On August 1, 2016, in Cotton v. Certain Underwriters at Lloyd's of London, the US Court of Appeals for the Fifth Circuit held that the court had subject matter jurisdiction over the plaintiffs' motion to amend the pleadings, even though the plaintiffs' original claims giving rise to jurisdiction were settled or dismissed (No. 15-31005 (5th Cir. Aug. 1, 2016)).

The plaintiffs owned several rental properties in Louisiana that were damaged or destroyed by Hurricane Isaac in 2012. The plaintiffs purchased a windstorm policy from Scottsdale Insurance Company (Scottsdale), but failed to purchase a flood policy. As a result, their mortgage lender, First American Bank and Trust (First American), obtained a "force-placed" flood policy from the Certain Underwriters at Lloyd's of London (Underwriters). The plaintiffs and First American proceeded to file their respective claims under their respective policies.

In 2013, the plaintiffs filed a lawsuit against Scottsdale for additional payment for their wind-related damage. The plaintiffs then added Underwriters as a defendant and alleged they were entitled to additional payment for flood damage. Underwriters filed a motion to dismiss for lack of standing because the plaintiffs were not parties to the flood policy. In response, the plaintiffs sought leave to amend the complaint to add First American as a plaintiff because it was a party to the flood policy. The district court granted leave to amend.

Ultimately, the plaintiffs settled their claims with Scottsdale, and the district court dismissed their claims against Underwriters because they did not have standing to enforce a policy to which they were not a party. This left First American's breach of contract claim against Underwriters. Underwriters moved to dismiss that claim, arguing that the district court lacked subject matter jurisdiction when it entertained the plaintiffs' motion to file an amended complaint because the plaintiffs did not have standing to sue under the flood policy.

The district court rejected this argument, finding that because the plaintiffs had standing to file their original complaint against Scottsdale, the court also had jurisdiction when it allowed the plaintiffs' amendment to add an additional party.

The case went to trial and the jury returned a verdict in favor of First American, awarding additional amounts for each property. Underwriters moved for judgment as a matter of law but the district court denied the motion. Underwriters appealed, challenging subject matter jurisdiction again.

The Fifth Circuit agreed with the district court. It first looked at whether the plaintiffs had Article III standing, which is required for subject matter jurisdiction. The court found that the plaintiffs met this constitutional requirement because a ruling against Underwriters would at least indirectly compensate the plaintiffs as owners of properties that Underwriters insured. Noting that standing to sue on a contract differs from Article III standing, the court held that the fact that the plaintiffs were not named parties in the policy was not a defect to Article III standing. The court also distinguished the case from other cases where jurisdiction was lacking from the inception. Here, the court had jurisdiction over the plaintiffs' initial claim against Scottsdale and continued to have jurisdiction when the amendment was sought.