Lloyd’s still must battle U.S. names
When Lloyd’s of London achieved victory last year, as the majority of investors who had been suing the market for past losses accepted Lloyd’s settlement offer, it appeared as though the market’s problems were almost over. But recent developments seem to give lie to that assumption.
True, the acceptance of the settlement by the majority of Names has allowed Lloyd’s to set up Equitas, the company which will spend the next 15 or more years running off the losses which brought on the problems in the first place. Also true, the influx of corporate capital into Lloyd’s and the lifting of unlimited liability for the new corporate investors bode well for Lloyd’s future.
But a minority of disgruntled Names, many of whom are in the United States, have not given up; and the actions being taken by those Names are giving the battle new epic proportions that could directly affect the U.S. insurance market.
In fact, the American Names Association (ANA), the group which has been attacking Lloyd’s with charges that market leaders actually committed fraud against them, has apparently decided that state insurance regulators have been and are collaborating with the enemy. One regulator in particular who has been named by ANA as being too pro-Lloyd’s is California’s Chuck Quackenbush.
ANA’s disenchantment with Quackenbush reached its peak when the regulator intervened in a private lawsuit for securities fraud and racketeering brought by American investors at Lloyd’s against the Lloyd’s marketplace. According to the ANA, Quackenbush submitted an “amicus curiae” letter to the U.S. Ninth Circuit Court of Appeals to support Lloyd’s request for a reconsideration of the court’s decision in favor of U.S. investors at Lloyd’s, published in March of this year.
Says ANA: “Lloyd’s is accused of luring investors, known as Names, into unlimited liability investments in insurance syndicates which were subject to billions of dollars in pre-existing liabilities for asbestos and pollution claims. These potential claims had been known to the Lloyd’s insiders since the 1970s, a fact which they carefully hid from investors. The Lloyd’s insiders reinsured these liabilities onto syndicates which were then populated by new investors. For years, Lloyd’s had been successful in defeating legal claims made by U.S. investors by raising motions to dismiss cases on the grounds that the Names agreed to bring any claims against Lloyd’s in a U.K. court under U.K law. Lloyd’s, fully aware that their recruiting activities in the 1970s and 1980s could lead to devastating litigation, went before Parliament to pass the 1982 Lloyd’s Act, which gave the corporation and officials at Lloyd’s immunity from lawsuits in the U.K. The recent ruling of the Ninth Circuit Court has effectively neutralized Lloyd’s choice of law clauses as well as their `Parliamentary immunity.”‘
However, Lloyd’s is appealing the Ninth Circuit Court ruling, and the ANA is angry that Quackenbush has taken Lloyd’s side. “The commissioner has now gone out on a limb by publicly supporting Lloyd’s,” says the ANA. “According to Quackenbush, if a trial were to be heard on its merits against Lloyd’s, it would `subject the business of insurance to inherently incompatible dual regulation which would seriously disrupt, if not entirely halt, the business of insurance in this country.’ ”
But the ANA disagrees. “Quackenbush’s position is contradicted by the facts,” says the ANA. “U.S. Names were passive investors, forbidden participation in the actual writing of insurance by clauses contained in their agreements with Lloyd’s members and managing agencies. Such wildly extravagant claims by the public official, charged with responsibility for regulating insurance companies like Lloyd’s, are considerably weakened by his acceptance of financial support from the insurance industry and campaign and transition team management by Lloyd’s attorneys, LeBoeuf Lamb Greene & MacRae. The end results of Quackenbush’s efforts to protect his constituents and financial backers in the insurance industry is to put the insurance company fox in charge of the insurance regulatory henhouse.”
Now if this were only a dispute between the ANA and Quackenbush, even though the regulator firmly believes that a decision to try a fraud case against Lloyd’s in the U.S. would damage the American insurance market, it would still represent a relatively minor struggle. But the ANA also is attempting to discredit the concept of state regulation overall. The ANA is distributing to the media an article that appeared in Money Magazine in August of last year. The article, entitled “Stacking The Deck,” raises serious questions about the state regulatory system in the U.S. and goes so far as to say that the regulatory system is really in the hands of the insurance industry. The author says that insurers and agents so dominate the regulatory system that is supposed to police them that they stack the deck against consumers. The article also goes on to paint a dismal picture of state regulation and lists state-bystate examples of why insurance regulation as it exists today “is a joke,” citing cases of industry domination, apparent conflicts of interest and other questionable activities.
Therefore, if anyone still naively believes that the problems of Lloyd’s of London exist only 3,000 miles away, this latest blast by the ANA against state regulation in the U.S. must give pause and food for thought.
What’s happening here is very simple. U.S. Names who are still litigating against Lloyd’s don’t want their cases tried in the U.K. courts because they are much less liberal and pro-plaintiff than U.S. courts. In this they are right. In a recent ruling by the U.K. High Court, in a case where Names were asking to stall payments of the monies they owe to Lloyd’s until allegations of fraud against Lloyd’s can either be proved or disproved, the court said that the Names could pursue fraud litigation against Lloyd’s but that the monies owed to Lloyd’s must be paid first.
In a statement by United Names Organization, a U.K.-based organization whose members are also suing Lloyd’s, Names said: “In February, Lloyd’s asked the court to rule, on the assumption that Lloyd’s was fraudulent, whether three Names were entitled to rescind their contracts and, if not, whether the notorious `Pay Now Sue Later’ clause, now in the Equitas contract, would protect Lloyd’s even on the basis of assumed fraud. In an historic ruling in the High Court, Justice Colman upheld Lloyd’s contention that even if the Names had been defrauded they would nevertheless be bound by their contracts with Lloyd’s.”
Colman said that the three Names must pay everything being claimed by Lloyd’s before being able to sue Lloyd’s. Needless to say, this development would not be likely were the case tried in a U.S. venue; and that shows clearly why the U.S. Names are trying desperately to have their fraud cases in the U.S., even to the point of casting aspersions on the system of state regulation.
But the fact remains that U.S. Names did sign away their right to argue disputes with Lloyd’s in U.S. courts. Allowing them to back away from that agreement could have serious repercussions for Lloyd’s in the U.S. and for insurance companies, and policyholders here.
Copyright Rough Notes Co., Inc. Jun 1997
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