Commercial Litigation and Arbitration

Coverage Action Involving Lloyd’s May Form CAFA Class Action — Prior Judicial Reticence Overridden by CAFA — Defect in Subject Matter Jurisdiction, when Cured, Relates Back to Beginning of Action — All Prior Rulings Restored to Vitality

Certain Underwriters at Lloyd's of London v. Ill. Nat’l Ins. Co., 2012 U.S. Dist. LEXIS 141798 (S.D.N.Y. Sept. 24, 2012) (Preska, Ch. J.):

Certain Underwriters at Lloyd's of London ("Underwriters"), Aspen Insurance UK Ltd. ("Aspen"), and Arch Insurance Company (Europe) Ltd. ("Arch-Europe") (collectively, "Plaintiffs") commenced this declaratory judgment action against seven insurance companies to determine liability under policies issued by those companies pertaining to a construction job site. Subject matter jurisdiction was based on diversity of citizenship. After more than two years of litigation, including competing motions for summary judgment, Plaintiffs discovered that complete diversity was lacking. The parties have filed various motions seeking to dismiss the action in its entirety or, alternatively, to retain jurisdiction by changing the structure of the action. Plaintiffs--who oppose dismissal--have filed a motion to amend their complaint, seeking to drop the non-diverse plaintiff underwriters and convert the action to a class action under Federal Rule of Civil Procedure 23 and 28 U.S.C. § 1332(d). For the following reasons, Plaintiffs' motion [Dkt. No. 220] is GRANTED. All other motions [Dkt. Nos. 202, 205, 208, 211, and 215] are DENIED.


This case arises out of a construction accident that occurred on December 14, 2007, at the construction site of the new headquarters of Goldman Sachs ("Goldman"). The facts relating to the accident are set forth in a prior Memorandum Opinion and Order. See Certain Underwriters at Lloyds of London v. Ill. Nat'l Ins. Co., No. 09 Civ. 4418 (RJH), 2011 WL 723544, at *1 (S.D.N.Y. Feb. 25, 2011). Plaintiffs are the issuers of two excess liability insurance policies to Goldman relating to the construction site where the accident occurred (the "Excess Liability Policies"). The defendant insurance companies are issuers of various policies to other entities--such as architects, contractors, and subcontractors--that were in some way involved in the accident. Plaintiffs seek a declaratory judgment that the defendant insurance companies are liable under those policies.

The Excess Liability Policies provided a total coverage limit of $25 million. Arch-Europe was the sole underwriter of one of the Excess Liability Policies, which covered fifteen percent of the risk. Aspen and Underwriters underwrote the other Excess Liability Policy' (the "A-U Policy"), which covered the remaining eighty-five percent of the risk. Underwriters are members of two Lloyd's of London ("Lloyd's") syndicates--Wellington Syndicate 2020 ("Wellington") and Atrium Syndicate 609 ("Atrium").

Lloyd's syndicates are typically composed of hundreds of separate entities or individuals (commonly known as "Names") who each subscribe to a portion of a policy's risk. See E.R. Squibb & Sons, Inc. v. Accident & Cas. Ins. Co., 160 F.3d 925, 929 (2d Cir. 1998) ("Squibb I"). Syndicates are largely used for administrative convenience and "have been said to have no independent legal identity." Squibb I, 160 F.3d at 929. For jurisdictional purposes, courts generally consider the citizenship of each Name in a Lloyd's syndicate. Underwriters at Lloyd's, London v. Osting-Schwinn, 613 F.3d 1079, 1088-89 (11th Cir. 2010); see also Squibb I, 160 F.3d at 931. Each Name also must satisfy the amount in controversy requirement. See Squibb I, 160 F.3d at 933. In addition, each Name is liable only for the share of the risk to which it subscribes. In other words, a Name's liability "is several and not joint." Id. at 929.

The Wellington syndicate was comprised of thirteen Names, all of which were English corporations. Those Names together subscribed to forty percent of the A-U Policy's risk. The Atrium syndicate was comprised of 1217 Names, who together subscribed to five percent of the A-U Policy's risk.

In February 2011, the Court granted summary judgment in favor of Defendants Illinois National Insurance Company ("Illinois National"), the Hartford Fire Insurance Company ("Hartford"), Travelers Property Casualty Company of America ("Travelers"), and Arch Insurance Company ("Arch"). See Certain Underwriters at Lloyds of London, 2011 WL 723544, at *1. The Court granted summary judgment in Plaintiffs' favor with respect to the policy issued by Defendant Insurance Company of the State of Pennsylvania ("ICSOP"). See id. at *2-3. It also granted partial summary judgment in Plaintiffs' favor with respect to one of the policies issued by Defendant Continental Casualty Company ("Continental"). See id. at *4-5.

More than six months later, Plaintiffs discovered that six Names in the Atrium syndicate were New York residents and, as a result, that complete diversity was lacking because ICSOP and Arch are alleged to be New York citizens. Plaintiffs also discovered that no Name in the Atrium syndicate met the $75,000 amount in controversy requirement. See 28 U.S.C. § 1332(a). It is not disputed that under the current complaint diversity jurisdiction is lacking.

The present motions followed. Defendants ICSOP and Continental seek to dismiss the case in its entirety. Defendants Hartford, Travelers, and Arch support Plaintiffs' motion to amend their complaint to correct the jurisdictional defects.



Continental *** argues that it already has suffered "fundamental prejudice" because it has been subjected to an adverse ruling by a court lacking subject matter jurisdiction. But "[a]s a general matter, it is widely accepted that amendments to cure subject matter jurisdiction relate back." E.R. Squibb & Sons, Inc. v. Lloyd's & Cos., 241 F.3d 154, 163 (2d Cir. 2001) ("Squibb II"). And "once subject matter jurisdiction is 'cured' by an amendment, courts regularly have treated the defect as having been eliminated from the outset of the action." Id. Continental has not argued that the result should be any different here.

*** [T]here is at least a colorable argument that the Atrium Names would be bound by any judgment against the other underwriters in this action. The Excess Liability Policies contain a "Service of Suit" clause, which provides that "in any suit instituted against any one of them upon this contract the Underwriters will abide by the final decision of the Court or of any Appellate Court in the event of an appeal." (Arch Am. Mot. to Dismiss Non-Diverse Parties [Dkt. No. 202] Ex: D, at 7-8.) This language generally means that "each of the underwriters of the policy will be bound by an individual judgment against" another underwriter. Squibb II, 241 F.3d at 162. And Plaintiffs--including the Atrium Names--argue that this clause will bind all of them, even if the Atrium Names are no longer parties.

There is, however, reason to doubt this conclusion. First, this action is not a "suit instituted against" the Underwriters; it is a suit brought by the Underwriters. See Allendale, 62 F. Supp. 2d at 1125 ("[T]he service of suit clause only provides for suits 'instituted against' a member underwriter by an 'insured.' As such, the plain language of the clause would have no effect in the re-aligned suit proposed by defendants in which the Underwriters would institute suit against the insured."). Second, this action is not a suit brought "upon this contract," i.e., the Excess Liability Policies; instead, it relates to the insurance policies issued by the Defendants. Nonetheless, any potential prejudice can be lessened or avoided by "other measures," Fed. R. Civ. P. 19(b)(2)(C), namely, the inclusion of the Atrium Names as class members in a class action pursuant to Federal Rule of Civil Procedure 23 and 28 U.S.C. § 1332(d), as discussed below. See infra Part II.C.***

C. Class Action

To ensure that the Atrium Names are bound by any future final judgment in this case, Plaintiffs propose amending their complaint to assert a class action under Federal Rule of Civil Procedure 23 and including the Atrium Names as unnamed class members. Jurisdiction for the class action would be based on 28 U.S.C. § 1332(d).

1. Section 1332(d)

Section 1332(d) was enacted as part of the Class Action Fairness Act of 2005 ("CAFA") "with the purpose of, inter alia, expanding the availability of diversity jurisdiction for class action lawsuits." Blockbuster, Inc. v. Galeno, 472 F.3d 53, 56 (2d Cir. 2006).

CAFA amends the diversity jurisdiction statute, vesting the district courts with original jurisdiction over any class action in which (1) the putative class is composed of at least one hundred members; (2) any class member is diverse from any defendant; and (3) the aggregate amount in controversy exceeds five million dollars, exclusive of interests and costs. The statute further provides that "[i]n any class action, the claims of the individual class members shall be aggregated to determine whether the matter in controversy exceeds the sum or value of' the five million dollar jurisdictional amount.

Ava Acupuncture P.C. v. State Farm Mut. Auto. Ins. Co., 592 F. Supp. 2d 522, 526 (S.D.N.Y. 2008) (citing 28 U.S.C. § 1332(d)(2), (5), (6)).

Here, the putative class consists of all subscribers to the A-U Policy. Thus, there are over 1200 members in the putative class. There is also minimal diversity. The Names in the Wellington syndicate are English corporations, and the defendant insurance companies are citizens of states of the United States. See 28 U.S.C. § 1332(d)(2)(B). In addition, the amount in controversy exceeds $5 million. "In actions seeking declaratory or injunctive relief, it is well established that the amount in controversy is measured by the value of the object of the litigation." Hunt v. Wash. State Apple Adver. Comm'n, 432 U.S. 333, 347 (1977). It is undisputed that the "value of the object of the litigation" relating to the Excess Liability Policy issued by the putative class members, i.e., the A-U Policy, is over $5 million. Indeed, it is close to $20 million. ICSOP argues that the amount in controversy is only about $457,000, which represents the Atrium Names' share of the policy risk. But ICSOP misconstrues the class. The class is not just the Atrium Names but all the underwriters of the A-U Policy, including Aspen and the Names in the Wellington syndicate. See 28 U.S.C. § 1332(d)(1)(D) ("[T]he term 'class members' means the persons (named or unnamed) who fall within the definition of the proposed or certified class in a class action.").

ICSOP also argues that Plaintiffs should not be permitted to assert jurisdiction under § 1332(d) until class certification is granted. But this argument is without merit because "Congress did not base CAFA jurisdiction on a civil action being 'certified' as a class action, but instead on an action being 'filed under' the rule governing class actions." Metz v. Unizan Bank, 649 F.3d 492, 500 (6th Cir. 2011); see 28 U.S.C. § 1332(d)(1)(B). Accordingly, Plaintiffs' proposed class action satisfies 28 U.S.C. § 1332(d)'s requirements provided it meets the definition of "class action" used in the statute.

2. Rule 23

Section 1332(d) defines "class action" as "any civil action filed under rule 23 of the Federal Rules of Civil Procedure or similar State statute or rule of judicial procedure." 28 U.S.C. § 1332(d)(1)(B). Rule 23 provides that an action may proceed as a class action only if:

(1) the class is so numerous that joinder of all members is impracticable; (2) there are questions of law or fact common to the class; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and (4) the representative parties will fairly and adequately protect the interests of the class.

Fed. R. Civ. P. 23(a). The action also must satisfy one of the three requirements of Rule 23(b).

Here, the proposed class includes over 1200 members. Rule 23(a)(1)'s numerosity requirement is presumed at forty members. Consol. Rail Corp. v. Town of Hyde Park, 47 F.3d 473, 483 (2d Cir. 1995). Accordingly, that element is satisfied, and no party has argued otherwise. Further, as demonstrated by the earlier summary judgment decision, there are questions of law or fact, common to the class, and the claims of the representative parties are typical--indeed identical--to the claims of the class. See Fed. R. Civ. P. 23(a)(2)-(3).

Next, "[t]he adequacy inquiry under Rule 23(a)(4) serves to uncover conflicts of interest between named parties and the class they seek to represent." Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 625 (1997). "'[A] class representative must be part of the class and possess the same interest and suffer the same injury as the class members.'" Id. at 625-26 (alteration in original) (quoting E. Tex. Motor Freight Sys., Inc. v. Rodriguez, 431 U.S. 395, 403 (1977) (internal quotation marks omitted). Here, the representative parties--Aspen and the underwriters of the Wellington syndicate--will fairly and adequately represent the interests of the class because each has a real interest in the outcome, each has the same claims as the other class members, and each has suffered the same injury as the other class members. There do not appear to be any conflicts of interest among the class members.

Finally, the action satisfies Rule 23(b)(2) because "the party opposing the class has acted or refused to act on grounds that apply generally to the class, so that . . . declaratory relief is appropriate respecting the class as a whole." Fed. R. Civ. P. 23(b)(2). Indeed, the Defendants' refusal to pay under any of the policies at issue here affects all Plaintiffs. Thus, Plaintiffs' proposed class action appears to satisfy Rule 23. No party argues otherwise.

Instead, ICSOP and Continental argue that courts have been reluctant to recast insurance coverage actions involving Lloyd's underwriters as class actions in order to obtain diversity jurisdiction. This is true. See, e.g., Squibb I, 160 F.3d at 931-35; Allendale, 62 F. Supp. 2d at 1128-31; Certain Underwriters at Lloyd's London v. Raytheon Co., No. 01 Civ. 3317, 2001 WL 1836268, at *3 (N.D. Cal. Dec. 4, 2001); McAuslin v. Grinnell Corp., Nos. 97 Civ. A. 775, 97 Civ. A. 803, 2000 WL 1059850, at *9 (E.D. La. Aug. 1, 2000) ("To allow plaintiffs to avail themselves of Rule 23 or Rule 23.2 here would extend the limits of statutorily conferred jurisdiction through the expediency of a procedural rule."). But all of these cases were decided pre-CAFA and based in large part on then-existing legal uncertainties about the propriety of such a class action. See, e.g., Squibb I, 160 F.3d at 931-35 (noting at the time that recasting the suit as a class action "would only resolve the jurisdictional problem in this case if we made a series of other holdings on issues of first impression in this circuit as to which we have no Supreme Court guidance"). This case presents no such obstacles. And the Court of Appeals has explicitly suggested that "in an appropriate case," recharacterization as a class action may be considered as a means of salvaging diversity jurisdiction even "before other possibilities are examined." Id. at 935 n.22. Moreover, this is not a case where Plaintiffs are attempting to "extend the limits of statutorily conferred jurisdiction through the expediency of a procedural rule." McAuslin, 2000 WL 1059850, at *9. Section 1332(d) clearly provides jurisdiction here. After more than two years of litigation and substantial progress toward a final judgment, proceeding in the manner proposed by Plaintiffs is desirable. Accordingly, ICSOP's and Continental's objections to Plaintiffs' proposed class action are without merit.

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