CNX Gas Co. v. Lloyd's of London

410 F.Supp.3d 746

CNX GAS CO., L.L.C., Plaintiff,

v.LLOYD'S OF LONDON et al., Defendants.

Civil Action No. 2:19-cv-699-WSS

United States District Court, W.D. Pennsylvania.

Filed October 17, 2019

Rodger L. Puz, Dickie, McCamey & Chilcote, Pittsburgh, PA, Brandon C. Briscoe, Harold J. Flanagan, Sean P. Brady, Flanagan Partners LLP, New Orleans, LA, Paul Matthew Jones, Liskow & Lewis APLC, Baton Rouge, LA, for Plaintiff.

Bruce E. Rende, Robb Leonard Mulvihill LLP, Pittsburgh, PA, George H. Lugrin, IV, Jeffrey T. Bentch, Karen K. Milhollin, William P. Maines, Hall Maines Lugrin, P.C., Houston, TX, for Defendants.

OPINION

WILLIAM S. STICKMAN IV, District Judge

Lloyds of London ("Lloyd's") opened as a coffee house. As early as 1688, it also served as a gathering place where men of enterprise shared news and discussed the latest developments in maritime commerce. Gradually it grew from a modest forum for underwriting marine insurance policies into one of the most preeminent specialist insurance marketplaces in the world. See generally , JULIAN BURLING, LLOYD'S: LAW AND PRACTICE 13 (2013). Coverage disagreements in the insurance context have always given rise to litigation. But federal courts throughout the United States have particularly struggled to determine whether to exercise jurisdiction in cases involving Lloyd's insurance policies. See generally Howard M. Tollin & Mark Deckman, Lloyd's of London and the Problem with Federal Diversity Jurisdiction , 9 J. TRANSNAT'L L. & POL'Y , 289, 291–99 (2000) ; John M. Sylvester & Roberta D. Anderson, Is it Still Possible to Litigate Against Lloyd's in Federal Court , 34 TORT & INS. J. 1065, 1070–71 (1999). This is because Lloyd's unique structure as merely a forum for thousands of underwriters to buy shares of risk makes it difficult to execute the citizenship analysis required to determine diversity jurisdiction. That is the difficulty at the heart of this case.

Plaintiff CNX Gas Co. is insured under a policy obtained through Lloyd's. It filed suit in the Court of Common Pleas of Allegheny County, Pennsylvania for coverage after its initial claim under the policy was denied. Defendants, various entities affiliated with Lloyd's, removed to this Court. Before the Court is Plaintiff's Motion to Remand and Third-Parties' Motion to Intervene. CNX Gas Company LLC's Motion to Remand Case to State Court and Request for Oral Argument (ECF No. 17) ("Pl.'s Mot. to Remand") at p. 1; Motion to Intervene of Chaucer Corporate Capital No. 2 Ltd., Barbican Corporate member Limited and MSI Corporate Capital Limited (ECF No. 6) ("Third-Parties' Mot. to Intervene") at p. 1. For the reasons set forth below, the Court will grant the Motion to Remand and deny the Motion to Intervene as moot.

FACTUAL BACKGROUND

Plaintiff is a natural gas company in the business of exploring and producing hydrocarbons in various regions, including in western Pennsylvania. Its sole member is CNX Resources Corporation, a Delaware corporation with a principal place of business in Pennsylvania. This action stems from a coverage dispute arising out of an accident that occurred at the Switz 28F, a natural gas well operated by Plaintiff in Monroe County, Ohio. Natural gas companies customarily procure control-of-well insurance policies to protect themselves against well-related accidents. Plaintiff did so in this case through Lloyd's. Before detailing the specifics of the issues at bar, it is necessary to explain how insurance obtained through Lloyd's works.

I. The Lloyd's Insurance Model

Lloyd's neither issues insurance policies nor subscribes to them. It merely provides a marketplace where its members can underwrite them. Lloyd's members who subscribe to shares of risk by underwriting insurance policies are referred to interchangeably as "underwriters" or "Names." The identities of Names are kept confidential. Names increase the efficiency of the market and combine resources by forming groups called "syndicates," unincorporated groups of investors who appoint Names on their behalf. Syndicates exist for one year, dissolve, and then reconstitute. Each is identified by a number. Syndicates do not manage their own investments as a collective. Rather, the Names of each syndicate appoint one from among them to serve as the managing agent of the syndicate. The appointed Name is referred to interchangeably as "lead underwriter" or "active underwriter."¹ The lead underwriter represents the collective interest of the Names comprising that syndicate. The lead underwriter buys and sells insurance risks. If successful, it brings profit to its syndicate. Similarly, a Name profits from premiums it receives. This profit is pro-rated based on the Name's subscription to the insurance policy. BURLING , supra , at 1–12; COUCH ON INS. 3d §§ 39:46 – 39:47 (2019) ; Tollin & Deckman, supra , at 292.

To obtain an insurance policy, a prospective insured contacts an insurance broker. The broker then insures the risk through lead underwriters acting on behalf of their syndicates. Thus, the contractual relationship is formed between the insured and the individual Names comprising the syndicate, not the syndicate or Lloyd's. The Names comprising the syndicate are the insurers. Syndicates, on the other hand, are not legal entities. They do not assume liability or underwrite risk. Accordingly, only Names comprising a syndicate can be sued for breach of an insurance policy. Names have unlimited, several liability, but only for the proportion of the risk they subscribed to. Under the standard Service of Suit clause in Lloyd's policies, judgment on an insured's claim for coverage against any Name binds all other Names subscribing to that policy. The lead underwriter has authority to bring suit on behalf of the other Names comprising the syndicate. See COUCH ON INS. 3d §§ 39:46 –47, 229:33; Sylvester & Anderson, supra , at 1069.

II. Plaintiff's Control-of-Well Policy

Plaintiff entered into a Control-of-Well Insurance Policy USOEE1510523 (the "COW Policy") for the Switz 28F. The policy was underwritten by four Lloyd's syndicates: 1) Syndicate 1084 (forty percent of the risk in aggregate), 2) Syndicate 4141 (twenty-five percent of the risk in aggregate), 3) Syndicate 33 (fifteen percent of the risk in aggregate), and 4) Syndicate 9223 (twenty percent of the risk in aggregate). Syndicate 9223 consists of two smaller syndicates: Syndicate 1955 and Syndicate 3210.

Only five entities affiliated with these syndicates are explicitly identified in Plaintiff's Complaint: 1) Defendant China Reinsurance Group ("CRG"), 2) Defendant Hanover Insurance Group ("Hanover"), 3) Defendant Nameco (No. 808) Limited ("Nameco"), 4) Defendant HCC Intermediate Holdings, Incorporated ("HCC"), and 5) Defendant Hiscox Dedicated Corporate Member Limited ("Hiscox"). The Third-Party Intervenors in this case are three other entities affiliated with the aforementioned syndicates: 1) Chaucer Corporate Capital No. 2 Limited ("Chaucer"), 2) Barbican Corporate Member Limited ("Barbican"), and 3) MSI Corporate Capital Limited ("MSI").

Chaucer is the sole Name comprising Syndicate 1084. Nameco is the sole Name comprising Syndicate 4141. Barbican is the sole Name comprising Syndicate 1955. MSI is the sole Name comprising Syndicate 3210. Barbican and MSI are thus the two Names comprising Syndicate 9223 collectively. Hiscox is a Name that comprises 72.616424% of the capital of Syndicate 33. The remaining 1,800, or so, Names that are not identified in Plaintiff's Complaint comprise 27.383576% of Syndicate 33—the minority share. The composition of the Syndicates is illustrated below:

Syndicate Name Risk
      1084            Chaucer             100%
      4141            Nameco              100%
       33             Hiscox           72.616424%
                N/A (Approx. 1,800)    27.383576%
      9223            Barbican            100%
                        MSI               100%

Though CRG, Hanover, and HCC are listed as Defendants in Plaintiff's Complaint, those three entities are not Names; therefore, they are not liable under COW Policy. Plaintiff's Complaint, ("Pl.'s Compl.") (ECF No. 1-2) at p. 3, ¶¶ 1–2; Declaration of Andrew Baker ("Decl. of Andrew Baker") (ECF No. 1-4) at p. 1, ¶¶ 3–4; Declaration of Darren Stewart ("Decl. of Darren Stewart") (ECF No. 1-5) at pp. 1–2, ¶¶ 3–7; Declaration of David Smith ("Decl. of David Smith") (ECF No. 1-6) at pp. 1–2, ¶¶ 3–5; Third-Parties' Mot. to Intervene at p. 1.

III. Procedural History

On November 12, 2016, Plaintiff "spudded in" (i.e. , began drilling) the well. On August 12, 2017, the well experienced an accident. The well operators allegedly lost control. High pressure flow of fracking materials escaped from the wellbore. The well operators attempted to regain control by using two Full Opening Safety Valves ("TIW") valves—safeguards designed to shut off tubing used for well service activities—but to no avail. The well operators then activated Switz 28F's emergency shear rams. The rams cut and capped the work string, shutting down the well. The work string was lost, rendering the well useless. Despite Plaintiff's documenting its costs over the following eighteen-month period, Defendants denied coverage. Pl.'s Compl. at p. 7, ¶¶ 20–25

Plaintiff filed a two-count Complaint in the Court of Common Pleas of Allegheny County, Pennsylvania on May 14, 2019, alleging breach of the COW contract and statutory bad faith. Plaintiff purported to sue all of the Names who underwrote the COW Policy. See Pl.'s Compl. at pp. 1, 8–10, ¶¶ 27–41. Plaintiff only identified five Names as Defendants in the Complaint—CRG, Hanover, Nameco, HCC, and Hiscox. Plaintiff did not explicitly identify the remainder of the names underwriting the COW Policy because Lloyd's kept them confidential. Defendants filed their Notice of Removal to this Court on June 14, 2019, invoking diversity jurisdiction. Defendants' Notice of Removal ("Def.'s Notice of Removal") (ECF No. 1) at p. 1.

On June 19,...