Syndicate 420 at Lloyd's London v. Early American Ins. Co.
| Decision Date | 13 August 1986 |
| Docket Number | No. 85-3353,85-3353 |
| Citation | 796 F.2d 821 |
| Parties | SYNDICATE 420 AT LLOYD'S LONDON, Plaintiff-Appellant, v. EARLY AMERICAN INSURANCE CO. and World American Underwriters, Inc., Defendants- Appellants, v. E & O UNDERWRITERS OF A.W. KNOTT BECKER SCOTT LTD., et al., Defendants- Appellees. EARLY AMERICAN INSURANCE CO., Plaintiff-Appellant, v. SYNDICATE 420 AT LLOYD'S LONDON and World American Underwriters, Inc., Defendants-Appellants, v. E & O UNDERWRITERS OF A.W. KNOTT BECKER SCOTT LTD., et al., Defendants- Appellees. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Philip O. Bergeron, Lawrence L. McNamara, Louis C. LaCour, New Orleans, La., for World American.
Charles M. Steen, William W. Pugh, Margot Mazeau, James H. Roussel, New Orleans, La., for Channel.
E.F. Barnett, Lake Charles, La., for Early American.
Alan Dean Weinberger, Robert E. Barkley, Jr., Robert E. Leake, Jr., New Orleans, La., for plaintiff-appellant.
Appeals from the United States District Court for the Eastern District of Louisiana.
Before BROWN, REAVLEY, and HILL, Circuit Judges.
In this appeal, we are asked to review the Herculean efforts of a district judge to slay this Hydra of litigation. 1 Using the sword of a forum non conveniens dismissal, the court below held that this complex series of suits under the Louisiana Direct Action Statute was more appropriately resolved in Great Britain. Using a conditional dismissal, rather than a torch, he attempted to cauterize the wound in order to ensure that the parties dismissed could successfully intervene in an ongoing British lawsuit concerning the same transactions. We have thoroughly reviewed the record and have concluded that, while the labors of the district judge were not in vain, they were not completely successful in ensuring the availability of the alternative forum. Thus, while we affirm the decision of the District Court, we do so only after having modified the conditions imposed on the dismissal.
The cast of characters in this drama is quite large as it indirectly involves at least forty-five separate insurers. There are, however, five principals with whom the reader will become well acquainted as the tale unfolds. The first is Early American Insurance Company (Early American), an Alabama corporation, which issued marine insurance to vessels, principally owned or operated by Louisiana citizens, that plied the inland and coastal waters of Louisiana. Early American is currently undergoing liquidation in bankruptcy proceedings. World American Underwriters (World), the second of the five, is a Delaware corporation that does business in Louisiana. It acted as agent for Early American in placing its insurance and in obtaining reinsurance of Early American's portfolio. The third of the players is A.W. Knott Becker & Scott (KBS). KBS, a British entity, is an insurance broker dealing with underwriters at Lloyd's, London. KBS, like Early American, is undergoing liquidation proceedings.
There are two remaining players in this drama. The fourth is Syndicate 420 at Lloyd's London; the fifth is a group known as the Errors and Omissions Insurers of KBS. Syndicate 420 is an underwriting syndicate, an unincorporated association of insurers at Lloyd's that assumes insurance risks. The Errors and Omissions Insurers, however, are less susceptible to cogent description. There are, in fact, two groups of insurers who subscribe to KBS' errors and omissions 2 cover. The first group (the 82-83 Underwriters) subscribed to the professional indemnity policy issued to KBS for the period from April 1, 1982-April 30, 1983. The second group (the 83-84 Underwriters) subscribed to an identical policy for the period of May 1, 1983-April 30, 1984. 3
With that cast of characters in mind, we now turn to set the stage.
The circumstances of this tale are intimately intertwined with the tradition, practices, and sometimes curious language of Lloyd's of London. As all know, Lloyd's is not, in reality, an insurance company in either the English or the American sense. It bears little resemblance to a typical corporate insurer. On the underwriting floor at Lloyd's in London are seated a number of underwriters for various syndicates. The syndicates are groups of insurer-investors, represented by the underwriter, that are organized for the purpose of assuming insurance risks. Brokers, such as KBS, approach the underwriter at his desk--in Lloyd's parlance "the box"--and solicit the underwriter's agreement to accept a risk. The broker presents to the underwriter a broker's slip which, under the rules of Lloyd's, must contain all material facts relating to the risk. If the underwriter agrees to accept all, or part, of a risk, he signifies his agreement by signing the slip. The signature, or "scratch," of the underwriter on the slip is the last act necessary for the formation of the insurance contract at Lloyd's.
The brokering of risks and the formation of contracts at Lloyd's proceeds rapidly. It affords the underwriter little opportunity to investigate the contours of the risk being brokered. Thus, to minimize their risk, the underwriters usually do not agree to insure entire policies. Rather, there will be a number of syndicates that agree to subscribe to a given cover, each assuming only a specified portion of the total risk.
Lloyd's has taken steps to minimize the peril involved in such rapid decision-making. Thus, it imposes upon brokers at Lloyd's a duty of utmost good faith and full disclosure. All facts pertinent and material to the risk must be disclosed when the risk is tendered to the underwriter. The critical nature of this duty, for purposes of this litigation, is that the nondisclosure of material facts in a broker's slip is sufficient--in the eyes of Lloyd's--to render the policies issued on the risk void ab initio.
The stage is set, the players have assumed their positions, the curtain rises ...
As we stated, Early American issued marine insurance to vessels that plied the waters of Louisiana. That portfolio was partially reinsured by Edinburgh Insurance Company, but in 1982 Edinburgh underwent voluntary liquidation and withdrew from the marine insurance business. Upon being informed of Edinburgh's withdrawal, Early American similarly determined to abandon its marine portfolio. It informed its agent, World, of its decision and requested that World obtain 100% reinsurance of the entire portfolio.
World was contacted in June of 1982 by a representative of KBS who proposed to obtain the desired reinsurance for World and Early American. KBS offered to use its resources as an authorized broker at Lloyd's to obtain reinsurance at Lloyd's. World agreed, and shortly thereafter KBS contacted Syndicate 420's underwriter and secured his subscription to a KBS slip, which, subject to specified terms and conditions, authorized KBS to issue a cover note to Early American which cover note would have the effect of allowing World American to reinsure certain risks through Syndicate 420. Instead of issuing the cover note directly, however, KBS issued it to the account of Channel Underwriters. Channel, in turn, issued the cover note to World at World's offices in Metairie, Louisiana.
Syndicate 420 now alleges that the KBS slip misrepresented the nature of the Early American risk. Specifically, the Syndicate contends that KBS:
(1) Failed to disclose that Early American's portfolio suffered from an adverse loss ratio in the years for which the Syndicate issued its guaranty;
(2) Failed to disclose that Early American sought reinsurance of its entire portfolio and planned to retain none of the risk itself; and,
(3) Misled Syndicate 420 by stating that its cover note would be issued only for a specific layer of reinsurance on business attaching after July of 1982 when, in fact, the cover note was used by Early American to reinsure its existing portfolio on a primary loss basis.
Syndicate 420 contends that these misrepresentations constitute a breach of KBS's duty of utmost good faith and disclosure. It has, therefore, taken steps to vitiate the obligations its underwriter assumed when he signed the KBS slip.
The first step taken by Syndicate 420 was to file suit against a number of parties in the Eastern District of Louisiana. 4 The first claim sought a declaration that the Syndicate was not liable to Early American on the policy guarantees contained in the KBS cover note. In the alternative, if the guarantees were found to be valid, Syndicate 420 sought indemnification of its liability from World and Channel.
KBS, the broker whose alleged misrepresentations are at the heart of this imbroglio, was not to escape unscathed from the ensuing flurry of litigation. Once having been named as a defendant, World cross-claimed against KBS for indemnity for all losses and damages it sustained in connection with the reinsurance transaction. 5 Early American sought similar relief from KBS and, in addition, filed a cross-claim against World and a counterclaim against Syndicate 420.
Thus, what began as a seemingly commonplace reinsurance transaction was transformed into a veritable hydra of litigation--and the hydra was soon to sprout another head.
KBS, like most insurance brokers, business and professional persons--doctors, engineers, scientists, and indeed lawyers--carried a professional indemnity policy that covered errors and omissions in the course of its brokerage business. Each individual policy separately covered claims made against KBS during the policy years 1982-1983 and 1983-1984. The policies were underwritten by Lloyd's in much the same fashion as were the Early American guarantees; that is, a broker approached an underwriter at a box with a proposal that he assume a share of KBS's errors and omissions risk and the underwriter signed the requisite scratch to the broker's slip. Some 29 separate insurers...
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