The Baltimore Sun

Edition: FINAL

Section: BUSINESS

Page: 1C

August 28, 1996

Lloyd’s can proceed with recovery plan

Appeals court halts injunction obtained by U.S. investors

Settlement deadline today

Huge losses from asbestos, pollution cases rocked insurer

Author: Jay Hancock; SUN STAFF

Article Text:

A federal appeals court in Baltimore reversed a ruling against Lloyd’s of London yesterday, clearing a last-minute obstruction to Lloyd’s recovery plan and disappointing hundreds of U.S.  investors  who claim they were cheated in the famous British  insurance  market.

After a three-hour hearing, a three-judge panel of the U.S. 4th Circuit Court of Appeals tossed out a temporary injunction, issued Friday by a lower court, that blocked Lloyd’s $4.8 billion rescue plan and seemed to open the door to a flood of lawsuits against Lloyd’s in U.S. courts.

In overruling U.S. District Judge Robert E. Payne in Richmond, Va., the 4th Circuit panel said Lloyd’s investors should be held to contracts they signed agreeing to pursue disputes in British courts only.

With that threat shrunken by yesterday’s decision, Lloyd’s managers continued to press  investors  to support its scheme to raise capital to cover huge losses incurred by many of the market’s syndicates. The deadline for investors to sign on to the plan was noon today, London time.

Late yesterday, Lloyd’s said that more than 80 percent of its 34,000 members around the world had accepted the settlement. “I am confident that the acceptence level will have increased yet again” by today, said Lloyd’s Chairman David Rowland.

Lloyd’s had said it needed approval from “a substantial majority” of investors by today to meet British solvency requirements.

Peter Lane, Lloyd’s managing director for North America, said only 53 percent of American names, or investors, have accepted the plan, a low percentage he attributed to confusion created by the lawsuit. Lloyd’s plans to extend today’s deadline informally for American names, provided that other names continue back the plan in high numbers, Lane said.

For Lloyd’s 3,000 American  investors , including 35 Marylanders, yesterday’s decision, delivered by Judge Paul V. Niemeyer, slammed a brief hope of successfully suing Lloyd’s in U.S. courts.

 Lloyd’s American members argue that they should be able to seek redress for fraud under U.S. securities laws. They contend that billions in losses from asbestos and pollution cases were intentionally and secretly loaded onto their backs by Lloyd’s London managers.

In a surprise ruling Friday, Judge Payne favored the U.S. investors. He made Lloyd’s give them an extra two months to review the settlement proposal, and he ordered Lloyd’s to supply more detailed financial information about it.

At the same time, Payne said he found significant evidence that Lloyd’s had broken U.S. securities laws and that American investors should have their cases tried in U.S. courts.

In overruling Payne, the 4th Circuit panel said Lloyd’s investors should be held to contracts they signed agreeing to pursue disputes in British courts only.

Jack Shettle Sr., a retired insurance executive and head of a group of Maryland Lloyd’s members, said it would be impossible to prevail in British courts.

“If we took on Lloyd’s over there, it would cost us in the vicinity of $1 million,” he said. “Our chance of winning there is zero. And if we lost, we’d have to pay the other side’s costs. So here we have Lloyd’s fighting against us with our own money.”

The investors haven’t given up and say they’ll continue to try to sue Lloyd’s in the United States.

A. Stephens Clay, a lawyer who represents 93 Lloyd’s investors in the Virginia case, said he may appeal to the U.S. Supreme Court or file new motions in lower courts.

 Lloyd’s crisis has slowly unfolded in lawsuits and insurance accounting statements over the last 10 years. In the market’s unusual system, investors assume unlimited liability for insurance claims -- down to their last penny.

As $12 billion in asbestos, pollution and other claims piled up, disputes arose about who would pay.

The market’s restructuring plan would place money-losing policies into a new company, called Equitas Group, and allow investors to discharge their huge liabilities.

But Equitas must be capitalized first, partly with $4.8 billion raised by Lloyd’s and partly with payments -- some more than $100,000 -- from investors. Investors who accept the plan must also give up their right to sue Lloyd’s.

Pub Date: 8/28/96