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June 12, 1992

JOHN S. ROBY, et al., Plaintiffs, against THE CORPORATION OF LLOYD'S a/k/a THE SOCIETY AND COUNCIL OF LLOYD'S d/b/a LLOYD'S OF LONDON, et al., Defendants.


The opinion of the court was delivered by: MORRIS E. LASKER


 This action alleges violations of the federal securities laws and RICO *fn1" against various entities which are part of the enterprise known as Lloyd's of London. The 91 investor-plaintiffs allege that solicitation of investor/underwriters in the United States by Lloyd's agents constitutes "sale of securities" and that Lloyd's syndicates are "issuers" within the meaning of the securities laws. They assert that they were deceived as to, inter alia, the types of risks assumed by, and the experience of the underwriters of, the syndicates in which they invested. The syndicates are groups of insurer-investors which are organized for the purpose of assuming insurance risks.

 The Syndicate Defendants move to dismiss the action as to them pursuant to Rule 12(b)(1) and Rule 12(b)(6) of the Fed. R. Civ. P., on the ground that they are not legal entities capable of being sued. The dispositive question is whether a syndicate exists as a separate legal entity apart from the investors in the syndicates (who are generally known as Names); or whether, as the syndicates claim, they are merely "groupings" of individual Lloyd's underwriters who severally undertake insurance obligations.

 The syndicates contend that the law of England securities violations. controls the question of their legal existence -- England being the syndicates' home jurisdiction and the forum designated under plaintiffs' various agreements with the Lloyd's community --, or failing that, that the law of New York, the situs of this action, controls. The plaintiffs submit that federal law, in particular the Securities Act of 1933 and the Securities and Exchange Act of 1934 in combination with Fed. R. Civ. P. 17(b), controls.

 The syndicates' motion is granted.


 Lloyd's of London is a venerable institution, dating back to the latter part of the seventeenth century, long known for its insurance business. Although Lloyd's is generally considered to be a unitary organization, it actually is not, and in fact bears little resemblance to the typical corporate insurer. It issues no insurance policies. Rather, it acts as a market for the buying and selling of insurance risks.

 According to the syndicates, the closest American analogue to Lloyd's is the New York Stock Exchange. Lloyd's provides the premises, administrative staff and support services for the market; it also issues rules and regulations and monitors transactions that occur in the market. Like the New York Stock Exchange, Lloyd's does not participate in individual decisions made by its brokers, members or underwriters.

 The persons who carry on the business at Lloyd's are, respectively, the brokers, active underwriters, member's agents, managing agents, and Names (who make up the syndicates). The Names are the individual investors. They pay fees and delegate complete authority to conduct Lloyd's affairs to "member's agents." Although Names are the ultimate underwriters of the insurance, they do not participate actively in the underwriting process or in the recruiting of other Names to the syndicates. They have no management authority and cannot bind their fellow members or the syndicate. Membership in a Lloyd's syndicate is personal and not transferable and terminates upon the death of the member.

 Member's agents recruit new Names and handle the admission of Names to Lloyd's membership. Member's agents are ordinarily also chosen to act as Names' underwriting agents *fn2" and, in that role, are responsible for placing Names in syndicates. In connection with the latter, the member's agent contracts with a "managing agent" to place the member in a group comprised of two to several hundred other Names. These groups constitute the syndicates. Managing agents run the syndicates. They hire the syndicate's active underwriter and maintain the syndicates' accounts and other records, among other things.

 An employee of the managing agent, known as the "active underwriter," acts on behalf of the Names in a syndicate in the "buying" and "selling" of insurance risks; Active underwriters are seated on the underwriting floor at Lloyd's in London. Brokers approach the active underwriter at his desk -- in Lloyd's parlance "the box" -- to solicit the underwriter's agreement to accept a risk. The active underwriter decides which of the risks, offered to him by brokers, to accept and at what premium, and negotiates the conditions of coverage and the proportion of risk his syndicate will assume. See Syndicate 420 at Lloyd's London v. Early American Insurance Co. Ltd, 796 F.2d 821, 824 (5th Cir. 1986).

 Through their syndicates, Names subscribe to a certain percentage of the risk on policies, in return for a certain percentage of the premium paid to the syndicate by the insured. Normally, syndicates do not insure 100% of a risk. Rather, a number of syndicates agree to subscribe, each assuming a specified portion of the total risk. A syndicate member is entitled to a specified (contracted-for) share of the profits from the syndicate's business and is responsible for that share of loss only.

 Although Names have unlimited personal liability for their respective share of the risk, a Name has no responsibility whatsoever for the liability of his fellow syndicate members. Section 8(i) of the Lloyd's Act of 1982 states:

 An underwriting member shall be a party to a contract of insurance underwritten at Lloyd's only if it is underwritten with several liability, each underwriting member for his own part and not one for another and if the liability of each underwriting member is accepted solely for his own account.

 In addition, when a Name becomes a member of a syndicate, the contract he or she signs specifies that

 [nothing in his or her agreement with the relevant member's agent or managing agent] shall constitute a partnership between the Name and the Agent or between the Name and any or all of the other members of the Contracted Syndicates.

 Schedule 1, Clause 16.1, Lloyd's Byelaw No. 8 of 1988 Agency Agreements.

 Nothing in this Agreement shall constitute any partnership between . . . the Name and any other person or persons whomsoever . . . .

 Schedule 1, Clause 20, to Lloyd's Byelaw No. 1 of 1985 Agency Agreements.

 Syndicates exist for one year, at the end of which they are dissolved and reconstituted. However, although syndicates are identified by numbers (e.g., Syndicate No. 670), the numbers are often reused from year to year and often, at their option, many of the same Names remain members. The Names elect each year which syndicates they wish to join. A syndicate closes its accounts for a given year by transferring its potential liabilities to the members of the syndicate in the following year of account, a practice called "reinsurance to close," and the same managing agents usually run the syndicates from year to year.

 There are approximately 365 syndicates in the Lloyd's system. 300 of them, identified by numerical reference in the caption to the complaint, are named as defendants in this action. They are the syndicates to which the 91 plaintiff-investors belonged.


 The Syndicate Defendants argue, and ordinarily it would be the case, that either English or New York law controls as to the legal status of the syndicates. It is syndicates' position that their legal status in England is controlling on the issue of whether they are amenable to suit here and that New York law, if it applies, supports their position. However, according to plaintiffs, federal law controls and that federal law is said to be found in the Securities Acts together with the provisions of Fed. R. Civ. P. 17(b). In brief, plaintiffs assert that Congress legislated that "persons" that are "issuers" are subject to the Securities Act of 1933 and the Securities and Exchange Act of 1934 and automatically have legal existence. Plaintiffs contend that ...

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