Pellegrini v. Toffoli

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF LOUISIANA

JAY A PELLEGRINI CIVIL ACTION

VERSUS NO. 22-1178

MICHAEL TOFFOLI, ET AL. SECTION “R” (2)

ORDER AND REASONS

Before the Court is plaintiff’s motion to remand.1 Defendant Certain

Underwriters of Lloyd’s, London opposes the motion.2 For the foregoing

reasons, the Court grants plaintiff’s motion.

I. BACKGROUND

This case arises out of a dispute between business partners over

plaintiff’s investment in the acquisition of a property and casualty (“P&C”)

insurance company. Plaintiff alleges that defendant Michael Toffoli, the

owner and operator of Acadian Managers, LLC, a wholesale general

insurance agency, was interested in buying a P&C insurance company and

“sought [plaintiff] to invest in the acquisition” of such a company.3 At the

1 R. Doc. 9.

2 R. Doc. 21.

3 R. Doc. 1-2 at 2 ¶¶ 9-10.

time, Standard National Fire Insurance Company (“SNFIC”) was attempting

to sell its P&C insurance line. Toffoli negotiated a purchase of SNFIC’s P&C

insurance line with the help of plaintiff’s $3,000,000 investment, and in

August of 2018, plaintiff and Toffoli formed an entity called Columbus

Holdings, LLC (“Columbus Holdings”) to own and operate the P&C line.4

Columbus Holdings was designated as the owner and operator of

SNFIC.5 Plaintiff was a member and investor of Columbus Holdings, and

Toffoli was the manager member and president/operator of Columbus

Holdings, Columbus Underwriting, LLC, and SNFIC.6 In that capacity,

Toffoli conducted the day-to-day operations of SNFIC.

Plaintiff contends that he made his initial $3,000,000 investment in

Columbus Holdings based on Toffoli’s representation that SNFIC “would

obtain capital loss insurance to secure and protect” the investment.7 Plaintiff

claims that Toffoli represented to him that there was “sufficient reinsurance

to withstand any natural disasters in Louisiana.”8 Toffoli allegedly assured

4 Id. at 4-5 ¶¶ 10-12.

5 Id. at 3 ¶ 13.

6 Id. ¶ 14.

7 Id. ¶ 16.

8 Id. ¶ 17.

plaintiff that plaintiff’s investment would be insured or otherwise protected

until his investment was recouped.9

Plaintiff alleges that Toffoli represented at a Board of Directors

meeting in September of 2020 that SNFIC was “positioned . . . to withstand

major catastrophes.” 10 Toffoli allegedly claimed that SNFIC had “purchased

a little over 1 in 100-year probable maximum loss at $40 million.”11 In

August 2021, Hurricane Ida hit Louisiana. Plaintiff contends that the initial

assessment of liabilities from the Hurricane Ida claims exceeded $65 million.

He allegedly learned that SNFIC maintained grossly insufficient reinsurance

to cover the losses from the hurricane, contrary to Toffoli’s representations.12

Plaintiff further alleges that Toffoli did not insure plaintiff’s initial

investment as he said he would.13

The Louisiana Department of Insurance placed Columbus Holdings,

Columbus Underwriters, LLC, and SNFIC were placed into receivership in

the 19th Judicial District Court, Parish of East Baton Rouge.14 The Louisiana

Insurance Guaranty Association assumed control and responsibility for

9 Id. ¶ 18.

10 Id. at 4 ¶ 23.

11 Id.

12 Id. ¶ 25.

13 Id. ¶ 26.

14 Id. at 5 ¶ 27.

SNFIC policies, which plaintiff alleges resulted in his “uninsured and

unprotected $3 million investment” being lost.15

Plaintiff filed this lawsuit in 22nd Judicial District Court, Parish of St.

Tammany in February 2022. He named as defendants Toffoli and Acadian

Managers, LLC.16 He also named Certain Underwriters of Lloyd’s, London

(“Lloyd’s”), which provided directors and officers (“D&O”) insurance to

Columbus Holdings, Columbus Underwriting, and SNFIC, pursuant to

Louisiana’s direct action statute.17 Finally, he named ABC Insurance

Company, an unidentified insurance company that provided excess D&O

insurance to Columbus Holdings, Columbus Underwriting, LLC, and SNFIC;

and DEF Insurance Company, an unidentified insurance company that

insured Acadian Managers, LLC.18 The thrust of plaintiff’s complaint is that

he would not have made this investment had he known “Toffoli would not

obtain sufficient reinsurance to cover possible losses for the value of

aggregate premiums and/or protect [plaintiff’s] initial $3,000,000

investment.”19 Plaintiff brings the following claims against defendants: (a)

breach of fiduciary duty, (b) abuse of control, (c) gross management, (d)

15 Id. ¶ 28.

16 Id. at 1-2 ¶¶ 2, 5.

17 Id. ¶ 3.

18 Id. at 3 ¶¶ 4, 6.

19 Id. at 6 ¶ 36.

gross negligence, (e) failing to preserve corporate assets, (f) conflict of

interest, and (g) unjust enrichment.20

Lloyd’s removed the action to the Eastern District of Louisiana on the

grounds of diversity jurisdiction.21 Lloyd’s contended that the amount in

controversy exceeds $75,000 and that there is complete diversity of

citizenship.22 In particular, Lloyd’s asserted that plaintiff is a citizen of

Louisiana, Toffoli is a citizen of South Carolina, and Acadian Managers, LLC

is a citizen of the states of which its members are citizens: New York, Virginia,

Florida, and South Carolina.23 As for its own membership, Lloyd’s

contended that there is one subscribing syndicate on the relevant insurance

policy, Syndicate TAL 1183, consisting of corporate capital from its sole

member, Talbot Capital. It contends that the key for diversity of citizenship

purposes is the citizenship of the members of the syndicate that are liable for

loss on the policy. This, Lloyd’s contends, is Talbot Capital. Talbot Capital

is incorporated and registered in England and Wales and has its principal

place of business in London.24 Lloyd’s thus asserted that it is a citizen of the

United Kingdom for purposes of this action. Lloyd’s contended in the

20 Id. at 7 ¶ 40.

21 R. Doc. 1.

22 Id. at 2 ¶¶ 4, 8.

23 Id. at 2-3 ¶¶ 9, 11-12.

24 Id. at 2-3 ¶ 10.

alternative that it was improperly joined, so its citizenship should be

disregarded.25

Plaintiff moved to remand on the grounds that there is not complete

diversity of citizenship among the parties.26 In particular, he contends that

Lloyd’s failed to allege the citizenship of each of the “individual syndicates

underwriting the Lloyd’s policy.”27 He argues in the alternative that because

this is a direct action against Lloyd’s in its capacity as the insurer for

Columbus Holdings, Lloyd’s adopts the citizenship of the insured under 28

U.S.C. 1332(c).28 It asserts that Lloyd’s is thus non-diverse because for

purposes of this action it must be treated as a citizen of the same states as

Columbus Holdings: Louisiana and South Carolina.29

Lloyd’s opposes the motion.30 The Court considers the parties’

arguments below.

25 Id.

26 R. Doc. 9.

27 R. Doc. 9-1 at 2.

28 R. Doc. 28 at 3-5.

29 Because Columbus Holdings is an LLC, it has the citizenship of its

members, plaintiff and Toffoli. As discussed, supra, plaintiff is a

citizen of Louisiana and Toffoli is a citizen of South Carolina.

30 R. Doc. 31.

II. LEGAL STANDARD

A defendant may generally remove a civil action filed in state court if

the federal court has original jurisdiction over the action. See 28 U.S.C.

§ 1441(a). The removing party bears the burden of showing that federal

jurisdiction exists. See Allen v. R & H Oil & Gas Co., 63 F.3d 1326, 1335 (5th

Cir. 1995). In assessing whether removal was appropriate, the Court is

guided by the principle, grounded in notions of comity and the recognition

that federal courts are courts of limited jurisdiction, that removal statutes

should be strictly construed. See, e.g., Manguno v. Prudential Prop. & Cas.

Ins., 276 F.3d 720, 723 (5th Cir. 2002); Neal v. Kawasaki Motors Corp., No.

95-668, 1995 WL 419901, at *2 (E.D. La. July 13, 1995). Though the Court

must remand the case to state court if at any time before the final judgment

it appears that it lacks subject matter jurisdiction, the Court’s jurisdiction is

fixed as of the time of removal. 28 U.S.C. § 1447(c); Doddy v. Oxy USA, Inc.,

101 F.3d 448, 456 (5th Cir. 1996).

For diversity jurisdiction to exist, the amount in controversy must

exceed $75,000, and there must be complete diversity between plaintiffs and

defendants. See 28 U.S.C. § 1332(a); Owen Equip. & Erection Co. v. Kroger,

437 U.S. 365, 373 (1978). Having a plaintiff and a defendant who are citizens

of the same state ordinarily destroys complete diversity. See McLaughlin v.

Miss. Power Co., 376 F.3d 344, 353 (5th Cir. 2004). Therefore, when a non-

diverse party is properly joined as a defendant, no defendant may remove the

case under 28 U.S.C. § 1332.

A defendant may remove by showing that a non-diverse party was

improperly joined. Smallwood v. Ill. Cent. R.R. Co., 385 F.3d 568, 572 (5th

Cir. 2004). Because this is a narrow exception to the rule of complete

diversity, the burden of demonstrating improper joinder is a heavy one. Id.

at 574. A defendant may establish improper joinder by showing either: “(1)

actual fraud in pleading jurisdictional facts, or (2) inability of the plaintiff to

establish a cause of action against the non-diverse defendant.” Id. at 573.

To determine whether the latter showing has been made, courts ask “whether

the defendant has demonstrated that there is no possibility of recovery by

the plaintiff against an in-state defendant, which stated differently means

that there is no reasonable basis for the district court to predict that the

plaintiff might be able to recover against an in-state defendant.” Davidson

v. Georgia-Pac., L.L.C., 819 F.3d 758, 765 (5th Cir. 2016) (quoting

Smallwood, 385 F.3d at 573).

“In analyzing whether a plaintiff has demonstrated a reasonable

possibility of recovery, the district court may ‘conduct a Rule 12(b)(6)-type

analysis, looking initially at the allegations of the complaint to determine

whether the complaint states a claim under state law against the in-state

defendant.’” Menendez v. Wal-Mart Stores, Inc., 364 F. App’x 62, 69 (5th

Cir. 2010) (per curiam) (quoting Smallwood, 385 F.3d at 573). The Fifth

Circuit has explained that, “if a plaintiff can survive a Rule 12(b)(6) challenge

for failure to state a claim, there is ordinarily no improper joinder.”

Davidson, 819 F.3d at 765 (citing Mumfrey v. CVS Pharmacy, Inc., 719 F.3d

392, 401 (5th Cir. 2013)).

As in the Rule 12(b)(6) context, the plaintiff must plead “enough facts

to state a claim to relief that is plausible on its face.” Int’l Energy Ventures

Mgmt., L.L.C. v. United Energy Grp., Ltd., 818 F.3d 193, 200 (5th Cir. 2016)

(quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim is

facially plausible when the plaintiff pleads facts that allow the Court to “draw

the reasonable inference that the defendant is liable for the misconduct

alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). The Court must

accept all well-pleaded facts as true and must draw all reasonable inferences

in favor of the plaintiff. Lormand v. U.S. Unwired, Inc., 565 F.3d 228, 239

(5th Cir. 2009). But the Court is not bound to accept as true legal conclusions

couched as factual allegations. Iqbal, 556 U.S. at 678.

The Court may take judicial notice of public records while conducting

this 12(b)(6)-type analysis. See Viking Constr. Grp., LLC et al. v. Satterfield

& Pontikes Constr. Grp., et al., No 17-12838, 2018 WL 398751, at *4 n.18

(E.D. La. Jan. 12, 2018); Rantz v. Shield Coat, Inc., No. 17-3338, 2017 WL

3188415, at *5 (E.D. La. July 26, 2017). And if the plaintiff has misstated or

omitted discrete facts relevant to the court’s improper-joinder analysis, the

court “may, in its discretion, pierce the pleadings and conduct a summary

inquiry.” Smallwood, 385 F.3d at 573.

III. DISCUSSION

A. Complete Diversity

Because plaintiff brings only state-law claims, this Court has

jurisdiction over this dispute only if there is complete diversity among the

parties. 28 U.S.C. § 1332(a). It is undisputed that plaintiff is a citizen of

Louisiana. As noted, Lloyd’s maintains that the member(s) of a Lloyd’s

syndicate who are liable for any loss under the policy are key for determining

diversity jurisdiction.31 It argues that here, that is Talbot Capital, which is a

citizen of the United Kingdom, not Louisiana, rendering remand proper.32

Lloyd’s argument ignores 28 U.S.C. § 1332(c)(1), which provides that

“in any direct action against the insurer of a policy or contract of liability

31 R. Doc. 31 at 6.

32 Id.

insurance . . . to which action the insured is not joined as a party-defendant,”

the insurer “shall be deemed a citizen” of every state of which the insured is

a citizen. 28 U.S.C. § 1332(c)(1). Congress amended section 1332(c) to

include this provision in 1964. Gonzalez v. Gov’t Empl. Ins. Grp., No. 99-

3707, 2000 WL 235236, at *2 (E.D. La. Feb. 28, 2000). Before the

amendment, Louisiana and Wisconsin had direct action statutes that

permitted injured parties to sue insurance companies directly without

joining as a defendant the insured tortfeasor. Hernandez v. Travelers Ins.

Co., 489 F.2d 721, 723 (5th Cir. 1974). As a result, federal courts were flooded

with lawsuits in which plaintiffs were empowered to sue foreign insurance

companies that insured the non-diverse tortfeasors rather than the non-

diverse tortfeasors themselves. Id. To address this burden, Congress

provided that in such direct actions, the insurance companies are deemed to

share the citizenship of the insured. Senate Report No. 1308, which

accompanied the 1964 amendment, set forth its legislative purpose:

The purpose of the proposed legislation is to amend section

1332(c) of title 28, United States Code, so as to eliminate under

the diversity jurisdiction of the U.S. district courts, suits on

certain tort claims in which both parties are local residents, but

which, under a State ‘direct action’ statute, may be brought

directly against a foreign insurance carrier without joining the

local tort-feasor as a defendant.

Gonzalez, 2000 WL 235236, at *4 (quoting S. Rep. No. 1308 (1964),

reprinted in 1964 U.S.C.C.A.N. 2778, 2778-79). In other words, the purpose

of the amendment was “primarily to relieve the overburdened dockets of

federal courts in Louisiana.” Id.

If this case is a “direct action” for purposes of the statute, Lloyd’s will

be deemed a citizen of every state in which the insured is a citizen. The

insured, Columbus Holdings, is a citizen of Louisiana and South Carolina.

Harvey v. Grey Wolf Drilling Co., 542 F.3d 1077, 1080 (5th Cir. 2008)

(“[T]he citizenship of an LLC is determined by the citizenship of all of its

members.”).33 Accordingly, if this case is a “direct action,” there is no

complete diversity among the parties.

In his complaint, plaintiff contends that his claims against Lloyd’s are

brought pursuant to La. Rev. Stat. 22:1269, Louisiana’s direct action statute,

because the insured parties are currently in receivership in state court.34

That statute provides, in relevant part:

No policy or contract of liability insurance shall be issued or

delivered in this state, unless it contains provisions to the effect

that the insolvency or bankruptcy of the insured shall not release

the insurer from the payment of damages for injuries sustained

or loss occasioned during the existence of the policy.

33 R. Doc. 1 at 3 ¶¶ 11-12.

34 R. Doc. 1-2 at 3 ¶ 3.

La Rev. Stat. 22:1269(A). It further states that “[t]he injured person . . . shall

have a right of direct action against the insurer within the terms and limits

of the policy.” La Rev. Stat. 22:1269(B)(1).

The statute “creates a contractual relationship which inures to the

benefit of any and every person who might be negligently injured by the

insured as completely as if such injured person had been specifically named

in the policy.” Sosebee v. Steadfast Ins. Co., 701 F.3d 1012, 1022 (5th Cir.

2012). It “evinces Louisiana’s intent for the insolvency of the insured not to

release the insurer from the payment of damages to injured parties.” Id.

(internal quotation marks omitted).

“By its own terms, the direct action statute applies only to ‘liability’

insurance.” First Nat. Bank of Louisville v. Lustig, 975 F.2d 1165, 1166 (5th

Cir. 1992). The Louisiana Supreme Court has nevertheless held that the

statute “is a mandate for a tort victim to bring a direct suit to recover

damages for personal injury or corporeal property damage from the

tortfeasor’s insurer, regardless of whether the insurer has framed the policy

as a liability or an indemnity contract.” Id. (quoting Quinlan, 575 So. 2d 336,

352 (La. 1990)). When a plaintiff seeks to recover incorporeal damages, such

as investment losses, “the way the insurer has framed the policy is

determinative.” Id. A tort victim seeking to recover incorporeal damages

may avail himself of the direct action statute unless the policy

“unambiguously expresses the parties’ intent that the insurance policy is a

contract of indemnity against loss rather than a policy of insurance against

liability.” Quinlan, 575 So. 2d at 347. When the contract is ambiguous, it is

treated as a policy of insurance against liability, rather than a contract of

indemnity. Id. (construing “the policy to be one of liability” because “the

insurance contract is ambiguous as to whether the parties intended that it

insure against liability or indemnity against loss”). A contract is ambiguous

when its terms “are susceptible of more than one reasonable interpretation.”

Smith v. Western World Ins. Co., 134 So. 3d 1198, 1200 (La. App. 3d Cir.

2014).

The D&O policy here does not unambiguously express the parties’

intent that it is a contract of indemnity against loss rather than a policy of

insurance against liability. Id. The policy provides that the insurer “will

indemnify” the insured “for Loss” arising “from any Claim.”35 Although the

contract uses the term “indemnify,” the policy can be reasonably read as

meaning that the insurer’s obligation to make a payment is triggered “when

liability attaches,” rather than when “the liability has been discharged, as by

payment of the judgment by the insured.” Quinlan, 575 So. 2d at 355. It

35 R. Doc. 21-1 at 5.

should thus be treated as a policy against liability. Id. (treating policy as one

against liability when policy was ambiguous as to whether insurer’s

obligation to pay was triggered when liability attached to insured or when

the insured paid its liability).

For example, “Loss” is defined as “the amount the Insured becomes

legally obligated to pay as a result of a Claim, including but not limited to

Defense Expenses, damages, [and] judgments.”36 A reasonable

interpretation of this language is that the insurer must pay for judgments

imposed against, rather than paid by, the insured. See Quinlan, 575 So. 2d

at 354-55 (treating an ambiguous policy as one for liability when insurer’s

obligation was not triggered by “payment of the judgment by the insured”);

Resolution Trust Corp. v. Ayo, No. 92-0882, 1992 WL 245552, at *3 (E.D.

La. Sept. 9, 1992) (treating a policy as one for liability when insurer must

cover loss the insured “become[s] legally obligated to pay”); compare Lustig,

975 F.2d at 1167 (treating policy as an indemnification contract when

insurer’s obligation to pay is triggered by the insured actually “sustaining” a

loss); State through Dept. of Trans. And Dev. v. Acadia Parish Police Jury,

631 So. 2d 611, 614 (La. App. 3d Cir. 1994) (treating policy as an

indemnification contract when insurer’s obligation is triggered by insured

36 Id. at 9.

“sustain[ing] loss”); Sanders v. Nexion Health at Minden, Inc., 2018 WL

4265256, at *3 (W.D. La. Sept. 6, 2018) (treating policy as an indemnification

contract when insurer will only “reimburse” losses the insured has “paid”).

Further, the policy provides that the insured must notify the insurer of claims

“as soon as practicable after the date a Claim is first made,”37 rather than

after the insured makes a payment on such a claim. This also supports a

reasonable interpretation that “a cause of action accrues when liability

attaches,” rather than when “the liability has been discharged.” Compare

Acadia Parish Police Jury, 631 So. 2d at 614 (treating policy as an

indemnification contract when the insured could “not bring an action under

the policy until 90 days after filing proof of loss”). Finally, although not

dispositive, the policy itself refers to the “insuring agreement[]” as “Directors

and Officers Liability.”38 The Court finds that the policy in issue is not

unambiguously one for indemnification rather than liability. Accordingly,

the Court will construe it as a policy against liability. Plaintiff is thus able to

avail himself of the direct action statute under Louisiana law.

A “direct action” for purposes of section 1332(c)(1) is “an action against

an insurer that faces liability because of its relationship with the absent (but

37 Id. at 19-20.

38 Id. at 5.

otherwise liable) insured party.” Med. Research Ctrs., Inc. v. St. Paul Prop.

& Liab. Ins., 303 F. Supp. 2d 811, 814 (E.D. La. 2004) (internal quotation

marks omitted); see also Grefer v. Scottsdale Ins. Co., 207 F. Supp. 2d 546,

548 (2001) (“A direct action, for purposes of 28 U.S.C. § 1332(c)(1), is one in

which the victim or injured party is permitted to sue the tortfeasor’s

insurance carrier directly for the insured’s tortious conduct without first

obtaining a judgment against the tortfeasor.”). Because Lloyd’s “faces

liability because of its relationship with the absent . . . insured party,” here

Columbus Holdings, this dispute constitutes a “direct action” under section

1332(c). Med Research Ctrs., Inc., 303 F. Supp. 2d at 814.

Lloyd’s only argument against the application of section 1332(c)(1) to

this dispute is that plaintiff first raised its argument about the statute in its

reply brief. Lloyd’s thus contends that the argument has been waived.39 But

the Court may decide issues pertaining to its subject matter jurisdiction sua

sponte at any time. Fed. R. Civ. P. 12(h)(3) (“If the court determines at any

time that it lacks subject-matter jurisdiction, the court must dismiss the

action.). Further, the Court granted Lloyd’s leave to file a sur-reply in which

Lloyd’s had the opportunity to address the argument. There is thus no

prejudice to Lloyd’s.

39 R. Doc. 31 at 2-3.

Accordingly, the Court finds that Lloyd’s must be deemed to be a

citizen of Louisiana and South Carolina for purposes of this lawsuit.40

Lloyd’s has thus failed to meet its burden of establishing that removal was

proper. See Allen, 63 F.3d at 1335 (“[I]t is well settled that the removing

party bears the burden of establishing the facts necessary to show that

federal jurisdiction exists.”).

B. Improper Joinder

Lloyd’s argues that if the Court considers Lloyd’s to be a citizen of

Louisiana pursuant to section 1332(c), the Court should dismiss it as an

improperly joined party and retain jurisdiction over the matter.41 A

removing party can establish improper joinder by showing “(1) actual fraud

in the pleading of jurisdictional facts, or (2) inability of the plaintiff to

40 Much of the parties’ briefing is focused on whether Lloyd’s properly

alleged the citizenship of every subscriber to the insurance policy at

issue. Ordinarily, this would be the focus of the jurisdictional inquiry.

See Corfield v. Dallas Glen Hills LP, 355 F.3d 853, 857-58 (5th Cir.

2003) (given that Lloyd’s is structured “as a self-regulating entity

which operates and controls an insurance market” rather than “an

insurance company,” courts focus on the citizenship of “the individual

Names who belong to the various Syndicates that have subscribed to a

policy” for purposes of diversity jurisdiction). But because the Court

concludes that Lloyd’s is deemed to share the citizenship of its insured

for purposes of this lawsuit, it need not address these arguments.

41 R. Doc. 31 at 3-5.

establish a cause of action against the non-diverse party in state court.”

Smallwood, 385 F.3d at 573.

Lloyd’s contends that plaintiff is unable to establish a claim against it

in state court because plaintiff is judicially barred from bringing a suit

against Columbus Holdings or any of its property and/or assets.42 But

Lloyd’s cites no authority for the proposition that because claims cannot be

brought against an insolvent entity, they likewise cannot be brought against

the entity’s insurer. The direct action statute that plaintiff invokes in his

complaint expressly contemplates such actions. See La. Rev. Stat.

22:1269(B)(1)(b) (an injured party “shall have a right of direct action against

the insurer within the terms and limits of the policy,” and “such action may

be brought against the insurer alone” if “[t]he insured is insolvent”). As

discussed in Section III.A, supra, the statute reflects “Louisiana’s intent for

the insolvency of the insured not to release the insurer from the payment of

damages to injured parties.” Sosebee, 701 F.3d at 1022.

Lloyd’s also argues that if plaintiff were to successfully recover against

Lloyd’s, plaintiff would “[o]btain a judgment against Columbus Holdings’

assets” in violation of the liquidation order, because the insurance policy is

42 Id. at 4.

“property of the receivership entity.”43 Lloyd’s cites no authority in support

of this argument, either. Further, this position appears to conflate the

insurance policy with insurance proceeds. If plaintiff were to prevail on his

claims against Lloyd’s, he would receive the proceeds of the insurance policy,

not the insurance policy itself. The Fifth Circuit has made clear that “while

insurance policies are generally property of the estate, the proceeds of

liability insurance policies, unlike first party policies, generally are not.”

Sosebee, 701 F.3d at 1023; see also In re Edgeworth, 993 F.2d 51 (5th Cir.

1993) (“[U]nder the typical liability policy, the debtor will not have a

cognizable interest in the proceeds of the policy,” so such proceeds are not

“part of the estate.”); In re Babcock & Wilcox Co., 69 F. App’x 659, at *1 (5th

Cir. 2003) (holding that proceeds of a liability policy that “inure to the benefit

of plaintiffs claiming injury” against the insured were not assets of the

estate).44

43 R. Doc. 31 at 5; R Doc. 21 at 5.

44 The insolvent parties are in a receivership; they are not parties to a

bankruptcy proceeding in federal court. Nevertheless, “because there

are comparatively few cases examining the ownership of insurance

proceeds in the context of a receivership, it is appropriate to consider

the treatment of the issue under bankruptcy law.” SEC v. Narayan,

No. 16-1417, 2017 WL 447205, at *4 (N.D. Tex. Feb. 2, 2017) (quotation

omitted) (collecting cases).

Lloyd’s does not address this line of controlling authority in its briefing.

It has thus given the Court no reason to conclude that the D&O policy

proceeds are property of the estate. Because Lloyd’s does not brief this issue,

nor does it advance other arguments in support of its argument that it should

be dismissed from this matter, Lloyd’s has failed to bear its “heavy burden”

of establishing that it was improperly joined. Smallwood, 385 F.3d at 572.

IV. CONCLUSION

For the foregoing reasons, the Court REMANDS the case to the 22nd

Judicial District Court, Parish of St. Tammany.

New Orleans, Louisiana, this_gth _ day of November, 2022.

bern Vorer

SARAH S. VANCE

UNITED STATES DISTRICT JUDGE

21