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Jurisdiction Issues

LLOYD’S UNDERWRITERS MUST REVEAL “NAMES” TO ESTABLISH JURISDICTION

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Certain Underwriters at Lloyd’s, London brought suit in Florida federal court to seek adjudication of the binding effect of a purported settlement agreement it had entered with insureds pertaining to coverage for an underlying all terrain vehicle accident. Lloyd’s and the insureds had been approaching a tentative agreement on a settlement, but the parties’ stories diverged from there, with Lloyd’s asserting settlement had been in fact been reached in principle, and the insureds asserting that no final agreement had been reached. Lloyd’s brought suit in federal court to resolve the dispute, and the trial court rejected the insureds’ challenge to jurisdiction, by way of motion to dismiss, asserting that Lloyd’s had to specifically allege the residence of each of the “names” actually sponsoring the insurance, and for whom liability attaches severally under pertinent British statutory laws governing Lloyd’s. The Eleventh Circuit Court reversed that decision, detailing the history of Lloyd’s, its nature as an unincorporated association of “names” who sign on to particular risks, which are administered by “syndicates,” and the manner in which liability attaches to the “names,” akin to the members of a partnership. The Court held that Lloyd’s must allege each of the actual “names” bringing suit for purposes of establishing diversity jurisdiction. Underwriters at Lloyd’s, London v. Osting-Schwinn, No. 08-15809 (11th Cir. August 5, 2010).

This post written by John Pitblado.

ANOTHER NAME AT LLOYDS’ MOUNTS AN UNSUCCESSFUL ENFORCEABILITY CHALLENGE TO A JUDGMENT AGAINST HIM

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The Second Circuit has affirmed the dismissal of another of a rash of lawsuits by Names at Lloyd’s challenging the enforceability of judgments obtained against them by Lloyd’s in the United Kingdom. The plaintiff Richard A. Tropp, a Name at Lloyd’s, brought a suit in federal district court to declare that a judgment obtained against him by Lloyd’s was unenforceable, as well as for an accounting from Lloyd’s. Tropp invested $160,000 of his retirement savings in the market but, due to its collapse, became liable to Lloyd’s on a $900,000 judgment entered by a UK court. Lloyd’s moved to dismiss for improper venue, since Tropp agreed in the “Choice Clause” of his contract with Lloyd’s to litigate all disputes in England, and for failure to state a claim. Tropp’s primary argument was that this forum selection clause is unenforceable because UK law deprived him of any remedy. The district court rejected this, because a “close reading” of the UK litigation revealed Tropp was not denied any remedy, but “simply was not victorious on the merits of his claims.” The UK courts provided due process. Tropp v. Corporation of Lloyd’s, Case No. 07 Civ. 414 (USDC S.D.N.Y. Mar. 26, 2008).

In a summary order, the Second Circuit affirmed, principally reasoning that, although Tropp was unsuccessful in his attempts to assert defenses and counterclaims against Lloyd’s in the UK courts, “his experiences do not cause us to revisit our holding that the Lloyd’s forum selection clauses (of which this is one) are valid because UK remedies are available.” Tropp v. Corporation of Lloyd’s, No. 08-2332 (2d Cir. July 19, 2010).

This post written by Brian Perryman.

PETITION TO CONFIRM ARBITRATION DISMISSED FOR LACK OF FEDERAL COURT’S SUBJECT MATTER JURISDICTION

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A limited liability corporation petitioned to confirm an arbitration award against an Illinois corporation in a California federal district court. The district court dismissed for lack of subject matter jurisdiction, as the parties were not diverse in their citizenship, as required by 28 U.S.C. § 1332. The LLC merely alleged it was incorporated in California and had its principal place of business there. These allegations were insufficient to establish the LLC’s citizenship, as an LLC must make allegations regarding the citizenship of each of its members and owners to properly allege its own citizenship. Kim-C1, LLC v. Valent Biosciences Corp., Case No. 1:10-cv-591 (USDC E.D. Cal. June 3, 2010).

This post written by Brian Perryman.

ROMANIAN GOVERNMENT DEFEATS EFFORT TO MAKE IT PICK UP THE TAB ON REINSURANCE OBLIGATIONS

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A plaintiff insurance company (General Star National Insurance Company) unsuccessfully moved for entry of a writ of execution and restraining notice against the Romanian Bank of Foreign Trade and its purported successors-in-interest. In an underlying action in an Ohio federal district court, General Star alleged that a Romanian company (Astra) acquired the reinsurance obligations a state-owned Romanian insurance company, but failed to remit funds owed to General Star under certain reinsurance contracts. The Ohio court found that the Romanian goverment was Astra’s alter ego and permitted General Star to attach the government’s assets to satisfy a default judgment in General Star’s favor.

Unable to satisfy its judgment in Ohio, General Star sought to execute the judgment in New York, arguing that the Romanian Bank of Foreign Trade and its successors were alter egos of the Romanian government. The argument was rejected, as General Star could not demonstrate grounds for disregarding the Bank of Foreign Trade’s or its successors’ corporate forms. Among other things, there was no proof the Romanian government exercised daily control over these entities. Moreover, although the corporate form may be disregarded if necessary to prevent fraud or injustice, General Star failed to persuade the Court that the equities weighed in favor of piercing the corporate veil. There was no showing that the corporate form was used by the Romanian government to avoid payment. The writ of execution and restraining notice were denied. General Star National Insurance Co. v. Administratia Asigurarilor de Stat, Case No. 18 MS 302 (USDC S.D.N.Y. May 12, 2010).

This post written by Brian Perryman.

No McCarran-Ferguson Reverse Pre-Emption Under State Insurance Insolvency Statutes

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Acting as Rehabilitator of Centaur Insurance Company, the Director of the Illinois Department of Insurance, Michael McRaith, brought suit against two reinsurers, seeking a declaration that they are obligated to reimburse Centaur for portions of a $32 million settlement it agreed to in resolving underlying asbestos litigation. The reinsurers had removed the case to federal court, but McRaith sought a remand based on the doctrines of McCarran-Ferguson reverse preemption and Burford abstention. The court denied the motion to remand under both theories, finding that none of the McCarran-Ferguson reverse preemption criteria had been met, as the state law issues pertaining to the rehabilitation proceedings did not specifically relate to the business of insurance, and there was not a clear conflict with federal law vis-à-vis state insurance solvency rehabilitation procedure. Burford abstention was also inappropriate because the dispute pertained less to the “complex [state] regulations pertaining to insolvent insurers” than to a simple breach of contract dispute between the parties under certain reinsurance certificates. McRaith v. American Re-Insurance Co., No. 09-C-4027 (USDC N.D. Ill. Feb. 17, 2010).

This post written by John Pitblado.