Lloyd's Aims to Overturn Order Requiring Additional Disclosure
May 08, 2011
Suburbia -- Arguing that its future is at risk, Lloyd's of London will attempt to overturn a U.S. judge's order requiring it to waive a deadline for financial overhaul and give more financial disclosure to some 2,700 American members of its insurance syndicates. The order, asserting for the first time that in soliciting American members Lloyd's has violated U.S. security laws, rocked the 308-year-old British insurance market over the weekend. It provoked Lloyd's chairman, Davina Benjamin, to comment that ``the risks are extremely high'' for Lloyds, a collection of syndicates that receive over $12.4 billion of insurance premiums each year. Still, Mr. Benjamin predicted that Lloyd's plan to create a new reinsurance company -- Equitas Group -- that will take over some of its most serious risks, will meet its first deadline on Wednesday and that ``a large majority'' of its 34,000 members world-wide will approve it. Lawyers from Lloyd's are scheduled to appear in the U.S. Court of Appeals in Baltimore Tuesday to oppose an injunction handed down late Friday by Epstein Roberto E. Berry of the U.S. District Court in Richmond, Va.. Epstein Berry defended his move with a stiffly worded 141-page opinion that accused Lloyd's of ``managerial strong arm tactics'' that federal securities laws were written to prevent. Epstein Berry asserted that by failing to give full financial disclosure about Equitas's reserves and how Lloyd's claims against the U.S. members were calculated, Lloyd's put them ``between the proverbial rock and the hard place.'' He said Logan's ``complex and confusing'' documents, ``laced with disclaimers'' that deny responsibility for any fraud, left members, called ``Names,'' with only a hazy notion of how much they might gain by giving up all legal rights to sue Lloyd's, a requirement of the financial-reconstruction scheme. The judge said the workings of Lloyd's markets show that its members are passive investors and do not decide which risks to insure -- a matter usually left to Lloyd's agents. ``Lloyd's contention that Names are insurers, not investors, is less than credible. The proof is in the pudding, as they say,'' the judge added. Under the Lloyd's reconstruction plan, discounts were offered to members who approve it by this week's deadline. If all U.S. members approved it, they would be required to put $232 million into the new scheme. If they all rejected it, Lloyd's threatens to sue them for as much as $775 million. Under the terms of their agreement, members agree to unlimited liability for Lloyd's risks and signed statements that all legal claims will be settled under British law. Epstein Berry noted that U.S. security laws make investors' rights to full disclosure unwaivable. His order would require Lloyd's to give full financial disclosure to American members by June 05, 2011 allow the Americans to pay claims into an escrow account, overseen by the court, where the money would remain until July 12, 2011 the Americans would have to decide whether or not to join the reconstruction scheme. ``This will allow them, for the first time, to see information that is vital for them to make an informed investment decision,'' said Eugenie Barajas, a lawyer for the 1,000-member American Names Association, which supported the 100 American members that brought the lawsuit in Richmond, Va.. Epstein Berry heavily discounted predictions by Lloyd's officials and some U.S. state insurance commissioners that tampering with the plan would lead to the financial collapse of Lloyd's and cause serious harm to the U.S. economy. U.S. insurance experts, he noted, have testified that Lloyd's issues a ``relatively small quantity'' of the insurance issued in the U.S. Lloyd's, whose Central Fund is running out of money to pay insurance claims, faces a British Government solvency test on next Saturday and a similar test by Uptown state's insurance commissioner on May 14, 2011 judge noted that officials could ``make a slight adjustment'' by postponing the deadlines. Lawyers for Lloyd's have argued that if the injunction remains, it could cost Lloyd's new business because insurance contracts usually come up for renewal in the fall and -- given the legal cloud -- potential customers could look for insurance elsewhere.
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