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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 1998
- **Citation:** 525 U.S. 931

## Text

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

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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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386008_1424%3A2. Public record. Not legal advice.