Certain Underwriters at Lloyd's, London v. R&B Investments, LLC

United States District Court

District of Massachusetts

)

Certain Underwriters at )

Lloyd’s, London, )

)

Plaintiffs, )

) Civil Action No.

v. ) 21-10848-NMG

)

R&B Investments, LLC et al., )

)

Defendant. )

)

MEMORANDUM & ORDER

GORTON, J.

This case arises out of an insurance dispute concerning the

coverage obligations, if any, owed by Certain Underwriters at

Lloyd’s, London (“Underwriters” or “plaintiffs”) to R&B

Investments, LLC (“R&B”), Trinity Green Investments, LLC

(“Trinity”), and/or the principals of those companies, Timothy

Russell (“Russell”) and Thomas Broderick (“Broderick”). In May,

2021, Underwriters, seeking declaratory judgment limiting those

obligations, filed suit in this Court based on diversity

jurisdiction.

Since that initial filing, however, Underwriters have

discovered that one of their number is based in Massachusetts,

thereby eliminating diversity. Pending before this Court is

Underwriters’ motion to amend their complaint to substitute Brit

UW, Ltd. (“Brit UW”) as plaintiff in its individual capacity to

preserve this Court’s jurisdiction over the action. The motion

is opposed as futile.

I. Background

Underwriters are insurance syndicates consisting of members

of Lloyd’s of London (“Lloyd’s”) that subscribe to the relevant

insurance policy. Lloyd’s is not itself an insurer on the

policy or a party to this action. Instead, Lloyd’s is a

marketplace in which member individuals and corporations, called

“Names,” invest in a percentage of a policy and form subgroups,

called “syndicates.” The syndicates themselves have no legal

identity and, while hundreds of Names may subscribe to a policy,

“the liability of each Name on any given policy, while

unlimited, is several and not joint.” E.R. Squibb & Sons, Inc.

v. Accident & Cas. Ins. Co., 160 F.3d 925, 929 (2d Cir. 1998).

Here, as is typically the case at Lloyd’s, however, the

underlying policy provides that “in any suit instituted against

any one of them upon this contract, Underwriters will abide by

the final decision of such Court.”

The policy at issue here pertains to certain commercial

general liability insurance coverage provided by Underwriters to

R&B, a Massachusetts limited liability company with a principal

place of business in Milton, Massachusetts. The coverage period

was between November, 2014 and October, 2016. During that

period, R&B constructed a condominium project at 488 Dorchester

Street in South Boston (“the Project”) and retained Trinity as

the Project’s general contractor.

Trinity is also a limited liability company with a

principal place of business in Milton, Massachusetts. According

to the complaint, Russell and Broderick are the principals of

R&B, the managers of Trinity and residents of Massachusetts.

Construction on the Project was completed in 2016 and control of

the 33 residential units of the Project passed to unit

purchasers in 2017. The Board of Trustees of the 488 DOT

Condominium Trust (“the Board”) (collectively, with R&B,

Trinity, Russell and Broderick, “defendants”) is an organization

of those unit owners.

In September, 2020, the Board initiated legal action in

Massachusetts Superior Court for Suffolk County against R&B,

Russell and Broderick, based upon alleged construction and

design defects related to the Project. The Board subsequently

amended the complaint to add Trinity as a defendant.

Underwriters, who are providing a defense to R&B in the

state action under a reservation of rights, initiated this suit

seeking declaratory judgment that the insurance coverage they

provided to R&B does not require them to continue defending or

indemnifying R&B or its principals in the ongoing state action.

Underwriters also seek a declaration that they have no duty to

defend or indemnify Trinity.

The party that Underwriters now seek to substitute as

plaintiff, Brit UW, is the sole corporate member of the lead

syndicate to the relevant policy. Brit UW is incorporated under

the laws of England and Wales and has its principal place of

business in England.

II. Motion to Amend

A. Legal Standard

A party may amend its pleading by leave of court, which

should be “freely give[n]...when justice so requires”. Fed. R.

Civ. P. 15(a)(2); Holbrook v. Boston Scientific Corp., No. 20-

10671, 2020 WL 5540544, at *1 (D. Mass. Sept. 16, 2020). Rule

15(a) gives courts broad discretion in deciding whether to allow

or deny leave to amend. U.S. ex rel. Ge v. Takeda Pharm. Co.,

737 F.3d 116, 127 (1st Cir. 2013). A court acts within that

discretion if it denies leave for reasons of, inter alia, undue

delay, repeated failure to cure deficiencies, undue prejudice to

the opposing party or futility of amendment. U.S. ex rel. Gagne

v. City of Worcester, 565 F.3d 40, 48 (1st Cir. 2009). The

standard for allowing amendments under Fed. R. Civ. P. 15(a) has

often been described as “liberal,” O’Connell v. Hyatt Hotels,

357 F.3d 152, 154 (1st Cir. 2004), and a reviewing court “must

consider the totality of the circumstances” in making the

determination. Nikitine v. Wilmington Tr. Co., 715 F.3d 388, 390

(1st Cir. 2013).

Futility can be established if the complaint, as amended,

fails to allege subject matter jurisdiction and is therefore

susceptible to dismissal pursuant to Fed. R. Civ. P. 12(b)(1).

D'Agostino v. ev3, Inc., 845 F.3d 1, 6 n.3 (1st Cir. 2016). The

burden of establishing subject matter jurisdiction rests with

the party claiming such jurisdiction. Massachusetts Sch. of L.

at Andover, Inc. v. Am. Bar Ass'n, 142 F.3d 26, 33 (1st Cir.

1998). In a diversity action such as this one, subject matter

jurisdiction “typically turns on two facts——diversity of

citizenship and amount in controversy.” Hernandez-Santiago v.

Ecolab, Inc., 397 F.3d 30, 33 (1st Cir. 2005); see 28 U.S.C. §

1332(a).

There is no contention that the insurance claims of the

defendants fail to satisfy the amount in controversy. The focus

is instead on the diversity requirement.

Diversity of citizenship is satisfied “only when there

is complete diversity, that is, when no plaintiff is a citizen

of the same state as any defendant.” Gabriel v. Preble, 396 F.3d

10, 13 (1st Cir. 2005) (emphasis original). Citizenship for

corporations is determined by place of incorporation and

principal place of business. Harrison v. Granite Bay Care, Inc.,

811 F.3d 36, 40 (1st Cir. 2016). If a party in federal court

constitutes an “artificial entity” other than a corporation,

however, the general rule is that “diversity jurisdiction in a

suit by or against the entity depends on the citizenship of all

the members.” Carden v. Arkoma Assocs., 494 U.S. 185, 195 (1990)

(quotation omitted). When reviewing the citizenship of parties,

courts look to “the real parties in interest to determine whose

citizenship will be considered for the purposes of diversity” as

opposed to “formal or nominal parties”. Bath Iron Works Corp. v.

Certain Member Companies of Inst. of London Underwriters, 870 F.

Supp. 3, 5 (D. Me. 1994) (Carter, J.).

B. Application

Plaintiffs seek to amend their complaint to preserve the

complete diversity required for this Court to exercise subject

matter jurisdiction. They effectively concede that this Court

lacks jurisdiction over the complaint as originally filed

because at least one of the Underwriters is a Massachusetts

resident and defendants are themselves Massachusetts’ citizens.

Plaintiffs therefore seek to substitute Brit UW, one of the

other Underwriters, as the plaintiff in its individual capacity.

According to defendants, the effort to substitute Brit UW

as the plaintiff should be denied as futile because it fails to

establish complete diversity and, consequently, does not resolve

the initial lack of subject matter jurisdiction. Defendants

argue that any litigation concerning an insurance policy

executed through Lloyd’s must consider the citizenship of each

involved underwriter, regardless of the named parties to the

litigation. In effect, defendants contend that the Underwriters

constitute an unincorporated association and, thus, diversity

jurisdiction exists only if there is complete diversity between

each of the underwriters and the insured. Because one of the

underwriters to the relevant policy shares Massachusetts

citizenship with the defendants, they assert that this Court

would have no jurisdiction over the amended complaint.

Most of the case law relied upon by both parties is at

least facially distinguishable from the instant circumstances

because plaintiffs seek to substitute Brit UW in its individual,

rather than representative, capacity. Although the First

cCircuit Court of Appeals has not directly addressed the issue,

most appellate courts have determined that all underwriters

subscribing to an insurance policy executed through the Lloyd’s

marketplace must be diverse from the opposing party for a

federal court to have diversity jurisdiction if a single

underwriter is representing the group. Indiana Gas Co. v. Home

Ins. Co., 141 F.3d 314 (7th Cir. 1998) (holding that every Name

must meet the complete diversity rule); Underwriters at Lloyd's,

London v. Osting–Schwinn, 613 F.3d 1079, 1086-1088 (11th Cir.

2010) (same). But see Corfield v. Dallas Glen Hills LP, 355 F.3d

853, 864 (5th Cir. 2003). That approach has also been adopted

by another district court in this circuit, see Bath Iron Works

Corp., 870 F. Supp. at 6, and this Court is in accordance with

that majority view. See generally 13F Charles A. Wright, Arthur

R. Miller & Mary Kay Kane, Federal Practice and Procedure, §

3630.1 (3d ed.).

To reach a different conclusion based on Brit UW pursing

the action in its individual capacity would be, however,

unreasonable and unnecessarily formalistic in light of the

Underwriters’ explicit concession that each Name will be bound

by the outcome. Plaintiffs make no attempt to argue that Brit

UW alone is the real party in interest to the litigation and the

Court can perceive no reasoning that would be convincing on that

point where the relief sought is declaratory judgment limiting

the collective coverage of all Underwriters in the ongoing state

action. See Humm v. Lombard World Trade, Inc., 916 F. Supp. 291,

298 (S.D.N.Y. 1996) (“[T]he Names are the real parties in

interest because they are severally liable for the syndicates’

risk under the Policy.”). As such, the Underwriters are, as a

group, the real parties in interest, for whose benefit the

litigation has been brought, and it is necessary to consider the

citizenship of each in assessing diversity jurisdiction. See

Bath Iron Works, 870 F. Supp. at 6 (“[I]t would be absurd to

conclude that the Names are merely nominal or formal parties in

this litigation.”).

Because one of the Underwriters is a citizen of the same

state as the defendants, the requirement of complete diversity

would not be met even if the complaint were amended as proposed.

For that reason, the amendment would be futile because it does

not cure the original jurisdictional defect.

ORDER

For the foregoing reasons, plaintiffs’ motion to amend

(Docket No. 26) is DENIED.

So ordered.

/s/ Nathaniel M. Gorton

Nathaniel M. Gorton

United States District Judge

Dated August 10, 2022