The Wall Street Journal

December 27, 2007

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A Legal Battle
Against Lloyd's
Gives Rare View

Long Odyssey Thrusts
U.K. Insurance Member
Into Unfamiliar Terrain
By ANITA RAGHAVAN
December 27, 2007; Page C1

Two summers ago, as police officers stood guard, Richard Tropp spent six days holed up in a tiny room at the House of Lords poring over thick tomes looking for documents he hoped would be his Rosetta Stone.

Since 2002, Mr. Tropp has been locked in a legal battle with Lloyd's Corp., which sued him, claiming he owed the entity that supervises the 319-year-old Lloyd's of London insurance underwriting market money on policy claims. When Mr. Tropp -- who is a Name, or individual investor in a Lloyd's underwriting syndicate -- countersued, he says he was startled to see that courts in the United Kingdom in recent years had interpreted the Lloyd's Act of 1982 broadly, giving Lloyd's "unique" immunity from suits filed by its members.

WHAT'S IN A 'NAME'?
 
The Situation: An American investor in a Lloyd's of London underwriting syndicate is going to exhaustive lengths in a legal battle with Lloyd's Corp.
Definition: The investor, Richard Tropp, is a "Name," as an individual investor in a Lloyd's syndicate is known.
What's Next: A New York federal judge is expected to rule on whether Lloyd's can enforce a U.K. judgment against Mr. Tropp.

In the archives room, Mr. Tropp learned this interpretation wasn't what the framers intended for the act, which was designed to modernize the insurance marketplace's corporate governance.

Reading 25-year-old legislative debates, he found that lawmakers had intended for the immunity to be narrowly defined, applying to Lloyd's only in its public capacity as a regulator of its insurance market -- and not in its private capacity as a commercial entity.

Mr. Tropp's fight opens a window on the way U.K. courts have treated claims against Lloyd's and could offer a guidepost to today's players in the Lloyd's market. Many of the individuals that used to underwrite insurance for Lloyd's have been replaced by insurers, other corporations and institutional investors, including U.S. endowments and pension funds.

This year, Mr. Tropp, an American, sued Lloyd's in a New York federal court, seeking to prevent enforcement of a U.K. judgment against him by alleging that the U.K. courts "prevented" not only him "but also thousands of other members of Lloyd's, known as 'Names' from litigating the merits of claims asserted by Lloyd's."

[Richard Tropp]

Lloyd's of London is a marketplace made up of independent underwriting businesses known as syndicates. In the mid-1990s, faced with losses on some of its underwriting syndicates, Lloyd's created a reinsurance company that would take over these money-losing claims. It sued countless Names that balked at paying the losses and reinsurance premiums.

Lloyd's Responds

Lloyd's says that when Mr. Tropp became a member of Lloyd's, he agreed that the "courts of England shall have exclusive jurisdiction to settle any dispute." Lloyd's General Counsel Sean McGovern says: "We feel the claims have been comprehensively dealt with in the U.K."

A New York federal court judge appeared to be leaning toward ruling in Lloyd's favor at a hearing in early December. "I appreciate Mr. Tropp finds himself in a situation he never imagined himself to be in," U.S. District Judge Naomi Buchwald said at the hearing. However, Judge Buchwald said that even though Mr. Tropp didn't prevail in the U.K. courts, his rights to due process weren't violated because he was given a lot of "consideration" from the English courts. Judge Buchwald has yet to issue a ruling.

Lloyd's Usually Wins

Over the years, hundreds of suits against Lloyd's -- most of which, like Mr. Tropp's, stem from claims relating to losses from underwriting syndicates that are more than a decade old -- have been unsuccessful in the U.K. courts.

Lloyd's still is trying to collect more than $50 million from roughly 60 U.S. Names. Lloyd's also is trying to collect from about 40 U.K. Names, bringing the total amount it is seeking to recover from U.S. and U.K. Names to about $100 million.

The bespectacled Mr. Tropp, 59 years old, doesn't look the part of a well-heeled Lloyd's Name. A bit rumpled with bags under his eyes, Mr. Tropp has held a series of government policy jobs. I "was far from the stereotype Lloyd's 'high net worth' Member," he says in a legal filing. "My savings were from over 14 years on a public servant's salary."

Mr. Tropp's odyssey has thrust him into unfamiliar terrain. Unlike in the U.S., where courts are required to consider legislative history in an effort to interpret Congress's true intent, in the U.K, there is less precedent for this approach.

When a statute is ambiguous in the U.K, the courts are permitted to look at legislative intent. However, in considering such "intent," the court can take into account only the statements made in Parliament by Ministers or other promoters of a bill.

Seeking Six People

In the case of the Lloyd's Act, Mr. Tropp believed the opinion of six people were key. They included the chairmen of the committee that recommended the bill, the sponsors of the bill and government representatives supporting the bill in each House.

"I wanted to find each of the six guys and ask them what they intended," Mr. Tropp says.

Quickly, his search narrowed. Four of the six were dead or couldn't be traced.

One surviving lawmaker was Michael Meacher, a Labour Party member of Parliament who was chairman of the House of Commons committee that considered the Lloyd's bill, which was enacted in 1982. In a statement he provided Mr. Tropp for the appeal, he said it was the intent of the committee and the full House that Lloyd's exemption from liability in the Act apply only to Lloyd's when it was acting in its "public functions" as a regulator.

None of the members of the committee "would have taken the view that the immunity should be stretched as far as this," Mr. Meacher said in an interview recently. "I find this very worrying and I think the law should be revisited."

'Limited' Immunity?

Mr. McGovern of Lloyd's says the immunity that protects Lloyd's from claims is "limited" but helps reduce the risk that important decisions taken for the benefit of policyholders and the Lloyd's market are "not impeded by litigation or the threat of it."

Mr. Tropp also tracked down another lawmaker, Lord Mackay of Clashfern, at his castle in Scotland. He says Lord Mackay told him he believed the immunity clause would apply to Lloyd's in its public role as a regulator. Lord Mackay, in an email, confirms that he told Mr. Tropp that immunity was given to Lloyd's in its capacity as the regulator of the Lloyd's insurance market.

The Lloyd's Act gave Lloyd's "an immunity from suit from Names greater than that enjoyed by the Crown or any other organization in Europe," wrote Lord Mackay in a June 2006 letter to the Chancellor of the Exchequer. "Nevertheless, I and Parliament believed that Names would still be able to get judicial review."

Write to Anita Raghavan at anita.raghavan@wsj.com1

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