Opinion
03 Civ. 6772 (HB)
March 17, 2004
OPINION ORDER
Defendant Certain Underwriters at Lloyd's London ("Lloyd's Underwriters" or "defendant") moves to dismiss the Amended Complaint with respect to it, pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted. For the following reasons, Lloyd's Underwriters' motion is denied.
I. BACKGROUND
Plaintiff Caribbean Petroleum Refining LP ("Caribbean Refining") is the owner of a petroleum refinery in Bayamon, Puerto Rico. ("the Bayamon refinery"). The second named plaintiff, Caribbean Petroleum Corporation ("Caribbean Petroleum"), is the named insured under the insurance policy at issue in this dispute and is a Delaware corporation with its principal place of business in Bayamon, Puerto Rico. Amended Complaint ("Am. Compl") ¶¶ 9, 20. With the hope of restarting operations at the Bayamon refinery, which had been idle for a period of years, in April 1998 plaintiffs decided to inspect the facility. Am. Compl. ¶¶ 1, 24. Before plaintiffs inspected the facility, they contacted defendant Aon and provided it with detailed plans of the inspection in order to ascertain whether any additional premium was required to cover the inspection. Am. Compl. f 25. Plaintiffs were informed that no such additional premium was required. Am. Compl. ¶ 26. Based on the inspection, the plaintiffs decided to refurbish the Bayamon refinery and, accordingly, requested that Aon obtain appropriate coverage for the refurbishment and start-up. Am. Compl. ¶¶ 27-28. Plaintiff specifically requested that Aon obtain coverage for business-interruption losses and provided information intended to obtain such coverage. Am. Compl. ¶¶ 30-31. In addition, Aon was separately advised by plaintiffs' insurance consultant to obtain business-interruption coverage in connection with refurbishment and start-up of the Bayamon refinery. Am. Compl. ¶ 33. The Bayamon refinery was insured under a policy issued by Lloyd's (policy number EL9800325) for the period from March 30, 1998 to March 30, 1999. Am. Compl. ¶ 19. Plaintiffs allege upon information and belief that by agreements among the Lloyd's Underwriters, New Hampshire Insurance Company, and Allianz, each of these defendants shares a portion of the risk insured under the policy. Am. Compl. ¶ 20. In July 1998, plaintiffs began to refurbish the Bayamon refinery. Am. Compl. ¶ 2. On August 31, 1998, Aon advised plaintiffs that it issued a binder for the additional coverage, including coverage for business-interruption losses. Am. Compl. ¶ 4, 33.
The Amended Complaint does not specify the nature of Caribbean Petroleum's business nor its relation to Caribbean Petroleum or the Bayamon refinery.
In their initial complaint, plaintiffs named American International Group instead of New Hampshire Insurance Company.
"A binder is a temporary contract of insurance that `binds the insurer according to its terms.'" Grouse West Holding Corp. v. Sphere Drake Ins. Co., PLC, 670 N.Y.S.2d 640, 641 (4 Dep't 1998). The terms of a binder are not generally negotiable; instead, a binder serves as a "quick and informal device to record the giving of protection pending the execution and delivery of a more conventionally detailed policy of insurance." SR Int'l Bus. Ins. Co. Ltd, v. World Trade Ctr. Props. LLC. 222 F. Supp.2d 385.388-89 (S.D.N.Y. 2002).
Three weeks later, on September 21, 1998, Hurricane George struck Puerto Rico. and caused substantial damage to the Bayamon refinery and delayed its refurbishment and start-up by three months. Am. Compl. ¶ 36. Plaintiffs made a claim for physical damage to the Bayamon refinery in excess of $12 million. The parties subsequently reached a settlement with respect to this claim. Plaintiffs also made a claim for business-interruption amounting to $5,237,089, which represented the amount claimed as the loss ($5,709,419) less a deductible of $472,330. Am. Compl. ¶¶ 6, 35-38. By letter dated April 17, 2001, New Hampshire denied coverage for plaintiffs' business-interruption claim on the basis that the policy did not provide coverage for business-interruption losses, and Allianz did so as well by letter dated July 2, 2001. Am. Compl. ¶¶ 38-39. By letter on August 26, 2002, plaintiffs requested New Hampshire to reconsider its denial of plaintiffs' business-interruption claim. Am. Compl. ¶¶ 41, 43.
Plaintiffs filed a complaint in New York State Supreme Court on August 5, 2003 against three insurance carriers — American International Group ("AIG"), Certain Underwriters at Lloyd's London, and Allianz Insurance — and against Aon as the insurance broker. On September 5, 2003, AIG and Allianz removed the matter to federal court. Plaintiffs' instant lawsuit with respect to the carriers seeks a declaration that business-interruption losses were covered under the policy, that the policy was in effect, and that these insurance carriers breached this contract when they denied plaintiffs' claim for business-interruption losses.
After this motion was submitted, plaintiffs served an Amended Complaint, which is identical to plaintiffs' original pleading except that it omits New Hampshire Insurance Company and includes American Insurance Group, Inc. and contains a revised section about jurisdiction and venue.
II. DISCUSSION
Lloyd's Underwriters contends that plaintiffs' claims against it must be dismissed on the ground that plaintiffs have failed to sue the "Names" or syndicate members who assumed the portion of the risk on the Policy at issue and instead have improperly sued the Corporation of Lloyd's, which does not issue, write, or sell insurance and does not take part in adjusting insurance claims. Lloyd's Underwriters also move for costs against plaintiffs for the "needless expenses in defending a baseless coverage suit." Memorandum of Law in Support of Defendant Certain Underwriters at Lloyd's Motion to Dismiss the Complaint ("Underwriters' Mem.") at 9. Plaintiffs contend that defendant in effect seeks the dismissal of an entity that has not been named in the suit and that their use of "John Doe", — i.e., "Certain Underwriters at Lloyd's" — is frequently employed in litigation in the United States and contemplated by N.Y.C.P.L.R. § 1024.
A. Standard of review
On a motion to dismiss under Rule 12(b), all well-plead factual allegations are taken as true, and all reasonable inferences are construed in favor of the plaintiff. Leeds v. Meltz, 85 F.3d 51, 52 (2d Cir. 1996). Dismissal of the complaint is appropriate only when it appears that the plaintiff cannot prove a set of facts "in support of his claim which would entitle him to relief." Gant v. Wallingford Bd. of Educ., 69 F.3d 669, 673 (2d Cir. 1995).
B. Merits
A central premise in Lloyd's Underwriters' initial motion to dismiss was that the plaintiffs named Lloyd's of London as defendant. For example, under the heading "no breach of contract claim can be made against Lloyd's as defendant Lloyd's was not a party to the insurance contract at issue," Underwriters' Mem. at 8 (bold, underline, and uppercase removed), defendant argues:
Here again, Lloyd's does not issue, sell, or write insurance, and was clearly never a party to the contract for the insurance coverage allegedly issued to plaintiffs in this action. As such, the plaintiffs have no right of relief from Lloyd's based on their breach of contract theory because they simply cannot establish the existence of an agreement between Lloyd's and the plaintiffs. . . .Id. Accordingly, Lloyd's Underwriters sought the dismissal of the claims against them because Lloyd's of London is not the proper party to this action; defendant suggested at various points that the proper party for plaintiffs to sue here are the "Names" or syndicate members who assumed the risk. Underwriters' Mem. at 7 ("Plaintiffs have improperly sued Lloyd's by failing to name the appropriate Names/syndicate members who assumed the portion of risk on the Policy at issue."). This point needs little discussion, as it is clear that plaintiffs did not sue Lloyd's of London, the insurance market, but rather sued certain underwriters (who are currently unidentified) who wrote a policy through that marketplace. Thus, defendant's observations about how Lloyd's of London does not issue insurance policies, but rather, is an insurance market for the buying and selling of insurance risks are informative, but mostly beside the point
Defendant also states: "Lloyd's is an insurance market place where a large number of investors buy and sell insurance risks. Lloyd's does not sell, write or issue primary or excess insurance policies, and does not take any part in adjusting claims under policies of insurance." Underwriters' Mem. at 3. Its first point in the brief is that "count one must be dismissed as Lloyd's does not issue, write or sell insurance and does not take part in adjusting insurance claims." Underwriters' Mem. at 8 (bold, underline, and uppercase removed).
Elsewhere, defendant suggested that the proper entity was the "specific Lloyd's underwriting syndicates." Underwriters' Mem. at 2-3. However, the case that defendant principally relied on stands for the proposition that the syndicates are not legal entities capable of being sued. Roby v. Corp. of Lloyd's, 796 F. Supp. 103, 104 (S.D.N.Y. 1992).
For example, defendant notes that Lloyd's of London provides the premises, administrative staff and support services for the market; issues rules and regulations; and monitors transactions — akin perhaps to the New York Stock Exchange. Underwriters' Mem. at 7 (citing Roby, 796 F. Supp. at 104).
This otherwise simple and straightforward issue is complicated because plaintiffs did not attach a copy of the policy at issue in this lawsuit, EL9800325, to the complaint, the amended complaint, or to their brief in connection with this motion. The Court subsequently received a copy of the 42-page "Package Policy" for the policy number EL9800325. Although the term "underwriters" appears frequently in this document, it is nowhere defined or otherwise identified in this document — or at least in that portion of the document that the Court received. While it is evident that the material received by the Court is not a complete contract, there are nevertheless two endorsements included at the end of the policy that indicate that the policy was issued by "Certain Underwriters at Lloyd's London." Defendant argues with some force that plaintiffs here have failed to produce an actual Lloyd's policy, but nevertheless, there is some evidence that a Lloyd's-related entity was involved in the underwriting of this risk. Therefore, accepting all well-plead allegation as true and construing all reasonable inferences in favor of the plaintiffs, I find that there is sufficient evidence that the policy was issued by Lloyd's. Thus, it cannot be said that plaintiffs' action against Lloyd's Underwriters is "fundamentally frivolous," as defendant argues. Reply Memorandum of Law in Support of the Motion to Dismiss by Defendant Certain Underwriters at Lloyd's ("Underwriters' Reply") at 3.
For that matter, plaintiffs also did not attach the policy to its brief with respect to another motion to dismiss in this matter.
The document also refers at various points to various attachments, yet these attachments are not included. Given that defendant here places considerable weight on the fact that plaintiffs served the Corporation of Lloyd's, one significant omission is the service-of-suit clause, which the document indicates is attached to the policy.
These two attachments bear the heading (bold, underline, and uppercase removed):
Attaching To and Forming Part of Policy Number EL9800325
Issued To: Caribbean Petroleum Corporation
Issued By: Certain Underwriters at Lloyd's, London
In its reply, defendant contends that service of the original complaint was made on the Corporation of Lloyd's and that "an appearance was made on behalf of the Lloyd's Corporation, s/h/a `Certain Underwriters at Lloyd's' on October 30, 2003." Reply Memorandum of Law in Support of the Motion to Dismiss by Defendant Certain Underwriters at Lloyd's ("Underwriters' Reply") at 5. Defendant submitted an answer and affirmative defenses dated October 24, 2003 in which it asserted, as it does here, that Lloyd's is an insurance marketplace. However, in its pleading defendant defines "Lloyd's" to mean "Defendant Certain Underwriters at Lloyd's" and the pleading is signed by "Attorneys for Defendants Certain Underwriters at Lloyd's, London."
I recognize that Magistrate Judge Fox concluded after a discovery conference with the parties that Lloyd's could not be compelled to produce document identifying the Names or the syndicates that issued the policy based on his assessment that plaintiffs did not sufficiently demonstrate that Certain Underwriters at Lloyd's issued the insurance policy. However, all motions relative to discovery are within the sound discretion of the court, Soobzokov v. CBS, Inc., Quadrangle/New York Times Book Co., Inc., 642 F.2d 28, 30 (2d Cir. 1981), whereas in a motion to dismiss, all inferences must be construed in favor of the plaintiff.
As defendant notes in its summary of Lloyd's of London, it is a complex marketplace that occasionally addles American courts. E.R. Squibb Sons. Inc. v. Accident Cas. Ins. Co., 160 F.3d 925, 939 (2d Cir. 1998) ("Squibb I") (Lloyd's of London "operates in accordance with age-old customs that are, to say the least, unusual in American business law."). It appears from the case law that the proper party in a suit against a Lloyd's policy is the "Name" who serves as the lead underwriter and who is ordinarily disclosed on the policy. Squibb I, 160 F.3d at 939 ("When litigation over a Lloyd's policy occurs, only one Name (the lead underwriter disclosed on the policy) is ordinarily sued."). However, as noted above, the policy that the Court has received does not disclose the identity of the lead underwriter. Nevertheless, as plaintiffs point out, there are many lawsuits brought against "Certain Underwriters of Lloyd's" (or some variation thereof); more significantly, suits are often brought by "Certain Underwriters of Lloyd's." E.g., Certain London Mkt. Ins. Cos. v. Pa. Nat'l Mut. Cas. Ins. Co., 269 F. Supp.2d 722, 725-26 (N.D. Miss. 2003) (listing cases);see also Roby. 796 F. Supp. at 111 (noting that there are many lawsuits in which Lloyd's of London "syndicates" have been sued and have sued or asserted counterclaims, but also noting that in none of those cases was the question of a syndicate's legal existence ever raised); Dallas Glen Hills, L.P. v. Underwriters at Lloyd's London, No. 3:03-CV-0295-D, 2003 U.S. Dist. LEXIS 10490, at *9 (N.D. Tex. June 19, 2003) ("Suits against Lloyd's, London generally proceed against one of the following: (1) all the Names or syndicates subscribing to the risk involved in a policy, (2) the lead underwriter subscribing to a policy, (3) an individual syndicate acting in its representative capacity on behalf of all those subscribing to a risk, (4) an individual syndicate acting in its individual capacity, and (5) possibly, an individual name." (footnotes omitted)). The argument that defendant asserts here is very similar to one asserted in Certain London Market Insurance Companies, a declaratory-judgment action in which the defendant contended that "Certain London Market Insurance Companies" (the plaintiff there) was not a proper legal entity and that the four companies that subscribed to the policy issued through Lloyd's should be named. Certain London Mkt. Ins. Cos., 269 F. Supp.2d at 725. The court there stated that it could not find a case where "Certain London Market Insurance Companies" or "Certain Underwriters of Lloyd's London" was an improper party entity, and that in any event it would have permitted plaintiffs to amend the complaint, even after the bench trial, pursuant to Federal Rule of Civil Procedure 17(a) to name the real party in interest. Id. at 726.
A description of the structure and operation of Lloyd's of London from Squibb I is as follows:
The anonymous underwriters of Lloyd's insurance, who are commonly referred to as "Names," invest in a percentage of the policy risk. . . . Insurance from Lloyd's is typically subscribed to by hundreds of Names belonging to different subgroups known as "syndicates." Although syndicates within the Lloyd's market negotiate with each other to spread insurance risk, the syndicates themselves have been said to have no independent legal identity.
The syndicate Names do not manage their own investments. Instead, each syndicate appoints one of its Names (who is usually an insurance broker) to represent the collective interests of the Names in that syndicate. This person is known as the "lead underwriter." The typical Lloyd's policy contains a clause providing that "any [Name] can appear as representative of all [Names]." In practice, however, since many Names from various syndicates are usually involved in any particular policy, the lead underwriter from one of the underwriting syndicates is designated as the representative of all the Names in any of the relevant syndicates, and he is the only Name disclosed on a policy.Squibb L 160 F.3d at 929; see also Roby, 796 F. Supp. at 104.
However, if the lead underwriter is sued in a representative capacity — as opposed to an individual capacity — Second Circuit precedent dictates that each and every "Name" who subscribed to the policy must be diverse from the plaintiffs in order to maintain federal jurisdiction. See Squibb L 160 F.3d at 939 (holding that when a Lloyd's lead underwriter is sued in a representative capacity, each and every Name whom the lead underwriter represents has to be diverse, but when a Lloyd's Name is properly sued in an individual capacity, only that Name's characteristics are relevant); see also E.R. Squibb Sons, Inc. v. Accident Cas. Ins. Co., 241 F.3d 154, 162 (2nd Cir. 2001) ("Squibb II") (permitting the substitution of a Name in an individual capacity in order to preserve jurisdiction for a case that had been tried in federal court for more than a decade).
Apparently, prior to this motion to dismiss, counsel for defendant agreed to cooperate in the identification of the proper parties if plaintiffs provided a copy of the policy. After plaintiffs forwarded the names of two syndicates that "may have been involved," defendant later rescinded its offer to cooperate. In its response, defendant stated that the two syndicates identified by plaintiffs no longer existed. Reply Memo at 6; but see Roby, 796 F. Supp. at 105 ("Syndicates exist for one year, at the end of which they are dissolved and reconstituted."). However, in later correspondence between the parties, Lloyd's stated that it was simply unable to identify the syndicate with the information plaintiffs had provided.
For example, in Dallas Glen Hills L.P., the court noted that plaintiff brought a closely related declaratory judgment action as a "Name" and sued "as the lead Underwriters of Lloyd's Syndicate 190 on his own behalf and as the representative of Certain Underwriters at Lloyd's, London subscribing to Policy No. CRXTC 99-1128." 2003 U.S. Dist. LEXIS 10490, at *3 (discussing Corfield v. Dallas Glen Hills, L.P. No. 3:02-CV-1781-D, 2003 U.S. Dist LEXIS 10858 (N.D. Tex. 2003)). The court there then described how the plaintiff in Corfield subsequently amended the complaint several times, and each time restyled how the suit was being prosecuted. In the first amendment, Corfield was replaced by a corporate entity (Liberty Corporate Capital, Inc.), which sued "on its own behalf and as the representative of all other members of those Underwriters at Lloyd's, London subscribing" to the policy, and which in subsequent iterations was characterized as suing "on its own behalf and as the lead underwriter of those Underwriters" subscribing to the policy and finally "on its own behalf as the lead underwriter" Id. at *4-*5. InCorfield, the court dismissed for lack of complete diversity because at least one person who subscribed to that risk was a Texas resident Id. at *6. In Dallas Glen Hills, L.P., the plaintiff sued "Underwriters at Lloyd's, London . . . d/b/a Liberty Syndicate 190" in state court in Texas. Id. at *1. Although plaintiff had asserted that one of the syndicate included a Texas resident, the syndicate filed a notice of removal "on its own behalf and as the lead underwriter," and later filed an answer in which it asserted a counterclaim. Id. at *2. The issue before the court was whom the plaintiff in Dallas Glen Hills intended to sue — i.e., the lead syndicate in its representative capacity, all the underwriters subscribing to the risk, or the syndicate in its individual capacity. Id. at *11-*12.
Accordingly, Lloyd's Underwriters' motion to dismiss for failure to state a claim is denied. Lloyd's Underwriters' attempt to recharacterize the defendant named as Lloyd's of London — the marketplace — rather than certain as-yet-unidentified underwriters that operate within that market is unpersuasive. Moreover, plaintiffs have alleged the existence of a contract and while the document that they have produced leaves many significant questions unanswered, it suffices to support plaintiffs' allegation that certain underwriters at Lloyd's of London were a party to that contract.
III. CONCLUSION
For the foregoing reasons, Lloyd's Underwriters' motion to dismiss for failure to state a claim is denied. The Court of the Clerk is instructed to close this motion.