DATE: Sept. 11, 1997.

COUNSEL: Jerold Oshinsky, Esq., Stephen A. Dvorkin, Esq., Sallie H. Helm, Esq., Dickstein Shapiro Morin & Oshinsky, New York New York, for Plaintiff.
Timothy G. Reynolds, Esq., Skadden Arps Slate Meagher & Flom, New York New York, for Defendant North Star Reinsurance Corporation.
John G. McAndrews, Esq., Dean J. Vigliano, Esq., Gary P. Schulz, Esq., Mendes & Mount, New York NY, for Defendants London Market Insurers.
George A. Huwel, Esq., Huwel & Mulhern, Garden City New York, for Defendant Dairyland Insurance Co.
Marian S. Hertz, Esq., Sheft Golub & Kamlet, New York New York, for Defendant Protective National Insurance Company of Omaha.
Steven G. Adams, Esq., Melito & Adolfsen, Woolworth Building, New York New York, for Defendant First State Insurance Co.
Martin P. Lavelle, Esq., Newman & Company, New York New York, for Defendant American Re-Insurance Company.
Robert N. Kelly, Esq., Jackson & Campbell, Washington D.C., for Defendant Lexington Insurance Co.
Peter L. Pagones, Esq., Syosset New York, for Defendants Indemnity Insurance Co. of North America and Insurance Company of North America.
Paul G. Burns, Esq., Richards & O’Neil, New York, NY, for Defendant Century Indemnity Co.
George D. Kappus, Rivkin Radler & Kremer, EAB Plaza, Uniondale New York, for Defendant Associated Electric & Gas Insurance Services Limited.
Mark G. Cunha, Esq., Simpson Thacher & Bartlett, New York New York, for Defendants Aetna Casualty & Surety Company and The Travelers Insurance Co.
Brian G. Fox, Esq., Christie Pabarue Mortensen and Young, New York New York, for Defendant The Northern Assurance Company.
John D. Frumer, Esq., Christie Pabarue Mortensen and Young, Boston MA., for Defendant The Northern Assurance Company.
Robert V.P. Waterman, Esq., Thomas D. Waterman, Esq., John D. Telleen, Esq., Cameron A. Davidson, Esq., Lane & Waterman, Davenport Iowa, for Defendant The Northern Assurance Company.
Paul A. Leodori, Esq., Edward M. Napierkowski, Law Offices of Paul Leodori, Cherry Hill, NJ, for Defendant The Northern Assurance Company.

OPINION AND ORDER MUKASEY, D.J.

[*1] Long Island Lighting Company ("LILCO") sues for a declaratory judgment that defendants are obligated to pay certain costs under liability insurance policies they issued to plaintiff. Several of the insurance policies in dispute were issued by defendant Certain Underwriters of Lloyd’s, London ("Lloyd’s"). In a letter dated April 8, 1997, counsel for Lloyd’s cited two recent cases in this District which held that the courts lacked subject matter jurisdiction to hear claims involving Lloyd’s due to incomplete diversity of citizenship between adverse parties. See Humm v. Lombard World Trade, Inc., 916 F.Supp. 291 (S.D.N.Y.1996); Chase Manhattan Bank, N.A. v. Aldridge, 906 F.Supp. 870 (S.D.N.Y.1995). On May 13, 1997, I ordered plaintiff to submit a memorandum setting forth the basis for federal jurisdiction over its claims against Lloyd’s. For the reasons stated below, further discovery must be conducted before it can be determined conclusively whether jurisdiction exists to hear these claims.

I.

To assess plaintiff’s subject matter jurisdiction arguments, it is necessary to understand the nature of insurance policies underwritten through Lloyd’s, London. Lloyd’s is not an insurance company, but instead functions as a marketplace where investors buy and sell insurance risks. (Pl. Mem. at 4; Jackson Aff. ¶ 5) These investors—also known as “Names"—invest funds and pledge their assets as security for insurance risks offered in the Lloyd’s market. (Pl. Mem. at 4; Jackson Aff. ¶ 5)

Names do not actively participate in the business of underwriting risks, but instead appoint a managing agent to represent them. (Pl. Mem. at 4; Jackson Aff. ¶ 5) In turn, the managing agent employs an active underwriter to underwrite risks for the Names. (Pl. Mem. at 4-5; Jackson Aff. ¶ 6) Each Name is severally, but not jointly, liable to the insured for his fraction of the risk on a given policy. (Pl. Mem. at 5)

When a policy expires, the managing agent is responsible for estimating the amount, if any, that the insured is entitled to receive under the policy. (Jackson Aff. ¶ 11) This process of “closing” an account requires the managing agent to consider not only the insured’s reported claims but also any losses that have been incurred but have not yet been reported as claims. (Id. ¶ 12) A managing agent may decide to spread the Names’ risk of making additional payments on a closed policy by reinsuring the policy with other Names doing business within Lloyd’s in the amount of the estimated additional payments. (Id.) Once a policy has been “reinsured to close” in this way, the Names who issued the policy remain liable on the account, but the reinsurance coverage functions as a source from which the Names may seek indemnity in the event additional payments are required on the closed policy. (Id.)

In recent years, some Lloyd’s managing agents were unable to set reasonable premiums for “reinsurance to close” on certain policies because these policies presented the risk of long-term, unanticipated, or unprecedented liabilities. (Id. ¶ 13) As a result, managing agents could not “close” many large liability insurance policies, prompting widespread concern over the continued viability of the Lloyd’s system of risk spreading. (Id. ¶¶ 13-14) In September 1996, in response to these and other concerns, Lloyd’s initiated a program of “Reconstruction & Renewal.” (Id. ¶ 14) One aspect of this plan was the formation of Equitas, a British corporation created to provide “reinsurance to close” for policies with outstanding liabilities for years prior to 1993. (Id.) Many pre-1993 policies were “reinsured to close” by Equitas in September 1996, including at least one of the insurance policies at issue in this case. (Id.)

II.

[*2] District courts have jurisdiction to hear civil actions between citizens of different states, or between citizens of a state and citizens or subjects of a foreign state, where the matter in controversy exceeds $50,000. [FN1] See 28 U.S.C. § 1332(a)(1), (2) (1994) (amended 1996). To serve as a basis of federal jurisdiction, diversity of citizenship must be complete. Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267, 2 L.Ed. 435 (1806).

FN1. The amount in controversy requirement applicable to diversity cases brought after January 19, 1997 is $75,000. See 28 U.S.C. § 1332(a) (1994 & West Supp.1997). This action was commenced on December 26, 1996.

Furthermore, “citizens upon whose diversity a plaintiff grounds jurisdiction must be real and substantial parties to the controversy. Thus, a federal court must disregard nominal or formal parties and rest jurisdiction only upon the citizenship of real parties to the controversy.” Navarro Sav. Ass’n v. Lee, 446 U.S. 458, 460-61, 100 S.Ct. 1779, 64 L.Ed.2d 425 (1980) (internal quotations and citations omitted). Diversity jurisdiction is determined by the citizenship of the parties at the time the action is commenced. See Maryland Cas. Co. v. W.R. Grace and Co., 23 F.3d 617, 622 (2d Cir.), cert. denied, 513 U.S. 1052, 115 S.Ct. 655, 130 L.Ed.2d 559 (1994). Finally, as the party asserting subject matter jurisdiction, plaintiff bears the eventual burden of proving that its claims against Lloyd’s are properly in federal court. See McNutt v. General Motors Acceptance Corp., 298 U.S. 178, 189, 56 S.Ct. 780, 80 L.Ed. 1135 (1936); Lupo v. Human Affairs Int’l, Inc., 28 F.3d 269, 273 (2d Cir.1994).

Plaintiff alleges subject matter jurisdiction over the claims against Lloyd’s based on diversity of citizenship. (Compl. ¶ 2; Pl. Mem. at 8-10) Plaintiff alleges that LILCO is a New York corporation with its principal place of business in Hicksville, New York. (Compl.¶ 4) Plaintiff alleges further that no defendant is a citizen of New York, or has its principal place of business in New York. (Compl.¶¶ 5-13, 15-18) Finally, plaintiff alleges that defendant Lloyd’s should be treated as a citizen of the United Kingdom because Equitas—a reinsurer of some pre-1993 insurance policies issued through Lloyd’s—is a British corporation. (Pl. Mem. at 8-10)

However, two recent Southern District decisions, as well as several cases from other courts, have held that in determining the citizenship of Lloyd’s, the district court must look to the citizenship of the Names because they are the “real parties to the controversy” in litigation relating to insurance policies issued through Lloyd’s. See Humm, 916 F.Supp. at 297; Aldridge, 906 F.Supp. at 872; see also TransAmerica Corp. v. Reliance Ins. Co., 884 F.Supp. 133 (D.Del.1995); Lowsley-Williams v. North River Ins. Co., 884 F.Supp. 166 (D.N.J.1995); Bath Iron Works Corp. v. Certain Members Cos. of the Inst. of London Underwriters, 870 F.Supp. 3 (D.Me.1994); International Ins. Co. v. Certain Underwriters at Lloyd’s London, No. 88 Civ. 9838, 1991 WL 693319 (N.D.Ill. Sept.16, 1991); Queen Victoria Corp. v. Insurance Specialists of Hawaii, Inc., 711 F.Supp. 553 (D.Haw.1989). By the logic of these cases, jurisdiction over Lloyd’s can exist only if there is complete diversity between the plaintiff and each of the Names who is severally liable for losses under the relevant insurance policies. See Humm, 916 F.Supp. at 298; Aldridge, 906 F.Supp. at 873.

[*3] Plaintiff argues that here, unlike in Humm or Aldridge, Equitas, by virtue of having “reinsured to close” several pre-1993 liability insurance policies, now qualifies as the “real party in controversy” for each of the Lloyd’s insurance policies at issue and that the Names are merely nominal parties. (Pl. Mem. at 3) Plaintiff claims also that as a result of this reinsurance, Equitas—not the Names—bears the burden of making payment on these policies. (Pl. Mem. at 9)

Plaintiff’s attempt to distinguish Humm and Aldridge on the basis of Equitas’ reinsurance of these policies fails for at least two reasons. First, despite the reinsurance, the Names remain the “real parties to the controversy” under the standard announced in Navarro. It is the Names—and not Equitas—who are severally liable to the insured on the insurance policies at issue here even if Equitas “reinsured” these policies “to close.” This conclusion is supported by the affidavit of Michael Derrick Jackson, a plaintiff witness, who states that after a policy has been “reinsured to close,” the Names who subscribed to the closed policy “remain liable for their own obligations” even though “the reinsurance coverage provided by the reinsuring Syndicate is an asset from which [the Names] may obtain indemnity.” (Jackson Aff. ¶ 11) The alleged relationship between Equitas and the Names is one of reinsurance and indemnity, which does not change the Names’ liability on the policies at issue.

Second, the reinsurance agreement between Equitas and the Names states explicitly that it does not “create any obligation toward, or confer any rights upon, Insurance creditors [policyholders]” nor does it “create any third-party beneficiary status in, or confer third-party beneficiary rights upon, Insurance creditors.” (Schulz Aff., Ex. E (Equitas Reinsurance and Run-Off Contract ¶ 3.7) It provides also that the contract was not intended to “impair or supersede the contractual rights and obligations of the Names in respect of their policyholders ...” (Id. Equitas Reinsurance and Run-Off Contract, Preamble ¶ J) These provisions are in accord with New York law which provides that absent a contractual provision to the contrary, an insured has no direct right of action against a reinsurer, nor is the insured considered a third-party beneficiary of the reinsurance agreement. See Unigard Security Ins. Co. v. North River Ins. Co., 79 N.Y.2d 576, 582, 584 N.Y.S.2d 290, 293, 594 N.E.2d 571 (1992); Matter of Liquidation of Union Indem. Ins. Co. of N.Y., 200 A.D.2d 99, 107, 611 N.Y.S.2d 506, 511 (1st Dept.1994), aff’d, 89 N.Y.2d 94, 651 N.Y.S.2d 383, 674 N.E.2d 313 (1996). Accordingly, plaintiff fails to establish that Equitas is the “real party to the controversy” to the exclusion of the Names.

Rejection of plaintiff’s arguments concerning Equitas does not decide whether diversity jurisdiction exists to hear plaintiff’s claims against Lloyd’s. That issue will turn on the citizenship and domicile—as of December 26, 1996, the date on which this action was commenced—of each Name who subscribed to a Lloyd’s insurance policy in dispute here. It will depend also on the percentage share of liability of each Name, to assure that the statutory amount in controversy requirement is met as well.

[*4] Defendant submits evidence that two of the Names—N.M. Salgo and the Hon. S.A.F.S. Plunkett—who subscribed to one of the Lloyd’s policies at issue, are New York residents. (Schulz Aff. ¶¶ 4-6; Exs. A-D) In response, plaintiff attacks the sufficiency of this evidence. (Pl. Mem. at 10-12) Although plaintiff is correct that defendant’s evidence does not establish conclusively that either Salgo or Plunkett was a New York domiciliary when this action was commenced, it does raise an issue of fact as to the diversity of the parties at least with respect to plaintiff’s claims based on policy number CX2901.

However, dealing comprehensively with the issue of diversity is preferable to addressing the diversity of the parties piecemeal. Therefore, the parties will conduct further discovery to determine the citizenship and domicile of each Name who subscribed to a Lloyd’s policy at issue in this case, as well as his percentage share of liability on each of these policies. As soon as this discovery is completed, I will determine whether subject matter jurisdiction exists to hear plaintiff’s claims against Lloyd’s. The timing of such discovery will be established at a conference to be held among counsel and the court. Counsel are urged to consult about a schedule for that discovery before the conference is held.

SO ORDERED: