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How do you sue business operators known cryptically as “Names,” who rarely reveal their identities to outsiders, even those with whom they enter pacts, who form loose coalitions among themselves called “Syndicates,” but who then disperse at the first sign of legal trouble, denying that the Syndicates have any independent legal identity? In other words, how do you sue the underwriters Lloyd’s of London? No, Lloyd’s of London is not carrying on an illegal scheme, but the intricacies of its organization have posed jurisdictional difficulties for federal courts considering diversity lawsuits to which Lloyd’s of London underwriters are a party. The circuit courts disagree on how to address those difficulties. The latest court to tackle the problem is the 5th U.S. Circuit Court of Appeals in December’s Corfield v. Dallas Glen Hills LP, No. 03-10185. Underwriters unknown In the words of the 5th Circuit, “Lloyd’s of London is not an insurance company but rather a self-regulating entity which operates and controls an insurance market.” The identities and citizenship of Names-the individuals or companies that actually underwrite risks-are known to the Lloyd’s governing body, but are generally kept strictly confidential. Even the holder of a policy, like the Texas company Dallas Glen Hills in this case, will usually be told only the identity of a single underwriter. Most Names do not themselves make day-to-day decisions about what risks to underwrite, but join Syndicates whose leadership determines what investments to undertake. But liability runs from the policyholder to the individual Names, bypassing the Syndicates. In the words of the 5th Circuit, “a Syndicate is a creature of administrative convenience through which individual investors can subscribe to a Lloyd’s policy. A Syndicate bears no liability for the risk on a Lloyd’s policy.” When a dispute arises, litigation by or against one Name binds all Names subscribed to the same policy. That’s because the standard Lloyd’s policy incorporates the one-for-all principle as a contractual obligation of each Name. In this case, it was a Name that instituted litigation. Liberty Corporate Capital sought a declaratory judgment from a Texas federal court that it need not honor a Dallas Glen Hills claim. The trial court threw out the suit after Dallas Glen Hills protested that there was not complete diversity of citizenship, as required by federal law, because it believed that one Name was a Texan, a claim that Liberty did not refute. Facing that issue in 1994, in Underwriters at Lloyd’s, London v. Layne, 26 F.3d 39, the 6th Circuit looked to the agency law of Tennessee, where the case arose. Under Tennessee law, once an agent is sued, the principal is no longer liable. The circuit concluded that suing the agent (the lead Name) meant that the principal (the Syndicate) was no longer a party. Thus the citizenship of Syndicate members need not be considered for diversity purposes. In 1998′s Indiana Gas Co. v. Home Ins. Co., 141 F.3d 314, the 7th Circuit disagreed, comparing Syndicates to limited partnerships, the citizenship of whose members do matter in diversity cases. In the case at hand, the 5th Circuit adopted a position pioneered by the 2d and 3d circuits. The court ruled that Liberty undertook the lawsuit in its individual capacity and thus only its citizenship mattered. The fact that other Names had made a contractual pledge to follow Liberty’s lead did not make them parties to the suit so their citizenship could not defeat jurisdiction. The court allowed the suit to go forward. Young’s e-mail address is [email protected].

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