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13 March 2005

Ian Hay Davison, the former chief executive of Lloyd's of London, has sworn an affidavit in support of an action for misfeasance in public office being brought by dissident investors against the insurance market.

The case is being challenged by Lloyd's, which is hoping to have it thrown out before it comes to trial. The market successfully argued that the Lloyd's investors - known as Names - could not claim that it had fraudulently misrepresented its financial position in the 1980s, when Names racked up billions of pounds of losses.

It now argues that the claim that it negligently misrepresented the position is also wrong, and the whole case should be thrown out. Mr Justice Andrew Smith will hear pleadings from both sides this week and is expected to rule next month on whether the trial can go ahead.

The United Names Organisation, which is bringing the case, has persuaded Mr Hay Davison, who was chief executive of Lloyd's from 1983 to 1986, to support its case with a hard- hitting affidavit.

The statement is understood to paint an alarming picture of the lack of financial controls in the insurance market.

Mr Hay Davison is believed to argue that the Committee of Lloyd's, which acted as the board of directors before Lloyd's was reformed in the 1990s, did not understand the serious problems that existed in the so-called audit of the market's accounts.

This had been highlighted in a letter from one of the auditors in 1982, which said that many of the accounts of Lloyd's syndicates were simply wrong. This, Mr Hay Davison's affidavit is understood to argue, meant that the global accounts sent by Lloyd's to the Department of Trade and Industry had to be inaccurate.

Lloyd's Names argue that they were misled about the financial position of the market when they invested in it.

The action for misfeasance - performing a legal action in an improper way - is one of a series of legal fights against Lloyd's which are coming to a head. At least two cases in Europe aim to overturn the immunity from legal action from Names given to the market in the Lloyd's of London Act 1982.