Amicus Curiae Brief — Certain Underwriters at Lloyd's, London v. Indiana Gas Co.

No. 98-271

In The Supreme Court Of The United States

OC1 OBER TERM, 1997

CERTAIN UNDERWRITERS AT LLOYD'S, LONDON and

CERTAIN LONDON MARKET INSURANCE COMPANIES,

Petitioners,

v.

INDIANA GAS COMPANY, INC., RICHMOND GAS CORPORATION

d/b/a INDIANA GAS COMPANY, INC. and TERRE HAUTE GAS

CORPORATION, d/b/a INDIANA GAS COMPANY, INC., ef. al.

Respondents.

On Petition for Writ of Certiorari to the United States

Court of Appeals for the Seventh Circuit

BRIEF FOR AMICUS CURIAE

INSURANCE ENVIRONMENTAL LITIGATION ASSOCIATION

IN SUPPORT OF THE PETITION FOR A WRIT OF CERTIORARI

LAURA A. FOGGAN

Counsel of Record

DANIEL E. TROY

N. CHRISTOPHER HARDEE

WILEY, REIN & FIELDING

1776 K Street, N.W.

Washington, D.C. 20006

(202) 429-7000

Counsel for Amicus Curiae

September 10, 1998

i

TABLE OF CONTENTS

I. THE SEVENTH CIRCUIT’S RULING

IS ERRONEOUS AND DIRECTLY

CONFLICTS WITH A PREVIOUS

RULING OF THE SIXTH CIRCUIT............ 3

Il. THE LOWER COURT’S DECISION

THREATENS TO DENY A FEDERAL

FORUM TO ALL INSURERS IN

MANY INSURANCE COVERAGE

CASES, WHERE FEDERAL

JURISDICTION SERVES AN

EIEN SPREE FR eicecincssecssnscesssasecasneens 6

A. Preserving Access to a Federal

Forum is Important in Insurance

Coverage Cases Because Out-of-

State and Foreign Parties Perceive

Some State Courts As Continuing

to Manifest Bias Against Them. ........ 8

B. Federal Courts are in a Better

Position to Hear Complex

Environmental Coverage Actions

FAY StS COUTEB ovcsssiciessccsisscasscans 15

- ii -

TABLE OF CONTENTS--Continued

Ill. THE SEVENTH CIRCUIT’S RULE

WILL LEAD TO A VAST WASTE OF

JUDICIAL RESOURCES IF

RRR AS WE Reds ovcspccessgcavenesbitas titania beiaeasnaiaiel 16

CURIE JEBUIEN cinensucsniccorntninnenoaiabebentuieann athesstalacedrues 18

- iil -

TABLE OF AUTHORITIES

CASES

Boobyer v. Holman & Co., Queen's Bench Division

(Commercial Court), 1 Lloyd's Rep.

Np A RO sc biisics tad id science de biuliidessbndaliseeiebvavtescss

Brillhart v. Excess Insurance Company of America,

ENE IE CRIED. cncsan tive sestipitsvdenencsashecteotonstnnide

Carden v. Arkoma Associates,

HI, BINED Sts te vecdensisnesvonconedinvenquebingtiionsns

Certain Interested Underwriters at Lloyd's London,

England v. Layne,

LM OEE, RDI Scicaciicsiksitee covoexeveonsaiiesces

City of Ketchikan v. Cape Fox Corp.,

Fe ek Ce Gaels SID secs cccscnncensinsenvesesoroeis

Duhon v. Nitrogen Pumping &

Coiled Tubing Specialists, _Inc.,

611 So. 2d 158 (La. Ct. App. 1992) .....0... ee

Erie R. Co. v. Tompkins,

OURO Gil skiscicileck nloccksnnctieaiidecdsacacernesntes

Greenville County v. Insurance Reserve Fund,

ee ee hs RIED asic acerssacicinccseennssccnrees

Guaranty Trust Co. of N.Y. v. York,

a a cin cemsebinsduaphibsinabehovenbass

Indiana Gas Co. v. Home Insurance Co.,

141 F.3d 314 (7th Cir. 1998) 2.0.0... cece teeeseees

K. Bell & Associates, Inc. v. Lloyd's Underwriters,

No. 92 Civ 5249, 1998 WL 274346 (S.D.N.Y.

RE ia isin csisicaehiabithiaairapaternarsen

MCI Telecommunications Corp. v. AT&T Co.,

LS 2 a 5 Rade nO AP MO oe PRO EC ee

o iV -

TABLE OF AUTHORITIES--Continued

Martin v. Hunter's Lessee,

14 U.S. (1 Wheat.) 304 (1816) oo...

Morton International, Inc. v. Insurance Co. of

North America,

629 A.2d 831 (N.J. 1993), cert. denied, 512 U.S.

RAGS LEPPET cccteiinasechtler Rebs ferccee eee:

Navarro Savings Association v. Lee,

OI; SI RD oicmslicsuloekemestvciaticael nonce:

Northwest Airlines, Inc. v. Globe Indemnity Co.,

Sed WN, WOE OPE HMR, LOTSD clescssseisicscereccaseneee

Ponder v. Blue Cross,

193 Cal. Rptr. 632 (Ct. App. 1983) .........cccseeeee.

Powell v. Offshore Navigation, Inc.,

644 F.2d 1063 (Sth Cir. (Unit A),

cert. denied, 454 U.S. 972 (1981) .....cccccceecceeeceeee

Roby v. Corp. of Lloyd's,

769 F. Supp. 103 (S.D.N.Y. 1992), aff'd on other

grounds, 996 F.2d 1353 (2d Cir. 1993)...

Smith v. Lloyd's of London,

SOD BAe BLES Co ee FOTN wesevirecsidstscinevenzecerys

Summit Associates, Inc. v. Liberty Mutual Fire

Insurance Co.,

550 A.2d 1235 (N.J. Super. Ct., App. Div. 1988)

Waste Management, Inc. v. Admiral Insurance Co.,

OOD ABE STs Os: TOG ii cae

Westinghouse Electric Corp. v. Liberty Mutual

Insurance Co.,

559 A.2d 435 (N.J. Super. Ct., App. Div. 1989) ..

Wilton v. Seven Falls Co.,

DAW Caec TT CEMIEE cocoons pccacccbomincelionctioes

7,8

“Ve

TABLE OF AUTHORITIES--Continued

STATUTES

Judiciary Act of 1789, Ch. 20, § 11-12, 1 Stat. 73 .... 9

MISCELLANEOUS

Administrative Office of U.S. Courts, Judicial

Business of the U.S. Courts, Report of the

I COIN ss vcctvecdueptivhincabiegistecuonteeigdsnensonicncses 16

Brief of Amicus Curiae Commonwealth of

Pennsylvania, Department of Environmental

Resources, Lower Paxton Township v. United

States Fidelity and Guaranty Co., 557 A.2d 393

(Pa. Super. Ct. 1989) (No. 141 Harrisburg 1988). 11-12

Federal Judicial Center, Planning for the Future:

Results of a 1992 Federal Judicial Center Survey

of United States Judges (1994)......cccccssscsscesseseeeeee 10

Letter from Wisconsin Assembly Committee on

Natural Resources to Chief Justice Nathan S.

Hefferman, Wisconsin Supreme Court (regarding

City of Edgerton v. General Casualty Co.,517 _

N.W.2d 463 (Wis. 1994), cert. denied, 514 U.S.

ER oo). HESS eer 2a a 11

James Madison, Notes on the Debates in the

Federal Convention of 1787 (Norton 1987).......... 8

K. Marks, Honors Paper at Northwestern

University, Printed in Hearings on H.R. 9622

before the Subcommittee on Improvements in

Judicial Machinery of the Senate Committee on

the Judiciary, 95th Cong., 2d Sess. 265 (1978) .... 10, 16

Vie

TABLE OF AUTHORITIES--Continued

Douglas D. McFarland, Diversity Jurisdiction: Is

Local Prejudice Feared?, 7 Litigation 38 (Fall

Neal Miller, An Empirical Study of Forum Choices

in Removal Cases Under Diversity and Federal

Question Jurisdiction, 41 Am. U. L. Rev. 369

COMING SIG ikea

Nationa! Center for State Courts, Examining the

Work of State Courts, 1994 (1996)......ccccccccccsecseeee

National Center for State Courts, Examining the

Work of State Courts, 1996 (1997) ......cccccccccsseceeces

Note, The Choice Between State and Federal Court

in Diversity Cases in Virginia, 51 Va. L. Rev.

BUM C5 OID Msciicsatel. otcaa actin tet ncencecbekee sk.

Supplementary Brief of Respondent State of New

Jersey, Department of Environmental Protection,

State of New Jersey v. Signo Trading

International, Inc.,

570 A.2d 980 (N.J. 1989) (No. 30,960), aff'd,

GOES AD Poe RED cider rsetstrn ecacscesseincngess

Willy E. Rice, Judicial Bias, The Insurance

Industry And Consumer Protection: An

Empirical Analysis of State Supreme Courts' Bad

Faith, Breach Of Contract, Breach-Of-Covenant-

Of-Good-Faith And Excess-Judgment Decisions,

1900-1991, 41 Cath. U. L. Rev. 325 (Winter

PED pilatiLcchssrostejerevaccentclsenkiteae gee:

BRIEF FOR AMICUS CURIAE INSURANCE

ENVIRONMENTAL LITIGATION ASSOCIATION

IN SUPPORT OF THE PETITION

FOR A WRIT OF CERTIORARI

INTEREST OF AMICUS CURIAE

The lower court’s ruling that, where Lloyd’s Underwriters

are parties, each member (or “Name”) of a Lloyd’s insurance

syndicate must be considered in determining diversity

jurisdiction threatens to restrict dramatically insurers’ access

to the federal courts. It will also undermine many pending

insurance coverage cases.’ This case is therefore of great

practical importance to the members of the Insurance

Environmental Litigation Association ("IELA"), which are

most of the nation's major property-casualty insurers.’

; Counsel for IELA authored this brief in its entirety. No person or

entity, other than IELA, its members, or its counsel, made a monetary

contribution to the submission of this brief. All parties have consented to IELA’s

participation as amicus curiae. Letters of consent have been filed with the

Clerk's office.

. Since 1986, IELA has participated as amicus curiae in numerous cases

addressing environmentally related insurance coverage. IELA submits this

proposed brief on behalf of IELA members: Allstate Insurance Company; AIG

Insurance Companies; Chubb & Son — a Division of Federal Insurance

Company; CIGNA Property & Casualty Companies; Continental Insurance

Company; Envision Claims Management Corporation; Fireman's Fund Insurance

Companies; Hanover Insurance Company; The Hartford Insurance Group;

Liberty Mutual Insurance Company; Royal & Sun Alliance; St. Paul Companies;

Selective Insurance Company of America; State Farm Fire & Casualty

Company; The Travelers Indemnity Company; United States Fidelity &

Guaranty Company; Zurich-American Insurance Group. This brief is not

submitted on behalf of IELA member St. Paul Companies or Zurich-American

Insurance Group.

~

Insurers need to be able to seek relief in federal court both

to avoid in-state bias and to expeditiously resolve complex

cases. In environmental cases, which often involve Lloyd’s

syndicates, local passions can run deep about who should

pay to clean up a site. The environmental harm may alarm

in-state residents and drain the treasuries of local companies

and guvernments. Out-of-state or foreign insurers, such as

IELA's members, are often seen as a "deep pocket," without

local influence, capable of picking up the tab for the cleanup.

In IELA's experience, although most state courts strive in

good faith to produce just results, some succumb to the

temptation of relieving a local governmental entity or

business from the burden of cleaning up pollution without

regard to the terms of insurance contracts. For example, one

trial judge held that “‘the health, safety and welfare of the

people of [this State] must outweigh the express provisions

of the insurance policy in issue.’” See, e.g., Summit Assocs.,

Inc. v. Liberty Mut. Fire Ins. Co., 550 A.2d 1235, 1239 (N.J.

Super. Ct., App. Div. 1988) (reversing and quoting trial

court).

A federal forum is also important because the federal

courts are more suited to resolving large-scale coverage

cases. These cases often involve numerous sites in multiple

states and multiple states’ laws. See, e.g. Waste

Management, Inc. v. Admiral Ins. Co., 649 A.2d 379 (N.J.

1994) (environmental coverage case involving Waste

Management and 54 subsidiaries against 150 insurers

concerning coverage for 97 sites in 22 states and Canada),

cert. denied, 513 U.S. 1183 (1995); Westinghouse Elec.

Corp. v. Liberty Mut. Ins. Co., 559 A.2d 435 (N.J. Super.

Ct, App. Div. 1989) (environmental coverage case

involving 144 insurers covering 81 contamination sites in 23

States for the period of 1948-82). Federal courts are

wat

uniquely suited to handle the nationwide scope and

complexity of such cases.

IELA is also interested in this case because the lower

court’s ruling may lead to the dismissal of large-scale

pending insurance coverage actions, many of which involve

Lloyd’s underwriters. Accordingly, IELA has a strong

interest in the Court granting review in this case.

ARGUMENT

The Court should grant the petition for a writ of certiorari.

The United States Court of Appeals for the Sixth Circuit and

the Seventh Circuit are divided as to whether the citizenship

of all of the Underwriters of a Lloyd’s syndicate must be

considered in determining diversity jurisdiction. This issue

is important to the administration of justice in the federal

courts. For the courts to follow the Seventh Circuit’s rule

that each Underwriter’s citizenship must be considered

would seriously undermine access by all insurers (and

policyholders) to federal courts in complex insurance

coverage cases. Also, such a rule threatens to cause a vast

waste of judicial resources, given that Underwriters of

Lloyd’s are parties in many insurance coverage cases

pending throughout the federal systen,.

I. THE SEVENTH CIRCUIT’S RULING IS

ERRONEOUS AND DIRECTLY

CONFLICTS WITH A PREVIOUS

RULING OF THE SIXTH CIRCUIT.

The Seventh Circuit erroneously held that the citizenship

of each of\the numerous Underwriters (or “Names”) who

collectively form a Lloyd’s syndicate must be considered in

sky

determining diversity jurisdiction in a case involving such a

syndicate. See Indiana Gas Co. v. Home Ins. Co., 141 F.3d

314 (7th Cir. 1998). However, because only the syndicate’s

“Active Underwriters’—those Underwriters with control

over the Names’ assets—are the real parties to a controversy

involving a Lloyd’s syndicate, in a previous case the Sixth

Circuit appropriately looked only to the Active

Underwriters’ citizenship, upholding diversity jurisdiction.

See Certain Interested Underwriters at Lloyd's London,

England v. Layne, 26 F.3d 39 (6th Cir. 1994). As the

Seventh Circuit acknowledged, the cases are in direct

conflict. See Indiana Gas, 114 F.3d at 319.

The Seventh Circuit held that the citizenship of each

Name must be considered because it misapplied the rule in

Carden v. Arkoma Associates, 494 U.S. 185 (1990), that the

citizenship of each member of an unincorporated association

must be considered when the association is a party. The

court determined that the Lloyd’s syndicates were parties to

the case and analogized such syndicates to unincorporated

associations. However, Carden does not apply because the

syndicates were not parties; only the underwriters were

named. In fact, a Lloyd’s syndicate is not an unincorporated

association and has no legal existence. See, e.g., Roby v.

Corp. of Lloyd's, 796 F. Supp. 103, 111 (S.D.N.Y. 1992),

aff'd on other grounds, 996 F.2d 1353 (2d Cir.) (“In sum:

English law controls, and under English law the syndicates

have no legal existence.”), cert. denied, 510 U.S. 945 (1993).

Rather, Lloyd’s is “an exchange or a market where various

individuals or groups bid on the right to insure a given risk.”

Smith v. Lloyd’s of London, 568 F.2d 1115, 1117 n.3 (Sth

Cir. 1978). Because the case did not involve an

unincorporated association as a party, the Seventh Circuit

should have applied the rule in Navarro Savings Ass'n v.

os.

Lee, 446 U.S. 458 (1980). That case holds that, when

determining diversity jurisdiction in cases not involving

associations or partnerships, only the citizenship of the “real

party to the controversy” matters.

As the Sixth Circuit correctly determined, because the

syndicates are not parties and the Active Underwriters are

real parties to the controversy, only their citizenship must be

considered. The Active Underwriters are real parties to the

controversy because they have the sole power to “hold,

manage and dispose of [the] assets” of the Names, and are

personally liable on a policy. See Navarro, 446 U.S. at 464.

The Active Underwriters of the syndicate have the sole

authority to bind the Names of the syndicate and to carry on

the affairs of the syndicate’s members. See generally Pet.

Cert., pp. 3-4 (describing Lloyd’s and the London insurance

market); see also Boobyer v. Holman & Co., Queen’s Bench

Division (Commercial Court), 1 Lloyd’s Rep. 96 (1992). By

contrast, the Names who are members of a Lloyd’s syndicate

often number in the thousands. Like investors in a

corporation, they merely contribute their wealth to a part of

the risk underwritten by the syndicate. Accordingly, the

Seventh Circuit erred in failing to apply Navarro, which

mandates consideration only of the Active Underwriters’

citizenship.

Indeed, before the decision below, many courts reached

the merits of cases predicated on diversity jurisdiction and

involving Lloyd’s Underwriters as parties. For example, in

Wilton v. Seven Falls Co., 515 U.S. 277 (1995), this Court

rendered a decision in a case involving Underwriters of

numerous large Lloyd’s syndicates. Many courts of appeals

have also considered the merits of diversity cases involving

Lloyd’s Underwriters without questioning jurisdiction. See

Pet. Cert., p. 17 n.14 (citing cases in each of the courts of

er ae

appeals). In Smith, the Fifth Circuit reached the merits of a

case involving Lloyd’s Underwriters after correctly

describing Lloyd’s as “an exchange or market.” 568 F.2d at

1116 n.3. Undoubtedly, under the rule announced by the

Seventh Circuit, many (if not the vast majority) of these

cases should have been dismissed.

The conflict between the Sixth and Seventh Circuits is

important to resolve. The Seventh Circuit’s erroneous

decision threatens to strip the federal courts of diversity

jurisdiction where it is most appropriate, in complex cases

that typically involve sites in multiple states, parties from

various states, and multiple states’ laws. It may also lead to

the dismissal of pending cases across the country and, at the

very least, will produce uncertainty in litigation involving

the commitment of _ substantial judicial resources.

Accordingly, the decision below merits this Court’s review.

Il. THE LOWER COURT?’S DECISION

THREATENS TO DENY A FEDERAL

FORUM TO ALL INSURERS IN MANY

INSURANCE COVERAGE CASES,

WHERE FEDERAL JURISDICTION

SERVES AN IMPORTANT PURPOSE.

If not reversed, the decision below will unjustifiably

restrict many insurers from having access to the federal

courts in large-scale insurance coverage cases. The decision

affects the entire insurance industry, not just Lloyd’s or the

London Market insurers. If Lloyd’s Underwniters cannot be

joined in an insurance coverage case, a federal court almost

certainly would not proceed with the case where all parties

have been joined in a parallel state court proceeding, because

the state court action will be more comprehensive. See, e.g.,

“y

Wilton, 515 U.S. at 283 (quoting Brillhart v. Excess Ins. Co.

of Am., 316 U.S. 491, 495 (1942) for the proposition that a

federal court’s decision to proceed under the Declaratory

Judgment Act involves consideration of “whether the claims

of all parties in interest can satisfactorily be adjudicated in [a

state court] proceeding”). Because policyholders routinely

file competing state actions to take advantage of a local

re orum, all insurers will be deprived of the protections

d by federal diversity jurisdiction in many important

cases.

The congerns leading the Framers to authorize federal

diversity } iction in the Constitution were “that state

attachments, “tate prejudices, state jealousies, and state

interests, might some times obstruct, or control ... the

regular administration of justice,” Martin v. Hunter’s Lessee,

14 U.S. (1 Wheat.) 304, 347 (1816). “Diversity jurisdiction

is founded on the assurance to non-resident litigants of

courts free from susceptibility to potential local bias.”

Guaranty Trust Co. of Nyy. v. York, 326 U.S. 99, 111 (1945);

see also Erie R. Co. v. prvi 304 U.S. 64, 74 (1937)

(“Diversity of citizenship jlirisdiction was conferred in order

to prevent apprehended discrimination in state courts against

those not citizens of the state.”). As IELA reviews below,

these concerns are just as important today.

Studies repeatedly show that lawyers, and even federal

judges, continue to perceive state court bias against out-of-

state and alien interests, particularly those with “deep

pockets.” The experience of insurers in state courts confirms

this impression. Although most state judges work in good

faith to achieve just results, insurers continue to experience

injustices apparently explainable only by a bias in favor of

local interests. In addition, state courts are more crowded

and generally less well-equipped. Accordingly, if left

YS

standing, the Seventh Circuit’s rule will affect important

rights beyond those of the Lloyd’s Underwriters.

A. Preserving Access to a Federal

Forum is Important in Insurance

Coverage Cases Because Out-of-

State and Foreign Parties Perceive

Some State Courts As Continuing to

Manifest Bias Against Them.

The concerns that motivated the Founders to vest

diversity jurisdiction in the federal courts, and that have

motivated Congress consistently to retain it, still exist today.

The lower court’s decision will strip insurers of this

important safeguard against local bias.

Since 1789, Congress has vested the federal courts with

the responsibility of ensuring fairness in litigation between a

local entity and an out-of-state party, whether foreign or

domestic. See Martin, 14 U.S. (1 Wheat.) at 347; Guaranty

Trust, 326 U.S. at 111; Erie, 304 U.S. at 74. Given the

history of state bias against out-of-state interests, and

selective enforcement of national laws, delegates to the

Constitutional Convention of 1787 were highly conscious of

the inadequacies and prejudices of state courts. As one

delegate noted, “the Courts of the State can not be trusted

with the administration of the National laws.” J. Madison,

Notes on the Debates in the Federal Convention of 1787,

319 (Norton 1987) (comments by Randolph). Exercising its

mandates under Article III of the Constitution, when the

First Congress convened in 1789, it immediately created the

federal courts and vested them with jurisdiction in cases

“where an alien is a party, or the suit is between a citizen of

the State where the suit is brought, and a citizen of another

ei

state.” Judiciary Act of 1789, Ch. 20, § 11-12, 1 Stat. 73,

78, 79.

Despite repeated attacks on diversity jurisdiction,

Congress has preserved and reaffirmed its central and

original feature: that citizens of different states or countries

be given the right to sue in federal court. See Powell v.

Offshore Navigation, Inc., 644 F.2d 1063, 1066 (5th Cir.

(Unit A) (“Over the years Congress has repeatedly re-

enacted or amended the statute conferring diversity

jurisdiction ....”), cert. denied, 454 U.S. 972 (1981). The

concern that corporations, such as insurers, are targets of in-

state bias has been an important reason behind Congress’s

steadfast retention of diversity jurisdiction. See City of

Ketchikan v. Cape Fox Corp., 85 F.3d 1381, 1384 (9th Cir.

1996) (“The underlying purpose of diversity jurisdiction is to

protect out-of-state corporations from local prejudice.”)

(citing S. Rep. No. 1830, 85th Cong., 2d Sess. 4 (1958)).

These concerns remain important. Authoritative studies

have repeatedly documented the widespread perception that

state courts are biased against out-of-state and foreign

parties. One comprehensive 1992 study reported that fifty-

four percent of plaintiffs’ attorneys reported bias against

defendants in state court. Neal Miller, An Empirical Study of

Forum Choices in Removal Cases Under Diversity and

Federal Question Jurisdiction, 41 Am. U. L. Rev. 369, 408-

09 (Winter 1992). More than half of such plaintiffs’ lawyers

(51%) ascribed this bias to the defendant's out-of-state

status. Jd. Slightly less than half (45%) explained that the

defendant's identity as a business or corporation gave rise to

prejudice. A Minnesota study also found bias against the

nature of the client to be the most important reason lawyers

pursued their remedy in federal court. The third most

important reason was prejudice against out-of-state interests.

ce

Douglas D. McFarland, Diversity Jurisdiction: Is Local

Prejudice Feared?, 7 Litigation 38, 40 (Fall 1980). Almost

half (45%) of plaintiffs lawyers chose to litigate in state

court based on their belief that the state court would be

biased in their favor. Miller, 41 Am. U. L. Rev. at 408-09.

Not surprisingly, perhaps, attorneys representing insurance

companies were most likely of all defense attorneys to report

out-of-state bias (59%). Jd. at 413.

Historically, other studies have reported similar results.

A Virginia survey found that more than 60% of attorneys

said that local prejudice against out-of-state plaintiffs was a

reason for choosing federal courts. Note, The Choice

Between State and Federal Court in Diversity Cases in

Virginia, 51 Va. L. Rev. 178, 179 (1965). Forty percent of

Chicago lawyers believed that fear of local prejudice was at

least somewhat important in choosing federal court. K.

Marks, Honors Paper at Northwestern University, printed in

Hearings on H.R. 9622 before the Subcomm. on

Improvements in Judicial Machinery of the Senate Comm.

on the Judiciary, 95th Cong., 2d Sess. 265, 267 (1978).

Judges share this perception of prejudice. A 1992 survey

conducted by the Federal Judicial Center found that many

federal judges believe state courts still are biased against

non-resident litigants. Forty-eight percent of circuit judges

and 40% of district judges believed that state court bias was

at least somewhat of a problem. Federal Judicial Center,

Planning for the Future: Results of a 1992 Federal Judicial

Center Survey of United States Judges, at 4, 26 (1994).

Thus, it appears that the perception of state court bias that

motivated the adoption of federal diversity jurisdiction

remains.

ait

In reality as well as perception, insurers have repeatedly

been subjected to judicial determinations that appear

explainable only by a state court's desire to find a deep

pocket to reimburse local policyholders. This is especially

true in cases addressing the availability of insurance

coverage for large environmental cleanup projects. Such

decisions have been strongly encouraged by local interests

that may be harmed by pollution.

For example:

e The Wisconsin Assembly Committee on Natural

Resources wrote the Wisconsin Supreme Court

asking it to reconsider an insurance coverage

decision on public policy grounds. A decision

denying coverage, the Committee said, would

“have a serious adverse effect upon state efforts to

remediate contaminated sites.” Letter from

| Wisconsin Assembly Committee on Natural

. Resources to Chief Justice Nathan S. Heffernan,

Wisconsin Supreme Court (Aug. 4, 1994)

(regarding City of Edgerton v. General Casualty

. Co., 517 N.W.2d 463 (Wis. 1994), cert. denied,

514 U.S. 1017 (1995)).

e The Pennsylvania Attorney General urged the

Pennsylvania Superior Court to affirm a trial

court, in part “[b]Jecause this is an age of limited

public finances, [and] this funding must come

: from the private sector, ... in this instance funds

should flow both from manufacturers and from the

insurance industry ....” Brief of Amicus Curiae

Commonwealth of Pennsylvania, Department of

Environmental Resources at 1-2, Lower Paxton

Township v. United States Fidelity and Guar. Co.,

- i2«

557 A.2d 393 (Pa. Super Ct. 1989) (No. 141

Harrisburg 1988).

e New Jersey's Department of Environmental

Protection urged the New Jersey Supreme Court to

decide an insurance coverage case in a manner

“that will be consistent with the state's broad

responsibility to remediate past

contamination ....” Supplementary Brief of

Respondent State of New Jersey, Department of

Environmental Protection at 3, State of New

Jersey v. Signo Trading Int'l, Inc. 570 A.2d 980

(N.J. 1989) (No. 30,960), affd, 612 A.2d 932

(1992).

These entreaties can place enormous pressure on state

judges, who in 29 states are subject to popular election. See

National Center for State Courts, Examining the Work of

State Courts, 1994, at 16 (1996). Perhaps in part because of

this pressure, state courts have at times succumbed to the

temptation to have out-of-state and foreign insurers pick up

the tab for cleaning up the environmental mess in their own

backyard. See, e.g., Summit Assocs., 550 A.2d at 1239

(reversing trial court holding that “the health, safety and

welfare of the people of this State must outweigh the express

provisions of the insurance policy at issue”). Yet, the

orderly workings of insurance as an international economic

mechanism allowing society to absorb massive risks depends

on the reliability of insurance policy terms. In some recent

state court cases, however, these considerations have taken a

back seat to the desire to fund large local expenditures from

an out-of-town source.

A few examples demonstrate that state court bias remains

a valid concern today:

-. =

e In Greenville County v. Insurance Reserve Fund,

443 S.E.2d 552 (S.C. 1994), the South Carolina

) Supreme Court held that, because there is more

: than one meaning listed for the word “sudden” in

the dictionary, the term is ambiguous and must be

construed against the insurer. Contra MCI

Telecommunications Corp. v. AT&T Co., 512 U.S.

218 (1994).

e In Morton International, Inc. v. Insurance Co. of

: North America, 629 A.2d 831 (N.J. 1993), cert.

denied, 512 U.S. 1245 (1994), the New Jersey

Supreme Court barred insurers from ever

; enforcing an exclusion that had been part of many

{ insurance agreements since 1970, when it had

been approved by New Jersey's insurance

regulators. The court based its “findings” that

insurers had duped the regulators into allowing the

exclusion on biased and partisan articles written

by counsel for policyholders. These articles and

other materials were submitted for the first time

on appeal, and were never subjected to discovery,

cross-examination, or any of the other rules of

i evidence.

bile Yap eG RSL NG IMM RNA ATi deh Ching IM Aeron

e In Duhon v. Nitrogen Pumping & Coiled Tubing

Specialists, Inc., 611 So.2d 158 (La. Ct. App.

1992), despite a provision barring coverage for all

actions that “result from the Assured’s intentional

and willful violation of any government statute,

rule or regulation,” the court found coverage of a

suit in which the underlying claimants alleged that

PII WERE,

ik.

the policyholder was guilty of illegal and

intentional pollution. Jd at 160 (Stoker, J.,

dissenting).

As these cases demonstrate, insurers have reason to

persist in the belief that access to a federal forum is needed.

As one commentator concluded, after surveying state court

insurance rulings, many “supreme tribunals allow extralegal

factors, which have little to do with the merits of the suits, to

influence the disposition of insurance-related cases.” See

Willy E. Rice, Judicial Bias, The Insurance Industry And

Consumer Protection: An Empirical Analysis of State

Supreme Courts' Bad Faith, Breach Of Contract, Breach-Of-

Covenant-Of-Good-Faith And Excess-Judgment Decisions,

1900-1991, 41 Cath. U. L. Rev. 325, 331 (Winter 1992). In

addition, “state supreme court justices unintentionally allow

the types of insureds to influence the disposition of . . .

actions.” See id. at 369.

Moreover, insurers face the same problem outside the

environmental context. Most notably, some state courts

have abused the interpretive principle that contracts are

construed against the drafter to justify anti-insurer rulings

that simply ignore the terms of the agreement. For example,

in Ponder v. Blue Cross, 193 Cal. Rptr. 632 (Ct. App. 1983),

a California appellate court held that a claimant could

recover for costs. relating to treating TMJ

(temporomandibular joint syndrome) despite a provision in

her policy stating that benefits would not be provided for

"the treatment of temporomandibular joint syndrome or

disease." See also, e.g., Northwest Airlines, Inc. v. Globe

Inder. Co., 225 N.W.2d 831, 837 (Minn. 1975) (holding

that policy language should be construed against insurers

because "the very fact that the [parties'] respective positions

eee

ee ee a a ee ee ee ee eee tion

‘

oan eon

at i able SM LIA IAA

me

as to what this policy says are so contrary compels one to

conclude that the agreement is indeed ambiguous. The rule

is well settled that ambiguous language should be strictly

construed in favor of the insured.").

The availability of a federal forum is therefore important

to protect the rights of insurers. Because the lower court’s

decision will broadly undermine the rights of insurers

throughout the nation, it merits the Court’s review.

B. Federal Courts are in a Better

Position to Hear Complex

Environmental Coverage Actions

Than State Courts.

The lower court’s rule will also prevent federal courts

from serving their important function of facilitating the

comprehensive resolution of complex insurance cases.

Complex environmental cases involving numerous parties

and high stakes are appropriate to resolution by the federal

courts. Environmental coverage cases frequently involve

many parties, numerous geographically dispersed polluted

sites, the law of multiple jurisdictions, and high stakes. See,

e.g., Waste Management, 649 A.2d 379 (involving claim

against 150 insurers for 97 sites in 22 states and Canada);

Westinghouse, 559 A.2d 435 (144 insurers covering 81

contaminated sites in 23 states for the period 1948-82).

Although state courts may be capable of handling such suits,

these are precisely the types of cases over which the federal

courts should exercise jurisdiction. Yet the rule adopted

below would ieave insurers without access to the federal

courts in the most complex cases, which will often involve

Lloyd’s Underwriters. See text, pp. 6-7, supra.

- 16-

Federal courts are widely perceived as more suited to

handle complex disputes. In one Chicago survey, ninety-two

percent of lawyers ranked the ability of federal judges as the

primary reason to litigate in federal courts. K. Marks,

Honors Paper at Northwestern University, printed in

Hearings on H.R. 9622 Before the Subcomm. on

Improvements in the Judicial Machinery of the Senate

Comm. on the Judiciary, 95th Cong., 2d Sess. 265 (1978). In

the same survey, the second reason, cited by ninety percent,

was t>e federal courts’ more current calendar. Jd Federal

courts are generally faster than state courts. Although most

states disposed of fewer cases than were filed with them

from 1994 to 1996, National Center for State Courts,

Examining the Work of State Courts, 1996 at 23 (1997),

federal courts cleared more cases than entered their system

in each year during the same period. Administrative Office

of U.S. Courts, Judicial Business of the United States

Courts, Report of the Director at 18, 23 (1996).

Accordingly, it is important for the Court to grant review

here, given the serious effect the case will have on the

orderly prosecution of large-scale nationwide insurance

litigation.

Il, THE SEVENTH CIRCUIT’S RULE

WILL LEAD TO A VAST WASTE OF

JUDICIAL RESOURCES IF

FOLLOWED.

If the lower court’s rule were followed, the many

diversity cases pending throughout the federal system that

include Lloyd’s underwriters as parties will be vulnerable to

dismiss:|. This will lead to a substantial waste of judicial

resources.

aS,

Nearly seventy district court opinions involving such

cases were issued after 1995 alone.’ Because such cases

involve so many separate syndicates, each with many

members who are typically scattered throughout the various

states, it is likely that many of these cases are subject to

dismissal under the rule announced by the lower court.

Years of judicial resources may be wasted if such cases are

dismissed. See, e.g., K. Bell & Associates, Inc. v. Lloyd's

Underwriters, No. 92 Civ. 5249, 1998 WL 274346

(S.D.N.Y. May 26, 1998) (dismissing case after six years of

litigation based on lack of diversity jurisdiction, following

Indiana Gas). Indeed, this case illustrates the considerable

waste that the Seventh Circuit’s rule will produce. In three

years of litigation, no party to the case—each with

experienced appellate and coverage counsel—raised the

jurisdictional issue. After considerable expense and

consuming substantial judicial resources, the Seventh

Circuit’s ruling would force the parties to pursue the case

anew in state court.

The likelihood of such a vast waste of judicial resources

is a compelling reason to review this case. Granting the

petition for certiorari is therefore justified by the importance

of the issue to the sound administration of justice in the

federal courts.

3

IELA reviewed cases via electronic database. The nearly seventy

cases referred to here are ones in which London Market insurers or Lloyd’s

insurers appeared as parties in the case caption of an opinion published on-line.

Many more cases may be pending where either an opinion has not been

published or where Lloyd’s or London Market insurers do not appear in the

opinion’s case captio:,.

Fee

CONCLUSION

For the foregoing reasons, the petition for a writ of

certiorari should be granted.

Respectfully submitted,

Laura A. Foggan

(Counsel of Record)

Daniel E. Troy

N. Christopher Hardee

WILEY, REIN & FIELDING

1776 K Street, N.W.

Washington, D.C. 20006

(202) 429-7000

Counsel for Amicus Curiae

September 10, 1998