Where do I fit in? Citizenship claims and the s. 1332 diversity statute in Underwriters at Lloyd's v. Osting-Schwinn.

• Author: Benton, Terri K.

The first sign of insanity is committing the same acts repeatedly and expecting a different result. However, the Society of Lloyd's, London must not have paid attention to this widely known clich6. The decision of the United States Court of Appeals for the Eleventh Circuit in Underwriters at Lloyd's v. Osting-Schwinn is a seemingly simple case following a pattern of over a hundred years of United States Supreme Court precedent. Although the dictum in the opinion extends more broadly, the Eleventh Circuit essentially held in Osting-Schwinn that the Society of Lloyd's, London must claim citizenship in every state in which any of its members is a citizen. (1) Despite arguments that as a practical matter, it would be a burden on Lloyd's to plead citizenship in every state in which its 30,000 members were citizens, the Eleventh Circuit still subjected the unincorporated association to the formal definition of citizenship. (2) This decision greatly reduced the likelihood that Lloyd's, or any other unincorporated association, will be able to maintain claims filed in, or removed to, the district courts for the Eleventh Circuit.

1. The Facts

   On May 7, 2002, plaintiff Osting-Schwinn's minor son, C.O., was injured when his dirt bike collided with Michael Rockhill's all-terrain vehicle. Mr. Rockhill possessed an insurance policy underwritten by a number of Lloyd's of London syndicates on the vehicle involved in the collision. Ms. Osting-Schwinn filed an insurance claim on behalf of her son, and the underwriters at Lloyd's offered to settle for the full policy limits in exchange for a release of all claims arising from the collision. (3) The syndicates, who were responsible for managing the underwriters for the policy, sent four checks in sum equal to the policy limit "and a copy of the Rockhills' policy intended to satisfy the disclosure requirements of the Florida statute." (4) Despite the tentative agreement, Ms. Osting-Schwinn returned the checks, asserting that any syndicate of the syndicates violated Florida law by not disclosing information regarding other insurers and by not sending "an adequate copy" of Mr. Rockhill's insurance policy. (5)

   After Ms. Osting-Schwinn refused the settlement checks, she filed a negligence claim in the Florida Circuit Court for the Thirteenth Judicial Circuit. In response, the underwriting syndicates filed a diversity suit in the United States District Court for the Middle District of Florida seeking a declaratory judgment under 28 U.S.C. [section] 2201, (6) arguing that the syndicates and Ms. Osting-Schwinn had reached a valid agreement to settle the claim. Ms. Osting-Schwinn moved to dismiss the suit based on lack of subject matter jurisdiction, contending that the complete diversity requirement was not met. (7) The district court denied the motion to dismiss and granted Lloyd's motion for summary judgment, reasoning that "[Ms.] Osting-Schwinn had formed an enforceable out-of-court settlement," and Ms. Osting-Schwinn received $101,658 in exchange for releasing all claims against the plaintiff. (8) The district court further concluded that Lloyd's met the complete diversity requirement, reasoning that Lloyd's did not have to count the citizenship of each of its members because of its enormous size, and the lead underwriter, as an agent, could represent the entire association. (9) Specifically, the district court stated that Lloyd's consisted of "over 400 separate syndicates and over 30,000 members," and it would be unrealistic to require the pleading of the citizenship of each party. (10)

   Ms. Osting-Schwinn filed an appeal in the United States Court of Appeals for the Eleventh Circuit. (11) The Eleventh Circuit limited its review to whether the district court properly applied 28 U.S.C. [section] 1332 (12) when the district court determined whether Lloyd's met the requirements of diversity jurisdiction. (13) The Eleventh Circuit held that the citizenship of each member of Lloyd's must be determined, as Supreme Court precedent strongly suggested upon the determination of the citizenship of all forms of unincorporated entities. (14) Consequently, according to the Eleventh Circuit, the complete diversity requirement of [section]1332 would be violated if, on remand, it appeared that any of members of a Lloyds syndicate shared Florida citizenship with Lloyd's opponent, Ms. Osting-Schwinn. (15) The court stated that Lloyd's, like any other unincorporated association, must count the citizenship of each of its underwriters in order to meet the complete diversity requirement of 28 U.S.C. [section] 1332. (16)

2. Legal Background

   For over one hundred years, federal courts have puzzled over how unincorporated associations must plead their citizenship status for purposes of federal diversity jurisdiction. (17) A split among the circuit courts has centered on whether an unincorporated association must plead citizenship in every state in which one of its members is a citizen. (18) The Supreme Court, in most decisions regarding the citizenship of unincorporated associations, has required unincorporated entities to allege the citizenship of each constituent individual or member. (19) In most circuits, often unincorporated associations do not meet the complete diversity requirement of 28 U.S.C. [section]1332 (20) because generally the entity will be deemed a citizen in each of the states in which any member is a citizen. (21) The majority of lower federal courts have neither created nor recognized any exceptions to the dominant United States Supreme Court precedent of assigning unincorporated associations multiple states of citizenship. (22) Policy considerations that underlie the court's analysis of Osting-Schwinn include both the fear of possible preclusion of federal jurisdiction in the district courts for an unincorporated association and the desire for simplicity in the application of jurisdictional rules as asserted in the 2010 decision Hertz v. Friend. (23)

   1. Structure of the Society of Lloyd's, London

      A brief overview of Lloyd's organizational structure provides clarity to the diversity issue in this case. The Society of Lloyd's, London, based in Great Britain, provides the framework for the international insurance market. (24) Lloyd's does not assume any liability risk from its policies; individual underwriters, also known as "names" or "members," assume the risk. (25) Administrative entities, commonly referred to as syndicates, manage the names. (26) Syndicates are unincorporated and "cumulatively assume the risk of a particular policy." (27) Lead underwriters, or active underwriters, are the public faces for the syndicates and are usually the only names listed on the insurance policy. (28) Each name is recorded with the policy it has underwritten. (29)

   2. Parameters of Federal District Court Diversity Jurisdiction & Codification of 28 U.S.C. [section] 1332

      The federal diversity statute, 28 U.S.C. [section] 1332(a), (30) limits the jurisdiction of the federal district courts to "civil actions where the matter in controversy exceeds ... $75,000 ... and is between--(1) citizens of different States." (31) In Strawbridge v. Curtiss, one of the earliest United States Supreme Court interpretations of 28 U.S.C. [section] 1332, the Court strictly construed the diversity requirement to require that a plaintiff not share any citizenship in the same state as any defendant. (32)

      With regard to unincorporated associations, Congress addressed the limitation of an entity's access to the federal court system for the first time in 1958 by providing access to the federal courts to incorporated associations by creating two possible states of citizenships for such corporations. (33) Congress expanded the Supreme Court's decision in Louisville Railroad Co. v. Letson, (34) which provided most corporations only one state of citizenship by assigning a corporation its principal place of business as a second potential state of citizenship. (35) There was no mention of giving the same two states of citizenship to unincorporated associations. Thus, courts have argued that the states of citizenship of each member of an unincorporated entity were to be counted for purposes of diversity. Therefore, the limited statutory definition of corporate citizenship has the effect of allowing corporations to sue or be sued more frequently in federal courts, on state law claims, than unincorporated associations. (36)

   3. State Citizenships of Unincorporated Entities

      1. Supreme Court Cases

         Throughout more than a century's worth of case law, the complete diversity requirement established in Strawbridge formed the critical background against which the Supreme Court discussed the citizenship status of an unincorporated association. (37) In Letson, the plaintiff was a citizen of New York who brought a claim against the defendant, the Louisville Railroad Company. (38) The Louisville Railroad Company was an unincorporated association...