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MAJESTIC INS. CO. v. ALLIANZ INTERN. INS. CO.

March 9, 2001

MAJESTIC INSURANCE COMPANY, PLAINTIFFS,
v.
ALLIANZ INTERNATIONAL INSURANCE COMPANY, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Conti, District Judge.

ORDER GRANTING DEFENDANTS' MOTION TO DISMISS FOR LACK OF JURISDICTION

I. INTRODUCTION

In this reinsurance dispute, plaintiff Majestic Insurance Company ("Plaintiff") seeks declaratory relief, attorney's fees, punitive damages, and profit disgorgement from at least fifty individual insurance company defendants that are members of the Institute of London Underwriters ("ILU Defendants") and at least seventy-two underwriters acting on behalf of Members of Lloyd's, London ("Lloyd's Defendants") for breach of contract, contract reformation, breach of the covenant of good faith and fair dealing, and unlawful business practices under California Business and Professions Code Section 17200. Defendants now move for dismissal on the grounds that this Court lacks subject matter jurisdiction. For the reasons set forth herein, Defendants' motion is HEREBY GRANTED.

II. BACKGROUND

This case delves into the intricacies and sometimes archaic complexities of the London Marine Insurance Market (the "London Market"). At its core, the case concerns reinsurance policies placed in the London Market with insurance company members of the ILU, and individual underwriter members of Lloyd's. Lloyd's of London, the venerable institution associated world-wide with the insurance business, is not actually an insurance company. Rather, it provides a market for the buying and selling of insurance risk among its members.

Lloyd's members are anonymous underwriters commonly referred to as "Names." These Names invest in a percentage of an insurance policy risk. Each Name is exposed to unlimited liability, but only for the share of the loss on a policy that the Name has written. In other words, the liability of a given Name on any given policy is several, and not joint.

Individual Names do not actively participate in the insurance business. Names belong to subgroups, known as "Syndicates." Syndicates are comprised of anywhere from a few hundred to a few thousand Names. They are analogous to a limited partnership, though each individual name has unlimited liability for their share of the Syndicate's losses, and they are not a legal entity. The individual Names in a Syndicate do not manage their own investments. Instead, each Syndicate appoints one of its Names to represent the collective interests of the Names in that Syndicate. This person is known as the "lead" or "active" underwriter. This Name subscribes to insurance risks on behalf of the Names in that Syndicate.

Lloyd's insurance policies are obtained through a broker, known as a Lloyd's broker, who insures part of the risk with a lead underwriter of a Syndicate. The broker then approaches other syndicates who are likely to follow the lead underwriter's decisions until the desired participation in the insurance has been completed. Thus, any single risk is insured by multiple Syndicates. Since many Names from various Syndicates are involved in each individual policy, the lead underwriter from one of the Syndicates usually is designated as the representative for all the Names and relevant Syndicates with respect to that Policy. It is often only that Name which is disclosed on the actual insurance policy.

Plaintiff, a California corporation, alleges that it is a predecessor-in-interest or successor-in-interest to Continental Maritime Industries, Marine Terminals Corporation, Service Engineering Corporation, and Redhorse Insurance Company, which are each insureds under the contracts at issue here. Plaintiff wrote workers compensation insurance under both the California compensation system and the United States Longshore & Harbor Workers Compensation Act (the "Longshore Act"). Between 1985 and 1992, Plaintiff purchased numerous reinsurance policies in the London Market. These policies were specific loss excess reinsurance policies, arranged in layers of excess of Plaintiffs retention on a specific claim.

Plaintiff alleges that Defendants failed to comply with their reinsurance obligations as required by the aforementioned policies. Plaintiff filed the present action on October 31, 2000 seeking declaratory relief, attorney's fees, punitive damages. and profit disgorgement for claims including breach of contract, contract reformation, breach of the covenant of good faith and fair dealing, and unlawful business practices under California Business and Professions Code Section 17200. Defendant filed a "Suggestion of Lack of Federal Jurisdiction" seeking to dismiss the case on December 20, 2000.

III. LEGAL STANDARD

Federal courts have limited subject matter jurisdiction. They are restricted as to what cases they may adjudicate and they may exercise jurisdiction only if it is specifically authorized. Article III, Section 2 of the Constitution authorizes federal court jurisdiction for suits between citizens of different states. Jurisdiction based on this circumstance is termed "diversity jurisdiction," and its requirements are detailed in 28 U.S.C. § 1332. That provision states: "The district courts shall have original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs and is between (1) citizens of different States; (2) citizens of a State and citizens or subjects of a foreign state." 28 U.S.C. § 1332.

IV. ANALYSIS

The proper exercise of diversity jurisdiction requires satisfaction of two elements. First, that the parties are diverse, or citizens of different states. In order for the parties to fulfill this requirement there must be "complete diversity." That is no plaintiff can be a citizen of the same state as any of the defendants. Strawbridge v. Curtiss, 7 U.S. 267, 3 Cranch 267, 2 L.Ed. 435 (1806). Second, the amount in controversy must exceed $75,000. 28 U.S.C. ยง 1332 (a). The party seeking to establish diversity jurisdiction has the burden of proof with respect to each of these elements. Kokkonen v. Guardian Life Insurance Company of America, ...


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