Home Page The Publication The Editor Contact Information Insurance Key issues Book Subscribe


Vol. 8 - Issue 9
November 6, 2019


Mind The Gap In Citizenship: Federal Court Makes It Hard To Sue Lloyd’s Based On Diversity


This issue is very narrow.  But for those whom it is relevant, it is of paramount importance.  Can you get diversity jurisdiction over Lloyd’s to sue the insurance marketplace in federal court?

As the court put it in CNX Gas Co. v. Lloyd’s of London, No. 19-699 (W.D. Pa. Oct. 17, 2019): “[B]ecause [of] Lloyd’s unique structure as merely a forum for thousands of underwriters to buy shares of risk [it] makes it difficult to execute the citizenship analysis required to determine diversity jurisdiction. That is the difficulty at the heart of this case.”

The coverage issue in CNX Gas is complex.  In general, CNX sued “Lloyd’s” (more about that in a moment) in Pennsylvania state court seeking coverage under a Control of Well insurance policy for an oil well that was rendered useless after an accident in its operation.  The coverage issues, and why there was a dispute, are not relevant to the analysis here.

Lloyd’s sought to remove the action to federal court based on diversity of citizenship.  At issue was whether Lloyd’s established complete diversity for purposes of jurisdiction.

The court’s decision is detailed.  I’ll keep it simple here.  CNX’s complaint named only five Lloyd’s “names” as defendants.  Names are the individual investors, who subscribe to a share of risk under an insurance policy, within a collective unit, called a syndicate.  However, CNX maintained that, in fact, all names were included as defendants, since the complaint included the following: “Defendants herein are all of the underwriters of a Certificate of Insurance. . . . On information and belief, the Defendants are the ‘names’ and members of the following Lloyd’s indicates: 1084, 4141, 33, and 9223.”

The defendant maintained that, if “Plaintiff wanted to sue all the Names, it should have included all of them, or least the names of the Syndicates they comprise, in the caption.”  But the court was not persuaded: “Plaintiff cannot be blamed for failing to identify every Name before discovery. This is especially the case because identities of Lloyd’s Names are usually kept confidential.”  Thus, the court held that the plaintiff’s complaint adequately pleaded, as defendants, all of the Names who underwrote the Control of Well Policy.

Having established who is being sued, the court turned to whether there was diversity of citizenship.  At issue – whose citizenship is relevant for purposes of establishing diversity?

The court noted that there was a split among the circuits, which comes down to this: “[W]hether, for diversity purposes, a Lloyd’s syndicate is more like a trust or a limited partnership—in other words, whether only the representative Name’s citizenship is relevant (the trust model), or whether the citizenship of all of the Names must be considered (the limited partnership model).”

The court described the circuit split on the issue: The Sixth Circuit takes the minority position -- only a Name serving as lead underwriter counts for diversity purposes.  However, the majority (Second, Seventh, and Eleventh Circuits) “take the view that when a syndicate is sued, the citizenship of every Name comprising the syndicate counts, not merely that of the Name serving as lead underwriter.”

The court also noted that “District courts addressing this issue in circuits without direct authority from their respective courts of appeals—including all of those that have done so in this circuit [Third]—overwhelmingly side with the majority regime.”

The Court adopted the majority view and required complete diversity to exist between Plaintiff and all of the Lloyd’s Names underwriting the COW policy.

This can be a tall order for the defendant, which must identify the citizenship of all the Names to permit the Court to exercise diversity jurisdiction on removal.

However, here, “[o]nly the identity of the Names comprising Syndicates 1084, 9223, 4141 and 72.6 percent of Syndicate 33 are established. The Names comprising the remaining 27.4% of Syndicate 33 remain a mystery. Importantly, the remaining 27.4% of Syndicate 33 allegedly consists of over 1,800 Names.”

Yikes for the defendant.

The court concluded that the “failure to identify and establish the citizenship of some 1,800 unidentified Names comprising the minority share of Syndicate 33 makes it impossible for the Court to establish complete diversity. At the very least, it creates substantial doubt as to whether such complete diversity exists. This doubt must be resolved in favor of remand.”

Website by Balderrama Design Copyright Randy Maniloff All Rights Reserved