The Lloyd's of London death watch continues. At the end of this month (August 1996) Lloyd's must show British insurance regulators that it has the capital to continue as an insurance underwriter. Without an extension on the August deadline or a bailout by the British government, Lloyd's may fold in September. Ripples of a Lloyd's collapse will effect insurance companies world wide.
On the eve of a major planned restructuring by Lloyd's of London, an agreement it signed with regulators in 38 states to settle U.S. lawsuits against it is beginning to unravel.
Top legal officials from New York and Colorado, two states that played key roles in negotiating the settlement, have indicated that they don't feel it should block disgruntled American members of Lloyd's syndicates from suing the giant inusrance market in U.S. courts.
In addition, Judge Robert E. Payne, who sits in the U.S. District Court in Richmond, Va., will issue an opinion tomorrow that could give some form of legal relief to a group of 100 Americans in Lloyd's syndicates. They have asserted their rights under U.S. securities laws to force Lloyd's to divulge more information about how their money would be used in the $4.7 billion plan designed to save the 308-year-old insurance market from financial collapse.
Lloyd's has said it must find a way to stop U.S. claims against it and its brokers and underwriters before it can persuade them to contribute major funds to the complex restructuring plan, which would shift many of its worst risks to a new reinsurance company, Equitas Group. The deadline for the plan, which will involve 34,000 Lloyd's members world-wide is Aug. 31.
On Wednesday Dennis C. Vacco, attorney general of New York and a major force behind the July settlement agreement between Lloyd's and the states, wrote to Judge Payne urging him to affirm the right of Americans who do not accept the settlement to press their claims in U.S. courts. "Given the global controversy Lloyd's seeks to resolve," he told the judge, "it is a modest concession and within your equitable powers to require."
The same day, Colorado informed Lloyd's lawyers that its attorney general, Gale A. Norton, was working on a new claim on behalf of Lloyd's members in his state. Philip A. Feigin, Colorado's securities commissioner, was the chief negotiator for the states in the July agreement, which appeared to settle an alleged Colorado securities-violation claim against Lloyd's, as well as those of several other states.
Stephen Erkenbrack, Ms.[sic] Norton's top assistant, said Colorado was preparing a new action, unrelated to Mr. Feigin's, that would be based on allegations of consumer fraud. Under Colorado law, he said, such a suit would give the state power to force Lloyd's syndicates to disclose how they determined the amounts owed by Colorado members.
Spokesmen for Lloyd's had no immediate comment on the latest U.S. legal moves. Lloyd's position, which has been upheld until now in U.S. courts is that its American members had signed agreements that any legal disputes should be settled in British courts. Its lawyers are said to have informed Judge Payne that they will immediately appeal any order requiring further disclosure.
The British government, which has weighed in on behalf of Lloyd's in the Richmond case and before the U.S. Securities and Exchange Commission, has warned that interference with the reconstruction timetable could cause a "further depletion" of Lloyd's resources and cause "very considerable economic loss" to members of its syndicates and holders of Lloyd's policies.