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HUMM v. LOMBARD WORLD TRADE

January 29, 1996

TIMOTHY MAXWELL HUMM, an Underwriter at Lloyd's of London on behalf of himself and all interested Underwriters under Policy No. MB6807/7000, Plaintiff, against LOMBARD WORLD TRADE, INC., Defendant, -against- TIMOTHY MAXWELL HUMM, LOWNDES LAMBERT CARGO LIMITED, and JOHN DOES 1 through 50, fictitious names being and intending to be all persons having liability under Lowndes Lambert Cover Note No. MB6807/7000, to be named individually when identified, Counterclaim Defendants


The opinion of the court was delivered by: SCHWARTZ

 ALLEN G. SCHWARTZ, DISTRICT JUDGE:

 This action is before the Court on defendant Lombard & Co., Inc.'s (formerly known as Lombard World Trade, Inc.) ("Lombard") motion to dismiss the complaint for lack of subject matter jurisdiction, failure to join indispensable parties and lack of standing. In addition, third party defendant Lowndes Lambert Cargo Ltd. moves to dismiss Lombard's claim against it for lack of personal jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(2).

 BACKGROUND

 On or about November 21, 1988, Lombard became insured under a policy of marine cargo insurance with Lloyd's, London ("Lloyd's"). Plaintiff Timothy Maxwell Humm ("Humm") is a lead underwriter of the insurance policy issued to Lombard, who brings this action "on behalf of himself and all interested Underwriters under Policy No. MB6807/7000." Complaint P 2.

 Policy No. MB6807/7000 (the "Policy") contained a storage clause which covered risks of physical loss for coffee stored at various warehouses in the United States. In 1991, Lombard made a claim under the Policy for the loss of approximately 7,971 bags of coffee in the amount of $ 885,475.76, alleged to have been stolen while in storage at the Thor Warehouse in Texas. While the claim was under investigation by the Policy underwriters, the parties agreed that the underwriters would loan to Lombard 67% of its claim "on account", amounting to $ 593,268.76. Humm alleges that the underwriters' investigation revealed that only 2,499 bags of coffee, worth $ 278,567.00, were ever delivered to Thor Warehouse for Lombard and that the remaining 5,472 bags of coffee never existed except on fraudulent warehouse receipts issued by Thor Warehouse as part of a scheme to defraud Lombard.

 Humm and the other underwriters deny liability for such non-existent goods on the basis that the Policy covered only physical loss or damage and does not include coverage for spurious warehouse receipts. After the investigation, the underwriters demanded that Lombard return to them $ 314,701.76, which is the excess of the loan over the value of the coffee proven to have been in existence. Upon Lombard's refusal to return the funds demanded, Humm brought this action.

 Lombard alleges, in part, that the counterclaim defendants unconscionably failed to pay Lombard $ 292,207.00 of its claimed loss, acted in bad faith in not effectuating a prompt, fair and equitable settlement of Lombard's claim, engaged in unfair and deceptive trade practices, and breached their duty of good faith and fair dealing. Lombard seeks compensatory damages in the amount of $ 292,207.00, trebled in accordance with Texas law, interest on the compensatory damages, exemplary damages in the amount of $ 5,000,000.00, and its costs and disbursements.

 Relevant to Lombard's motion to dismiss the complaint for lack of subject matter jurisdiction is the nature and structure of insurance underwriting at Lloyd's. Lloyd's itself does not underwrite insurance. Rather, Lloyd's operates as a marketplace where large numbers of individual investors buy and sell insurance risks. These individual investors are referred to as "Names" and operate as members of syndicates. The Names invest funds and pledge their assets as security for insurance risks which have been accepted in the Lloyd's market. Affidavit of Graham Baxter, dated November 16, 1994 ("Baxter Aff."), at P 3. According to plaintiff, the Names do not actively participate in the business of underwriting risks, but instead appoint a managing agent who manages the syndicate pursuant to a Managing Agent's Agreement. The managing agent in turn appoints and employs an active underwriter to underwrite risks for the syndicate. Id. An active underwriter under the Lloyd's Agency Agreements Bylaw must also be a member of the syndicate (Name) for which he or she will accept the risk on insurance policies. See Bath Iron Works Corp. v. Certain Member Companies of the Institute of London Underwriters, 870 F. Supp. 3, 4 (D. Me. 1994). There can be a few to thousands of Names, each of whom subscribes to a small fraction of the insurance risk. The Names are severally (not jointly) liable to the insured for their fraction of the risk. Defendant's Memorandum in Support of Motion to Dismiss Complaint for Lack of Subject Matter Jurisdiction and Standing ("Defendant's Mem. of L.") at 7.

 A total of fifty-six syndicates participated in underwriting the Policy issued to Lombard. Baxter Aff. at P 6; see also Baxter Aff. Ex. C (chart of participating syndicates showing the syndicate code, percentage of risk under the Policy, underwriter, managing agent and number of Names). Plaintiff states that, according to an internal review, there were in excess of 80,000 Names who participated as investors in the Policy as members of the fifty-six syndicates. Baxter Aff. at P 7. According to plaintiff's review of the pertinent records maintained at Lloyd's, over one hundred Names whose syndicates accepted risk on the Policy have New York mailing addresses. Thus, for purposes of defendant's motion to dismiss, plaintiff accepts that at least one of the Names is a citizen of New York. Plaintiff's Memorandum of Law in Opposition to Motion of Defendant, Lombard World Trade Inc. to Dismiss the Complaint ("Plaintiff's Mem. of L.") at 4, n. 1.

 Each syndicate has a managing agent who acts on behalf of the syndicate members (the Names) in insuring risks. Hiscox Syndicates Ltd., the managing agent of syndicate number 0625, which is also known as the T.M. Humm syndicate, appointed Humm to act as "senior active underwriter", or "leading underwriter", for that syndicate. Baxter Aff. at PP 2, 5. As a leading underwriter for syndicate 0625, Humm has the power to accept risks on behalf of the syndicate, settle and pay claims, and commence lawsuits in his own name for the syndicate. Id. at P 6. Graham Baxter, who is also an underwriter for syndicate 0625, also possesses such powers on behalf of his syndicate and states that he "exercised this power when [he] accepted the Lombard risk on behalf of the syndicate by initialling the slip." Id. at P 6. Presumably, the underwriters who accepted the risk under the Policy for the other fifty-five syndicates (whether they have been appointed the "senior active" or "leading" underwriter or not) have the same or similar powers pursuant to a Managing Agent's Agreement-- assigned to them by the syndicate's managing agent. See id. Ex. A (Standard form Managing Agent's Agreement). Humm purports to represent "all interested underwriters" under the Policy. To Humm, this apparently means the underwriters of the other fifty-five syndicates who accepted the risk for their syndicates. See id. Ex. C (chart identifying leading underwriters). These underwriters, in turn, represent the interests of the members of their syndicates. Lombard, on the other hand, argues that the Names are the true parties interested under the Policy because they are severally liable. See id. Ex. A, §§ 7.1, 8 at 43, 45. No other underwriter or Name, whether in an individual or representative capacity, has been joined as a plaintiff in this action.

 DISCUSSION

 Humm asserts jurisdiction under 28 U.S.C. § 1332, based upon the diversity of the parties and the matter in controversy exceeding $ 50,000.00. Complaint at P 1. Lombard moves to dismiss the complaint for lack of subject matter jurisdiction based on the fact that Humm concedes that at least one of the Names was a citizen of New York State when this action was commenced. In addition, Lombard argues that Humm does not properly represent all interested underwriters under the Policy, since he does not own the substantive rights to the entire Policy, and urges ...


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