which a Name may become liable. In November 1989 and September 1990, respectively, plaintiffs Thomas E. Malone and Cyril Lucas purchased stop-loss policies through Holman Wade, a London broker. The policies were underwritten by defendant Syndicate 872 and provided coverage up to specified limits.

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 No. 103, caused losses far greater than the premiums paid, causing a significant financial burden on the Names. As losses mounted, intramarket disputes arose.

To restore the integrity of the London insurance market, Lloyd's developed a "Reconstruction and Renewal Plan" by which a newly formed company, defendant Equitas Reinsurance Limited, would reinsure the Names for their pre-1993 non-life underwriting obligations. In exchange for the reinsurance, Equitas would charge the Names a premium that was based on each Name's proportionate share of the pre-1993 reserves and losses incurred by the syndicates in which they were members. If the plan was approved by a majority of Names, even the dissenting Names would be assessed premiums as authorized by their commitment to Lloyd's in the General Undertaking.

Ninety-four percent of the Names approved the plan. Plaintiffs were among the 6 percent who dissented and refused to pay premiums to Equitas. Under the terms of a "Reinsurance and Run-Off Contract," if a dissenting Name refused to pay the required premium, Equitas could use the proceeds from that Name's stop-loss policy to offset the premium owed for the reinsurance. Equitas's right to assess a premium on the dissenting Names and, by implication, its right to the benefits under their stop-loss policies, was approved by the English Court of Appeal Civil Division in Society of Lloyd's v. Leighs (QBCMI 97/D644/B July 31, 1997).¹

On March 9, 1998, Malone filed this action against Syndicate 872 and Equitas in Los Angeles County Superior Court (No. BC187236). On April 1, 1998, Lucas filed a similar action in San Diego County Superior Court (No. 719419), which was subsequently transferred to Los Angeles County Superior Court (No. BC205803). By order dated March 30, 1999, the two cases were deemed related and were assigned for all purposes to Judge Kurt J. Lewin.

In May 1999, plaintiffs separately filed amended complaints, alleging that they had received notice from Lloyd's that their underwriting losses had exceeded the limits of their stop-loss policies. Plaintiffs alleged that they were entitled to payment under the policies. They further alleged that Syndicate 872, together with Equitas, had "taken the position that it is not obligated to pay said claim because it had a right to a set off greater than the amount owed to Plaintiff pursuant to an agreement to which Plaintiff was not a party[, i.e., the Reinsurance and Run-Off Contract]." At all pertinent times, plaintiffs were residents of California.

On July 9, 1999, defendants filed separate motions to quash service of summons for lack of personal jurisdiction. Plaintiffs filed opposition. The trial court heard argument on August 9, 1999, and took the matter under submission. By order dated September 20, 1999, the trial court granted the motions. Plaintiffs filed a timely appeal.

DISCUSSION

When a defendant moves the trial court to quash service of summons for lack of personal jurisdiction, the plaintiff has the initial burden of proving that sufficient contacts exist between the defendant and California to justify the exercise of personal jurisdiction. (Vons Companies, Inc. v. Seabest Foods, Inc. (1996) 14 Cal.4th 434, 449, 58 Cal.Rptr.2d 899, 926 P.2d 1085.) If that burden is met, the burden shifts to the defendant to demonstrate that the assumption of jurisdiction would be unreasonable. (Ibid.) Where the evidence of jurisdictional facts is not in conflict, we independently review the trial court's decision. (Greatr-West Life Assurance Co. v. Guarantee Co. of North America (1988) 205 Cal.App.3d 199, 204, 252 Cal.Rptr. 363.) To the extent there are conflicts in the evidence, we must resolve them in favor of the prevailing party and the trial court's order. (Floyd J. Harkness Co. v. Amezcua (1976) 60 Cal.App.3d 687, 689, 131 Cal.Rptr. 667.)

"California's `long-arm' statute extends the jurisdiction of California courts to the outermost boundaries of due process. `A court of this state may exercise jurisdiction on any basis not inconsistent with the Constitution of this state or of the United States.'" (Rocklin De Mexico, S.A. v. Superior Court (1984) 157 Cal. App.3d 91, 94, 203 Cal.Rptr. 547.) "[T]he forum state may not exercise jurisdiction over a nonresident unless the relationship of that person or entity to the state is such as to make the exercise of such jurisdiction reasonable." (Boaz v. Boyle & Co. (1995) 40 Cal.App.4th 700, 716, 46 Cal.Rptr.2d 888.)²

As the United States Supreme Court explained in Burger King Corp. v. Rudzewicz (1985) 471 U.S. 462, 105 S.Ct. 2174, 85 L.Ed.2d 528: "The Due Process Clause protects an individual's liberty interest in not being subject to the binding judgments of a forum with which he has established no meaningful `contacts, ties, or relations....' By requiring that individuals have `fair warning that a particular activity may subject [them] to the jurisdiction of a foreign sovereign,' ... the Due Process Clause `gives a degree of predictability to the legal system that allows potential defendants to structure their primary conduct with some minimum assurance as to where that conduct will and will not render them liable to suit,'.... [¶] ...

"[T]he constitutional touchstone remains whether the defendant purposefully established `minimum contacts' in the forum State.... In defining when it is that a potential defendant should `reasonably anticipate' out-of-state litigation, the Court frequently has drawn from the reasoning of Hanson v. Denckla, 357 U.S. 235, 253, 78 S.Ct. 1228, 2 L.Ed.2d 1283 (1958): [¶] `The unilateral activity of those who claim some relationship with a nonresident defendant cannot satisfy the requirement of contact with the forum State. The application of that rule will vary with the quality and nature of the defendant's activity, but it is essential in each case that there be some act by which the defendant purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws.'

"This `purposeful availment' requirement ensures that a defendant will not be haled into a jurisdiction solely as a result of `random,' `fortuitous,' or `attenuated' contacts, ... or of the `unilateral activity of another party or a third person,'.... Jurisdiction is proper, however, where the contacts proximately result from actions by the defendant himself that create a 'substantial connection' with the forum State.... Thus where the defendant `deliberately' has engaged in significant activities within a State, ... or has created 'continuing obligations' between himself and residents of the forum, ... he manifestly has availed himself of the privilege of conducting business there, and because his activities are shielded by `the benefits and protections' of the forum's laws it is presumptively not unreasonable to require him to submit to the burdens of litigation in that forum as well." (Burger King Corp. v. Rudzewicz, supra, 471 U.S. at pp. 471-75, 105 S.Ct. 2174, citations, fns. & original italics omitted.)³

In moving to quash service of summons, Syndicate 872 submitted a declaration from its former chief underwriter, who stated: (1) the syndicate was formed in 1982, with its registered office located at 10 Crosswall, London, England, and its principal place of business at 1 Lime Street, London, England; (2) the syndicate was organized under the laws of England as an unincorporated association of Names; (3) the syndicate authorized Holman Wade, a London broker, to issue stop-loss policies that would indemnify...