CITIZENSHIP OF LLOYD'S 'NAME' ALLOWS JURISDICTION, U.S. COURT SAYS.

An individual Lloyd's of London underwriter who is a British subject may sue in U.S. federal court under diversity jurisdiction, and the court need not consider the citizenship of other underwriters, the Fifth U.S. Circuit Court of Appeals decided Dec. 29.

The ruling was the first on the subject in the Fifth Circuit. Other circuits have split on the question of whether citizenship of all of a Lloyd's syndicate's underwriters - known as Names - must be considered when courts decide whether citizenship is completely diverse.

"The fact that the Names' contracts with the insured and the rules of Lloyd's are structured such that the other Names are affected by the judgment against a single Name does not bring those other parties before the court or make them relevant for the citizenship determination," U.S. District Judge Jay Zainey wrote for the three-member panel.

The case arose after Dallas Glen Hills, a Texas limited partnership, claimed an insured commercial-property loss on a Lloyd's policy issued by Liberty Syndicate 190, a British corporation serving as lead underwriter.

After an adjuster inspected the property, Liberty denied the claim. Complicated litigation ensued, in which Liberty wound up seeking a declaratory judgment from a federal court on the parties' rights and obligations.

DGH objected that for diversity purposes, the court had to consider the citizenship of every underwriter. It alleged at least one was a citizen of Texas.

The diversity statute gives federal district courts original jurisdiction over civil actions when the matter in controversy exceeds $75,000 and is between citizens of a state and citizens or subjects of a foreign states.

As lead underwriter, Liberty's potential liability would be at least $163,950, so the amount in controversy was satisfied.

But the law requires complete diversity, which is defeated if one of the plaintiffs shares the same state citizenship as any defendant.

DGH persuaded the judge to dismiss the case on grounds Liberty hadn't alleged the citizenship of all Names subscribing to the policy. Liberty appealed.

"Several of our sister circuit courts has addressed the Lloyd's citizenship conundrum and have reached differing results," the Fifth Circuit panel observed.

But it rejected the Seventh Circuit's reasoning in a 1998 case, Indiana Gas Co. v. Home Insurance Co., that a syndicate had all the characteristics of a limited partnership and therefore had the citizenship of every Name.

Instead, it adopted the Second Circuit's reasoning in E.R. Squibb & Sons, Inc. v. Accident & Casualty Insurance Co. and said the fact other parties would be bound by a judgment is insufficient to bring their citizenship into question when they are not parties to the suit.