Citizenship of Underwriters of a Texas Lloyd’s Plan Governs Diversity Analysis

May 23, 2008

In analyzing a motion to remand, United States Magistrate Judge Paul Stickney held that the citizenship of the underwriters to a Lloyd’s plan governs the issue of diversity. The judge denied the motion to remand the case back to state court.

Etan Industries filed a declaratory judgment action against The Travelers Lloyds Insurance Company seeking insurance coverage, along with damages for deceptive trade practices. Travelers Lloyds removed the case to federal court, and a motion to remand was soon filed.

The magistrate judge analyzed two issues in reaching his decision: 1) how to determine if there is complete diversity when dealing with a Lloyd’s plan; and, 2) how to calculate the amount in controversy. The judge held that the citizenship of the underwriters to the Lloyd’s plan governs the issue. As long as there is complete diversity between the plaintiff and the various underwriters to the plan then the case is removable. In this case the 15 underwriters were all citizens of Connecticut, while the plaintiff was a Texas entity. The judge went on to note that Travelers Lloyds’ citizenship is based on that of its underwriters since it is an unincorporated association.

Judge Stickney also ruled that in order for the jurisdictional requirement for removal to be met in this instance the underwriters could not aggregate their liabilities. In this instance each underwriter had to be severally liable for $75,000 for a total of $1,125,000 in order to properly remove the case. Based on his analysis of the liabilities in the state court petition at the time of removal the judge determined that each underwriter’s amount in controversy was $80,910.13.

Judge Stickney recommended that the plaintiff immediately engage in discovery of the underwriters in order to further determine if removal was proper. The judge reserved the right to remand the case later if necessary. Insurers prefer to litigate coverage actions in federal courts, so policyholders need to be prepared for the benefits and disadvantages of this forum.

Etan Industries, Inc. v. The Travelers Lloyds Ins. Co., 2008 WL 1869216 (N.D.Tex. 2008)

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