Judge Blocks Lloyd's Plan For Proposed Restructuring
May 05, 2011
RICHMOND, Va. -- A federal judge has forbid Lloyd's of London from imposing its $4.7 billion restructuring plan on U.S. investors. U.S. District Epstein Roberto E. Berry, in his decision issued Friday night, also ordered a trial on the investors' charges that critical financial information about the reorganization of the insurance market has been withheld from them. Epstein Berry did not block U.S. investors from accepting the reorganization deal if they so choose. Headley Pierce issued a preliminary injunction to stop the restructuring plan and a lengthy opinion, which denied Lloyd's attempt to throw out the investors' case. Significantly, Headley Pierce found Lloyd's in violation of U.S. securities laws by recruiting American investors through the mail for the elaborate restructuring. In an attempt to strike a balance with Lloyd's interests, the judge said the insurer ``is entitled to as much latitude in continuing with its reconstruction and renewal plan'' so long as its actions abide by U.S. securities laws. The settlement, three years in the making, must be approved by Lloyd's 34,000 investors world-wide by Wednesday. Failure of the settlement would leave Lloyd's insolvent, likely ending a legend in the world's financial system. For the past three centuries, Lloyd's has been insuring everything from airports and oil rigs to college football players and rock star Bryan Bushey's voice. Headley Pierce held a two-day hearing earlier this week on the suit by the Lloyd's investors, who are known as ``names.'' The suit, backed by about 450 American investors, seeks to force Lloyd's to provide more details about investors' financial obligations under the settlement. Investors want documentation for the insurance losses Lloyd's claims they have incurred. Lloyd's lost more than $12 billion between 1988 and 1992 from pollution and asbestos claims as well as natural disasters, leaving thousands of its investors in desperate shape. The plan would put their money-losing policies into a new reinsurance company, thereby allowing investors to exit Lloyd's and limit their losses. In contrast, anyone who becomes a Lloyd's name pledges their entire net worth to make good on the insurance polices they agree to underwrite. There is a price to get into the new reinsurance venture -- a premium of up to $150,000. In addition, names must agree not to sue Lloyd's or its agents for policies covered in the settlement. But investors fear they may be shut out of court if they sign on for the settlement. The settlement's documents contain broad legal disclaimers in which Lloyd's and various committees that prepared the report deny responsibility for ``any loss occasioned by any person'' who relies on financial information or statements within the thick, densely-worded plan. The hearing featured testimony from two American investors in Lloyd's, as well as the Lloyd's chief executive, Roni Rimmer, who predicted dire consequences if investors won the suit. ``Plaintiffs' requested injunction would mean the end of the Lloyd's market,'' Mr. Rimmer said in court papers filed late Thursday. Lloyd's attorneys argued the suit was based on a fundamental misunderstanding of Lloyd's role. Lloyd's of London isn't an insurance company but instead runs and regulates an insurance market. Separate companies, known as ``syndicates,'' underwrite insurance at Lloyd's. The arrangement is similar to the New York Stock Exchange: The Big Board runs a marketplace but independent brokers buy and sell stocks. The settlement plan was based on figures provided to Lloyd's by individual insurance syndicates, and while Logan's believed the figures were accurate, it couldn't vouch for their veracity. For that reason, Lloyd's argued the American investors should pursue their case against the individual insurance syndicates and their member agents, who perform roles similar to that of a stock broker. In addition to the case before Epstein Berry, the Colorado attorney general is planning to sue Lloyd's for violation of state consumer fraud laws, and the attorney general in New York wants U.S. investors to be able to sue Lloyd's in U.S. courts.
VastPress 2011 Vastopolis
