ALEXANDER & ALEXANDER SERVICES, INC., Alexander & Alexander,
Inc., and Alexander & Alexander of New York, Inc.,
Third-Party Plaintiffs-Appellees,
v.
LLOYD'S SYNDICATE 317, Third-Party Defendant-Appellant.
Docket No. 89-9231.
United States Court of Appeals,
Second Circuit.
April 18, 1990.
Before KAUFMAN, FEINBERG and WALKER, Circuit Judges.
ORDER
On сonsideration of the briefs and records and the oral argument in this appeal, it is hereby ORDERED that the Clerk of the Court transmit to the Clerk of the New York Court of Appeals a Certificate in the form attached, together with a complete set of the briefs, appendix, and record filed by the parties with this court.
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
____________________
Docket No. 89-9231
Filed April 18, 1990
____________________
ALEXANDER & ALEXANDER SERVICES, INC., ALEXANDER & ALEXANDER,
INC., and ALEXANDER & ALEXANDER OF NEW YORK, INC.,
Third-Party Plaintiffs-Appellees,
--against--
LLOYD'S SYNDICATE 317, Third-Party Defendant-Appellant.
____________________
Certificate to The New York Court of Appeals (pursuant to
McKinney's Revised 1990 New York Rules of Court
Sec. 500.17(b)--certification of
unsettled question of state law)
Alexander & Alexander Inc. is a Maryland corporation with its principal place of business in Maryland; Alexander & Alexander of New York Inc. is a New York corporаtion engaged, among other things, in the insurance brokerage business; Alexander & Alexander Services Inc. is a Maryland corporation with its principal place of business in Maryland. (All three corporations are referred to hereafter as Alexander.) Lloyd's Syndicate 317 (Syndicate 317) is a group of insurance underwriters who conduct their underwriting business in the insurance marketplace known as "Lloyd's of London," located in London, England. Landoil Resources Corporаtion (Landoil) is a Philippines corporation with its principal place of business in the Philippines. During the relevant period, Landoil's activities included the provision of a comprehensive range of contracting, management and construction services on large public and private projects in Third World and Middle Eastern countries.
An overview of the unique manner in which Lloyd's insurance market operates is necessary background. All underwriting at Lloyd's is performed by the underwriting members of Lloyd's in their individual capacities. These individual underwriting members transact their business in groups called syndicates. The syndicates are managed by managing agents, who, among other things, accept or reject the risks submitted for underwriting, collect premiums, pay losses and disburse all funds. The various syndicates conduct all of their underwriting business at the central Lloyd's building in London. Insurance business may be brought to these underwriting syndicates only by registered Lloyd's brokers, who have beеn appointed either by the prospective insured or by the insured's non-Lloyd's broker. The Lloyd's broker prepares a "slip" for submission to any number of managing agents, setting forth the risk to be insured; any managing agent who wishes to underwrite all or a рortion of the risk indicates this on the slip; once the entire risk has been subscribed, the broker informs its principal that the insurance has been placed; and subsequently, the Corporation of Lloyd's (a nonprofit corporation сreated by a Special Act of Parliament) issues a policy through its Policy Signing Office in London.
The Corporation of Lloyd's itself does no underwriting, but instead provides services to the member underwriters at Lloyd's. One of its administrative departments is the Finance & Market Services Group (FMSG), which administers the American Trust Fund (the Fund), a fund held in trust by it and the Corporation of Lloyd's as security for Lloyd's policies issued to American insureds. As of December 31, 1988, the Fund had $9.4 billion dollars on deposit at Citibank in New Yоrk. Although the underwriters neither deposit directly into the Fund nor are able to draw directly from it, a portion of their premium income derived from the underwriting of American risks is deposited in the Fund through various complex accounting arrangements. We were told at oral argument that the Fund is "fairly active" in paying out claims. The Fund enables New York insurance brokers and insurance companies to do business with Lloyd's underwriting syndicates, which are not authorized to write insurance in New York.
A Nеw York insurance broker is prohibited from placing insurance with an unauthorized alien or foreign insurer unless it has ascertained, among other things, that such insurer maintains a trust fund at a New York bank, in an amount specified by regulation, as security for the insured. 11 N.Y.C.R.R. Sec. 27.5(a)(1)(ii). Similarly, a New York insurance company may neither count as an asset nor credit against its loss reserves any obligation reinsured with an unauthorized alien insurer, unless such alien insurer maintains a trust fund at a New York bank in a similarly spеcified amount. 11 N.Y.C.R.R. Sec. 125.4(c).
The policies at issue here were obtained in accordance with these customary practices. Alexander acted as insurance broker for Landoil in obtaining two political risk insurance policies for Landoil's projects in the Middle East and Africa in 1982 and 1983. Because Alexander is not a registered Lloyd's broker, the policies were negotiated between Alexander's Lloyd's broker subsidiary and certain Lloyd's underwriters, with all communications taking place in London. Although disputes arose regarding alleged losses under both policies, a settlement of all the disputes under both policies was reached between Landoil and certain underwriters at Lloyd's following arbitration proceedings in London, to which Alexander was not a party.
In November 1987, after Landoil settled with its underwriters, it commenced the underlying direct action here against Alexander in the United States District Court for the Southern Distriсt of New York, alleging, among other things, breach of contract and fraud and misrepresentation. In January 1989, Alexander filed a third-party complaint against, among others, certain Lloyd's underwriters, including Syndicate 317, alleged to have subscribed to the political risk insurance policies at issue in the direct action. Alexander sought indemnification and contribution from some 62 (we are told) underwriting syndicates. Due to a dispute over the scope of Alexander's servicе of process only Syndicate 317 (of the underwriters sued in the third-party action) purported to appear, and only it moved the district court to dismiss the third-party complaint for lack of personal jurisdiction. In ruling on the motion, Judge Whitman Knapp found it unnecessary to then resolve that dispute, considering all of the underwriters to be appearing on the motion in fact if not in law, and on appeal appellant Syndicate 317 concedes that the motion is in effect a test case for the other Lloyd's underwriters.
In an amended memorandum and order, reported at
In November 1989, the district court, upon a motion by Syndicate 317, certified the issue of personal jurisdiction for immediate appeal to this court pursuant to 28 U.S.C. Sec. 1292(b), and in December 1989 this court granted the petition of Syndicate 317 for leave to appeal.
The parties have cited no New York case, and this court has found none, addressing the precise issue before us: whether a foreign syndicate of insurance underwriters may be subject to suit in New York courts on the basis of a trust fund on deposit at a New York bank, into which a portion of the underwriters' premium income derived from the underwriting of New York risks is deposited, and without which, under New York insurance law, New York licensed insurance brokers and companies could not do business with that syndicate.
Syndicate 317 argues that it is not "doing business" pursuant to CPLR Sec. 301, because under Bryant v. Finnish National Airline,
Alexander argues, also citing Frummer, that Syndicate 317 is doing business pursuant to CPLR Sec. 301. Alexander principally contends that Syndicate 317 insurеs New York risks and the enormous trust fund on deposit in New York is a prerequisite to any business Syndicate 317 conducts with regard to New York insureds; the Fund, unlike a correspondent banking relationship, is maintained for the benefit of Lloyd's underwriters, including Syndicate 317; and the maintenance of the Fund is so essential to the underwriting of New York risks by Syndicate 317 that if FMSG did not perform this function, Syndicate 317 would have to do so. The unsettled question that should be decided by the New York Court of Appeals is as follows:
Whether in this сase the existence of a trust fund totalling $9.4 billion on deposit at a New York bank and managed by an administrative department of a foreign corporation serving insurance underwriting members suffices to constitute "doing business" by a syndicate of such insurance underwriting members for purposes of CPLR Sec. 301, where the maintenance of the Fund permits New York brokers and insurance companies to conduct business with the syndicate in accordance with New York insurance regulаtions, 11 N.Y.C.R.R. Secs. 27.5(a)(1)(ii) & 125.4(c), and where a portion of the underwriters' premium income derived from the underwriting of New York risks is deposited in the trust fund.
This question, one of first impression, should be decided by the New York court because it directly involves the aрplication of an important public policy of the State of New York, since that state has a strong interest in deciding the jurisdictional reach of its courts. The question certified should be addressed "at this time," New York Rules of Court Seс. 500.17(b), because if jurisdiction under CPLR Sec. 301 is lacking, the litigation between these parties will come to an end. Cf. Leasco Data Processing Equip. v. Maxwell,
The question herein presented is likely to recur, and its resolution at this time by the New York Court of Appeals would aid in the administration of justice.
The foregoing is hereby certified to the Court of Appeals for the State of New York as ordered by the United States Court of Appeals for the Second Circuit.
Dated at New York, N.Y., this 18th day of April, 1990.
/s/ Elaine B. Goldsmith
Clerk of the United States Court
of Appeals for the Second Circuit